On April 2, 2020, President Donald J. Trump, in Declaration Number FEMA-4513-DR, issued a Major Disaster Declaration for the Territory of the U.S. Virgin Islands, with the incident period starting on January 20, 2020 and continuing. This declaration triggered the release of Federal funds to help the U.S. Virgin Islands recover from the impact of the COVID-19 Pandemic.
The declaration of a major disaster for the U.S. Virgin Islands had another, less publicized but significant, consequence. It gives U.S. Virgin Islands residents who were outside the territory when the COVID-19 Pandemic started and have not been able to return, or who left after the start of the incident period, credit for up to 14 of those days as U.S. Virgin Islands days. Specifically, the U.S. Treasury Department has provided, in Treasury Regulations, that an individual is considered to be present in the U.S. Virgin Islands on any day that he or she is outside the U.S. Virgin Islands because the individual leaves or is unable to return to the U.S. Virgin Islands during any 14-day period within which a major disaster occurs in the U.S. Virgin Islands for which a FEMA Notice of a Presidential declaration of a major disaster is issued in the Federal Register. In non-tax talk, this means that if you left the U.S. Virgin Islands to visit an ailing relative in Miami on March 1 of this year, expecting to return on March 5, but then could not return due to concerns about exposure to the coronavirus in airports, or because you did not want to leave your relative, or because you did not want to risk being a burden on the U.S. Virgin Islands’ medical facilities, or because your flight was cancelled, or for any other reason, then up to 14 days count as being in the U.S. Virgin Islands and not Miami. Since the COVID-19 Pandemic declaration covers an incident period starting on January 20, 2020 and continuing, the relevant 14-day period could be January 7 to January 20 or any 14-day period after that date.
It should be noted that the Treasury Regulations clearly contemplated major disasters that have a shorter duration than the COVID-19 Pandemic and the Internal Revenue Service (the “IRS”) has the authority to modify the Treasury Regulations in connection with disasters of an unprecedented nature. In the aftermath of Hurricanes Irma and Maria, both category 5 storms, on October 4, 2017, the IRS provided written guidance that U.S. Virgin Islands taxpayers would be deemed present in the U.S. Virgin Islands from September 6, 2017 to December 31, 2017, a period totaling 117 days, even if not physically present for some or all of that time. This guidance was set out in Notice 2017-56 and acknowledged “the unexpected and prolonged dislocation caused by Hurricane Irma and Hurricane Maria”. On February 27, 2018, the IRS extended the grant of relief by Notice 2018-19 to May 31, 2018, for a total of 151 days in 2018 and 268 days from September 6, 2017 to May 31, 2018. The Notice acknowledged that “[t]his Notice provides additional relief to individuals who may otherwise lose their status as a “bona fide resident” of an impacted U.S. territory because of the continued dislocation caused by Hurricane Irma and Hurricane Maria”. It is hoped that the U.S. Treasury Department will provide a similar extension in connection with the COVID-19 Pandemic Declaration.
U.S. Virgin Islands day-counting is important since once the American Jobs Creation Act of 2004 went into effect on January 1, 2005, many U.S. Virgin Islanders are required to count their days in the territory to qualify as residents on a year-by-year basis. If a taxpayer does not have a home in the mainland United States available for his or her full-time use, does not have a spouse or minor children living on the mainland, and is not registered to vote in a U.S. state, then the taxpayer does not have to “count days”. However, every other U.S. Virgin Islands taxpayer must count his or her days in the territory and must meet one of four alternative physical presence tests in order to be a bona fide resident for tax payment and filing purposes. Despite the economic disruptions caused by the COVID-19 Pandemic, it is critical that as many U.S. Virgin Islands taxpayers as possible retain their residency status since the income taxes paid by U.S. Virgin Islands residents remain in the U.S. Virgin Islands to support the U.S. Virgin Islands government and its employees.
A person can meet the physical presence test for residency by spending all or part of 183 days in the U.S. Virgin Islands or by totaling 549 days over the current year and prior two years (including “disaster days”) combined with having at least 60 days a year in the U.S. Virgin Islands. A person can also meet the test by spending no more than 90 days in the United States during a taxable year. Finally, an individual can meet the test by spending more days in the U.S. Virgin Islands than in the United States and having no more than $3,000 in earned income from the United States. However, if a person was outside the U.S. Virgin Islands during part of the COVID-19 Pandemic and stayed outside for a 14-day period (or longer), then that person would actually meet the 183-day test by spending 169 days in the U.S. Virgin Islands – plus the 14 days credited as U.S. Virgin Islands days due to the Major Disaster Declaration – even without the grant of additional days.
In “counting days”, taxpayers should keep a copy of the Major Disaster Declaration – available at https://www.fema.gov/disaster/4513 – in their tax files along with plane tickets, frequent flyer records, or other evidence of their days spent outside the U.S. Virgin Islands during the relevant period. In addition to “disaster days”, other days spent in the United States or elsewhere can also count as U.S. Virgin Islands days, most notably days spent in a hospital by a taxpayer or a close family member (with at least one overnight stay) and medically necessary time before and after the period of hospitalization. Also, up to 30 days spent outside the U.S. Virgin Islands and the United States can “count” as U.S. Virgin Islands days if the taxpayer is otherwise in the U.S. Virgin Islands more than in the United States.
In addition to meeting the physical presence tests, taxpayers must be able to demonstrate a closer connection to the U.S. Virgin Islands than anywhere else through such factors as voting in the U.S. Virgin Islands and having a home in the territory. Further, taxpayers who work must have a tax home, or principal place of business, in the territory.
Marjorie Rawls Roberts is a tax attorney in St. Thomas, U.S. Virgin Islands. She will provide updated information if the IRS extends the number of days that can be spent outside the U.S. Virgin Islands and “count” as U.S. Virgin Islands days or if there are other residency-related pronouncements from the IRS that impact U.S. Virgin Islands residents.