Personal Assets in Ability to Pay the Proffered Wage Determinations

 

Introduction

In order for an employment-based immigrant visa petition to be approved, the petitioning employer must establish that it has the ability to pay the proffered wage. The employer must establish that it has the ability to pay the proffered wage at the time the priority date for the petition is established and until the petition beneficiary actually obtains lawful permanent resident status.

In this article, we will examine whether and when the personal assets of individuals may be considered in determining whether the petitioner has the ability to pay the proffered wage. Because there is no decisive statutory or regulatory guidance on the matter, we will examine guidance in administrative and judicial decisions.

Ability to Pay Regulation

The Code of Federal Regulations (CFR) provides that an employment-based petitioner must have the ability to pay the beneficiary the proffered wage:

Any petition filed by or for an employment-based immigrant which requires an offer of employment must be accompanied by evidence that the prospective United States employer has the ability to pay the proffered wage. The petitioner must demonstrate this ability at the time the priority date is established and continuing until the beneficiary obtains lawful permanent residence. Evidence of this ability shall be either in the form of copies of annual reports, federal tax returns, or audited financial statements. In a case where the prospective United States employer employs 100 or more workers, the director may accept a statement from a financial officer of the organization which establishes the prospective employer's ability to pay the proffered wage. In appropriate cases, additional evidence, such as profit/loss statements, bank account records, or personnel records, may be submitted by the petitioner or requested by the Service.
8 CFR 204.5(g)(2) (emphasis added).

The regulation makes clear that the petitioner must establish the ability to pay the proffered wage both at the time a priority date is established for the petition and for all times until the beneficiary becomes a lawful permanent resident. We examine the requirement that a petition must be approvable when filed in a separate article [see article]. Many cases turning on the petitioner's ability to pay the proffered wage involve situations where the petitioner's net income and assets suggest that it did not have the ability to pay the proffered wage for certain periods during the pendency of the petition.

In this article, we will examine whether and when the personal assets of the petitioner's shareholders may be considered in determining whether the petitioner has the ability to pay the proffered wage at all relevant times. The plain language of the regulation refers only to evidence regarding the actual business finances of the petitioner, but it otherwise does not address a position regarding the personal assets of the petitioner's shareholders.

Corporations are Considered Separate Entities From Stockholders/Shareholders

Under longstanding administrative precedent, corporations and stockholders are considered separate entities.

In 1958, the Attorney General affirmed a decision of the Board of Immigration Appeals (BIA), which provided that “[t]he general rule is that a corporation is a legal entity distinct from its sole stockholder.” Matter of M-, 8 I&N Dec. 24, 25 (BIA 1958; A.G. 1958) [PDF version]. The Immigration and Naturalization Service (INS) articulated this same rule in several subsequent precedential decisions and made clear that it applies with equal force to corporations with more than one stockholder. “[T]he corporation has a separate legal entity from its owners or even its sole owner.” Matter of Aphrodite Investments Limited, 17 I&N Dec. 530, 531 (Comm. 1980) [PDF version]. “The corporation is a separate legal entity from its stockholders…” Matter of Tessel, Inc., 17 I&N Dec. 631, 633 (Acting A.C. 1981) [PDF version]. “Where a petitioner corporation has been duly incorporated under the laws of a state, it is a separate legal entity existing independently of its stockholder.” Matter of Allan Gee, Inc., 17 I&N Dec. 296, 296 (Acting Reg. Comm. 1979) [PDF version]; see also Matter of Isovic, 18 I&N Dec. 361, 362 (Comm. 1982) [PDF version].

None of the cases cited above concerned the ability of the petitioner to pay the beneficiary. They were about the amenability of stockholders of the petitioner to certain immigrant and nonimmigrant statuses. However, the rule that a corporation is considered a separate and distinct legal entity from its stockholders has been applied consistently by the United States Citizenship and Immigration Services (USCIS) to ability-to-pay determinations, with citations to Aphrodite Investments Limited and Tessel, Inc., being especially common. As we will see, the logical consequence of viewing corporations as separate entities from their stockholders is that the assets of the stockholders cannot be automatically assumed to factor into an ability-to-pay determination.

Decisions of United States District Courts, including published decisions, are not binding on immigration adjudicators beyond the particular cases they address. Matter of K-S-, 20 I&N Dec. 715 (BIA 1993) [PDF version] [see article]. This does not mean, however, that adjudicators cannot find a district court decision instructive. A survey of ability-to-pay decisions by the Administrative Appeals Office (AAO), the highest administrative review panel in the USCIS, shows that an unpublished decision of the United States District Court for the District of Massachusetts — Sitar Restaurant v. Ashcroft, 2003 WL 220713 (D. Mass 2003) [PDF version] — has been highly influential, with 1,010 citations to it by the former Immigration and Naturalization Service (INS) and the Department of Homeland Security (DHS) as of February 18, 2020.

The petitioner in Sitar Restaurant was a closely held restaurant. The petitioner argued that the then-INS should have considered the owner's personal assets in determining whether it had the ability to pay the beneficiary the proffered wage. For its part, the INS argued that nothing in 8 CFR 204.5 permitted it to consider the owner's personal assets. Sitar Restaurant at *2.

The District Court agreed with the INS's position. First, it held generally that, “[a]bsent a legal obligation by [the owner], the INS had no need to determine whether his income was sufficient to pay [the beneficiary's] salary.” Id. at *3. It is for this conclusion that the AAO cites to Sitar Restaurant often in ability to pay cases involving the question of whether the personal assets of the owner of the petitioner can be considered in determining the petitioner's ability to pay. The principle of Sitar Restaurant forecloses most petitioners from relying on the personal assets of a stockholder or shareholder. However, as we will see later in the article, it leaves open a window for certain petitioners to rely on the assets of a sole proprietor.

For an example of how the AAO has applied administrative precedents and the Sitar Restaurant decision, we will examine a 2008 AAO decision. Matter of _, 2008 WL 561855 (AAO Nov. 3, 2008) [PDF version]. Below, we quote the decision in the pertinent part:

[W]ith regard to the individual assets belonging to the principal shareholder of a corporate petitioner, CIS (legacy INS) has long held that it may not “pierce the corporate veil” and look to the assets of the corporation's owner to satisfy the corporation's ability to pay the proffered wage. It is an elementary rule that a corporation is a separate and distinct legal entity from its owners and shareholders. See Matter of Aphrodite Investments, Ltd., 17 I&N Dec. 530 (Comm. 1980). Consequently, assets of its shareholders or of other enterprises or corporations will not be considered in determining the petitioning corporation's ability to pay the proffered wage. Additionally, the petitioner who filed the Immigrant Petition for Alien Worker (I-140) in this case is the corporation, not the principal shareholder, individually. Therefore, only the corporate petitioner's assets and liabilities will be considered. It is also noted that the court in Sitar v. Ashcroft, 2003 WL 22203713 (D.Mass. Sept. 18, 2003) considered whether the personal assets of one of a corporate petitioner's directors should be included in the examination of the petitioner's ability to pay the proffered wage. The petitioner in that case was a closely held family business organized as a corporation. In rejecting consideration of such individual assets, the court stated, “nothing in the governing regulation, 8 C.F.R. § 204.5, permits [CIS] to consider the financial resources of individuals or entities who have no legal obligation to pay the wage.
Matter of _, 2008 WL 561855 (AAO Nov. 3, 2008) at *5 (emphasis added).

This unpublished AAO decision addresses the key points from the decisions we have discussed thus far. It begins by noting that, under precedent, corporations are considered separate entities from stockholders. It adds that nothing permits the USCIS to “pierce the corporate veil” and examine the personal assets of a corporations stockholders. Furthermore, in citing to Sitar Restaurant, the AAO added that the personal assets of the owner of the petitioner cannot be considered absent some legal obligation on the part of the owner to pay the proffered wage. Although this 2008 AAO decision is not precedential, it is one of the AAO's most in-depth applications of the administrative precedents and Sitar Restaurant.

The AAO has applied these rules to limited liability corporations (LLCs) as well: “[S]imilar to a corporation, a limited liability company is a separate and distinct legal entity from its member(s), therefore the individual assets of its members or of other enterprises or corporations cannot be considered in determining the petitioning LLC's ability to pay the proffered wage.” Matter of _, 2010 WL 3691996 (AAO Feb. 25, 2010) [PDF version]. This AAO decision relied upon both Aphrodite Investments and Sitar Restaurant. The AAO has tended to apply these same principles generally in similar cases involving LLCs.

The AAO has generally applied these rules even where the petitioner seeks to rely on the personal assets of its president or sole shareholder. In one 2016 decision, the AAO distinguished this scenario from a case where a petitioner seeks to rely on the personal assets of a sole proprietor: “[U]nlike a sole proprietor, the Petitioner's president/sole shareholder lacks personal liability for the Petitioner's debts and obligations.” Matter of E-, 2016 WL 1273311 (AAO Mar. 2, 2016) at *5 [PDF version].

While the AAO has been consistent regarding the ability of a petitioner to rely on the personal assets of a shareholder to establish its ability to pay, there is one noteworthy contrary decision from the Department of Labor's (DOL's) Board of Alien Labor Certification Appeals (BALCA). In this decision, BALCA approved an application for labor certification notwithstanding that the petitioner's application indicated that the petitioner had negative working capital, because “the major shareholder, who has indicated a willingness to continue to fund the company is 'personally worth in excess of $4,000,000.'” Matter of Ohsawa America, 1988-INA-240 (Aug. 30, 1988) at *3 [PDF version].

Although Matter of Ohsawa America is notable and should not be discounted, there are two caveats that petitioners should bear in mind. First, it has a relatively limited citation history. Second, components of the DHS, which includes USCIS, are not bound by BALCA decisions. For example, the AAO's 2016 decision in Matter of E- declined the petitioner's invitation to rely on Matter of Ohsawa America: “We do not find the decision in Oshawa America persuasive. BALCA decisions do not bind us.” Matter of E-, 2016 WL 1273311 (AAO Mar. 2, 2016) at *5. However, the AAO also found that the facts in Matter of E- were distinguishable from those in Matter of Oshawa America in a way that was unfavorable to the petitioner: “[I]n addition to the shareholders personal worth and willingness to continue funding the employer, the panel in Ohsawa America considered evidence that the employer had 'increased sales and reduced operating losses.'” Id. Thus, Matter of Ohsawa America may be helpful to a case with favorable facts, such as where the petitioner has evidence of increased profits, but there is little evidence that the AAO is likely to allow a petitioner to rely on the personal assets of a shareholder or stockholder as readily as BALCA did in Ohsawa America.

In 1988, the United States District Court for the District of Columbia published a decision which may be favorable to petitioners in limited cases, provided that the adjudicator finds it's reasoning persuasive. In reversing the INS's conclusion that the petitioner, a church, could not pay the proffered wage, the District Court wrote as follows: “[T]he Church need not be fully self-reliant. It has submitted statements of its national organization … which provides educational, missionary, financial, and counseling support to the Full Gospel Church.” Full Gospel Portland Church v. Thornburgh, 730 F.Supp 441, 449-50 (D.D.C. 1988) [PDF version], reversed in part by Full Gospel Portland Church v. Thornburgh, 927 F.2d 628 (D.C. Cir. 1991).

Similarly to Ohsawa America, there are caveats for petitioners seeking to rely on Full Gospel Church. First, as the AAO observed in Matter of E-, the USCIS is not bound to follow published decisions of U.S. District Courts. Matter of E-, 2016 WL 1273311 (AAO Mar. 2, 2016) at *6. Second, the AAO found that even if were willing to apply Full Gospel Church, the decision itself would be inapplicable. Recall that in Matter of E-, the petitioner argued that the personal assets of its president/sole shareholder should be considered in determining its ability to pay the beneficiary the proffered wage. The AAO explained why Full Gospel Church would not apply: “Unlike the national church in Full Gospel, the Petitioner's president/sole shareholder role is not its 'larger organization.'” Id.

Full Gospel Church may be helpful to petitioners in cases where the petitioning entity is part of a larger organization. Whether that principle can be extended to sole shareholders outside of the sole proprietorship context is questionable.

Sole Proprietorships and Partnerships Are Not Separate Entities From Sole Owners/Members

Under administrative precedent, sole proprietorships and partnerships are treated differently than corporations. While corporations are separate and distinct legal entities from their shareholders, sole proprietorship and partnerships are considered to be the same entities as their owners.

The INS explained its position in an important 1984 precedent decision: “Neither a sole proprietorship nor a partnership is a separate legal entity from its sole owner or members…” Matter of United Investment Group, 19 I&N Dec. 248, 250 (Comm. 1984) [PDF version]. While Matter of United Investment Group was not an ability to pay case, the logic of its position on sole proprietorships and partnerships is favorable to petitioners whose sole proprietor or partner(s) seek to rely on personal assets to establish the petitioner's ability to pay the proffered wage.

In several recent decisions, the AAO has taken the position that the assets of a sole proprietor may be relied upon in establishing the petitioner's ability to pay the proffered wage. See, for example, the following passage, which has appeared in multiple decisions:

Unlike a corporation, a sole proprietorship does not exist as an entity apart from the individual owner. See Matter of United Investment Group, 19 I&N Dec. 248. 250 (Comm'r 1984). Therefore, the sole proprietor's adjusted gross income (AGI), assets, and personal liabilities are considered as part of the Petitioner's ability to pay. Sole proprietors report annual income and expenses from their business on their IRS Form 1040, U.S. Individual Income Tax Return. The business-related income and expenses are reported on Form 1040, Schedule C, and are carried forward to the first page of the tax return.
See e.g., Matter of J-H-O-S-, LLC, ID# 1106743 (AAO Mar. 29, 2018) at *2 [PDF version]; Matter of TKI-A-R-, ID# 986273 (AAO Feb. 15, 2018) at *2 [PDF version]; Matter of _, (AAO Aug. 2, 2012) at *13 [PDF version].

In considering whether the income of a sole proprietor is sufficient to establish the petitioner's ability to pay the proffered wage, the USCIS often relies upon a 1983 precedent of the United States Court of Appeals for the Seventh Circuit. Ubeda v. Palmer, 539 F.Supp 647 (N.D. Illinois 1982) [PDF version], affirmed Ubeda v. Palmer, 703 F.2d 571 (Table) (7th Cir. 1983) (Seventh Circuit affirmed the District Court opinion and adopted it as precedent). Ubeda concerned a petition under the former sixth preference category for a governess. The INS had denied the petition not withstanding that the petitioner's total gross income was higher than the proffered wage. The District Court affirmed, and explained its reasoning:

Petitioner has a total gross income of $20,000 and a net taxable income of $13,000 out of which he must support himself, his wife, and five children, one of whom is severely handicapped. Notwithstanding these financial burdens, petitioner stated that he would compensate the beneficiary at the rate of $500 per month or $6,000 per year. Like the INS, this court finds it highly unlikely that the petitioner can, in fact, compensate the beneficiary in an amount which totals such a high percentage of his income. Clearly, the petitioner is unable to afford this rate of compensation.
Ubeda v. Palmer, 539 F.Supp at 650.

Ubeda highlights that adjudicators must consider whether a sole proprietor can realistically pay the proffered wage to the extent which he or she intends to do so. Thus, although the petitioner in Ubeda made significantly more than the proffered wage, the District Court, subsequently affirmed by the Seventh Circuit, concluded that the INS correctly found that the petitioner could not realistically pay the proffered wage given his overall financial situation. Ubeda is cited to by the AAO in nearly every appeal involving a petitioner seeking to rely on the personal assets of a sole proprietor in order to establish the ability to pay, showing that it applies in cases involving businesses as well.

Personal Service Corporations

“Personal service corporations” merit special mention in the ability to pay context. To start, we will examine one of the most oft-cited immigration precedent decisions, published by the INS in 1967. Matter of Sonegawa, 12 I&N Dec. 612 (Reg. Comm. 1967) [PDF version] [see article].

The issue in Matter of Sonegawa was whether the petitioner, in light of a low net profit in one year, had established the ability to pay the proffered wage to the beneficiary of a former employment-based sixth preference petition. As we discuss in our full article on Matter of Sonegawa, the petitioner, the sole owner and the proprietor of a custom dress and boutique shop, was able to prevail by submitting extensive evidence explaining the circumstances that had led to the low net profit in the year in question and establishing the petitioner's reasonable expectations of increased profits in the future [see article]. For purposes of this article, we will limit our discussion of Matter of Sonegawa to a few relevant points.

The petitioner submitted extensive evidence about the reputation of her company and her personal reputation in the industry. The Regional Commissioner also noted that the petitioner received income separate from the income of her store:

Petitioner makes numerous appearances at design and fashion shows throughout the United States lecturing on fabric, design and techniques. She also lectures at colleges and universities in California and at home economic institutes on these subjects. She received fees for the appearances which are not included in the income of her store.
Matter of Sonegawa, 12 I&N Dec. at 615.

Although the Regional Commissioner clearly considered the petitioner's extra income to be a favorable equity, the decision does not necessarily suggest that this was decisive to the petitioner's ultimately prevailing. Whether the petitioner's personal assets could be considered does not appear to have been contested in Matter of Sonegawa, and it is not clear whether the Regional Commissioner considered it a positive equity in that the petitioner had personal assets to draw on or that the petitioner had flexibility given her external income from her work in the industry.

Matter of Sonegawa is not primarily cited to in the context of whether the personal assets of a shareholder or proprietor may be considered in determining the petitioner's ability to pay the proffered wage. When it is discussed in that context, it is usually when considering the issue for petitioners that are personal service corporations. In the personal service corporation context, shareholders of the petitioner may appeal to their flexibility in setting their own salaries, if not their personal assets. Below, we will examine a few examples to understand the AAO's position on this issue in several cases.

The AAO issued one notable and favorable decision in a personal service corporation case in 2008. Matter of _, 2008 WL 3051441 (AAO Apr. 16, 2008) [PDF version]. The petitioner was a “personal service corporation,” and had identified itself as such on tax forms. Id. at *4. Citing to Matter of Sonegawa, the AAO explained that “the petitioner's 'personal service corporation' status is a relevant factor to be considered in determining its ability to pay.” Id. The AAO defined a “personal service corporation” as “a corporation where the 'employee-owners' are engaged in the performance of personal services.” Id. It noted that under federal statute at 26 USC 448(d)(2), “personal services” encompass “services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, and consulting.” Id.

The AAO explained the tax ramifications of being a personal service corporation under the tax laws in effect at the time of the petition:

As a corporation, the personal service corporation files an IRS Form 1120 and pays tax on its profits as a corporate entity. However, under the IRC, a qualified personal service corporation is not allowed to use the graduated tax rates for other C-corporations. Instead, the flat tax rate is the highest marginal rate, which is currently 35 percent. 26 U.S.C. § 11(b)(2). Because of the high 35% flat tax on the corporation's taxable income, personal service corporations generally try to distribute all profits in the form of wages to the employee-shareholders. In turn, the employee-shareholders pay personal taxes on their wages and thereby avoid double taxation. This in effect can reduce the negative impact of the flat 35% tax rate.
Id.

Based on the foregoing, the AAO in this particular case recognized the petitioner's personal service corporation status as a relevant factor in determining its ability to pay. The AAO concluded that this was appropriate “because the tax code holds personal service corporations to the highest corporate tax rate to encourage the distribution of corporate income to the employee-owners and because the owners have the flexibility to adjust their income on that basis…” Id.

Regarding the instant case, the AAO noted that nearly all of the stock of the petitioning personal service organization was owned by its employees, retired employees, or their estates. Id. Citing to Matter of M-, Aphrodite Investments, and Tessel, the AAO explained that the personal assets of the petitioner's shareholders could not be considered in the ability-to-pay determination. Id. at *5. In the instant case, however, the petitioner did not argue that the personal assets of its officers should be considered, “but, rather, the financial flexibility that the employee-owners have in setting their salary based on the profitability of their personal service corporation…Id. (Emphasis added.) In short, while the personal assets of the employee-owners could not be considered, the fact that they could set their own salaries could be considered. Id. In light of the facts in the record, the AAO concluded that the petitioner could pay the proffered wage. Id.

Whether a petitioner can establish the ability to pay through the financial flexibility afforded to shareholders of a personal service corporation will depend on the facts of the case. For example, in a 2016 decision involving a personal service corporation with a sole shareholder, the AAO applied the same rule as it did in the foregoing decision, but ultimately concluded that the evidence did not suggest that the petitioner exercised a sufficiently large degree of financial flexibility to pay the proffered wage. Matter of G-R-B-, P.A., 2016 WL 3901777 (AAO Feb. 9, 2019) at *5-6 [PDF version].

We should note that the broader issue in Matter of Sonegawa is also relevant to understanding its specific application to personal service corporations. Matter of Sonegawa is broadly about when a petitioner can overcome an apparent deficiency in net income in a year for which it must establish the ability to pay the beneficiary. The decision, as we noted, shows various types of evidence that a petitioner may submit to clearly establish the ability to pay the proffered wage in the year(s) in question. Thus, it has found to be applicable in the above cases because the flexibility of owners and shareholders of a personal service corporation to set their own salaries is one type of evidence that may overcome apparent deficiencies stemming from the net income of the personal service corporation in certain years.

General Principles

Although there is little precedent directly addressing when the personal assets of an individual who is part of the petitioning entity may be considered, the AAO has generally applied consistent rules to a variety of corporate structures. These rules are as follows:

Where the petitioner is a sole proprietorship or partnership, the assets of the proprietor or partner(s) may be considered in determining whether the petitioner has the ability to pay the proffered wage. However, the adjudicator must also consider whether the proprietor or partner can realistically pay the proffered wage.
Where the petitioner is a corporation, the assets of shareholders or stockholders cannot be considered. This is because a corporation is a separate and distinct entity from its shareholders or stockholders. Absent a legal obligation to pay, the willingness of a shareholder or stockholder to pay is irrelevant. This applies regardless of whether the corporation is publicly or closely held. However, BALCA has issued at least one contrary decision.
Where the petitioner is a personal service corporation, personal assets may only be considered where the petitioner is a sole proprietor. However, because the shareholders of a personal service corporation have a degree of flexibility to set their own salaries, that flexibility may be considered in determining whether the petitioner has the ability to pay. This flexibility point should apply with similar force to sole proprietor cases.

It is important to note that because of the lack of precedent on the personal assets issue in particular, inconsistent adjudications are possible. This is especially true in the case of relying on Matter of Sonegawa for the proposition that shareholders of personal service corporations may appeal to their flexibility in setting their own salaries, because this issue appears to have not come up often in AAO written decisions.

Conclusion

The USCIS generally does not consider personal assets in ability-to-pay determinations unless the petitioner is a sole proprietor or partnership. The overwhelming weight of AAO decisions, in conjunction with related precedents, suggests that the USCIS will not consider personal assets where the petitioner is anything other than a sole proprietorship or partnership. As we noted, however, the financial flexibility of owner(s) and shareholders may be relevant in cases where the petitioner is a bona fide personal service corporation.

Petitioners for employment-based immigrants should always consult with an experienced immigration attorney in the area of business immigration. An experienced attorney will be able to examine the specific circumstances of the case, including whether and how the petitioner can establish its ability to pay the proffered wage. In cases where there may be an apparent deficiency in a year or years for which the petitioner must establish the ability to pay, the attorney may seek to establish through Matter of Sonegawa and related decisions that the petitioner had or has the ability to pay notwithstanding any apparent discrepancies stemming from its net income.

Please see our growing selection of articles on employment immigration to learn more about the types of visa petitions discussed in this article [see section].