The IRS may need to do more to help workers stuck in the U.S. due to pandemic travel restrictions, as there is no clear end in sight to fallout from the virus.
The agency on Tuesday outlined relief measures (Rev. Proc 2020-20, Rev. Proc. 2020-27) allowing nonresident individuals, foreign corporations, and partnerships to select a 60-day period between Feb. 1 and April 1 where the IRS won’t consider their activity in the U.S. to trigger tax liability. But with flight cancellations and travel limits in place around the globe, business groups and tax professionals said the relief isn’t enough.
“I hope the 60 day period will be revisited if the pandemic pursues beyond April,” said Jennifer Wioncek, a partner at Bilzin Sumberg Baena Price & Axelrod LLP who co-authored a letter from the Florida Bar tax section calling on the IRS to address the issue.
The guidance hinges on the “substantial presence test” under tax code Section 7701. Under that test an individual is considered a U.S. resident for tax purposes after being physically present in the country for 31 days during the current year and 183 days during the three-year period that includes the current year and two immediately preceding years. The guidance lets individuals claim a medical condition travel exception for purposes of the test.
The IRS and Treasury didn’t return requests for comment.
Individuals and companies that are relying on the new guidance will have to document their virus-related travel restrictions, the IRS said Tuesday.
Local Response Needed
While the IRS’s guidance addresses workers from overseas, there is growing concern that guidance is also needed on a state-by-state level. Otherwise, more targeted action would have to come from Congress.
“On the domestic side what we likely need is something at the state level on requirements for employees to file income tax returns when traveling to non-resident states,” says Caroline Harris, vice president of tax policy at the U.S. Chamber of Commerce.
Chamber members raised the concern quickly after restrictions were put in place, Harris said. Federal legislation could address these issues quickly, establishing a standard for when employees report income and when employers withhold taxes in a state.
“We’re looking at a world currently working remotely but also likely to work remotely more, so we need to address this issue,” she said.
Some states like New Jersey, Pennsylvania, Minnesota, Indiana, and Mississippi have already put out guidance saying they won’t use nexus rules—which track where business is taking place—to target increased presence in their jurisdiction.
Taxpayers, however, still need guidance on how tax agencies will treat their presence prior to the virus, or after its threat subsides, said Ellen M. Gilley, an associate at Ropes & Gray LLP in Boston.
“Because that time frame could be fuzzy, its possible that it would be tempting for state governments to apply nexus rules in those situations—it would be a much less clear cut situation,” she said.