For more information and to actually register go online to www.ibanet.org.

Selling food in the European Union

By Lynne R. Ostfeld

For those looking for the information, the world has been battling during the last few years over subsidies to the agriculture industry. Not only are there issues over how much each country can subsidize its ag industry, or how much it should reduce these subsidies, but also what types of tariffs and prohibitions can be placed on the importation of food, whether it is ready to eat or on the hoof.
The United States has essentially won the right to export meat to the European Union, as well as Japan and other countries which try to keep it out for a variety of reasons. However, there have been little real signs of success in opening the markets there. Consumers continue to shy away from American meat, although hotels seem to be importing it, and new reasons are found to keep it out of the marketplace.

The sale of other products is subject to investigation as to whether they pass European standards developed to ensure the safety of the food. These can be onerous and time consuming.

But, the whole process of opening markets if fluid. While things look dark now, there is reason to think that restrictions may and will change in the future. The purpose of this article, and the underlying project, is to make the adviser to farmers and food producers aware of what is happening and where the resources are.

The battle over the use of crops from or involving genetically modified organisms (“GMO”) continues, although many countries accept the importation or planting of corn without being concerned that this is one of the original GMO crops. The battle is not over, however, because many farmers, and others, in the countries which restrict the importation and use of GMO crops, would like to be able to plant them. They recognize that certain GMO crops can increase their yield without any side effects. As do American farmers, the European farmers want to be competitive with the farmers in Brazil.

Unfortunately, the use of GMO crops or American meat is not politically popular amongst people who believe that their governments do too little to ensure the safety of what they eat. They have some history to support their fears, whether it be mad cow disease, listeria, or tainted blood transfusions. They hear stories about the content of American food and want to wait another generation, before freely accepting it into their marketplace.

To assuage their fears, and to avoid repercussions within the framework of the World Trade Organization, the European Union (“EU”) has adopted seemingly innocuous rules which effectively slow down American penetration of many food markets. Sales can be made but it takes knowledge of the rules and time to have the products evaluated and accepted by the administrative authorities.

The legislation, governing what food can be imported into the EU, comes about through the issuance of regulations, which completely bind the member states, directives, which bind the member states as to the results to be achieved but not as to the means, and decisions, which are intended to be uniform within the EU and not rendered independently on a case by case basis. (see, www.useu.be/agri/customs.html, and www.useu.be/agri). As a result, labeling requirements issued under a directive will be the same for all of the countries within the EU but the administrative procedures to be followed, and the agencies to be contacted, will be subject to individual country regulations. Help with this can be obtained from the United States Department of Agriculture through its Foreign Agricultural Service U.S. Mission to the European Union (FAS). (see,www.useu.be/agri/fairs.html).

A product entering the EU can be sent throughout the region without incurring further duties, as is the case in the U.S. However, there can be differences in time to process and fees to be paid depending on which port of entry is chosen. Again, the FAS, or even some state Departments of Agriculture, can be quite helpful with relevant information.

The seller has the normal labeling requirements, that he does here, which indicate the weight and content of the item and its shelf life. Attention needs to be paid to any claims, particularly health claims. The seller should not transform a food product into something approaching a medicine, by claiming too strongly its healthy attributes, or he will risk the product being regulated as a drug. The label needs to be in a language easily understood by the consumer. This means that it must be translated into one or more other languages in the EU, depending on the target market. There is a certain logic to this, if the seller wants the consumer in another country to understand what the product is.

Because there is a great concern that the consumer know everything about the product which he will eat, and great fear of GMO content and hormone treated meat, the EU requires mandatory traceability of not only the end product but everything which preceded it. Labeling requirements look to the entire food chain of what is in the product, including what the animal was fed. This means voluminous record keeping.

This is where the producer has problems, because the labeling requirements must divulge everything which is in the product and the EU prohibits the importation of any but a trace amount of GMO content. Currently, the product cannot contain more than 0.9 percent GMO content and what is there must be adventitious or technically unavoidable.

There are many tests and treatises which contend that the minimal GMO content which is allowed in the EU is truly overly restrictive, and merely intended to keep out American products. However, that is the current reality. It may change in the future because of the investment of large American companies in these products and their work to change the laws so that their clients can sell product. It may also change, and is changing, as the scientific evidence continues to mount that much of the concern is without merit. An ally to the American farmer may indeed be the European farmer.

For the small producer, it may take several years to have product approved for import into the EU. Even sellers of cheesecake need to show that there is only minimal GMO content. However, while it may be too onerous for the individual farmer, it may not be for a co-op, or group effort. Further, there are American companies which have already had product approved for sale in the EU and inclusion of their product, in lieu of the same thing raised independently, can cut down the delay and red tape.

The producer also needs to be aware of restrictions on packaging his product. This may come not from the EU but from other sources. An example is the fact that Saudi Arabia is promoting use of its oil to make styrofoam containers. This is another use of its oil and one which can create an industry for its workers. However, under the Saudi legal system, Shari’a law prohibits the use of these products for the packaging and transport of forbidden food, such as pork and shellfish.

For the reasons very briefly mentioned above, it may not be an easy task to sell American food products and raw materials in the European Union. However, it is not impossible and should be considered as another source of business. In this case, it is true that the government can be the farmer’s friend, and should be used.
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Lynne R. Ostfeld, a past member of the Illinois State Bar Association’s International & Immigration Law Section Council and a new member of the ISBA’a Agricultural Law Section Council, is Chair, International Law Committee and Vice-Chair, Agricultural Committee, of the ABA General practice, Solo & Small Firm Division

The above article is a summary of a project to provide advice to Illinois farmers wishing to engage in value added work by selling a ready to eat meal in the European Union. This project was done by an L.L.M. level class in International Agri-Business Law, at The John Marshall Law School. It was organized and taught by adjunct professor, Lynne R. Ostfeld, a solo practitioner who has an “of counsel” relationship with a French law firm and is an accredited attorney to the French Consulate in Chicago. She was assisted by Professor Mark Wojcik of the John Marshall Law School, who taught a class on international legal research and the U.S. Court of International Trade; Thomas M. Keating (Hodes Keating & Pilon, Chicago) who taught a class on customs and treaties affecting agriculture; Nicole Coutrelis, (Coutrelis & Associés, Paris and Brussels) who taught a class on importing agricultural products and food into the European Union; Richard E. Schell (Law Offices of Kurt A. Wagner, Des Plaines) who taught a class on immigration and the need/use of foreign “guest” workers; Eugene F. Friedman (Friedman & Friedman, Chicago) who taught a class on intellectual property. The students who worked on the project were Juli Campagna, David Bickel, Adriana Casati, Daniel Meza, Bryan Moore. Ms Campagna deserves special commendation for her yeoman’s work in consolidating disparate parts, writing a significant portion of the memo, and editing the final product. Further information about this memorandum or the program can be had by contacting Prof. Ostfeld at ostfeld@mindspring.com. The full article is available on Lynne Ostfeld’s Web site at : www.ostfeldlaw.com.

What is an international law
practice?

By Lewis F. Matuszewich

I have mentioned in past columns that the Illinois State Bar Association List Serve is a tremendous way for attorneys to communicate. It provides an opportunity to ask questions or look for suggestions on how to approach legal issues. Attorneys within the state are very generous in providing to their peers suggestions and recommendations based on their own experience.

During the past year, at least once a week, a question has been raised that related to immigration or international matters.

However the ISBA List Serve is not unique in this way. A wide range of publications continually remind us that every attorney may encounter international or immigration questions raised by their clients. A recent issue of Business discussed the number of Americans that are making real estate investment outside the United States. The article “Wish You Were Buying Here” described individual Americans who had been successful in buying and selling real estate in the United States who are now looking to foreign countries to repeat this experience. The article referred to Americans who had recently purchased investment property in Argentina, Chile, United Kingdoms, Germany, Montenegro and even Vietnam.

The article cited that in 2005 U.S. investments in foreign commercial real estate totaled $12 billion with the largest recipient countries being Germany, France, United Kingdoms, Japan and Mexico. In 2004 the main countries were Japan, United Kingdoms, Sweden, Finland and France.
The article did not describe blockbuster large deals with the investors being multinational companies. Rather they discussed individual Americans buying waterfront lots for $80,000, farm land for $140,000, etc.

If your client asks you, are you ready to provide them guidance in such a transaction? The real estate section of the Chicago Tribune looked at the same concept, but strictly from the individual purchasing a retirement home or a second home for vacation. In that article the paper cited the “hot spots” as being Mexico because it’s convenient to reach and Panama because it’s economy is based on the dollar. Europe is cited as being popular but “pricey.”

Several real estate brokerage firms from Chicago now include multinational listings among their offering.

The article also referred to United States based real estate developers building vacation and retirement homes or full communities in foreign countries, frequently marketing their sales towards people that had bought from them in communities in the United States.

This article, in addition to Mexico and Panama, mentioned individuals buying homes in various islands in the Caribbean, Italy, England, Ireland and Argentina. The article did not describe large corporate or international business owners buying real estate. Rather the purchasers were individuals looking for a vacation home, investment home or a place to spend part of their retirement.

A different approach to issues concerning international and immigration law was covered in the May 2006 issue of the Chicago Lawyer. Their front page described video conferencing in the immigration court located in Chicago. The Chicago Lawyer devoted five full pages to the article concerning “Video Conferencing: Lawyers, Court at Odds over Technology.”

A separate article in the same issue of Chicago Lawyer described “Foreign experiences orient law students to a globalizing profession.” The author, Maria Kantzavelos, pointed out that there are more than 200 American Bar Association approved programs in place at United States law schools that involved studying outside the United States. She goes on to say that the ABA received 10 to 15 proposals for new study programs each year.

A third article in the same issue dealt with “Museum lawyers delve into legal side of creativity.” The article concentrated on the wide scope of legal issues that attorneys who work for museums may encounter. The article mentioned the attorneys dealing with visa applications for foreign workers, international skirmishes involving the rightful ownership of archeological antiquities, international or multinational intellectual property matters including trademark and copyrights, as well as the labyrinth of issues concerning the true ownership of artwork confiscated and perhaps re-confiscated during the Second World War.

Every practitioner you know is apt to encounter issues involving international and immigration law. Please urge them to join the section by going to <https://secure.isba.org/sections/sectionjoinform1.asp>.

Summary of commercial agency/distributorship law in Turkey

By Howard L. Stovall

1. Applicable Law

In Turkey, the relationship between a principal and a commercial agent or distributor is primarily governed by the Turkish Commercial Code and the Code of Obligations. In cases not explicitly covered by the Commercial Code, the Code of Obligations applies.

2. Definitions

Article 116 of the Commercial Code defines an “agent” as:

... persons practicing the profession of acting as intermediary in contracts concerning a commercial undertaking or executing contracts on behalf of such undertaking in a permanent manner, in a designated territory or district on the basis of a contract, without having a dependent position such as being a commercial representative, commercial proxy, salesman or employee.

The Turkish Commercial Code states that such an “agent” has the authority to give and receive notices on behalf of the principal for contracts on which that agent acts as intermediary or which it executes on behalf of the principal, as well as the authority to sue and be sued on behalf of the principal in disputes arising from such contracts. This Turkish legislative provision is mandatory and may not be modified by the parties’ agreement.

In addition, an agent may not execute a contract on behalf of the principal without specific written authorization from the latter.

In many cases, a multinational company would not wish to give such broad authority to its Turkish commercial agent. Therefore, the commercial agency agreement should clearly delineate the commercial agent’s authority, and should state that the commercial agent is an independent contractor without authority to act on behalf of the principal in any matter not expressly authorized in writing.
The Turkish Commercial Code does not explicitly address distributorship arrangements, and therefore distributorship relationships are primarily governed by general principles of the Commercial Code and Code of Obligations. However, some Turkish court decisions have made analogies between commercial agency and distributorship arrangements. In that light, the terms “commercial agent” and “commercial agency” used in this summary should be read as possibly also encompassing “distributor” and “distributorship”.

3. Qualifications for Commercial Agents

Turkish law does not require that a commercial agent be a Turkish national or a Turkish company wholly/majority-owned by Turkish nationals. However, any party conducting commercial activity (including commercial agency activities) in Turkey must be permanently domiciled in Turkey. In order to establish a branch or subsidiary in Turkey, a foreign company will be subject to Turkish foreign investment regulations (which have been liberalized recently).

4. Direct and Exclusive Relationship

Turkish law does not expressly require that the commercial agent have a direct contractual relationship with the foreign manufacturer, or otherwise be authorized directly by the manufacturer to act as a commercial agent in Turkey.

Similarly, Turkish law does not prevent a foreign company from appointing its Turkish commercial agent(s) on a non-exclusive basis. Under Article 118 of the Commercial Code, however, a Turkish commercial agent is deemed exclusive unless the parties indicate otherwise in their agreement. Turkish law does not generally prohibit a foreign company from selling its products directly into Turkey, although an exclusive Turkish commercial agent would probably be entitled to compensation for all sales made within its territory, regardless of whether concluded as a result of its efforts, unless otherwise agreed.

Article 118 of the Commercial Code also states that a commercial agent may not represent more than one competing principal in the same territory, unless otherwise agreed.

In communiques issued under the Competition Law, the Turkish Competition Board established rules for group (block) exemptions for Distribution and Servicing Agreements relating to motor vehicles (1998/3), Vertical Agreements (2002/2), and Research and Development Agreements (2003/2). Individual exemptions are also given under the Competition Law.

5. Mandatory Use of Commercial Agents

Turkish government procurement contracts usually do not require that foreign suppliers use a Turkish commercial agent. However, the Turkish government often considers a foreign company’s Turkish commercial agent to be a useful contact for local liaison and communications. According to commercial officers at the U.S. Embassy in Turkey: “When dealing with government tenders, an agent is an absolute necessity in view of complicated bureaucratic procedures and the language barrier.”

6. Restrictions on Use/Payment

There are no general prohibitions or limitation under Turkish law on a foreign company’s payment of compensation to a local commercial agent in either Turkish government (including military) or private sector procurement. In that light, therefore, compensation for commercial agency activities is primarily subject to the agreement of the parties. Despite this general rule, in some instances a particular tender may contain a stipulation that would contractually prohibit a foreign company’s use of a commercial agent or other intermediary.

Turkish exchange control rules permit a foreign principal to pay commissions and similar compensation to its Turkish commercial agent in foreign currency and outside Turkey. However, the Turkish commercial agent may be required to repatriate any such compensation to Turkey, and would be required to report income to the Turkish tax authorities. (Turkish tax law will also require a commercial agent to add VAT, at the current rate of 18%, to its invoices for services rendered. Many Turkish service providers expressly agree that the principal’s payment shall be inclusive of VAT and all other Turkish taxes).

For a number of reasons, including the fact that Turkish exchange control laws have been subject to significant changes over the years, a foreign principal is usually best served by making payments to the Turkish commercial agent’s bank or address in Turkey.

7. Registration Requirements for Commercial Agents

Turkish law does not require that a commercial agency agreement be reviewed or registered with any Turkish government department in order to be valid and enforceable. Of course, Turkish commercial agents (as well as all other parties conducting business in Turkey) must register with the Commercial Registry of the Ministry of Industry and Commerce.

In the case of a Turkish “agent” who has authority to execute contracts on behalf of a principal, the “agent” must register as such in the Commercial Registry, and publish a description of the relationship in the Turkish commercial gazette. When the relationship is terminated, the Turkish “agent” should de-register and publish a notice to that effect in the Turkish commercial gazette.

8. Termination or Non-renewal

Turkey has not enacted any special legislation governing the termination of commercial agency agreements, or requiring the principal to compensate the commercial agent upon such termination. In general, therefore, the relationship between a foreign principal and a Turkish commercial agent is governed by the terms and conditions of the parties’ contract, subject to mandatory provisions of Turkish law (e.g., in the Commercial Code and Code of Obligations).

For example, the principal and commercial agent are free to provide for termination/non-renewal either at the end of a fixed period or on specified notice with or without cause. The parties may also specify the amount of notice required to terminate the commercial agency, and in almost all cases such specified notice will be considered sufficient.

As an exception to these general rules, Article 133 of the Turkish Commercial Code states that an indefinite term commercial agency contract may be terminated with three months prior notice, and that any (indefinite or definite term) commercial agency contract may be terminated at any time for cause.
Under Article 134 of the Commercial Code, if a party terminates the commercial agency without cause and/or without the statutory three months prior notice, that party shall be liable to compensate the other party for losses resulting from the latter’s inability to complete any relevant transactions.

9. Choice of Law and Dispute Resolution

Given the general principles of freedom of contract contained in the Turkish Code of Obligations, as well as the Turkish International Private and Procedure Law, Turkish courts would likely enforce a choice of foreign governing law in a commercial agency agreement—provided that no Turkish public policy would be violated by the application of such foreign law, and provided that the matter is not within the exclusive jurisdiction of Turkish courts.

Similarly, the Turkish courts should uphold the parties’ agreement to submit commercial agency disputes to the jurisdiction of foreign courts or foreign arbitration. Under Article 38 of the Turkish International Private and Procedure Law, Turkish courts may recognize foreign judicial judgments upon certain conditions (e.g., the foreign judgment is from a country whose courts recognize Turkish judicial judgments on a reciprocal basis). In addition, Turkey is a party to the U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

* * * *

This summary is based on information currently available in our Chicago law office, including correspondence with legal counsel in Turkey. The purpose of this summary is to highlight selected aspects of Turkish commercial agency law, but it is not intended to provide legal advice on any specific question of local law.
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Mr. Stovall is a Chicago-based attorney with, devoting his practice exclusively to Middle Eastern commercial law matters. He is also an adjunct professor at The John Marshall Law School, teaching Comparative Commercial Law of the Arab Middle East. He may be reached at Howard@Stovall-law.com. He is a frequent contributor of material to The Globe.

Conference series: An informed discussion of financial access for immigrants—Part III

By Steven W. Kuehl

The first two portions of this article appeared in the prior two issues of The Globe.

The Wage Reporting Process

Under the Social Security Act, the SSA administers the retirement, survivors, and disability insurance programs, in which an individual’s name and SSN are used to maintain a record of personal earnings. The accuracy of these records is crucial since the SSA will use them to determine an individual’s eligibility for (and level of) Social Security benefits.

Employers report wages to the SSA on W-2 forms. Each year, the SSA processes about 240 million W-2s from about 6.5 million employers—representing the wages earned by about 145 million workers. While some employers continue to send paper W-2s, the SSA encourages electronic filing and works to educate employers on its advantages. In 2003, over 53 percent of W-2s were filed electronically—up from less than 10 percent in 1999.

In order to properly post earnings, the SSA attempts to maintain accurate records by mailing “no match” letters to employers and employees when an individual’s reported name and SSN do not match the SSA’s records. Most no match problems result from clerical mistakes or from people not reporting name changes to the SSA—most of these problems do not involve fraud or similar misconduct.

Over the last few years, the SSA has worked closely with interested parties to ensure that the purpose of each no match letter is clearly stated (within the letter). The name/ SSN mismatch is not an indicator of immigration status, and taking adverse action against an employee solely because of the “no-match” letter could violate state or federal law.

Information related to the no match letters is considered tax information, and the SSA is prohibited by law from disclosing it to other agencies, including the Department of Homeland Security (DHS).
The SSA does, however, share certain earnings information with other agencies when there is a relevant statutory basis. For example, the SSA is required by law to provide a “non-work alien file” to the part of DHS that replaced the Immigration and Naturalization Service (INS). That file contains information on wages reported under an SSN issued to individuals not authorized to work in the U.S. In addition, the SSA uses a national program created by INS and now maintained by DHS that enables the SSA to verify the authenticity of a non-citizen’s documents with DHS prior to issuing a Social Security card.

The earnings suspense file is an electronic holding file for W-2s that cannot be matched to the earnings records of individual workers due to name and SSN mismatches on the W-2s. It contains about 244 million W-2s (data through TY 2001—the most recent year for which complete data is available) and is maintained so that if the SSA later obtains the correct name and/or SSN for a worker, the wages can then be credited to that worker’s record. In order to credit the appropriate wages to a worker, the worker’s name and SSN on the W-2 must match the name and SSN recorded on the “Numident” file—the master record of SSNs issued.

In 2003, in an effort to reduce the number of no-match letters sent out, the SSA began to only send no-match letters to employers with more than ten employees with mismatched information, and in instances where the mismatched (W-2) forms represent more than one-half of one percent (0.5 percent) of the total W-2 forms filed by the employer with the agency.

This letter is intended to remind employers about the importance of accurate reporting of the names and SSNs of their employees. It also encourages employers to correct their records and provides tips on how to ensure accurate reporting, but some employers have improperly used no-match letters as a basis for adverse action against their employees. To address this issue, the SSA has, since 1979, been sending no-match letters to employees two to three weeks before contacting the employer—seeking correct information from the employees first. Since 2000, the letters sent to employees have been explaining that they do not imply intentional submission of incorrect information and that the letters are not a basis, in and of themselves, for an employer to take any adverse action against an employee. Further, the letters contain information to assist employees if they believe that they may have been discriminated against because of the letters.

In Tax Year 2003, the SSA sent about 126,000 no-match letters to employers and about 7.5 million letters to employees. The letters now give employers 60 days to correct the discrepancies.⁵⁰

The no-match letters also indicate that the IRS uses information provided by the SSA to enforce tax laws, but since the SSA itself does not enforce tax laws, receipt of a no-match letter does not guarantee a penalty from the IRS. Under the IRS Code, persons who provide incorrect information may be charged a $50 fine for failure to file a correct information return,⁵¹ which can be any form, statement, or schedule that must be filed with the IRS. This IRS fine is distinct from fines assessed by DHS for knowingly hiring an undocumented worker. The IRS may impose these penalties unless the employer or employee can show reasonable cause for not providing the correct information. Nevertheless, it has deferred enforcement of the $50 penalty until it further develops its penalty procedures. Under current IRS regulations, employers will not be subject to fines:

Paradowski emphasized that prior to issuing an SSN, the SSA must first verify the applicant’s proof of residency and citizenship or documentation from DHS showing the applicant’s immigration status. Applicant information is checked via the SSA computer systems that link with DHS records. The SSA will only issue an SSN for work (or an allowable exception noted above). Paradowski acknowledged that some of these initiatives may result in delays in the receipt of SSNs by some applicants, but added that “these measures are necessary to ensure the integrity of the SSN.”

Individual Taxpayer Identification Number (ITIN)

Erick Patterson is the director of Individual Advocacy for the Taxpayer Advocate Service, an independent organization within the IRS that helps taxpayers resolve problems with the IRS and that recommends changes that will prevent the problems. An individual with an ongoing issue with the IRS that has not been resolved through normal processes, or who has suffered or is about to suffer a significant hardship/economic burden as a result of the administration of the tax laws, should contact the Taxpayer Advocate Service.

Patterson discussed the ITIN. After some initial background, he explained who needs to obtain an ITIN, the revised and implemented changes to the application process, acceptable documentation, how to apply for an ITIN, and the use of certified acceptance agents by the IRS to assist applicants in obtaining ITINs.

Background

Since July 1, 1996, the IRS has been issuing ITINs to individuals who were not eligible to receive SSNs, yet needed identification numbers for tax administration purposes.⁵² The ITIN is a nine-digit tax processing number that always begins with the number 9 and has a 7 or 8 in the fourth digit (e.g., 9XX-7X-XXXX).⁵³ Patterson explains that “ITINs are for federal tax reporting only, and are not intended to serve any other purpose. An ITIN does not authorize work in the U.S. or provide eligibility for Social Security benefits or the Earned Income Tax Credit—it does not change an individual’s status.” ITINs are not valid identification outside the tax system.

Who Needs an ITIN?

“ITINs are issued regardless of immigration status because both resident and nonresident aliens may have U.S. tax return and payment obligations,” Patterson said. A non-resident alien ineligible for an SSN who is filing a U.S. tax return only to claim a refund under the provisions of a U.S. tax treaty needs an ITIN.⁵⁴ Other examples of individuals needing ITINs include:

Revised and Implemented Changes to the ITIN Application Process

On December 17, 2003, the IRS announced significant revisions to the ITIN application process.55 “The purpose of these changes was to ensure that the ITIN was used for tax purposes,” Patterson explained. Now applicants can apply for an ITIN only when they have a valid filing requirement and file an original valid federal tax return with their Form W-7/W-7SP (Application for IRS Individual Taxpayer Identification Number), unless they meet one of the exceptions to the requirement to attach a U.S. tax return.⁵⁶ Previously, however, a taxpayer could apply for an ITIN in advance to ensure that he or she received a number from the IRS before filing a return.⁵⁷ In order to avoid confusion with a Social Security card, the appearance of the ITIN has also been changed from a card to a letter.⁵⁸

Current ITIN Application Processing Procedures

Because of the December 2003 revisions, the IRS has created a two-step process for filing an ITIN application. First, the IRS reviews ITIN applications to ensure that they are complete with all necessary supporting documents attached—with each tax return, a family can file multiple packs.”⁵⁹ The family packs must be kept together during ITIN application processing; if one is separated or lost, it will affect the processing of the tax return. ITIN applications are also reviewed to determine if valid tax returns are attached, unless the applicant meets one of the exceptions.⁶⁰ Notably, “if a taxpayer wants to open a bank account,…[he or she] can apply for an ITIN and need not attach a filed tax return,” Patterson explained.

Second, IRS processes the return. If the ITIN application is incomplete or the return is missing or invalid, the application is returned to the applicant with a notice explaining the reasons for rejection unless the applicant meets one of the above mentioned exceptions for requesting an ITIN without filing a tax return.⁶¹ In the calendar year 2004, the IRS received 1.29 million applications—900,165 with tax returns attached and 399,097 without.⁶² That year, the IRS returned 274,778 applications to applicants for not filing returns with their applications and rejected 37,513 applications because the returns were incomplete.⁶³

What Constitutes Acceptable Documentation as Proof of Identity and Foreign Status?

“In an effort to simplify the process, we have reduced from 40 to 13 the number of documents accepted as proof of identity to obtain an ITIN,” Patterson remarked. An original passport is the only necessary document to obtain an ITIN. It is preferred by the IRS because it proves both identity and foreign status. Other acceptable forms of documentation are combinations of current documents with expiration dates that show the applicant’s name and photograph, support a claim of foreign status, and be either an original or a copy certified by the issuing agency. The IRS will accept a combination of two or more the following documents in lieu of a passport:⁶⁴

Because the tax return is being filed as an attachment to an ITIN application, it should not be sent to the address listed in the Form 1040, 1040A or 1040EZ instructions. Instead, the Form W-7, proof of identity documents, and the tax return should be sent to this address listed in the Form W-7 instructions:

Internal Revenue Service
Philadelphia Service Center
ITIN Unit, P.O. Box 447
Bensalem, PA 19020

One may also apply by using the services of an IRS-authorized Acceptance Agent or by visiting an IRS Taxpayer Assistance Center (TAC). TACs in the U.S. provide in-person help with ITIN applications on a walk-in or appointment basis. Applicants outside the U.S. should contact an overseas IRS office to find out if that office accepts Form W-7 applications. The IRS’ ITIN unit in Philadelphia issues all numbers by mail.

Certified Acceptance Agent

Banks are required to report the earnings they pay depositors as interest on their accounts to the IRS. Thus banks need taxpayer identification numbers such as the SSN or ITIN from individuals with interest-bearing accounts. Acceptance Agents certified by the IRS can open interest-bearing accounts, even if the consumer lacks a tax identification number. An Acceptance Agent is an individual, business or organization (e.g., college, financial institution, accounting firm, etc.) authorized by IRS to assist individuals in obtaining ITINs.⁶⁷ Acceptance Agents review an applicant’s documentation, complete a certificate of accuracy, and forward the certificate and application to the IRS for processing. Some Acceptance Agents may charge a fee.

After “a certified Acceptance Agent gather[s] the documentation [of an individual without a tax identification number] and submit[s] it to the IRS,” Patterson explained, “then a bank account can be opened, …[and the] ITIN will be sent to the taxpayer in short order, usually in about four to six weeks.” If the bank account does not pay any interest, then the taxpayer must wait for their ITIN until they file their required tax forms in April. There are currently 1,909 acceptance agents in the Acceptance Agent Program,⁶⁸ though the IRS is changing the administration of this program and has stopped accepting new program applications pending issuance of new procedures.⁶⁹

ITIN Resources

State Driver’s Licenses

A driver’s license is a primary form of identification because it is issued by a state or outlying possession of the U.S. and contains an individual’s name, gender, date of birth, address, and photograph that can be used to verify the person’s physical appearance. It is a stepping stone to full mainstream financial and social access. Consequently, access to state issued driver’s licenses by undocumented immigrants has become a significant issue throughout the country. Proponents in some states have successfully expanded immigrants’ access to driver’s licenses while opponents in other states have passed legislation that further restricts immigrants’ access.⁷⁰ Proponents assert that drivers who have access to training, testing, licenses, and insurance are far less likely to cause traffic accidents than unlicensed drivers. Driver’s license restrictions would force many to drive without licenses, which would endanger other drivers.⁷¹ Conversely, opponents argue that a driver’s license makes an immigrant into a de facto citizen and rewards illegal behavior.⁷²

Illinois Driver’s License Requirements

Greg Curran, the assistant to the Secretary for Veterans Affairs at the Illinois Office of the Secretary of State, discussed documentation and identification requirements for obtaining an Illinois driver’s license at the Lisle conference. According to Curran, “since 9/11, [the Illinois Office of the Secretary of State is] making it tougher to acquire a driver’s license, and if you already have a driver’s license, we’re going to make it tougher to renew,…because the Illinois General Assembly says you have to provide [us with a Social Security number in a letter or on a card from the SSA] in order to get an Illinois driver’s license....Will we issue a driver’s license in Illinois without a Social Security number?…[No],” said Curran, answering his own question.

Further, Illinois, for the first time ever, will cross-reference SSNs provided by driver’s license applicants with data from the SSA—“to weed out those people who have false IDs or false Social Security numbers, because using a false Social Security number or someone else’s number costs us all a lot of money.” Identification and documentation questions regarding the Illinois driver’s license should be directed to the Illinois Office of the Secretary of State at (800) 252-2904.

Seventh District State Driver’s License Requirements

Stipulations for obtaining a driver’s license vary, often significantly, depending on the state in which the application is made. The table at <www.chicagofed.org/community_development/profitwise_news_and_views.cfm> lists the documents needed and other requirements for a state driver’s license in the five states in the Federal Reserve’s Seventh District. The information in the table was compiled by the National Immigration Law Center from statutes, state government Web sites, and information provided by advocates within each state, and it is current as of December 5, 2004.⁷³ Note that the documents used to prove age and identity may have changed.

Conclusion and Tangible Outcomes

Based on audience feedback and subsequent outcomes, the conference series was a success. Participants found the conferences to be an effective use of their time and a constructive forum for sharing ideas, practices, and innovative techniques to furthering immigrant financial market participation. Our cosponsors found the forums helpful in highlighting the barriers to mainstream financial services for immigrants.

Some more tangible outcomes flowed from the conference series as well. John Schultz, director of community development for the Wisconsin Housing and Economic Development Authority (WHEDA), showed interest in lending to undocumented immigrants prior to the Milwaukee conference. The Milwaukee conference then featured WHEDA’s executive director, Antonio Riley, whose keynote address touched on homeownership among undocumented immigrants. After the conference, WHEDA began accepting mortgage loan applications from non-SSN holders, where ITINs were used in lieu of SSNs. A select group of lenders participate in the program. According to Shultz, WHEDA’s acceptance of ITINs is an extension of its HOME mortgage loan program, with just a few documentation changes—no state tax dollars or special money were set aside for this program. Since WHEDA began accepting ITINs in lieu of SSNs, it has closed 76 mortgage loans of this type totaling $8.2 million.⁷⁴

Erick Patterson of the IRS, inspired by the utility of the Sobrevivir video series, brought about another tangible outcome from the conference: the IRS is creating Spanish language video presentations designed to help explain the uses of the ITIN to the Spanish speaking immigrants with low English proficiency.

The Center is an ongoing Fed initiative. We welcome your comments, ideas, and observations about the topic and the Center.
__________

Steven W. Kuehl is a Consumer Regulations Director at the Federal Reserve Bank of Chicago. Mr. Kuehl conducts seminars and workshop and prepares articles and other material dealing with consumer compliance banking regulations. Mr. Kuehl is admitted to practice in Illinois and is a member of the American Bar, Illinois State and Chicago Bar Associations.

50. See Handling Inquiries Relating to SSA Letters on No-Match Names and Social Security Numbers (SSNs) available at <http://policy.ssa.gov/poms.nsf/lnx/0101105027?opendocument>.
51. See 26 C.F.R. § 301.6721-1.
52. See generally 61 Fed. Reg. 26,788 (May 29, 1996); Treas. Reg. § 301.6109-1(d)(3).
53. Internal Revenue Service IRS.gov Web site on Individual Taxpayer Identification Number (ITIN) available at <www.irs.gov/individuals/article/0,,id=96287,00.html>.
54. Ibid.
55. IRS News Release, IRS Announces Revisions to ITIN Applications, IR-2003-140, December 17, 2003.
56. IRS Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number (Rev. 2004) available at <www.irs.gov/pub/irs-pdf/p1915.pdf>.
57. Applicants who are not required to pay income tax but need an ITIN for a purpose other than filing an income tax return, such as to take advantage of a tax treaty or for other specified purposes, may still apply for an ITIN at any time throughout the tax year. IRS Publication 1915, Understanding Your IRS Individual Taxpayer Identification Number (Rev. 2004), available at <www.irs.gov/pub/irs-pdf/p1915.pdf>.
58. Testimony of Pamela J. Gardiner, Acting Inspector General for Tax Administration Before the U.S. House of Representatives Committee on Ways and Means, Subcommittee on Oversight, Subcommittee on Social Security, March 10, 2004, available at <www.treas.gov/tigta/congress/congress_03102004.htm>.
59. See National Taxpayer Advocate, Annual Report to Congress, December 2004, available at <www.irs.gov/pub/irs-utl/ntafy2004annualreport.pdf>.
60. The exceptions for filing a tax return are listed in the instructions on the Form W-7. The exceptions include; (1) foreign taxpayers who own an asset that generates income tax withholding or an information return requirement, such as owning a bank account or partnership interest; (2) foreign students or scholars receiving pay for personal services; (3) foreign borrowers receiving mortgage interest reports; and (4) foreign taxpayer who sells property and is subject to withholding requirements. See Form W-7 instructions, p.3.
61. See Form W-7 instructions, supra.
62. Calendar Year 2004 ITIN Processing Data Report through Sept. 24, 2004.
63. Calendar Year 2004 ITIN Processing Fhttpata Report through Sept. 24, 2004.
64. Internal Revenue Service IRS.gov Web site on Individual Taxpayer Identification Number (ITIN), available at <www.irs.gov/individuals/article/0,,id=96287,00.html>.
65. Available at <www.irs.gov/pub/irs-pdf/fw7.pdf>.
66. Ibid.
67. Ibid.
68. IRS ITIN 2540 Report, dated October 1, 2004; also see National Taxpayer Advocate, Annual Report to Congress, December 2004, available at <www.irs.gov/pub/irs-utl/ntafy2004annualreport.pdf>.
69. IRS, International Taxpayer – How to become an Acceptance Agent for the IRS ITIN Numbers, at <www.irs.gov/businesses/small/international/article/0,,id=96671,00.html>. Also see National Taxpayer Advocate, Annual Report to Congress, December 2004, available at <www.irs.gov/pub/irs-utl/ntafy2004annualreport.pdf>.
70. See Immigrant Access to State Driver’s Licenses: A Tool Kit for Advocates, February 2004, available at <www.nclr.org/files/1073_file_ImmigToolKit_FNL.pdf>.
71. Ibid.
72. Ibid.
73. Available at <www.nilc.org/immspbs/DLs/state_dl_rqrmts_120504.pdf>.
74. Origination figures are as of May 23, 2005, and do not reflect an additional three pending loan applications.