To: All Affiliated Credit Union CEOs
From: Matt Beard - Regulatory Specialist
Date: February 24, 2006
RE: IRS Proposes to Stop Issuing ITINs for Opening Accounts
The Individual Taxpayer Identification Number (ITIN) Program Office of the IRS is considering no longer issuing ITINs to anyone who is a nonresident alien (NRA) and whose only purpose for obtaining an ITIN is to open an interest bearing deposit account. Financial institutions are not subject to reporting requirements or back-up withholding on NRAs; therefore, the IRS believes there is no “tax purpose” for issuing an ITIN for this purpose. Please submit your comments to MCUL by March 8, 2006. Comments are due to the IRS by March 15, 2006.
The Individual Taxpayer Identification Number (ITIN) Program Office of the IRS has been looking into the issuance of ITINs for the last several years. ITINs are issued for individuals that file tax returns; however, the IRS has issued several ITINs that are not subsequently used in tax forms. In 2004, the IRS revised the ITIN application process to require applicants to submit proof that an ITIN will be used for tax administration purposes. This could be with a tax return, evidence that the applicant has opened an income bearing deposit account subject to withholding requirements, or other evidence with their requests for ITINs.
The ITIN Program Office of the IRS is now considering no longer issuing ITINs to anyone who is a nonresident alien (NRA) and whose only purpose for obtaining an ITIN is to open an interest bearing deposit account.
When a NRA opens an interest-bearing deposit account that is not effectively connected to a U.S. trade or business, he or she is exempt from any tax on any interest income under tax law. Additionally, financial institutions are not subject to reporting requirements or back-up withholding on NRAs. Therefore, the IRS believes there is no “tax purpose” for issuing an ITIN for this purpose.
The Customer Identification Program (CIP) mandated by the U.S. PATRIOT Act requires that credit unions get identifying information from each person opening an account. The credit union must get an “identification number” from everyone who opens an account. For a U.S. person, the credit union must get a taxpayer identification number. For a non-U.S. person, the credit union must get one or more of the following: a taxpayer identification number, passport number and country of issuance, alien identification card number, or number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photograph or similar safeguard. The ITIN Program Office is stating that the CIP does not preclude a financial institution from opening an account for nonresident aliens who do not have an ITIN and therefore is proposing to cease issuing ITIN numbers to those individuals whose income is not subject to taxation or reporting requirement.
- Credit unions would no longer be able to rely upon an ITIN as a way to identify an individual and may have to adjust their Customer Identification Policy (CIP) or procedures to require other pieces of identification to verify identity.
- Does your new account policy require the use of a social security number or ITIN? Please explain.
- Do you believe no longer obtaining an ITIN for non-resident aliens (NRAs) will reduce the new accounts opened for NRAs? Please explain.
- What other identifying information (passport, other government issued documentation, etc.) do you use when opening an account? Please explain.
- What is the likelihood of your ability to verify identification of a NRA without an ITIN? Please explain.
- Will you find this guidance useful? How can it be improved?
If you have any further questions, or to submit a response, please contact me at:
Michigan Credit Union League
112 East Allegan St., Suite 800
Lansing , MI 48933
Fax: (517) 482-3762
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