EB-5 Investor Visa (U.S. Tax Issues)

Written by admin on May 20th, 2011

Co-authored by Jordan L. Eftekari, Esq.

(1)     Introduction

On November 2, 2007, the Wall Street Journal published an article: “Got 0,000?  The U.S. Awaits (Government’s EB-5 Program Offers Foreign Investors Green Cards for Job Creation)”.

A Federal program known as EB-5 (Immigrant-Investor Visa), administered by the U.S. Citizenship & Immigration Services (“USCIS”), encourages foreign investors to invest their way to living in the U.S.A.

Morrie Berez, chief of the EB-5 program at USCIS, stated: “The opportunity is truly beautiful to individuals who want to live and contribute their energy in the United States, and it creates economic growth and especially jobs for Americans.”

There are 10,000 EB-5 Visas available every year, and only 867 issued in 2007.  Based on the favorable currency arbitrage (Euro/Dollar, UK Pound/Dollar) the EB-5 Visa is a cost-effective, time-efficient way to immigrate to the U.S.

An investor (and immediate family) can now obtain green cards (Permanent US Residency) with an EB-5 Visa by investing 0,000 into a Government approved Regional Center (currently, over 30 Regional Centers).  Investors receive the security of permanent US residence without repeated visa applications. Citizenship may be obtained after five years.

The investment may be made in one of three forms with the EB-5 Visa:

Invest ,000,000 into a business and hire ten employees anywhere in the USA, or Invest 0,000 and hire ten employees in an area where the unemployment rate exceeds the national average by 150% or the rural population is less than 20,000, or Invest 0,000 into a Government designated Regional Center and avoid direct employment.

The 0,000 investment is the least expensive way to satisfy the visa requirements in order to receive the permanent green card after the two-year period.  Although the first two types of investment lead to permanent green card status, they require an additional showing that at the end of the two year period, ten qualified individuals have maintained jobs in the targeted employment area.

The minimum period of the investment is approximately three years.  Once an investor emigrates they may apply to have ‘conditions’ removed after 1 year and 9 months in the USA.  Processing takes up to six months. ‘Conditions removal’ means that the investment is no longer tied to the EB5, and the investor is then free to sell the investment.

The EB-5 Visa investment may be a passive investment, requiring no active business management.  With a green card via an EB-5 investment visa investors have the flexibility to take any job, run any business, retire and live anywhere in the USA, with the benefits enjoyed by U.S. citizens including property ownership or education.

(2)     History EB-5 Program

The EB-5 Visa program was started in 1991. In 1991, the Investor for an EB-5 Visa was required to make an investment of a minimum:

,000,000 0,000 (in a targeted unemployment area)

The investment required the creation of 10 jobs.

          For the first two years the program was only set up for those who were willing to invest and create their own business that would produce at least ten jobs. However, in 1993, the government began to designate certain businesses as regional centers. Original businesses that existed in an area where the unemployment rate exceeds the national average by 150% or the rural population is less than 20,000 fit within the regional center designation and were then eligible to be duly approved by the CIS (formerly the INS).

          Between 1993 and 1998 several companies were designated as regional centers. These companies all competed for foreign capital from the foreign investors involved in the EB-5 Visa program. The competition that existed for the foreign capital and the newness of the EB-5 Visa program led to abuses of the system. Most of the companies didn’t offer sound investments and were really in business to collect fees rather than to fund an ongoing business. Many investment opportunities didn’t raise the full 0,000 investment capital or hire the required number of employees.

          CIS rightly wanted to stop these abuses of the program. In 1998, CIS wrongly applied their revised rules retroactively to people who already had approved petitions. CIS attempted to revoke these visa petitions. This started the litigation. The litigation that ensued put the program on hold from 1999-2002.

          In 2002, Congress passed a new law to protect the pre-1998 investors. Also, in 2002, in a case commonly known as “Chang” the 9th Circuit Court of Appeals ruled that CIS may not apply their new rules retroactively. In August of 2003, CIS began approving regional center and EB-5 Visa petitions for the first time since 1998.

The EB-5 Visa Program was amended in 2002 by the following statute (Pl 107-273 Sec. 11037 – 2002): 

          “A regional center shall have jurisdiction over a limited geographic area, which shall be described in the proposal and consistent with the purpose of concentrating pooled investment in defined economic zones.  The establishment of a regional center may be based on general predictions, contained in the proposal, concerning the kinds of commercial enterprises that will receive capital from aliens, the jobs that will be created directly or indirectly as a result of such capital investments, and the other positive economic effects such capital investments will have.”

As of 2002, Investors may invest 0,000 in a regional center (in a targeted unemployment area) without the necessity of creating 10 jobs.  For the 0,000 investment, an investor receives a “conditional green card.”

          In January 2005, to improve and expedite EB-5 regional center related applications USCIS established an Investor and Regional Center Unit, (“IRCU”). The unit is the sole adjudicative jurisdiction for Regional Center applications pursuant to the Immigrant Investor Pilot Program for purposes of approval, denial and Requests for Evidence (RFE’s). The unit also monitors and follows up on the actions of approved Regional Centers to ensure compliance with the terms, scope, and conditions of their approval/designation relative to their approved business plans and indirect job creation methodologies. Finally, the unit develops and proposes EB-5 program, policy, and regulation changes or improvements to USCIS management.

The CIS is constantly continuing their efforts to expedite and organize the EB-5 program. Up until January 2009, there were three different filing locations for visa and/or regional center petitions. Currently the CIS has established a unit at the California Service Center and utilizes it as the sole location to file for the EB-5 program. This center is comprised of specially-trained adjudicators dedicated to EB-5 adjudications.  By consolidating adjudications at the center, USCIS believes that it will be able to reduce overall processing times and better monitor EB-5 related adjudications.

(3)     U.S. Tax Issues – Non-Resident Aliens

U.S. Estate Tax (Non-Resident Aliens)

A non-resident alien is subject to U.S. estate tax on their taxable estate assets situated in the U.S. (IRC §2101(a), 2106(a)).

For U.S. estate tax, both stock of a U.S. corporation (IRC §2104) and U.S. real estate (Treas Reg §20.2104-1(a)91)) are “situated” in the U.S.

Non-resident aliens are entitled to:

Unlimited deduction for transfers to U.S. citizen spouses (IRC §2106(a)(3)). A “,000 unified credit”, which permits a non-resident alien to transfer only ,000 worth of property free of estate tax. Deduct a portion of expenses, indebtedness, taxes and losses from their gross estates (IRC §2106(a)(1)), deduct certain charitable contributions from their gross estates (IRC §2106(a)(2)(A)), but only if they disclose their world-wide estate in their estate tax return (IRC §2106(b)).

A person who acquires property from a non-resident alien decedent will receive a “stepped-up” basis in the property (i.e., a basis equal to the fair market value of the property at the date of the decedent’s death) regardless of whether the property was includible in the non-resident alien’s gross estate for estate tax purposes (IRC §1014(b)).

Generation Skipping Tax

Non-resident aliens are subject to the generation skipping tax but only on gifts subject to gift or estate tax (e.g., no gift tax on lifetime “skips” of intangible property).

U.S. Gift Tax (Non-Resident Aliens)

A non-resident alien is subject to gift tax when he makes a gift of real or tangible personal property situated in the U.S. (IRC §2501(a)(1), §2511(a); Treas Reg §25.2511-1(b)).

A gift of U.S. real estate is subject to gift tax (Treas Reg §25.2511-3(b)(1)).

A gift of U.S. intangible personal property is not subject to gift tax (IRC §2501(a)(2)).

Non-resident aliens are not entitled to the unified credit (M in gifts exempt from tax).

Non-resident aliens are entitled to:

,000 annual exclusion for gifts to any person. Unlimited exclusion for gifts to defray educational or medical expenses. The unlimited exclusion for gifts to citizen spouses. The 3,000 (2009) annual exclusion for gifts to non-citizen spouses (see: Rev Proc 2008-66, IRC §2503(b); 2503 (e), Treas Reg §25.2523(i)-(1)(a), (c)(2)). Unlimited amount of property to U.S. charity free of gift tax (IRC §2522(b)). Unlimited amount of property to a trust, or foundation, only if the gift

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