IRS Expands Medical Condition Exception to Substantial Presence Test to Include Travel Disruption as a Result of COVID-19
April 28, 2020
Authored by: Melissa Sprinkle and Stephanie Moll
In Rev. Proc. 2020-20, the IRS provides relief to nonresident taxpayers who have been in the United States long enough to be considered resident aliens under the substantial presence test of IRC 7701(b)(3) as a result of the COVID-19 pandemic. This Revenue Procedure also provides relief to taxpayers who would otherwise be ineligible for treaty benefits on services income. While this expansion is welcome, it is limited to excluding days falling after January 31 and through May 31.
Typically, under IRC 7701(b), persons who are otherwise not permanent US residents but who spend a sufficient amount of time in the country will be treated as US residents for income tax purposes under the substantial presence test. This test counts the number of days that an individual spent in the country in a given tax year or over a three year “look back” period to determine whether such person spent a sufficient amount of time the US to warrant treatment as a US resident for income tax purposes. There are various exceptions to this rule which allow the non-resident alien to exclude certain days spent in the US for purposes of the substantial presence test, including situations where an individual is unable to leave the country because of a medical condition that arose during his or her time in the US.
The travel plans of many individuals have been interrupted because of the COVID-19 pandemic due to illness, quarantine and shelter in place orders, flight cancellations, border closures, and a general desire to avoid public places. This Revenue Procedure expands the medical condition exception for the substantial presence test, allowing persons who intended to leave the United States but were unable to do so as a result of the COVID-19 emergency to exclude up to 60 consecutive days the individual was physically present in the US, starting on or after February 1, 2020 and before April 1, 2020 .
In order to qualify as an “Eligible Individual”, the following requirements must be met:
- In individual was not a US resident at the close of the 2019 tax year;
- The individual is not a lawful permanent resident at any point in 2020;
- The individual is present in the US for each of the days being excluded; and
- The individual does not become a US resident in 2020 due to days of presence in the US not counting the days excluded due to this Revenue Procedure.
In addition, in determining an individual’s eligibility for treaty benefits with respect to income from employment or the performance of other dependent personal services within the United States, any days of presence during the COVID-19 emergency in which the individual was unable to leave the United States will not be counted.
In order to obtain relief under this exception, an individual who is required to file a Form 1040-NR must attach a Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, with his or her Form 1040-NR. Individuals who are not required to file a Form 1040-NR do not need to file a Form 8843, but should retain all records that would be required to complete a Form 8843 if later requested by the IRS. A person can claim the COVID-19 medical condition exception in addition to or in place of other exceptions to the substantial presence test for which he or she is eligible, including the medical condition exception that was already in place prior to this Revenue Procedure.
If filing a Form 8843 to claim the COVID-19 Medical Condition Travel Exception, the Form should be completed pursuant to the instructions. In addition, in Part V, the following should be written into each respective space:
- For line 17a, “COVID-19 MEDICAL CONDITION TRAVEL EXCEPTION.”
- For line 17b, the start date of the individual’s COVID-19 “Emergency Period”.
- For line 17c, the end date of the individual’s COVID-19 “Emergency Period”.
- Line 18 should be left blank, as no physician’s statement is necessary.
The full text of IRC 2020-20 can be found here.