For the 2022 tax year, the IRS received 3.8 million tax returns and a total $20.9 billion in income, Medicare and Social Security taxes from taxpayers with individual taxpayer identification numbers. Picture this reality at one department at the Internal Revenue Service: There is so much unprocessed paperwork that, if stacked, it would rise 11 times higher than the Statue of Liberty.

IRS agents who are tasked with verifying the authenticity of the documents and processing them are equipped with magnifying glasses and reference materials to help guide them, but no digital tools, according to the Taxpayer Advocate Service. This department is responsible for reviewing applications for individual taxpayer identification numbers (ITINs) by people who don’t have a Social Security number. You must have one of these two numbers to file a tax return.

People who require ITINs are mostly foreign nationals who either work or have property or investments in the U.S. and must report their income and pay taxes here. For the 2022 tax year, the IRS received 3.8 million tax returns and a total of $20.9 billion in income, Medicare and Social Security taxes from taxpayers with ITINs. Frustrations in dealing with this part of the IRS are off the charts, many tax preparers say. “The applications get denied all the time, but they don’t tell you why, and you have to resubmit and go through the whole process again,” says Ryan Losi, executive vice president of the accounting firm PIASCIK.

Lost documents are common. Getting an ITIN requires identification, and most applicants include a passport with their applications. According to the IRS Taxpayer Advocate, last year 17,402 identifying documents either were thrown away, went missing or were returned to an embassy instead of the taxpayer. “Even in the best-case scenario of ITIN processing, taxpayers would have to live without their identification documents for seven to 11 weeks, with no real possibility of recalling the documents earlier if needed, such as for emergency travel or legal issues,” the Taxpayer Advocate notes in a recent report to Congress on the issue. Marcell Hetenyi, an accountant at Scheckner & Hetenyi in Miami, said he recently had to submit an application several times and the process stretched over years for a Canadian couple who already had their ITINs but needed one for their young child. “You can only claim the child as a dependent from the year you get the ITIN. They were rejected in 2022 and 2023 after submitting documents from daycare and the child’s physician,” says Hetenyi, who is certified by the IRS as an acceptance agent. That gives him the authority to authenticate identification documents like passports, so they don’t have to be submitted.

Still, cutting out that step doesn’t always smooth the process, he says. “I’ve been on the phone with an agent after an application got rejected for a missing attachment even though it had been included. The agent said they could actually see the attachment, but because it was originally rejected you have to go back to the beginning of the process,” Hetenyi says. The ITIN nightmare isn’t a concern for the majority of taxpayers. Most Americans filing a 2024 tax return instead use a Social Security number and have been benefiting from improved customer service and staffing at the IRS thanks to funding from the Inflation Reduction Act of 2022. These improvements could be short-lived. President Donald Trump ordered a hiring freeze for the federal government on Jan. 20. For the IRS, the freeze will last until the Treasury Secretary can prove it is in the national interest to lift it. On top of that, the White House has offered buyouts to nearly all federal employees, including those at the IRS, as it attempts to slash costs. The push to shrink the U.S. government comes as the IRS hit its highest staff levels in nearly 30 years. Rapid attrition could unravel the staffing gains and worsen IRS service again.

“There is some data suggesting that about 63% of the IRS workforce is eligible to retire within six years, which will be a headwind for the IRS workforce size even in a more accommodating environment,” says Garrett Watson, director of policy analysis at the Tax Foundation, a nonpartisan tax policy nonprofit. “The actual rate of retirements may be determined in large part by morale at the agency and whether some of them may take the latest offer for severance.” Hamstringing the IRS could do more than hurt customer service. It could also mean an increase in the already massive tax revenue shortfalls for the federal government. The tax gap—which is the difference between the taxes owed for a given year and the taxes collected—has ballooned and currently stands at almost $700 billion.

If you have any questions, please do not hesitate to call us US Tax Consultants

By Karen Hube Feb 15, 2025