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Book outline for Policy Manual
  • Policy Manual
    • Search
    • Updates
    • Table of Contents
    • Volume 1 - General Policies and Procedures
    • Volume 2 - Nonimmigrants
    • Volume 3 - Humanitarian Protection and Parole
      • Part A - Protection and Parole Policies and Procedures
      • Part B - Victims of Trafficking
      • Part C - Victims of Crimes
      • Part D - Violence Against Women Act
      • Part E - Employment Authorization for Abused Spouses of Certain Nonimmigrants
      • Part F - Parolees
      • Part G - International Entrepreneur Parole
        • Chapter 1 - Purpose and Background
        • Chapter 2 - Requirements for Consideration
        • Chapter 3 - Documentation and Evidence
        • Chapter 4 - Adjudication
        • Chapter 5 - Additional Periods of Parole
        • Chapter 6 - Family Members
        • Chapter 7 - Conditions on Parole and Termination
      • Part H - Deferred Action
      • Part I - Humanitarian Emergencies
      • Part J - Temporary Protected Status
    • Volume 4 - Refugees and Asylees
    • Volume 5 - Adoptions
    • Volume 6 - Immigrants
    • Volume 7 - Adjustment of Status
    • Volume 8 - Admissibility
    • Volume 9 - Waivers and Other Forms of Relief
    • Volume 10 - Employment Authorization
    • Volume 11 - Travel and Identity Documents
    • Volume 12 - Citizenship and Naturalization
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  3. Volume 3 - Humanitarian Protection and Parole
  4. Part G - International Entrepreneur Parole
  5. Chapter 3 - Documentation and Evidence

Chapter 3 - Documentation and Evidence

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  • Guidance
  • Resources (16)
  • Appendices (1)
  • Updates (2)
  • History (0)

A. Entrepreneur

1. Ownership

The entrepreneur applying for parole is required to have a substantial ownership interest in the start-up entity. USCIS considers at least 10 percent ownership interest to be substantial at the time of the adjudication of the initial grant of parole and 5 percent to be substantial at the adjudication of re-parole.[1]

Evidence of ownership interest may include, but is not limited to:

  • Organizational documents (such as articles of incorporation, bylaws, articles of organization, operating agreement, certificate of partnership, or partnership agreement);

  • Equity purchase or grant agreements;

  • Equity ledger;

  • Equity certificates;

  • Ownership schedules;

  • Capitalization tables; and

  • Any other relevant, probative, and credible documentation establishing ownership.

2. Central and Active Role in a Start-up Entity

The applicant is required to have a central and active role in the start-up entity. Within that role, the applicant must be well-positioned, due to their knowledge, skills, or experience, to substantially assist the entity with the growth and success of its business.[2]

The applicant must provide a detailed description of their central and active role in the start-up entity along with supporting evidence that may include, but is not limited to:

  • Letters from relevant government agencies, qualified investors, or established business associations with an understanding of the applicant’s knowledge, skills, or experience that would advance the entity’s business;

  • News articles or other similar evidence indicating that the applicant has received significant attention and recognition;

  • Documentation showing that the applicant or entity has been recently invited to participate in, is currently participating in, or has graduated from one or more established and reputable start-up accelerators;

  • Documentation showing that the applicant has played an active and central role in the success of prior startup entities or other relevant business entities;

  • Degrees or other documentation indicating that the applicant has knowledge, skills, or experience that would significantly advance the entity’s business;

  • Documentation pertaining to intellectual property of the start-up entity, such as a patent, that was obtained by the applicant or as a result of the applicant’s efforts and expertise;

  • Position description; and

  • Any other relevant, probative, and credible evidence indicating the applicant’s ability to advance the entity’s business in the United States.[3]

B. Start-up Entity

A start-up entity is a U.S. business entity that was recently formed, has lawfully done business during any period of operation since its date of formation, and has substantial potential for rapid growth and job creation.[4]

Evidence to demonstrate the company meets the definition of a start-up entity may include, but is not limited to:

  • Organizational documents such as articles of incorporation, bylaws, articles of organization, operating agreements, certificates of partnership, partnership agreements, or other evidence of formation, as applicable;

  • Tax records;

  • Financial records; or

  • Other relevant documentation.

C. Qualified Investment, Award, or Grant

1. Investment Option

If the applicant is using a qualified investment to demonstrate the start-up entity’s potential for rapid growth and job creation, the applicant must provide evidence that a qualified investor is the source of the investment, as well as evidence of the amount and date of the investment in the start-up entity, rather than in a parent, subsidiary, affiliated, or related company.[5]

Source of the Investment

If the investor is an individual, the applicant must submit evidence showing that the investor is a U.S. citizen or lawful permanent resident (LPR) of the United States. The applicant should submit a copy of a government-issued identity document showing the photograph, name, and date of birth of the investor, along with evidence showing that the investor is a U.S. citizen or LPR of the United States. The copy must clearly show the photo and identity information.

If the investor is an organization, such as a venture capital firm or other U.S. business investing in the start-up entity, the applicant must submit evidence that the organization operates through a legal entity organized under the laws of the United States. Such evidence may include, but is not limited to, organizational documents such as articles of incorporation, bylaws, articles of organization, operating agreement, certificate of partnership, or partnership agreement.

The applicant must also submit evidence showing that the investing organization is majority owned and controlled, directly and indirectly, by U.S. citizens or LPRs of the United States.[6] Such evidence may include an ownership structure chart outlining the direct and indirect ownership of the organization together with evidence that the individuals ultimately owning and controlling a majority of the organization are U.S. citizens or LPRs of the United States. Many investment firms based in the United States, such as venture capital firms, have a wide range of funding from limited partners that vest control in U.S. citizen partners who manage and even control the fund.

While USCIS does not require the applicant to establish that at least 50 percent of the capital contributed to the fund is sourced from U.S. citizens or LPRs, in the venture capital firm context, the applicant must nevertheless show that the firm is majority owned and controlled, directly and indirectly, by U.S. citizens or LPRs.

To demonstrate the individual investor’s or organization investor’s successful track record of investment in start-up entities, the applicant must submit evidence such as, but not limited to, bank records, wire transfers, debt agreements, equity purchase agreements, equity certificates, equity ledgers, or capitalization tables.

To satisfy the job creation or revenue generation requirement, the applicant must submit documentation, such as tax records, payroll records, Employment Eligibility Verification (Form I-9) records, or audited financial statements.

Receipt of the Investment

The applicant must submit evidence that the start-up entity received the investment.[7] Such evidence may include copies of the start-up entity’s bank records, accounting documents, or corporate ownership records. These records must demonstrate the trail of lawfully derived capital from a qualified investor into the applicant’s start-up entity. The records must demonstrate that the invested capital was used to purchase equity, convertible debt, or other security convertible into an equity interest in the applicant’s start-up entity.

2. Government Award or Grant Option

If the applicant is using a qualified government award or grant to establish the start-up entity’s substantial potential for rapid growth and job creation, the applicant must submit evidence to establish that the award or grant is for economic development, research and development, or job creation (or other similar monetary award typically given to start-up entities), made by a federal, state, or local government entity that regularly provides such awards or grants to start-up entities.[8] Such evidence may include records such as:

  • Copies of grant or award letters;

  • Other documentation from the government entity confirming the issuance of the award or grant, including the amount of the award or grant as well as the recipient; and

  • Bank records confirming receipt of the award or grant.

3. Alternative Evidence Option

If the applicant provides sufficient evidence to demonstrate that they meet the regulatory definition of entrepreneur and that the entity meets the regulatory definition of a start-up but only partially meets the requirements for a qualified investment or a qualified award or grant, the applicant may provide other reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth and job creation.[9]

In the final rule, DHS recognized that reliable and compelling evidence of the start-up entity’s substantial potential for rapid growth may vary depending on the nature of the business and the industry in which it operates. Therefore, applicants providing other reliable and compelling evidence of the start-up entity’s potential are not limited to certain types of evidence.[10]

The preamble to the final rule, however, did recognize that non-monetary contributions and funding from non-U.S. sources may not be considered as relevant or probative evidence.[11]

Additional supporting evidence may include, but is not limited to:

  • Number of users or customers;

  • Revenue generated by the start-up entity;

  • Additional investments or fundraising, including through crowdfunding platforms;

  • Social impact of the start-up entity;

  • National scope of the start-up entity;

  • Positive effects on the start-up entity’s locality or region; and

  • Any other reliable and compelling evidence that the start-up entity has substantial potential for rapid growth and job creation.

D. Significant Public Benefit

In addition to meeting the investment, grant, or award criteria, the applicant should submit additional supporting evidence describing their start-up idea and demonstrating its substantial potential for rapid growth and job creation. Such supporting evidence may include:

  • Evidence of investments from any investors, government awards or grants, or revenue generation. Such evidence could include bank records, wire transfers, equity purchase agreements, equity certificates, equity ledgers, or capitalization tables;

  • Letters from relevant government agencies, qualified investors, or established business associations with knowledge of the entity’s research, products or services. Letters from the same organizations or individuals confirming that the applicant’s knowledge, skills, or experience would advance the entity’s business;

  • Newspaper articles or other similar evidence that the applicant or their entity have received significant attention or recognition;

  • Evidence that the applicant or their entity have been recently invited to participate in, are currently participating in, or have graduated from one or more established and reputable start-up accelerators;

  • Patent awards or other documents indicating that the applicant or their entity are focused on developing new technologies or cutting-edge research;

  • Evidence that the applicant has played an active and central role in the success of prior start-ups, such as letters from relevant government agencies, qualified investors, or established business associations with knowledge of the applicant’s prior start-up activities;

  • Degrees or other documentation indicating that the applicant has the knowledge, skills, or experience that would significantly advance their entity’s business;

  • Tax or payroll records, I-9 records, or other documents indicating that the applicant’s entity has created qualified jobs before the applicant files for parole;

  • Any other reliable evidence indicating the applicant’s entity’s potential for growth and the applicant’s ability to advance their entity’s business in the United States; or

  • Any other evidence that a grant of parole would provide a significant public benefit to the United States based on the applicant’s role as the entrepreneur of a start-up entity, if the other listed evidence does not apply to the applicant’s entrepreneurial activities.

Footnotes


[^ 1] See 8 CFR 212.19(a)(1).

[^ 2] See 8 CFR 212.19(a)(1).

[^ 3] See 82 FR 5238, 5246 (PDF) (Jan. 17, 2017).

[^ 4] See 8 CFR 212.19(a)(2).

[^ 5] See 8 CFR 212.19(a)(5).

[^ 6] See 8 CFR 212.19(a)(19).

[^ 7] See 8 CFR 212.19(b)(2)(ii)(B)(1).

[^ 8] See 8 CFR 212.19(a)(3).

[^ 9] See 8 CFR 212.19(b)(2)(iii).

[^ 10] See 82 FR 5238, 5248 (PDF) (Jan. 17, 2017).

[^ 11] See 82 FR 5238, 5249, 5252 (PDF) (Jan. 17, 2017).

Resources

Legal Authorities

8 CFR 212.19 - Parole for entrepreneurs

8 CFR 274a - Control of employment of aliens

82 FR 5238 (PDF) - International Entrepreneur Rule

86 FR 50839 (PDF) - International Entrepreneur Program: Automatic Increase of Investment and Revenue Amount Requirements

INA 212(d)(5), 8 CFR 212.5 - Parole of aliens into the United States

INA 274A - Unlawful employment of aliens

Forms

AR-11, Change of Address

G-28, Notice of Entry of Appearance as Attorney or Accredited Representative

I-102, Application for Replacement/Initial Nonimmigrant Arrival-Departure Document

I-765, Application for Employment Authorization

I-90, Application to Replace Permanent Residence Card

I-912, Request for Fee Waiver

I-941, Application for Entrepreneur Parole

Other Materials

Consumer Price Index

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

International Entrepreneur Parole

Appendices

Appendix: Business Structures

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

POLICY ALERT - International Entrepreneur Parole

March 10, 2023

U.S. Citizenship and Immigration Services (USCIS) is issuing policy guidance in the USCIS Policy Manual to address international entrepreneur parole.

Read More
Affected Sections

3 USCIS-PM G - Part G - International Entrepreneur Parole

Technical Update - Moving the Adjudicator’s Field Manual Content into the USCIS Policy Manual

May 21, 2020

U.S. Citizenship and Immigration Services (USCIS) is updating and incorporating relevant Adjudicator’s Field Manual (AFM) content into the USCIS Policy Manual. As that process is ongoing, USCIS has moved any remaining AFM content to its corresponding USCIS Policy Manual Part, in PDF format, until relevant AFM content has been properly incorporated into the USCIS Policy Manual. To the extent that a provision in the USCIS Policy Manual conflicts with remaining AFM content or Policy Memoranda, the updated information in the USCIS Policy Manual prevails. To find remaining AFM content, see the crosswalk (PDF, 350.49 KB) between the AFM and the Policy Manual.

Affected Sections

1 USCIS-PM - Volume 1 - General Policies and Procedures

2 USCIS-PM - Volume 2 - Nonimmigrants

3 USCIS-PM - Volume 3 - Humanitarian Protection and Parole

4 USCIS-PM - Volume 4 - Refugees and Asylees

5 USCIS-PM - Volume 5 - Adoptions

6 USCIS-PM - Volume 6 - Immigrants

7 USCIS-PM - Volume 7 - Adjustment of Status

8 USCIS-PM - Volume 8 - Admissibility

9 USCIS-PM - Volume 9 - Waivers and Other Forms of Relief

11 USCIS-PM - Volume 11 - Travel and Identity Documents

12 USCIS-PM - Volume 12 - Citizenship and Naturalization

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No historical versions available.

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