Immigration, ITINs and tax credits

Today's Supreme Court split ruling on Arizona's immigration law isn't going to do anything to quell the debate on this topic, especially in this presidential election year.

What's needed is Congressional action on immigration policy, which isn't going to happen in this presidential election.

In the meantime, however, some immigration-related tax regulation and legislation is popping up in Washington, D.C.

IRS immigration-related regs: First, let's hear from the Internal Revenue Service.

The nation's tax collecting entity last week announced interim changes to strengthen its procedures for issuing Individual Taxpayer Identification Numbers, or ITINs.

The IRS began issuing ITINs in 1996 to folks who have U.S. tax reporting (and paying) obligations, but who aren't eligible for the usual taxpayer ID, a Social Security number (SSN).

Those who need ITINs include nonresident aliens, resident aliens, dependents or spouses of U.S. citizens or resident aliens and dependents or spouses of nonresident alien visa holders.

And yes, undocumented immigrants who want to file, as required, a tax return on their earnings also are issued ITINs.

The IRS notes that it issues ITINs regardless of an applicant's immigration status because the agency's job is to collect federal taxes, not to enforce federal immigration laws.

An ITIN, emphasizes the IRS, is simply to help individuals comply with U.S. tax laws and make it easier for the agency to process their returns.

A nine-digit ITIN does not authorize the recipient to work in the United States.

Neither does it provide eligibility for Social Security benefits or the Earned Income Tax Credit (EITC). Social Security numbers are necessary for those federal benefits.

That said, the IRS is not immune to the national immigration debate.

Public and political fears that individuals who are illegally in the United States are collecting tax benefits appear to have prompted the IRS decision to get tougher in issuing ITINs.

The IRS announced that it now will issue ITINs only when the applications, aka Form W-7, include original documentation, such as passports and birth certificates, or certified copies of these documents from the issuing agency. The IRS will no longer accept notarized copies of the required documents. 

The new rules are in effect from June 22, the date of the announcement, through the end of the year. The IRS plans to issue final ITIN rules, based in part on public input, before the start of the 2013 filing season.

If you need this special tax-filing number, check out the full IRS ITIN announcement, as well as the related set of ITIN FAQs.

Now for a word from Congress: The ITIN change was made, Treasury Department spokesperson Sabrina Siddiqui told Accounting Today, "to strengthen the IRS' ability to fight fraud and abuse while minimizing the impact on taxpayers."

Tax fraud and abuse by undocumented workers also motivated Republican Sen. David Vitter to introduce the Child Tax Credit Integrity Preservation Act (S. 577). The House version, H.R. 3444, was introduced by Rep. Jack Kingston (R-Ga.).

The identical bills would require every individual applying for the child tax credit, worth $1,000 per kiddo, to provide a valid Social Security number, the current tax ID requirement to qualify for the EITC.

Supporters of the ID requirement change point to a Treasury Inspector General for Tax Administration (TIGTA) report that found that in 2010 individuals who weren't authorized to work in the United States were paid $4.2 billion in refundable tax credits such as the additional child tax credit based on tax returns filed using an ITIN.

Both bills were introduced last year, but no action has been taken by either the Senate Finance or House Ways and Means committees.

Vitter, who's also the founder and chairman of the Senate Border Security and Enforcement First Immigration Caucus, recently tried to get S. 577 passed by unanimous consent, but that effort failed.

It's unlikely that the House and Senate SSN/ITIN/child tax credit measures will advance in what's left of the 112th Congress. But you can be sure that the bills will be back in some form.

Photo of Santa Elena Canyon, in the far southwest section of Big Bend National Park, by Kay Bell. The canyon wall to the right  is Texas; to the left, Mexico.
And yes, I was standing in the Rio Grande to take the picture.

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• Children offer tax breaks and tax fraud opportunities