An estimated 15 million immigrants in the United States are not eligible to obtain a Social Security number. However, many of these same individuals pay taxes on income and are obligated to file tax returns.If this sounds confusing to you, then you're not alone.
The Internal Revenue Service stated that "ITINs [Individual Taxpayer Identification Numbers] are issued to help individuals comply with U.S tax laws, and to provide a means to efficiently process and account for tax returns and payments for those not eligible for Social Security Numbers."
Thus, if your client has to file a tax return and does not qualify for a Social Security number, then they would need to do so with an ITIN.
In December 2003, the IRS changed the regulations regarding the issuance of the ITIN. An ITIN can now only be issued if the taxpayer satisfies one of several tax treaty requirements, such as filing a tax return.
ITINs are a hot commodity in the immigrant community. An ITIN will not allow the holder to qualify for the Earned Income Credit, Social Security, Medicare or welfare. However, they can open a bank account, obtain car and home loans, and establish a credit record, among other things. Thus, they are highly sought after, and Hispanics often pay between $50 and $250 for one ITIN.
Subsequently, many tax preparation companies have been caught off guard by the lack of information and training about their new role in the ITIN process. The instructions that accompany the W-7 application form can be confusing. Many tax prep companies will not work with ITIN clients, as they are unfamiliar with the processes involved.
Many Hispanic immigrants go into business for themselves in the fields of painting, construction and landscaping, and are in need of accounting services. Obtaining an ITIN would allow them to apply for an Employer Identification Number, but they must file taxes in order to begin the process.
Hispanic immigrants often have invalid Social Security numbers on their W-2s. Typically this W-2 gets thrown away, since the person does not know that he is still eligible to file taxes as long as he applies for an ITIN. If he tries to present the W-2 to a tax office unfamiliar with ITINs, he is often turned away. And many immigrants fear filing because they do not realize that the IRS does not communicate with the immigration authorities.
On a different schedule
However, the most critical issue at the moment is immigration reform.
On May 25, 2006, the Senate approved an immigration bill that would allow 10 million undocumented immigrants to become citizens. The bill will now be challenged in negotiations with the House. The bill includes the requirement that undocumented immigrants pay back taxes with an ITIN to be considered for the program.
Immigration talks have resulted in an increase in clients for tax offices skilled in serving the Hispanic community. With the bill passage, the increase is predicted to quickly become a stampede over the next few months, as word travels quickly in the immigrant community.
In addition to the difficulty of finding a tax office that speaks Spanish and is familiar with ITINs, another hurdle is that many tax offices traditionally shut down at this time of year. Tax preparation in the Hispanic community is a year-round business.
Chuck Miller, owner of a small Liberty Tax Service office in Raleigh, N.C., completed almost 500 Hispanic tax returns from May to November 2005. He accomplished this by staying open five days a week in the off season, and keeping a Spanish-speaking staff member trained in ITIN issues.
This year he is averaging five returns per day in the off season. Word of mouth is his main marketing tool.
With 12 million undocumented Hispanics in the United States, and so few tax preparation and accounting offices trained to serve them, the sky is the limit for those who are ready to learn.
Blaire Borthayre is a Hispanic marketing consultant and the author of A Tax Preparer's Guide: Everything You Ever Wanted to Know About ITINS and Marketing to the Hispanic Community: A Comprehensive Guide for Tax Preparation Offices (www.trainingresourceclinic.com).
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