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Published:   |   Last Updated: May 21, 2024

FY24 Goal 1: Resolve Taxpayer Problems Accurately and Timely

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Background

The IRS continues to rely on a paper-based system for processing applications for Individual Taxpayer Identification Number (ITIN) applications. Like other paper processing systems at the IRS, processing of paper ITIN applications is subject to backlogs. Backlogs harm taxpayers in a variety of ways, including delayed refunds and disallowance of claimed tax benefits. When the IRS experiences backlogs processing ITIN applications and paper returns, it can delay taxpayer refunds for months. Taxpayers with expired ITINs can experience further delays in processing their tax returns. Because some state agencies calculate benefits based on family size, as reported on a tax return, ITIN delays may impact benefits. If a taxpayer has an eligible dependent but is unable to obtain an ITIN for the dependent, it may result in a reduction of state benefits, increasing taxpayer burden.

In its SOP, the IRS expressed intentions to modernize the ITIN process and expand services for ITIN holders and international taxpayers but did not provide any details. To prevent unnecessary delays, encourage voluntary compliance, and reward these individuals for doing the right thing by filing U.S. tax returns, the National Taxpayer Advocate recommended the IRS develop and implement a procedure that allows applicants to apply for an ITIN throughout the year and submit alternate proof of a filing requirement other than an annual tax return.

Taxpayers must file Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for or renew an ITIN. The IRS does not offer a way to electronically file (e-file) Form W-7 so taxpayers have no option other than to file on paper. The application must be supported by original documents, such as a birth certificate or passport, or copies of original documents that have been certified by the issuing agency that establish, for example, the taxpayer’s alien status and identity, foreign status, and residency. Taxpayers may mail their Form W-7 and required documents directly to the IRS or receive in-person assistance through an Acceptance Agent (AA). Taxpayers may also make an appointment at a designated IRS Taxpayer Assistance Center (TAC), which can verify original documents and submit verified copies of those documents to the IRS ITIN Unit, allowing the immediate return of documents to the taxpayer.

Another important option that allows taxpayers, including those residing outside of the United States, to apply for an ITIN and retain their identification documents is Certifying Acceptance Agents (CAAs). CAAs are AAs authorized to verify original documentation and certified copies of the documentation from the issuing agency for primary and secondary applicants and their dependents. As of May 11, 2023, there are 7,192 AAs and CAAs in the United States and 347 in 46 countries outside the United States, including 120 in Canada.3Beginning August 15, 2022, the IRS imposed a moratorium on the Acceptance Agent Program. The moratorium is scheduled to expire in Summer 2023, but the IRS has not provided an exact date. The IRS also plans to launch an online portal for AAs and CAAs to submit applications and complete Form W-7 applications.

The availability of a robust network of CAAs will reduce the need for taxpayers who need an ITIN to comply with their U.S. tax obligations to surrender important documents for seven to 11 weeks.

Highlights

Objective Actions Completed Next Steps

Expected Completion Date:  September 30, 2024

Work with the IRS to identify problems and suggest changes to Individual Taxpayer Identification Number processing that will reduce delays negatively impacting taxpayers.

1st Quarter: During the first quarter, TAS worked with the IRS to identify problems and suggest changes to the Individual Taxpayer Identification Number (ITIN) process. TAS offered to collaborate with the ITIN unit to develop and implement procedures that allow all applicants to apply for an ITIN throughout the year by submitting proof of a filing requirement. Also, we offered to collaborate for the development of an online Form W-7. Unfortunately, the IRS declined both offers. During the second quarter, we will continue to advocate for the development and implementation of procedures to avoid unnecessary delay during the peak filing season.

Also, during the quarter, TAS investigated how many ITIN holders’ claimed tax benefits the IRS disallowed because it did not timely process their ITIN renewal application or tax return. Our analysis showed nearly 95,000 tax returns had been denied a tax credit due to an expired or missing ITIN. The most common adjustment for this population is the denial of the other dependent credit (ODC).

Continue working with IRS to identify additional changes necessary to improve the ITIN process and suggest pertinent changes to their current strategies to facilitate the improvements.

Completion Date:  March 30, 2024

Work with the IRS Business Operating Divisions to develop procedures for the IRS in reviewing and responding to the Taxpayer Advocacy Panel recommendations, and if necessary, establish steps to reach a Service Level Agreement or mutually agreed upon standard operating procedure for considering Taxpayer Advocacy Panel recommendations

1st Quarter: During the quarter, TAS worked with the IRS in developing procedures for them in reviewing and responding to the Taxpayer Advocacy Panel (TAP) recommendations and establishing steps to reach a Service Level Agreement (SLA). We focused on establishing a process for TAP recommendations through the different Business Operating Divisions and to develop a baseline set of procedures for the analysis of an SLA. These items were determined to be a necessity for accomplishing the NTA’s goals:

  • Priority level of Referral
  • Confirmation of receipt of Referral
  • Establish timeframes to respond to Referral (30 days)
  • Opportunity to perfect the Referral
  • Provide name of assigned Employee
  • Training to employees responsible for process
  • Support in delivering recommendations
  • Levels of management and protocol to address unresolved elevated issues and extensions.
  • Periodic Liaison Meetings
  • Cross-Functional Training on SLAs
  • Annual Review of SLAs

Continue working with IRS to identify additional changes necessary to improve the ITIN process and suggest pertinent changes to their current strategies to facilitate the improvements.