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Taxation law

Residence status: the IRS provides relief to individuals having to extend their stay in the US because of COVID-19

May 6th, 2020

By Hyacinthe Huguet

On April 21st, 2020, the IRS published guidelines contained in Revenue Procedure 2020-20 (link here) for individuals having to extend their stay because of the COVID-19 emergency. The IRS describes the context in which this Revenue Procedure was adopted as follows:

Travel and related disruptions resulting from the global outbreak of the COVID-19 virus may cause certain Eligible Individuals, as defined in section 3.04 of this revenue procedure, who did not anticipate meeting the “substantial presence test” under section 7701(b)(3) of the Internal Revenue Code (the Code) to become residents of the United States for federal income tax purposes during 2020 and may impact an individual’s qualifications for certain treaty benefits.

As mentioned in the Revenue Procedure, under the substantial presence test, an individual can be deemed a resident of the US for tax purposes due to the number of days that they have spent in the US:

An alien individual is a resident under the substantial presence test in the tested calendar year if: (1) the individual is present in the United States on at least 31 days during the tested calendar year; and (2) the sum of (i) the number of days of presence in the tested calendar year; (ii) one-third of the number of days of presence in the preceding calendar year; and (iii) one-sixth of the number of days of presence in the second preceding calendar year totals 183 or more.

Thus, the number of days that an individual spends in the US over three consecutive calendar years is crucial to determine whether that individual might be deemed a resident of the US for tax purposes, which may trigger that individual’s liability for tax in the US.

Given that context, the IRS will allow Eligible Individuals to exclude up to 60 days that they may have spent in the US, starting on or after February 1st, 2020 up to and including April 1st, 2020, due to COVID-19 -related reasons from the number of days that they spent in the US for the purposes of the substantial presence test to determine whether an individual present in the US qualifies as a resident of the US for tax purposes.

In other words, Eligible Individuals could avoid being deemed residents of the US for tax purposes, if by removing the days they spent in the US because of COVID-19 related reasons, they fall below the threshold under the substantial presence test.

Furthermore, note that individuals who must extend their stay in the US because of a medical condition can also exclude the days spent in the US due to that condition by filing form 8843 with the IRS. The individual claiming that exclusion must not have been aware of the medical condition upon their arrival in the US.

In sum, the Revenue Procedure 2020-20 published by the IRS is good news in the sense that it may prevent the unintended consequences of deemed residence for individuals stranded in the US due to the pandemic. Thus, individuals having to extend their stay in the US because of the pandemic should ensure that they can benefit from Revenue Procedure 2020-20 and should consult with an American attorney if in doubt.

 

Please note that the foregoing is intended to be purely informative and should not be construed as legal advice.