ITIN renewals: When ITINs will expire and how taxpayers and their advisors can prepare
New rules that call for expiration, deactivation and renewal of ITINs impact millions of taxpayers
In December 2015, legislation requiring some taxpayers to renew their Individual Taxpayer Identification Numbers (ITINs) was enacted. The new law mainly impacts taxpayers who obtained ITINs before Jan. 1, 2013, and ITIN holders who haven’t been filing tax returns.
The new rules will surprise most ITIN holders. Their ITINs will now have an expiration date. If ITIN holders don’t renew their ITINs on schedule, the issue could snowball, delaying their refunds and preventing them from claiming certain credits until their ITINs are renewed.
What is an ITIN?
The IRS issues ITINs only to individuals who aren’t eligible to obtain Social Security Numbers (SSNs), but who need to file a U.S. tax return or pay U.S. taxes.
For example, the IRS issues ITINs to the spouses and children of individuals in the U.S. on temporary work visas. When the IRS originally issued ITINs, they had no expiration date (like SSNs).
ITINs will expire on a staggered schedule
Under Notice 2016-48, ITINs issued before 2013 will expire on a staggered schedule based on the middle digits of the ITIN. ITINs are nine-digit numbers, formatted like SSNs, that begin with 9.
|Staggered ITIN Renewal Schedule|
|ITIN Range||Scheduled Renewal Begins|
|9XX-70-XXXX||June 21, 2017|
|9XX-71-XXXX||June 21, 2017|
|9XX-72-XXXX||June 21, 2017|
|9XX-78-XXXX||Oct. 1, 2016|
|9XX-79-XXXX||Oct. 1, 2016|
|9XX-80-XXXX||June 21, 2017|
|Other ranges||To be determined|
In the summer of 2017, the IRS sent CP48, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return, to taxpayers with 2017 renewal dates. For the 2016 renewals, the IRS sent Letter 5821. These letters were sent to individuals with ITINs on the renewal schedule who had filed tax returns within the past three years. The letter explains that these taxpayers should file Form W-7, Application for IRS Individual Taxpayer Identification Number, to renew their ITINs. Over the next several years, the IRS will likely follow a similar process to notify other ITIN holders that they need to renew.
Although the IRS has issued more than 21 million ITINs, it’s not exactly clear how many ITIN holders need to renew their ITINs based on the staggered renewal schedule. Some ITIN holders may no longer need an ITIN because they no longer have U.S. income or a U.S. filing requirement. And other ITIN holders have since obtained an SSN and already closed out their ITIN accounts.
In tax years 2012, 2013, and 2014, taxpayers filed an average of 4.6 million tax returns each year with an ITIN listed for the taxpayer, spouse, or dependent. While the exact number of scheduled renewals is unknown, the number should be significant, because the IRS has been issuing ITINs since 1996.
ITINs will also expire if they aren’t being used
An ITIN will expire if the ITIN holder didn’t file a tax return or wasn’t included as a dependent on the tax return of another taxpayer for three consecutive years. In this case, the ITIN will expire on the last day of the third consecutive year.
AIthough it might appear that many ITIN holders are on the staggered renewal schedule and have some time before their renewal, that might not be the case. In 2014, the IRS indicated that three-fourths of ITINs are not being used on tax returns. It could actually be the case that a majority of ITIN holders will see their ITINs automatically expire because the ITINs aren’t being used.
It’s unclear how many of these ITIN holders may use an ITIN for financial transactions (such as banking) and don’t make enough income to have a tax-filing requirement. ITIN holders who don’t have a tax-filing requirement aren’t required to renew their ITINs. However, if they later need to file a tax return, they will need to renew at that time.
How quickly will the IRS enforce this provision?
The IRS is now in the second year or the renewal program.
To renew, taxpayers must complete Form W-7 and follow current guidelines to prove their identity and foreign status. Taxpayers don’t have to send the renewal application in with a tax return. This allows them to submit renewal applications early to avoid filing season delays. If taxpayers renew as soon as possible, it will help ensure a timely refund and eligibility for certain tax credits next filing season.
How to prepare for the staggered ITIN renewal process
To make the future renewal process smoother, ITIN holders and their advisors should take several steps now:
Find out when the IRS issued the ITIN.
Before December 2003, the IRS issued ITIN cards. Now, the IRS issues ITIN authorization letters on watermarked security paper (CP565 or CP565 (SP), ITIN Assignment Notice). If ITIN holders aren’t sure when they received their ITINs, they should write to the IRS ITIN Operation using the mailing address in the Form W-7 Instructions. ITINs issued before 2013 will be on the staggered renewal schedule.
Keep records of the date the IRS issued the ITIN.
File any outstanding required tax returns as soon as possible.
ITIN holders in this situation may want to consult a tax advisor for assistance.
Gather and keep the necessary documentation to file a new ITIN application.
Individuals whose ITINs will be expiring should ensure that they have current documents showing proof of identity and foreign status. For example, in the past, the IRS has accepted an original and unexpired passport as proof of identity and foreign status. The Form W-7 Instructions contain a list of other documents that prove either identity or foreign status.
Stay in contact with a Certifying Acceptance Agent (CAA) regarding possible future renewal procedures.
CAAs are individuals or entities that have entered into formal agreements with the IRS that allow them to help individuals obtain and renew ITINs.
How to prepare for an unscheduled ITIN expiration
ITIN holders who haven’t filed a tax return recently may want to consult a tax preparer for help. They need to determine whether they were required to file a U.S. tax return. Even if they weren’t required to file, they may benefit by filing (for example, to get a refund or claim a credit). These individuals should renew their ITINs in the fall.
Some ITIN holders don’t have a tax-filing requirement but use their ITIN for non-tax reasons, such as for holding a financial account or having a home mortgage loan on U.S. real property.
While these individuals aren’t required to renew their ITINs, they may want to stay in touch with a CAA regarding possible future renewal procedures if they ever need to file a return. It’s also a good idea for them to have original and current documentation showing proof of their identity and foreign status.
Future IRS guidance may address whether there will be an express process for closing ITIN accounts if ITIN holders no longer need them.
Watch for further developments and program changes
The ITIN program underwent significant changes in 2013, which corresponded to a drop in ITIN approvals. As the IRS develops procedures to implement new laws, ITIN holders, CAAs, and the tax community need to be ready for the new rules and program changes that will follow.
The next article in this series explains how the date taxpayers get an SSN or ITIN now affects whether they’re eligible for refundable tax credits – and what to do about it. The last article in this series discusses Certifying Acceptance Agents (CAAs) and their role in helping taxpayers apply for ITINs.