Business Ownership Question

[manitoban 0]

I moved to the US from Canada almost 5 years ago. During this time I have always held a valid TN visa with the company I work for.

Last year it became clear to me that the company I was working for was in trouble and might go broke. At this time I decided to cut down to part time and start a business with a former co-worker. Since I was under TN status we put the company entirely in his name.

The company I have my TN with is still surviving (not sure how but we are) and I still work for them part time.

Now here's were it gets tricky:

I got married to my USC girlfriend in late September and filed my I-130, I-131, I-485, I-765 etc in late October. So we are basically looking at next year before I get my actual GC and my Employment Authorization should be either very late this year or early next year.

The company I started with my biz partner is now thriving and very profitable. I have not taken any salary from the business and as far as the tax man is concerned it is still entirely owned by my partner.

Because the biz is so profitable we have a major dilemma on our hands, if we business stays completely under my partner's name he will get killed at tax time, so he would like to file the corporation doc's to bring me in as a formal 50/50 partner before the end of the year. He would also like us both to take a dividend before the end of the year as again we haven't taken any salaries to date.

So I have a few questions for the group:

- Can I as TN visa holder with a pending AOS legally own 50% of an American S Corp? (my partner and our attorney don't see why I can't since I would basically just be an investor as I don't actually take any salary from the business)

- Will there be any issues in the GC process if I do take a dividend this year?

I hope this makes sense and hopefully some of you can provide some insight?

[payxibka 10,045]

a dividend is not considered "earned" income but investment income. immigration is not concerned about investment income, but the IRS certainly will be...

[Darnell 8,478]

The S Corp can have foreign ownership - tackle it from that perspective, imo.

the S corp can pay dividend to any investor, including you, the foreign investor...

no clue about the GC process as an investor -

I think you have other issues from the prior company, but can stay 'pending status' because of the spousal immigration packet she's filed for you.

imo, being w-2 worker is sorta gray area, for you, for now.

[payxibka 10,045]

The S Corp can have foreign ownership - tackle it from that perspective, imo.

unless there has been a recent change (which I do not believe there has been), an "S" corp CANNOT have a non-resident alien (ie.. a foreign) investor as a shareholder.

S Corporations

S corporations are corporations that elect to pass corporate income, losses, deductions and credit through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income.

To qualify for S corporation status, the corporation must meet the following requirements:

Be a domestic corporation

1) Have only allowable shareholders including individuals, certain trust, and estates and

2) may not include partnerships, corporations or non-resident alien shareholders

3) Have no more than 100 shareholders

4) Have one class of stock

5) Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders.

http://www.irs.gov/businesses/small/articl...d=98263,00.html

Edited November 18, 2009 by payxibka

[manitoban 0]

The S Corp can have foreign ownership - tackle it from that perspective, imo.

unless there has been a recent change, an "S" corp CANNOT have a non-resident alien (ie.. a foreign) investor as a shareholder.

Well I am technically a resident alien, just temporary not permanent. Not sure if this matters. My business lawyer is horrible so will have to research it myself....

[manitoban 0]

The S Corp can have foreign ownership - tackle it from that perspective, imo.

unless there has been a recent change, an "S" corp CANNOT have a non-resident alien (ie.. a foreign) investor as a shareholder.

Well I am technically a resident alien, just temporary not permanent. Not sure if this matters. My business lawyer is horrible so will have to research it myself....

Well 10 seconds on IRS.gov confirmed that you can not be a non-resident alien (which I guarantee our lawyer not have known.... if only he wasn't or registered agent). So the question is now can a Temporary Resident Alien (ie. TN Visa Holder) be a majority shareholder in an S Corp?

[payxibka 10,045]

Well I am technically a resident alien, just temporary not permanent. Not sure if this matters. My business lawyer is horrible so will have to research it myself....

technically how so? GC? Substantial presence?

I am not aware of a "temporary" resident alien status... please clarify...

TN (Trade NAFTA) status is a special non-immigration status unique to citizens of the United States, Canada and Mexico. I see no reference to "temporary" resident...

Edited November 18, 2009 by payxibka

[manitoban 0]

Well I am technically a resident alien, just temporary not permanent. Not sure if this matters. My business lawyer is horrible so will have to research it myself....

technically how so? GC? Substantial presence?

I am not aware of a "temporary" resident alien status... please clarify...

TN (Trade NAFTA) status is a special non-immigration status unique to citizens of the United States, Canada and Mexico. I see no reference to "temporary" resident...

I guess you are correct, since I am not really a permanent resident alien, I have always just called it "Temporary resident alien".

However I have passed the substantial presence test each of the past 4 years and I file my taxes an alien resident and I do not file taxes in Canada at all as I have no ties. So then in your opinion what would I be called?

[payxibka 10,045]

For tax purposes, you are treated as a RESIDENT ALIEN... I would think this applies to the "S" shareholder status as well...

Introduction to Residency Under U.S. Tax Law

The taxation of aliens by the United States is significantly affected by the residency status of such aliens.

Although the immigration laws of the United States refer to aliens as immigrants, nonimmigrants, and undocumented (illegal) aliens, the tax laws of the United States refer only to RESIDENT and NONRESIDENT ALIENS. In general, the controlling principle is that RESIDENT ALIENS are taxed in the same manner as U.S. citizens on their worldwide income, and NONRESIDENT ALIENS are taxed according to special rules contained in certain parts of the Internal Revenue Code (hereinafter referred to as the Code). A major distinguishing feature of this special tax regime concerns the source of income: a nonresident alien (with certain narrowly defined exceptions) is subject to federal income tax only on income which is derived from sources within the United States and/or income that is effectively connected with a U.S. trade or business.

The residency rules for tax purposes are found in I.R.C. § 7701(B). Although the tax residency rules are based on the immigration laws concerning immigrants and nonimmigrants, the rules define residency for tax purposes in a way that is very different from the immigration laws. Under the residency rules of the Code, any alien who is not a RESIDENT ALIEN is a NONRESIDENT ALIEN. An alien will become a RESIDENT ALIEN in one of three ways:

By being admitted to the United States as, or changing status to, a Lawful Permanent Resident under the immigration laws (the Green Card Test);

By passing the Substantial Presence Test (which is a numerical formula which measures days of presence in the United States); or

By making what is called the "First-Year Choice" (a numerical formula under which an alien may pass the Substantial Presence Test one year earlier than under the normal rules). Refer to the discussion of "First-Year Choice" in Chapter 1 of Publication 519.

Under these rules, even an undocumented (illegal) alien under the immigration laws who passes the Substantial Presence Test will be treated for tax purposes as a RESIDENT ALIEN.

http://www.irs.gov/businesses/small/intern...=129431,00.html

[manitoban 0]

For tax purposes, you are treated as a RESIDENT ALIEN... I would think this applies to the "S" shareholder status as well...

This actually makes a lot of sense. So technically it looks like I can be a shareholder and it wouldn't have any effect on my immigration status.

I'm still not sure what I am going to do, my gut tells me to not claim ownership this year for the sake of simplicity and just in case it comes up in my interview. But we will have to meet with our accountant and get him to run the numbers both ways and make our decision based on this.

Thanks for all your help.

[Usui Takumi 1,562]

I'm not sure to what level this site can be trusted but here it is : http://www.usvisa.com/us_corporations.shtml

Specifically:

Can a non-immigrant, foreign worker invest money in any venture?

A person on an H1B or other temporary work visa in the United States is legally allowed to invest in any venture or company, and could start to undertake volunteer work on behalf of the venture or company at any time. The person cannot work on a full-time basis for that company and earn a salary until obtaining prior approval from the INS or DOL to work for that venture or company. In order for the person on an H1B to work for another company or employer, the person is required to obtain a concurrent H1B approval to work for the new entity, in addition to the present employer.

[payxibka 10,045]

For tax purposes, you are treated as a RESIDENT ALIEN... I would think this applies to the "S" shareholder status as well...

This actually makes a lot of sense. So technically it looks like I can be a shareholder and it wouldn't have any effect on my immigration status.

I'm still not sure what I am going to do, my gut tells me to not claim ownership this year for the sake of simplicity and just in case it comes up in my interview. But we will have to meet with our accountant and get him to run the numbers both ways and make our decision based on this.

Thanks for all your help.

Personally, I would be less worried about the effect on your immigration status and more towards the effect on the "Sub S" election. If an ineligible person is a shareholder of an "S" corporation then the "S" election is immediately terminated.... I would hate for a misinterpretation of the definition of "Resident Alien" to cause an inadvertent termination of the "S" corporate status

[manitoban 0]

For tax purposes, you are treated as a RESIDENT ALIEN... I would think this applies to the "S" shareholder status as well...

This actually makes a lot of sense. So technically it looks like I can be a shareholder and it wouldn't have any effect on my immigration status.

I'm still not sure what I am going to do, my gut tells me to not claim ownership this year for the sake of simplicity and just in case it comes up in my interview. But we will have to meet with our accountant and get him to run the numbers both ways and make our decision based on this.

Thanks for all your help.

Personally, I would be less worried about the effect on your immigration status and more towards the effect on the "Sub S" election. If an ineligible person is a shareholder of an "S" corporation then the "S" election is immediately terminated.... I would hate for a misinterpretation of the definition of "Resident Alien" to cause an inadvertent termination of the "S" corporate status

You actually read my mind on this one. My partner and I talked to today and have decided we will likely just leave everything in his name until I get my GC as the business will cover the entire tax burden. Before we make a final decision we will meet with our accountant who is excellent and get his input as well.... Oh and we will be firing our lawyer...

Thanks again for your input

[Anh map 2,098]

A good CPA may be of more help in answering some of your questions than an attorney. Though it seems that you may have hashed out a lot of it already. Just a thought.

[payxibka 10,045]

A good CPA may be of more help in answering some of your questions than an attorney. Though it seems that you may have hashed out a lot of it already. Just a thought.

Ummm... he's been talking to one...