Clarification needed on IRS wording regarding "Nonresident Spouse Treated as a Resident" details

[Grimlight_TEC]

tl;dr: Given the specific wording "first tax year", should the W-7 be filed with: a) the amended 2019 return; b) the original 2021 return; c) the amended 2019, amended 2020, and original 2021 returns mailed simultaneously together; or d) none of the above?  Relatedly, does filing the W-7 with the 2021 return implicitly preclude amending 2019 and 2020?

Fact pattern:

• According to Pub. 519, to make the election to treat a nonresident spouse as a resident, you must "[a]ttach a statement, signed by both spouses, to your joint return for the first tax year [emphasis added] for which the choice applies." Source: https://www.irs.gov/publications/p519#en_US_2021_publink1000222193
• Client intention to file W-7 with 2021 return (currently on extension).
• Client has been married since 2019.
• Spouse has never entered U.S (married on foreign soil).
• Spouse had no 2021 income (need to verify 2019 & 2020).
• Prior returns were filed as single.
• Client would like to amend previous returns for accuracy and for MFJ tax benefit.
• Client is aware of downstream implications regarding election, and necessity of election statement.
• Spouse has not filed with SSA for SSN.

My advance thanks to the community!

[BobKamman]

Why would filing the W-7 preclude anything?

I wouldn't file the returns simultaneously.  I would attach the election statement to all three returns and note on it that the election first applies to 2019 but is also being claimed for 2020 and 2021.  

[The-Tax-Lady]

That's a tricky one, at least to me. There is a special address that you send the W-7 along with a paper filed, MFJ return, so I would say, paper file the 2021 with the W-7, and send it to the special processing center, would be the correct procedure. Of course, I can't remember the location, and it might have changed from the Austin, TX location that I think it was. Make sure you research what address to send it to, because if you use the wrong processing center, as I did, they will forward it to the correct location, which will create massive delays, on top of the backlog of unprocessed paper returns. Fortunately it was pre-Covid, in my case, so the delay was not too bad. Send it Priority Mail so you have a tracking number and delivery confirmation.

My client sent her original passport, which was part of the ID requirements then. Unfortunately, they both forgot a scheduled vacation, flights etc..., so now the concern was, would she get the passport back in time to get on the plane. Fortunately it showed up 2 days before their departure date, so just got lucky on that one. 

Once the ITIN is issued, I think it would be easier to file the Amended 2019 & 2020 because the ITIN would be in the IRS system, thereby easier to verify on their end. I think filing the amendments before the ITIN is issued, even with all the backup documentation, would just cause the IRS to reject the amended returns because they would have no method to verify the ITIN and they would not take the steps to verify you sent it to the special processing center.

[BobKamman]

OK, I think I understand the question:  Does "first tax year" mean first calendar year, or first return filed?  In other words, can the 2019 and 2020 amended returns be filed after the 2021 return, which need to be filed in order to get the ITIN through the W-7 process?  I think the statute and regulations are clear that the rule applies to the first tax year, regardless of the order in which the returns, or amended returns, are received.

I would file the amended returns now, with "Applied For" as the spouse SSN/ITIN.  At least that corrects the illegal use of Single filing status.  It also may start the interest computation date for the refund.  IRS may send the return back or, more likely, send a notice asking for the ITIN.  By that time you should have it.  "Service" is part of their name, not the taxpayer's.  

[The-Tax-Lady]

Bob's idea to file the amended returns with "Applied For" is a good one. I was trying to think of a way to get the Amended returns on file so, as he said, "the interest computation may start".

With the backlog of paper returns, still unprocessed, it's hard to predict if your 2021 return and the ITIN will be completed in a timely manner, even with a designated processing center.

[BobKamman]

This is the IRS update from July 11 on ITIN processing:

The IRS is opening and processing Form W-7s as quickly as possible. We are currently processing Form W-7s that were received in early April. We are taking every action to minimize delays, and we are processing requests in the order they were received. The taxpayer will be notified once the ITIN is assigned or if additional information is needed. Original identification documents that are submitted with the Form W-7 will be returned to the taxpayer at the mailing address of record as quickly as possible. The associated tax return will then be submitted for processing.

https://www.irs.gov/newsroom/irs-operations-during-covid-19-mission-critical-functions-continue

[The-Tax-Lady]

Thanks for that update, Bob. That's why you're a 15 😊