CUNA Regulatory Comment Call


May 14, 2004

Revisions to ITIN Application Process

EXECUTIVE SUMMARY

  • In Notice 2004-1 published in December 2003, the Internal Revenue Service (IRS) announced in changes in the application process for individuals seeking an Individual Taxpayer Identification Number (ITIN). Individuals must furnish a taxpayer identification number (TIN) on any return, statement or other document required to be filed under the Internal Revenue Code (IRC). For taxpayers eligible to obtain a social security number (SSN), the SSN is the taxpayer’s TIN. Individuals who are not eligible to obtain a TIN are required to obtain an ITIN from the IRS. Individuals must apply for an ITIN on Form W-7 (Application for IRS Individual Taxpayer Identification Number).

  • The IRS has revised Form W-7 and the accompanying instructions effective December 17, 2003. ITIN applicants must now use the new Form W-7 and provide proof that the ITIN will be used for tax administration purposes (meaning a completed tax return). In general, an individual is required to attach the individual’s original completed tax return for which the ITIN is needed, such as a Form 1040 (U.S. individual Income Tax Return), to the Form W-7. The Form W-7 and the accompanying instructions are available on the IRS website at the following Internet address: http://www.irs.gov/pub/irs-pdf/fw7.pdf

  • As part of tightening up of the process for issuing ITINs, the IRS will no longer issue an ITIN unless the applicant along with the Form W-7 provides proof of a tax administration purpose. There are certain exceptions to the requirement that a completed return be filed with Form W-7. These 4 exceptions, which are described in detail in the instructions to the revised Form W-7, include:

    1) Ownership of a financial account that generates income. In those cases, an applicant for an ITIN must provide the IRS with evidence that the applicant had opened the account with the financial institution and that the applicant had an ownership interest in the account. This means that credit union accounts for individuals ineligible to obtain a SSN/TIN will have to be opened without an ITIN so the member can provide proof to the IRS of the opened account before receiving the ITIN.

    Many credit unions currently rely on the ITIN for identification purposes when opening up accounts for alien individuals. With this new IRS Notice, credit unions will have to obtain another identification number in order to comply with the PATRIOT Act’s member/customer identification and verification rules. For U.S. persons, credit unions would have to obtain the individual’s SSN or employer identification number (EIN). For non-U.S. persons, credit unions would have to obtain one or more of the following: passport number and country of issuance; alien identification card number; or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard (the term “similar safeguard” is used to permit biometric identifiers may be used in addition to or instead of photographs). Subsequently, credit unions would have to switch the identification number to an ITIN once the member receives it. It will be more burdensome for credit unions to collect the ITIN after the account is opened.

    The Treasury Department and the IRS will consider changes to the requirements of this exception if necessary to ensure the timely issuance of ITINs to holders of these types of financial accounts.

    2) First time filers who secure a home loan may seek an ITIN to provide to their lender so the lender can report the amount of home mortgage interest they receive to the IRS and to the borrower (IRS Form 1098 – Mortgage Interest Statement). Individuals must include documents with the W-7 showing evidence of a home mortgage loan, such as a loan commitment letter from the financial institution.

    3) Foreign scholars, professors, researchers or an individuals receiving pay for personal services must provide Form W-7 along with proof that the application for a SSN (Form SS-5) was rejected by the Social Security Administration and include a Form 8233 (Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual).

    4) In the case where a foreign person wants to apply for a withholding certificate to reduce or eliminate withholding on the disposition a U.S. real property interest, the individual must include with the Form W-7 a completed Form 8288-B (Application for Withholding Certificate for Dispositions by Foreign Persons of Real Property Interests) and a contract for the sale.

  • In addition, credit unions and other financial institutions now may participate in the IRS’ acceptance agent program. Basically, acceptance agents facilitate the application process and the issuance of ITINs to alien individuals and foreign persons. An acceptance agent forwards the completed Form W-7 together with the required documentary evidence to the IRS to obtain the ITIN. The guidance for the acceptance agent program is laid out in Revenue Procedure 96-52. Rev. Proc. 96-52 can be found on pages 10-14 of Internal Revenue Bulletin No. 1996-48: http://www.irs.gov/pub/irs-irbs/irb96-48.pdf

  • CUNA’s Final Analysis with additional information on the changes in the ITIN application process is available at the Internet address below: http://www.cuna.org/reg_advocacy/member/analysis/irs_010704.html

  • Comments are due to the IRS by June 15, 2004. Please send your comments to CUNA by June 4, 2004. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004-2601. You may also contact us if you would like a copy of IRS Notice 2004-1, or you may access it on the Internet at the following address: http://www.irs.gov/pub/irs-drop/n-04-1.pdf

    • QUESTIONS REGARDING THE IRS NOTICE

    1. How can Form W-7 and the instructions be simplified or clarified?











    2. The instructions to Form W-7 provide 4 exceptions to the requirement that a completed tax return be attached to Form W-7. Should these exceptions be modified?
      Yes ______ No ______

      If yes, which exception(s) should be modified and how should the exception(s) be modified?











    3. Do you believe clarification is needed concerning what proof is required by the member to show ownership in an interest-bearing account?
      Yes ______ No ______

      If yes, please explain.











    4. The ITIN applicants may submit a Form W-7 to an acceptance agent. The acceptance agent reviews the applicant’s documentation and forwards the completed Form W-7 to the IRS. What steps, if any, should the IRS consider to improve the acceptance agent program to minimize the burdens on acceptance agents?











    5. Other comments?











    Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
    Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
    Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com
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