IRS Questions and Answers – Information for Non-Resident Aliens and Foreign Businesses Impacted By COVID-19 Travel Disruptions

The IRS has published a series of questions and answers addressing the issue of whether a non-resident alien or foreign corporation doing business in the U.S. and impacted by the COVID-19 travel disruptions could be treated as engaged in a U.S. trade or business or be considered to have a permanent establishment in the U.S. by virtue of the work being done by individuals temporarily present in the U.S. if, but for the travel disruptions, the work would not have been conducted in the U.S.

The IRS will allow a non-resident alien, foreign corporation, or partnership in which either is a partner to choose an uninterrupted period of up to 60 calendar days (the “COVID-19 emergency period”) during which services or other activities conducted in the U.S. will not be taken into account in determining whether the non-resident alien or foreign corporation is engaged in a U.S. trade or business, provided such activities were performed by one or more individuals temporarily present in the U.S. and would not have been performed in the U.S. “but for” the COVID-19 emergency travel disruptions.  An individual is “temporarily present in the U.S.” if he/she is present in the U.S. on or after February 1, 2020 and on or before April 1, 2020, and is a non-resident alien, U.S citizen or lawful permanent resident who had a tax home outside the U.S. in 2019 and reasonably expects to have a tax home outside the U.S. in 2020.  The COVID-19 emergency period for this purpose begins on or after February 1, 2020 and on or before April 1, 2020. 

Similarly, during the COVID-19 emergency period, services or other activities performed by an individual temporarily in the U.S. will not be taken into account in determining whether the non-resident alien or foreign corporation has a permanent establishment under an applicable income tax treaty provided the “but for” test (noted above) has been satisfied.

Individuals should maintain contemporaneous documentation establishing the COVID-19 emergency period chosen and that the relevant business activities conducted by individuals temporarily present in the U.S. would not have been undertaken in the U.S. but for the COVID-19 travel disruption. These documents may be requested by the Internal Revenue Service at any time.

Non-resident aliens and foreign corporations (including those that are partners in partnerships) may make protective U.S income tax filings, even if no filing is required, to take advantage of deductions, claiming treaty-based relief and statute of limitation issues.