Panel 5A

EBEB‐‐5 Visas: 5 Visas: Immigration to the U.S. and International Tax ConsequencesImmigration to the U.S. and International Tax Consequences

Speakers:- Lincoln Stone ‐ Stone & Grzegorek LLP‐Michael Welters ‐ Bull, Housser & Tupper‐ Patrick W. Martin ‐Procopio, Cory, Hargreaves & Savitch LLP

DisclaimerDisclaimer

This presentation outline and the presentation itself are for generaleducational purposes only and are not intended to provide specificguidance or legal advice about what to do or not to do in any particular case. You should not rely on this general information to make decisions about specific immigration matters.

2

IntroductionIntroduction• EB-5 category created in 1990 for foreign nationals who

invest in a new commercial enterprise that will benefit the U.S. economy and create at least 10 full-time jobs.

• Congress set aside 10,000 immigrant visas annually for investors and their immediate family members.

• Pilot Program provides for regional centers. Job creation may be estimated using “reasonable methodologies.”

Sources of LawSources of Law• Statutes, regulations:

– For I-526 petition: INA §203(b)(5) and 8 CFR §204.6 – For I-829 petition: INA §216A and 8 CFR §216.6

• AAO precedent decisions– Matter of Soffici, 22 I&N 158 (Assoc. Comm’r, Examinations 1998); AILA InfoNet

Doc. No. 98070290– Matter of Izumii, 22 I&N 169 (Assoc. Comm’r, Examinations 1998); AILA InfoNet

Doc. No. 98082091– Matter of Ho, 22 I&N 201 (Assoc. Comm’r, Examinations 1998); AILA InfoNet

Doc. No. 98081291– Matter of Hsiung, 22 I&N 206 (Assoc. Comm’r, Examinations 1998); AILA InfoNet

Doc. No. 98081290

• See also USCIS memoranda, Adjudicators Field Manual, materials from Stakeholder Meetings, and other EB-5 materials at www.uscis.gov

4

General ProceduresGeneral Procedures• File Form I-526, supporting documentation, and $1,500 filing fee with

USCIS – Dallas Lockbox Facility. (California Service Center will adjudicate petition.)

• Upon I-526 approval and visa availability, investor and immediate family (spouse, unmarried children under 21 years old) may apply for immigrant visa at U.S. consulate or for adjustment of status if in the United States. Dependents can avail of CSPA.

• Initial permanent residence is conditional for 2 years.

• File Form I-829 with California Service Center to remove conditions.

5

General RequirementsGeneral Requirementsfor Ifor I--526 Petition526 Petition

• Invest Capital

• In a New Commercial Enterprise

• Engage in Management

• Create or Save Jobs

6

Investment of CapitalInvestment of Capital• Invested, or in Process of Investing

– Law requires an investor-petitioner to have invested or be in the process of investing required capital.

– Theory vs. Practice (Matter of Hsiung)• Equity Capital

– “Invest” = contribute equity capital– Loans of capital by investor to commercial enterprise do not

count. Investor cannot receive any bond, note, or other debt arrangement from commercial enterprise in exchange for contribution of capital

– Provision for guaranteed returns and redemptions may be impermissible debt arrangement (Matter of Izumii)

7

Capital Must Be Capital Must Be ““At RiskAt Risk””

8

• Escrow – Investor may use an escrow, conditioning release of funds to commercial

enterprise on approval of I-526 petition. However, escrow must release funds directly into commercial enterprise’s accounts for “job-creation purposes.”

• “At Risk” requirement– Capital invested must be “at risk,” with focus on actual and intended uses of

capital to confirm that it will be used for job creation and profit-generating activity. Must be meaningful/ concrete action toward business plan. (Matter of Ho)

– Capital used for administrative expenses and to fund reserve accounts unrelated to job creation may not count. (Matter of Izumii)

Amount of Capital RequiredAmount of Capital Required• Required capital is $1,000,000• Capital is reduced to $500,000 in cases of investment in a

“targeted employment area.”

– TEA is defined as: – Area with unemployment of at least 150% of national

average rate OR– A “rural area,” i.e., an area not within an MSA or outer

boundary of any city or town having a population of 20,000 or more

9

Targeted Employment AreaTargeted Employment Area• Assessment of whether investment is in a TEA is based on statistical information

relating to time of investment and location where commercial enterprise is principally doing business.

Several methods to determine if high unemployment area is a TEA:• Check annual TEA report that may be available from designated state agency.• Compare monthly statistics by DOL and local state workforce agency. • If investor has identified interest in a particular property, research whether entity is

located within a TEA by census tract. Compare census tract information with list from designated state agency.

• If proposed area does not qualify based on any of the above criteria, request special designation from state agency—requires “logical economic reasoning” and supporting information to justify designation as TEA.

10

Lawful Source & Tracing of Lawful Source & Tracing of Funds Funds

• Lawful Source – Evidence that source of investment funds is lawful– Where investor derived funds by gift or loan, substantial

evidence concerning bona fides of donor or lender should be included

– 5 years of income tax returns

• Tracing of Capital– Law requires proof that capital is invested by the petitioner – I-

526 petition should include evidence that traces capital from commercial enterprise back to petitioner

11

New Commercial EnterpriseNew Commercial Enterprise

• “Established” requirement eliminated

• Law requires that investor-petitioner invests in a “new” commercial enterprise. “New” = formed after 11/29/1990

12

New Commercial EnterpriseNew Commercial Enterprise• Investment in a business formed prior to 11/29/1990 may be acceptable in

two situations:– (1) Substantial reorganization or restructuring of existing business

• Mere change in ownership, cosmetic changes to décor of business site, and implementation of new marketing strategy are insufficient changes (Matter of Soffici)

• Complete transformation of nature of business might be sufficient – OR– (2) Expansion of existing business, resulting either in increase of at least

40% of net worth of business or in number of employees in business

13

New Commercial EnterpriseNew Commercial Enterprise• “Commercial enterprise”

– Any for-profit entity formed for ongoing conduct of lawful business

– Includes: sole proprietorships, partnerships (limited or general), holding companies, joint ventures, corporations, business trusts, or other entities publicly or private owned

– Includes holding company and its wholly-owned subsidiaries if each subsidiary is engaged in for-profit activity formed for ongoing conduct of lawful business

– Excludes noncommercial activity (e.g., personal residence)

14

““EngageEngage”” in Managementin Management

15

• Investor must be involved in either day-to-day managerial control of enterprise, or in management of enterprise through policy formulation

• Corporate officer, board member, limited partner with rights and responsibilities of ULPA

• Purely passive investor cannot qualify for EB-5.

Employment Creation Employment Creation -- GeneralGeneral• Investor must create F/T employment positions for at least 10 U.S.

workers (i.e., USC, LPR, immigrants with authorization to work)– Investor, spouse, and children do not count toward 10-employee

minimum– Nonimmigrants (e.g., E, H, L, etc.) are also excluded

• “Employee” is an individual who works for and is paid by commercial enterprise. Independent contractors are not included

• Jobs created must be F/T (min. 35 hours/week). P/T jobs do notcount. However, job-sharing arrangements, where two or more qualifying employees share one F/T position, will be counted.

16

Employment Creation Employment Creation ––Timeline and EvidenceTimeline and Evidence

• When Jobs Must Exist – Investor may file I-526 petition with evidence that:

(a) required jobs have been created, or (b) jobs will be created before end of two-year conditional residence period

– In latter case, investor must include comprehensive business plan demonstrating need for at least 10 employees before end of conditional residence period.

– Plan must describe business and its products/services; marketing analysis and marketing strategy; organizational structure and specific plans for hiring of staffing (including job description and timeline for hiring); and financial projections (Matter of Ho)

17

Employment Creation Employment Creation ––““Troubled BusinessTroubled Business””

• “Troubled Business”– A “troubled business”

(i) has been in existence for at least two years; and(ii) has incurred a net loss for accounting purposes during 12- or 24-month

period before petition was filed, and(iii) loss for such period is at least equal to 20% of business’ net worth before

loss

– Petition may be based on proof that business will maintain (“save”) existing employees during conditional status period.

18

Employment Creation Employment Creation ––Regional Center/Indirect JobsRegional Center/Indirect Jobs

• To encourage immigration through investment and concentrate investment in specific regions, Congress created a temporary Pilot Program, directing USCIS to set aside visas for people who invest in/with a USCIS-designated “regional center.”

• USCIS has designated more than 180 regional centers located throughout the United States (as of Sept. 19, 2011)

• Creation of indirect jobs resulting from investment may be considered

• I-526 petition may be based on “reasonable methodologies” for estimating job creation

• Due to sunset on September 30, 2012

19

II--829 Petition 829 Petition ––Removal of ConditionsRemoval of Conditions

• Conditional Residence/Procedures– Within 90-day period preceding CLPR expiration, investor must file

Form I-829 and supporting documentation with USCIS —California Service Center to remove conditions from status. Filing fee is $3,750 (plus $85 per dependent for biometrics).

– Failure to file I-829 petition timely may result in termination of conditional resident status and initiation of removal proceedings.

– If I-829 petition denied, investor may not appeal decision. However, if placed in removal proceedings, investor-petitioner may seek review of USCIS’s decision before an immigration judge. Government bears burden of proof that decision was correctly made.

20

II--829 Petition 829 Petition ––Removal of ConditionsRemoval of Conditions

• Adjudication of Petition– Review INA §216A and 8 CFR §216.6 – Requirement of regulations

• Petitioner invested or is in process of investing required capital;

• Investment and commercial enterprise have been sustained throughout two-year conditional residence period; and

• Investor created —or can be expected to create within a reasonable period of time – 10 full-time jobs.

• What to make of 216A(d)(1)(B) – “otherwise conforming to the requirements “ of INA 203(b)(5)?

21

IntroductionIntroduction

• Brief overview of Canadian immigration scheme

• Canadian tax consequences for immigrating investor

• Canadian tax consequences for emigrating investor

• Interpreting the Canada-U.S. tie-breaker rules for determining residency

Business Immigrants• Investors are expected to make a C$400,000 investment or to own

and manage businesses in Canada, they must show that they have business experience, and they must show that they have a minimumnet worth of $800,000 that was obtained legally.

• Entrepreneurs must show that they have business experience and have a minimum net worth of $300,000 that was obtained legally.

• Self-employed individuals must have relevant experience that will make a significant contribution to the cultural or athletic life of Canada OR experience in farm management and the intention and ability to purchase and manage a farm in Canada.

Arriving in Canada

• Taxation year-end for corporations, trusts– Individuals have notional period

• Deemed disposition immediately before arrival– Canada does not tax pre-residency gains, except on

certain Canadian properties

• Special rules regarding corporations– Deemed dividend before arrival

Departing

• Taxation year-end for corporations, trusts– Individuals have notional period

• Deemed disposition immediately before arrival– Canada taxes gains accrued before departure pre-residency

gains, – Exception for certain Canadian properties– Post-departure loss election

Departing

• Post security in lieu of tax– Unwind when return– Individuals have notional period

• “Reportable property” form

Departing

• Fifth Protocol amending Canada-U.S. Tax Treaty• Article VII allows emigrants to elect treatment in the U.S.

as having sold and repurchased property for FMV consideration.

• The election is available to any individual who emigrates from Canada to the U.S., regardless of whether the individual was a U.S. citizen immediately before ceasing to be a Canadian resident (migration to U.S. with EB-5 visa?)

Canada-U.S. ResidencyTie-breaker Rules

1. Permanent home2. Centre of vital interests3. Habitual abode4. Citizenship5. Mutual agreement

Permanent Home• Garcia v. The Queen

– Permanence of home is essential– Owned in Canada– Did not own, rent or occupy any home, permanent or

otherwise, in U.S.• Minin v. The Queen

– Home must be available to taxpayer• Mother would have let him in, therefore available, therefore

a permanent home in Canada– Only rented in California, and only for short

durations– Therefore no permanent home in U.S.

Centre of Vital Interests• Wolf v. The Queen

– Few economic relations with Canada beyond salary, credit card and bank account

– Family in U.S., paying U.S. taxes, spending all free time in U.S.

– Did not intend to stay in Canada permanently

– Therefore his centre of vital interests was Canada

Centre of Vital Interests• Harris-Eze v. The Queen

– Canadian driver’s licence, bank accounts, insurance, and a few personal items in Canada

– Lived in Canada and commuted to the U.S. but then moved to U.S.

– Did not sever ties to Canada

– Closer personal and economic ties to U.S.

Centre of Vital Interests• Bujnowski v. The Queen

– Rented a home in Michigan– U.S. salary, bank account, credit card, driver’s licence,

insurance, professional associations, and collected U.S. unemployment benefits

– Wife remained in Canada in family home– Retained Canadian bank account, brokerage accounts,

passport, and professional memberships– Most personal property in Canada– Therefore centre of vital interests in Canada

Habitual Abode

• Allchin v. The Queen– Permanent homes in both Canada and U.S.– Two centres of vital interests (one for work, one for

family)– Lifestyles and activities mostly in Michigan (but court

vague on what aspects were most significant in this determination)

– 265 days/year spent in Michigan– Therefore habitual abode in U.S.

Habitual Abode

• Lingle v. The Queen– Home in Ontario, but family in Illinois– 263 days in Ontario, 69 days in Illinois– Two permanent homes– Centre of vital interests could not be determined– Only habitual abode in Canada (little time spent in

Illinois)

Habitual Abode

• Yoon v. The Queen– Permanent homes in both Korea and Canada– Centre of vital interests in Korea because of existing

ties, lack of steps to sever ties, children in Korea, etc.– Where doubt exists on centre of vital interests, look at

where taxpayer stays more frequently– Stayed most frequently in Korea

Pre-Immigration U.S. Tax Planning

• Disposing of or transferring property prior to emigration to increase U.S. tax basis (low basis with unrealized gains)?

• Retaining high basis properties and liabilities to increase future U.S. tax losses (high basis with unrealized losses?

Pre-Immigration U.S. Tax Planning

• Timing considerations:

– Installment sales– Financed transactions– Reorganization of Private Companies (“check-

the-box” election planning)

Residency Status for U.S. Income Tax Purposes

• Who is a “Foreign Person”?

• Individual Non-Resident Aliens

• Substantial Presence Test I.R.C. §7701(b)(7)(B)

• > 182 days per year (including 3 year calculation)

• Exception of closer connection to a foreign country (regulatory reporting requirements.

Residency Status for U.S. Income Tax Purposes

• Who is a “Foreign Person”?

• EB-5 Visa Holders – exception below not applicable

• Exception depending on Immigration status

• Visa Holders J, Q, F, and M visas

• Certain diplomatic or consular visas/status.• Professional athletes to compete in charitable sports

events.

Residency Status for U.S. Income Tax Purposes

• Who is a “Foreign Person”? (Continued)• Visa Holders J, Q, F, and M visas

• Professional athletes to compete in charitable sports events.

- Filling of Form 8843 to exclude days of presence (even if no income was obtained).

- Limitation I.R.C. § 7701(b)(5)(e).- Maintenance and compliance of visa requirements (IRS rather

than INS).

• Commuters from Canada or Mexico

Residency Status forU.S. Income Tax Purposes

• Who is a “Foreign Person”?• Individual Non-Resident Aliens

• Not Green Card Holders (LPR) – Treas. Reg. Section 301.7701(b)-1(b)– Special rule for Treaty resident LPR

• Not U.S. Citizens.

• Non-Residency is presumed. Treas. Reg. Section 1.871-4 (b)

Residency Status forU.S. Income Tax Purposes

•Income Tax Treaties•Effect of tax treaties

• IRC Sections 6114 – not a condition for obtaining tax treaty benefits (or obligations)

•Dual Status Aliens

•Overriding - Article 4• (Including Green Card Holders) - Portuguese

Citizen Green Card Holders Residing in Portugal - PLR 199935058

Income Taxation for Resident Aliens and Non-Resident Aliens

• Resident Aliens– Generally subject to tax same manner as a U.S.

Citizen (world wide income).• Green card holders residing abroad (important tax

implications; can trigger adverse tax consequences)• EB-5 visa holders

• Non-Resident Aliens– Subject to taxation on income with U.S. source or

effectively connected with a trade of business in the U.S.

Income Taxation for Resident Aliens and Non-Resident Aliens

• California Tax Residency

– Distinct From Federal Rules

– No Tax Treaty Protection

• Possible California tax residency (worldwide taxation) and no Federal tax residency

U.S. Estate and Gift Taxes and Non-Resident Aliens

• Lifetime Exemption Equivalent –• Currently $ 5 million (for U.S.

citizens and those domiciled in U.S.) – for 2011 and 2012

• IRC Code Section 2010(c)

• USD$ 60,000 (non-U.S. citizens not domiciled in U.S.)

• I.R.C. §§ 2102(c)• No Lifetime Exemption Equivalent for Gifts

• U.S. Situs Assets (Estate Taxes)- The following properties are treated as situated in the U.S. as defined in Treas. Reg. §20.2104-1(a) to include:

• All real estate located in the U.S. (Treas. Reg. §20.2104-1(a)(1))

• Most all personal property physically located in the U.S. (Treas. Reg. §20.2104-1(a)(2))

• “Intangible personal property the written evidence of which is not treated as being the property itself, if it is issued by or enforceable against a resident of the United States or a domestic corporation or governmental unit” (Treas. Reg. §20.21041(a)(4))

U.S. Estate and Gift Taxes and Non-Resident Aliens

• U.S. Situs Assets (Estate Taxes)- The following properties are treated as situated in the U.S. as defined in Treas. Reg. §20.2104-1(a) to include:

• Shares of stock of a domestic corporation, regardless of the location of the stock in a closely held corporation (Treas. Reg. §20.21041(a)(5)) or

• Debt obligations of U.S. persons including certain governmental entities (Treas. Reg. §20.21041(a)(7))

• What about “partnership interests”?

• What about LLC interests? Pierre v. Commissioner, 2010 WL 1945779 (U.S. Tax Ct.) (May 13, 2010)

U.S. Estate and Gift Taxes and Non-Resident Persons

• Non-U.S. Situs Assets (Estate Tax) – the following properties are treated as situated outside of the U.S. as defined in Treas. Reg. § 20.2105-1(a):

• All real estate located outside the U.S. (Treas. Reg. §20.2105-1(a)(1));

• Shares of stock issued by a corporation which is not a domestic corporation (Treas. Reg. §20.2105-1(f));

• Amounts and proceeds receivable as insurance on the decedent's life (I.R.C. § 2105(a) and Treas. Reg. §20.2105-1(g));

U.S. Estate and Gift Taxes and Non-Resident Persons

• Non-U.S. Situs Assets (Estate Tax) – the following properties are treated as situated outside of the U.S. as defined in Treas. Reg. § 20.2105-1(a):

• “Portfolio Debt Investments” - “Debt obligations, if, without regard to whether a statement meeting the requirements of I.R.C. §871(h)(5) has been received, any interest thereon would be eligible for the exemption from tax under §871(h)(1) where such interest received by the decedent at the time of his death,” I.R.C. §2105(b)(3).

• What about foreign partnership interests (e.g., SRL interests)?

U.S. Estate and Gift Taxes and Non-Resident Persons

• Non-U.S. Situs Assets (Gift Tax) –

• Same as properties are treated as situated outside of the U.S. as defined in Treas. Reg. § 20.2105-1(a) -EXCEPT

• Intangible Assets (including those in the U.S. - e.g., stock of a U.S. corporation)

U.S. Estate and Gift Taxes and Non-Resident Persons

• Non-U.S. Situs Assets (Gift Tax) –

• No Life Time Exemption Equivalent -• No Unified Credit Amount

• Annual Exclusion of $13,000

• No Unlimited Marital Deduction for Transfers From U.S. Citizens to Non-Citizen Spouses (Regardless of Residency• QDOT Transfers IRC Sections 2056(d) and 2056A• Annual Gift Exclusion of Only $100,000 (adjusted for

inflation) - IRC 2523(a) and (i)

U.S. Estate and Gift Taxes and Non-Resident Persons