Jigsaw with American flag showing through missing piece
With proposed legislative changes on the horizon for the EB-5 investor program, it is critical that investors understand the tax and immigration laws that could impact their investments and the status of their U.S. residency. As a provider of premier EB-5 tax services, The Wolf Group partners with select immigration firms to ensure there is frequent collaboration between tax experts, such as the Wolf Group, and immigration firms who are specialized in EB-5 immigration programs. Accordingly, The Wolf Group’s Fan Chen, CPA, met with immigration attorney, Sarah Schroeder, from Diraimondo & Schroeder LLP to discuss the certain legal and immigration aspects of the EB-5 program.
The Wolf Group: The EB-5 program has various investment options. Which option should an investor select?
Schroeder: The investment options for the EB-5 program include Regional Center Investment, Direct Investment and Pooled Direct Investment. The most ideal option depends on the type of investor and the investor’s investment goals.
The Regional Center Investment option involve organizations designated by the United States Citizenship and Immigration Services (USCIS) that sponsor qualified EB-5 capital investment projects. It is best suited for investors who have little to no desire to be involved in the business. The primary objective for this investment type is to obtain a Green Card. It can also be an option for those already working and living in the U.S. under a nonimmigrant visa, as an alternative method of obtaining U.S. residency.
The Direct Investment/Franchise Investment option requires investors to directly invest in qualified EB-5 projects and be actively involved in the operation of the business. Naturally, this option would be more appealing to investors who are entrepreneurial and who are interested in running a business in the U.S. The Direct Investment type certainly requires more time and effort compared to the Regional Center Investment option but affords the investor more day-to-day control over the investment. For individuals who don’t want to pursue a Regional Center Investment but also do not have a pre-determined business to start in the U.S., using a Franchise as their EB-5 investment vehicle is often a popular direct investment choice.
Lastly, the Pooled Direct Investment option provides a means for multiple investors to invest in direct investment projects that are not Regional Centers but that rather meet the EB-5 requirements through pooled capital investments. Investors who select this option often are looking for a higher return than what the Regional Centers offer. They prefer more involvement and control in investments, but compared to Direct Investment, these investors may have no need or desire to engage in the day-to-day operations of the business
The Wolf Group: How long does EB-5 Program typically take, from the beginning of the process to obtaining a Green Card?
Schroeder: Processing time depends on multiple factors and it varies widely. Obtaining a Green Card through Direct Investment is generally faster than obtaining one through Regional Center Investment. There are two steps to this process, the first is obtaining approval of the I-526 Immigrant Petition by Alien Entrepreneur. The fastest I-526 processing times for Direct Investment projects that Diraimondo & Schroeder LLP has seen are around8-9 months, but sometimes the process can take up to 17 months or more. On the other hand, I-526 petitions filed under Regional Center projects tend to have longer processing times, with some taking 24 months or longer to be adjudicated. Following the approval of the I-526 petition, the investor can the file for adjustment of status if they are in the U.S. in a lawful nonimmigrant status and, if they are outside the U.S., they can process their immigrant visa through U.S. consulate overseas. If the investor is not from a country with an immigrant visa backlog (right now, only mainland China-born nationals are subject to a backlog) they can immediately file for adjustment of status or an immigrant visa upon I-526 petition approval. This process typically takes between 6-10 months. If the investor is from a backlogged country, they must wait for an immigrant visa to become available to them before they can file for adjustment of status or an immigrant visa. Right now current backlogs are around 2 years for mainland China-born nationals. However, given the length of I-526 processing times, by the time the I-526 petition is approved Chinese-born investors typically only wait several additional months before they are able to submit their green card application. Once the adjustment of status or immigrant visa application is approved, the investor receives a 2-year conditional green card. Ninety days prior to the expiration of that card, the investor must file what is called an I-829 Petition by Entrepreneur to Remove Conditions on Permanent Resident Status. Once that petition is approved, the investor receives a full, unconditional green card and their permanent resident status is no longer tied to the success or failure of the investment project. Therefore, the overall process typically takes about 5 years for non-Chinese nationals and closer to 7 years for mainland-China born nationals.
The Wolf Group: In addition to immigration attorneys, what other professionals are usually involved in the EB-5 program to ensure a smooth transition for the investor?
Schroeder: Diraimondo & Schroeder requires investors to seek advice from tax professionals regarding the tax implications of pursuing U.S. permanent residence prior to making any immigration decisions. EB-5 investors and all other types of visa applicants who are seeking a U.S. residency need to understand the tax implications of obtaining a Green Card, regardless of the investment option they select. When immigration petitions are filed, tax professionals are involved to assist investors in complying with U.S. tax laws. Financial advisors are often involved in helping investors, particularly those who select the Regional Center Investment option, to review and assess the quality of the projects from an investment perspective.
For Direct Investments, investors usually work with a wide variety of professionals to establish businesses in the U.S. Examples of professionals are business-plan writers, economists, franchise advisors, accountants, securities attorneys, and corporate attorneys.
The Wolf Group: Why is it important for an EB-5 investor to seek guidance from a tax professional before proceeding with the immigration process?
Schroeder: The U.S. has the most complicated and unique tax system in the world. Under current tax law, U.S. residents are subject to worldwide taxation. By seeking advice from an experienced international tax professional, clients are able to make more educated decisions regarding what immigration options are best suited to them from both a personal, financial, and employment perspective, factoring in both short and long-term goals. Sometimes, clients decide not to become U.S. residents because of the cumbersome tax reporting and potential tax liabilities. Instead, clients may make different family members, such as spouses and children, the investors in EB-5 Programs. Additionally, some individuals choose to forego a green card altogether and identify a suitable nonimmigrant work visa (such as the E-2 or the O-1) that will provide them with the short-term ability to work and live in the United States if they are not ready to make a long-term commitment to the U.S.
The Wolf Group: What would you caution investors of while waiting for the Green Card?
Schroeder: Investors should be extra careful with their U.S. visa status during the waiting period. It is recommended that investors work closely with immigration attorneys to strategically plan for U.S. travels and visa renewals prior to submitting the I-526 petition. Additionally, we encourage investors to keep their accountants apprised of any international travel as, if investors have U.S. tax filing requirements as a result of their time in the U.S., they will need to ensure that they are in compliance with current U.S. tax laws and regulations.
The Wolf Group: Is the EB-5 Program the best way for affluent foreign investors to obtain a Green Card?
Schroeder: The EB-5 visa is not always the best choice for foreign investors. There are other types of employment-based green cards with much shorter processing time and little to no capital investment that are often more appealing. Individuals should evaluate a multitude of factors, including investor’s personal employment situation, residence preferences, short-term and long-term goals, and risk tolerance level, before deciding on the EB-5 visa. If another option, such as an extraordinary ability green card (EB-1), is available to them, this is often a more preferable option in light of the fact that processing times can be as low as 6-12 months, no amount of capital investment in the U.S. is required, and individuals do not have to go through the 2-year conditional residence period that is required under the EB-5 program.
The Wolf Group: Within the past few years, there have been a number of significant fraudulent cases related to EB-5 investments. What would you suggest to investors in their efforts to be involved in investments with reduced risks?
Schroeder: The Chicago Convention Center and Jay Peak Resort fraud cases have received a lot of publicity in the last few years and have shaken investors’ confidence in the integrity of the EB-5 program. As a result, the U.S. government, FINRA, and the SEC are focusing more on EB-5 investments and are increasing investigations into Regional Centers. While every project should be reviewed on its own merits, and past success of a Regional Center is not a guarantee of success future projects, generally there are six positive traits a trustworthy Regional Center should have:
- Maintains positive track record for Green Card approvals
- Offers sufficient disclosures in project documents
- Provides transparency to investors and counsel
- Employs reputable escrow agents
- Demonstrates professional and business manner in all communications
To reduce the risk of fraud, investors should closely evaluate the Regional Center’s offering documents, examine policies such as return of funds and fund release from the escrow, be vigilant about inconsistencies in the project documents, and exercise common sense.
The Wolf Group: What should EB-5 service professionals be aware of given the current political landscape?
Schroeder: The EB-5 Program brings jobs into the US, especially in the areas of high unemployment. Proper EB-5 reforms may further strengthen and enhance the Program. We recommend all related professionals to:
- Stay abreast of legislative and regulatory developments to immigration policies
- Keep clients informed
- Think creatively and consider alternatives
About The Wolf Group
The Wolf Group has served the international community for over 30 years to provide customized tax and financial solutions. Accordingly, The Wolf Group works with a team of experienced immigration attorneys tax attorneys, previous IRS agents, consultants, and financial advisors that can holistically assist EB-5 investors with their financial and tax needs every step along the way.
About Sarah Schroder, Partner at Diraimondo & Schroeder LLP
Sarah A. Schroeder is a partner at DiRaimondo & Schroeder LLP, a boutique business immigration law firm based in Brooklyn, NY. Sarah has extensive experience in visas for investors, entrepreneurs, and other employment based visa types. Sarah is the EB-5 subject matter expert in her firm, and is the co-editor of the EB-5 Book, the leading legal treatise on the EB-5 program. She is dedicated to helping clients navigate complex legal issues, educating them on their options, and empowering clients to make informed decisions.
