Saturday, February 29, 2020

Interesting Court Cases: Failure to File an FBAR and Interpretation of "Reasonable Cause".

Sussex, UK

It is a beautiful sunny, cold February 29th in Michigan. Us tax professionals are hurtling through tax season at break-neck speed. The days are getting longer and Spring is teasing us with a game of peek-a-boo. I am hooked on a certain streaming show about gardens in the UK and the presenter's encouraging words that could make any gardener's wildest dreams come true. I am already thinking of all the flowers and herbs I am going to plant post-tax season when the weather is warmer. 
However, wild dreams should not come into the picture when we are talking about foreign bank account reporting, penalties and reasonable causes. Let us go over what happened to Mr. Agrawal, a naturalized U.S. Citizen and immigrant from India in (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522. 
Facts About the Case: Mr. Agrawal self-prepared his 2006 and 2007 tax returns. He hired an accountant to prepare his 2008 and 2009 tax returns. In all years, he indicated, in the Foreign Accounts and Trusts part of Schedule B to Form 1040, that he did not have a foreign bank account. In all years he failed to file FBARs. But Mr. Agrawal did have a foreign bank account during those years with more than $10,000 in it.
The defendant testified that he told his accountant that he did not have a foreign bank account. He said he did this because a tax professional at the foreign bank told him that the income in the account was not subject to US income tax.

Mr. Agrawal was in immigrant from India, completed graduate school education in the US, and taught geophysics and math at a US technical college.

The IRS sought to impose a penalty for non-willful failure to file FBARs. While he conceded that he should have filed FBARs, Agrawal argued the reasonable cause exception should apply and that his conduct was excused because he relied on the advice of tax professionals, and because he was elderly, unsophisticated about tax law, and spoke English as a second language.
Quick background about reporting your foreign bank accounts: Under 31 USC § 5314(a), every person who has a financial interest in, or signature or other authority over, a financial account, or accounts, in a foreign country must report the accounts to IRS annually on a FinCEN Report 114, Report of Foreign Bank and Financial Accounts (also known as the FBAR) if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year. 
31 USC § 5321(a)(5) provides the methodology how the Secretary of the Treasury may impose penalties on failure to file and also states how much the penalties depending on whether the violation of these rules were non willful {maximum $10,000} or willful {greater of $100,000 or 50% of the balance in the account at time of violation}. Under USC § 5321(a)(5)(B)(ii), the IRS may not impose a penalty if the violation was due to reasonable cause. 
Reasonable Cause & What It Is?: Interestingly, 31 USC § 5321 nor it's corresponding regs define the term "reasonable cause" and there has been very little development in case law either. Code Sec 6651(a) and code Sec 6664(c)(1) give some context in terms of tax compliance. The courts have found these useful in constructing a standard applicable to reasonable cause in the FBAR context. { Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683 } 
Regs under Code Sec 6651 equate the reasonable cause standard to "ordinary business care and prudence". The regs under Code Sec 6664 state the determination for reasonable cause needs to be made on a case by case basis, taking into account all pertinent facts and circumstances. It also alludes to the fact that the taxpayer is responsible to assess the taxpayer's proper liability. 
Decision By The Court: The district court found that the reasonable cause exception did NOT apply to Agrawal and that he was liable for the penalty.

The court held that no reasonable juror could find that Agrawal acted with ordinary business care and prudence, or that he made a reasonable effort to understand his FBAR reporting responsibilities, when he failed to file his FBARs for the years 2006-2009. By his own admission, the defendant self-prepared his 2006 and 2007 tax returns; he did not disclose the existence of a foreign financial account on Schedule B despite a direct question on the issue. 
According to his deposition testimony, in 2008 and 2009, Agrawal did not tell the CPA preparing his tax return of the existence of the foreign account or question the CPA's decision to leave blank the Schedule B question about foreign bank accounts.

The court said that a taxpayer acting with ordinary business care, or one making a reasonable effort to understand his responsibilities, would have sought informed advice about the reporting requirements alluded to in Schedule B; seeking such advice would necessarily involve the taxpayer notifying the advisor of the existence of the foreign account.

The court said that Agrawal's arguments that he was elderly, spoke English as a second language, and had an inexpert understanding of tax reporting requirements did not alter its reasonable cause analysis. By his own admission, Agrawal had sufficient mental acuity and technical facility with the English language to work as a math teacher and as a geophysicist, and, for that matter, to represent himself in this litigation.
Conclusion: Suffice it to say that it is getting to be really difficult for a taxpayer to claim that they were not aware of their responsibility to declare their foreign bank accounts since the IRS has been so vocal about this requirement since their push with FATCA in 2010. As in Mr. Agrawal's case, if you have been filing your own taxes, any over-the-counter tax software worth it's salt would ask you a question regarding the presence of foreign bank accounts and if you feign ignorance, it is not going to be a plausible excuse. 

In our practice, we have helped countless non-reporters. If you or someone you know has been delinquent with their foreign bank reporting and needs help being compliant, we can go over various options available and determine the best possible solution for you. 
Bibliography: (DC WI 12/9/2019) 124 AFTR 2d ¶2019-5522; FTC 2d/FIN ¶V-1813.4; United States Tax Reporter ¶60,114.06; Reg. § 310.6651-1(c)(1); Jarnagin, (Ct Fed Cl 2017) 120 AFTR 2d 2017-6683; 31 USC § 5314(a) and 5321(a)(5)
I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (, based in the Metro Detroit area in Michigan, USA. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog.

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020.


Thursday, January 30, 2020

Expat: Individual Retirement Accounts {IRA} and Foreign Income

Picture Courtesy Nepal Himalayas

Happy New Year dear reader and welcome to a new decade! Looking forward to a lot of reading and sharing this year.

If you are a U.S citizen living abroad, you could continue to contribute to a retirement account. An expatriate's tax life is complicated as we know-different tax issues, elections and levels of income have to be considered before one can determine if an expat can make an IRA contribution based on their foreign income. 

There are complex technical rules that we have to sift through in order to seek eligibility for a taxpayer with foreign income to be able to contribute into an IRA. I found a lot of information out there on the World Wide Web about this matter, this article is my attempt to bring it all together. 

Income Limits for IRA Contributions:

In order to contribute to a traditional or a Roth IRA:
  • You must have taxable compensation for the year. 
  • You must have foreign income in excess of your foreign housing and foreign earned income exclusion ($105,900/ taxpayer for 2019 indexed for inflation).  
  • Your Modified Adjusted Gross Income (In the charts attached below) will add back the foreign earned income exclusion. 

2019 Roth IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution are as follows: 

2019 traditional IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution for those covered by a retirement plan at work are as follows:

2019 traditional IRA Income Limits for a $6,000 ($7,000 for those 50 years or older) Contribution for those not covered by a retirement plan at work are as follows:

Taking the above aspects into consideration, how can one contribute into an Individual Retirement Account if one has foreign income?  
Since the Roth IRA has overall income limits in order to make a contribution, and the Traditional IRA further limits amounts based on whether one is already contributing to an employer provided retirement account, the range of income that is available for a contribution is narrow at best. This could only be wages or net self-employed income that is in excess of the foreign earned income exclusion. 

Can taking the Foreign Tax Credit be more advantageous so one can make an IRA Contribution?
In some situations, claiming a foreign tax credit on taxable wages or net self-employed income can yield a more opportune scenario to fund an IRA in the United States. This would not only provide a reduction in US taxes but will also provide the tax-payer a higher "taxable" income to work with. 

How do IRA Roll-overs work for those who have moved out of the U.S?
There is a possibility that you have worked in the US before moving abroad and have accumulated retirement savings, possibly accounts in 401K's, 403B's or other employer retirement plans or traditional IRA's.You may have long term plans of staying abroad or do not have plans of drawing your retirement accounts at the age of 72. 

You could take advantage of the lower tax brackets in case you are making use of the Foreign Earned Income Exclusion and roll over these retirement accounts into a Roth IRA. If the numbers line up favorably, this Roth IRA conversion may even be tax-free. You could then leave the Roth IRA to grow tax-free and not have to take Required Minimum Distributions from it. 

Consultation WIth An Enrolled Agent or Experienced Tax Professional: 
It is very important, you seek the help of an experienced tax professional in order to execute any of the above. If the IRA's are rolled over incorrectly, there will be penalties on early withdrawals or excise taxes to be paid on incorrect set-up. Please contact our office for consultations, we have experience in guiding you with the correct set up and rollover. 

Bibliography: Section 911; Individual Retirement Accounts § 408
I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (, based in the Metro Detroit area in Michigan. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog. 

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018, 2019 and 2020. 

Read my disclaimer here


Wednesday, December 25, 2019

SECURE Act BIG Retirement Plan Changes: Major Take-Aways Read More Here!

Pangong Lake, Ladakh, India. Picture Courtesy:

I started blogging about taxes in 2013 because I wanted to share what I knew about taxes. In the process of getting word out about my writing, I have learnt a thing or two about social media and marketing my blog. The engagement with fellow Enrolled Agents and other professionals in the Tax field has been an amazing experience and in the process of educating others about taxes, I have learnt a lot myself both about Social Media marketing, about blogging and my online tax colleagues as well. 

As twenty-nineteen comes to a close, every tax professional agrees that the time since the Tax Cuts and Jobs Act {TCJA} was passed in December 2017 has been a very stressful. There has been a lot of new rules and regulations, both proposed and final to process and understand applications. Just as we thought we had it all ready for the 2020 Tax Season, the Government pushed through a bunch of last minute laws. The most important of those and the one to have many far-reaching consequences was the SECURE Act, an acronym for Setting Every Community Up for Retirement Enhancement Act of 2019. 

The SECURE Act is a major act of retirement legislation to be passed in a decade. There is a LOT in this legislation that will not only effect some taxpayers getting close to the earlier retirement age of 70.5 years immediately but there are also other important provisions in the new Act that will effect taxpayers who plan on leaving their retirement plans to their heirs or those taxpayers who will inherit retirement plans. 

Here is a synopsis of some of the most important provisions from the Act:
  • Required Minimum Distribution {RMD} Now At 72: If you have not reached an "RMD Age" of 70.5 by December 31st, 2019 your new required minimum distributions are now due on April 1st of the year after you turn 72. The RMD for any year is the balance in your retirement plan as of December 31st of the previous year divided by the distribution period in the IRS' Uniform Lifetime Table. 
  • No Age Limit On Traditional IRA Contributions: Since a lot of Americans continue to live longer and work into their seventies, this Act repeals an earlier provision prohibiting an individual from making contributions into a Traditional IRA after the age of 70.5 years. 
  • 529 Education Savings Plan Can Be Used To Pay Off Student Loans: One can use up to $10,000 of their 529 Plan to pay off their student loans. This legislation also expanded the 529 Plans to cover costs associated with registered apprenticeship programs, homeschooling and private elementary, secondary or religious schools.  
  • Taxable Non-Tuition Fellowship and Stipend Eligible as Compensation for IRA Contributions: Before the legislation, those who had stipends and non-tuition fellowship payments were not allowed to use those earnings as a basis for contributing to Individual Retirement Accounts. After this legislation, graduate and post-doctoral students can begin using these earnings to put money away in retirement plans.
  • Long-time Part-time workers eligible for 401K Plans: Except in the case of collectively bargained plans, the bill will require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
  • Penalty-Free Distribution Allowed for Birth/ Adoption: Any "qualified birth/ adoption" expenses can be paid for with retirement plan distributions penalty free.
  • 401K Safe Harbor Rules Simplified: The legislation simplifies the employer non elective contribution safe harbor rules so that there is more "flexibility, improve employee protection and facilitate plan adoption."
  • Increase in Penalty For Failure to File: Penalty for failure to file a return has been increased to the lesser of $400 or 100% of the tax due.
  • Stretch IRA Is No LOnger Applicable for Most Taxpayers: The goal of a "Stretch IRA" is really a strategy used by those who have inherited IRA's and do not need the money and want to be able to take as little as possible by way of annual distributions. These "Stretch IRA's" can be used by a beneficiary to fund his/ her own retirement eventually. The premise of this type of strategy is that the Return on Investment on the remaining balance in the plan are greater than the annual distributions. 
        Under the SECURE Act, for beneficiaries who inherit after 2019, an inherited IRA has to be completely drawn out by the 10th year after year of death of the original account holder. {This is called a 10-year Distribution Cap} There are no required minimum distributions for beneficiaries in the 1st 9 years of inheritance. This rule is not applicable to the spouse of the deceased account holder, to a beneficiary who is disabled, is chronically ill, not more than 10 years younger than the account holder or is a minor child. 

The change in the "Stretch IRA" rules will definitely require a rehaul of Estate Plans that are using this strategy. And there is not much time left in order to put this in place! 
  •  Increase in Penalty in Failure to File Retirement Plan Returns {Forms 5500}: Per Section 403 of the SECURE Act, 
  1. Form 5500 penalty would be modified to $105 per day, not to exceed $50,000.  
  2. Failure to file a registration statement would incur a penalty of $2 per participant per day, not to exceed $10,000.  
  3. Failure to file a required notification of change would result in a penalty of $2 per day, not to exceed $5,000 for any failure.
  4. Failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.
If any of the above applies to you and you find all this very last minute and overwhelming, I would not blame you at all. This would be a great time for you to contact both your Enrolled Agent and your Financial Planner and if you do not work with one or the other, it would be the perfect time to get one or both these professionals into your lives. 

If you need an Enrolled Agent with extensive experience in retirement matters, please contact us at 

Bibligraphy: The SECURE Act; Jeff Levine @CPAPlanner In-Depth Article 

I am an Enrolled Agent and owner of MN Tax and Business Services PLLC (, based in the Metro Detroit area in Michigan. The firm provides Tax Preparation, Planning services to Individuals, Small Businesses, Trusts and Non-Profit Organizations. Get my latest posts by subscribing to my blog. 

You can also find me tweeting @ManasaSogNadig where I have been @Forbes Top 100 Tax Tweeters for 2018 and 2019. 

Read my disclaimer here

Monday, December 2, 2019

Are You Ready For 2020? Tax Filing Season Is Coming!

Picture Courtesy: Angkor Wat

How was 2019? Did it go well for you? I have been talking to my colleagues in the tax sphere, opinions are all over the place. The Tax Reform roll-out kept most of us either waiting on the proposed regulations or trying to wrap our heads around the final regulations that kept coming through in bits and starts from the Internal Revenue Service. Kudos to the people who work there I must say, in spite of all the staffing issues, they were doing their best to keep the regs rolling out. 

Well, the proverbial Father Time does not wait for anyone,and here we are, final regs and proposed regs tucked under our elbows, getting ready for 2020! So, here are some steps my dear readers I thought would help you get your stuff together and be as ready as possible for Tax Season 2020. 

A. Adjust Your Withholding: If you are a wage earner and have been working with the same employer for the past few years, I would highly recommend doing a "payroll check-up" so you can make sure you are having enough taken out in taxes. A lot of taxpayers were in for a sticker shock after payroll withholdings changed for 2018 considering a lot of deductions were either removed or changed and exemptions were completely phased-out. Ask your tax preparer to help you with this or you could do this on your own on the IRS Website Tax Withholding Estimator

B. Adjust Your Employer Retirement Plan Contribution: If you have an Employer Provided Retirement Plan like a 401K or a 403b, you can stash away up to $19,000 (for 2019) and $ 6,000 in catch-up contributions for those over 50 years of age. If you have cash to spare, make sure you are maximizing these contributions before the end of the year. 

C. Check Your Eligibility For Individual Retirement Account {IRA} Contributions: In addition to your employer provided retirement accounts, you may be eligible to contribute in to an IRA. These contributions can be made up to the tax filing deadline or April 15th. You can make a maximum contribution of $ 6,000 (for 2019) and $ 1,000 in catch-up contributions for those over 50 years of age. Talk to your tax preparer to check your eligibility. 

D. Estimating Annual Income For Small and Medium Business Owners: If you are a business owner, it is important to calculate and pay your taxes every quarter: April 15th, June 15th, September 15th and December 31st. The most ideal and safe way to set this up is to open an Electronic Federal Tax Payment System Account on Payments can also be made through direct bank debit or with a credit card via Depending on your entity structure, size and nature of your business, you may be able to schedule these payments ahead of time. Many States also have a similar system. Do not forget your state taxes.

E. Making Retirement Plan Contributions For Business Owners: You can contribute into a Solo 401K/ SEP/ SIMPLE IRA. You can make both "Employer" and "Employee" contributions. Funding options on each of these retirement plans are different, and so are set up requirements. I would highly recommend you work with an Enrolled Agent to determine eligibility and contribution limits. 

F. Review Changes To Rental Income and Safe Harbor Requirements: The Internal Revenue Service issued clarifications in September 2019 regarding treating your rentals as a "trade or business" and a safe harbor to claim a deduction under §199A. Owners of rental properties need to comply with certain requirements to be able to claim their rentals as a "trade or business" and avail of a deduction under §199A. These requirements can be found here.

G. Renew Your Individual Tax Identification Number {ITIN}: If you or someone in your family has been issued an ITIN, be aware that the ITINs now expire. If your ITIN or someone in your family has an ITIN that is going to expire in 2019, you need to renew it unless you are now eligible to obtain a Social Security Number.Here are some FAQ's issued by the IRS. 

The key to a successful tax season, complete and proper filing of your taxes is to have all your records ready. We undertake end-of-year tax planning for our clients so we can avoid surprises at tax time! Please contact us or your trusted tax professional and get ready for 2020. 

Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website,

Monday, September 9, 2019

"Accidental Americans" Get Relief! New Announcement from the IRS!!

Image from Pixabay
Stop the presses, hold the phones, drop everything you are doing! The Internal Revenue Service announced "Relief Procedures for Certain Former Citizens" on September 6th, 2019. If you are an "Accidental American" and planning on renouncing your U.S. Citizenship, you should be reading this. 

Let's dig back a bit and refresh our memories: The United States Constitution provides through the 14th Amendment that "all persons born or naturalized in the United States" are citizens of the USA. A person born abroad to a U.S. citizen parent or parents acquires U.S. citizenship at birth if the parent or parents meet conditions as specified in § 301 and following sections of the U.S. Immigration and Nationality Act. 

Those who have acquired U.S. citizenship in such a manner may not be aware of the obligations and consequences of this status. As you my dear readers already know from my blog, that by law, U.S. citizens regardless of where they live have to report and possibly pay tax on their world-wide income to the Internal Revenue Service. 

With the passage of the FATCA {Foreign Account Tax Compliance Act} in 2010, now foreign financial institutions are required to know if any of their customers are U.S citizens and if that is true, the customer's information is to be reported to the United States. The customer also needs to provide their Social Security Number to the foreign bank where they have their accounts. 

A U.S. Citizen may relinquish his or her citizenship by paying a fee and taking an oath of renunciation before a US diplomatic or consular officer. They also need to certify that they have fulfilled their federal tax obligations for the year of expatriation and five tax years prior to this event. The relinquishment is detailed under IRC 877A. Those who are deemed to be "Covered Expatriates" may continue to have US tax obligations even after they renounce their citizenship. 

What Are the Relief Procedures: The Internal Revenue Service is providing relief to citizens who meet certain criteria by providing an alternative means to satisfy tax compliance certification process. If the citizens qualify, then they will not be "Covered Expatriates" under IRC 877A and they will not be liable to unpaid taxes and penalties for these years and any previous years.

Who Are These Procedures Available To?: These relief procedures come with the following caveats, which the IRS plans on implementing strictly-
  1. Citizens who expatriate after March 18th, 2010 can use these relief procedures. 
  2. One should have no filing history as a US Citizen or resident. 
  3. The citizens should have a net worth of less than $2 million at the time of expatriation and submitting. 
  4. Their aggregate tax liability for the year of expatriation and five prior years should be $25,000 or less. 
  5. You have to agree to complete and submit with your submission for renunciation all required federal tax returns for 6 years at issue including all schedules and information returns. The IRS recommends filing your FBAR's as well.
  6. Their failure to file required tax returns/ gift tax returns/ and other information returns (including Form 8938) and FBAR's or FinCEN Form 114 and pay taxes and penalties for the years under question was due to non-wilful conduct. 
  7. This action of renouncing a US citizenship is irrevocable. 
The IRS does not have a specific termination date at this time for these relief procedures. The IRS also plans on letting the applicant know that the submission was received and was complete. The IRS may take upto 2 months to turn this around. 

Renouncing your U.S. citizenship is a BIG step. If you are planning on renouncing your U.S. citizenship, we highly recommend that you meet with a knowledgeable Enrolled Agent or an attorney who specializes in this area. 

Bibliography: Expatriation Tax; IRS Announcement. 

Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website,



Wednesday, September 4, 2019

A Reprieve From Revocation of Passport When You Owe Taxes!

Image from Pixabay: Munich, Germany
I have been fortunate the past couple of years to have been able to travel. I find that as I check off places on my bucket list, I keep adding on to it! I have been bitten by the travel bug! We recently went to Munich, Germany and climbed 14 stories to the top of The Kirche of St. Peter. The climb through the narrow stairway was somewhat crowded and tight at times but it was absolutely worth it! The views at the top were breath-taking. 

Of course when you travel, you need your passport. What happens when you owe taxes to the Government, can they revoke your passport? If you remember, back in 2015, there was a Law passed called the FAST Act. The Act was mostly about transportation but they got in a clause that if you owed more than $50,000 in taxes, the Government could revoke your existing passport or deny you a new passport. 

Under Section 32101 of the FAST Act, if the IRS certifies a taxpayer as having a 'seriously delinquent tax debt", which is: (1) Owing $52,000 or more in taxes and (2) Meeting certain other requirements under IRC §7345(b), the State Department must deny the taxpayer's original or renewal passport application and may revoke or limit an existing passport.

 Taxpayer Advocate Services {TAS} had been advocating on behalf of those who had been working with them before being thus certified by the IRS. TAS wanted the IRS to exclude from their lists those taxpayers who were working to determine their tax liability; or were seeking penalty abatements based on reasonable cause; or were seeking audit reconsideration. TAS felt that the taxpayers would be pressured into agreements with the IRS to avoid certification. 

The IRS recently agreed to temporarily exclude taxpayers with open TAS cases from certification and to reverse certifications for TAS who were certified before coming to the TAS. The acting National Taxpayer Advocate, Bridget T. Roberts recently said in her blog that she thinks "this is a change in the right direction that protects taxpayers who are working with TAS to resolve their liabilities from the severe consequences of passport denials and consequences". 

Obviously, the TAS wants taxpayers to work with them in good faith or they cannot recommend this exclusion.  

The Internal Revenue Service is going to be hard pressed to put the certification process into action. According to Ms. Roberts' blog post on the IRS' website, the IRS recently implemented a program to recommend revocation of passports in certain cases, however the standards in the Internal Revenue Manual for making these determinations are vague and the IRS may come across as making arbitrary decisions. Also, the technology at the disposal of the IRS is apparently preventing them from sending out certification and decertification notices. 

What does this mean for you if you have tax debts that are $52,000 or more? If you would like to arrange for a payment plan with the Internal Revenue Service or request penalty abatement for reasonable cause, work with the Taxpayer Advocate Service. How does one get in touch with the Taxpayer Advocate Service? Well, get in touch with a Tax Professional/ Enrolled Agent who knows how, find out if you qualify and take advantage of the reprieve offered by the IRS thanks to the Taxpayer Advocate Service!

Bibliography: Internal Revenue Code IRS §7345 (b); FAST Act; IRS News.

Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website,

Saturday, July 20, 2019

Expiring ITINs? Here Is What You Should Know!

Metheora, Greece (Image via Pixabay)

Hope summer is going well for you in the Northern Hemisphere. Out here in the United States Mid-West region, we are experiencing a heat-wave this week and have been asked to take proper precautions and stay indoors. Perfect time to work on a blog-post I think, would you agree? 

Many come to the United States on various work Visas and eventually bring their spouse and children to join them. Now these family members may not qualify for Social Security Numbers {SSN} and they have to apply for an Individual Taxpayer Identification Number {ITIN} so the member of the family here on the work visa and consequentially an SSN can claim dependency credits and also be able to file jointly on their U.S. tax return with their spouse if conditions have been met and they qualify.

The 2017 Tax Cuts and Jobs Act now requires all applicants for Employer Identification Numbers to have either a Social Security Number or an ITIN. Non-resident individuals doing business in the US as a partner in a US partnership also require an ITIN to file their US tax returns and to be able to claim back taxes paid on their behalf by the US partnership.

An ITIN is a very important nine-digit number starting with a 9, therefore an individual who has an ITIN needs to be aware of the rules and regulations governing it. The last big change that was made to the ITIN Rules was back in August of 2016 with the PATH Act. The PATH Act ITIN provisions were detailed in Notice 2016-48 here

So what's new on the ITIN front for 2019? 

All ITIN's not used on a federal income tax return at least once for tax years 2016, 2017 or 2018, will expire on December 2019. Additionally, all ITIN's with middle digits 83, 84, 85, 86 or 87 will expire at the end of 2019. 

The Internal Revenue Service will send out a CP48 notice that you need to renew your ITIN if you have previously filed a tax return with an ITIN with the above middle digits but not renewed it. 

What to do if you or a family member has an ITIN with middle digits 83, 84, 85, 86 or 87? You can immediately take action to renew your ITIN if you or your family member has to file a tax return for 2019 in 2020. You do not have to wait to receive the CP48 from the IRS. If you happen to receive the notice after you have initiated the renewal, the IRS asks that you ignore the notice. 

Currently Expired ITINs: 

                     Tax Year                                                           Middle Digits

                     2016                                                                  78 and 79
                     2017                                                               70, 71, 72 and 80
                     2018                                                          73, 74, 75, 76, 77, 81 and 82

If you have an ITIN with the above middle digits, and expect to have a filing requirement in 2020, you can renew your ITIN at anytime. 

ITIN used only for informational purposes: ITINs used by third-parties to report information to the IRS but which are not used to file a tax return need not be renewed. But if the person with this ITIN needs to file a tax return, the ITIN needs to be renewed.  

Spouses and Dependents With Expired ITINs: Spouses or dependents who reside outside the US must renew their ITIN only when filing an individual tax return or when they are claimed on someone else's tax return as an allowable tax-benefit. Hence, the Form W-7 will have to be attached to the federal tax return at the time of filing.

Process To Renew ITIN: Use one of the following methods.

  • Mail Form W-7 long with original identification documents or copies certified by the agency issuing them to the IRS address in the form instructions. The IRS will review and send all identification documents within 60 days. OR
  • Use one of the many Certified Acceptance Agents (CAAs) who are authorized by the IRS to apply for an ITIN. CAAs can certify original documents including birth certificates for primary taxpayers, secondary taxpayers and dependents. This can save the applicant from the rather risky need to send original documents to the IRS. There are many CAAs located around the world. Information can be found on the IRS' website. OR
  •  Call and make an appointment at a designated IRS Taxpayer Assistance Center located nearest you.
Note: The IRS will not accept passports without a date of entry into the US as a stand-alone identification document for a dependent from a country other than Canada or Mexico or dependents of military members overseas. Additional documents can be provided along with the passport to prove US residency such as US medical records or US school records. 

If you have more questions regarding applying for or renewing your ITIN, please contact our office. We do not recommend doing this on your own without a tax professioal's guidance. 

 Do not forget to read my disclaimer here. Please consult an Enrolled Agent for your unique tax needs. More of my contact information is on my website,