Notice 2016-48, 2016-33 IRB; IR 2016-100
In a notice and a news release, IRS has explained how it will implement the changes made by 2015 legislation to the Individual Taxpayer Identification Number (ITIN) program and the potential consequences to taxpayers who do not renew an ITIN when required. An ITIN is a number issued to individuals who are not eligible to be issued a Social Security Number (SSN) but who still have a federal tax filing obligation.
Background. Any individual filing a U.S. tax return is required to state his or her taxpayer identification number on that return. Generally, a taxpayer identification number is the individual’s SSN. However, in the case of individuals who are not eligible to be issued an SSN, but who still have a tax filing obligation, IRS issues ITINs for use in connection with the individual’s tax filing requirements. (Reg. § 301.6109-1(d)(3)(i))
IRS has set out rules for applying for an ITIN, including rules regarding the completion of Form W-7, “Application For IRS Individual Taxpayer Identification Number,” submission of specific types of documentation (e.g., passports and birth certificates), and how and to whom a Form W-7 may be submitted. Before enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015 (PL 114-113), ITINs were deactivated if the ITIN was not used during any tax year for a period of five consecutive years.
The PATH Act provides that IRS may issue ITINs if the applicant provides the documentation required by IRS either (a) in person to an IRS employee or to a community-based certified acceptance agent (CAA), or (b) by mail. Individuals who were issued ITINs before 2013 are required to renew their ITINs on a staggered schedule between 2017 and 2020. An ITIN will expire if an individual fails to file a tax return for three consecutive years. (Code Sec. 6109(i)) These provisions are effective for requests for ITINs made after Dec. 18, 2015.
IRS sets out new ITIN procedures. In the notice and news release, IRS has set out detailed procedures that implement the PATH Act changes and has also set out the potential consequences to taxpayers who do not renew an ITIN when required. The notice and news release include the following:
… ITIN application process. The basic process for applying for an ITIN will not change as a result of the PATH Act. Individuals will continue to apply for an ITIN by submitting Form W-7. Most taxpayers must submit their Form W-7 with the tax return for which the ITIN is needed. Both domestic and foreign applicants may submit their Form W-7, tax return, and the required documentation by mail to the ITIN Operation Unit in Austin, Texas. With limited exceptions, original documents or certified copies of documents from the issuing agency are the only acceptable documentation.
Under the PATH Act, in-person applications may be submitted to an employee of IRS authorized to review and accept applications or to a CAA approved by IRS. Individuals who apply in person, other than dependents, will receive their documentation back once the in-person application is completed. Currently, all IRS employees authorized to review and accept applications are located in the U.S. IRS is reviewing the new law and considering how to implement the new provision for CAAs. Until further guidance is issued, all applicants may continue to submit their application package (i.e., Form W-7 and supporting documentation) to CAAs for review under existing procedures (see https://www.irs.gov/individuals/acceptance-agent-program ).
Applicants may also submit their application packet in person at an IRS Taxpayer Assistance Center. Not all locations provide this service and many do so only by appointment. Taxpayers should first check https://www.irs.gov/uac/tac-locations-where-in-person-document-verification-is-provided to find a location that has employees authorized to review and accept applications and, if applicable, make an appointment before visiting.
… Certain ITINs will need to be renewed beginning in 2017. Any ITIN that is not used on a federal tax return for three consecutive tax years, either as the ITIN of an individual who files the return or as the ITIN of a dependent included on a return, will expire on December 31 of the third consecutive tax year of nonuse. For example, if an individual applied for and received an ITIN in 2015 that is used in 2015 on the individual’s 2014 federal income tax return, and the individual does not file or is not claimed as a dependent on a tax return in 2016, 2017, and 2018, the ITIN will expire on Dec. 31, 2018. This rule applies to all ITINs regardless of when the ITIN was issued.
For ITINs issued before 2013, see How to renew an ITIN, below.
… How to renew an ITIN. ITINs that have expired due to nonuse in the last three consecutive years may be renewed anytime starting Oct. 1, 2016 by submitting a Form W-7 and required documentation. Such individuals may renew their ITIN without having to attach a tax return to the Form W-7. Filers should use the most recent revision of the Form W-7 and check the box that says “renewal.” Filers should follow the instructions on the Form W-7 and include all the information and documentation required by the instructions except for the requirement to attach Form W-7 to a tax return. Alternatively, individuals may choose to wait to submit their Form W-7 with their tax return. Once the Form W-7 renewal application is approved, the individual’s ITIN will again be effective, and the individual can continue to use the same ITIN. The applicant will receive a letter from IRS stating that the application has been approved. Once renewed, an ITIN will remain in effect unless it is not used on a tax return for three consecutive years.
ITINs issued prior to Jan. 1, 2013 that have been used on a tax return in the last three consecutive years are set to expire based on a multi-year schedule. Under the PATH Act, this schedule is based on the date that an ITIN was issued. However, many ITIN holders may not know when their ITIN was issued. To simplify the renewal process and allow for the effective administration of the program, IRS will administer the renewal of ITINs on a schedule that is different from the schedule in the PATH Act by renewing ITINs based upon the fourth and fifth digits (middle digits) in the ITIN. ITINs that contain the middle digits of 78 or 79 will no longer be in effect beginning Jan. 1, 2017. The expiration and renewal schedules for ITINs with middle digits other than 78 or 79 will be announced in future guidance.
Beginning this summer, IRS will send a Letter 5821 to individuals holding ITINs with the middle digits of 78 or 79 if the ITIN was used for a taxpayer or a dependent on a U.S. income tax return in any of the last three consecutive tax years; the letter will inform them that they may submit a Form W-7 with original or certified documents to renew their ITINs. The Letter 5821 will be sent to the address used on the most recent income tax return on which the ITIN appears or the most recently updated address for the taxpayer who filed the tax return provided to IRS by the taxpayer or the U.S. Postal Service.
An individual with an ITIN that contains the middle digits of 78 or 79 who is sent a Letter 5821 may submit a Form W-7 and required documentation to renew their ITIN starting Oct. 1, 2016. These individuals may renew their ITIN without having to attach Form W-7 to a tax return. Filers should use the most recent revision of Form W-7 and check the box that says “renewal.” To expedite processing, filers should include a copy of Letter 5821. Filers should follow the Instructions for Form W-7 and Letter 5821 and include all the information and documentation required by the instructions except for the requirement to attach Form W-7 to a tax return. IRS anticipates that for applications mailed to it under this process, documents will be returned to the applicant within 60 days from the date the application was received. Alternatively, individuals who are sent a Letter 5821 may choose to wait to submit their Form W-7 with their tax return. Once a Form W-7 renewal application is approved, the individual’s ITIN will again be effective, and the individual can continue to use the same ITIN.
To reduce the burden on taxpayers, IRS will accept Forms W-7 from each member of a family in a single family submission starting Oct. 1, 2016, if: a) at least one of the family members is required to renew an ITIN because the middle digits are 78 or 79; and b) that family member received a Letter 5821. For this purpose, family members include the filer, the filer’s spouse, and any dependents claimed on the filer’s return.
ITINs with middle digits other than 78 or 79 that have been in use within the last three consecutive tax years should not be renewed and require no immediate action from the ITIN holder. IRS will accept, and individuals should continue to file, tax returns using these existing ITINs.
IRS will provide information about the expiration schedule and renewal process for the remaining ITINs issued before 2013 in future guidance and expects the expiration and renewal process for the remaining ITINs to be completed over multiple years.
… Holders of expired ITINs who have or will become eligible for an SSN. An individual with an expired ITIN who has or will become eligible for an SSN should not renew the ITIN. Instead, those individuals who already have an SSN should write a letter to IRS or visit a local IRS office explaining that they now have an SSN and that they want all their tax records combined under their SSN. Details about what to include with the letter and where to mail it can be found atwww.irs.gov/Individuals/Additional-ITIN-Information . Individuals who are eligible to obtain an SSN should first obtain one from the Social Security Administration and then follow these instructions.
… Use of an ITIN solely on an information return. An individual whose expired ITIN is used only on information returns filed and furnished by third parties, such as Forms 1099, is not required to renew the ITIN. ITINs may continue to be used for information return purposes regardless of whether they have expired for individual income tax return filing purposes. If the individual is later required to file a tax return, however, the individual’s ITIN will have to be renewed at that time.
The third parties who file and furnish information returns with an expired payee ITIN will not be subject to information return penalties under Code Sec. 6721 or Code Sec. 6722 solely because the ITIN is expired.
… What may happen if an ITIN is not renewed. Once renewed, an ITIN will remain in effect unless it is not used on a tax return for three consecutive years. The issuance date of a renewed ITIN is the date the ITIN was originally issued, not the renewal date.
Some individuals may not be aware that their ITIN has expired or that they must renew an expired ITIN. Returns filed by these individuals will be accepted by IRS; however, there may be a delay in processing these returns, and certain credits, such as the Child Tax Credit and the American Opportunity Tax Credit, may not be allowed unless the ITIN is renewed. This could result in a reduced refund or additional penalties and interest. IRS will notify these filers about the delay and any reduction in refunds and credits claimed and will inform them about the need to file Form W-7 to renew their ITIN.
References: For ITINs, see FTC 2d/FIN ¶ S-1508.1; United States Tax Reporter ¶ 61,094; TaxDesk ¶ 570,106; TG ¶ 1987.