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It would appear that more people than not have had vacation and travel plans upended due to the COVID-19 pandemic, which has caused major transportation issues (especially with international flights). Beneath the obvious health risks of the pandemic, it has also caused logistical issues with the IRS and various tax-related matters. This can cause unintended consequences for non-U.S. people who end up spending too many days in the U.S. They may be considered a “U.S. Person for Tax Purposes” which means they are required to file a U.S. Income Tax Return (IRS Form 1040) and report their worldwide income for 2020. Fortunately, the IRS recently issued relief for those who have been stuck in the U.S. due to travel restrictions or other COVID-related issues.
Substantial Presence Test (SPT)
With a few exceptions, people will be considered a U.S. tax person (who must pay taxes to the IRS on their worldwide income) if they are in the country for 183 days or more in a single calendar (tax) year. Another way that nonresidents can become a U.S. person due to the SPT is by looking at the past 3 years. If 100% of the total days spent in the U.S. in 2020 + ⅓ of the total days spent in the U.S. in 2019 + ⅙ of the total days spent in the U.S. in 2018 exceeds 183 days, you are considered a U.S. tax person for 2020.
Medical Conditions Exemption
One way U.S. nonresidents can avoid the 183-day threshold is by proving that a medical condition, which arose during their stay in the U.S., prevented their leaving the country. Due to the unique circumstances of the COVID-19 pandemic, there was potential for those affected by the fallout to lose their nonresident status. Additionally, others were at risk of losing certain treaty benefits based on dependent personal services that were performed in the U.S. Still others (who felt compelled to return to the U.S.) to forfeit the foreign earned income exclusion under Section 911.
Recognizing this possibility, the IRS released Rev. Proc. 2020-20, which states that eligible individuals may exclude a particular 60-day period consecutively spent in the U.S. from the SPT time requirement. Specifically, the 60 days must have started on or after Feb. 1 and on or before April 1.
Who is an Eligible Individual?
Generally, individuals who meet the following criteria are eligible to use the COVID-19 Emergency Period:
- Was not a U.S. resident at the end of the 2019 tax year
- At no point in 2020 was a lawful permanent resident
- Was present in the U.S. on every day of the emergency period
- Outside of the 60-day COVID-19 Emergency Period, is not set to be a U.S. tax person in 2020
Notably, one does not have to actually test positive for COVID-19 in order to take advantage of the emergency period.
Conclusion
The information contained in this blog was only meant to serve as a general guide on this recent Revenue Procedure given by the IRS. Although this is meant to be helpful for countless people affected by COVID-19, a fair amount of confusion will likely result from this guidance. Whatever happens, Weisberg Kainen Mark is here to help resolve any disputes with the IRS. You can reach us by phone today at 305-374-5544 for help clearing up your tax situation.
Weisberg Kainen Mark, PL
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