Starting or buying a Direct Investment Business is the fastest & safest way to get an EB-5 visa. How can EB-5 visa seekers avoid being cheated by regional center & partnership promoters & franchisors?

This is a brief list of facts that explains why Direct Investment Businesses are the only safe option for EB-5 visa seekers, and how EB-5 visa seekers can avoid fraud and get their EB-5 visa quickly, safely, and usually profitably.

1) Approval speed: USCIS statistics show that most EB-5 petitions filed by regional centers are being delayed for over a year due to regulators investigating regional centers for fraud. In contrast, it now takes less than half the time to get approval of an EB-5 visa petition filed on the basis of a Direct Investment Business.
2) Fraud: Regional Centers engage in securities fraud and conflict of interest, and this problem is usually absent in Direct Investment Businesses.
3) Operating profits: It is usually easy to earn hefty profits with Direct Investment Businesses, while it is hard to get more than 1% annual profit in Regional Centers.
4) Capital loss is very common when investing in regional centers, and capital gains are common when investing in Direct Investment Businesses.
5) Exit Strategies are very easy when investing in Direct Investment Businesses and very hard when investing in regional centers.

How to avoid being defrauded by regional centers?
Ask the regional center's promoters to give a notarized affidavit affirming that they've fully disclosed ALL material facts and are fully complying with securities laws in the US and abroad.

How to avoid fraud in Direct Investment Businesses?

1. Do NOT invest in a franchise that has less than 300 operating units or is not on an approved list of SBA qualifying businesses franchises with Chase, Citi or Bank of America. For example, safe fast food franchises are KFC, McDonalds, Subway, Burger King, 5 Guys, etc. Unsafe examples of fast food franchises would be Elevation Burger, Marco's Pizza, Quiznos, etc.

2. Do NOT invest in a partnership. The same issues that make regional centers an unwise choice are also issues that make Partnerships an unwise choice.

The ONLY safe and easy way to get your EB-5 visa is by owning and controlling your own business. We've helped 48 investors get EB-5 visas since 2004, and we'll be glad to help you too.

For further information, please visit our website http://www.smartbusinessbroker.com


Yours truly
Mohammed Shaikh, MBA, CFE, Licensed Business & RE Broker (CA & FL)
Online: http://www.smartbusinessbroker.com
Phone: +1 407 535 0616

Avoiding EB-5 visa fraud: Why is a Direct Investment Business a better option than regional centers for EB-5 visa investors?

Direct Investment Business refers to businesses owned and controlled 100% by a single EB-5 visa seeker. Partnerships do NOT count as Direct Investment Businesses in the true sense of the word, and are just regional centers in disguise, and should be avoided like the plague by EB-5 visa seekers, as they usually result in unfavourable outcomes for EB-5 visa investors.

This is an objective comparison demonstrating the reasons why Direct Investment Businesses are a significantly safer and better option for EB-5 visa seekers:

1. Processing times: EB-5 visa petitions in Direct Investment Businesses are usually approved in less than half the time taken for approval of an EB-5 visa petition in a regional center. This can be easily verified by following the posts in online forums or even filing a FOIA request with USCIS.

2. Exit Strategies: EB-5 visa seekers have an easy exit strategy with Direct Investment Businesses as they own and control the business from day one, and can sell their business upon approval of their I-829 if they choose to do so. In contrast, regional centers lock up EB-5 visa investor’s funds for 5-9 years.

3. Approval rates: regional centers have a low overall approval rate, and due to ongoing federal investigations into their criminal activities, they are expected to see even higher rates of denial. In contrast, Direct Investment Businesses have higher approval rates, and as a matter of fact, all of my clients have been approved since 2004.

4. Fraud: Partnerships and regional centers usually commit securities fraud by failing to disclose material facts and violate securities laws by illegally marketing and selling securities in the US and abroad. In contrast, this problem is usually not encountered in Direct Investment Businesses.

5. Conflict of interest: Partnerships and regional centers usually engage in conflict of interest by obtaining goods and services from related parties at inflated prices instead of procuring them in a competitive fashion, as well as by hiring related parties such as friends and families at inflated salaries instead of competitively hiring qualified employees at market rates.

6. Return on Equity: Those who invest in regional centers usually don’t get annual dividends (ROE), and some investors do get 1% annual dividend (ROE). In contrast, it is quite common for an EB-5 visa investor to get annual dividends in excess of 22% if they invest in good businesses such as fast food (for e.g. Subway, KFC, 5 Guys, Baja Fresh, Cici’s Pizza, etc.) or Auto Parts Stores or Family entertainment centers, etc. In dollar terms, a $500,000 investment usually yields annual ROE of $5000 at most to those who opt for regional centers, while the same investment usually usually yields annual ROE in excess of $110,000 when invested in a Direct Investment Business with the guidance and advice of an experienced Business Broker.

7. Capital Loss: It is highly likely that EB-5 visa seekers who invest in a regional center will experience capital loss, and it is quite unlikely that those who invest in a Direct Investment Business will experience a capital loss.

8. Fee refund guarantee: We offer an unconditional fee refund guarantee if our client’s petition is denied due to our fault, while regional centers and partnerships refuse to offer this guarantee.

If you’d like to get your EB-5 visa in a safe, expedited and usually profitable manner, please visit our website http://www.smartbusinessbroker.com for further details.

You may also contact us by email at info at smartbusinessbroker.com or by phone at 407 535 0616.

Yours truly
Mohammed Shaikh, MBA, CFE, Licensed Business & RE Broker (CA & FL)
Online: http://www.smartbusinessbroker.com

EB-5 visas and franchises: All franchises aren't created the same, and neither are all Business Advisors.

Now that regional centers are effectively blocked from the EB-5 visa market, a lot of shady characters are offering franchises to EB-5 visa seekers as a route to getting EB-5 visa through Direct Investment Business Category.

EB-5 visa seekers should remember that a Papa John's or Dominos franchise may be great for Pizzerias, while Marco's Pizza may be a risky investment due to an unproven model and customer preferences. Similarly, a McDonalds or 5 Guys franchise may be great for burgers, but Elevation Burgers may actually be quite risky for reasons stated above. A final example would be Subways being a great option while Quiznos not being so great. Quite often, unscrupulous franchise brokers may try to solicit EB-5 visa seekers to invest in a business with a risky business model, in order to earn commissions from the franchisor at the expense of the EB-5 visa seeker.

An easy way to find out if a franchise is a good option or not, is to ask a lender bank if they will finance that franchise. If the lender says no, then the EB-5 visa seeker should avoid the franchise. Another easy way to find out is to ask the franchisor to provide audited financial statements from 10 of the closest franchisees to see what was the annual NOI per store, and in case the stores are making losses or very little profit, the EB-5 visa seekers should avoid the franchise. EB-5 visa seekers should also ask Franchise brokers and promoters to disclose in a notarised affidavit the commissions they will receive from all sources, in order to make an informed decision on whether to invest or not in a particular franchise. Finally, EB-5 visa seekers should seek the help of reputed and experienced Business Advisors who offer a written guarantee of freedom from conflict of interest to their clients, to help EB-5 visa seekers make an informed decision.

All business brokers and advisors are not alike either. The unethical ones promote risky, third rate franchises to EB-5 visa seekers, while we've helped our clients buy / start only reputable franchises such as 5 guys, McDonalds, KFC, Subway, etc., due to which our clients have never had to face operating losses or capital loss, while those who invest in dubious franchises are usually encounter capital losses and operating losses. Our competitors usually don't offer written guarantees of full disclosure and freedom from conflict of interest, while we do so confidently and proudly. Our competitors don't have 9 years of Business Brokerage and Advisory experience helping investors buy / start businesses to qualify for the EB-5 visa, while since 2004, we've helped 48 investors get their EB-5 visa approvals so far.

We offer a full fee refund guarantee in case our client's EB-5 visa petition is denied due to our fault. We also offer a written guarantee of full disclosure and freedom from conflict of interest, and none of our clients has suffered operating losses or capital losses. For more information, please call or visit our website http://www.smartbusinessbroker.com

Yours truly
Mohammed Shaikh, MBA, CFE, Licensed RE & Business Broker (CA & FL)
Online: http://www.smartbusinessbroker.com
Phone: 407 535 0616

EB-5 visa fraud: Should EB-5 visa seekers pay the price for the negligence and fraudulent conduct of immigration attorneys and visa consultants?

Anshoo Sethi's ACCC, Del Monte, New Orleans, South Dakota, etc. are recent examples of regional centers where EB-5 visa seekers invested funds only after being told by immigration attorneys and visa consultants that they (the attorneys and consultants) had done due diligence on the regional centers, and that the regional centers were safe to invest in. These attorneys and consultants had actually charged fees to provide professional advice and do due diligence.

What is clear is that the due diligence was in fact grossly inadequate and certainly unprofessional, and in most cases the advice rendered by these consultants can be easily termed negligent and fraudulent.

Here are the reasons that the advice rendered by these consultants and attorneys is negligent and incompetent:

1) They failed to advise EB-5 visa seekers that these regional centers were illegally offering and selling securities overseas.
2) They failed to advise EB-5 visa seekers that these regional centers were engaging in conflict of interest.
3) They failed to advise EB-5 visa seekers that these regional centers were committing securities fraud by failing to fully and truthfully disclosing all material facts.
4) They failed to advise EB-5 visa seekers that approval times for regional centers were far longer than those for Direct Investment Businesses.
5) They failed to advise EB-5 visa seekers if they received any remuneration from regional centers, and if so, how much?

Now that we've established HOW the attorneys and consultants were grossly negligent at the very best, and probably engaged in fraudulent conduct, EB-5 visa seekers should ask 1 simple question:
  
Should EB-5 visa seekers pay the price for the negligence and fraudulent conduct of these immigration attorneys and visa consultants, or are they entitled to a full refund of their fees and damages for the loss of time and money suffered by EB-5 visa seekers due to the faulty due diligence and misleading advice furnished to them?

EB-5 visa seekers should remember that regional centers are engaged in securities fraud, securities law violations and conflict of interest, and they squander the EB-5 visa seekers' funds instead of fully deploying them in a business to generate income.

EB-5 visa seekers  should remember that the safest, easiest and fastest way to get their EB-5 visa is through Direct Investment Businesses, and we've helped 48 investors successfully obtain their EB-5 visas, with a track record of 100% approval, and none of our clients have suffered capital losses or earned NOI less than 15% annually.

Yours truly
Mohammed Shaikh, MBA, CFE, Licensed Business & RE Broker (CA & FL)
Online: http://www.smartbusinessbroker.com
Phone: + 1 407 535 0616

How to avoid EB-5 visa fraud?

It is quite common for EB-5 visa seekers to encounter unethical and unscrupulous individuals. EB-5 visa seekers and immigration attorneys need to ask probing questions that will help them separate the newcomers and dishonest people from the honest and ethical people.

Here are some questions that can help EB-5 visa seekers and immigration attorneys make better informed decisions:

For EB-5 visa seekers interested in Direct Investment Business, the following questions are crucial:
1) What is your role and how are you qualified to fulfil that role?
2) What is the license you hold and how does it qualify you?
3) What is your practical experience in EB-5 visa? How many clients have you helped so far and how long have you done so?
4) What is your track record? Have your clients experienced capital loss, visa loss or operating loss?
5) What do you do to help me avoid getting defrauded?
6) Do I fully own and control my business and capital?
7) What is the exit strategy?
8) What is the typical approval time?
9) Are you willing to offer a notarized guarantee saying that you will fully disclose all material facts in an ongoing manner and refrain from engaging in conflict of interest?
10) Do you offer a turnkey solution?
11) Do you expect me to pay for your mistakes, or will you refund my fees in case I'm denied due to your negligence and / or incompetence?

Critical questions to ask of a regional center CEO and CFO:
1) Are you willing to offer a notarized guarantee confirming that you will fully disclose all material facts in an ongoing manner and refrain from engaging in conflict of interest?
2) What is your practical experience? How many clients have you helped so far and how long have you done so?
3) What is your track record? Have your clients experienced capital loss, visa loss or operating loss?
4) What do you do to help me avoid getting defrauded?
5) What is the exit strategy?
6) What is the typical approval time?
7) Do you fully comply with the securities laws of the US and overseas jurisdictions where you offer and sell securities?
8) Will you refund my fees in case my petition is denied due to your negligence or incompetence, or am I expected to pay for your mistakes?

An honest service provider will never expect a client to pay for the mistakes and negligence of the service provider, and will always agree to fully disclose all facts. We believe in honesty, transparency and accountability, and we always put our client's interests ahead of our own.

This is an effective preliminary checklist to help EB-5 visa seekers avoid getting defrauded:

1. EB-5 visa seekers should demand NOTARISED AFFIDAVITS signed under the penalty of perjury from the CFO, CEO and Attorney of the regional center confirming that:

a) All material information has been disclosed to the EB-5 visa seeker. If material information is not fully disclosed, then the regional center's executives are engaged in SECURITIES FRAUD, and EB-5 visa seekers as well as honest immigration attorneys and visa consultants should avoid them like the plague.
b) The regional center is in FULL compliance with US Securities, tax and foreign exchange laws as well as the laws of the country in which the securities are being sold. If the regional center is violating securities laws, tax laws or foreign exchange laws, the EB-5 visa will most likely be revoked or denied, and the funds will be seized and may potentially be subject to forfeiture.
c) The regional center procures products and services in a competitive and transparent manner, and does not engage inconflict of interest and nepotistic (related party) hiring. After all, you do NOT wish to pay inflated salaries to some regional center promoter's mistress or nephew, do you?

If a Regional Center's executives REFUSE to present the above information in notarized affidavits to investors, EB-5 visa seekers should AVOID their offering like the plague because the regional center is definitely attempting to defraud investors, as US law clearly states that failure to disclose all material information is defined as securities fraud.

EB-5 visa seekers should also ask regional center executives and attorneys to answer the following questions in a notarised affidavit signed under the penalty of perjury, answering each question separately:

a) How long has the Regional Center / business been operating?
b) How much of a capital loss have investors seen (minimum, maximum, median and mean)?
c) What is the exit strategy and how much will it cost investors to exit and is exit mandatory only through related entities?
d) Does the Regional Center / project have a STRICT arm's length policy for procurement of products and services in a competitive manner?
e) Do they regularly offer audited books of accounts for review by investors?
f) Have they ever faced any criminal investigations or lawsuits?
g) Are they in full compliance with tax and securities laws in the US and country of offering?
h) What is the annual dividend? Is it paid regularly? Is the dividend enough to let the investor and his / her family live comfortably or is it below what even a bank would offer?
i) How long is the investment locked in and can investors exit right after they get the I-829 approved or are they locked in for 5-9 years?
j) Do investors have a right to kick out corrupt or incompetent managers who fail to perform?
k) How much are their fees and what is the breakdown? This is to identify the junk fees.
l) What is their money back policy?
m) How much equity have the promoters invested and how much money (salary / share of profits / benefits, etc.) are they getting?
n) Are officers and directors hired in an objective and competitive fashion or do they hire related persons such as girlfriends, friends, wives, nephews, etc.?
o) Have investors ever exited with a capital gain?

I believe the above affidavits should be a good starting point to detect and prevent fraud committed by regional centers. Those regional centers that don't disclose all material information or engage in conflict of interest and nepotism are undeserving of the trust of EB-5 visa seekers. For more information on how to get the best results for EB-5 visa seekers, please add me to your network and join my group 'EB-5 experts - Direct Investment' on LinkedIn.

EB-5 visa seekers should remember that it is a lot quicker to gain approvals for I-526 petitions on basis of Direct Investment Businesses, while petitions filed by regional centers have been languishing for a year or more. They should also remember that there is a massive interagency investigation by DHS, SEC, IRS and FBI, and it is expected that over 98% of the regional centers will be shut down for violating securities laws and committing securities fraud. There was a very interesting conference call that USCIS and SEC had in April 2013, where SEC announced that they're going to take strong action against regional centers and partnerships that violate securities laws such as broker dealer registration, investment company regulations and failure to disclose material facts.

The above is my opinion, PLEASE consult a qualified attorney for advice to confirm that the above is correct.

Yours truly,
Mohammed Shaikh, MBA, CFE, Licensed Business & RE Broker (CA & FL)
Online: http://www.smartbusinessbroker.com

USCIS cracks down on EB-5 regional center applications

The USCIS has issued new guidelines that basically say, "new EB-5 jobs are not created when existing employees of a business are merely moved by an employer that changes work sites and reassigns existing workers to newly leased space in a building financed by EB-5 investor funds."

Lawyers and petitioners who've filed Regional Center applications containing tenant-occupancy calculation methods soon found out that they need to directly create jobs as their mailboxes were hit with a “blizzard of blue” Requests for Additional Evidence (“RFEs”), symbolic of both the color of RFE cover sheets and the seasonal affective disorders triggered in individuals receiving these cerulean missives this past winter.

For EB-5 immigrants doing direct investments, it is quite easy to prove creation of 10 jobs as the financial records speak for themselves. For EB-5 immigrants wanting to get approval via a Regional Center, it is now hard if not impossible to get approved.

http://www.nationofimmigrators.com/investor-immigration/immigration-agency-lawbreaking-revealed-usciss-eb-5-tenant-occupancy-scandal/

Who in their right mind would want to risk their money in a Regional Center?

Regional Centers don't even have a clean exit strategy as you are holding illiquid assets that are not easily saleable. Go ahead, ask them about their exit strategy. Compare it with direct investment, where you usually get total autonomy over when to sell your business and more importantly, get to keep the profit if the business appreciates. They may offer you a subpar return on equity, but certainly won't offer you any appreciation in profits. Most of them require you to use their affiliated entities to liquidate your investments.

Every investor needs to ask EB5 Regional center promoters whether the promoters actually tried raising money from Banks and / or through public offerings? The reason EB5 regional center promoters can't usually raise money from banks is because their projects can't withstand the scrutiny of a bank's underwriters, and the reason why promoters can't raise money by offering securities in the projects to US investors is because US investors simply won't invest their money in projects with low return on investment and an inherent inability to liquidate the investment in short order.

The above are reasons why it is smarter and safer to invest money in a direct investment. At the very least, an investor can usually expect to earn at least 15% return on equity each year and easily sell off their business within weeks if needed instead of locking up money in an unviable project for years.

Are Regional Centers violating Securities Laws too?

I recently spoke with a promoter (Michael C. Palmer, CPA) of a Los Angeles based Regional Center (http://www.eb5socal.com). The legal name of their firm is California Real Estate Regional Center. When I asked Mr. Palmer whether he as a CPA was sure that his firm was tax compliant with US tax laws that specifically PROHIBIT pass through taxation for Non-US persons (i.e. US citizens and Permanent Residents), he had no answer. On further investigation, I noticed that their firm claims on their website that they're a boutique bank and apparently lend money to hotel projects.

This firm was recently certified as a Regional Center in 9/2011, so the question to ask them is, how many investors have obtained permanent resident status through them? The answer is probably a big fat zero!

The other apparent question is, are there any conflicts of interest or are the borrowers at arms length?

The more important question is, are the promoters violating US Securities laws too in addition to tax laws? The reason I have this question in mind is because apparently Mr. Palmer's firm is doing a Reg S offering of membership units in a Limited Partnership to non-US persons in a possible violation of US tax laws. In a number of states, an LLC cannot be formed to conduct certain types of businesses (e.g. banking, insurance), so I am not sure EB5Socal is fully on the up and up when they claim to be an investment bank.

http://www.avvo.com/legal-answers/can-i-have-a-foreign-national-as-my-partner--106402.html


The question is either the entity can do sales of shares in a C corporation to non-US investors or sell shares in a limited partnership to US persons. Better still would be if their attorneys obtained a certificate of compliance (opinion letter) from the US IRS and SEC.

I would certainly like a tax attorney and securities attorney get together and certify that this structure is legal and complies with US laws, because I believe that any entity, irrespective of structure, is prohibited by law from pass through taxation if it has foreign owners. On a final note, I asked Mr. Palmer what is the expected rate of return, and he mentioned a 3% rate. Even I could easily help investors earn at least 3 times better than Mr. Palmer's rate of return without needing to lock up funds in a firm that seems rather shady to begin with.

Finally, failure to disclose material facts is classified as securities fraud, and regional centers routinely fail to fully and truthfully disclose all material facts, such as conflicts of interest and securities law violations.

Direct investment options in franchises for EB5 immigrants.

Franchises have traditionally offered safe and stable avenues for actively investments. They range in type from gymnasiums to convenience stores to gas stations to delis, and require investments ranging from $100,000 to $20,000,000 or more.

What is the smartest and safest way to obtain permanent residence under EB5 visa category?

Many regional centers have been decertified by USCIS, due to which dozens of investors have lost their immigration status. More importantly, many investors have lost all or significant portions of their equity after investing in regional centers, with the latest example being found in Louisiana (http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CJYBEBYwAA&url=http%3A%2F%2Finfo.eb5info.com%2Fbid%2F134818%2FEB-5-Visa-Investor-Lawsuit-Alleges-Fraud-Deceit-in-New-Orleans-Regional-Center-Investments&ei=lImUT6jJGuOQ2QWN5o3tBA&usg=AFQjCNFiv8s6zCutVrulOMduWN8tPqNQlg). If an investor were to ask regional centers for their audited financial statements, most will refuse to furnish them. If investors ask Regional Centers on the rate of return for past 3 years, almost none will show rates above 3% per annum, and most have a track record of offering returns of 1% per annum or less.

So, how do investors avoid risking their capital and immigration status while still getting the benefit of the EB5 visa?

The simplest and safest way is to apply for EB5 visas under the direct investment route, and starting up or buying businesses such as delis, gymnasiums, clinics, liquor stores, gas stations, laboratories, workshops, farms, etc. where not only is it harder to risk capital losses, it is also typical to get annual ROE of 15% or more.

More importantly, EB5 visa investors who opt for direct investment have full control over their businesses and can manage every aspect of their business, including hiring the minimum 10 employees required to comply with the USCIS requirements in an indisputable fashion, which helps investors avoid any denial or revocation of their immigration status.

Why are so many regional centers getting decertified by USCIS? What happens to their investors' immigration status?

http://www.lexisnexis.com/community/immigration-law/blogs/inside/archive/2012/02/14/aao-eb-5-regional-center-de-certified-job-creation-vs-job-preservation.aspx
http://johnmanley.net/eb-5/el-monte-regional-center-eb-5-what-happened
http://articles.latimes.com/2011/sep/03/business/la-fi-easy-visa-20110904/2

As the above articles show, several EB5 Regional Centers have been decertified, and it is believed that more will lose their certification in the coming months. In case a Regional Center gets decertified, it is quite likely that their investors will lose their Permanent Residence Status and be back at square one. The primary reason seems to be misleading information furnished by the Regional Centers to USCIS, resulting in immigrants endangering their immigration status. Most regional centers refuse to furnish audited financial statements to investors, and are notorious for paying absurdly low returns on investment, if they actually pay at all.

HOW do immigrant investors protect their interests?
The best way is to do a direct investment, so that investors can not only have the ability to furnish complete financial details, but also have the ability to control their own business in order to be in control over compliance with USCIS and IRS regulations. In cases where direct investment is involved, it is quite easy to ensure compliance and avoid losing immigration status, and in 36 cases handled by us, EVERY investor has managed to easily earn a return of at least 15% per annum on their investment, and in most cases, has earned over 22% per annum. However, investors need to keep in mind that high returns means working hard to ensure that the business grows and continues earning revenues and goodwill.
It is better to do a direct investment and

Do Regional Centers violate federal income tax laws?

I recently came across this scenario, so I felt I should share it with you. As you know, many Regional Centers happen to work as LLC's (Limited Liability Company), and LLC's can elect to be taxed as either a partnership, sole proprietorship, s corporation or c corporation, depending on the number and type of members.

For an LLC to be taxed as a sole proprietorship to avoid double taxation, the IRS requirement is posted at http://www.irs.gov/businesses/small/...158625,00.html.

For an LLC to elect taxation as a partnership or S corporation to avoid double taxation at both personal and corporate levels, the number of investors is limited by law and they must be eligible to have US Social Security Numbers (i.e. Citizens and residents) and LLC's that have members who aren't citizens or permanent residents may be committing tax fraud when they admit members who aren't citizens or permanent residents and continue single taxation when legally they're required to have double taxation. As such, it is EXTREMELY IMPORTANT for investors to see if the LLC's are complying with the tax laws as the failure to comply with tax laws is imputed to all members of an LLC. An LLC which engages in single taxation when legally they're supposed to have double taxation (electing to be taxed as C corporation) may possibly be engaging in tax fraud.

It is a lot more advisable for investors to take their money and invest in their own business where their own CPA & adviser can guide them on how to proceed and what changes to make at what step, because it is better than forfeiting funds to the IRS due to the carelessness of an irresponsible idiot.

As such, please feel free to ask the Regional center you are considering about their structure and how they are complying with the tax laws.

The above is simply my personal opinion and is NOT to be construed as legal advice. Please consult your own CPA and attorney to independently check facts for yourself and get accurate advice. Also, please double check with the IRS if a non-resident and non-citizen can legally qualify for single taxation in an LLC that elects to be taxed as a partnership or S corporation, before you invest your hard earned money in a Regional Center that will cause you to lose your hard earned money.

Taxation of LLC Income and Loss

Speaking strictly in taxation terms, an LLC, when taxed as a partnership or sole proprietorship is not a separate tax-paying entity in the eyes of the IRS. Each member is separately and individually liable for the taxes on his share of the LLC (profits, losses, deductions, and credits). Each member must report his share of his tax liability, and each tax liability retains the same character it had when earned or incurred by the LLC. The pass through of items to members means that income avoids being double taxed, and losses may offset income that the member may have from other sources.

In direct contrast, a C corporation is a separate entity for even tax purposes and is such, is required to pay its own taxes. Income and profits are taxed at the corporate level when earned, then taxed again when distributed to the various shareholders as dividends. Dividends are always taxable as income, irrespective of the source. Therefore, when distributing corporate profit, it may be advantageous to pay the gain as salary or bonus rather than as a dividend, which is tax-deductible to the corporation.

S corporations are taxed in a somewhat similar fashion as are partnerships. The tax burden on retained earning in an S corporation passes through to the individual shareholders. Each shareholder reports his percentage share of the income on his tax return. However, the income can be re-characterized. For example, if the S corporation earns profits that would be taxed as ordinary income if earned by an individual, the S corporation can pay the earnings as a “distribution to shareholders.” When one received payment in this fashion, they can avoid Social Security and Medicare tax, currently a 15.3% tax savings. One must tread carefully with the LLC as an S corporation because the LLC may be taxed as a C corporation, even if the S corporation election is made, if the requirements are not met and it is operated like a “regular” corporation. For example, if the entity has even one foreign owner it will be deemed to be a C corporation for taxation purposes. This means, everyone will be subject to double taxation. Similarly, if excessive passive-type income (such as rental income) is generated by corporate assets or if the corporation disposes of assets that had built in gain when the election was made to be treated as an S corporation, the IRS may see fit to tax the LLC as a C corporation.


LLC Termination

Change in ownership of the corporate shares does not terminate a "C" or "S" Corporation for Federal Tax purposes, unless the change involves foreign owners. Because a multi-member LLC can be considered a Partnership, it is subject to the Termination Rule of IRC Section 708(b). An LLC terminates for Federal Income Tax law purposes whenever 50% or more of the interest in capital and profits are sold within a 12 month period. This means that even though the LLC may technically still be in existence under State Law, for tax purposes, it terminates and re-starts. This has the same effect establishing a new entity for accounting purposes, and brings the current LLC tax year to a close.