CCA Issued on Whether to Disallow Credit Where ITIN/SSN Mismatch
Publication date: 02/08/2010
The Internal Revenue Service Office of Chief Counsel in a chief counsel advice memorandum released Feb. 5 explained considerations IRS personnel should take into account in determining whether to disallow a credit for federal income tax withholding when there is a mismatch of Social Security and individual taxpayer identification numbers.
When IRS disallows the federal income tax withholding credit for a taxpayer using an ITIN, the service is not saying that the ITIN holders are not entitled to the credit as a matter of law, the office said in CCA 201005001. Rather, IRS is saying that it does not have sufficient information in its records to determine if the ITIN holder is the “recipient” within the meaning of Section 31.
Under the facts addressed in the CCA, an undocumented worker who is not eligible for a Social Security number provides some else's SSN in order to obtain employment; the taxpayer receives wages and the employer withholds federal income tax under the SSN. The taxpayer wishes to fulfill tax return filing and payment responsibilities, so he or she obtains an ITIN and files a return using the ITIN. The attached Form W-2 however, contains the SSN.
IRS processes the return under the ITIN, even though it is accompanied by the W-2. During audit of the return, the mismatch causes IRS to disallow the federal income tax withholding credit claimed on the return until IRS can determine if the taxpayer truly earned the wages for which the withholding credit is being claimed.
The office said that, under tax code Section 31, when an employer withholds federal income tax pursuant to Section 3402, the amount withheld is allowed to the recipient of the income as a credit against any income tax due to IRS. The term “recipient” for purposes of receiving credit for federal income tax withholding is defined under treasury regulations as “the person subject to tax imposed under subtitle A upon the wages from which the tax was withheld,” it said.
IRM Procedures Potentially Misleading
The CCA provided procedures for IRS employees to use to research the claimed withholding. It said the Internal Revenue Manual provisions on the topic could be misleading and would benefit from clarification in several respects.
For example, it said, the IRM implies that an ITIN holder is only entitled to the Section 31 credit if no other taxpayer has filed a return using the SSN provided by the ITIN holder to an employer. In a situation where the ITIN holder's W-2 reflects income tax withheld, and the only IRS records under the SSN used on the W-2 reflect that same amount of withholding, the IRM should indicate that there is no need for any further inquiry before allowing the withholding, it said.
Tentative disallowance and requests for documentation of the credit for federal income tax withholding when an ITIN/SSN mismatch occurs is a business decision to be made by IRS rather than a decision dictated by anything in Section 31 or 6109, the CCA concluded. While there may be a burden on ITIN holders to produce documentation—such as paystubs, earnings statements, or a statement from the employer—in order to receive the credit, and some ITIN holders may choose not to respond to IRS's correspondence, those consequences must be balanced with the risk to IRS if the credit was automatically allowed without verification, it said.
The CCA was dated Dec. 4, 2009.
The complete text of this article can be found in the BNA Daily Tax Report, February 8, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2010, The Bureau of National Affairs, Inc.
CCA Issued on Whether to Disallow Credit Where ITIN/SSN Mismatch
Publication date: 02/08/2010
The Internal Revenue Service Office of Chief Counsel in a chief counsel advice memorandum released Feb. 5 explained considerations IRS personnel should take into account in determining whether to disallow a credit for federal income tax withholding when there is a mismatch of Social Security and individual taxpayer identification numbers.
When IRS disallows the federal income tax withholding credit for a taxpayer using an ITIN, the service is not saying that the ITIN holders are not entitled to the credit as a matter of law, the office said in CCA 201005001. Rather, IRS is saying that it does not have sufficient information in its records to determine if the ITIN holder is the “recipient” within the meaning of Section 31.
Under the facts addressed in the CCA, an undocumented worker who is not eligible for a Social Security number provides some else's SSN in order to obtain employment; the taxpayer receives wages and the employer withholds federal income tax under the SSN. The taxpayer wishes to fulfill tax return filing and payment responsibilities, so he or she obtains an ITIN and files a return using the ITIN. The attached Form W-2 however, contains the SSN.
IRS processes the return under the ITIN, even though it is accompanied by the W-2. During audit of the return, the mismatch causes IRS to disallow the federal income tax withholding credit claimed on the return until IRS can determine if the taxpayer truly earned the wages for which the withholding credit is being claimed.
The office said that, under tax code Section 31, when an employer withholds federal income tax pursuant to Section 3402, the amount withheld is allowed to the recipient of the income as a credit against any income tax due to IRS. The term “recipient” for purposes of receiving credit for federal income tax withholding is defined under treasury regulations as “the person subject to tax imposed under subtitle A upon the wages from which the tax was withheld,” it said.
IRM Procedures Potentially Misleading
The CCA provided procedures for IRS employees to use to research the claimed withholding. It said the Internal Revenue Manual provisions on the topic could be misleading and would benefit from clarification in several respects.
For example, it said, the IRM implies that an ITIN holder is only entitled to the Section 31 credit if no other taxpayer has filed a return using the SSN provided by the ITIN holder to an employer. In a situation where the ITIN holder's W-2 reflects income tax withheld, and the only IRS records under the SSN used on the W-2 reflect that same amount of withholding, the IRM should indicate that there is no need for any further inquiry before allowing the withholding, it said.
Tentative disallowance and requests for documentation of the credit for federal income tax withholding when an ITIN/SSN mismatch occurs is a business decision to be made by IRS rather than a decision dictated by anything in Section 31 or 6109, the CCA concluded. While there may be a burden on ITIN holders to produce documentation—such as paystubs, earnings statements, or a statement from the employer—in order to receive the credit, and some ITIN holders may choose not to respond to IRS's correspondence, those consequences must be balanced with the risk to IRS if the credit was automatically allowed without verification, it said.
The CCA was dated Dec. 4, 2009.
The complete text of this article can be found in the BNA Daily Tax Report, February 8, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2010, The Bureau of National Affairs, Inc.
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