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MSP #16: INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS (ITINs)

The IRS’s Failure to Understand and Effectively Communicate With the ITIN Population Imposes Unnecessary Burden and Hinders Compliance

TAS Recommendations and IRS Responses

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1.

TAS RECOMMENDATION #16-1

In collaboration with TAS, conduct a comprehensive study of ITIN taxpayers that includes data such as geographical location, distance to a CAA, TAC, or VITA site, country of origin, language usage, paid preparer usage, and filing characteristics over multiple years.

IRS RESPONSE TO RECOMMENDATION: The PATH Act required that the IRS complete an ITIN study to include an evaluation of specific components. As a part of this study, we evaluated filing characteristics of ITIN tax returns, before and after enactment of the law, to ensure ITIN users have access to entities that can provide them with assistance to apply for and receive an ITIN. The study included geographical data on locations of ITIN taxpayers and distances to CAAs, TACs, or Volunteer Income Tax Assistance (VITA) sites that provide ITIN services. We will share the final report when it is available.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although TAS has not viewed the final report, the Most Serious Problem raises some data points that TAS believes the IRS may not be fully exploring in the ITIN study. For example, TAS reported data regarding the proportion of Hispanic individuals in a county, Volunteer Income Tax Assistance sites, and ITIN returns prepared by a paid preparer. Furthermore, the National Taxpayer Advocate recommends that the IRS include TAS as part of the team conducting the study so that it may benefit from insights about ITIN taxpayers drawn from TAS’s casework, systemic advocacy projects, and TAS’s administration of the low income taxpayer clinic program.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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2.

TAS RECOMMENDATION #16-2

Create a comprehensive outreach plan that includes materials to distribute to preparers; local community organizations; non-profit organizations; and local, state, and federal government agencies, with a particular focus on communities where there are high concentrations of ITIN filers.

IRS RESPONSE TO RECOMMENDATION: ​​As acknowledged in your report, the IRS launched public outreach campaigns, holding approximately 250 outreach events. The IRS continues to work closely with a variety of partner and outreach groups to share information about changes to the ITIN process and help raise awareness of the new guidelines in response to the PATH Act. We established a comprehensive communication strategy that includes efforts to engage internal and external stakeholders and solicit their support, educate taxpayers on the impact of the new legislation, and encourage practitioners and community-based entities to become CAAs. During FY 2016 and FY 2017 we conducted numerous outreach activities through a number of internal and external IRS channels to reach ITIN filers, particularly those with expired or expiring ITINs. We provided TAS a detailed list of outreach sessions we conducted in our response to their ITIN MSP Information Request (October 2017). Between July 2017 and September 2017 we also met with key stakeholders such as the Congressional Hispanic Caucus, the National Council of La Raza (now Unidos US), volunteer return preparation partners, the Department of State and other government organizations, national English and Spanish media outlets, and the Service’s outreach functions to educate them on the ITIN issues. We provided each group with the appropriate background material, as well as outreach products available in seven languages (English, Spanish, Chinese, Haitian Creole, Russian, Korean, and Vietnamese).

CORRECTIVE ACTION: N/A

TAS RESPONSE: The Most Serious Problem details how the IRS conducted numerous outreach events, but focused primarily on practitioners and neglected community-based organizations and non-profit stakeholders. Only 10 of the 250 events the IRS held during the time period were delivered to an English as a Second Language audience. TAS identified communities with a high number of ITIN taxpayers where outreach was disproportionately low. The National Taxpayer Advocate hopes the IRS will consider some of TAS’s findings from the Most Serious Problem to improve and fine-tune its outreach plan and tailor its approach to different groups including taxpayers, preparers, community organizations, and other stakeholders in communities with many ITIN filers.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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3.

TAS RECOMMENDATION #16-3

Use data regarding the geographic location of ITIN taxpayers to create a list of underserved communities in need of greater CAA, TAC, and VITA sites and apply resources to recruit and add more CAAs, VITA sites, and certifying TACs in these locations.

IRS RESPONSE TO RECOMMENDATION: ​​The IRS currently leverages existing relationships with partners that serve English as a Second Language and underserved communities. Many of these partners are community-based organizations that are most familiar with the needs of the residents and that participate in the VITA and Acceptance Agent Programs. Similarly, we continue to evaluate the expansion of the number of TACs that provide ITIN services and actively recruit CAAs at practitioner outreach events and forums. In 2017 we increased the number of TACs performing ITIN document verification from 110 to 310. Additionally, all TACs and Virtual Service Delivery sites will provide assistance with ITIN procedural questions.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although the National Taxpayer Advocate is pleased the IRS has increased the number of Taxpayer Assistance Centers offering ITIN services, the IRS should compile comprehensive data so it can incentivize other ITIN resources, such as Volunteer Income Tax Assistance (VITA) sites and Certifying Acceptance Agents (CAAs) in those locations. To the extent the IRS is already using this data to recruit new VITA sites and CAAs, this recommendation should be characterized as adopted.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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4.

TAS RECOMMENDATION #16-4

Use data regarding ITIN taxpayers who incorrectly claimed refundable credits via a paid preparer to provide targeted outreach to segments of the preparer community.

IRS RESPONSE TO RECOMMENDATION: The IRS compiles annual filing statistics for the Child Tax Credit (CTC) and the Additional Child Tax Credit (ACTC) that include an ITIN component with a breakdown by preparers. We use this data to guide us in our outreach and compliance activities. Other outreach includes Nationwide Tax Forum seminars, where the IRS provides technical information and information about meeting due diligence requirements for the CTC and ACTC to the preparer community. In addition, the IRS provides, in English and Spanish, general outreach and due diligence information for preparers and ITIN holders on the Earned Income Tax Credit (EITC), CTC, ACTC, and American Opportunity Tax Credit through the IRS webpage on EITC and other refundable credits (www.eitc.irs.gov).

CORRECTIVE ACTION: N/A

TAS RESPONSE: If the IRS already compiles annual statistics on refundable credit claims by paid preparers for ITIN taxpayers, and it uses this data to conduct outreach events, it is not clear why the IRS has characterized this recommendation as not adopted as written. The IRS response appears to fulfill the recommendation. However, the IRS has not provided evidence that the obtained data is used to guide outreach and compliance events besides the seminars offered only at five venues nationwide for the whole year. The IRS should consider interactive outreach events in affected communities, working directly with preparer organizations and through local continuing education events.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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5.

TAS RECOMMENDATION #16-5

Update its systems to provide that when a limited English proficiency indicator is placed on a taxpayer’s account, all IRS notices will be issued in the taxpayer’s.

IRS RESPONSE TO RECOMMENDATION: Similar to other IRS notice language patterns, ITIN notices are only issued in English and Spanish. The CP-48 notice is issued to advise taxpayers of the need to renew an ITIN. The language in which the notice is issued is based on the type of Form 1040, U.S. Individual Income Tax Return, the taxpayer filed. If the individual filed a Form 1040-PR, Self-Employment Tax Return – Puerto Rico, the ITIN notice will generate as a CP-748, the Spanish-language version of the notice. Once a taxpayer files a Form W-7, Application for IRS Individual Taxpayer Identification Number, whether an individual receives the English or Spanish version of the notice will be based on the type of Form W-7 submitted; if the applicant submits a Form W-7(SP), the ITIN renewal notice will generate in the Spanish version.

CORRECTIVE ACTION: N/A

TAS RESPONSE: Although the IRS bases the ITIN application correspondence on the language of the ITIN application the taxpayer filed, the only way a taxpayer can currently receive a deactivation notice in Spanish is to happen to live in Puerto Rico such that the taxpayer files a Form 1040-PR. The Most Serious Problem explains that the IRS has an account indicator for Spanish language preference, but it is either unable to or chooses not to use it to cause correspondence to be issued in Spanish. In the same way that a taxpayer filing Form W-7 in Spanish causes ITIN application correspondence to then be issued in Spanish, the filing of the Spanish Form W-7 should also trigger Spanish versions of important legal correspondence such as the statutory notice of deficiency, collection due process hearing letters, and math error notices. TAS is pursuing an advocacy project to determine how this indicator can be used, not only in the context of ITIN notices, but for other notices for which the IRS has a Spanish version, but does not fully utilize them.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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6.

TAS RECOMMENDATION #16-6

Update Form W-7 instructions and CAA outreach materials to emphasize the importance of informing the IRS about a change of address.

IRS RESPONSE TO RECOMMENDATION:

The IRS plans to implement the recommendation as written. IRS.gov provides detail on several ways a taxpayer may notify us of an address change. Additionally, Form W-7 instructions currently include guidance on how address information is used and when it is appropriate to submit a Form 8822, Change of Address. However, in the next revision of the Form W-7 instructions, we will consider an additional edit, as well as inclusion of CAA outreach material, to emphasize the importance of informing the IRS about a change of address.

Update: The current revision of the Instructions for Form W-7, Line 2, directs applicants to enter their complete mailing address. It also emphasizes that this is the address the IRS will use to return their original documents and send written notification of their ITIN application status. It further advises that the IRS will not use the address to update its records for other purposes unless they include a U.S. federal tax return with their Form W-7.

If they aren’t including a U.S. federal tax return with their Form W-7 and they changed their home mailing address since they filed their last U.S. federal tax return, they are advised to file Form 8822, Change of Address, with the IRS at the address listed in the Form 8822 instructions.  CAA training addresses the Form W-7 and Instructions, and Publication 1915, Understanding Your IRS ITIN.

CORRECTIVE ACTION: In the next revision of the Form W-7 instructions, we will consider an additional edit, as well as inclusion of CAA outreach material, to emphasize the importance of informing the IRS about a change of address.

TAS RESPONSE: The National Taxpayer Advocate is pleased the IRS plans to update the Form W-7 instructions to encourage taxpayers to change their addresses. This change should benefit taxpayers and the IRS in reducing the amount of undelivered mail, ensuring taxpayers receive their original documents back, and allowing the IRS to more reliably deliver important information to ITIN holders.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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7.

TAS RECOMMENDATION #16-7

Update Form W-7 instructions to explain on the first page the requirement to apply for an ITIN by the tax return due date in order to receive certain refundable credits.

IRS RESPONSE TO RECOMMENDATION: The need to apply for an ITIN by the tax return due date in order to receive certain refundable credits is already appropriately addressed within the Form W-7 instructions, under the heading “When to Apply.” Moreover, the first page of the 2017 instructions alerts individuals to the expiration and renewal of ITINs and refers readers to the “When to Apply” section, as well as IRS.gov, for additional information. The purpose of Form W-7 is to apply for or renew an ITIN if the taxpayer will have a tax return filing requirement, while refundable tax credits relate to the tax return itself. As such, the IRS provides details regarding tax credit eligibility in the instructions for the relevant tax returns, as well as in multiple other dedicated IRS publications.

CORRECTIVE ACTION: N/A

TAS RESPONSE: As explained in the Most Serious Problem, the legislative change requiring ITINs to be issued by the tax return due date to claim the American Opportunity Tax Credit is significant because if a taxpayer does not meet this requirement, there is no possibility of fulfilling the requirement retroactively and receiving the tax benefits that were forfeited. Thus, this information belongs upfront within the ITIN application instructions. Although refundable credits relate to the tax return itself, the fact remains that a taxpayer cannot claim the refundable credits on the tax return unless she knows to file the ITIN application timely. Thus, the ITIN application is an appropriate place for reminding taxpayers of this requirement. We do not consider the IRS to have addressed the concerns raised in the Report.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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8.

TAS RECOMMENDATION #16-8

Develop a system for tracking missing document requests and the actions the IRS has taken to address the missing document.

IRS RESPONSE TO RECOMMENDATION: The IRS returns identification documents to the applicant’s address of record, which is the mailing address the applicant provided to the IRS on the Form W-7 ITIN application. If the applicant provides a prepaid addressed envelope with the W-7 application, the IRS will use the prepaid addressed envelope to return the identification documents.

The IRS receives missing document requests from various sources throughout the agency and through direct taxpayer correspondence. In response, the taxpayer is notified of the disposition of the missing documents and corresponding comments are placed on the specific applicant’s record in the ITIN Real-time System. We do track undeliverable mail containing identification documents returned to the IRS by the United States Postal Service, using the Loose Document Database. This database, which is used to track identification documents, did not support data retrieval prior to enhancements implemented in June 2017. The recent enhancements enable data capture and reporting, in addition to tracking of identification documents. Guidance for this process is outlined in IRM 3.21.263.6.3.4.2.5, Maintaining Supporting Identification Documents, and in 3.21.263.6.10.4, Undeliverable Mail.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate welcomes the IRS’s recent enhancements to its database that will allow it to track undeliverable mail containing identification documents. This should allow the IRS to better gauge the extent of the problem and proactively identify methods to mitigate the problem. Nonetheless, the IRS should also track missing document requests from taxpayers to capture data on times when the IRS itself loses a document or the document is lost but not returned to the IRS as undeliverable. Thus, the IRS has partially addressed the recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

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