On Oct 20 2011 by H. Ronald Klasko

Removal of EB-5 Conditions to Avoid Removal of the Investor

The EB-5 Reform and Integrity Act of 2022 brought many changes to the EB-5 program. For the latest information, please click here.

An EB-5 investor who obtains conditional permanent residence has successfully navigated only half of the immigration process. Within the 21 to 24 month window following approval of conditional permanent residence status, the investor must file a condition removal petition on Form I-829.

[3]

Threshold Issues: Sustaining the Investment and Job Creation

By regulation, the investor must prove that he has sustained his investment and created the necessary ten direct or indirect jobs.[4] Each of these requirements raises issues.

The first issue is how long must the investment be sustained? For example, what if the investor sustains his investment through the time of filing the I-829 petition, but the investment is redeemed prior to the approval of the condition removal petition? The regulations are clear that “the alien will be considered to have sustained the investment if she has, in good faith, substantially met the capital investment requirement of the statute and continuously maintained her capital investment over the two years of conditional residence.”[5] [Emphasis added].

According to USCIS policy, however, the alien must sustain the investment not only during the two years of conditional permanent residence, but also until the approval of the I-829 petition, as this is “when the period of conditional permanent residence ends,” even if the period of conditional residence expands well beyond the initial two years.[6] Thus, from a practical standpoint, the investor must sustain the investment until the I-829 is approved or risk denial of the petition. With the long delays in I-526 approvals, the delays in issuances of immigrant visas abroad, and then the two years of conditional residence further lengthened by the I-829 processing times, it is often 5 or more years before the alien can redeem the investment safely.

With respect to job creation, what if the ten jobs were created but no longer exist by the time of the I-829 filing? What if the jobs exist at the time of the I-829 filing but not at the time of the I-829 adjudication? In both of these situations, USCIS would deny the I-829 petition because the jobs created as a result of the investment must be maintained through the entire two year period of conditional residence, which USCIS interprets as through the approval of the I-829 petition.[7] The regulations only state that the investor must provide “evidence that the alien created or can be expected to create within a reasonable time ten full-time jobs for qualifying employees.”[8] USCIS policy guidance, however, has created an additional requirement that these jobs must be maintained through the approval of the I-829 petition,[9] despite the fact that there is no specific requirement in the statute or the regulations (except in the case of a troubled business) that the jobs last two years.[10]

What if the jobs are only created immediately before the I-829 filing? This situation is slightly more acceptable to USCIS, as the I-829 regulations allow the alien to show that the jobs were either created already or are expected to be created within a “reasonable time.”[11]

While sustaining the investment and job creation are at issue during the I-829 stage, it is important to note that not all of the issues that were part of the I-526 adjudication should be reviewed at the I-829 stage.[12] These issues include the targeted employment area, the troubled business determination, the investor’s source of funds and path of funds, and the economic methodologies used to determine indirect and induced employment.

What if Plans Change?

Although neither the statute nor the regulations contain a third requirement for the I-829, USCIS created a requirement of proving no material change in the business plan by Memorandum dated December 11, 2009.[13] The Service has chosen not to define what a “material change” is. This is highly problematic because most business plans do change within a course of two or three years to deal with economic conditions, weather conditions, labor conditions, competitive conditions, etc.

The December 11, 2009 Memorandum, and the corresponding changes in the Adjudicator’s Field Manual, create a highly cumbersome procedure in the event of a material change in the business plan. The investor must file a new I-526 petition containing the new business plan. Upon approval, the investor concurrently files an application to abandon conditional permanent residence status and a new application for a new two year period of conditional permanent residence status.[14]

In addition to the added expense and added time before the investor can become a full permanent resident and be naturalized, the new procedure has several problems:

  • The investor still has to proceed with the timely filing of the I-829 petition or else would fall out of status;[15]
  • Any conditional permanent resident children who turn twenty-one before the filing of the new I-526 petition cannot be included and are removable from the U.S.; [16]
  • The investor’s employment authorization and travel permission can be jeopardized once the abandonment application is adjudicated and until the new employment authorization and travel document applications are approved.

The investor faced with a change that USCIS may or may not consider to be a “material change” has a dilemma. Should he proceed with this burdensome procedure to obtain a new two year period of conditional residence, or should he try to prove that there is no material change under the I-829 filing? The risks are extremely high.

With this in mind, the attorney representing the regional center (or the individual investor in a non-regional center application) should keep several principles in mind when preparing for the I-526 filing:

  • The business plan and financial projection should be as conservative as possible within the parameters of what is necessary to prove the requisite job creation;
  • The projections in the economic report should be as conservative as possible given the need for the investor to prove that all of the foundation facts in the economic report have actually occurred by the time of the I-829 filing;
  • Timelines should be realistic;
  • Reliance on direct jobs should be minimized since direct employment of U.S. citizens and permanent residents may be difficult to prove.

Documenting Job Creation

The key issue in most I-829 petitions is proving and documenting job creation. The issues are different when trying to document direct employment (whether with an individual EB-5 petition or with a regional center petition that relies in part on direct employment). For this purpose, it is important to distinguish between direct employment under the USCIS regulation and direct employment as defined by economists. In the regional center context, direct employment means full time (35 hours per week) W-2 employees by the new commercial enterprise in which the investor has invested.[17] In many or most regional centers, especially the loan model regional centers, there is no direct employment within the new commercial enterprise. However, the economist may define direct employees of the job-creating enterprise as “direct employment.”

The bottom line is that, for any direct employees of the new commercial enterprise, it is necessary to prove that they are U.S. citizens or permanent residents.[18] Therefore, I-9 forms are not sufficient. While W-2s, I-9s and quarterly tax returns may help to document the number of direct employees, only copies of permanent residence or citizenship documents meet the burden of proof that the employees are U.S. citizens or permanent residents. This is highly problematic because it places the employer in a position where it may have to request documents from employees that could be in violation of the anti-discrimination provision of Section 274B of the Immigration and Nationality Act.[19] Even worse, in some situations, the employer may not have access to such documents at the time of the I-829 filing.

If the business qualified as a troubled business and the I-526 was approved based on the investor saving ten jobs, the documentation requirement of the I-829 phase is to prove how many jobs existed at the time of the investor’s investment and how many jobs exist at the time of the I-829 filing. The investor must prove (a) that all of the jobs have been saved and (b) that the number of jobs saved is at least ten per investor.[20]

With most regional center applications, most or all of the projected job creation is based on indirect and induced jobs.[21] In that case, the I-829 filing must document the foundation facts that were contained in the economic report.[22] Depending upon the economic methodology used, the investor may need to prove some or all of the following:

  • Expenditures;
  • Revenues;
  • Direct employees;
  • Occupancy rates;
  • And other facts depending upon the bases of the economist’s projections.

Assuming all of the necessary job creation can be proven and documented, and assuming no material change has occurred since I-526 approval, the I-829 process may go smoothly. However, what happens if there are not enough jobs or there are delays in job creation? We will look at each problem separately.

If job creation is less than ten per investor, there are serious issues. For the non-regional center investor, the problem may be terminal and the condition removal petition may be denied. In the regional center context, the issue is more complex. What if the regional center project has 100 investors, but the total indirect and direct job creation is 900? Should all of the condition removal petitions be denied? Should 90 be approved and 10 denied? Which 10 should be denied?

Although there is no formal ruling on this subject, logic and prevailing practice seem to dictate that 90 investors’ condition removal petitions should be approved. As part of the condition removal filing packages, the regional center should track which investors have been allocated which jobs.[23] In the event that the regional center documentation specifies job allocation among investors, the allocation and the documentation should be accepted by USCIS. Absent such allocation, the first 90 investors to have their condition removal petitions adjudicated might be the winners. This scenario leads to at least two conclusions for advisors working with investors considering investing in a regional center:

  • It is best to invest in a project where the realistic job projection is well in excess of 10 jobs per investor; and
  • It may be best not to be one of the last investors in a project.

What if there will be sufficient job creation, but not necessarily by the time of the filing of the I 829 petition? The regulations do not require that all of the jobs be created by the time of the I 829 filings.[24] Rather, the investor must prove that the jobs will be created “within a reasonable time” of the I-829 filing. “Reasonable time” is not defined. In this scenario, it is incumbent upon the investor to document and explain the reasons why the job creation was delayed beyond the anticipated time line.[25] In addition, the documentation should establish with as much specificity and credibility as possible when the necessary jobs will be created. The filing should be sufficient to convince the examiner that the delay is reasonable given the circumstances and that there is some level of assurance or at least likelihood that the jobs will be created within a definable time period. This creates the dilemma discussed previously. Given the uncertainty of an examiner agreeing with the “reasonable time” presentation, should the investor rely on the I 829 filing, or should the investor, as a backup, proceed with a new I-526 showing that the jobs will be created within two years of the new conditional permanent residence period? Presumably, the investor would not want to abandon conditional permanent residence status when the new I-526 is approved if there is still a possibility that the I-829 will be approved.

What Happens if the I-829 is Denied?

Pursuant to USCIS guidance, the investor is still entitled to proof of ongoing conditional permanent residence status until there is an administratively final order of removal.[26] Before that happens, the investor will have an opportunity to renew the I-829 petition before an immigration judge in removal proceedings.[27] The burden of proof in such a proceeding is on the government.[28] If the immigration judge in the de novo proceedings denies the condition removal petition, the investor can appeal to the Board of Immigration Appeals.[29] A denial by the BIA renders the investor removable.

Federal court litigation is a possibility. In the scenario just described, the BIA affirmance of an I-829 denial can be appealed to a Federal Circuit Court of Appeals. A different option is to circumvent the removal proceedings altogether and file a federal district court declaratory judgment action prior to the initiation of the removal proceeding. The issue of whether the federal court has jurisdiction where the administrative remedy of removal proceedings has not been exhausted is an issue that is likely to be the subject of opinions in existing or future litigation.

Other Issues with Travel and Family

While the I-829 is pending, the conditional permanent resident can travel in and out of the United States subject to the same rules regarding maintenance of permanent residence status as other permanent resident aliens.[30] Upon approval of the condition removal petition, there is no restriction preventing the investor’s investment from being redeemed.[31] The investor is able to apply for naturalization four years and nine months after the date of obtaining conditional permanent residence status.

What happens if the adjudication of the I-829 is delayed and the investor meets the residence requirements necessary to apply for the naturalization? Although there is a good argument under the statute and regulation that the investor is eligible to be naturalized,[32] the USCIS position is that the investor is eligible to apply for naturalization but cannot be approved until the condition removal is approved.[33] There is no circuit court opinion on this issue as of the date of publication of this article.

In the ordinary course of events, the spouse and children of the investor have their conditions removed at the same time as the investor does.[34] This is true even if the investor’s children have subsequently turned 21 years of age.[35]

Just like businesses can change during the two years of conditional residence, family units can change. What happens if, during the 2 years of conditional residence, the principal and the spouse divorce? In this scenario, it is acceptable for the divorced derivative spouse to either be included on the principal applicant’s I-829 or file his or her own I-829 petition.[36] What happens if the principal dies? The spouse and children of the entrepreneur will be eligible for removal of conditions if it can be demonstrated that the statutory and regulatory requirements for conditional removal have been met.[37] What happens if the principal decides to abandon permanent residence status? The derivative applicants will not be able to remove their conditions under the regulations; unless deceased, the principal applicant must file an I-829 petition.

Given the uncertainties that can happen in business during the two years of conditional residence, it is important for counsel to screen for Eb-5 risks before the client invests in a regional center project or a business that will form the basis of an individual Eb-5 petition. When advising a client on his or her I-526 petition, it is extremely important to examine the realities of the business plan and the likelihood that job creation will be met two, three, even four years down the line. Ask: is the business plan realistic? Are the timelines feasible and flexible? If direct jobs are in question, how realistic are the hiring projections and timelines? If indirect jobs are in question, what are the foundation facts for the economic report? Are those foundation facts likely to occur? What happens to those foundation facts if the economy or the industry takes a downturn? Examining these questions from the beginning of the process gives your client a better shot at having his conditions removed instead of ending up in removal proceedings.

——————————————-

 

[3] 8 CFR §216.6(a)(1).

[4] 8 CFR §216.6(a)(4).

[5] 8 CFR §216.6(a)(4)(iii).

[6] 8 CFR §216.6(a)(4). See also USCIS Eb-5 Immigrant Investor Program Stakeholder Questions & Answers at 7-8 (June 30, 2011), AILA InfoNet Doc. 11050462.

[7] 8 CFR §216.6(a)(4)(iv). See also USCIS Eb-5 Immigrant Investor Program Stakeholder Questions & Answers at 7-8 (June 30, 2011), AILA InfoNet Doc. 11050462.

[8] Id.

[9] Id. at Footnote 6, supra.

[10] See INA §203(b)(5)(A)(ii); 8 CFR §204.6(j)(4); 8 CFR §216.6(a)(4)(iv). It is important to note that 8 CFR §204.6(j)(4)(i), with respect to general petitions and prediction of the jobs in the comprehensive business plan, states that job creation should occur “within the next two years,” but not last for two years. For troubled businesses, the regulations require maintaining employees for “a period of at least two years.” 8 CFR §204.6(j)(4)(ii). However, with respect to the Immigrant Investor Pilot Program for regional centers, there is no such requirement that the jobs must last two years. Id. at §216.6(a)(4)(iv).

[11] 8 CFR §216.6(a)(4)(iv).

[12] USCIS Adjudicator’s Field Manual (AFM) §25.2(e)(4)(E). See also Chang v. U.S., 327 F.3d 911, 928-929 (CA9 2003) (standing for the proposition that the I-829 is not an ab initio review of the I-526 petition).

[13] Donald Neufeld, “Adjudication of Eb-5 Regional Center Proposals and Affiliated Form I-526 and I-829 Petitions; Adjudicator’s Field Manual Update to Chapters 22.4 and 25.2 (AD09-38) (December 11, 2009).

[14] Id. at 19-21.

[15] Failure to properly file Form I-829 within the 90 day period immediately preceding the second anniversary of the date on which the alien obtained lawful permanent residence on a conditional basis results in the automatic termination of the alien’s resident status and the initiation of deportation proceedings. 8 CFR §216.6(a)(5).

[16] In order to be considered a dependent “child,” the son or daughter of the alien must remain unmarried and be under 21 years of age at the time of filing the I-526 petition. See INA §101(b)(1).

[17] 8 CFR §204.6(e) (defining “employee”); §204.6(j)((4)(i)(A).

[18] 8 CFR §204.6(e) (defining “qualifying employee”).

[19] INA §274B(a)(6) makes it unlawful for an employer, for the purposes of satisfying the requirements of section 274A(b) – the I-9 provision – to request more or different documents than are required under the I-9 rules or refusing to honor documents tendered that on their face reasonably appear to be genuine, commonly called “document abuse.” USCIS has taken the position that asking for documentation of USC or LPR status in the context of an Eb-5 petition is not for the purposes of fulfilling INA §274(b), and therefore it is acceptable to compile specific evidence of citizenship and immigration status from employees to fulfill the alien’s burden to prove job creation for “qualifying employees.” In response to an inquiry from Tammy Fox-Isicoff, a member of the AILA Eb-5 Committee, the Department of Justice has stated that “the request for more or different documents violates 8 USC §1324b(a)(6) only if committed with the intent to discriminate based on citizenship status or national origin.”

[20] 8 CFR §216.6(a)(4)(iv).

[21] Regional center Eb-5 petitions can predict jobs through “reasonable methodologies” given by economists in an expert report. Department of Commerce, Justice and State, the Judiciary, and Related Agencies Appropriations Act of 1993, Pub. L. No. 102-395, §610(c), 106 Stat. 1828, S. Rep. No. 102-918 (1992). In allowing regional centers to use indirect job creation, Congress has stated that the reasonable methodologies include “such jobs which are estimated to have been created indirectly through revenues generated from increased exports resulting from the pilot program.” [emphasis added]. Id. at §610(c). Thus, there is no requirement to document the exact amount of jobs created, or the companies at which they were created. The reasonable methodologies, as defined in the regulations, are forecasting tools considered economically valid. 8 CFR §204.6(j)(4)(iii); 8 CFR §204.6(m)(3)(v). The common forecasting tools used by economists in support of Eb-5 petitions are RIMS II, REDYN, and IMPLAN.

[22] USCIS Eb-5 Immigrant Investor Program Stakeholder Meeting Presentation and Questions & Answers at 37 (June 30, 2011), AILA InfoNet Doc. 11050462.

[23] In fact, the new Form I-924, Application for Regional Center Under the Immigrant Investor Pilot Program, specifically asks for information from the Regional Center on how the Regional Center plans to allocate jobs between investors. Form I-924A notes that USCIS may require case-specific data relating to the individual Eb-5 petitions and the job creation determination and allocation methodologies utilized by the Regional Center in certain instances to verify data on Form I-924A. See www.uscis.gov/forms.

[24] 8 CFR §216.6(a)(4)(iv).

[25] The USCIS Adjudicator’s Field Manual (AFM) guides officers to consider when the jobs will be created, the reasons for the delay, and the nature of the industry. After considering the evidence, if the officer determines that the jobs are more likely than not going to be created within a reasonable time, the I-829 should be approved. AFM §25.2(e)(5)(D).

[26] Matter of Lok, 18 I&N Dec. 101 (BIA 1981). See also USCIS AFM §25.2(k); Memo, Pearson, Ex. Assoc. Comm., Office of Field Operations (March 3, 2000). This was recently reaffirmed by USCIS at the January 7, 2011 AILA Field Operations meeting with USCIS Field Operations Directorate and its EB-5 stakeholders meeting on December 14, 2009, in which USCIS stated: “An alien investor retains conditional resident status and is entitled to proof of that status while he or she obtains review of the USCIS termination in removal proceedings.”

[27] 8 CFR §216.6(d)(2).

[28] Id.

[29] 8 C.F.R. § 1003.1(b)(3).

[30] 8 CFR §216.1.

[31] See Footnote 5, supra.

[32] The INA explicitly states that conditional permanent residents have the same rights and benefits as any other lawful permanent resident. 8 USC § 1186b(e). The plain language of this provision requires USCIS to count periods of time in conditional permanent resident status as satisfying the statutorily mandated five year residency time period for purposes of determining eligibility for naturalization. See 8 U.S.C. § 1427(a)(1). The regulations also state that “the rights, privileges, responsibilities and duties which apply to all other lawful permanent residents apply equally to conditional permanent residents, including but not limited to the right to apply for naturalization (if otherwise eligible).” 53 Fed. Reg. 30011, 30018 (final rule) (Aug. 10, 1988) (codified at 8 CFR §216.1); see also 59 Fed. Reg. 26587, 26590 (final rule) (May 23, 1994).

[33] Memorandum, Neufeld, Scialabba, Chang, “Conditional Permanent Residents and Naturalization under Section 319(b) of the Act, Revisions to Adjudicator’s Field Manual Chapter 25, AFM Update AD 09-28 (August 4, 2009). AILA InfoNet Doc. 09080761.

[34] 8 CFR §216.6(a)(1).

[35] Id.

[36] 8 CFR §216.6(a)(1).

[37] 8 CFR §216.6(a)(6).