Social Security Numbers and US Tax Compliance
The Taxpayer Identification Number (TIN) for U.S. citizens is their Social Security Number (SSN). An alternative Taxpayer Identification Number is the Individual Taxpayer Identification Number (ITIN), which is often issued to so-called resident aliens or nonresident alien individuals who may have a US tax reporting obligation. U.S. citizens are not eligible for this type of identification number and should not apply for an ITIN. In order for US persons to fill out a tax return, they must have a SSN. Many US citizens living abroad did not receive a SSN as a child, and after the age of twelve it is particularly difficult to get one. This causes big problems when trying to file US tax returns or pay taxes later on in life.
The necessity of having a SSN to fill out tax returns also leads to problems for people who wish to renounce their US citizenship since doing so requires five years of tax compliance prior to expatriation. The number of people who are renouncing their American citizenship is rising, in part, due to the implementation of the Foreign Account Tax Compliance Act (FATCA), a law which puts greater scrutiny on foreign accounts held by U.S. persons. With more people renouncing their American citizenship, there is a greater number of people without SSNs who are scrambling to get one, in order to fulfill their tax duties. If you wish to read more about the US tax consequences of expatriation or the latest legislative proposals heaping additional sanctions on certain expatriates, read my blog postings here, here, here and here .
Rules for Obtaining a SSN
In order to get a SSN, one must first fill out the social security number application form, SSA-5, found here. For those older than 12 years of age, an interview may be mandated and additional documentation must be submitted in order to verify residence outside of the U.S since the date when the applicant departed the United States. Such documentation includes school transcripts, school records, driver’s licenses, employment records, marriage certificate, etc. Sadly, it appears that there is no universal standard for the necessary documentation, with different Consulates or Embassies (indeed, even different US social security offices) having varying requirements. For example, see the US Embassy Yemen requirements here. Unfortunately, many people do not save or have access to the documents which are needed, hindering their ability to obtain that critical SSN.
Those living in the Middle East have a very interesting problem in getting SSNs because the specified US Embassy for obtaining a SSN is located in Jerusalem, a city inaccessible to many Arabs because of political tensions in the region. Many people living abroad fly over to the United States in the hopes that the process of getting the SSN will be quicker, although by no means is this a sure thing.
A Story from the Trenches
Here is a sad tale from the SSN trenches, reproduced with the kind permission of a taxpayer who obtained her SSN from overseas as an adult:
“I applied for the SSN at the US Interest Section in Iran (but the Embassy in Switzerland processes it). What they asked for was all my educational documents from grade 1 all the way up to university – originals and official translation, my old US passport and my US birth certificate and I think my other passport. There was no interview.
My parents were able to dig up some of my original elementary report cards but as for the rest, it was one [heck] of a job. I had to spend more than 2 weeks in Iran going to the old schools looking in dusty cabinets from years ago to find my original report cards then had to get them certified by the Ministry of Education before official translation. One school had closed since the revolution and the Ministry could not help me with getting a duplicate and the Interest Section said they could not submit the application with even one report card missing even though it was from grade 2. I had all but given up when a last ditch effort turned it up in another school but it was a monumental task.
After these were submitted with my expired US passport, I was informed a couple of months later that I had to renew the US passport as Bern had refused the application. So, I had to renew. All in all it took about 6 months to get the SSN and yes, I did have to write a letter explaining that I was not aware [of the importance of obtaining this number], had never lived in the US, my parents were not American so were not aware, etc.”
Finally, IRS Provides A “Solution” for Streamlined and OVDP When Taxpayer has No SSN
The Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures are procedures set up by the IRS to help Americans with overseas accounts and assets achieve tax compliance. The streamlined program allows for taxpayers to certify that their tax noncompliance occurred as a result of “non-willful” conduct. You can read more about the OVDP and streamlined program at my blog post here.
The streamlined procedures explicitly state that all tax returns submitted under the program require a TIN, namely the SSN for US persons:
“All tax returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN). For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN). For individuals who are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN. Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures.”
I have had conversations with IRS representatives at the OVDP Hotline on this matter and explained to them the problems faced by many Americans who, soon after birth, moved overseas with their parents and never returned to the US. Most of them had no idea of their US tax filing obligations since they have been living their lives hundreds of thousands of miles away from America, have been educated abroad, are working abroad and are likely paying taxes to the governments in their country of residence.
Based on my conversations, the IRS has finally devised a means through which one can submit tax returns into either the OVDP or Streamlined programs despite having yet received a SSN. So long as the US taxpayer has begun the process of applying for a SSN, he can submit to the IRS the required Streamlined (or OVDP) paperwork along with a passport copy and a cover letter explaining that the SSN has been applied for. The IRS will issue a special IRS number for that taxpayer to use on all correspondence with the IRS. Once the SSN is obtained, the taxpayer must advise the IRS. This is a fairly painless method to become tax compliant even though one is without a SSN.
After my conversations with the IRS OVDP Hotline agents, I have come to learn from practical experience that not all of the agents are familiar with this procedure as it appears to be an informal process. I have also learned that if a taxpayer needs to make a payment to the IRS in the Streamlined process and wishes to do so electronically, it will be very difficult if not impossible to do this, unless he already has the special IRS number in hand. In such cases it might be suggested that the individual call the OVDP Hotline and leave a message for that group explaining the problem in trying to make payment. Perhaps a number will be issued quickly in that instance. Readers must clearly understand that obtaining this number may not be easy and it is entirely possible that the IRS may not continue this informal process of providing temporary numbers.
Post updated October 12, 2015 and December 8, 2016
Please make sure you read the latest information from the IRS On this issue. See my tax blog post: ATTENTION ALL TAXPAYERS LACKING SSN – NO STREAMLINED!
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