Effect of Travel Disruptions Due to COVID-19 on Foreign Income Exclusion and Alien Tax Status


The corona virus has severely impacted travel, especially international travel. The tax laws provide that a foreign individual can be considered a resident for tax purposes if he/she has been in the United States for a certain length of time during the year. The inability to leave the US due to COVID-19 can have severe tax consequences for a foreigner. To provide relief to these individuals, the IRS issued Revenue Procedure 2020-20 providing that up to 60 consecutive calendar days of presence in the US will be presumed to arise from travel restrictions due to COVID-19. These days will not be counted for purposes of determining tax residency. These days will also not be counted for purposes of determining whether the individual qualifies for tax treaty benefits for income from personal services performed in the United States. For additional information see https://www.irs.gov/pub/irs-drop/rp-20-20.pdf

In addition, certain U.S. business activities conducted by a nonresident alien or foreign corporation will 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, but only if those activities would not have been conducted in the United States but for travel disruptions arising from the COVID-19 emergency.

A US taxpayer who qualifies for the foreign earned income exclusion will not be impacted as a result of days spent away from the foreign country due to the COVID-19 emergency. Under Revenue Procedure 2020-27 the time requirements are waived if the taxpayer reasonably expected to meet the eligibility requirements, but failed to meet them because the individual departed the foreign country after February 1, 2020, but before July 15, 2020 (for China the period begins on December 1, 2019). For more detailed information see https://www.irs.gov/pub/irs-drop/rp-20-27.pdf

The waiver period ends on July 15, 2020 unless additional extensions are announced. Due to the current uncertainty regarding COVID-19 check for additional updates regarding these waivers at https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments


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