The following is an addendum to our original blog post of April 20, 2020 entitled:

“The Perfect Storm of Timing, Tragedy and Tax Law: NRAs and Covid-19”

Recognizing the unusual circumstances non-resident aliens have faced while sick, trapped or morally obligated to remain in the USA during the Covid-19 pandemic, the U.S. Department of Treasury has relaxed rules regarding what is commonly referred to as “the substantial presence test.”

Under Revenue Procedure 2020-27, as issued on April 21, 2020, a non-resident alien who had to remain in the USA due to personal circumstances or government policies can now pick a starting date from a 60-day date range beginning on February 1, 2020 and ending April 1, 2020, in which they will not be considered to have violated the substantial presence test. Aliens violating the substantial presence test are subject to U.S. tax obligations and possible penalties.

From the IRS Revenue Procedure 2020-27 FAQ Page:

“A nonresident alien, foreign corporation, or a partnership in which either is a partner (Affected Person) may choose an uninterrupted period of up to 60 calendar days, beginning on or after February 1, 2020, and on or before April 1, 2020 (the COVID-19 Emergency Period), during which services or other activities conducted in the United States will not be taken into account in determining whether the nonresident alien or foreign corporation is engaged in a USTB, provided that such activities were performed by one or more individuals temporarily present in the United States and would not have been performed in the United States but for COVID-19 Emergency Travel Disruptions.”

“UTSB” is an acronym for “U.S. Trade or Business”, which means the NRA is on U.S. soil principally for the purpose of conducting business. Normally an individual engaged in a UTSB during the pandemic period would not be exempt from U.S. tax obligations. However, the U.S. Treasury is cutting those engaged in UTSB some slack during the Covid-10 period. If the individual had no recourse than to perform business activities because they could not return to their home country, they are exempt from tax collection. The above applies to nonresident or foreign corporations if they have been conducting business activities that under normal circumstances, would not have been performed on U.S. soil.

The IRS further states: “In all events, the Affected Person should retain contemporaneous documentation to establish the period chosen as the COVID-19 Emergency Period and that the relevant business activities conducted by individuals temporarily present in the United States during the COVID-19 Emergency Period would not have been undertaken in the United States but for COVID-19 Emergency Travel Disruptions. The Affected Person should be prepared to provide that documentation upon request by the IRS.”

“Nonresident aliens and foreign corporations (including those that are partners in partnerships) may make protective filings of their annual U.S. tax returns, even if they believe they are not required to file for the 2020 taxable year because they were not engaged in a USTB, to avail themselves of the benefits and protections that arise from such filings (such as those relating to deductions, statutes of limitations, and claiming tax treaty-based relief.”

International Wealth Tax Advisors echoes the IRS in advising all foreign national clients that currently meet NRA or UTSB status to:

• Keep records of all their business and personal activities within their chosen 60-day Covod-19 emergency period
• Check in with us periodically to ascertain whether Revenue Procedure 2020-27 has been further updated; or whether new guidelines relating to NRAs and UTSBs have been issued.

If you have NRA or UTSB status and would like a consultation with international tax expert Jack Brister, https://iwtas.com/booking-page/

Contact IWTA in regards to any cross-border tax and investment management. We welcome your inquiries.