The Internal Revenue Service (“IRS”) recently released two revenue procedures that aim to provide relief for non-United States residents that remain in the United States due to the COVID-19 pandemic and U.S. citizens and permanent residents working abroad.
Under ordinary circumstances, non-U.S. residents must remain within the United States for a specified number of days in order to be considered a resident for U.S. federal income tax purposes. However, due to the unforeseen circumstances regarding COVID-19, and the limitations it has placed on foreign visitors’ ability to travel, the IRS has offered relief to these individuals with the release of Rev. Proc. 2020-20. Similarly, Rev. Proc. 2020-27 provides relief to U.S. citizens and permanent residents (green-card holders) with respect to the requirements regarding exclusion of foreign earned income as a result of the pandemic.
Rev. Proc. 2020-20
In Rev. Proc. 2020-20, the IRS provides relief to affected foreign travelers who remain within the United States due to complications surrounding COVID-19. Under this revenue procedure, eligible individuals have the ability to apply the Medical Condition Travel Exception in applying the U.S. resident “substantial presence test” under section 7701(b)(3) to exclude up to 60 consecutive days from the amount of total days applied toward the substantial presence test.
These days also will not be counted in determining whether the U.S. nonresident will qualify for certain tax treaty benefits with respect to income from dependent personal services derived from within the United States. The 60-day exclusion period shall begin at the individual’s choosing between the days of February 1, and April 1, 2020. Without the release of this revenue procedure, it is likely that many stranded travelers would meet the test as resident aliens for U.S. tax purposes, or be excluded from certain foreign treaty benefits.
In order for affected individuals to obtain this relief, they must file Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition, and claim the COVID-19 medical condition travel exception by the due date for filing Form 1040-NR. If the affected individual has no requirement to file Form 1040-NR, Form 8843 is not required to be filed per the revenue procedure, but it is recommended that individuals retain all documentation related to time spent within the United States due to circumstances surrounding COVID-19.
Rev. Proc. 2020-27
In Rev. Proc. 2020-27, the IRS and the Treasury Department have determined that COVID-19 is a global health emergency and an adverse condition that negatively affects the normal conduct of global business.
The revenue procedure provides relief to any individual who is reasonably expected to become a “qualified individual” for purposes of claiming the Foreign Earned Income Exclusion under section 911, but who left the foreign jurisdiction due to COVID-19. Therefore, it is reasonably expected that qualification for exclusions from gross income under section 911 will not be impacted due to time spent away from such foreign country due to unforeseen circumstances surrounding COVID-19.
In order to qualify for relief, the taxpayer must have left the foreign country on or after February 1, 2020, (or December 1, 2019 for China, Hong Kong, and Macau), but before July 15, 2020, to be treated as a qualified individual for purposes of section 911. Additionally, the individual must prove to the satisfaction of the Secretary that he or she either established residency or was physically present in the foreign country prior to the COVID-19 affected period listed above, and would have been expected to meet all requirements to qualify for section 911 if not for unforeseen events surrounding COVID-19.
Under section 911, U.S. citizens and permanent residents are able to exclude foreign earned income annually when working and residing abroad. For 2020, the annual exclusion limit is $107,600 and therefore is a valuable benefit for those Americans working overseas. The revenue procedure contains a number of examples which illustrates the relief and benefits provided. The time period provided for remaining outside the foreign jurisdiction but still qualifying for the section 911 exclusion currently runs through July 15, 2020, but is subject to extension under subsequent guidance from the IRS.
If you have any questions or concerns on these regulations, contact ITAX or your trusted Cherry Bekaert professional.
