The Protecting Americans from Tax Hikes (PATH) Act of 2015 enacted by Congress late last year contained many favorable changes for taxpayers. Unfortunately, the results were not so positive for individuals applying for individual tax identification numbers (ITINs.) The Act both creates an expiration schedule for ITINs as well as making applications more difficult for those living outside the US.

More about ITINs

ITINs are issued to individuals who may, for a variety of reasons, have a US tax filing obligation but are not work authorized and thus ineligible for a US social security number. Spouses and dependents of US resident aliens may also need ITINs in order for proper dependency exemptions to be claimed. Form W-7 is the application form that must be submitted in order to obtain an ITIN.

The documentation and submission requirements for completing the W-7 have evolved over recent years resulting in much more stringent and difficult procedures. While one would think that the IRS would want to encourage potential taxpayers to be able to acquire ITINs easily they are also grappling with the growing problem of identity theft; so in fact the procedures have become more difficult and restrictive. This is particularly problematic for ITIN applicants who by their very nature are unfamiliar with dealing with the US tax system. Under the new legislation, the W-7 is still the primary application mechanism for obtaining an ITIN but the devil is in the procedural details.

Requirements for ITIN Applicants

Under the PATH Act, ITIN applicants must:

• Submit an application by mail or in person to the IRS.
• Submit proof of identity, residency and foreign status, all of which must be attached to the application. All of these need to be proven with original or certified documents. A certified document is one that the original issuing agency provides and certifies as an exact copy of the original document and contains an official stamped seal from the Agency. This is in contrast to a notarized copy which is no longer acceptable.

In addition to this, the PATH Act:

• Codifies expiration periods for ITINs.
• Removes taxpayer’s (who live outside the US) ability to have a Certified Acceptance Agent (CAA) review and verify the taxpayer’s original proof of identity and residency. Taxpayers residing outside the US are hoping that this was merely a technical oversight on the part of Congress, but any impending changes to the PATH Act are not expected to address ITINs, recent guidance suggests. As the new rules stand, ITINs can only be issued to applications made through CAAs if the taxpayer lives within the US.

How long does it take for the documents to be returned to the taxpayer?

The new guidance estimates that documents submitted by mail will be returned to the taxpayer within sixty days of receipt and processing of Form W-7. Nevertheless it would not seem prudent for an applicant to ship off critical documents such as an original passport to the IRS. The certified copy alternative is much more preferable, if at all possible.

By approving US embassies and consulates as valid places for taxpayers residing abroad to verify ITIN application documents, Congress has made ITIN applications much easier and more convenient for certain taxpayers. The new barrier presented by the elimination of CAAs’ ability to verify documents, however, is a serious burden on those affected.

Stay tuned for updates on how this guidance progresses, and if any changes are implemented. Contact us for further information.