HIGHLIGHTS:

  • The Internal Revenue Service (IRS) is requiring individuals with inactive or old individual taxpayer identification numbers (ITINs) to renew their ITINs.
  • The renewals, explained through Notice 2016-48, impact individuals who received ITINs prior to 2013. The requirement also applies to individuals who have not used their ITINs for three consecutive years.
  • ITINs that do not fall under either of those categories remain effective indefinitely.

The Internal Revenue Service (IRS) is requiring individuals with inactive or old individual taxpayer identification numbers (ITINs) to renew their ITINs. The renewals impact individuals who received ITINs prior to 2013. The requirement also applies to individuals who have not used their ITINs for three consecutive years. An ITIN can be renewed by filing a Form W-7 with the individual's income tax return or in a separate filing. If a taxpayer uses an expired ITIN, it can delay his or her refund and may cause a taxpayer to be ineligible for certain tax credits, including the Child Tax Credit and the American Opportunity Tax Credit.

The PATH Act

Section 203 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) modified Section 6109 of the Internal Revenue Code, impacting the manner in which ITINs are issued and renewed. This month, the IRS issued Notice 2016-48 explaining how the PATH Act changes will be implemented.

Who needs an ITIN?

The IRS requires every individual who files a United States income tax return to have a tax identification number (TIN). The TIN can be a Social Security number or an ITIN. Individuals with a Social Security number are not eligible to apply for an ITIN.

To obtain an ITIN, an individual must file a Form W-7 attached to the tax return for which the ITIN is needed. The individual is also required to provide certain original documents or copies certified by the original issuing agency, which can create difficulties for the individual. The documentation pertains to the individual's identity, foreign status and residency, such as a passport or birth certificate. The IRS advises that documents should be returned to applicants within 60 days of receipt of the application. In practice, it can take significantly longer. The Form W-7, tax return and required documentation are sent to the ITIN Operation Unit in Austin, Texas.

The process of being without your passport can be quite burdensome. To accommodate such individuals, the IRS allows taxpayers to file a Form W-7 in person at an IRS Taxpayer Assistance Center in the U.S. or at an IRS office abroad. Alternatively, taxpayers may present their documentation to an IRS certified community-based acceptance agent in the U.S. who then submits the Form W-7 on behalf of the taxpayer along with certain documentary evidence.

Prior to the enactment of the PATH Act, an ITIN remained effective indefinitely, unless the taxpayer received a Social Security number. However, the PATH Act now requires certain ITIN holders to renew their ITINs. Those ITINs that do not fall under either of the categories described below remain effective indefinitely.

Who Needs to Renew?

  • ITINs Unused for Three Consecutive Years. Beginning Jan. 1, 2017, individuals who previously received an ITIN but who have not used it on a federal income tax return for three consecutive years will be unable to use their ITIN on a subsequent tax return unless the ITIN is renewed. The ITIN will expire on Dec. 31 of the third consecutive tax year of nonuse. This applies to all ITINs regardless as to when issued.
  • ITINs Issued Before 2013. The PATH Act provides that ITINs issued prior to 2013 will expire in accordance with the following schedule provided that it did not already expire by virtue of three consecutive years of nonuse:
  • ITINs issued prior to 2008 will expire on Jan. 1, 2017
  • ITINs issued in 2008 will expire on Jan. 1, 2018
  • ITINs issued in 2009 or 2010 will expire on Jan. 1, 2019
  • ITINs issued in 2011 or 2012 will expire on Jan. 1, 2020

The IRS recognizes that many individuals do not have records as to when their ITINs were received, which would make reliance on the above renewal schedule difficult. Consequently, the IRS decided to deviate from the schedule set out in the PATH Act, and will instead renew ITINs based upon the fourth and fifth middle digits in the ITIN. Those ITINs that contain middle digits 78 or 79 will expire on Jan. 1, 2017. Such individuals will receive Letter 5821 from the IRS informing them that their ITIN is set to expire. The IRS will issue future guidance explaining the expiration schedule for individuals that contain middle digits other than 78 or 79.

How do Taxpayers Renew?

  • ITINs Unused for Three Consecutive Years. Beginning on Oct. 1, 2016, individuals who need to renew their ITINs can do so by submitting Form W-7 with the required documentation. These individuals do not have to attach Form W-7 to a tax return. They simply reflect on Form W-7 that the ITIN is being renewed.
  • ITINs Issued Before 2013. Beginning on Oct. 1, 2016, individuals who receive Letter 5821 (individuals with ITINs that contain 78 or 79 as the middle digits) can renew their ITINs by filing Form W-7 and attaching the required documentation. The IRS advises each taxpayer to also attach a copy of Letter 5821 to expedite the process. These individuals also have the option of waiting until they file their returns to renew their ITINs and are not required to attach copies of their most recent returns to the Form W-7.

The IRS will allow an individual, the individual's spouse and the individual's dependents to renew their ITINs in one submission if any of the family members have an ITIN that contains 78 or 79 as the middle digits.

What if a Taxpayer Files Without Renewing?

The IRS will accept and process any tax return filed with an expired ITIN. However, there will be a delay in the processing, and certain credits, such as the Child Tax Credit and the American Opportunity Tax Credit, may be disallowed unless the ITIN is renewed. Notwithstanding the foregoing, if an individual with an expired ITIN provides the ITIN for purposes of third-party information reporting, such as a Form 1099, there is no requirement to renew the ITIN until the individual is required to file an income tax return. The third party who files the information report with the expired ITIN will not be subject to penalties

Conclusion

The IRS is requiring many individuals with ITINs to renew them. The renewal procedures differ depending upon when an individual received his or her ITIN and how often it has been used. While a tax return can be filed with an expired ITIN, credits may be denied without a valid ITIN.