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USA relaxes income tax Residency rules for Individuals and Businesses affected by Travel Disruptions arising from Covid-19 Emergency India awaits such tax Residency relaxation

Aug 25, 2020

Background

The COVID-19 Emergency has affected the travel plans of various foreign travellers who intended to leave the United States. Regardless of whether they were infected with the COVID-19 virus, individuals have become severely restricted in their movements, including by order of government authorities. Individuals who do not have the COVID-19 virus and attempt to leave the United States have also faced cancelled flights and disruptions in other forms of transportation, shelter-in-place orders, quarantines, and border closures. Additionally, even those who can travel may feel unsafe doing so during the COVID-19 Emergency due to recommendations to implement social distancing and limit exposure to public spaces.

Travel and related disruptions resulting from the global outbreak of the COVID-19 virus may cause certain Eligible Individuals, 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.

Residency Rule

Section 7701(b) of the Act defines resident and non- resident alien individuals for purposes of the Code. Unless an exception applies, alien individuals who are not lawful permanent residents (that is, green-card holders), and who meet the substantial presence test for a given calendar year by virtue of having sufficient days of presence in the United States, are generally treated as U.S. residents for that year.

An alien individual is a resident under the substantial presence test in the tested calendar year if:

  • the individual is present in the United States on at least 31 days during the tested calendar year; and
  • the sum of :
    • the number of days of presence in the tested calendar year;
    • one-third of the number of days of presence in the preceding calendar year; and
    • one-sixth of the number of days of presence in the second preceding calendar year totals 183 or more.

Releif Of Residency Due To Covid 19

  • A period of up to 60 calendar days of presence in the United States will be excluded for an Eligible Individual who intended to leave the United States during the COVID-19 Emergency Period but was unable to do so due to COVID-19 Emergency Travel Disruptions for the purpose of determining U.S. tax residency and for purposes of determining whether an individual qualifies for tax treaty benefits for income from personal services performed in the United States
  • The U.S. business activities conducted by a non-resident ‘alien’ or the foreign corporation will not be counted for up to 60 consecutive calendar days in determining whether the individual or entity is engaged in a U.S. trade or business or has a U.S. permanent establishment, but only if those activities would not have been conducted in the United States but for travel disruptions arising from COVID-19

Procedure For Claiming The Covid-19 Condition Travel Exception

Form 8843 – Statement for Exempt Individuals and Individuals with a Medical Condition to be filed along with Form 1040-NR for 2020 to claim the COVID-19 Medical Condition Travel Exception

Glossary

  • The term COVID-19 Emergency Period is a single period of up to 60 consecutive calendar days selected by an individual starting on or after February 1, 2020 and on or before April 1, 2020 during which the individual is physically present in the United States on each
  • The term Eligible Individual means any individual (1) who was not a U.S. resident at the close of the 2019 tax year, (2) who is not a lawful permanent resident at any point in 2020, (3) who is present in the United States (without regard to this revenue procedure) on each of the days of the individual’s COVID-19 Emergency Period, and (4) who does not become a U.S. resident in 2020 due to days of presence in the United States outside of the individual’s COVID-19 Emergency