IRS Scrutiny

There are thousands, “if not tens of thousands” of people, stranded in the U.S., many of whom face a thicket of additional tax scrutiny from the Internal Revenue Service, said Paul Sczudlo, an attorney on Withersworldwide’s private client team.

Ordinarily, foreigners can spend up to 183 days in the U.S., counted either in a single year or over the course of three using a weighted-average formula, before they’re required to pay income tax.

The IRS extended the threshold by an additional 60 days last month, but even that might not be enough to shield people who arrived in the fall or early winter from other states and haven’t been able to return home.

Business owners who find themselves unable to leave the country and become de facto tax residents will be on the hook for U.S. corporate income tax on any foreign company in which they own a majority.

“There’s a very wide range of possible impacts on families,” Sczudlo said. “It could affect retirement accounts, trust and estate arrangements.”

At minimum, they’ll face a mountain of additional paperwork to ensure they’re adequately disclosing holdings, he said. Failing to do so risks potentially large fines, calculated as a percentage of assets for certain entities.

New York, for example, considers anyone who spends more than 183 days in the state a resident and therefore obligated to pay its comparatively steep income tax.

New York hasn’t issued official guidance about how it plans to treat out-of-state virus refugees, but accountants are advising not to hold out hope for leniency. When Hurricane Sandy devastated houses in the tristate area in 2012, many people moved temporarily into New York City apartments to wait out reconstruction and were taxed accordingly.

‘All Stuck’