With the Internal Revenue Service being reduced from about $15 billion to the current $10.5 billion service has declined drastically. Some 20,000 employees have been retired or terminated and those that are left have either been improperly trained or are receiving on the job training.

Among the worst of the branches that we have to deal with is the “ITIN” unit in Austin, Texas. This unit is supposed to issue an Individual Tax identification Number (ITIN) to non-US citizens who need an identification number to navigate the U.S. government and financial system. A presentation by the Director of this unit indicated that they receive over 900,000 applications annually and seemingly reject most of them.

Traditionally, once the Internal Revenue Service or Social Security issued a “number” to an individual that number was yours forever. That will change on January 1, 2017.

Individual Tax identification Number (ITIN)

Under the PATH Act, 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, an individual applied for and received an ITIN in 2015 that is used in 2015 on the individual’s 2014 Federal income tax return. If 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 December 31, 2018. This rule applies to all ITINs regardless of when the ITIN was issued.

For ITINs issued before 2013, the PATH Act provides that ITINs will no longer be in effect according to the following schedule, unless the ITIN has already expired due to nonuse for three consecutive years as described above:

• ITINs issued before 2008 will remain in effect until January 1, 2017.
• ITINs issued in 2008 will remain in effect until January 1, 2018.
• ITINs issued in 2009 or 2010 will remain in effect until January 1, 2019.
• ITINs issued in 2011 or 2012 will remain in effect until January 1, 2020.

How To Renew An ITIN

ITINs that have expired due to nonuse in the last three consecutive years, as described above, may be renewed anytime starting October 1, 2016 by submitting a Form W–7 and required documentation. These 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 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 the 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 January 1, 2013 and Currently In Use

ITINs issued prior to January 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 and previously had no reason to keep a record of the date an ITIN was issued. To simplify the renewal process and allow for the effective administration of the program, the IRS will administer the renewal of ITINs on a schedule that is different from the schedule in the PATH Act. The IRS will renew 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 January 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, the 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 informing 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 the IRS by the taxpayer or the U.S. Postal Service.

The 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.

What Will Happen if an ITIN is Not Renewed

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 the 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. The 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.

Holders Of Expired ITIN’s Who Have Or Become Eligible For An Social Security Number (SSN)

An individual with an expired ITIN who has or becomes eligible for an SSN should not renew the ITIN. Instead, those individuals who already have an SSN should write a letter to the 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 at www.irs.gov/Individuals/Additional-ITIN-Information. Those individuals who are eligible to obtain an SSN should obtain one from the SSA and then follow the instructions above. Visit the SSA website at www.ssa.gov, for information on how to apply for an SSN.

Comment

The nightmare gets worse. The ITIN Unit in Austin can’t handle the 900,000 applications they annually receive. Now, they will likely have to handle up to 11,000,000 renewal applications over the coming years.

Tax Returns and Electronic Signatures

Over the past 3 months we have had numerous clients have tax returns that were timely filed months ago returned to them by the IRS along with a note indicating that the signature APPEARS to be an electronic signature that is unacceptable. All have signed in black ink. We are now advising clients to sign tax returns in vivid blue or red ink to address this issue. Given that the tax return is now being filed after the due date, we anticipate an issue with the IRS if they assert penalties and interest for the late filing of the return.

Pursuant to the requirements relating to practice before the Internal Revenue Service, any tax advice in this communication is not intended to be used, and cannot be used, for the purpose of (I) avoiding penalties imposed under the United States Internal Revenue Code, or (ii) promoting, marketing or recommending to another person any tax related manner.

The tax advice given by this column is, by necessity, general in nature. You should, of course, check with your own U.S. tax consultant as to how specific transactions affect you since tax advice varies with individual circumstances.