The IRS has issued guidance that provides relief to nonresident alien individuals and foreign businesses affected by travel disruptions arising from the COVID-19 emergency. The relief recognizes that the global outbreak of the COVID-19 virus has affected the travel plans of foreign travelers who intended to leave the United States. Regardless of whether they were infected with the COVID-19 virus, individuals may have become severely restricted in their movements, including by order of a government authority.
Substantial presence test relief. Travel and related disruptions resulting from the COVID-19 emergency may cause foreign individuals who did not anticipate meeting the “substantial presence test” to become U.S. residents for federal income tax purposes during 2020. The relief includes up to 60 consecutive calendar days of U.S. presence that are presumed to arise from travel disruptions caused by the COVID-19 emergency will not be counted for purposes of determining U.S. tax residency and determining whether an individual qualifies for tax treaty benefits for income from personal services performed in the United States. Eligible individuals must file certain forms including a COVID-19 medical condition travel exception with their 2020 federal income tax return.
Foreign earned income exclusion relief. The IRS has provided a waiver to certain individuals who failed to meet the eligibility requirements for the foreign earned income exclusion because adverse conditions in a foreign country prevented the individual from meeting the requirements during 2019 and 2020. Under this relief, an individual who left China on or after December 1, 2019, or left another foreign country on or after February 1, 2020, but on or before July 15, 2020, will be treated as a qualified individual under the foreign earned income exclusion rules for the period during which he or she was present in, or was a bona fide resident of, that foreign country if the individual establishes a reasonable expectation that he or she would have met the requirements of the foreign earned income exclusion, but for the COVID-19 Emergency.
U.S. business activities of nonresident aliens and foreign businesses relief. Nonresident aliens who perform services or other activities in the United States and foreign corporations that employ individuals or engage agents to perform services or other activities in the United States are subject to federal tax on their business income from that trade or business. Certain U.S. business activities conducted by a nonresident alien or foreign corporation will not be counted for determining the tests for engaged in a U.S. trade or business or a permanent establishment if a treaty applies.
Please call our office to discuss your situation related to restricted travel to foreign countries and the tax relief granted as a result of COVID-19. We are here to assist you.
Venkat Iyer. CPA(USA). CPA(Canada). MBA
Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.