Is “It’s Almost Impossible for Me to Get a U.S. Taxpayer Identification Number”; a Defense to Not Filing U.S. Tax Returns?
The U.S. federal government has made the basic task of getting taxpayer identification numbers (“TINs”) very difficult for many individuals. Without a TIN, an individual cannot file tax returns or information reporting returns.
- U.S. Citizens and SSNs – No Exceptions
U.S. citizens (USCs) residing overseas without a social security number (“SSN”) must use a SSN for their TIN. I presented a recent report to various government officials, including the international tax counsel at the U.S. Treasury Department and the Joint Committee of Taxation, among other groups. Some key excerpts of that paper titled URGENT NEED FOR U.S. CITIZENS RESIDING OUTSIDE THE U.S. TO BE ABLE TO OBTAIN A TAXPAYER IDENTIFICATION NUMBER (“TIN”) OTHER THAN A SOCIAL SECURITY NUMBER are set out below in this section:
The U.S. tax law imposing taxation on the worldwide income of USCs[1] residing overseas has created a dilemma that prejudices these USCs without a SSN. This strict SSN/TIN regulatory rule undermines the basic tax administration system and discourages tax compliance for those USCs who never obtained a SSN. This dilemma affects numerous USCs throughout the world, which is now compounded by the certification and reporting requirements of USCs and third parties, such as FFIs and NFFEs[2] under the Foreign Account Tax Compliance Act (“FATCA”).
This dilemma is a creature of the Title 26 regulatory law going back to 1974[3] and how the Social Security Administration (“SSA”) imposes strict requirements on the issuance of SSNs to residents overseas.[4] One essential step is that the USC overseas must have an in-person interview, with a designated individual (who are typically U.S. Department of State employees and some designated military personnel). They are located in only a few cities around the world.[5] Some USCs need to travel thousands of miles to merely be able to apply for and obtain a SSN.
[1] See, IRC § 61 and Treas. Reg. §§ 1.1‑1(b) and 1.1‑1(a)(1).
[2] See, IRC §§ 1471 et. seq. and the regulations thereunder which define “foreign financial institutions” (“FFIs”) and “non-financial foreign entity” (“NFFEs”).
[3] See, Treas. Reg. § 301.6109-1(a)(1)(ii)(A).
[4] See, 7 FAM 534.3 Applications for a Social Security Number (Form SS-5-FS).
[5] Id, page 7 FAM 534.3 Applications for a Social Security Number (Form SS-5-FS).
Further posts will discuss a number of the adverse consequences imposed on USCs who do not have a SSN and the severe penalty regime that exists under current law for those unwitting individuals.
- Non-U.S. Citizens and ITINs –
Many individuals who are not USCs nevertheless need to file a tax return and must obtain what is called an individual taxpayer identification number (“ITIN”). See IRS report Obtaining an ITIN from Abroad. An ITIN is applied for by filing an IRS 
Form W-7, and providing various original documents, principally a passport, directly to the IRS. The process is complex and time consuming. Indeed, the Taxpayer Advocate report included a key summary explanation of the problems associated with obtaining ITINs as follows:
- IRS ITIN Policy Changes Make Return Filing Difficult and Frustrating
Recent changes to the IRS’s Individual Taxpayer Identification Number (ITIN) application program are burdening taxpayers and may harm voluntary compliance.
ITINs play an important role in tax administration, as any individual who has a federal tax filing obligation but is not eligible for a Social Security number must apply to the IRS for an ITIN and then use the ITIN on any return, statement, or other document which requires a taxpayer identifying number
Under the new procedures, most applicants must now submit original documentation by mail or travel to Taxpayer Assistance Centers (TACs) to have documents certified, making the application process more difficult
Since December 17, 2003, the IRS has required ITIN applicants with a filing requirement to attach a valid federal tax return with their application (unless they qualify for an exception).
On June 22, 2012, the IRS implemented temporary changes that required all ITIN applicants to submit original documents supporting the information on their applications. Under these procedures, applicants could no longer submit notarized copies and had to send in original documentation, even if a certified acceptance agent (CAA) reviewed and certified the documentation.
On November 29, 2012, the IRS announced revised procedures for the 2013 filing season that require applicants to submit original documentation or copies certified by the issuing agency.
Although the IRS allows CAAs to submit copies of documentation for primary and secondary taxpayers after reviewing original documentation or certified copies, CAAs must still send in original documentation for all dependent applicants.
A limited number of TACs can certify documents for primary, secondary, and dependent taxpayers.
The Revised Procedures Create an Impediment for Taxpayers Required to File Returns.
The recent changes to the ITIN program have made it difficult for taxpayers to file returns.
More on ITINs to follow in later posts.
- Legal Defense?
The complexities of obtaining a U.S. TIN begs the question: “Is it a legal defense for a taxpayer to NOT file U.S. tax returns, international information returns, if it is particularly difficult (or nearly impossible in some cases) for that individual to even obtain a TIN?”
Will such a taxpayer have a “reasonable cause” defense to avoid penalties in the case of an audit? These are questions unanswered by any case law to date.
USCs throughout the world are required by FATCA to provide their U.S. TIN to financial institutions throughout the world (on IRS Form W-9, or its equivalent), which under current law necessarily must be a SSN. Of course, if they have no SSN, they cannot sign IRS Form W-9 which provides in Part II: “Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number . . . “
As FATCA requires overseas individuals, including USCs to certify under penalty of perjury their U.S. taxpayer identification number (and if they have none), they necessarily will not be able to comply with this basic reporting requirement.
Will these individuals have a defense under the law for not complying under these circumstances?
Will the government provide relief for these individuals?