This is part of a special Global Mobility Tax client alert series - sharing stories and important IRS updates we are encountering in these extraordinary times.
Last week the IRS and US department of Treasury issued two Revenue Procedures and created a FAQ web page to specifically provide advice and relief to cross-border tax issues arising from COVID-19.
REV. PROC 2020-20: Non-residents, substantial presence test and tax treaties
Situation: Individuals who planned to leave the United States by a specific date may have not been able to leave due to items such as infection of COVID-19, canceled flights or government shelter-in-place directives.
Action and Impact: Under Rev. Proc. 2020-20, the IRS announced that eligible individuals intending to leave and not going to meet the substantial presence test (found under section 7701(b)(3)), but now have met "SPT" because of the pandemic may be able to claim the "Medical Condition Exception" on form 8843 to exempt up to 60 consecutive days spent in the US between the period of February 1, 2020 to April 1, 2020. The "Medical Condition Exception" applies to individuals who would otherwise be considered US non-resident aliens, but due to travel restrictions had to remain in the US longer than expected. This is not just for individuals who may contracted the Coronavirus in the US and could not travel home as a result.
Travel disruptions generated from the Coronavirus pandemic will be considered when determining tax residency for 2020, as well as individual tax treaty benefits one can take on their 2020 US Non-Resident tax return.
REV. PROC 2020-27: Foreign Earned Income Exclusion for US citizens or residents
Situation: US Citizen or US resident working abroad, planned to fulfill the requirements to claim the foreign earned income exclusion on their 2019 or 2020 tax return, but had to return to the US early due the Corona virus Emergency.
Action and Impact: Under Rev. Proc. 2020-27, the IRS will provide a waiver of time requirements for section 911(d)(2) providing relief to individuals who should have met the requirements. Qualified US citizens or US residents who were expecting to meet the requirements but failed to do so because of they had to leave the foreign country due to the corona virus emergency will still be able to claim the foreign earned income and/or housing exclusion on their 2020 tax return. Qualified individuals will need to have left the foreign country during the period specified by the IRS.
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