Depending on where you’re located — in an urban center or anywhere there’s a military base or large immigrant community — if you’re a tax preparer or Electronic Return Originator (ERO), it’s more than likely that you’ve helped a client apply for an Individual Taxpayer Identification Number (ITIN). In lieu of having a Social Security Number (SSN) with which to identify oneself, anyone who’s required to pay taxes to the U.S. government needs to obtain an ITIN in order to fill in the necessary paperwork. Seeing as you’re probably quite familiar with all that’s involved in this process already, however, it’s safe to say that we can skip the basics.
Cutting to the chase, what are the recent changes to the ITIN application process alluded to in the title of this blog post? As a tax preparer or ERO, what parts are important for you to know about the new measures?
Well, for starters, there are some interim changes — effective immediately — that the IRS has implemented as of June 22nd, 2012 to carry them over until the new legislation comes into full effect at the end of the year. Officially speaking, any permanent changes will be issued before the start of the filing season in 2013, which is when most requests for ITINs come in. Some relevant information regarding these changes has been released in a brief article posted on the IRS webpage (also available en Español). It’s not a thrilling read, by any means, but it’s helpful enough. Far more helpful than this, actually, is the Frequently Asked Questions (FAQ) section they’ve compiled.
In essence, the new measures represent an attempt to reform the rather sloppy and slipshod verification system that determines whether individual ITIN applications are approved. The system as it previously existed was notoriously vague and imprecise, riddled with errors that allowed fraud to be committed easily. As a result, the approval process became for the most part an arbitrary affair, depending on who was reviewing the forms — more or less “luck of the draw.” To correct these errors, and to thereby establish clearer standards by which the W-7s can be assessed, the IRS has made the following alteration to the application process:
[The] W-7, or Application for IRS Individual Taxpayer Identification Number…must include original documentation such as passports and birth certificates, or copies of these documents certified by the issuing agency. During this interim period, notarized copies of documentation will not be accepted.
The crucial distinction, highlighted in italics, evidently hinges on the difference that separates certification from notarization. While you may well already know this distinction from your experience representing taxpayers, your clients themselves might not be aware. So you may have to inform them about the difference, and it never hurts to brush up. Just remind your customers that they need to send in the original documents issued or exact copies of any original documents that are required for the ITIN application. Make sure they remember to get their copies “certified” with an official stamped seal provided by the issuing agency. They can’t just use any copy that’s been signed by an official notary.
Of course, there’s more to this story than initially meets the eye.
Michael Cohn has detailed one of the major subplots to these reforms in an article written for Accounting Today, in which it is explained that one of the major goals behind the new ITIN legislation is to cut down on the money refunded to illegal immigrants working in the United States. According to a report compiled last year by the U.S. Treasury Department, undocumented taxpaying aliens received $4.2 billion in refundable credits, a scandal covered by Cohn back in September 2011. Cohn’s investigation has, to nobody’s surprise, stirred up some controversy that the IRS would probably prefer not to deal with. Controversy aside, however, one of the results of this focus on illegal immigration is that certain categories of individuals are exempted from the interim changes to the ITIN process.
Here’s what you need to know as a tax preparer about those of your client who don’t have to worry about the recent revisions to the code:
Military spouses and dependents without an SSN who need an ITIN (military spouses use box “e” on Form W-7 and military dependents use box “d”). Exceptions to the new interim document standards will be made for military family members satisfying the documentation requirements by providing a copy of the spouse or parent’s U.S. military identification, or applying from an overseas APO/FPO address.
Nonresident aliens applying for ITINs for the purpose of claiming tax treaty benefits (who use boxes “a” and “h” on Form W-7)…While existing documentation standards will be maintained only for these applicants, scrutiny of the documents will be heightened. ITIN applications of this category that are accompanied by a U.S. tax return will be subject to the new interim document standards.
Naturally, there are some other negligible points of interest regarding these changes, but we won’t bore you with the details. You can find out more by clicking the links provided in this post. Almost everything else relating to the new ITIN process really boils down to what was presented here in the end.