CUNA Comment Letter

Revisions to the ITIN Application Process

June 15, 2004

CC:PA:LPD:PR (Notice 2004-1)
Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044

Via E-mail:

Dear Sir or Madam:

The Credit Union National Association (CUNA) is pleased to provide comments to the Internal Revenue Service (Service) on the agency’s notice (Notice 2004-1) announcing the revision of the individual taxpayer identification number (ITIN) application process. The ITIN is used on tax returns by individuals who are not able to obtain a Social Security Number (SSN). The Service has revised the application (Form W-7) and the accompanying instructions effective December 17, 2003. ITIN applicants must now use the new Form W-7 and provide proof that the ITIN will be used for tax administration purposes (meaning a completed tax return). By way of background, CUNA is the largest credit union trade association, representing more than 90% of our nation’s nearly 9,800 state and federal credit unions.



The Service states in Notice 2004-1 that "ITINs were not intended to be used as proof of identity for nontax purposes," for example to obtain a driver’s license or to seek employment in the U.S., and may not be reliable proof of an individual’s identity for those purposes. Therefore, the agency made the determination to eliminate the nontax use of ITINs. As part of the tightening up of the process for issuing ITINs, the Service will no longer issue an ITIN unless the applicant along with the form W-7 provides proof of a tax administration purpose. There are certain exceptions to the requirement that a completed return be filed with the Form W-7. The exception which is most relevant for credit unions is ownership of a financial account that generates income that is subject to information reporting or withholding requirements. In those cases, an applicant for an ITIN must provide the Service with evidence that the applicant has opened the account with the financial institution and that the applicant has an ownership interest in the account. This means that credit union accounts for individuals ineligible to obtain a SSN/TIN (taxpayer identification number) will have to be opened without an ITIN so the member can provide proof to the Service of the opened account before receiving the ITIN.

CUNA strongly feels that financial institutions and other organizations should be able to continue to use ITINs for identification purposes connected with the USA PATRIOT Act member/customer identification and verification regulations. Under the PATRIOT Act’s member/customer identification and verification rules (the federal regulations implementing Section 326 of the Act), for U.S. persons opening an account, credit unions are required to obtain the individual’s SSN or employer identification number (EIN). For non-U.S. persons seeking to open an account, credit unions are required to obtain one or more of the following: a U.S. 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 term "similar safeguard" is used to permit biometric identifiers may be used in addition to or instead of photographs). Further, the PATRIOT Act regulations afford flexibility in situations where an individual has applied for but not yet received a TIN. Instead of obtaining a TIN from a member/customer prior to opening an account, the institution’s customer identification program may include procedures for opening an account for such a member/customer.

Credit unions and other financial institutions assume that the Service verifies the identities of individuals prior to issuing ITINs and, therefore, the ITIN serves as a reliable tool for institutions to use to verify identity of their potential members/customers. The aim of the regulations is to protect the U.S. financial system from money laundering and terrorist financing. In stating that ITINs were not intended to be used as proof of identity for nontax purposes, the Service is eliminating an important tool that financial institutions can employ to combat the activities that the PATRIOT Act and the implementing regulations were designed to eradicate.

In addition, this new ITIN application approach conflicts with the account-opening policies of those credit unions that opt not to open accounts for individuals without a SSN or ITIN because they are not sufficiently familiar with foreign government-issued documents that the alien individuals would have, such as a foreign passport or alien identification card, to enable them to form a reasonable belief that the institution knows the true identity of the individual, as required by the PATRIOT Act regulations. Under the new approach, those credit unions would tell the alien individual who comes to them to open an account that they cannot do so without a SSN or ITIN. Yet without proof of an income-generating account, it will be hard for those individuals to obtain a TIN -- unless they fit within another exception, they will have to provide a completed tax return. Consequently, it will be more difficult for credit unions to serve alien individuals (typically the underserved or "unbanked"), who will have to resort to higher-cost financial service providers such as payday lenders and check cashing outlets.

CUNA believes that the financial account exception should be modified. Some credit unions require the ITIN for identification purposes when opening up accounts for alien individuals as allowed under the USA PATRIOT Act. With this new IRS Notice, credit unions and other financial institutions will no longer be able to choose to accept the ITIN for identification and verification purposes. Instead, institutions will have to obtain another identification number in order to comply with the USA PATRIOT Act’s member/customer identification and verification rules. Subsequently, credit unions would have to switch the identification number to an ITIN once the member receives it. It will be more burdensome for credit unions to collect the ITIN after the account is opened and then to change the information in their computer systems. Therefore, CUNA recommends that the exception be modified to require an applicant for an ITIN to provide the Service with evidence of the applicant’s intent to open the account with the financial institution and that the applicant has an ownership interest in the account. The intent can be demonstrated by providing the Service with a photocopy of the account application. If the Service feels it is necessary, the Service could require the ITIN applicant to provide proof that the account was actually opened within a certain timeframe, such a 60 or 90 days, from receipt of the ITIN. If the ITIN applicant fails to submit such proof, then the Service could cancel the ITIN and send a "B" notice to the financial institution indicated on the account application.

Notice 2004-1 indicates that financial institutions now are eligible to participate in the Service’s acceptance agent program. Acceptance agents are responsible for submitting the Form W-7 along with appropriate supporting evidence. In addition, if an individual assigned to an ITIN has become eligible to obtain or has obtained a SSN, the acceptance agent must notify the individual that he/she is obligated to apply for a SSN or stop using the previously-assigned ITIN upon receipt of the new SSN; the agent must also notify the Service of this change in alien status. We commend the agency for opening up the acceptance agent program for those financial institutions that would like to take on those important yet burdensome duties. At the same time, however, CUNA urges the Service to ensure that the acceptance agent program remains voluntary for financial institutions.


In conclusion, CUNA supports the Service’s continued efforts to make the ITIN application process more efficient, including improvements to Form W-7. We believe that our suggestion with regard to the financial account exception makes sense from a compliance perspective. We also firmly believe that ITINs perform a valuable function as personal identification documentation at account-opening. Therefore, we urge the Service to clarify that the ITIN may be considered a reliable form of documentation for purposes of complying with the PATRIOT act member/customer identification and verification regulations. Thank you for the opportunity to share our comments, and we hope our letter helps your revision process. If you have questions about this letter, please feel free to contact me or Senior Regulatory Counsel Catherine Orr at (202) 638-5777.


Mary Mitchell Dunn
Associate General Counsel and Senior Vice President

Catherine A. Orr
Senior Regulatory Counsel