Treasury, IRS Release Cross-Border Tax Guidance for Travel Disruptions Due to COVID-19

The Treasury Department and the Internal Revenue Service (IRS) issued guidance providing relief to individuals and businesses affected by travel disruptions arising from the COVID-19 emergency. The guidance includes the following:

1. Determining U.S. Tax Residency. In Rev. Proc. 2020-20, the IRS confirmed individuals whose foreign travel was affected due to the current COVID-19 pandemic, and subsequently, met the substantial presence test (SPT), may exclude up to 60 consecutive calendar days during which the individual was physically present in the U.S. for purposes of applying the SPT. Additionally, an individual’s qualifications for certain treaty benefits will also not be impacted. Under the SPT, a resident alien is generally considered a U.S. resident if the individual is:
   1. 1. Physically present in the United States for at least 31 days in the current year, and
      2. If the total number of days present for the current and preceding two years equals or exceeds 183 days (considering all U.S. days of the current year, one-third of U.S. days in the prior calendar year, and one-sixth of U.S. days in the second preceding calendar year).

2. Excluding Gross Foreign Earned Income. The COVID-19 pandemic also prompted the Treasury Department and the IRS to provide a waiver of the time requirements for U.S. expatriates to qualify for exclusions under Internal Revenue Code (IRC) Section 911. In Proc. 2020-27, the IRS provides that days spent away from a foreign country due to COVID-19 will not prevent those individuals from qualifying for exclusions from gross income under Sec. 911’s foreign earned income exclusion.
3. Engaging in U.S. Trade or Business. The IRS also issued an FAQ, which provides certain U.S. business activities conducted by a nonresident alien or foreign corporation to not 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. It only applies if those activities would not have been conducted in the United States, but for travel disruptions arising from the COVID-19 emergency.

Navigating the U.S. tax system can be complex, and the current COVID-19 pandemic has brought some uncertainty on how foreign individuals will be impacted. To obtain assistance with maintaining U.S. tax compliance, contact Doeren Mayhew’s international tax advisors today.