The Internal Revenue Service and the Treasury Department provided three pieces of cross-border tax guidance Tuesday to provide relief to individuals and businesses affected by travel disruptions arising from the novel coronavirus pandemic.
The guidance includes:
Revenue Procedure 2020-20 says that, under certain circumstances, up to 60 consecutive calendar days of U.S. presence that are presumed to arise from travel disruptions caused by the COVID-19 emergency won’t be counted for purposes of determining U.S. tax residency and for purposes of determining whether an individual qualifies for tax treaty benefits for income from personal services performed in the U.S. The revenue procedure provides relief to certain nonresident individuals who, except for COVID-19 emergency travel disruptions, wouldn’t have been in the U.S. long enough during 2020 to be considered resident aliens under the “substantial presence test” (SPT) or to be ineligible for treaty benefits on services income. With respect to the relief provided under the SPT, the revenue procedure establishes procedures to apply the SPT’s medical condition exception to exclude up to 60 consecutive days spent in the U.S. during a time period starting on or after Feb. 1, 2020 and on or before April 1, with the specific start date to be chosen by each individual. It also includes procedures for an individual to exclude those days of presence in order to claim benefits under an income tax treaty with respect to services income.
Revenue Procedure 2020-27 says that qualification for exclusions from gross income under section 911 of the Tax Code won’t be impacted as a result of days spent away from a foreign country due to the COVID-19 emergency based on certain departure dates. It points out that the Treasury has determined that the global health emergency caused by the outbreak of COVID-19 is an adverse condition that precludes the normal conduct of business globally. Therefore, the IRS and the Treasury are providing relief to any individual who is reasonably expected to become a “qualified individual” for purposes of claiming the foreign earned income exclusion under section 911 but left the foreign jurisdiction during the period described in the revenue procedure.
The Treasury and the IRS also posted a FAQ page, which says that certain U.S. business activities conducted by a nonresident alien or foreign corporation won't be counted for up to 60 consecutive calendar days in determining whether the individual or entity is engaged in a U.S. trade or business or has a U.S. permanent establishment, but only if those activities wouldn’t have been conducted in the U.S. except for travel disruptions arising from the COVID-19 emergency.
The guidance should be especially helpful to foreign travelers who found themselves stuck in the U.S. during the pandemic, according to one tax attorney who has been following the situation. “We got welcome news today from the IRS and Treasury to help assuage the plight of foreigners stuck in the United States due to travel, lock-down and other coronavirus restrictions which have left aliens temporarily in the United States facing potential tax residency due to the amount of time they are now spending in the United States," said Withers of counsel Paul Sczudlo. "The IRS and Treasury are to be lauded on moving quickly on this guidance and crafting a meaningful solution providing additional time before these stuck foreigners have to leave the United States – in many instances a further 60 days of U.S. presence which does not count against their tax residency status. For many aliens this will mean that they can spend up to 242 days in 2020 in the United States, provided they have otherwise maintained a foreign tax home and closer connections to that tax home than to the United States. Of course, this is still a somewhat fact-driven analysis and each foreigner will want to carefully consider this new authority in light of their own personal circumstances.”
The Treasury Department and the IRS said they’re continuing to monitor these and other issues related to the COVID-19 emergency, and any updated information about relief will be posted on the IRS.gov Coronavirus Tax Relief page.
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