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The global outbreak of the COVID-19 virus (the COVID-19 Emergency) has significantly limited the ability of many individuals to leave the United States. Regardless of whether they are infected with the COVID-19 virus, individuals may have become severely restricted in their movements, including by order of government authorities.
Persons who do not have the COVID-19 virus and attempt to leave the United States may also face canceled flights and disruptions in other forms of transportation, shelter-in-place orders, quarantines, and border closures, or they may feel unsafe traveling during the COVID-19 Emergency due to recommendations to implement social distancing and limit exposure to public spaces.
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Nonresident alien individuals who perform services or other activities in the United States and foreign corporations who employ individuals or engage individuals as agents to perform services or other activities in the United States may be considered engaged in a U.S. trade or business (USTB).
If the individuals performing those services or other activities are temporarily in the United States solely due to COVID-19 Emergency Travel Disruptions, this may cause the nonresident alien or foreign corporation to become engaged in a USTB when the nonresident alien or foreign corporation would not be so engaged were these individuals not present in the United States.
Generally, a nonresident alien or foreign corporation that is engaged in a USTB is taxable on its business income connected to that USTB.
If a U.S. income tax treaty applies, however, the nonresident alien individual or foreign corporation generally will not be liable to tax on the income of its USTB (i.e., business profits) unless the business is conducted through a permanent establishment in the United States (PE) such as an office or other fixed base or a dependent agent.
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A nonresident alien, foreign corporation, or a partnership in which either is a partner may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a USTB, provided that such activities were performed by one or more individuals temporarily present in the United States and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions.
An "individual temporarily present in the United States" means an individual who is present in the United States on or after February 1, 2020, and on or before April 1, 2020, and is a nonresident alien, or a U.S. citizen or lawful permanent resident who had a tax home as defined in section 911(d)(3) outside the United States in 2019 and reasonably expects to have a tax home outside the United States in 2020. In addition, to determine the nonresident status of an alien, the relief provided in Rev. Proc. 2020-20 is applicable.
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The Treasury Department and the IRS have recently issued guidance that provides relief to individuals and businesses affected by travel disruptions arising from the COVID-19 emergency.
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Revenue Procedure 2020-20 provides relief to certain nonresident individuals who, but for COVID-19 Emergency Travel Disruptions, would not have been in the United States 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, this revenue procedure establishes procedures to apply the SPT’s medical condition exception to exclude up to 60 consecutive days spent in the United States during a time period starting on or after February 1, 2020 and on or before April 1, with the specific start date to be chosen by each individual (the “COVID-19 Emergency Period”).
It also provides 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.
In all events, the affected person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency Travel Disruptions. The affected person should be prepared to provide that documentation upon request by the IRS.
Nonresident aliens and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief).
Revenue Procedure 2020-27 provides that the Secretary of 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, relief is being provided to any individual that 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 this revenue procedure.
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Revenue Ruling 2020-08 suspends Rev. Rul. 71-533 pending reconsideration of whether the ten-year limitations period provided by section 6511(d)(3)(A) of the Internal Revenue Code applies to claims for refund or credit of an overpayment resulting from a foreign tax credit (FTC) carryback arising as a result of a net operating loss (NOL) carryback from a subsequent year.
As part of this reconsideration, Rev. Rul. 68-150 is also being reconsidered and is suspended with respect to adjustments that arise from a change to the FTC limitation, including as the result of the correction of mathematical errors or the application of an NOL carryback.
The IRS will continue to monitor the evolving effects of the COVID-19 Emergency on nonresident alien individuals and foreign corporations as well as other issues related to the COVID-19 emergency, and updated information about relief will continue to be posted on Coronavirus Tax Relief on IRS.gov.
Our weekly newsletters will mirror any new information which may impact your taxes and financial situation. Now more than ever, advice from a professional is your best solution.
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