Comparable to our Bureau of Internal Revenue (BIR)-issued identification number, more popularly known as TIN, the US Internal Revenue Service (IRS) likewise issues an Individual Taxpayer Identification Number (ITIN), which is used as a tax processing number. The ITINs are issued to individuals who are required to obtain one under United States (US) tax law, but who do not have and are not eligible to obtain a Social Security Number (SSN) from the Social Security Administration (SSA).
The main difference between the SSN and the ITIN is the eligibility of the taxpayer. An individual is only allowed to apply for an ITIN if he or she is not a US citizen or resident and not qualified to work in the US (e.g., the individual does not have a US work visa). Unlike SSNs, ITINs do not serve any purpose other than for US tax reporting; it does not authorize the individual to work in the US. Because of its nature, the validity of the ITINs expires, while SSNs are perpetual.
Filipinos who are not living or working in the US may still need to apply for an ITIN for the following reasons:
• They are required to file their US tax return in compliance with US tax laws;
• They are declared as the spouse or dependent of a US citizen or alien resident person required to file a return; and
• They are non-residents claiming a tax treaty benefit.
Take, for instance, those Filipinos who acquire properties in the US for personal investment, or business purposes. The transaction generally triggers tax reporting obligations with the IRS when these properties are sold or rented out. Therefore, even if Filipinos remain outside of the US and are classified as nonresidents, they are still required to file a US tax return to report income they derived from the US. Accordingly, to file their US tax returns, they need to apply for ITINs.
The application for an ITIN can be filed either in or outside the US. The applicant may opt to apply by: (1) mailing the required documents to the IRS; (2) scheduling an appointment at an IRS Taxpayer Assistance Center; or (3) applying through a Certifying Acceptance Agent who may or may not be based in the US.
Acceptance agents are persons (i.e., individuals, entities, or accounting firms) who have entered into formal agreements with the IRS, authorizing them to assist applicants in obtaining ITINs. The Acceptance Agent will submit the original or certified copies of the documents to the IRS on behalf of all applicants they are assisting. While the IRS does not impose a fee for issuing an ITIN, applications filed through an Acceptance Agent may be subject to service or transaction fees charged by the agent.
When applying for an ITIN, the individual must accomplish Form W-7, also known as the Application for an Individual Tax Identification Number, and attach his or her required documents, which generally include the US tax return and the applicant’s original or certified copies of documents (e.g., passports, national IDs) establishing identity and foreign status.
First-time ITIN applicants must complete and attach the Form W-7 to their tax returns that require the ITIN. Applications should be submitted on the due date of the filing of their US tax returns (subject to the applicable extensions).
After the ITIN application process is completed, applicants will receive a letter from the IRS assigning their tax identification numbers. ITINs are usually issued within seven weeks, but it could take up to 11 weeks, if requested during peak season from Jan. 15 through April 30. Applications mailed from abroad may take considerably longer.
Based on the IRS Advisory as posted on their website, all ITINs not used on a federal tax return at least once in the last three years will expire by Dec. 31, 2019. Thus, individuals who are required to file a US tax return by 2020 must verify the IRS instructions and guidelines available on the IRS website to prevent potential delays in the filing of their tax returns.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Aniway L. Asi is a senior manager with the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network