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.

On March 29, 2022, President Biden issued a major disaster declaration for the severe storm, flooding, and landslides that afflicted Puerto Rico from February 4 through February 6, 2022. Residents of Puerto Rico may be eligible for a wide range of federal assistance, including grants for temporary housing and home repairs as well as low-interest loans to cover uninsured property losses. The IRS has postponed some tax filing and payment deadlines for affected individuals and businesses until June 15, 2022. Those who incurred disaster-related losses and would like to apply for aid can register online or call 1-800-621-FEMA (3362) or 1-800-462-7585 (TTY) for the hearing and speech impaired. We’d advise filing at the earliest opportunity, since the deadline for some loan applications is May 31, 2022.

Furthermore, regardless of whether they were in Puerto Rico or traveling off the island during the incident period, Act 60 (formerly Act 20 and Act 22) decree holders seeking to qualify for bona fide residence in Puerto Rico in 2022 may be able to automatically receive credit for up to 14 days of presence in Puerto Rico. We’ve based this judgment on a careful analysis of IRS rules and similar historical events.

First, recall that as stated in IRS Publication 570: Current Tax Guide for Individuals with Income from U.S. Possessions, you satisfy the presence test if you were present in the relevant possession [Puerto Rico] for at least 183 days during the tax year. However, IRS Publication 570 (updated January 24, 2022) also provides exceptions to this requirement connected to major disasters.

The document states: “You are considered to be present in the relevant territory on any day you are outside the relevant territory because you leave or are unable to return to the relevant territory during any 14-day period within which a major disaster occurs in the relevant territory for which a Federal Emergency Management Agency (FEMA) notice of a federal declaration of a major disaster is issued in the Federal Register.” Note that this language applies to the entire territory, so it shouldn’t matter for the presence test whether your residence in Puerto Rico was located inside or outside the specific municipalities that FEMA designated as adversely affected by the disaster.

Let’s take a look back to see how this 14-day-period rule was applied to the series of earthquakes that began in Puerto Rico on December 28, 2019. On January 16, 2020, President Trump declared this a national disaster (Disaster #4473). FEMA amended the official dates of the incident period on multiple occasions during the course of 2020 and ultimately identified the incident period as starting on December 28, 2019 and ending on July 3, 2020. For decree holders inside and outside Puerto Rico during the declared incident period, the IRS issued a 14-day exception period to meet the 183-day presence test requirement to be considered a bona fide resident of Puerto Rico.

We can also go back further to 2017 when Hurricane Irma and Hurricane Maria struck Puerto Rico. The IRS amended the incident period multiple times, ultimately declaring a 268-day time frame that began on September 6, 2017 and ended on May 31, 2018. In Publication 976, the IRS stated, “an individual who is outside of Puerto Rico on any day during this 268-day period will be treated as leaving or being unable to return to the relevant U.S. territory as a result of Hurricanes Irma or Maria, and will not lose their status as a bona fide resident of Puerto Rico during this period.”

For Puerto Rico, the hurricanes in 2017 were far more destructive and long-lasting than the short period of severe weather in February 2022, so we think it’s unlikely that Act 60 decree holders will be granted an extension to the 14-day exemption period in 2022 as they received in 2017. Moreover, we have no indication that the IRS issued an extension to the 14-day exception period in the wake of the earthquakes in 2019-2020.

Let’s consider two possible scenarios for the severe storm, flooding, and landslides that took place from February 4-6, 2022, applying the rule from IRS Publication 570: “You are considered to be present in the relevant territory for any 14-day period within which a major disaster occurs in the relevant territory.”

Scenario 1 – Conservative Conclusion: You left the territory for a five-day trip to Florida on February 3, 2022, the day before the disaster declaration period began on February 4, 2022. Under this scenario, it is likely that you will receive Puerto Rico presence credit for the entire five-day period encompassing the three-day incident period for the disaster. So if you traveled to Florida from February 3-7, 2022, then you would count all five days in Florida as days in Puerto Rico. This is a conservative approach to counting the automatic Puerto Rico presence days and follows the same methodology for counting days as was applied by the IRS for the aforementioned earthquakes and hurricanes.

Scenario 2 – Aggressive Conclusion: You left the territory for a 13-day trip to California on January 22, 2022 and returned to Puerto Rico on February 3, 2022—one day prior to the beginning of the major disaster declaration period. It is possible but unlikely that the IRS rule could be interpreted to allow you to apply the 14-day exception period by counting days in California preceding the disaster as days in Puerto Rico. We have little confidence that authorities will grant full Puerto Rico presence credit under such a scenario because we are unaware of recent historical precedents that demonstrate this broad interpretation. We encourage you to not expect presence credit if your circumstances were similar to those outlined in this scenario, and to consider seeking credit for this time only as a last resort if you are unable to satisfy the presence test in 2022 by other means.

Tax rules change frequently and are open to different interpretations. We will still need to look for specific IRS guidance on the complete window of time it will recognize for automatic presence in Puerto Rico in 2022. As of May 3, 2022, the IRS has not published official guidance on automatic presence days for the disaster in February 2022, but at a later date it may publish such a notice on its online bulletin page. It would be wise to retain all relevant documentation supporting your residence status to defend your claim. Please be sure to consult with your tax advisor and draw your own conclusions to ensure you avoid jeopardizing the tax advantages that come with being counted as a bona fide resident of Puerto Rico.

Disclaimer: Neither PRelocate, LLC, nor any of its affiliates (together “PRelocate”) are law firms, and this is not legal advice. You should use common sense and rely on your own legal counsel for a formal legal opinion on Puerto Rico’s tax incentives, maintaining bona fide residence in Puerto Rico, and any other issues related to taxes or residency in Puerto Rico. PRelocate does not assume any responsibility for the contents of, or the consequences of using, any version of any real estate or other document templates or any spreadsheets found on our website (together, the “Materials”). Before using any Materials, you should consult with legal counsel licensed to practice in the relevant jurisdiction.