least ten jobs were created. Documenting the flow of funds from
the investor, to escrow, to the new commercial enterprise, to the
job creating enterprise, and not back to the investor is critical to
proving that these requirements have been met. It is extremely
helpful to have an escrow agent that maintains subaccounts for
each investor so that each investor’s funds can be traced individually. Documentation must be provided by the project developer,
the regional center, the escrow agent and the new commercial
enterprise, and includes, but is not limited to the following:
•
Escrow account statements and confirmation letters;
•
Bank statements for accounts of the
new commercial enterprise;
•
Records showing the transfer of funds
to the job creating enterprise;
•
Tax returns, including schedule K-1, financial
statements, and cash flow statements; and
•
Evidence that the job creating
enterprise has spent the money.
Construction Expenditures:
In real estate development projects, construction expenditures
are often the single most common input into EB-5 economic
models. The good news is that most developers are already in
the practice of maintaining detailed expenditure records. The
bad news is that they usually are not separating out eligible and
ineligible costs for EB-5 purposes, and the documentation is
voluminous. Typical successful I-829 packages are more than
2,000 pages. It is possible to replace a large portion of this pile
of documents with audited expenditure reports, but hiring an
independent CPA firm to perform an audit is not inexpensive.
Documentation includes, but is not limited to the following:
•
•
Job Creation:
How you document job creation depends greatly on whether
the investment is a direct investment or a regional center investment. In the direct context, only actual W-2 employees of
the new commercial enterprise (or its wholly owned subsidiary)
can be counted. Investors in a regional center are able to count
indirect jobs through the use of an economic model. However,
W-2 employees can still be used as an input into the model to
calculate indirect job creation. The other two most common
inputs used by economists in EB-5 economic models are
construction expenditures and revenue. Most EB-5 economic
models are input/output models based on multiplier tables.
The way these models work is that for every unit of input, i.e.
one employee or $1 million of construction expenditures or
revenue, a certain number of jobs are predicted to be created.
The number depends on the multiplier, which is calculated
from vast sets of government data. For example, in a particular
region, 11 jobs might be created as a result of $1 million of
construction expenditures, or employing one person might
create 0.9 indirect jobs.
Employees:
When counting employees, only full-time, permanent, qualifying U.S. workers can be counted. Multiple part-time positions
cannot be combined to create one full-time position. The investor and his or her immediate family members do not count.
Only U.S. citizens and lawful permanent residents, asylees and
refugees, and aliens granted suspension of deportation qualify.
Employees come and go, so it is important to document at
least ten full-time, permanent positions, as well as employees.
Documentation includes, but is not limited to the following:
•
Payroll records, quarterly tax filings,
and similar documents; and
•
I-9 forms, copies of passports, birth certificates,
green cards, or other documents proving status.
Contracts, invoices, and paid checks;
Full copies of all construction draw packages; and
•
Spreadsheets of construction expenditures.
Revenues:
When the job creating enterprise is an operating business,
one of the most common inputs into EB-5 economic models
is revenue. Nota Bene -- if revenue is an input for the model,
a project must meet its revenue projections in order to create
sufficient jobs. It is important to be conservative with revenue
projections in the EB-5 context, and to always have a margin
between the projected number of jobs and the number of jobs
required to enable all investors to have the conditions on their
residence removed. Documentation includes, but is not limited
to the following:
•
Tax returns of Job Creating Enterprise;
•
Balance sheet, P&L, and cash flow
statements (preferably audited);
•
Detailed reports of revenues; and
•
Other evidence of revenues, as
applicable and available.
Documenting compliance with the EB-5 requirements can
be a daunting task, and the success of your regional center and
your investors’ immigration goals depend on doing it right.
With a good compliance program, managing this burden can
be made easy and a matter of routine rather than a source of
stress and potential problems.
★
Daniel B. Lundy
Daniel B. Lundy is a Partner at Klasko
Immigration Law Partners, LLP, where he
practices almost exclusively in the EB-5 Program
area. Mr. Lundy leads the Regional Center/
Developer Team and the Compliance Team of
the firm’s EB-5 practice and represents established Regional Centers,
clients applying for regional
center designation, and
developers wishing to access
foreign investor capital
through the EB-5 program.
Please note that this article does not describe the information and documents
that need to be collected and maintained for securities purposes.
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