Detailed Look at Proposed EB-5 Regulations
On Jan. 12, 2016, the Department of Homeland Security (DHS) issued a Notice of Proposed Rulemaking (NPR) seeking to amend the current EB-5 regulations. As required by the Administrative Procedures Act, DHS has posted the NPR to the Federal Register for notice to the public and has given the public a three (3) month period to provide comments. All public comments are due to DHS by April 11, 2016.
The new regulations have been expected for quite some time from the Department. Generally, the NPR covers several areas, including: (1) priority date retention for approved I-526 Petitions; (2) an increase to the minimum investment amounts required for EB-5; (3) modifications to how targeted employment areas (TEAs) are determined and designated; and (4) other clarifications to the EB-5 program.
Priority Date Retention
The NPR brings the concept of priority date retention to the EB-5 program; it has long been available in other categories of business immigration. A priority date is the date on which the I-526 Petition is received at USCIS for processing (i.e., the filing date). In an era of visa retrogression where demand for EB-5 green cards exceeds the annual allotment of EB-5 green cards, an earlier priority date is more advantageous than a later one, as the priority date establishes the investor’s place in line to obtain conditional permanent residence.
DHS is proposing to allow an investor to retain an earlier priority date from a previously approved I-526 Petition. If an investor needs to file a new I-526 petition due to a material change in his or her investment, or if USCIS terminates the regional center from the initial investment, retaining an earlier priority date from a previously approved petition will be very advantageous and may save the investor years of waiting to obtain a new conditional green card.
It should be noted that a priority date cannot be retained if the original I-526 Petition was revoked by USCIS due to fraud or misrepresentation or USCIS material error. Moreover, the priority date cannot be transferred to another investor. Consequently, an investor cannot transfer his or her priority date to another family member if the family chooses to switch members acting as the principal investor. For example, a parent born in Mainland China fearing that his or her child may “age out” and become ineligible for immigration benefits cannot transfer his or her priority date to a child if the parent now seeks to make the child the investor and the child files a new I-526 Petition with USCIS.
Increased Investment Amount
DHS is seeking to increase the minimum investment amount for both TEA and non-TEA investments to “ensure that program requirements reflect the present-day dollar value of the investment amounts established by Congress in 1990,” as stated by DHS. To that end, DHS seeks to raise the minimum investment amount to $1.35 million for EB-5 projects located in a TEA and to $1.8 million for EB-5 projects that are not located in a TEA. This change would represent an adjustment for inflation from 1990 to 2015 as measured by the unadjusted Consumer Price Index for All Urban Consumers (CPI-U).
Many stakeholders had expected, and feared, an increase to the minimum investment amounts for EB-5 for some time. Several bills were introduced into Congress over the past two years seeking to increase the investment amount required for EB-5; however, none were passed. Additionally, several of the bills sought to retroactively apply the increased investment amount to investors who previously had filed an I-526 Petition with USCIS.
Importantly, the NPR does not seek to retroactively apply the new increased investment amount to investors that have filed their I-526 petitions with USCIS. The increased investment amount will only be required for those I-526 Petitions filed by investors on or after the effective date of the new regulations. That effective date is not yet known, but given that public comments are due on April 11, 2017, and USCIS will likely take at least sixty (60) days to review and incorporate any changes from those comments into the new regulations, it is likely that the effective date will not be until sometime in June 2017 or later.
DHS notes in the NPR that almost all EB-5 Petitions filed with USCIS are for projects or new commercial enterprises located within a TEA. Much like the increased investment amount, reforming the TEA designation process was another frequent portion of the EB-5 reform bills introduced into Congress over the past two (2) years. With the NPR, DHS does several notable things: (1) modifies the definition of TEAs to have a consistent national standard; and (2) remove the states from the TEA designation process and vests USCIS with sole power to designate TEAs.
Rural area TEAs have not been changed; however, high unemployment TEAs are now defined as any of the following that have at least 150 percent of the national unemployment rate: (1) a Metropolitan Statistical Area (MSA); (2) a county; (3) a city or town with a population of more than 20,000; (4) a census tract; or (5) a group of contiguous census tracts. If the MSA, county, city/town, and individual census tract do not meet at least 150 percent of the national unemployment rate, a TEA still can be designated by looking at a group of census tracts. Previously, many states designated TEAs using a grouping of contiguous census tracts, with the average unemployment rate determined by taking the normal average of each census tract. Additionally, many states put no numerical limitation on the amount of census tracts that could be aggregated to make a high unemployment TEA.
The NPR, however, limits the amount of census tracts that can be used. Specifically, the EB-5 project can look to the census tract(s) where the project is located. From there, the EB-5 project also can include the surrounding census tracts that are immediately adjacent to the census tract(s) where the project is located. Thus, DHS has not numerically limited the amount of census tracts that can be aggregated to make a TEA area as some states, such as California, have done previously. Instead, DHS chose to geographically limit the census tracts to only those immediately adjacent to the tract(s) in which the project is located.
Moreover, USCIS now will use a weighted average when determining the unemployment rate for the grouping of census tracts instead of using the normal average. To do this, USCIS will divide the labor force data for the census tract by the total labor force data for the grouping of census tracts, and then multiply it by the unemployment rate for that census tract. By using a weighted average in this manner, DHS may be seeking to curtail the use of census tracts with high unemployment with little population to obtain a high unemployment rate TEA designation. DHS has stated they believe using the weighted average mirrors the Congressional intent of the statute that allows for high unemployment TEAs.
Finally, states will no longer have the ability to designate high unemployment rate TEAs. Instead, USCIS will make the designation using the standards outlined above and in the NPR. What is not clear from the NPR is whether there will be any ability for designations to be made prior to I-526 Petition or I-924 Application adjudication. Thus, it seems impossible for an EB-5 petitioner or project to obtain a high unemployment rate TEA designation in advance of filings with USCIS.
There are several other miscellaneous provisions in the NPR. First, the NPR allows derivative applicants (spouses and children of the investor) to file an I-829 Petition on their own if the investor is unable or unwilling to file the I-829 Petition, assuming that the investor was otherwise eligible to have the conditions removed on permanent residence. While the regulations previously allowed for dependents to file their own I-829 Petition if the investor is deceased or if the spouse is divorced from the investor, the NPR seemingly expands this to include situations where the investor is simply not willing to file the I-829 Petition. Interestingly, this may protect dependents where the investor has abandoned his or her conditional permanent residence, but this will need to be clarified through the notice and comment process.
Finally, DHS is amending the “active management role” requirement of the regulations, which previously required investors to have an active role in the investment, either through day-to-day management or policy formulation rights. DHS recognizes that investors, particularly in a pooled investment vehicle, may have minimal policy formulation rights in the new commercial enterprise, and that a mostly passive role is sufficient to meet the requirement.