Treasury and the IRS issued guidance in April mainly because people who couldn’t leave the U.S. due to the pandemic didn’t know whether staying in the country “would jeopardize their entire tax position,” said Jim Wang, an attorney adviser with Treasury. Now people have a better sense of what’s going on and how to plan their affairs, he said, speaking during the American Bar Association Section of Taxation’s fall meeting.
“Of course, there are still many ongoing problems with the pandemic, and we continue to monitor it every day,” Wang said. “It’s definitely not a case where I’d say we’re never going to issue more guidance, but as of now, we have no plan to issue more guidance.”
As for the IRS, the agency is also continuing to monitor the situation but currently has no plans for more guidance, according to Lara Banjanin, senior counsel at the agency’s Office of the Associate Chief Counsel, International.
The guidance from April included two revenue procedures that provided tax relief for people who usually live outside the U.S. but couldn’t leave the country due to travel restrictions aimed at slowing the spread of the virus, which causes the respiratory disease COVID-19. One procedure explained that non-U.S. citizens who are stuck within American borders wouldn’t see their time in the country count toward determining taxable residency.
The IRS in April also posted FAQs on its website that said foreign individuals who don’t usually work in the U.S. won’t create tax issues for themselves or their employers.
Specifically, a foreign company can choose a period of 60 consecutive days — starting between Feb. 1 and April 1, the IRS’ “COVID-19 emergency period” — when a worker carried out services or activities in the U.S. because of the pandemic’s travel restrictions. During this time, those activities won’t be factored in when determining whether the company is engaged in a U.S. trade or business for tax purposes, according to the FAQs, which were updated in June.
These FAQs are intentionally simple, Wang said during Friday’s panel discussion, noting that tax reporting for people who may or may not have a U.S. trade or business was never 100% clear to begin with.
The primary concern, he said, was to make sure the guidance was issued “at a time when people didn’t even know if they could work while they were trapped in United States.”
Wang noted that a general idea during the pandemic, and particularly about enforcement issues, is that taxpayers should try to do their best and retain as much documentary evidence as possible.
“If they can, and are willing, they should make protective tax return filings,” he said. “If they ever were to be audited, or collected upon, they would have evidence to support what they reported.”
–Editing by Joyce Laskowski.
For a reprint of this article, please contact [email protected]