The ABC’s of ITIN – Individual Taxpayer Identification Numbers (ITIN)

 In Anti-Money Laundering, Taxes

The individual taxpayer identification numbers (ITIN) is a tax processing number issued by the Internal Revenue Service. It is a nine-digit number that always begins with the number 9 and has a range of 70-88 in the fourth and fifth digit. Effective April 12, 2011, the range was extended to include 900-70-0000 through 999-88-9999, 900-90-0000 through 999-92-9999 and 900-94-0000 through 999-99-9999. IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but who do not have one yet, and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).

ITINs are issued regardless of immigration status because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code.

Banks may use ITINs from customers as part of its Bank Secrecy Act (BSA) compliance procedures. For example, the Customer Identification Program (CIP) required by federal regulations indicates that procedures for account opening at regulated institutions must detail the identifying information that must be obtained from each customer. At a minimum, the bank must obtain the following identifying information from each customer before opening an account:

  • Name
  • Date of birth (for individuals)
  • Address
  • Identification Number

An identification number for a U.S. person is a taxpayer identification number (TIN) (or evidence of an application for one), and an identification number for a non-U.S. person is one or more of the following: a TIN; a passport number and country of issuance; an alien identification card number; or a number and country of issuance of any other unexpired government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. TIN is defined by Section 6109 of the Internal Revenue Code of 1986 (26 USC §6109) and the Internal Revenue Service (IRS) regulations implementing that section (e.g., Social Security number (SSN), individual taxpayer identification number (ITIN), or employer identification number).

The ITIN is also used at year end in multiple reports sent by banks to the IRS; for example, reports of interest payments received or paid.

The IRS began mailing letters early August 2017to more than 1 million taxpayers with expiring ITINs and urges recipients to renew them as quickly as possible to avoid tax refund and processing delays. Taxpayers who receive the notice but have acted to renew their ITIN do not need to take further steps unless another family member is affected.

ITINs with middle digits 70, 71, 72 or 80 are set to expire at the end of 2017. The notice being mailed (CP-48 Notices, You must renew your Individual Taxpayer Identification Number (ITIN) to file your U.S. tax return) explains the steps taxpayers need to take to renew the ITIN if it will be included on a U.S. tax return filed in 2018.

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years will expire December 31, 2017, and as mentioned above, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Affected taxpayers who expect to file a tax return in 2018 must submit a renewal application.

As a reminder, ITINs with middle digits 78 and 79 that expired at the end of last year can be renewed at any time.

Banks should review the current information in their customer base as IRS regulations impose penalties for each of the following infractions related to information returns that are defined under Internal Revenue Code §6724(d)(1):

  • Filed with a missing/incorrect TIN (or other incorrect information),
  • Filed untimely,
  • Filed on paper when electronic filing was required (incorrect media),
  • Filed in an incorrect format, or
  • Any combination of the above

The maximum penalty that may be imposed for one person for all such failures in a calendar year depends on the year in which the return is due. These penalty rates and maximum penalty amounts are subject to inflation increases as required by IRC §6721(f) for returns due on or after January 1, 2016.

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