EB5 Investors Magazine Volume 2 Issue 1 | Page 45

Inc. (REMI), the Regional Input-Output Modeling System (RIMS II), the Impact Analysis for Planning (IMPLAN), and the Regional Dynamics Economic Analysis Model (REDYN). There are also additional, more geographically-specific models, such as the Washington State Input-Output model, which have a history of successful adjudications. Even though the decision as to which model is most appropriate for a particular project is usually decided between the regional center and economist well before they draft a template I-526, investors and their attorneys must still review the project’s economic report. A careful review must ensure that, not only does the report make cogent sense of which kinds of jobs are countable and whether calculations are based on realistic inputs, but also whether those inputs can be easily documented for the purposes of Form I-829. For example, generally a project may include the economist’s direct construction employment impacts, only if construction lasts longer than two years. Beyond reviewing a projected timeline, one must ensure that there are mechanisms in place to adequately and accurately document the actual timeframes, which might not commence until well after an I-526 is filed. The same holds true for all inputs. If such mechanisms are not in place, then there may be significant difficulties in calculating job creation. Investors and counsel should not be shy in asking whether there are procedures in place to document economic inputs. Common inputs Perhaps the most common input used by leading EB-5 economists today is construction expenditures. By using expenditure models, economic reports analyze a common EB-5 deal structure where the new commercial enterprise loans capital to a job-creating entity which undertakes construction, generating indirect EB-5 jobs. Using expenditures requires substantiation that EB-5 money was loaned and spent; therefore, qualifying employment may be deemed as created per the economic report. Invoices and copies of corresponding checks to show payment are the best evidence for substantiating construction expenditures. Voluminous expenditures can be summarized (with an extra level of credibility) by using an independent auditor’s report. Expenditures should be consistent with the job-creating entity’s income taxes and bank statements. At a bare minimum, the adjudicating officer should be given a spreadsheet that clearly summarizes costs in particular industry fields, in order to enable him/her to check the inputs against the economic report’s multipliers. If the report leverages the economist’s direct construction impacts, an investor must be able to show construction lasting longer than two years. This can be done through the use of timelines, contractor/developer reports, photos, permits, and even media articles. Rather than rely solely on expenditures, many projects leverage the direct economic effects of a particular project. The most common direct effects used to measure EB-5 job creation include revenues, salary expenditures, and tenant occupancy. The revenues of a project-affiliated business can be used as an economic input. For example, future revenues to a hotel may be forecasted to derive induced job creation through associated industries. An economist may be able to calculate the indirect employment impacts that visitors to a city may have on local businesses. In such cases, it is of vital importance for the regional center to secure the contractual right to copies of the hotel (or relevant entity’s) business and tax documents. In order to prove revenues, the I-829 filing should provide copies of financial statements (audited is clearly preferable) for each year of the particular investor’s conditional period residency, as well as the corresponding filings showing reported revenues to the IRS. If contracts granting the regional center the rights to receive such documents are not included with the I-526, prudent investor counsel should inquire as to how the inputs are to be documented. Similarly, a common input, which may involve the business operations of a particular entity within the project, is salary expenditures of employees. In this input, an economist demonstrates that the salary paid to employees affiliated with the project leads to economic gain—without the EB-5 investment, the employees would be earning and spending much less. To prove this input, the investor must be able to leverage payroll expense records from the relevant job creating entity. These records should be substantiated by the latest income tax filings and employees’ W-2s. IRS Form 941 should also be used to substantiate the number of employees, given that most investors will probably not be filing around tax time. Continued on page 44 w w w. E B 5 I n v e s to r s . c o m 43