The IRS declares in many documents that:
"ITINs are IRS assigned numbers issued only for federal tax administration purposes"
"ITINS do NOT Serve as identification outside the federal tax system".
However, FTB disallows Dependent Exemption Credit if the dependents do not provide SSN or ITIN. Only if you are Canadian or Mexican resident then you can use Form 3568.
Question1: Is FTB, by requiring ITINs for Sate Tax purposes, not in breach of the IRS rules that ITINS be used only for Fed Tax purposes? If yes, why is this legal?
Now I am neither Mexican nor Canadian (yes, we do exist) and I have just received a notice from FTB that they have disallowed my dependent exemption credits due to missing ITINs or SSNs. As non-resident aliens with no work authorization, my dependents are not eligible for an SSN. They have applied for an ITIN twice but were rejected with the explanation that (since non-resident aliens are not allowed to have a family for fed tax purposes!) ITIN is only for Fed Tax purposes and they are not going to need them.
Question2: What would be a realistic way out of this enforced logical contradiction? What can we do to claim dependent exemption credit?
Disclaimer: I am not a tax professional but only a very unlucky non-resident alien (visiting professor) who is being milked by tax authorities on every occasion.