ITIN IN 4-STEP PROCESS
To be eligible for an ITIN, it must first be determined the applicant is not eligible for an SSN and that it’s needed for federal tax reporting purposes. If an SSN can be obtained, that request is made directly through the Social Security Administration; rather than the IRS. Determining one’s federal tax reporting requirements is additionally complex, generally requiring a thorough analysis of an applicant’s U.S. tax filing obligation or that of the U.S. taxpayer for whom the ITIN will benefit.
For example, applying for an ITIN by the nonresident alien (NRA) spouse of a U.S. citizen, for the purpose of claiming the married filing jointly tax status, is a common scenario that requires an ITIN. Without it, the U.S. citizen is not eligible to claim this tax benefit. Even if he NRA spouse does not have a federal tax reporting requirement, by requesting an ITIN, the U.S. citizen will likely benefit from paying less federal and state income tax. This tax benefit alone, generally makes the effort and cost of pursuing an ITIN, financially worthwhile.
IRS Form W-7 must be prepared accurately and submitted to the IRS, along with the applicant’s federal tax return, to be considered for an ITIN. Once the IRS reviews Form W-7 and the accompanying federal tax return (Form 1040), a final determination is made. If successful, the IRS processes the tax return like normal and mails an ITIN acceptance notice to the applicant.
When using a CAA, a copy of the ITIN acceptance notice is also sent to their office. This allows the CAA to electronically submit any state tax returns and to keep it on file for future reference. For taxpayers living abroad, this is especially helpful given documents mailed by the IRS to addresses located outside the U.S. have a reputation of never reaching the intended recipient.
IRS Form W-7 (COA) is used by an employee of the IRS or CAA in place of the original document(s) and it confirms foreign status and identity. If this form is not provided, original documents must be mailed to the IRS along with the paper filed tax return. This is a notable benefit of using a CAA because it keeps important documents, such as an original passport, in the hands of the applicant. Mailing documents to the IRS you need returned, especially those that are difficult to replace, makes most rightfully nervous about receiving them within reasonable amount of time; if ever.
After Form W-7 is prepared and reviewed, and the applicant’s foreign status and identity are verified [Form W-7 (COA)], the final step is to prepare the accompanying income tax return. At Yorktown Main, we have successfully prepared federal and state income tax returns, with the ITIN application submitted being successfully accepted by the IRS, for a number of clients residing in both in the U.S. and abroad.