International COVID-19 Travel Prompts New IRS Rules

U.S. individual taxpayers who returned to U.S. due to COVID-19

Under a new IRS rule (Rev. Proc. 2020-27), taxpayers who were living abroad and planned to claim the Foreign Earned Income Exclusion (FEIE) but had to return to the United States as a direct result of the COVID-19 pandemic will still be eligible to claim the exclusion. The exclusion can be claimed on a prorated basis for the number of days in 2019 and/or 2020 that the taxpayer was a bona fide resident of, or present in, a foreign country. The exclusion cannot be claimed for income from services performed in the United State or housing costs in the United States paid by their employer during the rest of the relevant tax year after the taxpayer returned to the United State. To be eligible for this exclusion, the taxpayer must have left a foreign residence after these dates:

• December 1, 2019 for the People’s Republic of China (excluding the Special Administrative Regions of Hong Kong and Macau), and
• February 1, 2020 for all other countries (globally).

Unless it is extended, the period for this exception ends July 15, 2020. Individuals who were not residents or came to the country after these dates are not eligible.

Foreign citizens who stayed in U.S. due to COVID-19

In another rule change related to COVID-19 (Rev. Proc. 2020-20), the IRS also announced it will presume that up to 60 consecutive calendar days of foreign citizens’ living in the United States arose from COVID-19 travel disruptions. These days will not count in determining U.S. tax residency under the substantial presence test or whether the person qualifies for certain tax treaty benefits with respect to income from dependent personal services performed in the United States. The 60-day period must start between Feb. 1 and April 1, 2020.

Please note that this rule would also apply to a foreign business in determining whether the foreign business has a U.S. permanent establishment.

For information about the FEIE and other international tax laws, contact us. We are here to help.

© 2020