NCTC: Improve ITIN Changes to Protect Taxpayers, Voluntary Compliance

Families, the tax professionals trying to help them, and voluntary tax compliance will all suffer from changes in the application process for Individual Taxpayer Identification Numbers (ITINs).

That’s the theme of comments NCTC has shared with the IRS regarding the interim ITIN policy changes announced this summer. The comments also make several recommendations for shaping any longer-term adjustments to ITIN policy that the IRS plans to finalize by early fall.

For tax-administration purposes, ITINs are required of many people who are ineligible for Social Security Numbers. These include foreign nationals, non-resident aliens and others with tax-filing obligations.

But “to protect the integrity of the ITIN process,” IRS officials said in their IR-2012-62 policy change that they would no longer allow the submission of notarized copies of documents establishing identity or foreign status in ITIN applications. Only original documents or copies certified by their issuing agencies would be acceptable, abrogating the verification purpose of Certifying Acceptance Agents (CAAs, many of whom are VITA providers).

In comments informed by the input of the VITA field, NCTC noted these changes place a heavy and unfair burden on ITIN applicants.

Applicants and their family members could be left without vital documents such as passports for up to 65 days, which could present numerous challenges. For example, many people would be prevented from traveling back to their home countries for unforeseen family emergencies. Plus, these vital documents would be more susceptible to loss, and thus identity theft and fraud – and more people will fall out of voluntary compliance with their tax obligations.

A recent report of the Treasury Inspector General for Tax Administration was highly critical of the potential for fraud in the ITIN program, and – among other suggestions – recommended elimination of the CAA initiative. But CAAs perform a vital function of efficiency in helping the IRS and taxpayers alike, according to NCTC.

NCTC wrote, among other things, it would be better to retain CAAs and greatly improve their support and training to help the IRS flag any actual instances of fraud. In addition, enforcement should be stepped-up to punish anyone participating in fraud – avoiding harsh, unfair, and unnecessary consequences for other, honest taxpayers.

NCTC also has helped VITA providers and CAAs connect with the IRS in recent conversations about ways to improve upon the interim policy changes. We’ll provide updates on significant next steps on this significant issue.

By Sean Noble, Director of Public Policy & Research

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