IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA.  While considering options to implement the recently enacted Consolidated Appropriations Act, 2016, we will also consider this recommendation to allow certain ITIN applicants to apply for an ITIN any time of the year without submitting a tax return as long as they provide other evidence of a legitimate tax administration purpose for the ITIN.

The requirement to submit a tax return with Form W-7, Application for Individual Taxpayer Identification Number, was established to ensure the ITIN assigned was used for tax administration purposes. Only a quarter of ITINs issued since inception have been used on tax returns. The ITINs are no longer issued solely based on a statement that an applicant requires an ITIN to file a return without documentation that the applicant needs the number to do so. Current procedures enable the IRS to process ITIN applications submitted with federal tax returns in a timely manner (within ten days). Filing a federal tax return with Form W-7 facilitates compliance with U.S. tax laws and is the only reliable method to ensure a return is filed and safeguard the issuance of ITINs for federal tax administration purposes. Going forward, the IRS will consider the effect of recent legislation which requires deactivation of ITINs not used for the preceding three years to determine if changes in current application practices are warranted.

The IRS modified documentation standards in 2012, and required applicants to submit original documents or certified copies of identification documents from the issuing agency with their federal tax return. Additionally, those applicants who meet any of the five exception criteria outlined in Form W-7 instructions can submit their application at anytime during the year without a federal tax return.

CORRECTIVE ACTION: N/A

TAS RESPONSE: To fully address the National Taxpayer Advocate’s concerns raised in the Most Serious Problem, the IRS should allow all ITIN applicants to apply for an ITIN at any time throughout the year, without having to attach a tax return, so long as they provide proof of a legitimate tax administration purpose.  The IRS’s statement, “Only a quarter of ITINs issued since inception have been used on tax returns,” appears to contradict TAS’s recent research.  TAS estimates there have been 23.1 million distinct ITINs issued since the IRS started issuing ITINs in 1996, and an average of 10.3 million ITINs — or about 44.6 percent — were used on a return annually from 2011 through 2015, meaning far more than a quarter of ITINs have not only been used on a return, but used recently.

The National Taxpayer Advocate agrees that ITINs should no longer be issued based solely on a statement that an applicant needs the ITIN to file a return.  However, she disagrees that filing an ITIN application with a return is the only reliable method for proving a tax administration purpose.  In fact, she provides a viable alternative for proving a tax administration purpose in the recommendation that follows this one.

The IRS’s statement, “Current procedures enable the IRS to process ITIN applications submitted with federal tax returns in a timely manner (within ten days),” is perplexing given that applicants were advised to wait up to 11 weeks for their ITINs to be processed during the 2016 filing season.  The National Taxpayer Advocate hopes the IRS will seriously consider the impact of its policy requiring most ITIN applications to be submitted with tax returns, especially in light of the new statutory restrictions requiring deactivation of ITINs and for an applicant to have received an ITIN by the tax return due date in order to receive the Child Tax Credit (CTC) or American Opportunity Tax Credit (AOTC).  The new deactivation requirements will likely cause an even greater number of applicants to apply during the filing season, resulting in an even more unmanageable workload and further processing delays.  The new restrictions on the CTC and AOTC will exacerbate the harm caused by these processing delays.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: ​NTA Recommendation Not Adopted as Written, but  IRS Actions Taken to Address Issues Raised by NTA.  While considering options to implement the recently enacted Consolidated Appropriations Act, 2016, we will consider this recommendation to allow certain ITIN applicants apply for an ITIN without submitting a tax return as long as they provide evidence of a legitimate tax administration purpose for the ITIN.  We appreciate the NTA’s interest in allowing taxpayers to apply for an ITIN in advance of using it. The requirement to submit a tax return with Form W-7, Application for Individual Taxpayer Identification Number, was established to ensure the ITIN assigned was used for tax administration purposes. Filing a federal tax return with Form W-7 facilitates compliance with U.S. tax laws and is the only reliable method to ensure a return is filed and safeguard the issuance of ITINs for federal tax administration purposes. The submission of a pay stub with an ITIN application does not demonstrate the individual will ultimately have a filing requirement. Wage amounts vary and depending on the time of year the ITIN application is submitted the applicant may not be required to file a tax return. There is no assurance of continued employment for the remainder of the year or reasonable assurance the applicant will file a federal tax return after the close of the tax year.

Update: The IRS considered this recommendation from the NTA as a part of exploring available options to implement the Consolidated Appropriations Act, 2016. The IRS goal was to identify immediate actions that could be taken to maintain the integrity of the program and reduce taxpayer burden. Beginning October 1, 2016, ITIN holders that were required to renew their ITINs were encouraged to submit Form W-7 renewal applications without a tax return. This decision was largely based on the fact that this particular group of applicants had already proven a federal tax administration purpose when they were initially assigned an ITIN. The IRS had  a reasonable level of confidence that once the ITIN for these individuals were renewed, they would continue to voluntarily comply based on past behavior. The IRS will continue to accept ITIN renewal applications year round without a federal tax return.

CORRECTIVE ACTION: As we consider available options to implement the recently enacted Consolidated Appropriations Act, 2016, we will re-evaluate evidence of filing requirements.

TAS RESPONSE: The IRS’s response assumes that the only valid tax administration purpose for an ITIN is to file and pay taxes for which the taxpayer has exceeded the filing threshold.  Taxpayers who do not meet the filing threshold may have other valid tax administration purposes.  For example, they may be seeking a refund of taxes that were over-withheld during the year, or they may be claiming a refundable tax credit, such as the Additional Child Tax Credit.  Thus, there may be taxpayers whose wages have not yet or will not exceed the filing threshold, but who will have a valid tax administration purpose for the ITIN.  Proving that a taxpayer has some income that could either be subject to tax, has been withheld, or could make the taxpayer eligible for a refundable tax credit should suffice to prove a tax administration purpose for the ITIN.  Although there may be cases where the taxpayer applies for and receives an ITIN but does not file a tax return for that year, these ITINs will now be deactivated if they are not used within a three-year period, thus limiting their potential for abuse.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions have been Taken to Address Issues Raised by NTA.  IRS currently allows taxpayers to have their original documents returned if they provide a pre-paid express mail envelope.  Form W-7 instructions provide an expedited mailing option and states, “Applicants are permitted to include a prepaid Express Mail or courier envelope for faster return delivery of their documents.  The IRS will then return the documents in the envelope provided by the applicant.”

In addition to mailing original identification documents to the IRS, ITIN applicants have other options for submitting original documents including visiting a TAC or a CAA.  The volume of original identification documents submitted to the IRS makes it cost prohibitive for the IRS pay to return all documents by expedited mail. Based on a review of calendar year 2014 receipts of over 850,000 applicants, excluding CAA submissions, the cost to return original identification documents using Registered Mail would be prohibitive.

CORRECTIVE ACTION: N/A

TAS RESPONSE: While acknowledging the costs associated with returning original documents by expedited mail, the National Taxpayer Advocate believes the IRS is imposing a hardship on any applicant who is forced to mail in their original documents because he or she does not have any reasonable, accessible alternatives. As detailed in the MSP, TACs and CAAs are limited in number, in the type of documents they can certify, and in the applicants whom they can assist.  As evidenced by the majority of applicants who mail in their documents as opposed to using a TAC or CAA, the IRS is not providing viable alternatives. If the IRS were to provide reasonable options for ITIN applicants, the number of applicants mailing original documents would likely fall and the costs associated with returning those documents by expedited mail would be far less.  Although the IRS states above that it has taken actions that address this issue, the IRS’s response in essence rejects the recommendation to expedite the return of original documents and provides no alternatives. The IRS also refuses to alleviate the underlying problem that makes expedited return service essential — its demand of taxpayers to submit their original identification documents by mail.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: ​While considering options to implement the recently enacted Consolidated Appropriations Act, 2016, IRS will also consider this recommendation to allow TACs to certify all types of identification documents for ITIN applicants.

In January 2013, TACs began authenticating documents in select locations for ITIN applicants. The decision to provide ITIN authentication at the TACs was in response to a TIGTA audit of the ITIN program. This service alleviates taxpayer burden by allowing them to maintain possession of their original identification documents during the ITIN application process.

IRS accepts passports and national identification cards because they are the most frequently submitted, internationally recognized and have electronically accessible reference materials that detail security features of identification documents. This allows the TAC employees to become proficient in the authentication of identification documents and reduces any potential risks with fraudulent documents submitted as proof of identification.

CORRECTIVE ACTION: N/A

TAS RESPONSE: The National Taxpayer Advocate hopes the IRS will further review the possibility of TACs certifying additional types of documents.  The IRS’s statement that passports and National I.D. cards are the most frequently submitted documents is questionable based on the IRS’s own response to TAS’s information request in 2013, which stated that civil birth certificates and school records had higher usage rates when submitting an ITIN application.  Because under current IRS policy, CAAs cannot certify documents for dependents, it is even more important for TACs to be able to certify documents submitted by dependents, such as school and medical records, which can only be used by dependents.

By accepting ITIN applications throughout the year with proof of a valid tax administration purpose, the IRS could reduce the surge in ITIN applications that come in during the filing season.  As a result, the IRS could dedicate fewer employees to certify ITIN applications at TACs because they could do this work throughout the year, as opposed to having to accommodate most of the applications at once.  This would give the IRS greater flexibility to more thoroughly train these employees so that they could become proficient at reviewing all types of documents.  This solution would reduce the burden on taxpayers and at the same time help the IRS reduce the risk of accepting fraudulent identification documents.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions have been Taken to Address Issues Raised by NTA.  Other interested stakeholders have made requests similar to this recommendation.   As part of the process of implementing the recently enacted Consolidated Appropriations Act, 2016, the IRS will consider this recommendation.

To adequately substantiate identity, foreign status and ensure the integrity of certain tax benefits such as the Child Tax Credit, dependent ITIN applications submitted directly to the IRS will continue to require original documents or copies certified by the issuing agency. The TAC employees in key locations will continue to certify passports and national identification cards for dependents in person. The CAAs are still allowed to authenticate documents for the primary and secondary taxpayers and can send in copies of documents with the ITIN application. For dependents, CAAs are required to submit the original documents or copies certified by the issuing agency.

Although the TIGTA audit (2012-42-8) recommended the elimination of the CAA program, the IRS implemented a new policy eliminating the CAA’s ability to authenticate documents for dependents and requiring CAAs to send in original documentation or certified copies of documentation for dependents to the IRS.  The IRS must weigh the convenience of taxpayers being able to use CAAs with the ability to address these kinds of compliance risks. Any changes to policies regarding acceptance of CAA verified dependent ITIN applications will be dependent on the IRS’ assessment of compliance risks and the ability to address these risks.

Update: On September 8, 2016, we issued communications to the CAA community announcing the decision to allow CAAs to authenticate the passports and birth certificates for dependents. CAAs can now authenticate the passport and birth certificate for dependent.  Additionally, they can continue to authenticate all identification documents for the primary and secondary applicant.

CORRECTIVE ACTION: As we consider available options to implement the recently enacted Consolidated Appropriations Act, 2016, we will also evaluate alternatives to Certifying Acceptance Agents authentication of dependent documents.

TAS RESPONSE: While the National Taxpayer Advocate shares concerns about fraud within the ITIN program, eliminating CAAs’ ability to certify documents for dependents is not narrowly tailored to address any potential fraud — instead, it is a shotgun approach that unduly burdens compliant taxpayers.  Further, it may actually hamper the IRS’s ability to prevent fraud because CAAs often have specialized knowledge of identification documents used in certain communities and regions, and they can assist the IRS in identifying fraud.  The IRS has failed to adopt one of the National Taxpayer Advocate’s primary recommendations, to accept applications throughout the year with proof of a legitimate tax administration purpose, which would clearly reduce fraud by giving the IRS two opportunities to detect it — once at the time of the ITIN application and again at the time a return is filed, using all of its electronic filing fraud detection filters.  The National Taxpayer Advocate hopes the IRS will meaningfully consider expanding options for dependent applicants as it makes changes to implement the Consolidated Appropriations Act, 2016.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions have been Taken to Address Issues Raised by NTA.  The IRS remains committed to the promotion and expansion of the Acceptance Agent  Program in a way that also ensures compliance. Our effective marketing and outreach strategy includes internal stakeholders such as Stakeholder Liaison and National Public Liaison to recruit colleges and universities, financial institutions, community based organizations, and professional practitioners to expand accessibility throughout the United States. Through participation in IRS Nationwide Tax Forums, college symposiums, tax practitioner conferences, and ITIN seminars, we realized annual increases in the number of applicants in the Acceptance Agent Program.

IRS leverages existing relationships with qualified community based organizations to expand services to taxpayers in the communities where they live. We have conducted two pilots to evaluate expanding options for taxpayers. In April 2014, Stakeholder Partnerships, Education and Communication (SPEC) and Field Assistance (FA) initiated a CAA referral pilot. This pilot included authentication of identification documents for primary and secondary applicants only. In August 2015, the CAA dependent pilot was initiated. This pilot allowed authentication of specific identification documents (i.e., passports and national identification cards). IRS will evaluate the results of the pilots to determine if they warrant expansion.

Update: Although the VITA pilot was discontinued on April 18, 2016,the IRS subsequently announced on September 7, 2016, that CAAs now have expanded authority to authenticate identification documents for dependents.  CAAs can now authenticate the passport and birth certificate for dependent.  Additionally, they can continue to authenticate all identification documents for the primary and secondary applicant.

CORRECTIVE ACTION: As we consider available options to implement the recently enacted Consolidated Appropriations Act, 2016, we will explore expanding the VITA CAA pilot to include CAAs who are not associated with VITA/TCE sites.

TAS RESPONSE: As discussed in the MSP, the CAA dependent pilot as structured will likely have only a minimal effect on dependents who currently mail in original documents because they have no other accessible options. Dependents who must send in their original documents are likely to do so either because they live in a location where there is not an accessible TAC (making it unlikely there is an accessible VITA/TCE site), or they need to use documents other than a passport or national I.D. card to prove their identities.  The pilot helps neither of these two groups.  Without expanding the pilot, the IRS misses an opportunity to learn how it can effectively implement expanded options for dependents so that they can apply for an ITIN in person as opposed to mailing original documents.  The IRS should seek input from CAAs and Low Income Taxpayer Clinics to make decisions regarding which dependent documents can be certified by a CAA.  This would help the IRS balance the need for dependent applicants to submit certain types of documents with the ability for CAAs to validate identity and detect fraud based on these documents.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions have been Taken to Address Issues Raised by NTA. The IRS instituted a new program change in 2012 that was designed to strengthen the ITIN process and included allowing the acceptance of certified documents from U.S. embassies and consulates abroad. The IRS and the Department of State discuss ways the two agencies can work together, on an on-going basis, to obtain reasonable assurance that copies of foreign-issued identification documents presented by ITIN applicants are true and correct copies of original documents. Diplomatic missions or consular posts can only authenticate Foreign Ministry or other high level seals. The Department of State legally cannot authenticate foreign seals and signatures of 112 countries that are part of the Hague Convention. Identification documents authenticated by countries under the Hague Convention attach an “Apostille.” This validates the signature of the official authorized to sign the document, but does not validate the content of the identification document (i.e., name, date of birth, etc.).

CORRECTIVE ACTION: N/A

TAS RESPONSE: Under the Consolidated Appropriations Act, 2016, ITIN applicants abroad have extremely restricted options.  They can apply either by mail or in person to an IRS employee or designee of the IRS at a U.S. diplomatic mission or consular post.  Because the IRS closed all of its attaché offices abroad, the only real alternative to mailing their applications internationally is for applicants abroad to apply at a diplomatic or consular post.  The Consolidated Appropriations Act, 2016 gives the IRS the opportunity to work with the Department of State to designate and train employees at these locations to receive ITIN applications and conduct an in person interview to validate the content of the identification documents, similar to what TAC employees and IRS employees in the ITIN unit do now.  By not taking up this opportunity and working with the Department of State to offer this service at posts abroad, the IRS appears to be ignoring the intent of Congress for applicants abroad to be able to apply at a U.S. diplomatic or consular post.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions have been Taken to Address Issues Raised by NTA.  The IRS is currently evaluating available options and the best approach to deliver the required ITIN study. Considerations include seeking input from the Taxpayer Advocate Service, the Department of Treasury, as well as all impacted business units, which will ensure that all interested parties have an opportunity to review and provide feedback on the draft study.

CORRECTIVE ACTION: The IRS also intends to issue official guidance as it relates to the legislation and allow for public comment and feedback. The IRS recognizes the importance of soliciting and considering the input of all affected stakeholders, including the National Taxpayer Advocate, in implementation of the legislation.

TAS RESPONSE: Due to TAS’s unique statutory mission, the IRS would greatly benefit from collaborating with TAS as it conducts the required ITIN study.  TAS is statutorily required to assist taxpayers in resolving problems with the IRS and works hundreds of cases related to ITINs each year.  TAS also oversees the Low Income Taxpayer Clinics (LITCs), who are statutorily required to conduct outreach and education to taxpayers for whom English is a second language.  By excluding TAS, the IRS excludes this valuable resource as well. Although providing TAS with an opportunity to review and comment on the draft study will be useful, collaborating with TAS at the beginning to design the study would offer greater benefits and ensure the study fully takes into account the experiences and needs of taxpayers, including low income taxpayers.

Further, such collaboration at the outset satisfies the intent of Congress in ordering the study.  As such, the actions the IRS has taken do not address the recommendation.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Not Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A

IRS RESPONSE TO RECOMMENDATION: NTA Recommendation Not Adopted as Written, but IRS Actions Taken to Address Issues Raised by NTA.  IRS agrees that taxpayers will need to be made aware that their ITIN is being deactivated and provided guidance on how to reactivate it. While considering options to implement the Consolidated Appropriations Act, 2016, IRS will also consider this recommendation in our determination on the method and timeframe for taxpayer notification.

It should be noted that, in some cases, direct mail may be ineffective and cost prohibitive. For example, for ITINs issued years ago and that have not been used in several years, the IRS address of record may not be the taxpayer’s current address. Mailing notices to older addresses often results in high volumes of undelivered mail and wasted resources.

CORRECTIVE ACTION: The IRS is currently evaluating available options to implement requirements as set forth in the recently enacted Consolidated Appropriations Act, 2016.

TAS RESPONSE: The National Taxpayer Advocate understands the IRS is considering options for notifying taxpayers prior to their ITINs being deactivated and hopes the IRS will consult with TAS as it develops notification procedures. There are multiple taxpayer rights issues that are implicated based on how the IRS proceeds.  For example, the IRS can protect taxpayers’ right to be informed by notifying taxpayers at their last known address prior to the deactivations. Notifying taxpayers during the filing season in which they need an ITIN or after they attempt to file with a deactivated ITIN could infringe on taxpayers’ right to pay no more than the correct amount of tax.  This would occur because applicants may not have time to reapply before the tax return due date in order to receive the CTC and AOTC, which require the ITIN to be processed prior to the return due date.  Furthermore, for taxpayers who believe a deactivation is an error, notifying them only after their ITINs have already been deactivated could prevent them from exercising their right to challenge the IRS and be heard.  The National Taxpayer Advocate is aware of concerns with mailing ITIN deactivation or reactivation notices to an address where the taxpayer no longer resides, and hopes the IRS will work with TAS to address these risks and ensure taxpayer rights are protected.

ADOPTED, PARTIALLY ADOPTED or NOT ADOPTED: Partially Adopted

OPEN or CLOSED: Closed

DUE DATE FOR ACTION (if left open): N/A