Immigration Law Considerations
As discussed in the last post, this post addresses immigration law exclusively by a guest post writer, Ms. Teodora Purcell. She provides a good overview of EB-5 visas and the current law and likely changes in the near future.
The Pros and Cons of the EB-5 Immigrant Investor Program
The EB-5 Immigrant Investor program was created by the Immigration and Nationality Act (“INA”) of 1990 to stimulate the US economy through capital investments made by foreign investors to create jobs. It attracts capital by facilitating US permanent resident status (aka “green card”) for foreigners who make a $1 million USD (or in some cases, $500,000 USD) investment in an eligible business that results in at least ten US jobs and benefits the US economy.
The pros of the EB-5 program to the US are evident from the numbers. In FY 2014, 10,928 EB-5 petitions were filed with the United States Citizenship and Immigration Services (“USCIS”), 5,115 approved, and 12,453 pending, which translates into over $2.5 billion approved for investment and an additional $6.2 billion in capital awaiting federal adjudication, and the creation of thousands of US jobs. EB-5 capital is also an attractive low cost funding tool for project developers in the US, while it offers the foreign investor a path to permanent residency that is not visa backlogged and does not require sponsorship by a US employer or relative. But is the EB-5 an easy and quick way “to purchase your green card”?
Basic EB-5 Requirements
The EB-5 program includes two separate avenues: (1) Direct EB-5 investment – where the investor invests in an enterprise and plays a role in management or policy making, which will directly create ten jobs, or (2) Regional Center based EB-5 investment – where the investor invests in a USCIS approved regional center and plays a more passive role by having policy making authority. Both require: (1) the investment to be made in a for-profit, new commercial enterprise; (2) a contribution of capital at risk in the amount of $1,000,000 USD, or $500,000 USD if the business is in a targeted employment area (i.e. high unemployment or rural area), aka “TEA”; (3) the investment to be used for creation of at least ten full time jobs for US workers; and (4) the investor to establish the path and the lawful source of the investment.
Pros and Cons of Direct and Regional Center EB-5 Investments
The Regional Center (“RC”) is an entity designated and regulated by USCIS, which pools EB-5 capital from multiple foreign investors in job-creating economic development projects within a defined geographic region and designated industries. USCIS has approved approximately 600 RCs and 95% of the EB-5 petitions are based on a RC investment. Notably, EB-5 RC investment funds are subject to U.S. securities and anti-fraud laws and regulations, and the Securities Exchange Commission (SEC) and USCIS are raising awareness of how the EB-5 program can be misused and of the importance of proper due diligence to be conducted by foreign investors.
The direct EB-5 program is permanent, whereas the RC EB-5 program sunsets on September 30, 2015, but is expected to be reauthorized by Congress for another five years, and there is proposed legislation to make it permanent. The most recent bipartisan bill on the RC EB-5 program, The American Job Creation and Investment Promotion Reform Act, was introduced on June 3, 2015, known as The Leahy-Grassley Bill. The proposed legislation would reauthorize the EB-5 RC program until September 30, 2020, rather than make it permanent, and will provide an overhaul of reforms to improve the program’s integrity, including raise the requirement investment amount to $800,000/ $1,200,000, respectfully.
With the direct EB-5 investment, the foreign national accomplishes not only an immigration purpose but also a purpose of investing in a business that he or she runs and that may provide significant return, whereas with the RC EB-5 investment, the rate of return is typically 0.5-2% and the investor plays a more passive role. However, the direct EB-5 investor must prove direct employment of ten U.S. workers, whereas, with RC EB-5 investment, the job creation is shown by a combination of direct, indirect and induced employment using reasonable economic methodologies. Most (but not all) RCs are located in $500,000 TEAs but there can be direct EB-5 investments that also qualify for the reduced capital. Both EB-5 options require the investor to be engaged in the “management” of the enterprise, which can be satisfied if the investor is a limited partner with the rights, powers and duties normally granted to limited partners under the Uniform Limited Partnership Act. Which EB-5 option to choose requires an individualized analysis of the investor’s circumstances and goals.
No Fast Track EB-5 Process and No Guaranteed US Permanent Residence
The EB-5 investors are not guaranteed a green card because of the lengthy process and possibility that the project in which they invest could fail or undergo material changes, and there is no expedite processing of EB-5 petitions. The process starts with the filing of an I-526 immigrant entrepreneur petition with USCIS, in which the investor must establish the lawful source of funds, document the path of the required investment, and show that the ten US jobs will be created within two years, or that the jobs have already been created as a result of the investment.
The filing of an I-526 petition alone does not give the investor the right to stay or work in the US. Current I-526 average processing time is approximately 14 months and the I-526 approval does not give the investor permanent residence. Rather, after the approval, if the investor is outside the US, he or she and dependent family members will apply for their immigrant visas at the US Consulate in their home country, which requires additional documentation, security checks and adds another 6-12 months to the process. If the investor is in the US in valid nonimmigrant status, he or she will adjust status to permanent resident in the US, which takes about six months. So after 2-3 years (provided no visa retrogression), the investor receives a green card that is conditional and valid for only two years.
Within 90 days of the conditional green card expiration (i.e. between the 21 to 24 month after the green card approval), the investor must file an I-829 application to remove the condition on permanent residence with USCIS, and prove that the investment has been sustained and that the requisite jobs have been created or will be created within a “reasonable time.” The current average I-829 processing time is 10 months and if unsuccessful, the EB-5 investor may not only lose the green card but end up in removal proceedings. If the I-829 is approved, the EB-5 investor receives his or her permanent green card. During this process, the EB-5 investment must remain in the enterprise until the condition is removed (i.e. for 4-5 years), whereas in all other employment based green card categories, the result is a permanent green card and no such significant financial commitment is required.
The EB-5 program accounts for less than 1% of the immigrant visas issued annually by the US and throughout the process, investors are subject to the same background checks as applicants in any other visa category, and their ability to eventually apply for citizenship is the same as others. The INA allocates 10,000 EB-5 immigrant visas, of which 3,000 are reserved for the RC program, and no more than 7 percent of the visas can be allocated to any one country. Since close to 85% of the investors are from China, for the first time in September 2014, the EB-5 visas became unavailable for Chinese nationals, and EB-5 visa backlog for Chinese investors may be expected in 2015. There are more significant immigrant visa quota backlogs in other categories of family and employment-based immigration, which is why the EB-5 still remains attractive.
EB-5 and Other Green Card Options
Despite the challenges investors may face in tracing the invested funds or in the job creation, and the possibility of visa backlog for some, the EB-5 is still a good option, although it is not the panacea for all foreign nationals seeking permanent residence in the US. There are other employment based visa options that may be available for the investor and these alternatives, if successful, lead to a permanent green card, do not require placement of a $1,000,000 investment at risk, and there are minimal concerns about visa availability. For the foreign nationals who choose the EB-5 green card avenue, it is important to put together a competent team that includes an immigration counsel, as well as business, tax, and securities counsels, to advise on the multiple complex issues that go into determining whether the EB5 green card path is the right choice for the client.
Immigrant investors and entrepreneurs bring substantial value to the United States, not only through the capital they deploy or the jobs they create, but also with the knowledge and experience they bring to US businesses, and working with such clients is very rewarding.
 The immigration EB-5 laws can be found at INA§203(b)(5); 8 CFR§204.6 and 8 CFR§216.6.
 https://iiusa.org/blog/government-affairs/uscis-government-affairs/citizenship-immigration-services-uscis-adjudication-data-i526-i829-petitions-reveal-unprecedented-growth-eb5-program-fiscal-year-2014/ /
 8 CFR §§204.6(e) & (h).
 There is a proposed legislation to increase the investment amount to $1,200,000 USD and $800,000 USD, respectively. See S.1501, The American Job Creation and Investment Promotion Reform Act, available at https://www.congress.gov/bill/114th-congress/senate-bill/1501/text
 8 CFR §§204.6(e) & (f)(2).
 8 CFR §§204.6(e) & (j)(4). The USCIS deems the two year period to commence six months after the adjudication of the I-526 petition. See USCIS Policy Memorandum (May 30, 2013)
 8 CFR §204.6(e).
 The interest being offered and sold in an EB-5 offering by regional centers constitute securities. See Securities Act of 1933; Securities Exchange Act of 1934.).
 For more information, see http://www.sec.gov/investor/alerts/ia_immigrant.htm
 S.744, H.R. 2131, H.$. 4178, and H.R. 4659 in the 113th Congress
 S.1501, The American Job Creation and Investment Promotion Reform Act, available at https://www.congress.gov/bill/114th-congress/senate-bill/1501/text. Also see http://www.leahy.senate.gov/imo/media/doc/The%20American%20Job%20Creation%20and%20Investment%20Promotion%20Reform%20Act.pdf
If implemented, the Leahy-Grassley legislation will have a significant impact on Regional Centers and investors alike, some of the most notable changes proposed to the EB-5 Program include: (1) Raise the minimum investment amount for all EB-5 investors to $800,000 for TEAs and $1,200,000, respectively; (2) Establish an “EB-5 Integrity Fund” to cover the costs associated with audits and site visits to detect fraud in the United States and abroad; (3) Increased oversight of TEA designation; (4) Expanded USCIS authority to terminate Regional Center designation; (5) Establish a premium processing option to expedite USCIS adjudication of EB-5 petitions at an additional filing fee.
 8 CFR §204.6(j)(5).
 The USCIS requires that the I-526 petition be accompanied by a detailed and credible business plan compliant with the requirements in the precedent decision of Matter of Ho, 22 I&N Dec. 206 (INS Assoc. Comm’r, Examinations, 1998).
 8 CFR §216.6
 8 CFR §216.6(a)(4)(iv) . In its May 30, 2013 Policy Memorandum, USCIS has interpreted “reasonable time” to mean one year, starting at the end of the conditional residence period.
 INA §203(a) ; INA §204(1) & INA§202(a)(2).
Teodora Purcell | Attorney at Law
11238 El Camino Real, Suite 100, San Diego, CA 92130, USA
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Does the IRS have access to the USCIS immigration data for former lawful permanent residents (LPRs)?
Information about former LPRs, such as the individuals names, is not published under the statute, IRC Section 6039G, which only covers former U.S. citizens.
This raises the question of whether the Department of Homeland Security tracks former LPRs – names and addresses overseas and provides that information to the Internal Revenue Service?
A prior post discussed the newly published USCIS immigration form I-407 for LPRs who must now use it when formally abandoning LPR status. See, More Information and More Information: USCIS Creates New Form for Abandonment of Lawful Permanent Residency
The new I-407 Form requires much more information and is 2 pages in length. The old form had only 6 lines and was less than 1/2 of a page in length. These forms are set forth here. The new form requires the address overseas of the individual.
As readers here know, the names of former U.S. citizens are published quarterly by the U.S. federal government for the world to see. See a prior post, The 2014 Third Quarter Renunciations Is probably the New Norm –
The complete set of lists going back to the mid-1990s can be reviewed here. Quarterly Publications.
Of course, the IRS can easily select and identify individuals for audit, by simply drawing from the published names of former U.S. citizens, which is currently tracking at an average of about 850 former USCs quarterly. In contrast, the number of former LPRs who have filed USCIS Form I-407 is tracking at an average of about 4,000 to 5,000 individuals quarterly.
While citizens are often the focus of the public press and Congress regarding “expatriation taxation”; the statute also wraps in so-called “long-term residents.” These are individuals who had or continue to have “lawful permanent residency status.” There are numerous technical considerations in this area, but needless to say, the number of former lawful permanent residents who have simply filed Form I-407 – Abandonment is far in excess of those U.S. citizens who have filed for and received a Certificate of Loss of Nationality (“CLN”) – Form DS-4083 (CLN). The graph reflects the enormous difference.
On a related post, the question was raised –What are the Number of LPRs who Leave U.S. Annually without filing Form I-407 – Abandonment?
This is important, since many LPR individuals will have “expatriated” without actually having filed USCIS Form I-407. See, Oops…Did I “Expatriate” and Never Know It: Lawful Permanent Residents Beware! International Tax Journal, CCH Wolters Kluwer, Jan.-Feb. 2014, Vol. 40 Issue 1, p9
While the IRS has specific information about U.S. citizens, it is not clear whether the Department of Homeland Security via the USCIS provides data to the IRS regarding lawful permanent residents who have filed Form I-407? If such an individual becomes a “covered expatriate” under the U.S. tax law, the range of adverse tax consequences can follow them and their future beneficiaries and heirs, including as follows:
- “mark to market” taxation on their worldwide assets,
- 40% inheritance tax to U.S. beneficiaries,
- 40% tax on gifts to U.S. beneficiaries,
It seems fairly easy, from a legal perspective, that the IRS can request the names, addresses (and indeed the newly completed form) from the USCIS of all individuals who have filed USCIS Form I-407. From the USCIS records, the IRS will be able to determine if the individual was a “long term resident” based upon the number of years the individual had such status.
Assuming the IRS determines the individual is a long term resident, they can then simply check to see if the they have received IRS Form 8854 from the former LPR; in order to determine if she or he satisfied the certification requirement of Section 877(a)(2)(C). If not, the IRS will necessarily know the individual is a “covered expatriate.”
More Information and More Information: USCIS Creates New Form for Abandonment of Lawful Permanent Residency
The U.S. Customs and Immigration Service (USCIS) just announced on 23 March 2015, that a new Form I-407 is available and is to be used, per the USCIS website announcement, which announcment provides in part as follows:
New Version of Form I-407 Now Available
USCIS has published a new edition of USCIS Form I-407, Record of Abandonment of Lawful Permanent Status (OMB No. 1615-0130). You can download the form on our website.
You may begin using the revised Form I-407, Record of Abandonment of Lawful Permanent Resident Status today. The current edition is dated 02/26/2015, and we will not accept previous form editions
Now, the individual is required to state the reasons for abandoning lawful permanent residency status.
Responses to each of these questions will have important legal consequences, including potential tax implications under IRC Sections 877, 877A, et. seq. See, for instance a prior post: What could be the focal point of IRS Criminal Investigations of Former U.S. Citizens and Lawful Permanent Residents?
One of the important enforcement and practical questions raised, is: Will the IRS be able to better track former “long-term residents” (certain former lawful permanent residents) for purposes of the “expatriation tax” under the new reporting form and system?
As has been explained, if an individual fails to certify under the tax law, they will necessarily be a “covered expatriate”; even if they do not meet the asset or income tax liability thresholds. See a prior post, Certification Requirement of Section 877(a)(2)(C) – (5 Years of Tax Compliance) and Important Timing Considerations per the Statute.
U.S. Department of State has Allowed (Starting in at least 2013) USCs to Keep their U.S. Passports After Oath and Prior to Receiving CLN
Washington Post journalist, Ms. had an interesting article on March 3, 2015, titled Yes, the State Department can jump on a problem and fix it in record time.
The focus of the article was that the U.S. Department of State can indeed fix a problem (in this case how and when U.S. passports are taken from U.S. citizens who take the oath of renunciation).
The article was a bit of a surprise to me, as I have had experience with several clients where the Consulate offices have indeed allowed the U.S. citizen to physically maintain their U.S. passport after taking the Oath of Renunciation (Form DS-4080, Oath of Renunciation of the Nationality of the United States) but prior to actually receiving the “Certificate of Loss of Nationality” (“CLN”).
After a U.S. citizen has formally renounced (or relinquished) their U.S. citizenship, the U.S. Department of State provides a CLN. This form can be located here at – Certificate of Loss of Nationality of the United States, Form DS-4083 (CLN)
You can go to the page “U.S. Department of State” under “Resources” for further U.S. Department of State Documents related to loss of nationality.
Sometimes, the U.S. Department of State will take several months to process the file in Washington D.C., before they actually issue the CLN. I have had cases (worst case scenarios) that take upwards of 9-10 months. See, The IRS does not give a “Certificate of Expatriation” or similar tax document . . .
However, my experience on several cases is that consular officer will generally allow the individual to physically keep the U.S. passport until the CLN is actually issued and received by the individual in exchange for their passport. This has been the case for some 2 +/- years.
This procedure has been formalized in the Foreign Affairs Manual which added the additional key language in paragraph (4) regarding U.S. citizens who need their passport for travel to the U.S.
Some individuals are mistaken that the Obama proposal to exempt certain U.S. citizens from taxation (including the “mark to market” exit tax), is the same as the exception in IRC Section 877A(g)(1)(B).
It’s not. They are not the same, although they have some similar requirements (e.g., 5 years of certification of U.S. tax law compliance under penalty of perjury).
For a brief discussion on the President’s proposal, see –The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group
The Proposal by the President to Exempt Certain U.S. Citizens from Worldwide Taxation: – Very Small, Select Group
A prior post explained the green book proposal published earlier in February: Obama Budget Proposal to “Provide Relief for Accidental Americans”? Will the Proposal to Modify the Expatriation Rules Become Law?
The unique consequence of such a proposal, would be to eliminate U.S. citizenship based taxation for a very small, select group of U.S. citizens. See, Co-author. “Tax Simplification: The Need for Consistent Tax Treatment of All Individuals (Citizens, Lawful Permanent Residents and Non-Citizens Regardless of Immigration Status) Residing Overseas, Including the Repeal of U.S. Citizenship Based Taxation,” by Patrick W. Martin and Professor Reuven Avi-Yonah, September 2013.
The group affected would indeed be very small. Most importantly, the requirements that would limit the number of eligible persons to a very small class of individuals are the following:
- [those who] have never held a U.S. passport or . . . held a U.S. passport for the sole purpose of departing from the United States in compliance with 22 CFR §53.1,
- [those who] relinquish . . . his or her U.S. citizenship within two years after the later of January 1, 2016, or the date on which the individual learns that he or she is a U.S. citizen.
The immigration law regulations 22 CFR § 53.1 require that a U.S. citizen have a U.S. passport to enter or depart the United States. The relevant part of the regulations is § 53.1(a) which provides as follows:
Passport requirement; definitions.
Assuming an individual was aware of such regulatory rule, they could not qualify for this proposed exception, if they ever lived in the U.S. since becoming 18 1/2 years old. This means that only those individuals with U.S. passports who (i) obtained a U.S. passport as a child (presumably through their parents) while (ii) living in the U.S. and (iii) did so in order to comply with this regulation 22 CFR § 53.1 would be eligible. Since the regulations were just passed in 2006, anyone who obtained a U.S. passport, for instance in 2002 (even if they never lived in the U.S.) would presumably be disqualified from this tax treatment.
Also, if they did not get a passport when they were in the U.S., leaving the country after the 2006 passport regulations were adopted, would have been a violation of the law.
Bottom line, it seems nearly impossible that anyone who ever had a U.S. passport would ever qualify for this exception.