By Title Research
As Title Research handles asset repatriation in North America, the efficiency and timing of our cases often depend on cooperation with U.S. government agencies. The Internal Revenue Service (IRS), in particular, plays a critical role, as we regularly submit applications for Federal Transfer Certificates ( Form 5173 ) for estates containing U.S. assets – this is applicable when US assets exceed $60,000 at the date of death and is a requirement of most US financial institutions, such as transfer agents and investment companies. Unfortunately, events like U.S. government shutdowns pose significant challenges to this process.
A U.S. government shutdown occurs when Congress fails to pass a funding bill, temporarily halting the government’s ability to spend money on services requiring annual appropriations. This results in many agencies either closing or significantly reducing operations. While essential functions, such as those related to public safety and national security, continue, other areas are heavily affected. In the context of Title Research, the IRS is a critical agency that would face disruption. Government shutdown normally happens after an election and the next one is due on 5 November 2024.
How a Government shutdown affects the IRS
During a government shutdown, the IRS continues to accept tax payments and filings, but many operations slow down or cease entirely, which could impact asset repatriation cases. For example:
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- IRS staffing reductions: In previous shutdowns, up to 60,000 IRS employees have been furloughed. In the most recent contingency plan for the financial year 2024, around 60,000 employees are expected to be furloughed, severely affecting taxpayer services, audits, and tax verifications. Only about 30,000 IRS employees would remain operational, primarily to handle critical functions such as processing payments and protecting legal deadlines;
- Form 5173 delays: Obtaining a Federal Transfer Certificate (Form 5173) is already a lengthy process, typically taking 18 to 24 months. With a government shutdown, this timeline could extend even further, as fewer IRS employees will be available to process Estate Tax matters, leading to additional backlogs;
- Correspondence and phone line closures: Communication channels with the IRS, including hotlines and routine correspondence, are often closed or delayed during shutdowns. This makes it even harder to get updates or resolve issues related to Estate Tax forms, such as EIN verification or inquiries about ongoing cases.
Broader implications of a U.S. Government shutdown
A government shutdown doesn't just impact the IRS; it has far-reaching consequences across various sectors. Businesses relying on government services, such as mortgage lenders or asset management firms, may experience delays. For Title Research and our clients, this translates into longer waiting periods to resolve estates, particularly those involving U.S. assets.
For example, a shutdown in 2013 led to a backlog of 1.2 million Social Security and income verification requests, delaying mortgage approvals and other financial transactions. More recently, in the 2018-2019 shutdown, many IRS employees were recalled without pay to handle tax season, but significant disruptions still occurred.
The uncertainty surrounding future shutdowns also adds a layer of complexity. While the current threat of a shutdown was averted with a funding bill through 20 December 2024, the potential for further delays looms as the political landscape could shift after the U.S. elections in November. This, combined with ongoing challenges such as the debt ceiling debate, means that agencies like the IRS may face even more funding uncertainty and delays in 2025.
What this means for Title Research clients
For clients dealing with estates containing U.S. assets, a government shutdown can lead to prolonged delays in estate administration. The current timeline of 18 to 24 months for issuing Form 5173 could stretch longer, meaning cases that rely on U.S. tax clearance will take additional time to resolve. This can be particularly frustrating when the U.S. asset forms a significant part of the estate. Further delay to an already lengthy process could also heighten the risk of assets escheating to state ownership.
To mitigate these delays, we advise starting the process of applying for Form 5173 as soon as UK Probate documents are in hand. Early action helps to reduce overall estate administration time, but it's important to prepare for potential delays if a shutdown does occur.
At Title Research, we are committed to guiding our clients through these challenges, ensuring that U.S. assets are handled with care, even in the face of governmental disruptions.
If you’d like to find out more about how Title Research can help you retrieve escheated assets or administer North American shares and funds, call our Client Services Team on 0345 87 27 600 or email fill in the form below.
Topics: North America, Overseas Assets, US Shareholdings
