Since the start of the coronavirus (COVID-19) emergency, individuals and businesses have raised questions regarding how their tax residence would be impacted by cross-border travel disruptions including cancelled flights, shelter-in-place orders, quarantines and border closings. On Tuesday 21 April 2020, the Treasury Department and the Internal Revenue Service (IRS) issued guidance that provides relief to individuals and businesses affected by travel disruptions arising from the COVID-19 emergency.
In Rev. Proc. 2020-20, the IRS provides relief to affected NRAs living in the United States. The IRS will presume, under certain circumstances, that up to 60 consecutive calendar days of their US presence arises from COVID-19 travel disruptions and will not count this time period for purposes of determining US tax residency under the substantial presence test (SPT) or whether the individual qualifies for certain income tax treaty benefits with respect to income from dependent personal services performed in the United States.
The IRS will consider the COVID-19 emergency a medical condition that prevented the individual from leaving the United States. Without this relief, some NRAs in the United States who are prevented from returning home as a result of COVID-19 might have been considered resident aliens under the SPT while others might not have been able to claim an income tax treaty benefit with respect to income from dependent personal services performed in the United States because of their extended stay. With this relief, these individuals can avoid having 60 days counted against them.
The date when the 60-day period begins is chosen by each person, but it must start between 1 February and 1 April 2020. To obtain this relief, eligible NRAs who are required to file a 2020 US Non-resident Alien Income Tax Return (Form 1040-NR) must attach the relevant form to their tax return. Eligible NRAs who are not required to file a 2020 Form 1040-NR should retain all relevant records to support their reliance on this Rev. Proc.
To claim an exemption from withholding on income from dependent personal services pursuant to a US income tax treaty, an individual should work with their employer to certify that the income is exempt.
In Rev. Proc. 2020-27, the IRS provides relief to eligible US citizens and Green Card holders living and working abroad so that days spent away from the foreign country, due to the COVID-19 emergency, where the eligible individual was living and working will not prevent the individual from qualifying for the foreign-earned income exclusions. This relief benefits individuals who reasonably expected to become “qualified individuals” but who departed the foreign jurisdiction during the period described in the Rev. Proc. For 2019 and 2020, the Secretary of the Treasury, after consultation with the Secretary of State, has determined that the COVID-19 emergency is an adverse condition that precluded the normal conduct of business in the People’s Republic of China, excluding the Special Administrative Regions of Hong Kong and Macau (China) as of December 1 2019, and globally as of February 1 2020. The period covered by this Rev. Proc. ends on July 15 2020, unless an extension is announced by the Treasury Department and IRS.
These Rev. Procs. and FAQs provide answers to questions that were raised at the onset of the COVID-19 emergency. We expect the Treasury Department and the IRS will continue to issue additional COVID-19 emergency related guidance as warranted, especially if an extension is granted to the end date of Rev. Proc. 2020-27 after July 15 2020.