The Internal Revenue Service has announced updates in procedure with respect to Individual Taxpayer Identification Number (ITIN) requirements. ITINs are basically the equivalent of Social Security numbers for those taxpayers who are not eligible for a Social Security number.
The updates to the program are, according to IRS, meant to “further protect the integrity of the ITIN application and refund processes” – in other words, try to stop the stealing that has been associated with fraudulently obtained tax ID numbers and bogus refund claims.
The changes are updates to rules which were previously made public – and not happily so. The feedback from tax professionals from the first set of changes was not particularly positive. While most tax professionals agree that changes needed to be made to the system to try and curtail abuse, the timing of the interim guidelines was criticized as those changes were made while tax returns were still being prepared.
Those interim guidelines have largely been made permanent. The most significant change is that new ITINs will now expire after five years. You can no longer hold onto them indefinitely and you must now reapply after the end of the term.
Additionally, ITIN applications will require original documentation or copies certified by the issuing agency; this confirms the IRS’ decision to no longer accept notarized copies of documents for purposes of obtaining an ITIN. Since this requirement can result in hardship for some taxpayers – particularly those for which travel is a must due to their job – the IRS will allow “trusted outlets” to review original documentation. This includes Certifying Acceptance Agents (CAAs) who can certify to the IRS that they have verified the authenticity of the documents, like passports, so those original documents will not have to be mailed. Of course, taxpayers may also use IRS ITIN centralized sites, some key IRS Taxpayer Assistance Centers (TACs), U.S. Tax Attachés in London, Paris, Beijing and Frankfurt, and the Low-Income Taxpayer Clinics and Volunteer Income Tax Assistance (VITA) Centers that have CAAs. Foreign students at educational institutions may also be certified through the Student Exchange Visitors Program (SEVP).
And remember that inflammatory viral “tax loophole” video? The IRS is addressing those fraud issues, too. ITIN applications submitted to IRS by a CAA for minor children must have original documentation. For children under age six, at least one of the documents can include original medical records. For school-age children, documentation can include original, current year school records such as a report card.
In more efforts to keep the process honest, CAAs have to meet new requirements, including formal forensic training (very CSI of them) and stronger due diligence standards. The IRS is also limiting CAAs to those subject to Circular 230 (downloads as pdf) – generally, attorneys, certified public accounts (CPAs), enrolled agents (EAs), enrolled actuaries, enrolled retirement plan agents and registered tax return preparers (RTRPs). There are some exceptions for CAA applicants from financial institutions, gaming facilities, Low-Income Taxpayer Clinics and Volunteer Income Tax Assistance (VITA) Centers.
The new rules do not apply to spouses and dependents of U.S. military personnel who need ITINs or to nonresident aliens applying for ITINs for claiming tax treaty benefits.
These final rules will be in effect for the 2013 tax season – so if this applies to you, be prepared.
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