Buying real estate or starting a business in the United States is exciting. But many foreign nationals unknowingly make a mistake that can cost them years of delays: waiting until after the investment is made to obtain an Individual Taxpayer Identification Number (ITIN).
The reality is simple: if you know you will be investing, owning U.S. real estate, or doing business in the United States, you should begin the ITIN process as early as possible.
What Is an ITIN?
An Individual Taxpayer Identification Number (ITIN) is a tax identification number issued by the IRS to individuals who are required to have a U.S. taxpayer identification number but are not eligible to obtain a Social Security Number.
An ITIN does not authorize employment in the United States, create immigration status, or provide work authorization. Its purpose is solely to identify taxpayers for U.S. tax reporting and compliance.
Who Needs an ITIN?
Not every foreign national needs an ITIN. However, many do, including those who:
- Purchase investment or rental property in the United States.
- Own or invest in a U.S. business.
- Receive U.S.-source income.
- Must file a U.S. tax return.
- Need to claim a refund from the IRS.
- Wish to claim benefits under an applicable income tax treaty.
If you expect to have U.S. tax filing obligations, chances are you will eventually need an ITIN.
Why Is It So Important?
An ITIN allows the IRS to properly identify you as a taxpayer. Without one, filing tax returns, claiming deductions, requesting refunds, and resolving tax matters with the IRS can become significantly more difficult.
More importantly, many tax events cannot simply be “paused” while you wait for your ITIN to be issued.
The Cost of Waiting
Unfortunately, many foreign investors first learn they need an ITIN when there is already a problem.
Example 1: The Delayed FIRPTA Refund
A foreign national purchases U.S. real estate without obtaining an ITIN. Several years later, the property is sold.
At closing, a significant amount is withheld under FIRPTA and sent to the IRS. Although the seller’s actual tax liability may be much lower, the refund cannot be properly processed until the taxpayer has an ITIN and files the required tax return.
Instead of receiving the refund within a reasonable period, the seller may spend many months—and in some cases years—trying to recover money that belongs to them.
Example 2: The Business Owner Facing Tax Season
A foreign entrepreneur forms a U.S. company and begins operations without first obtaining an ITIN.
When tax filing season arrives, the owner must file U.S. tax returns, report income, and satisfy IRS reporting requirements. Because the ITIN application was left until the last minute, tax filings are delayed, accountants cannot complete the returns, and additional stress and expense follow—all of which could have been avoided with proper planning.
A Small Step That Prevents Big Problems
Obtaining an ITIN is often viewed as a task that can wait until later. In reality, it is one of the first administrative steps every foreign investor should consider.
Applying early means you will be ready when you need to file a tax return, receive rental income, sell property, claim a refund, or respond to an IRS notice. It eliminates unnecessary delays and allows your investment to begin on a solid foundation.
Plan Before You Invest
The best tax planning often happens before the first dollar is invested.
If you are considering purchasing U.S. real estate, forming a U.S. company, or expanding your business into the United States, don’t wait until tax season, or worse, until the IRS is holding your money.
Getting your ITIN early is a simple step that can save you significant time, expense, and frustration later.