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Taxpayer ID Numbers: An Organized Approach for US Assignments

CompassGUIDES - August 2006

By Diana Matwichuk, Assignment Planning Specialist

United States taxpayer identification numbers are a confusing bunch, and when an element of confusion is entered into any assignment, productivity levels drop. One assignee spends his workdays sorting through applications for his wife, so that she can open a bank account in the US. Another assignee neglects to obtain a SSN when he arrives in the US, and delays payroll as a result. Your company’s EIN application is rejected because the signing officer has not yet obtained his ITIN.

EIN’s … ITIN’s … SSN’s. If assignment managers find all of this a bit bewildering, imagine how the assignees feel. An organized approach, which incorporates the obtaining of taxpayer ID numbers into assignment tax policy, can alleviate assignee stress and allow companies to make US payrolls on a timely basis.

Taxpayer Identification Numbers (“TIN’s”)

An explanation of US TIN’s should be included in policy documentation for any assignment to the US. A number of TIN’s are required for use by the US government, for a variety of reasons. These include, among others:

  • Social Security Number (“SSN”)
  • Employer Identification Number (“EIN”)
  • Individual Taxpayer Identification Number (“ITIN”)

If your company plans to pay employees in the US, an EIN must be obtained for the company. All assignees who will be paid in the US will require SSN’s, and many of them and their family members will require ITIN’s for US-resident personal tasks such as opening bank accounts, applying for driver’s licenses, receiving alimony payments and completing real estate transactions.

Obtaining TIN’s

Taxpayer identification numbers are issued by the Internal Revenue Service (“IRS”), and the process of obtaining them is usually time-consuming, frustrating and non-nproductive.

Obtaining an ITIN, for example, is no easy feat given the United States government’s current pre-occupation with security issues. Applications for ITIN’s are taking a long time to process, and the rejection rate is currently high for individuals who apply on their own accord. The IRS generally takes 6-10 weeks to process an ITIN application, and the clock continues to tick if that application is rejected.

SSN’s should be obtained by assignees as soon as they arrive in the US, by visiting their local Social Security Office, since these applications also take a while for the IRS to process. The required identity documents must be produced, and an application form must be completed. Application forms can be obtained from www.ssa.gov.

Acceptance Agents

Registered IRS Acceptance Agents are authorized by the IRS to assist applicants in obtaining ITIN’s, including the review and notarization of personal identification documents. The IRS imposed a requirement in 2006 that all Acceptance Agents re-apply, and CompassTAX has recently received its renewal of IRS Acceptance Agent status.

Hiccups in TIN Application Processes

A number of realities in TIN application processes bear mention. It should be noted, for instance, that before a US branch or subsidiary of a Canadian corporation can obtain an EIN, the principal signing officer of the Canadian parent company must first obtain an ITIN. Delays in obtaining the ITIN can in turn result in delays in obtaining the EIN, which is also required for such tasks as opening a corporate US bank account.

In most cases, ITIN applications must be accompanied by the filing of a US tax return, and often only with the assistance of an IRS Acceptance Agent. A substantial amount of documentation is required to support any applications which fall into the category of exceptions to this filing obligation, and this must be provided from an “acceptable list” which now only includes 13 types of identification documents.

Rejection of ITIN Applications

Applications for ITIN’s must be perfectly prepared, without exception. However, application forms are naturally ambiguous, and the slightest variance can result in a seemingly gleefully-issued rejection letter from an IRS agent. It is officially possible for individuals to submit applications on their own to the IRS, however assignees are not always familiar with expected completion protocol, whereas registered IRS Acceptance Agents are current on what the IRS requires in terms of application package contents. Face-to-face meetings with IRS officers are usually a frustrating experience.

At CompassTAX, we have had a number of individuals approach us recently, requesting that we apply for ITIN’s on their behalf, since their own applications had been rejected on several occasions. These individuals ended up expending more time on the process in the long run than they should have, and time is a commodity which is in short supply for international assignees.

TIN’s and Assignment Tax Programs

Multi-national employers sending assignees cross-border can streamline the assignment planning process by including in Assignment Tax Programs the arrangement to obtain TIN’s for all of their US-bound assignees and family members. Assignees should be provided with precise instructions on what they must do when they arrive in the US to obtain their SSN’s. At CompassGUIDES, we provide Social Security organizers to assignees to assist them in this task. Assignment tax policy should also designate a tax services provider to prepare and submit ITIN applications for assignees’ family members, well in advance of the date of departure.

At CompassGUIDES, we assist companies with the development and documentation of assignment tax policy for US assignments, as we have found that corporations with this level of organization in assignment planning are better equipped to implement smooth roll-outs of cross-border assignments. Our sister company CompassTAX, a certified IRS Acceptance Agent since 2002, obtains ITIN’s for assignees and their families. Many of our clients include this step as part of the cross-border pre-departure tax counseling which we provide to their assignees.

Summary

At CompassGUIDES ™ , we develop cost-effective assignment tax programs for Canadian companies sending employees around the world and bringing international consultant expertise to their Canadian projects. These Assignment Tax Programs provide detailed advanced tax planning, including policies, procedures and employment contracts, which serve to minimize costs and mitigate any risk of litigation.

Visit our International Assignment Planning Help Desk for more information about international assignment planning.

The author wishes to thank Peter Simpson, CA, for his contribution to this article .

 


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compasstax.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6


Tel: (403) 531-2200 
Fax: (403) 263-1826


Web: www.compassguides.ca
Suite 600, 1333 8th Street SW
Calgary, Alberta Canada  T2R 1M6