Chapter 6 - Physician

A. Petition for Physician Supported by Permanent Labor Certification

1. Determining Whether Physician has met Minimum Requirements for Position

Officers must determine whether the noncitizen physician (physician) met the minimum education, training, and experience requirements of the permanent labor certification as of the date of its filing with the U.S. Department of Labor (DOL) in order to establish the physician’s eligibility for the classification.^[1] Although a permanent labor certification may not specify that a license is required for a physician position, physicians involved in patient care must obtain a license to practice medicine in the location where they are to be employed in the United States as a matter of state or territorial law.^[2]

Therefore, it follows that any candidate for such a position must, at the time of the permanent job offer, either possess a permanent license to practice medicine or be eligible for such a license in the state of the intended employment in order to be qualified for entry into the position. In the case of a physician petition supported by a permanent labor certification, the job offer is considered to have been made as of the date of the filing of the permanent labor certification.

License to Practice Medicine^[3]

Each U.S. state has a medical board that devises its own educational, training, and experience requirements that physicians must meet in order to be granted a permanent license, more specifically, a full and unrestricted license, to practice medicine in that state. A full and unrestricted license to practice differs from a limited license to practice medicine. Limited licensure is typically granted to physicians who are still working towards obtaining the credentials required for full licensure or who may be providing limited medical care, such as a physician who is working at a summer camp as a camp physician for a short period of time.

In general, there are two pathways to obtain permanent licensure to practice medicine as a physician: either as an initial applicant for licensure, or as an applicant for licensure by endorsement.

The initial applicant pathway is for medical school graduates who have never obtained a permanent license to practice medicine as a physician in the United States, or in some instances, Canada. An initial applicant must show that he or she has any requisite medical degree, post-graduate training, residency, and board certifications, and has passed the medical examinations required by the state medical board.

All U.S. states require licensing candidates to make an application for licensure with their medical board to demonstrate that they meet the requirements of licensure regardless of previous licensure.^[4] This pathway is often referred to as an endorsement application and involves:

A verification of the standing of the applicant’s license(s) issued by another U.S. state or territory, and in some cases by a foreign country; and
A review of the applicant’s education, training, and medical examinations to determine if the applicant meets the requirements of the state medical board.

U.S. states do not generally allow a physician to practice medicine within their jurisdictional boundaries based on a license issued by another state or territory (referred to as automatic reciprocity). Certain exceptions may exist for physicians practicing at federal medical facilities and in other very limited circumstances.

In some states, applicants must pass medical examinations, such as the U.S. Medical Licensing Examination (USMLE), within a certain number of attempts or within a certain timeframe in order for the examination results to be considered valid for licensure. In addition, approximately 75 percent of the U.S. states require foreign medical school graduates to complete additional post-graduate medical training or residencies beyond that required for U.S. medical school graduates.

In order to approve a petition supported by a permanent labor certification filed on behalf of a physician, the petitioner must show that, at the time of the filing of the permanent labor certification, the physician:

Possesses a permanent license to practice medicine in the area of intended employment; or
Has met all of the requirements to be eligible to obtain such a license in the area of intended employment, notwithstanding eligibility requirements that are contingent upon his or her immigration status in the United States.

Some state medical boards do not issue a license to practice medicine unless the applicant presents evidence that he or she is legally authorized to be employed in the United States or has obtained a U.S. Social Security Number (SSN). State licensure criteria relating to the applicant’s U.S. immigration status, such as a requirement that the applicant must be a lawful permanent resident (LPR) or must otherwise possess employment authorization or an SSN, should not be considered relevant to the adjudication of the petition as the petition is the means by which the physician would obtain LPR status and eligibility to accept employment and obtain an SSN in the United States.

Officers review the evidence provided in support of the petition to determine if the physician had a permanent license to practice or was eligible to obtain such a license in the location of intended employment at the time of filing of the permanent labor certification. Information regarding the licensure requirements for U.S. states can be obtained from the Federation of State Medical Boards^[5] and at the various U.S. medical board websites.

2. Foreign Medical Degree Equivalency

The United States is one of the few countries where medical school applicants are required to obtain a bachelor’s degree as a requirement for admission to medical school. As a result, a U.S. medical degree is considered to be an advanced degree.

In many other countries, a person may be admitted to medical school directly out of high school. In these instances, the program of study for the foreign medical degree is longer in length (generally 5-7 years in duration) than is required for a less specialized foreign bachelor’s degree (generally 3-4 years in duration). In some countries, the name of the degree is “Bachelor of Medicine, Bachelor of Surgery," and the program of study may involve only medicine, to include some limited basic sciences.

A foreign medical degree may qualify as the equivalent of a U.S. medical degree and therefore an advanced degree for purposes of this visa classification if, at the time of the filing of the permanent labor certification application, the following two conditions are met:

Condition 1: The beneficiary:

Has been awarded a foreign medical degree from a medical school that requires applicants to obtain a degree equivalent to a U.S. bachelor’s degree as a requirement for admission;
Has been awarded a foreign medical degree, and the petitioner has provided a foreign education credential evaluation that credibly describes how the foreign medical degree is equivalent to a medical degree obtained from an accredited medical school in the United States; or
Has been awarded a foreign medical degree and has passed the National Board of Medical Examiners Examination (NBMEE) or an equivalent examination, such as the USMLE, Steps 1, 2, and 3.

Condition 2: The beneficiary was fully eligible for the position described on the permanent labor certification application on the date that it was filed, and the petitioner has established that:^[6]

The beneficiary had a full and unrestricted license to practice medicine in the place of intended employment and continues to hold such unrestricted license; or
The beneficiary’s foreign medical degree meets the medical degree requirements to be eligible for full and unrestricted licensure specified by the medical board governing the place of intended employment.

Each U.S. state, the District of Columbia, and the U.S. territories have a medical board that devises its own medical degree requirements that candidates must meet in order to be licensed to practice medicine in that jurisdiction.

B. Physician National Interest Waiver

1. Purpose, Background, and Legal Authority

Statutory and Regulatory Authorities^[7]

The Nursing Relief for Disadvantaged Areas Act (Nursing Relief Act) of 1999 amended the Immigration and Nationality Act^[8] to establish a national interest waiver (NIW) of the DOL’s permanent labor certification process for certain physicians petitioning for advanced degree professional or exceptional ability classification.^[9]

USCIS grants a NIW of the job offer requirement, and therefore the permanent labor certification requirement, for any physician seeking advanced degree professional or exceptional ability classification:

The physician agrees to work full time as a physician in an area or areas designated by the Secretary of Health and Human Services as having a shortage of health care professionals or at a health care facility under the jurisdiction of the Secretary of Veterans Affairs; and
A federal agency or a department of public health in any state has previously determined that the physician’s work in such an area or at such facility is in the public interest.^[10]

The physician may not receive LPR status until he or she has worked full time as a physician for an aggregate of 5 years in the shortage area, or 3 years in the shortage area if the physician petitioned for the NIW before November 1, 1998.^[11]

On September 6, 2000, legacy Immigration and Naturalization Service (INS), now USCIS, issued an interim rule implementing the physician NIW provisions.^[12]

Consistent with the statute, the regulations allow filing of a physician NIW and an adjustment application without the physician first completing the 3 or 5 years of service in shortage areas. The regulations include provisions that:

Require physicians who had an NIW denied prior to November 12, 1999, to complete the 5-year rather than the 3-year service requirement;
Require NIW physicians to comply with reporting requirements, including submitting initial evidence within 120 days of the completion of the second year of service and additional evidence within 120 days of completing the fifth year of service to establish that they were still engaged in the area of medical practice that was the basis for approval of the NIW; and
Limit NIW eligibility to physicians who practiced in a medical specialty that was within the scope of the shortage designation for the geographic area.

Schneider v. Chertoff

Plaintiffs in Schneider v. Chertoff^[13] challenged specific provisions of the agency’s physician NIW regulations and, in its decision issued on June 7, 2006, the Ninth Circuit found that three regulatory provisions were beyond the scope of the statutory language.^[14] The court held that:

Medical practice completed before the approval of the employment-based petition (except medical practice as a J-1 nonimmigrant) counts toward the service requirement;
NIW physicians who had immigrant visa petitions filed on their behalf before November 1, 1998, but were denied before November 12, 1999, need only fulfill the 3-year service requirement; and
The regulatory period of 4 years (where 3 years of service is required) or 6 years (where 5 years of service is required) within which NIW physicians must complete the medical service requirement is not a permissible interpretation of the statute.

On the remaining two challenged provisions, the court held that USCIS has the authority to impose reporting requirements on NIW physicians to ensure compliance with the statute and declined to address the question related to whether medical specialists should be covered under the statute.^[15] The plaintiff who raised the claim had his NIW and petition denied due to abandonment, thereby mooting the issue.

USCIS remains committed to advancing the congressional intent of providing quality medical care in designated underserved areas and also is mindful of the states’ direct interest in obtaining necessary medical care in underserved areas and their critical role in coordinating with USCIS in the NIW process.

USCIS, however, is not required to allow a physician with an approved NIW and pending adjustment application to continue receiving interim work and travel authorization for an unlimited period without some evidence that the physician is pursuing or intends to pursue the type of medical service that was the basis for the NIW approval.

Therefore, while USCIS amended NIW procedures to meet the Schneider decision (for example, not impose a specific timeframe within which the required medical service must be performed), an officer may exercise discretion to deny employment authorization or an adjustment application if he or she believes that the physician is using the pending adjustment application solely as a means for employment in areas or occupations other than medical service in the designated shortage areas.

2. Eligibility

The basic eligibility requirements for the physician are:

The petitioner has filed a petition under INA 203(b)(2), along with the physician NIW request;
The physician agrees to work full time in a clinical practice providing primary or specialty care in an underserved area or at a U.S. Department of Veterans Affairs (VA) health care facility for an aggregate of 5 years (not counting any time in J-1 status, but including such time that may have preceded the petition filing);^[16] and
A federal agency or a state department of public health, with jurisdiction over the medically underserved area, has determined that the physician’s work in the underserved area or the VA facility is in the public interest (and, to the extent that past work is presented, that it was in the public interest).^[17]

Primary or Specialty Care

Since 2000, legacy INS, and now USCIS, has given state departments of health more flexibility to sponsor waivers for physicians willing to work in medically underserved areas. For instance, under the Conrad 30 Waiver program, state departments of health may sponsor waivers for J-1 specialist physicians who will provide services to medically underserved populations (MUP).^[18] The Conrad program is similar to the NIW program as they both have a medical service requirement under which the physician must work in a medically underserved area.

Based on the U.S. Department of Health and Human Services’ (HHS) criteria published in 2000, USCIS (and legacy INS) limited its definition of qualified physicians in designated shortage areas to those who practiced primary care medicine, including family or general medicine, pediatrics, general internal medicine, obstetrics and gynecology, and psychiatry.^[19]

As of January 23, 2007, USCIS began accepting NIW petitions on behalf of primary and specialty care physicians who agree to work full time in areas designated by the HHS as having a shortage of healthcare professionals (for example, health professional shortage area (HPSA), medically underserved area (MUA), MUP, and, at the time, physician scarcity areas (PSA)).

In addition, in 2016 the Administrative Appeals Office clarified that, regardless of whether the shortage designation is seemingly limited to primary care physicians, in addition to primary care and specialty care physicians, medical specialists who agree to practice in any area designated by HHS as having a shortage of health care professionals may be eligible for the physician NIW.^[20]

The Nursing Relief Act^[21] requires USCIS to recognize HHS designations of health professionals without limitation to primary care. Accordingly, USCIS recognizes NIW physicians in primary care and specialty care. A specialty physician is defined as other than a general practitioner, family practice practitioner, general internist, obstetrician, or gynecologist. Dentists, chiropractors, podiatrists, and optometrists do not qualify for the physician scarcity bonus as specialty physicians, and therefore, cannot qualify for the NIW.

A physician or employer must submit evidence showing that a geographic area is or was designated by HHS as having a shortage of health care professionals. The designation must be valid at the time the NIW employment began. If the area loses its HHS designation after the physician starts working, a physician can remain at the facility and the time worked after that point qualifies as NIW employment so long as the employment continues to satisfy all other NIW requirements.

Medically Underserved Areas

In designating areas of the country as “underserved,” the Secretary of Health and Human Services addresses the shortage of family or general medicine and sub-specialist physicians (designations include HPSA, MUP, and MUA). For work that preceded the filing of the petition, the area must have been a designated shortage area at the time the work commenced but need not have retained such designation. For shortage designations, see these sources:

HHS Health Resources and Services Administration to determine if a geographic area is an MUA or MUP.
HHS Centers for Medicare and Medicaid Services to determine if a geographic area is an HPSA.^[22]

Physicians serving at VA facilities are not bound by the HHS categories noted above. The VA may petition for physicians who specialize in various fields of medicine, and the location of the work need not be in an underserved area.

Time Limit to Complete the Required Medical Service

The physician has no set time limitation to complete the 3 or 5 years of aggregate service, which may include periods of service prior to the filing or approval of the petition. While there is no set time limitation, a NIW physician must submit interim evidence of compliance with the medical service requirement before USCIS approves the adjustment application.

While officers cannot revoke the approval of a petition or deny an adjustment application for a physician solely because the physician did not complete the 3- or 5-year service requirement within a certain timeframe, officers may deny an adjustment application as a matter of discretion if the physician appears to be using the pending adjustment application solely as a means for employment in areas or occupations other than medical service in the designated shortage areas.^[23]

3. Evidence

Physicians seeking an NIW based on service in an underserved area or at a VA facility must submit the following supplemental documentation with the petition:^[24]

Employment contract or employment commitment letter covering the required period of clinical medical practice. For work that the physician has not yet started, the contract or employment commitment letter must be issued and dated within the 6-month period before the filing date of the petition.^[25] This 6-month requirement does not apply to work that has been completed or that started before the filing date of the petition.
Public interest letter from the federal agency or state department of public health attesting that the physician’s work is or will be in the public interest. For work that the physician has not yet started, the letter must be issued and dated within the 6-month period before the filing date of the petition.^[26] This 6-month requirement does not apply to work that has been completed or that started before the filing date of the petition.

If a physician acquired experience with more than one employer, the record must contain evidence of all service in an underserved area or at a VA facility. The physician must also submit evidence to demonstrate that the physician has met all other eligibility requirements for classification as a person with an advanced degree or exceptional ability,^[27] other than the permanent labor certification.

In particular, a physician needing a waiver of the J-1 foreign residency requirement must still obtain such a waiver under INA 212(e) and satisfy all the waiver conditions^[28] (including 3 years of service) before USCIS may approve the physician’s adjustment application.^[29]

Admissibility Requirements

The Immigration and Nationality Act (INA) requires physicians to meet specific admissibility requirements relating to passing professional medical examinations and English language competency.^[30]

The physician must provide evidence that he or she has passed parts I and II of the NBMEE or an equivalent examination as determined by the Secretary of Health and Human Services. The NBMEE, also known as the NBME, ceased to be administered in 1992. The USMLE, which was first administered in 1992, is considered an equivalent examination.^[31]

In addition to having passed either the NBMEE, USMLE, or one of its equivalents, the physician is also required to provide evidence of competency in oral and written English. An Educational Commission for Foreign Medical Graduates (ECFMG) certification showing the physician has passed the English language proficiency test meets this requirement.^[32]

Physicians seeking a physician NIW must provide documentation to establish admissibility^[33] at the time of filing of the petition.^[34] In contrast, physicians filing petitions with a permanent labor certification must establish admissibility^[35] at the time of the filing of the permanent labor certification.

Requests to Practice in a Different Underserved Area

USCIS regulations allow a physician with an approved petition and a pending adjustment application to practice medicine in a different underserved area or a different VA facility. Physicians must follow certain procedures, including filing an amended petition, in order to request such a change of practice.^[36]

Footnotes

[^ 1] See Matter of Wing's Tea House (PDF), 16 I&N Dec. 158 (Act. Reg. Comm. 1977).

[^ 2] See the American Medical Association’s Navigating State Medical Licensure.

[^ 3] See the American Medical Association’s Navigating State Medical Licensure.

[^ 4] See Physician Licensure Application Fees and Timelines by State.

[^ 5] See the Federation of State Medical Boards website.

[^ 6] See Matter of Wing’s Tea House (PDF), 16 I&N Dec. 158 (BIA 1977). See 20 CFR 656.17(h). See 20 CFR 656.10(c)(7).

[^ 7] See INA 203(b)(2)(B)(ii). See 8 CFR 204.12.

[^ 8] See INA 203(b)(2)(B)(ii)(I).

[^ 9] See Section 5 of the Nursing Relief for Disadvantaged Areas Act of 1999, Pub. L. 106-95 (PDF), 113 Stat. 1312, 1318 (November 12, 1999), codified at INA 203(b)(2)(B). Before this law, a qualified physician could obtain a discretionary waiver of the labor certification process by showing that his or her admission or adjustment to permanent residence would be in the national interest of the United States under the same standard as for all other occupations.

[^ 10] See INA 203(b)(2)(B)(ii)(I).

[^ 11] See INA 203(b)(2)(B)(ii)(II) and INA 203(b)(2)(B)(ii)(IV).

[^ 12] See 65 FR 53889 (PDF) (Sep. 6, 2000) (implementing regulations for physician NIW at 8 CFR 204.12 and 8 CFR 245.18).

[^ 13] See Schneider v. Chertoff, 450 F.3d 944 (9th Cir. 2006).

[^ 14] The court specifically reviewed the statutory language in INA 203(b)(2)(B).

[^ 15] See Schneider v. Chertoff, 450 F.3d 944, 959 (9th Cir. 2006). See Matter of H-V-P- (PDF, 139.88 KB), Adopted Decision 2016-01 (AAO Feb. 9, 2016).

[^ 16] Or 3 years (not counting any time in J-1 status but including such time that may have preceded the petition filing), if the petition was filed before November 1, 1998.

[^ 17] See 8 CFR 204.12.

[^ 18] See INA 214(l).

[^ 19] See 8 CFR 204.12(a)(2)(i). See 65 FR 53889 (PDF), 53890 (September 6, 2000).

[^ 20] See INA 203(b)(2)(B)(ii). See Matter of H-V-P- (PDF, 139.88 KB), Adopted Decision 2016-01 (AAO Feb. 9, 2016).

[^ 21] See Section 5 of the Nursing Relief for Disadvantaged Areas Act of 1999, Pub. L. 106-95 (PDF), 113 Stat. 1312, 1318 (November 12, 1999), codified at INA 203(b)(2)(B).

[^ 22] See the HHS Health Resources and Services Administration website to determine if a geographic area is a MUA or MUP. See the HHS Centers for Medicare and Medicaid Services website to determine if a geographic area is an HPSA.

[^ 23] If a physician’s adjustment application was denied and the petition’s approval revoked on or after September 6, 2000, but before January 23, 2007, solely because the physician did not complete the 3 or 5 years of medical service within the 4- or 6-year time limit, USCIS allowed such applicants to file, with appropriate fees, a motion to reopen the petition or adjustment application or both within 1 year of January 23, 2007. The January 23, 2007, date derives from the memorandum Interim guidance for adjudication national interest waiver (NIW) petitions and related adjustment applications for physicians serving in medically underserved areas in light of Schneider v. Chertoff, 450 F.3d 944 (9th Cir. 2006) (“Schneider decision”), HQ 70/6.2, issued January 23, 2007.

[^ 24] For a complete list and detailed explanation of this supplemental evidence, see 8 CFR 204.12(c).

[^ 25] See 8 CFR 204.12(c)(1).

[^ 26] See 8 CFR 204.12(c)(3).

[^ 27] See 8 CFR 204.5(k)(1)-(3).

[^ 28] See INA 214(l).

[^ 29] See 8 CFR 204.12(g).

[^ 30] See INA 212(a)(5)(B).

[^ 31] Previously, the Visa Qualifying Examination (which was administered from 1977 through 1984) and the Comprehensive Foreign Medical Graduate Examination in the Medical Sciences (which was administered from 1984 through 1993) were also considered equivalent examinations.

[^ 32] For information regarding this certification, see the ECFMG website.

[^ 33] See INA 212(a)(5)(B).

[^ 34] See 8 CFR 204.12(c)(4).

[^ 35] See INA 212(a)(5)(B).

[^ 36] See 8 CFR 204.12(f).

Resources

20 CFR 656 - Labor Certification Process for Permanent Employment of Aliens in the United States

8 CFR 204.12 - How can second-preference immigrant physicians be granted a national interest waiver based on service in a medically underserved area or VA facility?

8 CFR 204.5 - Petitions for employment-based immigrants

8 CFR 245.18 - Physicians with approved employment-based petitions serving in a medically underserved area or a Veterans Affairs facility

INA 201 - Worldwide level of immigration

INA 202 - Numerical limitations on individual foreign states

INA 203 - Allocation of immigrant visas

INA 203(b)(1) - Priority workers

INA 203(b)(1), (2), (3) - Preference allocation for employment-based immigrants

INA 203(b)(2)(B) - Waiver of the job offer

INA 203(b)(2)(B)(ii) - Physicians working in shortage areas or veterans facilities

INA 204, 8 CFR 204 - Procedure for granting immigrant status

INA 212, 8 CFR 212 - Excludable aliens

INA 214(l) - Restrictions on waiver

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

I-140, Immigrant Petition for Alien Worker

I-290B, Notice of Appeal or Motion

I-485, Application to Register Permanent Residence or Adjust 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 confirm the evidentiary requirements for physicians seeking a national interest waiver of the job offer requirement based on work in an underserved area or at a U.S. Department of Veterans Affairs facility.

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