According to a new policy unveiled by the IRS on Tuesday, Individual Taxpayer Identification Numbers (ITINs) will expire if not used on a federal income tax return for five consecutive years.
The IRS said the new ITIN policy is more uniform and applies to any ITIN, regardless of when it was issued. Only about a quarter of the 21 million ITINs issued since the program began in 1996 are being used on tax returns, the agency noted.
The new policy will ensure that anyone who legitimately uses an ITIN for tax purposes can continue to do so, while at the same time resulting in the likely eventual expiration of millions of unused ITINs. It replaces the existing ITIN policy that was announced in November 2012 and went into effect on January 1, 2013.
Under the new policy, an ITIN will expire for any taxpayer who fails to file a federal income tax return for five consecutive years. The ITIN will remain in effect as long as a taxpayer continues to file US tax returns. This includes ITINs issued after January 1, 2013. These taxpayers will no longer face mandatory expiration of their ITINs and are not required to reapply in 2018, as was the case under the old policy.
In addition, to allow the IRS to reprogram its systems and to give taxpayers and other stakeholders time to adjust, the IRS will not begin deactivating unused ITINs until 2016. This grace period will allow anyone with a valid ITIN, regardless of when it was issued, to still file a valid return during the upcoming tax-filing season.
The IRS noted that a taxpayer with an expired ITIN can reapply using Form W-7, Application for IRS Individual Taxpayer Identification Number. The taxpayer must submit original documents, such as passports, or copies of documents certified by the issuing agency with the Form W-7.
According to the IRS, ITINs play a critical role in the tax administration system and assist with the collection of taxes from foreign nationals, resident and nonresident aliens, and others who have filing or payment obligations under US law. ITINs are only issued to people who are not eligible to obtain a Social Security number.
But there have been flaws in the ITIN program. On July 16, 2012, the Treasury Inspector General for Tax Administration (TIGTA) issued a report, Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications, which revealed that the IRS gave away millions of dollars in bogus tax refunds to “unauthorized” immigrant workers for tax year 2011.
According to the report, two IRS employees went to Congress “alleging that IRS management was requiring employees to assign ITINs even when the applications were fraudulent.”
Treasury Inspector General J. Russell George said at the time that the audit “found that IRS management has not established adequate internal controls to detect and prevent the assignment of an ITIN to individuals submitting questionable applications. Even more troubling, TIGTA found an environment which discourages employees from detecting fraudulent applications.”
The report also found that tax examiners were inadequately trained and routinely missed errors on the applications for ITINs. Even so, those tax examiners did not receive poor performance ratings in spite of the costly errors.
The IRS unveiled its revamped ITIN policy in November 2012. Under that policy, ITINs issued after January 1, 2013, would have automatically expired after five years, even if used properly and regularly by taxpayers. Though ITINs issued before 2013 were unaffected by that change, the IRS said at the time that it would explore options for deactivating or refreshing information relating to older ITINs.
The IRS said on Tuesday it will provide information, such as how and when taxpayers with expired ITINs will be notified, at a later date.