EB5 Investors Magazine | Page 19

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. 1 WWW.EB5INVESTORS.COM 17