Covid-19 Declared a Major Disaster – Effect on Puerto Rico Presence
Please note the below article is based on our analysis, historical precedent, and conversations with advisors. There is currently no consensus on the specific effect on the presence test and if / which 14+ days will count towards bona fide presence. We strongly suggest you discuss the below analysis with your tax advisor and reach your own conclusions.
Coronavirus Disease 2019 (COVID-19) has been declared a national disaster by President Trump, and those Act 60 [formerly Act 20 and 22] decree holders seeking to qualify for bona fide residence in 2020 should automatically receive at least 14 days of presence in Puerto Rico based on our analysis of similar historical events. View the official White House Press Release here.
If you are one of those decree holders who always cut it close to the 183 days, now could be the time to do some off-island travel without eating into your planned 2020 travel days and/or look back at your calendar for travel in January and February and count of days of presence going forward for the rest of 2020.
For those Act 60 (formerly Act 20 and 22) decree holders seeking to qualify as bona fide residents of Puerto Rico for 2020, it is important to understand that per the IRS rules (see IRS Publication 570: Current Tax Guide for Individuals with Income from U.S. Possessions), you must be present in the relevant possession [Puerto Rico] for at least 183 days during the tax year.
The IRS Publication 570 (updated February 21, 2020) specifically states that you are considered to be present in the relevant possession [Puerto Rico] on any of the following days: “Any day you are outside the relevant possession because you leave or are unable to return to the relevant possession during a 14-day period within which a major disaster occurs in the relevant possession for which a Federal Emergency Management Agency (‘FEMA’) notice of a federal declaration of a major disaster is issued in the Federal Register.” As written and based on our analysis, if you are anywhere in the relevant possession [Puerto Rico], the 14-day-period rule applies to you.
Applying the rule to the COVID-19 major disaster (disaster #3452), the 14-day period for automatic days of presence in Puerto Rico could be applied against any 14-day period during the incident period which began on January 20, 2020 and is still ongoing as of March 27, 2020 per the official FEMA disaster website for COVID-19.
We will need to stay tuned and look for IRS guidance on the complete window of time that will be listed for days of automatic presence in Puerto Rico. The notice should look just like Notice 2017-56 for Hurricane Maria, which was issued on October 2, 2017, and initially extended the 14-day period to 117 days. The IRS publishes these notices on its online bulletin page here. Please note the official IRS guidance on the period and days has not been provided to date.
Conservative Conclusion: If your goal is to just hit the 183 days in Puerto Rico, then any 14-day period from January 20, 2020 through the end of the incident period (which is very likely to be sometime in April or May), is a window where you can travel and be outside of Puerto Rico and still have those days count toward the required 183 days of presence to maintain your bona fide residence status. This is a conservative approach to the counting of automatic Puerto Rico presence days and follows the exact same start period methodology for counting days as was applied by the IRS for Hurricanes Irma and Maria. As an example, if the incident period were to end on May 1, 2020, then the application of the rule would result in Puerto Rico residents having a block of 14 days within the incident period of January 20, 2020 to May 1, 2020 during which they could be out of Puerto Rico, but still get credit for days of presence as if they were in Puerto Rico.
Aggressive Conclusion: It is likely that the 14-day period will actually be a lot longer and that the period for automatic presence days in Puerto Rico will start on January 20, 2020 (the start of the incident period) and will be extended to at least 14 days after the termination of the incident period as listed by FEMA, which, as of March 27, 2020, is listed as January 20, 2020 and continuing, according the official FEMA Puerto Rico COVID-19 page (disaster #3452).