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IRS Provides Relief for Nonresident Aliens and
Foreign Businesses Impacted by COVID-19 Travel Disruptions
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Rhoades,
Julie Kulick,
Peter J.

April
2020

Industry Alerts

On April 21, 2020, the IRS issued FAQs providing relief from the U.S. income
tax on U.S. trade or business income to certain nonresident aliens and foreign
corporations.

Background

Nonresident alien individuals who perform services or other activities in the
U.S. and foreign corporations who employ individuals or engage individuals as
agents to perform services or other activities in the U.S. may be considered
engaged in a U.S. trade or business (“USTB”). In general, a nonresident alien or
foreign corporation that is engaged in a USTB is taxed on its business income
connected to that USTB though an income tax treaty may reduce or eliminate such
tax unless the business is conducted through a “permanent establishment” such as
an office.

Relief under IRS
FAQs

In the newly-issued FAQs, the IRS acknowledges that as a result of the
COVID-19 pandemic, individuals may be unable or unwilling to travel due to
government orders, canceled flights, or a desire to follow social distancing
recommendations, among other factors.  The IRS acknowledged that these
travel disruptions may cause a nonresident alien or foreign corporation to
become engaged in a USTB when the nonresident alien or foreign corporation would
not be so engaged if these individuals were not present in the U.S.

Under the relief set forth in the FAQs, a nonresident alien, foreign
corporation, or a partnership in which either is a partner may choose an
uninterrupted period of up to 60 calendar days, beginning on or after February
1, 2020, and on or before April 1, 2020, during which services or other
activities conducted in the U.S. will not be taken in account in determining
whether the nonresident alien or foreign corporation is engaged in a USTB,
provided that 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 COVID-19 travel disruptions.   In addition, services or other
activities performed by one or more individuals temporarily present in the U.S.
will not be taken into account to determine whether the nonresident or foreign
corporation has a permanent establishment in the U.S., provided that the
services or other activities of these individuals would not have occurred in the
U.S. but for COVID-19 travel disruptions.

The FAQs advise that contemporaneous documentation be maintained to establish
the 60-day period chosen and that the relevant business activities conducted
during that period would not have been undertaken in the U.S. but for the
COVID-19 travel disruptions.  The FAQs further indicate that the FAQs may
be updated as the COVID-19 situation evolves.

Related Services

Taxation

Contacts

Peter
Kulick

Member and
Taxation Practice Group Co-Chair
Lansing

T:517-487-4729

E:[email-masked]

Julie
Rhoades

Associate
Detroit

T:313-223-3570

E:[email-masked]

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