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IRS Announces New Policy For Individual Taxpayer Identification Numbers / ITINs

What is an ITIN and What is it Used For?

An ITIN is a nine-digit tax processing number issued by the IRS for federal tax reporting only. The ITIN is not intended to serve any other purpose. The ITIN does not authorize one to work in the US and it cannot be used as an identification number or for any purpose outside the US tax system.

Who Needs an ITIN?

The IRS issues ITINs to individuals who are required to have a US taxpayer identification number but who are not eligible to obtain a Social Security Number (SSN). If an individual is eligible to obtain a SSN, he should NOT be applying for an ITIN.  ITINs are issued to so-called ‘resident aliens’ (e.g., one holding a US visa) and to ‘nonresident aliens’ since both may have a US tax filing or reporting requirement under the US tax laws. Generally, an ITIN will be issued if the individual has such a filing requirement.

Some examples of individuals who need ITINs include a nonresident alien required to file a US tax return. This can occur if the nonresident alien individual has certain types of US source income, such as rental income from a US property. Other individuals who need an ITIN include a foreign individual required to file a US tax return because he qualifies as a US “resident alien” based on the amount of time he has been physically present in the US. Someone who is listed on a tax return such as a spouse (in order to file a joint tax return), or a dependent (in order to claim a dependency exemption) and who is not eligible to obtain a valid SSN, must apply for an ITIN. 

IRS New Policy Regarding Validity of ITINs – Expiration No Longer Automatic

On June 30, the IRS announced that ITINs will expire only if the number is not used on a federal income tax return for five consecutive years.  FAQ’s on the new policy can be found  here.  

Further information was issued by the IRS on July 2.

In order to provide sufficient time to adjust and to allow the IRS to reprogram its systems, the IRS will not begin deactivating ITINs until 2016.  This is a new policy and it replaces the existing policy that became effective on Jan. 1, 2013.  Under the old policy, announced in November 2012, ITINs issued after Jan. 1, 2013 would have automatically expired after five years, even if used properly and regularly by taxpayers. Though ITINs issued before 2013 were unaffected by that change, the IRS said at the time that it would explore options for deactivating or refreshing the information relating to these older ITINs.

This new policy applies to any ITIN, regardless of when it was issued.  According to the IRS, only about one-fourth of the 21 million ITINs issued since the program began in 1996 are being used on tax returns. The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs.

Under the new policy:

  • An ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive tax years.
  • Any ITIN will remain in effect as long as a taxpayer continues to file U.S. tax returns. This includes ITINs issued after Jan. 1, 2013. Thus, taxpayers will no longer face mandatory expiration of their ITINs pursuant to the old policy.
  • A taxpayer whose ITIN has been deactivated and needs to file a U.S. return can reapply using Form W-7. The taxpayer must ensure he also supplies sufficient identifying documentation. Original documents, such as passports, or copies of documents certified by the issuing agency must be submitted with the form. You can learn more about the identification documents in my prior blog post here.

 

 

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