IRS Transfer Certificate Delays: Why Form 706-NA Applications Are Taking Years To Process

Understand why IRS Transfer Certificate applications are delayed and how UK executors can manage Form 706-NA requirements for US assets.

UK executors dealing with US shares in an estate are increasingly encountering significant delays when seeking IRS estate tax clearance. Before US stocks can be sold, transferred or distributed to beneficiaries, the Internal Revenue Service (IRS) may require the estate to obtain a Federal Transfer Certificate by submitting Form 706-NA, the US estate tax return for non-resident aliens.

For many executors, obtaining this IRS clearance has become one of the most frustrating aspects of administering an estate with US assets. What was already a complex process has become even more challenging due to substantial delays at the IRS, leaving executors and beneficiaries waiting years for matters to be resolved.

Patience may be a virtue, but for executors trying to finalise an estate and beneficiaries waiting to receive an inheritance, these delays can be both frustrating and stressful.

Where a non-US domiciled individual dies owning US shares, US stocks or other US situs assets, with a combined value in excess of $60,000, a Form 706-NA filing may be required before the IRS will issue a Federal Transfer Certificate. This certificate is often needed by transfer agents, registrars and financial institutions before they will release, transfer or sell the deceased’s US investments.

Unfortunately, it is becoming a frequent occurrence for a Form 706-NA application for IRS clearance to take between two and three years to be processed.

During this period, executors may be unable to complete the administration of the estate, finalise distributions or transfer US investments to beneficiaries.

This can come as a surprise to UK executors who are more familiar with UK probate and inheritance tax procedures. Whilst UK estates can often make some progress whilst tax matters are being resolved, the administration of US shares after death can become effectively stalled whilst estates await IRS estate tax clearance.

As a result, beneficiaries may experience significant delays before they are able to receive their inheritance from US investments.

Why are IRS Clearance applications taking so long?

The lengthy processing times are largely the result of two significant factors.

Firstly, the IRS experienced substantial disruption during the Covid-19 pandemic. As with many public authorities around the world, large volumes of correspondence and paper-based applications accumulated during periods of reduced operational capacity.

Secondly, ongoing staffing pressures and budgetary constraints have affected the IRS’s ability to clear the backlog quickly. Whilst progress is being made, estates requiring Federal Transfer Certificates continue to experience delays that would have been almost unheard of a decade ago.

For overseas executors administering estates with US shares, this means patience is often required, even where a Form 706-NA application has been correctly prepared and submitted.

Although some financial institutions may offer alternative procedures in limited circumstances, many estates will still require IRS clearance before assets can be transferred or sold.

Why executors should be cautious about Online Guides, YouTube Videos and AI advice when completing Form 706-NA

Faced with long delays and complex requirements, some executors turn to self-help resources, online forums, YouTube videos or AI-generated guidance in an attempt to complete Form 706-NA themselves.

This is particularly understandable given current IRS delays, as many executors are understandably keen to avoid additional professional fees and deal with matters themselves.

Whilst these resources may appear helpful at first glance, executors should exercise caution.

US estate tax for overseas residents is a highly specialised area. Much of the information available online is either incomplete, outdated or simply incorrect. Many guides focus solely on completing the boxes on the form without addressing the wider tax and legal considerations that accompany a Form 706-NA filing.

For a UK estate with US assets, one of the most common problems is the failure to explain properly how the UK-US Estate Tax Treaty operates and how double taxation relief should be claimed.

For many UK-domiciled estates, treaty relief can eliminate any US estate tax exposure as well as any requirement to complete a full tax calculation in the first place. However, these reliefs are not automatic, and they must be claimed correctly, with appropriate evidence and supporting documentation provided to the IRS. A simple discrepancy between the supporting evidence and the 706-NA form can lead to a rejection or increase the chance of the estate being selected for an IRS audit.

An executor relying solely on a generic online guide may inadvertently submit an application that appears complete but fails to secure valuable treaty reliefs to which the estate is entitled.

The risks and costs of correcting errors later

A common misconception is that, if mistakes are made, they can easily be corrected afterwards.

Unfortunately, this is rarely the case.

Errors in a Form 706-NA filing can be expensive to correct. Additional IRS enquiries, requests for supporting documentation or supplemental filings may significantly extend processing times. Given existing delays, obtaining specialist advice at the outset is often more cost-effective than correcting problems later.

Executors may also face substantial professional costs to rectify problems that could have been avoided had the original filing been prepared correctly.

Why Form 706-NA is not user-friendly

Many executors are surprised by the complexity of Form 706-NA, particularly when they are already dealing with the practical and emotional demands of administering an estate.

Unlike UK inheritance tax forms, which are generally designed to be accessible to both professionals and lay individuals, Form 706-NA is primarily drafted from a US tax compliance perspective and assumes a degree of familiarity with US estate tax concepts.

The form itself does not always make clear what additional supporting documentation is required, nor does it comprehensively explain the wide range of supplementary papers that may need to accompany the filing.

Failure to include appropriate supporting documents can lead to information requests, delays and prolonged correspondence with the IRS.

At Lester Aldridge, our International Private Wealth team regularly advises UK executors and beneficiaries on Form 706-NA filings, IRS Transfer Certificate applications, Federal Transfer Certificates, UK-US Estate Tax Treaty claims, and the administration of estates containing US shares and other US assets.

We help clients obtain IRS estate tax clearance, prepare Form 706-NA applications correctly from the outset, and navigate the wider estate administration process, including dealing with transfer agents, registrars and financial institutions. We also assist with the transfer or sale of US shares after death, distributions to beneficiaries, and issues involving escheated assets and unclaimed funds.

We appreciate that most executors only encounter Form 706-NA and IRS Transfer Certificate requirements once in their lives. Our role is to guide clients through the process, explain what is required and help avoid unnecessary delays wherever possible.

Importantly, Lester Aldridge was the first UK law firm to offer an in-house Medallion Signature Guarantee service and remains one of very few providers in the UK. Many transfer agents and registrars require a Medallion Signature Guarantee before processing US share transfers, but obtaining one outside North America can be challenging. Our authorised team members can provide Medallion Signature Guarantee stamps for eligible transactions, helping to streamline the process and avoid unnecessary delay.

We can also assist with the various US tax forms required during estate administration, helping to ensure treaty benefits are correctly claimed and reducing the risk of unnecessary withholding taxes.

If you have been told that an IRS Transfer Certificate is required, obtaining specialist advice early can help avoid costly mistakes and further delay. Whilst we cannot make the IRS move faster, we can help ensure your application does not spend any longer than necessary in the queue.