The Internal Revenue Service (IRS) has been experiencing severe delays since the pandemic took hold early this year.
If you have submitted an application for federal tax clearance this year, it is likely that you will now face an estimated wait of 15 months before your application is assessed.
This update relates to those dealing with estate tax reporting for “non-resident aliens”. This means reporting estates for those individuals that have passed away as a non-US citizen and not domiciled in the US owning US situated assets valued above $60,000.
What is the usual processing time for a 706-NA?
In normal times, the IRS advise that you should wait at least six months for an estate tax account (706-NA) to be processed.
Unfortunately, our experience is that a six-month wait is optimistic. For the majority of our cases processed throughout 2019, we experienced processing times to be approximately 9 – 12 months.
For cases selected for audit, we could expect waiting times of anywhere between 12 – 24 months.
Why does it take the IRS so long?
The US is an attractive place to invest for people throughout the world. As the threshold for US estate tax is set very low for non-US citizens and non-residents, this generates a large volume of US estate tax clearance applications.
The IRS do their best to process the large volume of applications, but with the limited resources that they have, this is the timescale.
It is also worth remembering that in 2019, the IRS suffered a prolonged shutdown whilst the US government struggled to agree their proposed budget. With the IRS still dealing with a backlog caused by the government shutdown, the pandemic has compounded the delays.
Why has the pandemic caused additional delays?
The pandemic has forced the IRS to reorganise so that they can work remotely. Unfortunately, the shift to remote working has limitations.
We have been advised that IRS officials working from home cannot process applications anywhere near as quickly as they usually can.
Does it help if you just keep chasing the IRS?
The IRS website indicates that we should not be chasing for updates, as it just adds to the correspondence backlog.
Our view is that, without regular chasers, matters can easily slip through the net and we will continue to chase at appropriate intervals. However, we will not chase too frequently, as this may have a detrimental effect on processing times.
Unfortunately, the IRS do not appear to be accepting calls for estate tax matters and emails go unanswered.
Can “live telephone assistance” or submitting electronically help?
The IRS mention that live telephone assistance is limited and we have found it to be non-existent for estate tax support.
While the IRS are now allowing Form 706-NA to be signed ‘electronically’, our understanding is that it still cannot be lodged electronically. This means that only paper applications can be submitted. Unfortunately, paper applications are the ones most impacted by the delays.
This update will not be welcome news for many people throughout the world who may be reporting a US estate tax position. With thousands of applications currently awaiting processing, all we can do at this time is to chase at appropriate intervals to ensure that no estate is forgotten.
We hope that a new US administration will recognise the pressure on their estate tax department. It is unfair on families who are dealing with the loss of a loved one, who then diligently comply with tax legislation only to be faced with unreasonable delays.
There is also the economic loss to the US. Whilst estate assets are left languishing – waiting for tax reporting formalities to be completed – assets are not being passed to the next generation.
Whilst the IRS do their best to catch up, we will continue to strive to support our clients in the best way that we can and aim to progress our outstanding applications using the techniques that we know best.