WTax is monitoring developments at the United States Internal Revenue Service (IRS) following indications that staff reductions, funding pressures and the continuing federal government shutdown may contribute to slower processing of Form 6166, Certificate of U.S. Tax Residency, for the 2026 tax year.
Form 6166 is an essential document for U.S. investors claiming treaty-based withholding tax relief in foreign markets. Any significant delays in obtaining it could prevent timely filing for relief-at-source eligibility, potentially resulting in excess withholding tax or delayed recoveries.
Current Status and Emerging Indicators
What This Means for U.S. Investors
Why Form 6166 Matters
To obtain a certificate of U.S. tax residency, taxpayers must submit Form 8802 (Application for United States Residency Certification) together with a mandatory user fee, currently USD 185 for businesses and USD 85 for individuals.
The certificate verifies U.S. residency under tax treaties, allowing investors to access reduced withholding rates on dividends, interest or gains. In its absence, many jurisdictions apply full statutory withholding, leaving investors to pursue refund claims afterward.
Current Status and Emerging Indicators
WTax’s dedicated tax certification team has been liaising closely with the IRS to stay informed of any developments affecting the issuance of Form 6166. Based on our recent engagement, most IRS functions appear to be operating, although processing times for applications may be affected and uncertainty remains around turnaround periods.
Alongside this, several public indicators point to broader operational pressures that could influence certificate issuance in the coming months:
- The IRS workforce has declined by roughly 26 percent, from more than 102,000 employees to fewer than 76,000, according to the National Taxpayer Advocate’s 2025 mid-year report.
- The IRS’s FY 2026 budget proposal reflects a potential 20 percent funding reduction in appropriations and overall funding cuts of about 37 percent once temporary supplements expire.
- The agency has indicated that user fees for Form 8802 applications may increase to support program funding stability, although no official change has yet been announced.
- The IRS’s Contingency Plan (effective 8 October 2025) identifies the U.S. Residency Certification Program as a "Category A1" function, permitted to continue operations during a government shutdown, but only about half of IRS staff are currently designated as essential, leaving long-term continuity uncertain.
- Professional tax commentators have cautioned that sustained funding limits and staff attrition may extend processing times across several IRS programs if current conditions persist into 2026.
Together, these factors suggest that certificate issuance could experience longer lead times or intermittent disruption in early 2026, even without any formal change to procedures.
What This Means for U.S. Investors
Without timely provision of Form 6166 certificates, withholding agents must withhold full withholding at source based on statutory tax rates because eligibility for treaty rates cannot be verified before payment. This can delay access to reduced rates under relief-at-source mechanisms and, in some cases, may result in investors needing to recover excess withholding tax after payment through a formal reclaim process with the relevant foreign tax authority.
Where certificates are delayed or deadlines are missed, investors may experience either temporary tax leakage (until refunds are processed) or irrecoverable loss if reclaim rights expire or are not available.
To mitigate these risks, WTax recommends that U.S. entities and funds:
- Prepare Form 8802 applications early for the 2026 tax year once filing opens.
- Coordinate documentation timelines with custodians and intermediaries to support both relief-at-source and reclaim submissions.
- Ensure you are regularly updated on IRS communications that may affect residency certification timelines.
How WTax Can Help
WTax continuously monitors developments affecting cross-border tax relief, including liaising with the IRS and other tax authorities on the latest updates. Our teams handle all aspects of the relief and recovery process including obtaining tax residency certificates, tracking global documentation requirements, monitoring tax authority developments such as changes to Form 6166 processing, and we manage the full reclaim workflow from submission to recovery.
We aim to keep clients informed and prepared so that administrative developments, such as IRS processing delays, can be factored into recovery planning as early as possible.
WTax’s ongoing monitoring ensures clients remain informed about IRS and other jurisdictional updates that could impact relief and recovery timelines.
