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IRS Appears to Be Working on ITIN Requests 

Posted on Nov. 10, 2022

As the IRS works to clear the backlog of paper tax returns that amassed during the COVID-19 pandemic, it also appears to be trying to catch up on requests for individual taxpayer identification numbers.

The IRS said in a November 7 update that it is now processing requests for ITINs on Forms W-7 that were received in mid-August, after saying October 14 that it was processing ITIN requests that were received in July. Forms W-7 are used by individuals who aren’t eligible for Social Security numbers to apply for an ITIN, but they can’t be filed electronically.

The IRS’s processing time for Forms W-7 generally increased from about 10 days near the beginning of 2022 to about 60 days in September, according to data from the Taxpayer Advocate Service. As of early November, the number of days it’s taking the IRS to process Forms W-7 has declined slightly from its peak to about 50, according to TAS.

Nina Olson of the Center for Taxpayer Rights told Tax Notes that the IRS has a long history of Form W-7 backlogs and that “it has only gotten worse with the requirement to renew ITINs.”

“Everything has to be done on paper, and it is clear during the pandemic that the IRS prioritized non-ITIN returns over ITIN ones,” said Olson, who served as the national taxpayer advocate from 2001 to 2019 and is a member of the Tax Analysts board of directors.

Current National Taxpayer Advocate Erin Collins said in an April 13, 2021, blog post that there was a growing backlog of ITIN applications. ITIN taxpayers experienced delays in having their applications and paper tax returns processed, which means taxpayers had to wait months for refunds.

Olson said a flaw in the program is that the IRS requires most ITIN applicants to submit their paper application alongside their paper Form 1040. That is theoretically “supposed to clearly demonstrate there is a tax administration purpose for obtaining the ITIN,” she said, but in reality it “brings into the IRS a ton of paper returns and paper W-7s, at the very time (peak of filing season) when it is least equipped to process them.”

“Add to that toxic mix the pandemic, when anything paper was messed up, and given the historic low priority the IRS places on ITIN processing, the situation just gets abysmal,” Olson added.

Frank Agostino of Agostino & Associates PC told Tax Notes he doesn’t think issuing ITINs is a high enough priority for the IRS.

The delays mean that taxpayers have to wait longer for their tax refund, he said.

“I would prioritize getting money to the poorest people,” said Agostino, who provides tax help to low-income taxpayers at the Taxpayers Assistance Center Inc.

Practitioner Frustrations

Robert G. Nassau, director of the low-income taxpayer clinic at Syracuse University College of Law, said that in his experience, ITINs were processed a little slower than normal during the pandemic, but seemed to be less severely affected than other things.

“It maybe added a month or two at most,” Nassau said.

But Sarah Lora, director of Lewis & Clark Law School’s low-income taxpayer clinic, told Tax Notes that she still sees problems with ITIN applications and renewals that were filed at the height of the pandemic. “Maybe the ITIN was issued, or maybe the ITIN was renewed, but there’s still problems with the return,” Lora said.

In an April 2021 article published in Tax Notes State, Lora explained that the IRS stopped issuing ITINs to most spouses and dependents from Canada and Mexico because of changes enacted in the Tax Cuts and Jobs Act.

Now the IRS is issuing ITINs only to people who create a monetary tax benefit on a return, and if the agency decides that claimed credits aren’t going to be issued, it issues math error notices, Lora said. Taxpayers have fewer opportunities to contest adjustments in math error notices.

“My understanding is that the ITIN unit is not the unit doing the assessment, so I’m not sure exactly how it is working, but someone is assessing tax different from the filed return (changing filing status, changing tax credits, changing dependents) without regular exams,” Lora said.

For example, Lora said she has a client who requested ITINs for her two sons who live with her in the United States for purposes of claiming the other dependent credit in tax year 2021. She said the client filed the 2021 return with Forms W-7 on April 7, 2022, and reported that she received the ITINs for her sons but also received a math error notice denying the credits on the return.

“I have no clue why they denied the credits yet issued the ITINs,” Lora said. “My only guess is that they processed the ITIN applications after the due date of the return, even though we did file an extension.”

Lora said she takes the position, based on guidance, that an extension isn’t needed as long as the Form W-7 is postmarked before the due date of the return.

The IRS didn’t respond to a request for comment by press time.

Paper Backlog Improvements

In addition to the uptick in processing ITIN applications, the IRS has recently made substantial progress in processing paper returns.

In its most recent update, the agency said that as of October 28 it had 4.4 million unprocessed returns, including tax year 2021 returns and late-filed prior-year returns. That means the backlog shrunk by 700,000 returns since the IRS’s update on October 21, when it said there were 5.1 million individual tax returns still awaiting processing.

Incoming acting IRS Commissioner Douglas O’Donnell recently reiterated departing IRS Commissioner Charles Rettig’s backlog pledge, saying the IRS’s goal remains shrinking the paper backlog to “healthy levels” by the end of the year. “That is our goal. We have stated it; that’s what we’re aiming for,” he said in a November 1 speech at the American Institute of CPAs National Tax Conference.

However, in subsequent remarks at that conference, Collins observed that the IRS’s definition of healthy is ambiguous. She noted that the IRS has indicated that it historically carries over 1 million unprocessed Forms 1040 from one filing season to the next. Two years ago, the IRS carried over about 11 million, and it had around 6 million at the end of last year.

But that doesn’t provide the whole picture, Collins said. “How do you . . . slice and dice the numbers?” she asked. “To me, getting healthy is [having] all of that behind us. And I would like to be optimistic, but I don’t see that all of that will be cleared before the end of December.”

Collins later told Tax Notes that the IRS has made “substantial progress” in getting through its unprocessed Form 1040 backlog recently, moving closer to its 1 million target. But that target doesn’t account for all Forms 1040 filed in 2022, the millions of individual tax returns in “suspense” status, or amended returns, among others, she said.

“To prevent delays next filing season, the IRS needs to have the majority of all categories of returns . . . filed in 2022 processed and refunds issued by year-end,” especially those filed before the October 17 extended filing season deadline, Collins concluded.

Jonathan Curry contributed to this article.

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