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August 10, 2017 Pro Bono Matters

Shining a Light on the PATH

By Francine J. Lipman, William S. Boyd Professor of Law, William S. Boyd School of Law, University of Nevada, Las Vegas, NV

We cannot hold a torch to light another’s path without brightening our own.
—Ben Sweetland

The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act), enacted on December 18, 2015, among other provisions requires many millions of taxpayers to renew their Individual Taxpayer Identification Numbers (ITINs) over the next several years. ITIN holders are taxpayers who do not qualify for a Social Security Number. Since 1996, the Service has issued more than 21 million ITINs, although just over 5 million are currently being used on tax returns.1 Prior to the PATH Act, ITINs, like Social Security Numbers, were issued after a qualifying application without an expiration date. ITINs are nine digits long beginning with a 9 and have middle digits in ranges from 50–65, 70–88, 90–92, and 94–99. The Service issues ITINs in a letter as compared to the Social Security Administration’s issuance of Social Security Numbers on a card. ITINs do not authorize work and are only issued to individuals with a tax filing obligation.2

Under Section 203(a) of the PATH Act, codified in Section 6109(i)(3), ITINs issued before 2013 are set to expire over several years beginning on January 1, 2017, and ending on January 1, 2020. In addition, ITINs that are not used on a federal income tax return for three consecutive years will expire on the first day of the next calendar year. For example, an ITIN not used on a tax return as either a primary or secondary taxpayer, or a dependent filed in 2014, 2015, or 2016, expired as of January 1, 2017.

In early August of 2016, the Service issued a News Release,3 notifying non-filing ITIN holders as well as about 400,000 more ITIN holders with the middle digits of 78 or 79 of the pending expiration of their ITINs as of January 1, 2017. The Service also mailed approximately 400,000 letters to ITIN holders with middle digits 78 or 79 that had been issued between 1996-2000. In October of 2016, the Service began accepting ITIN renewals in accordance with Notice 2016-48.4 About 90,000 ITIN holders renewed their ITINs during the renewal period from October – December 31, 2016.

Consistent with the PATH Act, the Service deactivated 12.4 million ITINs as of January 2017.5 During the 2017 filing season through about the end of April, 163,000 ITIN returns were filed with expired ITINs. About 110,000 of those returns filed with expired ITINs were eventually processed with renewed ITINs. Returns filed with expired ITINs are processed and notices are sent to ITIN taxpayers notifying them that their ITIN has expired and must be renewed. Until the ITIN is renewed, a return with an expired ITIN will be processed and treated as timely filed, but it will be processed without any exemptions and/or credits claimed and no refund will be paid.6 Once the ITIN is renewed, any exemptions and credits will be processed and any allowed refund will be paid. If the ITIN isn’t renewed, the taxpayer may be subject to interest and penalties for any tax owed due to disallowed exemptions and credits. If the taxpayer does not timely respond, the Service has math-error authority to process these returns without any exemptions, credits and other tax benefits related to the expired ITIN. Through the end of April, 2017, the Service made approximately 183,000 math-error adjustments on ITIN returns.7

After lessons learned from its first ITIN expiration period, the Service has accelerated the process. On June 21, 2017, it announced the next batch of ITINs scheduled to expire as of January 1, 2018. These are ITINs with the middle digits of 70, 71, 72, or 80. The Service has estimated that this is about 1.2 million ITINs. In addition, the Service expects approximately 100,000 more ITINs will expire due to failure to file in the last three calendar years. Immediately after this announcement the Service began accepting renewals for these taxpayers. The Service will also continue to accept renewals for ITIN holders with middle digits of 78 or 79. Moreover, family member ITIN holders whose numbers have not expired but are included on the same tax return, and for whom a renewal at the same time would be efficient, may also renew their ITINs now.

While ITIN holders do not have to file their Form W7 renewal applications with a tax return, they do have to submit original identification and foreign country identification documents (e.g., passports, birth certificates, driver’s license, etc.). Not surprisingly, many immigrants will not want to send original documents to the IRS. In lieu of sending original documentation, taxpayers may be eligible to use an IRS authorized Certified Acceptance Agent (CAA)8 or make an appointment at a designated IRS Taxpayer Assistance Center location. CAAs often charge significant fees for authentication services rendered. The Consumer Federation of America, among others including myself, have written about the high cost of tax assistance services for low-income taxpayers and the potential for consumer abuse including price gouging.9

To better serve this population who are disproportionately lower-income, increasingly chilled by anti-immigrant rhetoric, and now burdened by this time-consuming and potentially expensive renewal process, the Service is actively recruiting CAAs. The goal is to increase the availability of CAAs nationwide, particularly in communities with higher concentrations of ITIN holders.10 As a low-income taxpayer advocate, I recently became a CAA and have been providing pro bono CAA services to underserved immigrants in my community. I hope you will consider joining me in shining a light on the PATH to tax justice and become a CAA. If you are involved with a Volunteer Income Tax Assistance program in your community, adding a CAA to the team is especially valuable to provide this service during tax season. While it is preferable that ITIN holders renew now, many wait until tax season and then file their ITIN renewals with their income tax returns. This certainly delays the refund process, but it is perhaps more cost beneficial to have the tax return prepared and filed together with the Form W7 and saves precious time and energy.

The CAA application process involves three steps. The first is to complete an Application to Participate in the IRS Acceptance Agent Program (Form 13551). Next, the applicant must complete the Mandatory Acceptance Agent training and submit the certification form.11 Finally, the applicant must complete forensic training and submit the certificate of completion to the Service.12 The Service will perform background checks and tax compliance checks after they receive the completed application. After three to four months, you should receive a contract to serve as a CAA and you too can begin to serve as a passion warrior for tax justice and join me in shining a light on the PATH to accessible tax compliance.

This little light of mine
I’m going to let it shine
Oh, this little light of mine
I’m going to let it shine
Let it shine, let it shine, let it shine13

5 Taxpayer Advocate Service, Fiscal Year 2018 Objectives Report to Congress, 2017 Filing Season, Deactivation of Individual Taxpayer Identification Numbers, at 11.

6 Individual Taxpayer Identification Number, FAQs.

7 Taxpayer Advocate Service, Fiscal Year 2018 Objectives Report to Congress, 2017 Filing Season, Deactivation of Individual Taxpayer Identification Numbers, at 11 (noting that more than one math-error adjustment may occur on a return with an expired ITIN).

9 Francine J. Lipman, The Working Poor Are Paying for Government Benefits: Fixing the Hole in the Anti-Poverty Purse, 2003 Wisconsin Law Review 461 (available on SSRN).

13 “’This Little Light of Mine’ is a gospel song that came to be an anthem of the civil rights movement in the 1950s and ‘60s. Often mistakenly believed to have been sung on plantations during slavery, it was originally written by Harry Dixon Loes around 1920 as a children’s song.” Operation Respect, This Little Light of Mine. To listen to a Smithsonian Museum version of This Little Light of Mine, click here.