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Wednesday, June 11, 2014

Obtaining ITINs


“I just moved to the U.S., and heard I need to get an ITIN. What’s an ITIN, and how do I get one?”

For citizens, green card holders, and foreign workers here in U.S. as employees, we all receive social security numbers as one time or the other and among other things, these numbers are used to track various income and expense items (i.e., w-2 wages and mortgage interest expense). Of course federal and state tax returns also use social security numbers to track people’s income tax filings, taxes owed, refunds due, etc.

However, there are people who live/invest in the U.S. who cannot obtain a U.S. social security number. So what then?

To help people in this situation, the IRS allows these types of persons to obtain from the IRS an ITIN or “Individual Taxpayer Identification Number.” ITINs are used for income tax related purposes only, such as for use on informational tax returns (Form 1099, Form K-1) and on their tax returns. ITINs cannot be used as identification, as proof of eligibility for working in the U.S., or as proof of ID to obtain state driver’s licenses. ITINs issued after January 31, 2013 will expire after 5 years.

Unfortunately though, unlike obtaining a new company’s identification number (EIN) which can take only a matter of hours, the process for obtaining an ITIN is far from simple. The fact is that this application process can take a significant amount of time and requires documentation that may be difficult to obtain. Due to the clunkiness of the application process, we often see taxpayers without ITINs having unneeded amounts withheld from payments to them, and tax filings that may need to first be filed without an ITIN, and later amended to include the ITIN.

To add to the confusion, in 2012, the IRS made a change in the documentation required, but did a poor job of informing the consulates/embassies who would provide this updated documentation, which led to more “denials” of ITINs due to submitting supporting information in an incorrect format.

So how exactly does the application process work then?
To obtain an ITIN, an individual must:

  • Be required to file a U.S. individual income tax return or be required to furnish an ITIN for third-party withholding purposes and not be eligible to obtain a Social Security Number; and
  • Complete and file IRS Form W-7 (Application for IRS Individual Taxpayer Identification Number); and
  • Attach original or certified copies of documents as proof of identity and foreign status with the Application for the ITIN; (Form W-7); and
  • File the application together with the applicant’s annual personal tax filing.

Required to file a tax return
Since these ITINs are only required for income tax purposes, the IRS will not issue an ITIN because a person just wants one. There must be some U.S. source income producing activities that are subject to U.S. income tax first. Also, if a person meets the conditions to obtain a U.S. social security number, an ITIN will not be issued.

Prepare the Application Form with Required Supporting Documentation
The preparation of Form W-7 to apply for the ITIN is a relatively simple form to complete. However, obtaining the documentation that is required to be submitted to prove the applicant is who they say they are can be challenging and time consuming.

In June 2012, the IRS changed the rules for documentation requirements for the ITIN application process. The IRS now requires that ITIN applicants provide either (1) ORIGINAL documents (such as passports, national ID cards, and birth certificates) or (2) “certified” copies of these original documents to accompany the ITIN application. Notarized copies are not acceptable. (Before 2012, copies of these documents could be provided if notarized by a U.S. notary.)

A certified document is one that the original issuing agency (i.e., a foreign country’s agency which issues passports) and provides and certifies as an exact copy of the original document by stamping the copy with the official seal from the agency. This means that if an ITIN applicant doesn’t want to send their passport to the IRS (I’d advise against this for obvious reasons) the applicant must visit their home country’s embassy, consulate, or other agency that is responsible for issuing passports. As you can imagine, for applicants not living near one of these offices, obtaining a “certified copy” of their passport could be an all-day affair.

To help alleviate this problem, the IRS has also allowed certain “Certified Acceptance Agents” (CAA) to perform this “certification” task. CAAs must go through mandatory IRS training and background checks. Once certified, the IRS will accept their “certifications” in lieu of a certification from a governmental agency.

As there are many more CAAs (including Armanino) than governmental agencies, it may be much more convenient for the applicant to visit a CAA for assistance with this certification process.

What can Armanino do to help?
As Armanino has been approved as a CAA, we can assist taxpayers with the following:

  • Review identifying documentation and certify its authenticity to the IRS by issuing a Certificate of Accuracy (which is filed with Form W-7), and
  • Complete Form W-7, and
  • File Form W-7, along with the certified documentations, together with the applicant’s income tax return (usually a Form 1040-NR), and follow up to address any issues that may be raised by the IRS.

An individual may complete and file a Form W-7 on their own or it may be prepared by their accountant. However, any error on the form may result in a rejection by the IRS and it may take multiple filing attempts before obtaining an ITIN. This may be avoided by working with Armanino in applying for an ITIN.

We have bilingual staff that are available to assist with the process who speak Afrikaans, Cambodian, Chinese (Cantonese and Mandarin), Farsi, Hindi, Indonesian, Japanese, Korean, French, Portuguese, Spanish, Vietnamese, and others.

International Tax Services Group – Update
Armanino LLP has been certified by the Internal Revenue Service (“IRS”) to be Certifying Acceptance Agents (“CAAs”). We can expedite the application process for foreign individuals in obtaining Individual Taxpayer Identification Numbers (“ITINs”).

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