Chapter 8 - Documentation and Evidence

Eligibility at Time of Filing

USCIS regulations affirmatively require a petitioner to establish eligibility for the benefit sought at the time the petitioner files the petition.^[1] A petition may not be approved based on speculation of future eligibility or after the petitioner or beneficiary becomes eligible under a new set of facts.^[2]

Named Beneficiary

The petitioner must name the beneficiary of an L-1 petition on the petition.

Multiple Beneficiaries on a Petition Not Permitted

A petitioner may not file for multiple beneficiaries on an L-1 petition. USCIS permits only one beneficiary on an L-1 petition.

Signature

An authorized signatory of the petitioner must sign the petition.^[3] USCIS may deny an L-1 petition for failing to establish eligibility for the benefit sought if the petition was accepted as signed, but it was not signed by an authorized signatory.

Burden of Proof^[4]

It is the petitioner’s burden to provide the documentation required to establish eligibility for L classification. The regulations do not require submission of extensive evidence of business relationships or of the beneficiary’s prior and proposed employment. In some cases, completion of the items on the petition and supplementary explanations by an authorized official of the petitioning company may be sufficient. In doubtful or marginal cases, officers may require other appropriate evidence which they deem necessary to establish eligibility in a particular case.

Amended Petition

An amended petition requires the same base filing fee, if applicable, as a new petition. USCIS may not require certain additional fees. Because the amended petition supplements the original petition, USCIS does not require duplicate documents submitted with the original filing. However, a petitioner must provide evidence addressing the change that led to the filing of the amended petition. Changes requiring amended petitions include:

Changes in approved relationships;
Additional qualifying organizations under a blanket petition;
Change in capacity of employment (for example, from specialized knowledge position to a managerial or executive position); or
Any information that would affect the beneficiary’s eligibility under INA 101(a)(15)(L).^[5]

A. Evidence for Beneficiary (Non-New Office)

When seeking L-1 classification on behalf of a beneficiary, the petitioner must submit the following:

Evidence that the petitioner is a qualifying organization. If the petitioner is included on an L-1 blanket approval, then the petitioner must submit evidence that the approved blanket petition included this evidence and meets this requirement. If there is no L-1 blanket approval, the petitioner must provide the following evidence to demonstrate that it is a qualifying organization:
- Evidence that the petitioner is a U.S. or foreign firm, corporation, or other legal entity;
- Evidence that the petitioner is a parent, branch, affiliate, or subsidiary;
- Evidence that the petitioner is doing business as an employer in the United States and at least one other country directly or through a parent, branch, affiliate, or subsidiary and will be doing such business for the duration of the beneficiary’s stay in the United States as an L-1 nonimmigrant;
- Evidence that the beneficiary’s prospective L-1 employment in the United States will be primarily in a managerial or executive capacity, or will involve specialized knowledge; and
- Evidence that the beneficiary was employed abroad by the petitioner, or its parent, branch, affiliate, or subsidiary, on a full-time basis for at least 1 of the last 3 years in a managerial, executive, or specialized knowledge capacity.^[6] The company does not have to transfer the beneficiary to the United States in the same capacity in which the beneficiary was employed abroad. For example, a company may transfer a manager abroad to the United States as an L-1 beneficiary to work in a position that primarily involves specialized knowledge.^[7]

Evidence of Doing Business

Primary documentary evidence of an organization’s business activities includes, but is not limited to:

Annual reports, containing audited or reviewed financial statements;

Audited financial statements;

Reviewed financial statements; and
Federal tax returns.

However, the petitioner may submit a variety of documents to establish that the U.S. and foreign organizations are doing business. For example, a petitioner may submit a letter that describes the nature and level of business activity conducted by the organization. If requesting a beneficiary to perform duties that are primarily managerial or executive in nature, the petitioner may provide a statement that clearly describes the organization’s manner of doing business, such as:

The business activities in which the employing organization engages.
How the beneficiary’s position is, or was, related to the organization’s strategic or operational goals.
The records may also contain various documents as evidence of the organizations’ business activities. The documentary evidence the petitioner submitted should corroborate the petitioner’s statements. Depending on the totality of the evidence, a descriptive letter may meet the petitioner’s burden of proof.

Annual Reports

All publicly traded corporations in the United States publish annual reports. Many foreign organizations also publish annual reports. Annual reports provide information describing the organization’s:

Products and services;
Management and personnel structure;
Ownership and control;
Subsidiaries, affiliates, joint ventures, and branch offices; and
Current and long-term objectives.

In addition, annual reports should include audited or reviewed financial statements for the past year.

Federal Tax Returns

In general, organizations conducting business in the United States must file federal tax returns each year. Federal tax returns are designed to present information in a manner that is similar to the income statement and balance sheet format.

Internal Revenue Service (IRS) Tax Returns: Form Numbers and Corresponding Information Provided
If organization is a…	Tax return is Form…	Tax return provides a modified income statement	Tax return provides a modified balance sheet
Corporation	1120 or 1120EZ	X	X
S Corporation	1120S or 1120EZ	X	X
Partnership	1065	X	X
Sole Proprietorship	1040, with Schedule C	X
Non-Profit	990 or 990EZ	X	X
Limited Liability Company (LLC)	1120 or 1065 (may be 1040 with Schedule C for a single member LLC owned by a person)	X

Foreign Tax Documentation

Officers should consider the following regarding foreign tax documentation:

The petitioner may provide copies of foreign tax returns as evidence of the business activities of the foreign entity;
Canada and most Western European countries require tax returns that are very similar to the United States’ tax returns and are usually credible; and
Many other countries rely on hand-written tax returns and receipts that are less reliable.

Calendar or Fiscal Year

Organizations publish annual reports and financial statements, and file tax returns based on either a calendar or fiscal year.

Annual Reporting Timelines
If reporting year is a…	Then the year starts on…	And ends on…
Calendar year	January 1st	December 31st
Fiscal Year	The 1st day of any month other than January	The last day of any month other than December

Change of Year for Tax Purposes

An organization cannot change its year for tax purposes (for example, from a fiscal year to a calendar year) without permission from the IRS. Tax returns for consecutive years that have different reporting years may be an indication that the documents are fraudulent. In addition, the ending balances on the balance sheet for 1 year should match the beginning balances for the next year.

B. Evidence for Beneficiary (New Office)

Officers may grant an otherwise eligible petitioner a request for classification as a new office in cases where an established company opens a new office in a new location in the United States, provided it meets the definition of a new office.^[8] The petition must clearly indicate that the petitioner is requesting adjudication under the new office provisions and explain how the new office meets the applicable requirements discussed below.^[9] A petition submitted for what would otherwise appear to be a new office, but that does not contain this request, may be adjudicated under the same standards and requirements applicable to a typical (non-new office) petition.

Special Consideration: L-1A New Office Petitions

The L-1A new office petitioner must establish that the intended operation, within 1 year of petition approval, will support an executive or managerial position.^[10] Therefore, the petitioner must provide information regarding:

The proposed nature of the office describing the scope of the entity as well as its organizational structure and financial goals;
The size of the U.S. investment and the financial ability of the foreign entity to remunerate the beneficiary; and
The organizational structure of the foreign entity.

If coming to the United States to fill a managerial or executive capacity role, the beneficiary’s qualifying experience abroad must have been in a managerial or executive capacity.^[11] Unlike other L-1 petitions, eligibility for L-1A new office approval may not be established through qualifying experience involving specialized knowledge.^[12]

A manager or executive who is required to open a new business or office may be more actively involved in day-to-day operations during the initial phases of the business, but the manager or executive must also have authority and intent to hire staff and have wide latitude in making decisions about the goals and management of the organization.

In addition, the petitioner must demonstrate that sufficient physical premises to house the new office have been secured.^[13]

Special Consideration: L-1B New Office Petitions

If the U.S. entity has been doing business for 1 year or less, the beneficiary, as is the case of other L-1B beneficiaries, must have specialized knowledge. Additionally, the petitioner must demonstrate that sufficient physical premises to house the new office have been secured and that it has the financial ability to remunerate the beneficiary and to commence doing business in the United States.^[14]

Extension of L-1 New Office Petitions

The initial approval of a new office individual petition is limited to a period not to exceed 1 year.^[15] After the first year, the validity of the new office petition may be extended for the same beneficiary for a period of up to 2 years. Extension of the new office petition requires that the petitioner provide the following:^[16]

Evidence that the United States and foreign entities are still qualifying organizations;^[17]
Evidence that the United States entity has been doing business;^[18]
A statement of the duties performed by the beneficiary for the previous year and the duties the beneficiary will perform under the extended petition;
A statement describing the staffing of the new operation, including the number of employees and types of positions held accompanied by evidence of wages paid to employees when the beneficiary will be employed in a managerial or executive capacity; and
Evidence of the financial status of the U.S. operation. As an example, evidence may include, but is not limited to, evidence of capitalization of the company or evidence of financial resources committed by the foreign company, articles of incorporation, by-laws, minutes of board of directors’ meetings, corporate bank statements, profit and loss statements or other accountant’s reports, or tax returns.

Following approval of the initial extension of a new office petition, the petitioner is no longer subject to the new office extension provisions; any future extension filing is treated as a regular individual L extension.^[19]

C. Special Considerations

Attestations for L-1A Petitions

An attestation that foreign staff will support a position in the United States without supporting evidence generally is not enough to demonstrate eligibility. It is the petitioner’s burden to meet the preponderance of the evidence standard. Types of evidence submitted include, but are not limited to:

Organizational charts (U.S. and foreign);
A roster of employees;
Position descriptions;
Payroll records with job titles of the staff supporting the U.S. entity; and
Invoices for services provided by the foreign entity to U.S. entity, other accounting records between the entities (or both).

A petitioner may submit any evidence it believes will prove its case, and officers must consider the totality of all the evidence submitted.^[20]

Evidence Related to Managerial or Executive Positions for L-1A Petitions

The employing organization must be doing business in a manner that would require the beneficiary to perform duties that are primarily managerial or executive in nature. The petitioner may provide a statement that clearly describes:

The business activities in which the employing organization engages; and
How the beneficiary’s position relates to organization’s strategic or operational goals.

The record may also contain various documents as evidence of the organizations’ business activities. The documentary evidence submitted should corroborate the petitioner’s statements.

To make an accurate determination of the eligibility of the beneficiary’s position, either in or outside the United States, the petitioner must provide a description of the beneficiary’s duties placed in the context of:

The personnel structure of the organization; and
The nature and scope of the business that it conducts.

Where an organization employs only a few people yet claims that the majority of its employees are primarily engaged as managers or executives, officers may request complete position descriptions and hourly breakdowns for the duties performed by all of the people employed by the organization, including one for the beneficiary, as well as copies of corroborative payroll documentation.

Officers may use the position descriptions and payroll documentation to determine who is performing the non-qualifying, operational duties of the business. The entity may be substantial in size, but the department or division where the beneficiary is, or will be, employed may be top-heavy with managers and executives. If the employer is a large organization, officers should limit detailed staffing inquiries to the department or division where the beneficiary has been or will be employed.

On the other hand, the evidence may indicate that the business employs only one or two people, including the beneficiary. In such cases, officers may find it helpful to try to determine who is performing the non-managerial operational duties of the business. The business may not directly employ people to perform the non-managerial services of the business. Instead, the business may contract out some of its functions such as accounting, sales, warehousing, and personnel.

When evaluating the nature of a claimed managerial or executive position, the officer must review the petition and supporting evidence to establish that the beneficiary’s employment qualifies for L-1 purposes.

The evidence must demonstrate the employer’s business activities in a manner that allows for a clear understanding of the products and services that it provides, and how the beneficiary’s position fits into its organizational hierarchy.

A petitioner may not claim to employ a beneficiary as a hybrid executive-manager and rely on partial sections of the two statutory definitions. If the petitioner chooses to represent the beneficiary as both an executive and a manager, it must still establish that the beneficiary is engaged in duties that are primarily either managerial or executive and that the beneficiary meets all four criteria of that definition.

L-1B Petitions

Officers can perform their adjudicatory function most effectively when the petitioner explains in detail the specific nature of the industry or field involved, the nature of the petitioning organization’s products or services, the nature of the specialized knowledge required to perform the beneficiary’s duties, and the need for the beneficiary’s specialized knowledge. To show that the offered position in the United States involves specialized knowledge, the petitioner must submit a detailed description of the services to be performed.^[21]

A petitioner’s statement may be persuasive evidence if detailed, specific, and credible. Officers may, in appropriate cases, however, request further evidence to support a petitioner’s statement, bearing in mind that there may be cases involving circumstances that may be difficult to document other than through a petitioner’s own statement.

The petitioner must also submit evidence that the beneficiary’s prior education, training, and employment qualifies the beneficiary to perform the intended services in the United States.^[22] While the petitioner is required in all cases to compare the beneficiary’s knowledge to that of others, the petitioner may also be able to demonstrate the nature of the claimed specialized knowledge by, among other things, indicating how and when the beneficiary gained such knowledge or explaining the difficulty of imparting such knowledge to others without significant cost or disruption to its business.

Other evidence that a petitioner may submit to demonstrate that a person’s knowledge is special or advanced, includes, but is not limited to:

Documentation of training, work experience, or education establishing the number of years the beneficiary has been using or developing the claimed specialized knowledge as an employee of the petitioning organization or in the industry;
Evidence of the impact, if any, the transfer of the beneficiary would have on the petitioning organization’s U.S. operations;
Evidence that the beneficiary is qualified to contribute significantly to the U.S. operation’s knowledge of foreign operating conditions as a result of knowledge not generally found in the petitioning organization’s U.S. operations;
Contracts, statements of work, or other documentation that shows that the beneficiary possesses knowledge that is particularly beneficial to the petitioning organization’s competitiveness in the marketplace;
Evidence, such as correspondence or reports, establishing that the beneficiary has been employed abroad in a capacity involving assignments that have significantly enhanced the petitioning organization’s productivity, competitiveness, image, or financial position;
Personnel or in-house training records that establish that the beneficiary gained the claimed specialized knowledge through prior experience or training with the petitioning organization;
Curricula and training manuals for internal training courses, financial documents, or other evidence that may demonstrate that the beneficiary possesses knowledge of a product or process that the organization cannot transfer or teach to another person without significant economic cost or inconvenience;
Evidence of patents, trademarks, licenses, or contracts awarded to the petitioning organization based on the beneficiary’s work, or similar evidence that the beneficiary has knowledge of a process or a product that either is sophisticated or complex, or of a highly technical nature, although not necessarily proprietary or unique to the petitioning organization; and
Payroll documents, federal, state, or other governmental wage statements, documentation of other forms of compensation, resumés, organizational charts, or similar evidence documenting the positions held and the compensation provided to the beneficiary and parallel employees in the petitioning organization.

Knowledge that is commonly held, lacking in complexity, or easily imparted to others is not specialized knowledge. A petitioner may submit any other evidence it chooses. In all cases, USCIS reviews the entire record to determine whether the petitioner has established, by a preponderance of the evidence, that the beneficiary has specialized knowledge under the totality of the circumstances, in accordance with the standards set forth in the relevant statutes and regulations.

Merely stating that a beneficiary’s knowledge is somehow different from others or greatly developed does not, in and of itself, establish that the beneficiary possesses specialized knowledge. Ultimately, it is the weight and type of evidence that establishes whether the beneficiary possesses specialized knowledge.

L-1 Blanket Petitions

A petitioner may seek continuing approval of itself and some or all its parent, branches, subsidiaries, and affiliates as qualifying organizations by filing an L-1 blanket petition. A blanket petition is not filed on behalf of a beneficiary, but, rather, to obtain preapproval of related entities. In support of a blanket petition, the petitioner must submit evidence:

That each of the entities included in the requested list of entities are engaged in commercial trade or services;
That the petitioning organization has an office in the United States that has been doing business for 1 year or more;
That the petitioning organization has three or more domestic and foreign branches, subsidiaries, or affiliates;
That the petitioner and the other qualifying organizations have:
- Obtained approval of petitions for at least 10 “L” managers, executives, or specialized knowledge workers during the previous 12 months;
- U.S. subsidiaries or affiliates with combined annual sales of at least $25 million; or
- A U.S. workforce of at least 1,000 employees;^[23]
That each entity is doing business; and
Of the ownership and control of all the entities as USCIS can only approve those entities meeting the definition of a qualifying organization.

The petitioner should list all the foreign entities and all the U.S. entities for which it seeks blanket preapproval.^[24]

Footnotes

[^ 1] See 8 CFR 103.2(b)(1).

[^ 2] See Matter of Michelin Tire Corp. (PDF), 17 I&N Dec. 248 (Reg. Comm. 1978). See Matter of Katigbak (PDF), 14 I&N Dec. 45, 49 (Reg. Comm. 1971).

[^ 3] See 8 CFR 103.2(a)(2). See Volume 1, General Policies and Procedures, Part B, Submission of Benefit Requests, Chapter 2, Signatures [1 USCIS-PM B.2].

[^ 4] The burden of evidence is a preponderance, which means it is more likely than not. See INS v. Cardoza-Fonseca (PDF), 480 U.S. 421 (1987) (defining more likely than not as a greater than 50 percent probability of something occurring). See Matter of Chawathe (PDF), 25 I&N Dec. 369, 376 (AAO 2010) (citing Matter of E-M (PDF)-, 20 I&N Dec. 77, 79-80 (Comm. 1989)). See Volume 1, General Policies and Procedures, Part E, Adjudications, Chapter 4, Burden and Standards of Proof [1 USCIS-PM E.4].

[^ 5] See 8 CFR 214.2(l)(7)(i)(C).

[^ 6] For more information on the 1-year foreign employment requirement, see Chapter 6, Key Concepts, Section G, One-Year Foreign Employment Requirement [2 USCIS-PM L.6(G)].

[^ 7] See Matter of Vaillancourt (PDF), 13 I&N Dec. 654 (Reg. Comm. 1970).

[^ 8] See 8 CFR 214.2(l)(1)(ii)(F). For the definition of new office, see Chapter 6, Key Concepts, Section F, New Office [2 USCIS-PM L.6(F)].

[^ 9] Ideally, this should include an affirmative response to the corresponding question on the Petition for Nonimmigrant Worker (Form I-129). However, if no response is given, but it is clear to the officer based on the materials submitted that the petitioner seeks approval for a new office, the officer may proceed accordingly.

[^ 10] See 8 CFR 214.2(l)(3)(v)(C).

[^ 11] See 8 CFR 214.2(l)(3)(v)(B).

[^ 12] In contrast to the L-1A new office beneficiary, a beneficiary of an L-1B new office petition may qualify for such classification through employment in a managerial, executive, or specialized knowledge capacity.

[^ 13] See 8 CFR 214.2(l)(3)(v)(A).

[^ 14] See 8 CFR 214.2(l)(3)(vi).

[^ 15] See 8 CFR 214.2(l)(7)(i)(A)(3).

[^ 16] See 8 CFR 214.2(l)(14)(ii).

[^ 17] See 8 CFR 214.2(l)(1)(ii)(G).

[^ 18] See 8 CFR 214.2(l)(1)(ii)(H).

[^ 19] See 8 CFR 214.2(l)(14)(i).

[^ 20] Matter of Z-A-, Inc. (PDF, 162.89 KB), Adopted Decision 2016-02 (AAO Apr. 14, 2016), does not change the fact that it is the petitioner’s burden to demonstrate by a preponderance of evidence standard that the duties of the beneficiary’s position will be primarily managerial in nature.

[^ 21] See 8 CFR 214.2(l)(3)(ii).

[^ 22] See 8 CFR 214.2(l)(3)(iv).

[^ 23] See 8 CFR 214.2(l)(4)(i).

[^ 24] See 8 CFR 214.2(l)(4)(iv)(B) and 8 CFR 214.2(l)(1)(ii)(G).

Resources

8 CFR 214.2(l) - Intracompany transferees

INA 101(a)(15)(L) - Definition of L nonimmigrant classification

INA 101(a)(44) - Definition of managerial capacity and executive capacity

INA 214(c) - Admission of nonimmigrants

INA 214(c)(12) - Fraud prevention and detection fee

INA 214(c)(2) - Petition of importing employer for L nonimmigrant

I-129, Petition for Nonimmigrant Worker

I-539, Application To Extend/Change Nonimmigrant Status Application To Extend/Change Nonimmigrant Status

How to Use the USCIS Policy Manual Website (PDF, 2.99 MB)

Appendices

This appendix provides a general overview of the most common business forms or structures of petitioning employers, agents, or sponsors filing an Immigrant Petition for Alien Workers (Form I-140) or Petition for Nonimmigrant Worker (Form I-129). These forms or structures are also relevant to the new commercial enterprises underlying an Immigrant Petition by Standalone Investor (Form I-526) or Immigrant Petition by Regional Center Investor (Form I-526E).

This appendix includes information on how different types of businesses are formed, their fundamental characteristics, the various tax forms that each business organization files with the Internal Revenue Service (IRS), and basic tax terms. Generally, each business form or structure discussed in this appendix should have an Employer Identification Number (EIN), sometimes also called a Federal Tax Identification Number, or IRS Tax Number.^[1] An EIN is used to identify a business entity for IRS purposes.

State law generally governs the formation, operation, and dissolution of business entities. As each state has its own rules for business entities, an officer should refer to the relevant state statute or state authority’s website (such as the California Secretary of State’s Business Programs Division) if there is a specific question about a particular business entity.

A. Sole Proprietorship

1. Definition

A sole proprietorship is a for-profit business owned by one person (or a married couple, in some cases).^[2] A sole proprietorship is “a business in which one person owns all the assets, owes all the liabilities, and operates in his or her personal capacity.”^[3] Owners may operate on their own or may employ other people. The sole proprietorship is the simplest business form under which a person can operate a business. It is not a separate legal entity from its owner;^[4] for example, the owner remains responsible for the business debts.

A sole proprietorship can operate under the name of its owner or it can elect to do business under a fictitious name. The fictitious name is simply a trade name and does not create a legal entity separate from the sole proprietor owner.^[5]

2. Taxes

Income from the business is included on the owner’s personal income tax return, U.S. Individual Income Tax Return (IRS Form 1040). The profits and losses of the business are recorded and attached to the Form 1040 on Profit or Loss From Business (Schedule C); Supplemental Income or Loss (Schedule E); or Profit or Loss From Farming (Schedule F).

The owner’s adjusted gross income on Form 1040 is used as net income for ability to pay purposes; however, there are no tax forms that list the business’s current assets and liabilities. When determining a petitioner’s ability to pay the proffered wage, USCIS also considers a sole proprietor’s liquefiable personal assets as well as household expenses and other personal liabilities (such as rent, car payments, and child care expenses).

B. Partnership

A partnership is the relationship between two or more persons or entities who join to carry on a trade or business.^[6] Each person or entity contributes to the partnership something of value (for example, money, property, labor, or skill) and expects to share in the profits and losses of the business.^[7]

A partnership is created automatically when two or more persons or entities engage in a business enterprise for profit whether or not the persons or entities intend to form a partnership.^[8] Partners seeking increased accountability, however, may opt to have their arrangement memorialized in a partnership agreement. The following subsections provide an overview of the most common forms of partnerships. The type of partnership is identified at Schedule B, Line 1 of U.S. Return of Partnership Income (IRS Form 1065).

1. General Partnership

A general partnership is the simplest form of partnership, and as such, general partnerships are simply called partnerships.^[9] In a general partnership, all partners or owners may equally share responsibilities and liabilities.

A general partnership has the following characteristics:

A general partnership is created through an express or implied agreement;^[10]
A general partnership has two or more partners;^[11] and
The owners or partners, which may be other types of entities (such as a corporation or limited liability company), are all liable for all legal actions and debts the company faces.^[12]

2. Limited Partnership

A limited partnership^[13] is very similar to a general partnership, except that the partnership is partially owned by one or more limited partners and is managed exclusively by its general partner(s).^[14]

A limited partnership must have at least one general partner. The general partner, often another type of entity (typically a corporation or limited liability company), has management powers, the right to use partnership property, and is personally liable for the debts of the partnership.^[15]

Conversely, limited partners do not participate in the management of the business and are generally liable for the partnership’s debts only to the extent of their contributed investment. Limited partnerships permit a person to invest in a partnership while limiting their liability and involvement in its management. In general, a formal written agreement is required to create a limited partnership.^[16]

3. Limited Liability Partnership

In a limited liability partnership (LLP),^[17] all partners have limited liability similar to that of limited partners in a limited partnership, but without the limitations on control over the company.^[18] Some states limit usage of LLPs to certain professions (for example, lawyers).^[19]

4. Limited Liability Limited Partnership

A limited liability limited partnership (LLLP) is a modification of the limited partnership.^[20] Similar to a limited partnership, the LLLP consists of one or more general partners and one or more limited partners.^[21]

In general, the key features of an LLLP are:

The general partners manage the business operations of the LLLP, while the limited partners typically only maintain a passive financial interest;
It is designed to offer limited liability to all partners in the partnership; and
The partners decide the structure of the organization and the distribution of profits and losses. States usually recommend the partners establish a formal, written partnership agreement.^[22]

Not every state allows the formation of or recognizes LLLPs.

5. Taxes

The IRS generally considers partnerships to be pass-through tax entities, which means that the partnership itself does not pay income taxes and all of the profits and losses of the partnership pass through the business to the partners, who pay taxes on their share of the profits (or deduct their share of the losses) on their individual income tax returns.^[23] Each partner may share in the profits and losses of the partnership equally, or in proportion to their respective contributions to the partnership or as otherwise set out in a written partnership agreement.

Even though the partnership itself does not pay income taxes, it must file U.S. Return of Partnership Income (IRS Form 1065). This form is an informational return the IRS reviews to determine whether the partners are reporting their income correctly.^[24] Net income or loss (notated on tax forms as ordinary business income (loss))^[25] is found on IRS Form 1065 or Schedule K and net current assets are calculated from information on Schedule L.

C. Corporation

A corporation is a created by filing articles of incorporation with a state. In the eyes of the law, a corporation is a distinct body separate from its owners and management. Accordingly, a corporation is entitled to all legal rights afforded to individual persons, such as the ability to bring and defend lawsuits or to buy and sell property. The corporation’s most notable feature is that, subject to narrow exceptions, it protects its owners (shareholders) from personal liability for its debts and obligations.^[26] A corporation also has directors and officers who run the business.

A corporation has perpetual life. When a shareholder dies or otherwise elects to leave a corporation, the shareholder can transfer their stock to others. Corporate shareholders own the corporation, the board of directors manages the corporation through their direction and control of its officers, and, in almost all cases, the officers oversee the day-to-day operations of the corporation. The shareholders elect the directors, who in turn appoint the corporate officers. Often, particularly in smaller corporations, the same person might serve multiple roles within a corporation: shareholder, director, and officer.^[27]

A corporation’s shareholders, directors, and officers must observe particular formalities in a corporation’s operation and administration.^[28] For example, corporations must, on at least an annual basis, make decisions regarding a corporation’s management by formal vote and must record those votes in the corporate minutes. Meetings of shareholders and directors must be properly noticed and must meet quorum requirements. Finally, corporations must meet annual reporting requirements in their state of incorporation and in states where they do significant business.^[29]

1. Subchapter C Corporations

Corporations that have not elected to be taxed as a subchapter S corporation are by default taxed as a C corporation under Subchapter C of Chapter 1 of the Internal Revenue Code (IRC) where the general tax rules affecting corporations and their shareholders are located.^[30]

Taxes^[31]

A C corporation files U.S. Corporation Income Tax Return (IRS Form 1120). C corporations (and other entities electing to be taxed as C corporations) are the only type of businesses that must pay income taxes on profits.^[32] The subsections below discuss how other corporations file and pay their taxes.

Generally, a C corporation’s taxable profits consist of money kept in the company to cover expenses or expansion (called retained earnings) and profits that are distributed to the owners (shareholders) as dividends. These dividends are taxed twice, as the shareholders also pay taxes on these amounts.^[33] Net income (taxable income before net operating loss deduction and special deductions) appears on the IRS Form 1120 or 1120-A, while net current assets are calculated from information on Schedule L of IRS Form 1120 or 1120-A.

To reduce taxable profits, a C corporation can deduct many of its business expenses that the C corporation spends in the legitimate pursuit of profit.^[34]

2. Subchapter S Corporations

The subchapter S corporation is a variation of the standard subchapter C corporation. The rules for subchapter S corporations are found in the IRC^[35] and provide many of the benefits of partnership taxation while at the same time giving the owners limited liability protection from creditors.

An S corporation has the same corporate structure as a standard C corporation. It is a legal entity, chartered under state law, separate from its shareholders and officers, and there is generally limited liability for corporate shareholders. The difference is that the S corporation files an election on Election by a Small Business Corporation (IRS Form 2553), to be treated differently for federal tax purposes.

As with partnerships, the income, deductions, and tax credits of an S corporation flow through to shareholders annually, regardless of whether distributions (dividends) are made. Therefore, income is taxed solely at the shareholder level and not at the corporate level. To qualify for S corporation status, the corporation must meet certain requirements.^[36]

Taxes

An S corporation files U.S. Income Tax Return for an S Corporation (IRS Form 1120-S). The corporate income flows through and is reported on the shareholders’ individual tax returns. The corporation completes and files a Shareholder’s Share of Income, Deductions, Credits, etc. (Schedule K-1) with IRS Form 1120-S for each shareholder. The Schedule K-1 tells shareholders their allocable share of corporate income and deductions.

Shareholders must pay tax on their share of corporate income, regardless of whether it is actually distributed. Net income or loss, notated on tax forms as ordinary business income (loss),^[37] appears on the IRS Form 1120-S or its Schedule K, while net current assets are calculated from information on Schedule L.

3. Personal Service Corporation

A personal service corporation is a corporation where the employee-owners are engaged in the performance of personal services. The IRC defines personal services as services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting.^[38]

To qualify as a personal service corporation, substantially all the corporation’s activities must involve the performance of personal services, and a percentage of the corporation’s stock must be owned by employees performing the personal services.^[39]

Taxes

A personal service corporation pays tax on its profits as a corporate entity. However, a personal service corporation is not allowed to use the graduated tax rates for other C corporations. Instead, it is subject to a flat tax based on the highest corporate tax rate. Because of the high tax rate, personal service corporations generally distribute their profits as wages to the employee-shareholders. In turn, the employee-shareholders pay personal taxes on their wages.^[40]

The personal service corporation files its taxes on IRS Form 1120. This form contains a box for the business to indicate that it is a personal service corporation.^[41] Net income or loss is notated on IRS Form 1120 or 1120-A as taxable income before net operating loss deduction and special deductions, while net current assets are calculated from information on IRS Form 1120 Schedule L.

D. Limited Liability Company

A limited liability company (LLC) is a hybrid entity, combining some of the most advantageous features of partnerships and corporations.^[42] LLCs were created to provide business owners with the liability protection that corporations enjoy without the double taxation. Under the default tax standard, earnings and losses of an LLC pass through to the owners and are included on their personal tax returns.^[43]

LLCs are similar to S corporations, except that LLCs are not limited in the number of owners or types of members.^[44] LLCs may be either member-managed (managed by each of its members) or manager-managed (managed by specified managers who may or may not be members of the LLC).^[45] The LLC’s operating agreement may distinguish between members and managing members. Generally, if such a distinction is made, managing members of the LLC are allowed a full participatory role in the business’s operation. However, depending on the operating agreement, even regular members may have a role in the business’s operation.

To set up an LLC, organizers file articles of organization with the secretary of state in the state where the LLC is formed. Some states also require the filing of an operating agreement, which is similar to a partnership agreement. LLCs do not necessarily have perpetual life and can be set up to dissolve after a set period of time, such as a specific number of years, upon the occurrence of a triggering event, such as the death or withdrawal of a member, or as otherwise provided in the operating agreement.

The IRS does not recognize an LLC as a classification for federal tax purposes and by default treats multi-member LLCs as a partnership and single-member LLCs as a disregarded entity (similar to a sole proprietorship) for tax purposes. As with other entities, however, an LLC may file an election to be taxed differently (such as a corporation).^[46]

1. Taxes

For federal income tax purposes, LLCs with two or more members are treated by default as partnerships (a pass-through entity) and must file the IRS Form 1065, discussed above under Section B, Partnership. Each partner receives a Partner’s Share of Income, Deductions, Credits, etc. (Schedule K-1) for their share of income or losses to be reported on that partner’s individual tax return.

If there is only one member in the LLC, it is treated as a disregarded entity (similar to a sole proprietorship) for tax purposes, and the owner reports the LLC’s income on the owner’s personal individual tax return on Schedules C, E, or F to the IRS Form 1040, discussed above under Section A, Sole Proprietorship.

As an option, LLCs may also elect to be taxed like a corporation by filing Entity Classification Election (IRS Form 8832). They can be treated as a regular C corporation (taxation of the entity’s income before any dividends or distributions to the members and then taxation of the dividends or distributions once received as income by the members), or as an S corporation. These corporations file IRS Form 1120 or 1120-S, discussed above under Section C, Corporation.

E. Non-Profit Organization

1. Overview

A non-profit organization (NPO) is an entity that serves some public purpose and therefore enjoys special treatment under the law, including often having tax-exempt status and the protection of directors, officers, and members from personal liability.^[47] Typically, NPOs are engaged in charitable, educational, religious, or artistic activities of public or private interest.^[48] Unlike a for-profit business entity, an NPO does not distribute profits to its owners.^[49] Instead, any profits must ultimately go back into the organization.

In general, an NPO is formed and governed under state statutes the same as other entity types, and often takes the form of nonprofit corporations or LLCs. Whether incorporated or unincorporated, an NPO must keep records, prepare minutes of meetings, and have a separate bank account.

The board of directors typically makes collaborative decisions regarding the operation of the NPO. The board defines the mission and the policies of the NPO, creates budgets and oversees finances, and hires an executive director. If the NPO has an executive director, the director carries out the daily functions of the NPO under the management of the board. The executive director’s job is also to advise and report information to the board about activities and programs, and to monitor finances.

2. Taxes

An incorporated or unincorporated NPO can qualify for tax-exempt status if it meets certain conditions. In most states, if an NPO qualifies for a federal tax exemption it also automatically qualifies for a state tax exemption. The federal government offers many different types of tax exemptions for non-profits under IRC 501(c).^[50] The most popular kind of NPO is called a 501(c)(3).^[51] Under this code section, the NPO is exempt from paying federal income taxes and contributions made to the non-profit are generally tax-deductible for the donors.

Most NPOs are required to file an annual informational return, called a Return of Organization Exempt From Income Tax (IRS Form 990 or IRS Form 990EZ), if the organization’s gross receipts exceed $50,000 from sources other than the exempt purpose.^[52] Some religious organizations are not required to file IRS Form 990 or 990EZ.^[53]

IRS Form 990 provides an analysis of an NPO’s revenue and expenses, and net income is stated on the form as revenue less expenses. The abbreviated balance sheet on IRS Form 990 does not identify which assets and liabilities are current and therefore is not useful for calculating net current assets.

Footnotes

[^ 1] See IRS’s Employer ID Numbers webpage. For an explanation of what types of business structures require an EIN, see IRS’s Do You Need an EIN webpage.

[^ 2] For an explanation of married couples and sole proprietorship, see IRS’s Frequently Asked Questions for Entities webpage.

[^ 3] See Black’s Law Dictionary (11th ed. 2019).

[^ 4] See Matter of United Investment Group (PDF), 19 I&N Dec. 248 (Comm. 1984).

[^ 5] See Michael Spadaccini, Ultimate Guide to Incorporating in Any State (Irvine, CA: Entrepreneur Press, 2010), p. 3. For a general overview of sole proprietorships, see Jeffrey F. Beatty and Susan S. Samuelson, Business Law and the Legal Environment (Cengage Learning, 2006), p. 755. See the U.S. Small Business Administration’s (SBA’s) Choose a business structure webpage.

[^ 6] See Section 101 of the Uniform Partnership Act (1997). The Uniform Partnership Act is a uniform act from the National Conference of Commissioners on Uniform State Laws for the governance of partnerships. It has been amended several times since its promulgation, most recently in 2011 and 2013. The Uniform Partnership Act has been enacted by most U.S. states.

[^ 7] See the IRS’s Tax Information For Partnerships webpage.

[^ 8] See Section 202(a) of the Uniform Partnership Act (1997).

[^ 9] See IRS’s Instructions for Form 1065.

[^ 10] A partnership can also be formed by estoppel (where a party is held out to be a partner and can be held liable for debts or damages incurred by the partnership). See definition of “partnership by estoppel,” Black’s Law Dictionary (11th ed. 2019). A written general partnership agreement usually identifies the names of the partners; the amount and type of contribution made by each partner; each partner’s initial percentage of ownership; the business activities conducted by the partnership; whether and how partnership interests can be transferred; and the conditions allowing dissolution of the partnership. See Section 103 of the Uniform Partnership Act (1997).

[^ 11] See the IRS’s Tax Information For Partnerships webpage.

[^ 12] See Section 306 of the Uniform Partnership Act (1997).

[^ 13] See the Uniform Limited Partnership Act (2001). The Uniform Limited Partnership Act is another uniform act from the National Conference of Commissioners on Uniform State Laws for the governance of partnerships.

[^ 14] See Angela Schneeman, Law of Corporations and Other Business Organizations (Cengage Learning, 2009), p. 114.

[^ 15] See Sections 201 and 404 of the Uniform Limited Partnership Act (2001).

[^ 16] The elements identified in these written agreements include the names of partners, the amount and type of contribution made by each partner, whether the partners hold a limited partnership interest, each partner’s initial percentage of ownership, the business activities of the limited partnership, whether and how partnership interests can be transferred, and the conditions allowing the dissolution of the limited partnership. See IRS Publication 541, Partnerships.

[^ 17] See IRS’s Instructions for Form 1065. See Section 1001 of the Uniform Partnership Act.

[^ 18] See the U.S. SBA’s Choose a business structure webpage.

[^ 19] See IRS’s SOI Tax Stats - Partnership Study Explanation of Selected Terms webpage.

[^ 20] For an example of limited partnerships and LLLPs, see page 21 of the Ohio Secretary of State’s publication, Start a Partnership in Ohio (PDF).

[^ 21] State law created and governs LLLPs. See, for example, page 21 of the Ohio Secretary of State’s publication, Start a Partnership in Ohio (PDF), and State of California Franchise Tax Board’s Limited liability limited partnership webpage.

[^ 22] For a discussion of one state’s LLLP provisions, see pages 21 to 23 of the Ohio Secretary of State’s publication, Start a Partnership in Ohio (PDF).

[^ 23] See IRS’s Tax Information For Partnerships webpage.

[^ 24] The partnership must also provide a Partner’s Share of Income, Deductions, Credits, etc. (Schedule K-1) to the IRS and to each partner, which breaks down each partner's share of the business's profits and losses. In turn, each partner reports this profit and loss information on Schedule E of the partner’s individual IRS Form 1040. See IRS’s Instructions for Schedule E.

[^ 25] Negative values are represented in parentheses on tax forms.

[^ 26] See Michael Spadaccini, Ultimate Guide to Incorporating in Any State (Irvine, CA: Entrepreneur Press, 2010), p. 8.

[^ 27] See Michael Spadaccini, Ultimate Guide to Incorporating in Any State (Irvine, CA: Entrepreneur Press, 2010), p. 8.

[^ 28] See William Meade Fletcher, Cyclopedia of the Law of Private Corporations, Vol. 1, section 41.31 (Sept. 2021 Update). See DeWitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681 (4th Cir. 1976) (court properly ignored the existence of a corporate entity where there was a failure to follow corporate formalities).

[^ 29] See Wachovia Securities, LLC v. Jahelka, 586 F.Supp.2d 972, 1002 (N.D.I.L. 2008) (disregarding a corporation’s existence when it failed to observe required corporate formalities such as holding regular meetings, taking minutes, and maintaining corporate records).

[^ 30] For instructions on electing a different taxation structure, see IRS’s S Corporations webpage and IRS’s Instructions for Form 1120.

[^ 31] When determining whether or not a corporation has the ability to pay the beneficiary the proffered wage, officers should refer to Volume 6, Immigrants, Part E, Employment-Based Immigration, Chapter 4, Ability to Pay [6 USCIS-PM E.4].

[^ 32] S corporations, partnerships, sole proprietorships, and limited liability companies (LLCs) are not taxed on business profits unless they elect otherwise; instead, the profits pass through the businesses to their owners, who report business income or losses on their personal tax returns.

[^ 33] See IRS Publication 542, Corporations.

[^ 34] In addition to start-up costs, operating expenses, and product and advertising outlays, a C corporation can deduct the salaries and bonuses it pays and all of the costs associated with medical and retirement plans for employees. See IRS’s Instructions for Form 1120.

[^ 35] See 26 U.S.C. 1361.

[^ 36] See IRS’s S Corporations webpage. A subchapter S corporation must be a domestic corporation; have only allowable shareholders (may include persons, certain trusts, and estates, but may not include partnerships, corporations, or non-resident shareholders); have no more than 100 shareholders; have only one class of stock (for example, no preferred stock allowed); and not be an ineligible corporation (such as certain financial institutions, insurance companies, and domestic international sales corporations).

[^ 37] Negative values are represented on tax forms by parentheses.

[^ 38] See 26 U.S.C. 448(d)(2).

[^ 39] See IRS Publication 542, Corporations.

[^ 40] See IRS’s Instructions for Form 1120.

[^ 41] When determining whether or not a corporation has the ability to pay the beneficiary the proffered wage, officers should refer to Volume 6, Immigrants, Part E, Employment-Based Immigration, Chapter 4, Ability to Pay [6 USCIS-PM E.4].

[^ 42] See the U.S. SBA’s Choose a business structure webpage.

[^ 43] While the default tax treatment for an LLC is pass-through taxation, as with all entities, it may elect to be taxed differently.

[^ 44] See IRS’s SOI Tax Stats - Partnership Study Explanation of Selected Terms webpage.

[^ 45] The powers and duties of members and managers are typically outlined in the LLC’s operating agreement. See U.S. SBA’s Basic Information About Operating Agreements webpage.

[^ 46] See IRS’s Limited Liability Company (LLC) webpage. A professional limited liability company (PLLC) is an LLC organized for the purpose of providing professional services, such as a doctor, chiropractor, lawyer, accountant, architect, landscape architect, or engineer. Some states permit LLCs to engage in the practice of a licensed profession through PLLCs. Exact requirements of PLLCs vary from state to state. Typically, a PLLC's members must all be professionals practicing the same profession. In addition, the limitation of personal liability of members does not extend to professional malpractice claims.

[^ 47] See Marilyn E. Phelan, Nonprofit Organizations: Law and Taxation, sections 1:1, 4:1, and 7:1 (Oct. 2022 Update).

[^ 48] See IRS’s Exempt Organization Types webpage.

[^ 49] See Marilyn E. Phelan, Nonprofit Organizations: Law and Taxation, section 1:2 (Oct. 2022 Update).

[^ 50] See 26 U.S.C. 501.

[^ 51] To qualify, the non-profit organization must be organized and operated exclusively for the exempt purposes set forth in IRC 501(c)(3)—charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals—and no part of their net earnings “may inure to any private shareholder or individual.” See 26 U.S.C. 501(c)(3). See IRS’s Exemption Requirements – 501(c)(3) Organizations webpage.

[^ 52] See IRS’s Instructions for Form 990 Return of Organization Exempt From Income Tax.

[^ 53] See IRS’s Instructions for Form 990 Return of Organization Exempt From Income Tax and IRS’s Tax Guide for Churches and Religious Organizations (PDF).

Updates

U.S. Citizenship and Immigration Services (USCIS) is issuing policy guidance in the USCIS Policy Manual to clarify how USCIS determines eligibility for L-1 nonimmigrants seeking classification as managers or executives or specialized knowledge workers. Note: This update consolidates and updates guidance that was previously contained in the Adjudicator’s Field Manual (AFM) Chapter 32, as well as related AFM appendices and policy memoranda. This update is not intended to change existing policy or create new policy.

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