Practice Tips and Documentation for the Successful EB-5 5 Case

Transcription

1 Practice Tips and Documentation for the Successful EB-5 5 Case Elsie Hui Arias (DL), Los Angeles, CA Tammy Fox-Isicoff, Miami, FL Kate Kalmykov, New York, NY Introduction EB-5 category created in 1990 for foreign nationals who invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs. Congress set aside 10,000 immigrant visas annually for investors and their immediate family members. Immigrant Investor Pilot Program enacted in 1993, providing for regional centers due to sunset on September 30, Job creation may be estimated using reasonable methodologies. Sources of Law Statutes, regulations: For I-526 petition: INA 203(b)(5) and 8 CFR For I-829 petition: INA 216A and 8 CFR AAO precedent decisions Matter of Soffici, 22 I&N 158 (Assoc. Comm r, Examinations 1998); AILA InfoNet Doc. No Matter of Izummi, 22 I&N 169 (Assoc. Comm r, Examinations 1998); AILA InfoNet Doc. No Matter of Ho, 22 I&N 201 (Assoc. Comm r, Examinations 1998); AILA InfoNet Doc. No Matter of Hsiung, 22 I&N 206 (Assoc. Comm r, Examinations 1998); AILA InfoNet Doc. No See also USCIS memoranda and AFM

2 General Requirements Invest Capital In a New Commercial Enterprise Engage in Management Create or Save Jobs Investment of Capital Invested, or in Process of Investing Law requires an investor-petitioner to have invested or be in the process of investing required capital. Theory vs. Practice (Matter of Hsiung) Investment of Capital Equity Capital Invest = contribute equity capital to enterprise Loans of capital by investor to enterprise do not count. Investor cannot receive any bond, note, or other debt arrangement from enterprise in exchange for contribution of capital Provision for guaranteed returns and redemptions may be classified as impermissible debt arrangements (Matter of Izummi)

3 Investment of Capital Equity interest is required. (stock, LLC/LP interest, etc.) $$$ EB-5 Investor EB-5 Enterprise Debt instrument is prohibited. (i.e., EB-5 enterprise promises to repay investor.) Investment of Capital Kinds of Capital Capital may include cash and cash equivalents, equipment, inventory, and other tangible property Investor s contribution of cash proceeds from a loan may be considered capital, provided assets of commercial enterprise are not used to secure repayment by investor Use of promissory note payable by investor to enterprise may be considered capital in limited circumstances where promissory note is secured by assets of the petitioner, obligation is a perfected security interest, and promissory note is valued in fair market U.S. dollars at time of investment (Matter of Hsiung) Investment of Capital Escrow Investor may use an escrow, conditioning release of funds to enterprise on approval of I-526 petition. However, escrow must release funds directly into enterprise s accounts for jobcreation purposes. At Risk requirement Capital invested must be at risk, with focus on actual and intended uses of capital to confirm that it will be used for job creation and profit-generating activity. Must be meaningful/ concrete action toward business plan. (Matter of Ho) Capital used for administrative expenses and to fund reserve accounts unrelated to job creation may not count. (Matter of Izummi)

4 Amount of Capital / Targeted Employment Area Amount of Capital Required capital is $1,000,000 Capital is reduced to $500,000 in cases of investment in a targeted employment area. TEA is defined as: Area with unemployment of at least 150% of national average rate OR A rural area, i.e., an area not within an MSA or outer boundary of any city or town having a population of 20,000 or more Targeted Employment Area Assessment of whether investment is in a TEA is based on statistical information relating to time of investment and location where enterprise is principally doing business. Several methods to determine if area is a TEA: Check annual TEA report that may be available from designated state agency, e.g., CA Business, Transportation, and Housing Agency. Compare statistics by DOL and local state workforce agency If investor has identified interest in a particular property, research whether entity is located within a TEA by census tract. Compare census tract information with list from designated state agency. If proposed area does not qualify based on any of the above criteria, request special designation from state agency requires logical economic reasoning and supporting information to justify designation as TEA. Targeted Employment Area Several methods to determine if area is a TEA (continued) If proposed area does not qualify based on any of the above criteria, request special designation from state agency requires logical economic reasoning and supporting information to justify designation as TEA. Important to note that USCIS may question special designation for gerrymandering. Evidence supporting state s TEA designation should be included in I-526 petition.

5 Lawful Source & Tracing of Funds Lawful Source Evidence that source of investment funds is lawful Where investor derived funds by gift or loan, substantial evidence concerning bona fides of donor or lender should be included 5 years of income tax returns Tracing of Capital Law requires proof that capital is invested by the petitioner I-526 petition should include evidence that traces capital from commercial enterprise back to petitioner Lawful Source & Tracing of Funds Lawful Source Tracing of Funds Lawful business earnings Salary from work Gifts, loans, etc. $$$ $$$ $$$ Illegal activity, etc. EB-5 Investor EB-5 Enterprise Challenging in Tracing Funds Accounting services may be available to examine financial details of petitioner s source of funds, and to summarize tracing of funds from petitioner to U.S. commercial enterprise. Also advise clients to consult with counsel regarding OFAC compliance when applicable.

6 New Commercial Enterprise Law requires that investor-petitioner invests in a new commercial enterprise. New = formed after 11/29/1990. Commercial Enterprise Any for-profit entity formed for ongoing conduct of lawful business, e.g., sole proprietorships, partnerships (limited or general), holding companies, joint ventures, corporations, business trusts, or other entities publiclyor privately-owned Includes holding company and wholly-owned subsidiaries if each subsidiary is engaged in for-profit activity formed for ongoing conduct of lawful business New Commercial Enterprise Investment in a business formed prior to 11/29/1990 may be acceptable in two situations: (1) Substantial reorganization or restructuring of existing business Mere change in ownership, cosmetic changes to décor of business site, and implementation of new marketing strategy are insufficient changes (Matter of Soffici) Complete transformation of nature of business likely sufficient OR (2) Expansion of existing business, resulting either in increase of at least 40% of net worth of business or in number of employees in business New Commercial Enterprise In practice, difficult to demonstrate that an existing enterprise has undergone substantial reorganization or restructuring limited guidance available In practice, USCIS also may question whether a commercial enterprise is new if the NCE purchases assets from another enterprise. If USCIS determines that enterprise is actually an existing enterprise, it will require NCE to demonstrate a 40% increase in net worth or employees

7 Engage in Management Investor must be involved in either day-to-day managerial control of enterprise, or in management of enterprise through policy formulation Corporate officer, board member, limited partner with rights and responsibilities of ULPA Purely passive investor cannot qualify for EB-5 Employment Creation - General Investor must create F/T employment positions for at least 10 U.S. workers (i.e., USC, LPR, immigrants with authorization to work) Investor, spouse, and children do not count toward 10- employee minimum Nonimmigrants (e.g., E, H, L) are also excluded Employee is an individual who works for and is paid by commercial enterprise. Independent contractors are not included. Jobs created must be F/T (min. 35 hours/week). P/T jobs do not count. However, job-sharing arrangements, where two or more qualifying employees share one F/T position, will be counted. Employment Creation In documenting employment of U.S. workers, USCIS may require copies of Form I-9, with documentation used to complete I-9 forms. USCIS often issues RFEs for specific documents verifying worker s status, such as birth certificate or passports for U.S. citizens. This may violate antidiscrimination provisions of IRCA.

8 Employment Creation Timeline and Evidence When Jobs Must Exist Investor may file I-526 petition with evidence that: (a) required jobs have been created, or (b) jobs will be created before end of two-year conditional residence period In latter case, investor must include comprehensive business plan demonstrating need for at least 10 employees before end of conditional residence period Plan must describe business and its products/services; marketing analysis and marketing strategy; organizational structure and specific plans for hiring of staffing (including job description and timeline for hiring); and financial projections (Matter of Ho) Employment Creation Troubled Business Troubled Business A troubled business (i) has been in existence for at least two years; and (ii) has incurred a net loss for accounting purposes during 12- or 24-month period before petition was filed, and (iii) loss for such period is at least equal to 20% of business net worth before loss Petition may be based on proof that business will maintain ( save ) existing employees during conditional status period. Employment Creation Regional Center/Indirect Jobs To encourage immigration through investment and concentrate investment in specific regions, Congress created a temporary Pilot Program in 1993, directing USCIS to set aside visas for people who invest in/with a USCIS-designated regional center. USCIS has designated more than 180 regional centers located throughout the United States Creation of indirect jobs resulting from investment may be considered I-526 petition may be based on reasonable methodologies for estimating job creation

9 Questions & Answers Disclaimer This presentation outline and the presentation itself are for general educational purposes only and are not intended to provide specific guidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters. If you are not yourself a lawyer, you should seek the assistance of an immigration lawyer to help you resolve these issues. Thank you.