2017 Presence Test Exception
As a result of the devastation caused by hurricanes Irma and Maria, the IRS has revised the bona fide residency regulations for residents of Puerto Rico for the remainder of 2017. For those who are unable to return to the island, and therefore may not meet the required 183 days, notice 2017-56 amends the number of days during a major disaster from 14 to 117.
Bona Fide Residency in Puerto Rico
For those moving to the island for Act 22 or other tax incentive, it is important to satisfy the IRS residency requirements for individuals earning income in a U.S. possession, such as Puerto Rico. There are 3 elements for establishing residency in Puerto Rico, according to the IRS.
- Presence Test
- Tax Home Test
- Closer Connection Test
The presence test is often quoted as "183 days" rule, which is the minimum number of days a resident must be physically present in Puerto Rico in order to qualify (with some exceptions, of course).
You are considered to be present in the relevant possession on any of the following days.
- Any day you are physically present in that possession at any time during the day.
- Any day you are outside of the relevant possession in order to receive, or to accompany a parent, spouse, or child to receive a qualifying medical treatment.
- Any day during a 14-day period within which a major disaster or emergency evacuation order occurs that you are outside the relevant possession because you leave or are unable to return to the relevant possession.
- Any day (up to a total of 30 days) that you are outside the relevant possession and the United States for business or personal travel.
However, with the issuance of notice 2017-56, the presence test is amended with respect to #3 - days outside the possession due to a major disaster. The 14-day period has been expanded to 117 days, from September 6th through December 31, 2017. This applies to those who had to leave the island during that time and those who were unable to return as a result of the hurricanes.
Link to IRS notice N-17-56.
Link to IRS Publication 570 Tax Guide for Individuals with Income from U.S. Possessions.