Summary of EB-5 Interactive Series: Expenses That are Includable (or Excludable) for Job Creation

On June 4, 2015, USCIS’ Immigrant Investor Program Office (IPO) hosted a stakeholder engagement to discuss expenses that are, or are not, includable for job creation under the EB-5 program. This engagement is part of the IPO’s EB-5 interactive series, which covers in depth topics and provides an informative discussion for EB-5 stakeholders. As stated by USCIS, this call was important because regional centers and EB-5 investors must submit evidence of job creation that results from the new commercial enterprise. Specifically, EB-5 investors must provide evidence at the I-526 stage that their investment will directly or indirectly create a minimum of 10 full-time jobs. As most filings rely on multiplier tables in an economic report (also known as input-output modeling) to estimate the number of jobs created, it is important to remember that in order to obtain a valid result, the expenses used in the modeling must be eligible for job creation purposes. Below is a summary of what was covered in the engagement:

Hard Cost Expenditures
USCIS requests that to ensure hard costs can be determined as eligible, that the model break down the project’s hard costs into specific expenditure categories (such as masonry work, plumbing, flooring, landscaping, etc.), so that USCIS economists can assess whether these costs are reasonable inputs. Therefore, providing only an aggregate total of the hard costs is likely insufficient to establish eligibility.

Certain evidence should be submitted to strengthen the credibility of the hard costs. USCIS exemplifies this by stating, a stronger case filing would accompany the assumptions with a third-party market feasibility report, or if a developer shows a successful track record in completing similar projects.

Contingency (or reserve funds) are permissible as inputs, so long as they adhere to acceptable industry practices. At the I-829 stage, USCIS will determine whether the contingency funds were actually used.

Furniture, fixtures, and equipment are generally eligible so long as the applicable multiplier is used.

Soft Cost Expenditures
USCIS notes that if the model used in the economic report provides specific categories for the soft costs, the multiplier categories specific to these costs should be used instead of bundling such costs under general construction expenditures.

Land Purchases: Some closing costs may be eligible; however, the actual purchase of a title from the previous land owner does not create any economic activity, and is therefore ineligible. Some transactional costs, such as realtor and title policy expenses, appraisals, site inspections and site clean-up, may be ineligible if they were incurred before the immigrant investor capital was placed at risk.

Architectural/Engineering Services: Generally, USCIS finds this as a permissible input

Legal Fees: If they relate to complying with the EB-5 program or counseling of an immigrant investor, then they are not permissible. However, if they relate to counseling a business in relation to compliance of local regulations, tax laws, employment laws, etc., then they are permissible. Regional centers using legal fees in their modeling should show clear evidence that the legal costs used in the model only relate to the permissible inputs stated above.

Financing Fees: If they relate to the EB-5 capital, then they are not permissible. However, if they relate to other loans or equity associated with the project, then they may be eligible.

Hypothetical, Actual, and Exemplar Projects (Filing a Form I-924)
USCIS evaluates evidence submitted with an I-924 application based on the “preponderance of the evidence” standard. Meaning, they evaluate the evidence to determine if it “more likely than not” conforms to the regulatory requirements.

USCIS deems “general proposals” as a filing for a hypothetical project.

If the filing includes a Matter of Ho compliant business plan, and/or the commercial enterprise’s organizational and transactional documents, the regional center may be designated with an actual or exemplar project. This designation accords deference to subsequent Form I-526 petitions involving the same project and material facts.

http://www.natlawreview.com/article/summary-eb-5-interactive-series-expenses-are-includable-or-excludable-job-creation

Mentions

• Greenberg Traurig, LLP
• Cory A. Richards

States

• New York