Canada: New Individual Tax Identification Renewal Rules

Co-authored by Alexey Manasuev of U.S. Tax IQ first appeared in Canadian Tax Highlights, Volume 25, Number 5, May 2017

The IRS started to accept 2016 individual tax returns on January 23, 2017. A nonresident alien individual must renew his or her Individual Taxpayer Identification Number (ITIN) in order to file a 2016 tax return. Failure to renew an ITIN at this time is almost certain to delay any refund claimed on the 2016 return. Moreover, a taxpayer who must apply for or renew his or her ITIN but who resides outside the United States (including many a Canadian), must now budget more time for that process and also part with his or her passport for several weeks.

Amended Code section 6109 (section 203 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), Pub. L. 114-113, div. Q, enacted December 18, 2015) made significant changes to the ITIN program in two major areas: (1) the ITIN expiration and renewal process; and (2) additional documentation requirements.

There was a third quite significant change, but it is moot as of the date of this article. Specifically, the IRS terminated the Certifying Acceptance Agent (CAA) Program outside the United States as of January 1, 2017. However, effective April 17, 2017, the IRS has restored the CAA Program outside the United States and the nonresident alien individuals can apply for ITIN through a CAA located outside the United States, CAA located in the United States, and via the IRS Taxpayer Assistance Center (TAC).

ITIN Renewal

Late in 2016, the IRS warned that a taxpayer who must renew an ITIN must file a renewal application by January 23, 2017 in order to accelerate the ITIN re-issuance time to about seven weeks. Now the likely processing time is 11 weeks or more.

Two broad categories of taxpayers must renew their ITINs. First, an ITIN that is not used on a tax return at least once in the last three years is invalid on the last day of the third tax year (Code section 6109(i)(3)(A)). This rule applies even if a federal return was not filed in those tax years but was required to be so filed: for example, not filing for 2013-2015 tax years means that the ITIN expires December 31, 2016 and that includes the ITIN of anyone listed as a dependant on the tax return. Second, a taxpayer whose ITIN's middle digits were "78" or "79" – for example, 9XX-78-XXXX or 9XX-79-XXXX – must renew the ITIN, even if the taxpayer used it in the last three years. When an ITIN renewal application is made, it is not necessary to attach a tax return to form W-7, Application for IRS Individual Taxpayer Identification Number. The IRS allows all family members to renew their ITINs at once. Affected taxpayers should have received a letter from the IRS inviting ITIN renewal.

Additional Documentation Requirements

Pursuant to the new IRS policy, only a passport with a US entry date qualifies as a stand-alone identification document for a dependant. A taxpayer whose passport lacks the date of US entry into the United States must present additional supporting documentation to prove US-resident status. Acceptable documents include US medical records (for a dependant under 6 years old), US school records (for a dependant under 18 years old); and a school record for a student, a rental or bank statement, or a utility bill that shows the dependant's name and US address (for a dependant at least 18 years and older). The rule on additional document requirements does not apply to a dependant from Canada or Mexico or to a dependant of US military personnel stationed overseas.

Conclusion

Persuading a non-US person to file a US tax return is even more challenging than before due to significant tax compliance costs, the high complexity of US tax law, and additional filing requirements.

It is clear that an ITIN applicant must anticipate more delays in the processing of his or her 2016 tax return and any related refund. A taxpayer who must renew his or her ITIN should do so as soon as possible to receive any refund within a reasonable, although extended, time.

Moodys Gartner Tax Law is only about tax. It is not an add-on service, it is our singular focus. Our Canadian and US lawyers and Chartered Accountants work together to develop effective tax strategies that get results, for individuals and corporate clients with interests in Canada, the US or both. Our strengths lie in Canadian and US cross-border tax advisory services, estateplanning, and tax litigation/dispute resolution. We identify areas of risk and opportunity, and create plans that yield the right balance of protection, optimization and compliance for each of our clients' special circumstances.