The Treasury Department and the IRS have provided tax relief to certain individuals and businesses affected by travel disruptions arising from the coronavirus (COVID-19) emergency. Under the guidance:
- up to 60 consecutive calendar days of U.S. presence that are presumed to arise from COVID-19 travel disruptions will not be counted for determining U.S. tax residency under Internal Revenue Code (IRC) Section 7701(b), or determining whether an individual qualifies for tax treaty benefits for income from personal services performed in the United States;
- for certain U.S. citizens and residents, qualification for gross income exclusion of foreign earned income under IRC Section 911 will not be impacted by days spent away from a foreign country due to the COVID-19 emergency; and
- certain U.S. business activities by a nonresident alien or foreign corporation will not be counted for determining whether the individual or entity is engaged in a U.S. trade or business or has a U.S. permanent establishment.
COVID-19 Medical Condition Travel Exception
Travel and related disruptions resulting from the COVID-19 emergency may cause foreign individuals, who did not anticipate meeting the “substantial presence test” under IRC Section 7701(b)(3), to become U.S. residents for federal tax purposes during 2020, and may impact an individual’s qualifications for certain treaty benefits. To address this, Rev. Proc. 2020-20 allows certain foreign individuals to claim a COVID-19 Medical Condition Travel Exception to becoming U.S. residents, and provides similar relief for determining whether or not an individual is eligible for the medical travel exception, which is a benefit provided in the U.S. income tax treaty for income from dependent personal services performed in the United States.
An individual can claim a COVID-19 Medical Condition Travel Exception if he or she:
- was not a U.S. resident at the close of the 2019 tax year;
- is not a lawful permanent resident at any point in 2020;
- is present in the United States on each day of his or her COVID-19 Emergency Period; and
- does not become a U.S. resident in 2020 due to days of presence in the United States outside of the individual’s COVID-19 Emergency Period.
The COVID-19 Emergency Period lasts up to 60 consecutive calendar days selected by an individual, starting on or after February 1, 2020, and on or before April 1, 2020, during which he or she is physically present in the United States on each day. An eligible individual who intended to leave the United States during his or her COVID-19 Emergency Period but could not leave due to COVID-19 emergency travel disruptions can exclude up to 60 calendar days of presence in the United States for the substantial presence test. The COVID-19 emergency will be considered a medical condition that kept the individual from leaving the United States on each day during his or her COVID-19 Emergency Period, and will not be treated as a pre-existing medical condition.
Further, any days of presence during an individual’s COVID-19 Emergency Period on which he or she was unable to leave the United States due to COVID-19 emergency travel disruptions will not be counted in determining his or her eligibility for treaty benefits for income from employment or performing other dependent personal services within the United States.
The guidance provides details on claiming a COVID-19 Medical Condition Travel Exception and an exemption from income withholding under a U.S. income tax treaty.
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