The IRS has released guidance reflecting coronavirus-related travel disruptions, stating that an individual may temporarily conduct business activities outside the United States for up to 60 consecutive calendar days.
Some individuals who intended to return to the United States from a foreign country have been faced with travel restrictions and disruptions, including travel bans, government-mandated lockdowns, and canceled flights. As a result, the IRS said there may be uncertainty regarding whether those individuals' business activities amount to a foreign branch for purposes of the dual consolidated loss rules. It also said there may be uncertainty regarding whether an individual must file Form 8858, “Information Return of U.S. Persons With Respect to Foreign Disregarded Entities (FDEs) and Foreign Branches (FBs),” which is required from a U.S. resident who directly or indirectly operates a foreign branch.
Rev. Proc. 2020-30, released May 7, provides that activities, which normally would have been conducted in the United States but were conducted in a foreign country because of COVID-19, will not give rise to a foreign branch for dual consolidated loss purposes under section 1503(d). This will apply if the individual conducts the activities for a period of 60 consecutive calendar days during 2020 (the taxpayer is able to select the period). The IRS defines the term “foreign branch” as activities by a U.S. resident outside the United States that constitute an integral business operation. The term also applies to activities outside the United States if they constitute a permanent establishment under a treaty between the United States and the foreign country.
Under section 1503(d), the dual consolidated loss rules limit a business's ability to reduce taxable income and use a dual consolidated loss. Section 1503(d) defines the term “dual consolidated loss” as a business’s net loss attributable to income tax of a foreign country or a foreign branch separate unit, which is a business operating outside the United States. The IRS said taxpayers should maintain documentation to establish that the business activities are temporary or within the 60-day period, and should provide the IRS with the document upon request.
On April 21 Treasury and the IRS released two revenue procedures (Rev. Proc. 2020-27 and Rev. Proc. 2020-20) to provide tax relief for nonresident individuals who may be present in the United States indefinitely because of COVID-19 travel restrictions and disruptions. A nonresident who is temporarily present in the United States for up to 60 consecutive calendar days will not be considered a U.S. resident under the IRS’s substantial presence test. The guidance also provides a medical condition travel exception under section 7701(b)(3) and a time requirement waiver under section 911(d)(1).