March 20, 2023

Volume XIII, Number 79


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IRS Provides Relief for Foreign Businesses, Nonresidents Affected by COVID-19 Travel Disruptions

On April 21, 2020, the Internal Revenue Service released an FAQ and two revenue procedures addressing concerns that travel disruptions related to the Coronavirus (COVID-19) pandemic could result in unexpected US tax exposure. The guidance provides that certain days spent in the United States by employees of foreign businesses and nonresident individuals will not be counted for purposes of creating a US trade or business or towards tax residency if they are present in the United States because of COVID-19.


The Internal Revenue Service (IRS) issued guidance on April 21, 2020, providing tax relief to nonresident entities and individuals with a presence in the United States due to Coronavirus (COVID-19) and travel disruptions. Relief extends to determining whether a nonresident entity or individual is conducting a US trade or business (USTB), determining whether a nonresident individual satisfies the substantial presence test or qualifies for treaty benefits, and determining whether a US individual qualifies for the foreign earned income exclusion.

Taxpayers and advisers have expressed concern that COVID-19-related travel disruptions could result in unexpected tax exposure, such as additional US source income and filing requirements. As part of its efforts to aid taxpayers affected by COVID-19, the IRS issued an FAQ and Revenue Procedures 2020-20 and 2020-27, providing that certain foreign businesses and nonresident individuals will not be subject to US taxes if they are present in the United States because of travel disruptions stemming from the pandemic.

US Trade or Business

The FAQ posted on the IRS website explains that foreign corporations, foreign partnerships and nonresident individuals will not be treated as engaging in a USTB based on the activities of individuals temporarily present in the United States because of COVID-19 travel disruptions. Temporarily present individuals will also not be taken into account for determining whether a foreign corporation has a permanent establishment for tax treaty purposes. Affected entities and individuals may exclude services and activities performed over 60 continuous calendar days beginning between February 1 and April 1, 2020, from the determination of whether they are engaged in a USTB.

Without the relief, nonresident individuals or foreign businesses engaged in a USTB would be taxable on their income arising from the USTB on a net basis. Nonresident individuals and foreign businesses should retain contemporaneous records to establish that an individual was temporarily present in the United States due to the COVID-19 pandemic.

The guidance does not address whether such activities may cause a foreign person to have US source income. For example, if a foreign corporation’s employees perform services for customers in the United States, the foreign corporation may have US source income. A foreign person may be subject to FDAP income on certain US sourced income.

Substantial Presence Test and Treaty Benefits

Revenue Procedure 2020-20 allows certain nonresident individuals to exclude up to 60 days of presence in the United States for purposes of the substantial presence test. In general, an alien individual is deemed to be a US tax resident if she is present in the United States for a sufficient number of days (the substantial presence test). Under the long-standing medical condition exception, if an illness arising while the individual was present in the United States prevents the individual from leaving the United States, then the individual is not treated as present in the United States on those days for purposes of the substantial presence test.

The IRS has determined that any nonresident individual present in the United States between February 1 and April 1, 2020, is affected by the COVID-19 pandemic. Consequently, such nonresident individuals may exclude up to 60 days of presence under the medical condition exception. If an individual is obligated file a Form 1040-NR, that individual must attach a Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition, to his return to claim the medical condition exception. Nonfilers do not need submit any additional information, but they should retain relevant records in case the IRS requests additional information in the future. Individuals may claim the medical condition exception because of COVID-19 travel disruptions in addition to or instead of any other exceptions to the substantial presence test (including additional medical condition exceptions if the general requirements are satisfied).

A similar 60-day medical exception due to COVID-19 travel disruptions applies for individuals claiming tax treaty benefits for personal services income.

Foreign Earned Income Exclusion

Revenue Procedure 2020-27 allows a taxpayer who returns to the United States from her country of residence because of the COVID-19 pandemic to qualify for the foreign earned income exclusion. The foreign earned income exclusion shields certain foreign earnings and housing expenses from US taxation for a US citizen or resident who is a bona fide resident of a foreign country for an uninterrupted tax year or at least 330 days during a 12-month period. For 2020, the foreign earnings exclusion is $107,600. Revenue Procedure 2020-27 provides that taxpayers who are present in the United States due to the COVID-19 pandemic, but otherwise would qualify for the foreign earned income exclusion, may still qualify for the exclusion. An individual must establish a “reasonable expectation” that he would have met the requirements for the foreign earned income exclusion but for the COVID-19 pandemic.

© 2023 McDermott Will & EmeryNational Law Review, Volume X, Number 113

About this Author

Steven Hadjilogiou, McDermott Law Firm, Miami, Corporate and Tax Law Attorney

Steven Hadjilogiou focuses his practice on international inbound and outbound international tax planning for multinational companies and high net worth individuals. Steven has represented various Fortune 500 companies and major privately held businesses in their tax planning and supply chain projects, and also has substantial experience advising on transfer pricing, tax-related intellectual property matters, Subpart F and foreign investment in US real property. Steven also advises clients on pre-immigration planning and cross-border wealth succession. Steven has also...


Gregory (Greg) M. Weigand focuses his practice on domestic and international tax matters for multinational companies, closely held businesses, investment funds and high-net-wealth individuals. He advises US and foreign-based publicly traded and privately held companies on global restructuring transactions, cross-border transactions and implements tax-efficient global structures. He advises clients on issues such as GILTI, Subpart F and FDII. Greg regularly advises international clients investing in the US across many assets classes, including real estate, and assists them with negotiating...