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IRS Relaxes “Substantial Presence” US Residency Test

Updated: Apr 27, 2021

By: Linda Galler and Juliya L. Ismailov

The IRS has provided short-term relief to non-US persons who did not anticipate meeting the “substantial presence test” for US residency purposes in 2020, but who are either unable or unwilling to leave the United States due to the COVID-19 pandemic.

Under Section 7701(b)(3) of the Internal Revenue Code, noncitizens who (i) are not lawful permanent residents (i.e., green card holders) or (ii) do not elect to be treated as US residents for tax purposes are nonetheless treated as US tax residents if they meet the “substantial presence test.” This test is met in any calendar year in which a noncitizen is present in the United States on at least 31 days and the sum of (i) the number of days in the tested year, (ii) 1/3 of the number of days in the preceding year and (iii) 1/6 of the days in the second preceding year totals 183 or more. An individual is not treated as present in the United States if she intended to leave the United States but was unable to do so because of a medical condition that arose while present in the United States (the “medical condition exception”). Pre-existing medical conditions do not qualify an individual for this exception.

Similarly, a medical condition exception may apply under US income tax treaties for purposes of determining the availability of treaty benefits with respect to income from dependent personal services performed in the United States. For example, many US tax treaties exempt income from employment or other dependent personal services if, inter alia, an individual is present in the United States for no more than 183 days in any 12-month period that begins or ends in the relevant taxable year (a “Treaty Test”). In computing days of presence in the United States under this Treaty Test, some treaties may exempt days on which an illness prevents an individual from leaving the United States.[1]

Rev. Proc. 2020-20 (April 21, 2020) provides that individuals are permitted to exclude a period of up to 60 days of presence in the United States in calculating whether the substantial presence test is met for the year.

The 60-day exclusion applies for both the “substantial presence” test under the Internal Revenue Code and the Treaty Tests. Thus, for example, the 183 day test period under treaties that the US has entered into with countries such as France (Article 15), Germany (Article 15), Russia (Article 13) and the United Kingdom (Article 14) now may be up to 243 day tests.

Under Rev. Proc. 2020-20, the 60-day period is explicitly made eligible for the medical condition exception, whether or not the individual actually had COVID-19. During the 60-day period, which must begin between February 1, 2020 and April 2, 2020, the individual is presumed to have intended to leave the United States and to have been unable to do so. (Several commentators have urged the IRS to extend the 60-day period in light of uncertainties regarding the pandemic.) Taking advantage of this exception does not affect one’s ability to utilize any other applicable exceptions to the substantial presence test; for example, an individual who has medical problems outside of the 60-day period, whether or not related to COVID-19, may still claim the general medical condition exception.

Relief under Rev. Proc. 2020-20 is not available if an individual (i) was a US resident at the close of 2019, (ii) is a lawful permanent resident (i.e., green card holder) at any point in 2020, (iii) is not present in the United States on each of the 60 days referred to above or (iv) becomes a US resident in 2020 based on days of presence in the United States outside of the 60-day emergency period.

Eligible individuals who otherwise are required to file Form 1040-NR for 2020 must claim the COVID-19 medical condition exception by attaching Form 8843 to Form 1040-NR, which must be filed by the applicable due date (including extensions) for filing Form 1040-NR. Rev. Proc. 2020-20 details how eligible individuals should complete Part V of Form 8843 to claim the COVID-19 medical condition exception. Other persons should retain all relevant records to support reliance on Rev. Prov. 2020-20. (Separate rules are provided for claiming treaty benefits.)

On a related note, the IRS has also published questions and answers (FAQs) establishing a similar 60-day exception for purposes of determining whether a nonresident alien or foreign corporation (or a partnership in which either is a partner) is engaged in a US trade or business or considered to have a permanent establishment in the United States.

US business activities conducted during the 60-day period will be disregarded if such activities (i) were performed by one or more individuals temporarily present in the United States and (ii) would not have been performed in the United States but for COVID-19 emergency travel disruptions.


[1] See, e.g., Article 14(2) of the 2006 U.S. Model Income Tax Convention and the Technical Explanation of Article 14(2) of the Convention.


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