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Who is Subject to the New J-1 Visa Exchange Visitor Program Rules?

6/25/2015

On October 6, 2014, the Department of State (“DOS”) announced newly enacted amendments to Subpart A of the J-1 visa exchange visitor program rules and regulations. The new rules applicable to J-1 visa exchange visitor programs and program participants require: (1) independent annual audits; (2) annual reports; (3) criminal background checks of responsible officers and alternate responsible officers; (4) increased duties of responsible officers and alternate responsible officers; (5) increased monitoring of exchange visitors; (6) increased notification requirements; (7) increased monitoring of, and requirements pertaining to, third-party service providers; and (8) objective requirements to determine exchange visitors are proficient in English. Most importantly, effective May 15, 2015, the new rules require increased minimum insurance requirements that specifically mandate that exchange visitors have: (1) medical insurance coverage of at least $100,000 per accident or illness; (2) repatriation of remains coverage in the amount of $25,000; (3) medical evacuation coverage in the amount of $50,000; and (4) a $500 ceiling on deductibles.

Due to the inherent nature of how the J-1 visa program operates, however, a few of these requirements cannot be applicable, from a practical standpoint, if the effective date occurred after an exchange visitor had entered the US and begun participating in a program. For example, the new rules surrounding the English proficiency requirement would likely not apply to current exchange visitors as the previous English proficiency rule required sponsors to make an “english proficiency determination” prior to an exchange visitor's arrival in the US. Accordingly, there has been some unavoidable confusion from the viewpoints of both visa sponsors and exchange visitors. The Department of State has compounded this confusion, in several instances, by providing inconsistent guidance pertaining to the applicability of the rules to exchange visitors who had already begun a J-1 visa exchange visitor program prior to the effective date of the amendments.

The vast majority of the rules and requirements, however, are undoubtedly applicable to both exchange visitors and sponsor programs regardless of whether the exchange visitor entered the U.S. and began a program prior to the date that the rule became effective.

If you have any questions surrounding the new exchange visitor program rules, guidance you received from DOS, or any of the content written in this article, please contact us at (703)-595-2836 or admin@bjkanglaw.com

TOO GOOD TO BE TRUE?: 100% EXCLUSION ON QUALIFIED SMALL BUSINESS STOCK (QSBS)

6/19/2015

On December 19th, 2014, President Barack Obama signed into law the 2014 Tax Increase Prevention Act (“TIPA 2014”). §1202 of the Internal Revenue Code previously allowed a 100% capital gain exclusion for Qualified Small Business Stock (“QSBS”) purchased in parts of 2010 up until December 31st, 2013. TIPA 2014 subsequently extended §1202’s 100% exclusion for QSBS to such stock purchased on, or before December 31st, 2014. There is no indication yet of whether the exclusion will be extended yet again, but Congress has seen fit to extend it three times so far.

What does this mean practically speaking? Founders, along with others with original issue stock, can get a possible 0% effective tax rate on gains from the sale of all or part of their business, as long as the acquisition and sale of the business was, and is structured properly. Do not feel too let down, however, if your stock does not fall into the 100% exclusion period, you may still be eligible for a 50%, 60%, or 75% exclusion under §1202.

Qualified Small Business

Qualified Small Businesses are generally the only entities who can issue QSBS. A Qualified Small Business is (1) a domestic C corporation (but not a Disc, RIC, REIC, REMIC, Cooperative, or various other corporations); (2) whose aggregate gross assets before issuance, and up until immediately after issuance, do not exceed $50,000,000; (3) which agrees to submit any reports as required by the IRS (no reports are currently required); and (4) which is engaged in an active business during substantially all of a taxpayer’s holding period of the QSBS.

The active business requirement is met if 80% or more of the corporation’s assets are used by the corporation in actively conducting certain qualified trade or business. A business or trade is generally qualified for the purposes of §1202 if it does not involve: (1) the provision of one of several services (i.e. law, accounting, or engineering), or (2) doing business in any one of several industries (i.e. farming, banking, and oil and gas).

Qualified Small Business Stock

Stock is considered QSBS if it is original issue stock (not previously owned) in a qualified trade or business, received in exchange for money or property (other than stock), or as compensation for services to the corporation (other than services as an underwriter of the stock).

Finally, for the exclusion to qualify as to your gain the stock being sold must have been held for more than five years.

California’s QSBS

California has its own similar 50% exclusion at the state level, set out in Revenue & Taxation Code §18152.5. The main difference is the requirement that the corporation have at least 80% of its payroll be attributable to employment in California at the time the stock is issued. Unfortunately §18152.5 does not apply to sales made after January 1, 2013. However, if you sold your stock before 2013 but are still taking installment payments for that sale, you may be eligible for the 50% exclusion.

For advice on whether your business may be a Qualified Small Business, or if you have Qualified Small Business Stock, it is recommended that you contact a professional who is qualified to render such counsel.

Our Perspectives

Who is Subject to the New J-1 Visa Exchange Visitor Program Rules?

TOO GOOD TO BE TRUE?: 100% EXCLUSION ON QUALIFIED SMALL BUSINESS STOCK (QSBS)

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