Filing for S-Corp after EAD

R

ra999

New Member
I have received my EAD and I am planning to start a company. I would not be leaving my present job, but would start something on the sidelines.
I need to know if I can incorporate as a S-Corp or not ? I file for 1040 so I guess I am a permanent resident for tax purposes. Is this defination applied while filing for an S - Corp ?

Thanks for the clarification.
 
Thanks Joe for the detailed reply. I have spoken to both a lawyer and a CA, but none of them could provide me with as convincing answer as your's.

Now I will look into if LLC would be of any benefit. I am planning to start something in the Custom Electronics / Consumer Electronics industry. This would be a product & service combination. I have already registered this as a sole proprietership. Would appreciate if someone could help me and let me know if LLC would be a reasonable choice as a legal form.
I am sure forming a C-Corp is not useful, as it would absorb too much costs and formalities.
 
S-Corporation requires all the shareholders to be US residents . Many people (including CPA's and some immigration attorneys)
confuse this thinking that it means GreenCard Holders or Citizens . But "US Residents" is in terms of tax term and not an immigration term .


While the IRS and BCIS agree that "green card" holders are residents, the IRS considers foreign workers temporarily employed in the US as residents for tax purposes too. This is based on the IRS "substantial presence" test, where tax residence for any tax year is generally established if an individual is physically present in the US for the aggregate of 183 days or more over a three year period using a formula that gives more weight to the more recent years."

I checked this with IRS and they answered that even aliens who are resident for tax purposes can be a S-corp shareholder. (By the way for any IRS/Tax questions IRS email support . Its really excellent . I recieved an answer within 2 days
http://www.irs.gov/help/page/0,,id=13162,00.html )


So yes you can start a S-corp in EAD !
 
JoeF , as is said this is the reply i got from IRS itself , ra999 i suggest you to contact IRS again (http://www.irs.gov/help/page/0,,id=13162,00.html ) , explain your situation and ask for advise .

I dont think IRS will give unauthorative answers , even if its a wrong advise you can always say that you just followed the guidelines from IRS ! .

S-corp is nothing but a C-cop which elects for the special tax status ( pass thro income) by filing Form 2553 . So even in case if IRS refuses S-status you can continue to be a C-corp
 
A fundamental part of Western societies is that ignorance of the law doesn't prevent punishment. And, if you look at the answer you got, there most likely is a disclaimer
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I know that JoeF , i also rechecked the mail from IRS , it didnt have any disclaimer .

JoeF , you think your answer is authorative but not IRS . This is really funny :)

ra999 , here is the link to IRS S-corp publication and i am again suggesting to contact IRS directly and clarify .
http://www.irs.gov/pub/irs-94/p589.pdf
 
Joef , Thanks for the link to the page containing the text of the law .

I am really confused now ...ra999 , its better to contact a good CPA who knows someone in the IRS whoom he can clarify about this .

Anyway thanks joef for your valuable inputs :)
 
This is another post from the IRS Website:

--- Snip ---
You may qualify as a resident alien under either the substantial presence test or the green card test. If you meet the substantial presence test, your residency starting date is generally the first day you are present in the United States during that calendar year. If you meet the green card test at anytime during the calendar year, but do not meet the substantial presence test for that year, your residency starting date is the first day on which you are present in the United States as a lawful permanent resident. For information on the green card test and the substantial presence test, refer to Tax Topic 851.
---- Snip --------
 
JoeF,

Thanks. I was mistaken. You are right. That exception is specifically for husband/wifes when they file election 6013(g) to be considered a US resident.

In all other ciscumstances, someone who is not a US Citizen/LPR is considered non-resident under section 7701(b)(1)(B) and hence not eligible for S Corp.

Thank you again for being so patient in replying to all the posts. i am surprised you didnot flame.

Regards,
 
Could you please post the repository/website where we can find the immigration laws and the tax laws ?

I am sure it will help people who are trying to understand some of these laws themselves.

Obviously doesnt mean we will be taking on the jobs of CA/Lawyers etc ...
 
LLC?

Joe,

You seem to be a very thorough in your replies. However, one thing I saw is LLC was not addressed. What is your (or any other's) opinion about LLC instead of S corp?

Thanks,
 
Can I start a Sole Proprietorships type small business with EAD

I have received my EAD (Submitted I-485 with my spouse), Can I start a Sole Proprietorships type small business with EAD?
According to above post from JoeF, S-CORP is not ok for me. What about the other type, Sole Proprietorships, LLC ...

Please help!

Thanks!
 
Starting S -Corp without green card

Hi JoeF and others,

I have been reading through the posts and just wanted to add a quick note.

I know atleast 3 companies which have been started by persons who don't have a Green and are not citizens and have been in Business for mopre than 2 years now.

I talked to one of them just them and he did a lot of research before doing this and as per him the only req. is that u are a legal resident and pay taxes every eyar u reside in the US.

I dont want to mislead anyone but the people I know did this and 2 of them even got their Green Cards and 1 of them si in the process of getting one.

Ravi
 
It seems a mixed reaction here, I spoke to a famous Attorney and the advice what I got was not to open a C-CORP, But what JOEF is saying true also?.

For opening a company in the state where you live you should be 18years old and must be a resident of the city.

What about IRS, they will be asking SSN number ..etc for generating the EIN number for the company..Will this will be a problem for the H1B1 holder while apply for greencard. He is voilating any immigration law?>?

As JOEF said...Yes the H1B1 holder wlill not be working for that company but he will setup on this name and the business plan is consutling work.

He will just pay the salary for the people working for him and he will not work or take any money for him , As he is on H1B1 he can only work for the sponser company !!


Please JOEF...Please be very clear on this and it seems you got lot of experience...Waiting for your feedback...
 
To Answer your comments below

"Hmm, even paying the salary for somebody is work. It is administrative work. Only company officers (CEO, CFO, etc.) can authorize paying salary. A passive investor is just that, passive. He doesn't do any work for the company."


How about the H1B1 holder will hire a person who is working on EAD and he works as the manager of the company and he runs the payroll for other people but the H1B1 holder just sittile idle but his name is register under the State and IRS.Gov
 
JoeF,
Thanks for the update !

Since one two people will be working and he will be paying the salarys on what ever the money he gets to the company and he don't take the salary in that case....will the President or CEO( who is on H1B1 holder) will be in trouble under IRS or USCIS??
 
JoeF said:
The critical point is that 7701(b)(1)(B), if I read it correctly (the numbering scheme is a bit confusing; the actual regulation seems to be 301.7701(b)-1(b) ), requires a Green Card test. The substantial presence test, which is usually used as an alternative for tax purposes, is explained in 7701(b)-1 (c), which the S corporation section explicitly does not reference."
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Not from what I read on these reference sites:

From the Cornell US Code collection site.

TITLE 26 > Subtitle F > CHAPTER 79 > § 7701
(a).....

(b) Definition of resident alien and nonresident alien

(1) In general
For purposes of this title (other than subtitle B)—

(A) Resident alien
An alien individual shall be treated as a resident of the United States with respect to any calendar year if (and only if) such individual meets the requirements of clause (i), (ii), or (iii):

(i) Lawfully admitted for permanent residence: Such individual is a lawful permanent resident of the United States at any time during such calendar year.
(ii) Substantial presence test: Such individual meets the substantial presence test of paragraph (3).
(iii) First year election: Such individual makes the election provided in paragraph (4).
​


(B) Nonresident alien

An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).
​

(2) Special rules for first and last year of residency

......

(3)

.....
​
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From Chapter 26 1.1361 on Electronic code of federal regulations:

Title 26: Internal Revenue
PART 1—INCOME TAXES
Small Business Corporations and Their Shareholders

§1.1361–1 S corporation defined.


(a) In general. For purposes of this title, with respect to any taxable year—

(b)....

.....

(e) Number of shareholders—


(1) Generalrule. A corporation does not qualify as a small business corporation if it has more than 75 shareholders (35 for taxable
years beginning prior to January 1, 1997).
(2) Special rules relating to stock owned by husband and wife. For purposes of paragraph (e)(1) of this section, stock owned by a husband and wife (or by either or both of their estates) is treated as if owned by one shareholder, regardless of the form in which they own the stock.
​

(f) Shareholder must be an individual or estate.

(g) Nonresident alien shareholder—


(1) General rule.
(i) A corporation having a shareholder who is a nonresident alien as defined in section 7701(b)(1)(B) does not qualify as a small business corporation. If a U.S. shareholder’s spouse is a nonresident alien who has a current ownership interest (as opposed, for example, to a survivorship interest) in the stock of the corporation by reason of any applicable law, such as a state community property law or a foreign country’s law, the corporation does not qualify as a small business corporation from the time the nonresident alien spouse acquires the interest in the stock. If a corporation’s S election is inadvertently terminated as a result of a nonresident alien spouse being considered a shareholder, the corporation may request relief under section 1362(f).​
(ii) The following examples illustrate this paragraph (g)(1)(i):
.......

(2) Special rule for dual residents. [Reserved]
​

(h) Special rules relating to trusts—

(1) General rule. In general, a trust is not a permitted small business corporation shareholder. However, except as provided in paragraph (h)(2) of this section, the following trusts are permitted shareholders:

.....
​

​
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So, am I still not reading/interpreting correctly? I think §1.1361–1 uses the same definition as any other internal revenue code for eligibility of owners of S-Corporation. I think only corporations with owners who aren't resident aliens as per § 7701 are ineligible for S-Corp status.

Correct me if I am wrong or what I am not interpreting correctly.
 
Do you mean regulations imply that the substantial presence test is used to determine the residency for tax as well as s-corp election purposes? If as you say regulations matter more than the code, it must be that the S-Corp uses substantial presence?
 
JoeF said:
No. The regulations for S-Corps reference 26CFR300.7701(b)(1)(b), which states clearly that the Greencard test is used.
See above. The regulations state that only the Greencard test is used.
Click to expand...

From my post above:

7701(b)
(B) Nonresident alien

An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States (within the meaning of subparagraph (A)).
Click to expand...

I don't see where it says only green card test. Can you please post a direct link to where it says so?
 
S-Corp with EAD

So Guys, I've been reading through these posts - My situation is I-140 Approved in 2003, I-485 pending, working on EAD for a consulting company ..been in the US for 9 years..not married

I want to start a company. It's a software development company. What I want to find out is if I can start an S-corp. I have no plans to leave my current consulting job.( Atleast until the business takes off).

My questions are:

1> Can I start an S-corp
2> Can I take profits from the S-corp?
3> Can I work for this firm?

So someone please help me. thanks in advance guys..you guys are great...this forum really helped me earlier when I needed help...Thanks again
 
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