The global outbreak of the COVID-19 virus (the COVID-19 Emergency) has significantly limited the ability of many individuals to leave the United States. Individuals who do not have the COVID-19 virus and attempt to leave the United States may also face canceled flights, disruptions in other forms of transportation, shelter-in-place orders, quarantines, and border closures. Nonresident alien individuals who perform services or other activities in the United States and foreign corporations who employ individuals or engage individuals as agents to perform services or other activities may be considered engaged in a U.S. trade or business (USTB). If the individuals performing those services or other activities are temporarily in the United States solely due to the COVID-19 Emergency Travel Disruptions, this may cause nonresident alien or foreign corporation to become engaged in USTB when the nonresident alien or foreign corporation would not be so engaged were these individuals not present in the United States. Generally, a nonresident alien or foreign corporation that is engaged in a USTB is taxable on its business income connected to the USTB.
If a U.S. income tax treaty applies, however, the nonresident alien individual or foreign corporation generally will not be liable to tax on the income of its USBT (i.e., business profits) unless the business is conducted through a permanent establishment in the United States such as an office or other fixed base or a dependent agent.
Revenue Procedure 2020-20 provides relief to certain nonresident individuals who, but for COVID-19 Emergency Travel Disruptions, would not have been in the United States long enough during 2020 to be considered resident aliens under the substantial presence test (“SPT”) or to be ineligible for treaty benefits on services income. Under the SPT, this revenue procedure establishes procedures to apply the SPT’s medical condition exception to exclude up to 60 consecutive days spent in the United States during a period of time starting on or after February 1, 2020 and on or before April 1, with the specific start date to be chosen by each individual. It also provides procedures for an individual to exclude those days of presence in order to claim benefits under an income tax treaty with respect to services income.