On May 27, 2020 the IRS posted FAQs addressing how nonresident alien individuals who have or may have fallen ill while in the U.S. due to COVID-19 (or another medical condition) and had to stay longer in the U.S. can avoid U.S. resident status by claiming a medical exception to the substantial presence test (SPT).
Under the SPT, an alien is generally considered a U.S. resident if he or she is physically present in the U.S. for at least 31 days in the current year and if the total number of days of presence over the current and preceding two years equals or exceeds 183 days, considering all the U.S. days of the current year, one-third of the U.S. days in the prior calendar year, and one-sixth of the U.S. days in the second preceding calendar year.
The Medical Condition Exception provides that an eligible individual may exclude from its U.S. day count any days in which that individual intended to leave the U.S., but was inhibited from doing so as a result of a medical condition that arose while the individual was physically present in the U.S. Eligible individuals may exclude up to 30 consecutive calendar days during which the individual was physically present in the U.S. on each day for purposes of applying SPT.
The FAQs clarify that nonresident alien individuals may be able to claim this 30-day Medical Condition Exception in addition to the 60-day “COVID-19 Medical Condition Travel Exception” provided to nonresident aliens under Rev. Proc. 2020-20. Notably, the relief provided under the revenue procedure may be claimed regardless of whether the nonresident alien individual fell ill or contracted the COVID-19 virus. For more information on the relief provided under the revenue procedure, please see our prior alert.
The FAQs provide procedural guidance for claiming the exception in 2020 in light of the unique situation posed by the COVID-19 virus. For example, the IRS pointed out that, “It may be difficult to obtain a signed statement by a physician or other medical official attesting to the alien individual's inability to leave due to a medical condition.” In lieu of a physician statement, individuals should retain documentary evidence substantiating their medical condition, their inability to leave due to the medical condition and the period of the medical condition.
Taxpayers should be advised that the relief provided here applies for federal tax purposes thus individuals may still have U.S. state and local income tax filing obligations. Nonresident alien individuals, who are generally considered U.S. tax residents for 2020 notwithstanding the relief outlined above, may still be able to avoid U.S. tax residency status under the closer connection exception or the tie-breaker rules of a U.S. income tax treaty. Taxpayers may need to file additional material in order to claim either of these exceptions. Non-U.S. individuals that have been affected by COVID-19 should take note of this relief and consult with their tax advisors to determine the U.S. tax filing options available to them.
