Home-Based Businesses : Inadvertent Unauthorized Employment

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MurthyBulletin : VOL. XI, no. 30; Jul 2005, week 5

3. Home-Based Businesses : Inadvertent Unauthorized Employment

From time to time, we at The Law Office of Sheela Murthy write articles to guide MurthyDotCom and MurthyBulletin readers so they may avoid inadvertently running afoul of various immigration laws, regulations, or policies. One common problem that we see involves those present in the U.S. in a lawful, nonimmigrant status who wish to earn extra money. Such individuals are often attracted toward home-based businesses, sometimes involving multi-level marketing. Because there is no direct employer-employee relationship, it is generally believed, incorrectly, that this does not engage them in any form of unauthorized employment. They are sometimes even advised by those seeking their involvement in the home-based business that it is not employment, since they are not going to receive an IRS W-2 Form for any money that they will earn. This presumption is incorrect and can lead to a series of problems. In some situations, where the earnings are over a certain amount, an individual must receive an IRS Form 1099 for non-employee compensation.

What is Unauthorized Employment?

It is not necessary to work for an existing business as an employee in order to be engaged in unauthorized employment. When one establishes a business, even on a part-time basis from home, s/he is considered to be working in the United States. Thus, if one is present in a status that does not allow employment or that only permits employment with a specific sponsoring employer, this person is engaging in unauthorized self-employment. This remains the case even if the involvement is fairly passive, such as in some Internet-based businesses and certain multi-level marketing operations. Therefore, while the temptation to earn some extra money is often strong, and many non-work authorized spouses would like to be able to contribute financially to the household, it is not permissible in these sorts of situations.

Incorporation Not Required

When speaking in terms of having one's own business or being self-employed, it is not necessary to have formed a corporation or LLC or a partnership. Even if no legal business entity is created, there can be self-employment without authorization.

Where the Problems Arise

The problems with these situations usually arise at the U.S. consulates in connection with visa applications or when filing Form I-485 applications to adjust status to permanent residence. These are instances in which it is sometimes necessary to provide income tax returns. If these returns show income from unauthorized employment, the U.S. consulate could deny the nonimmigrant visa and the U.S. Citizenship and Immigration Services (USCIS) could deny the Form I-485 adjustment application for working without authorization. In order to obtain a visa at the consulate, the consular officer must be convinced that the applicant will comply with the terms of the requested visa. If the officer sees a history of past violations in the form of unauthorized employment, the visa may be denied.

In order to adjust status, it is generally necessary to be in status at the time of filing. (There are exceptions under Section 245(k) for employment-based cases, when 180 days of violation can be disregarded, and under Section 245(i) for qualifying cases filed prior to April 30, 2001.) Thus, violating status by working without authorization can prevent the approval of an I-485 application to adjust status to obtain permanent residence or "green card" status.

While problems are generally detected in the tax filings, this does not mean that there is no violation as long as a paycheck is not received. Additionally, failure to declare money and pay taxes on any money earned in order to avoid detection is not a solution. The failure to pay taxes on money earned is yet another legal violation that will likely compound the problem for breaching two separate laws.

Passive Investments Allowed

The above information is not to be confused with making passive investments. It is permissible to make financial investments that, hopefully, will generate financial gain, provided that the investments are entirely passive in nature. For example, it is permissible to invest in various savings vehicles, such as the stock market or bonds, where the only involvement in obtaining the financial gain is purely passive and not the result of working (other than planning and research). It would be possible to invest in a private company, as long as the only role of the individual is as a passive investor.

Solutions

If an individual has been involved with his or her own business, it would be best to seek the advice of an experienced immigration attorney. There may be a solution that will place the individual back into lawful status. The person will then need to comply with the terms of that status, including ceasing the unauthorized employment. Timing can be important in crafting a solution, since working beyond 180 days could pose a serious problem in most employment-based cases.

Conclusion

Immigration laws are complex. Violations, even made innocently, often result in harsh consequences for individuals and their families. When in doubt regarding an immigration matter, it is important to obtain proper advice. The problem discussed in this article usually occurs because an individual either makes wrong assumptions or obtains advice from friends and colleagues, who are often not qualified to issue such advice. While insights and recommendations from friends and colleagues can be often helpful in some situations, final decisions on important legal matters need to be made based on qualified legal advice.