EB-5 items of interest

BigJoe5 gave this blog a shout-out in his Useful Links for EB-5, so I should admit how much I benefit from his slideshare and perspective as a former adjudicator. A few particularly timely recent updates from his site:

• Infrastructure Development and Expansion via EB-5 refers to Matter of Izummi and the concept of establishing a money-to-jobs nexus as a way of analyzing when/how EB-5 capital can be used for infrastructure development.
• EB-5 Dec 7 2011 Senate Hearing Recap summarizes what you need to know about the recent Senate hearing on extension of the EB-5 program. (The hearing was important but painful to listen to, and I wouldn’t wish the webcast on anyone.) If you want the EB-5 program as you know it to exist this time next year, now’s the time to push your Congressperson.

AILA also has a few recent posts that I should mention:

• AILA is hosting a web seminar on 2/2/2012 on “EB-5 Regional Centers” with Lincoln Stone, Carolyn Lee, Steve Anapoell, and Jeff Carr presenting.
• AILA released its Comments on the USCIS Draft Memorandum: EB-5 Adjudications Policy. Probably like most comments submitted, this document is a mix of helpful clarification and special-interest badgering. I don’t envy the person at USCIS whose job it is to sort through comments and decide how to update the EB-5 Adjudications Policy.

Choosing NAICS Codes

Each Regional Center is approved for “a limited geographic area” and “defined economic zones” (see Public Law 107-273). USCIS now specifies that economic zones need to be defined according to the North American Industry Classification System (NAICS). The I-924 Form directs applicants to “Identify each industry that has or will be the focus of EB-5 capital investments sponsored through the Regional Center” by filling in the “NAICS Code for the Industry Category.”

What is NAICS? How can you choose the NAICS codes that are appropriate for your investment focus? How specific do you need to be?

First of all, you can find NAICS codes and their descriptions at the US Census Bureau.

Here is official guidance from USCIS to keep in mind.

The I-924 Instructions explain:
Provide the industry category title and the North American Industry Classification System (NAICS) code for each industry category. The NAICS code can be obtained from the U.S. Department of Commerce, Census Bureau. Enter the code from left to right, one digit in each of the six boxes provided in the form in Part 3, item 7. If you use a code with fewer than six digits, enter the code left to right and then add zeros in the remaining unoccupied boxes.

The 9/15/2011 EB-5 Stakeholder Meeting Presentation includes some advice on NAICS codes in answer to the question “What are common reasons for RFEs and denials on I-924 applications?”
…3. Choosing and Identifying Appropriate NAIC Codes. (Form I-924, Part 7.)
A. NAIC code should be appropriate to the requested industry;
B. An overly broad NAIC code may not be representative of the requested industry;
C. An overly narrow NAIC code may be too restrictive for the scope of the contemplated investment project(s) in the requested industry, e.g “NAIC Code 62” includes assisted living facilities but also covers hospitals. There may be a more appropriate for the requested industry.

The The 12/06/2011 I-924a Q&A provides guidance for the I-924a that may also apply to the I-924.
Q. What level of detail must a regional center use to identify the NAICS code for the Industry Category in Part 3.2 of Form I-924A?

• A. The purpose of collecting North American Industry Classification System (“NAICS code”) information regarding the industries in which EB-5 capital is invested and jobs are created is to enable USCIS to provide information to internal and external stakeholders about the industries that are participating in EB-5 capital investment projects.
• According to the U.S. Census Bureau’s FAQs regarding the NAICS codes, NAICS is a two- through six-digit hierarchical classification system, offering five levels of detail. Each digit in the code is part of a series of progressively narrower categories, and the more digits in the code signify greater classification detail. The first two digits designate the economic sector, the third digit designates the subsector, the fourth digit designates the industry group, the fifth digit designates the NAICS industry, and the sixth digit designates the national industry.
• The NAICS code identified in Part 3.2 of Form I-924A should have sufficient detail to identify the industry for the primary business activity of the capital investment project. In general a NAICS code with four-digits, which identifies the industry group of a given economic activity would be an appropriate entry. For example, if the capital investment project involved Fruit and Nut then the appropriate NAICS code to use would be 1113.

These three sources represent all official guidance on NAICS code selection, so far as I know, and the last item with the four-digit-code recommendation is brand new as of today. You may also be curious to know how NAICS codes are being handled in practice. For what it’s worth (and this may change at any time) here is what I have seen:

• RC applications for real estate development projects tend to include an NAICS code for construction and for each of the tenants expected to occupy the new development: for example retail, restaurant, and hotel. Office space is tricky because potential office tenants span a wide range of industries with varying job creation potential, including information, finance and insurance, real estate rental and leasing, professional scientific and technical services, management of companies and enterprises, administrative and support services, medical office, and public administration.
• I have seen RC applications that include specific codes in the economic analysis but more general codes to describe the industry categories requested for approval. For example an application might present a new electron tube manufacturer as its sample project (NAICS 334411) but then apply for the general Manufacturing sector (NAICS 31-33) to allow for investing in the future in other types of manufacturers.
• I have seen USCIS complain, in RFEs, about mis-applied or mis-identified codes. I haven’t yet seen a complaint about too much generality, except in context of the econ analysis. (For example: NAICS 44-45 for “retail” has been approved many times.)
• Selecting NAICS codes requires close cooperation between the applicant (business person), economist, and lawyer. The economist is most qualified to deal with NAICS categories, but the applicant needs to ensure that the economist understands the business and the options required. Don’t be the Regional Center that discovers it can’t count fast food restaurant jobs because the NAICS code in the application only covers full service restaurants, or that finds its nursing home wrongly analysed in the assisted living category because the economist didn’t understand the business. When you get your econometric study, visit the Census Bureau and check the codes to make sure that they really match what you’re planning to do.

Mid-November news

This week I don’t have much to report except what’s missing.

IIUSA held its teleconference this week on the I-924a form (annual reporting requirement for Regional Centers), and we discovered that the even the experts don’t know how those blanks are “supposed to be” filled in.  The official instructions don’t define or explain the questions, and the form runs into basic ambiguities in the program such as “what is a RC direct job?” and “how do we define and identify the entities relevant to RC job creation?” The IIUSA panel basically advised regional centers to report whatever they individually judge should be reported, and accompany answers with notes explaining how the RC interpreted the I-924a questions. That way (in case USCIS reviews the forms in police mode) the RC can at most be charged with innocently misunderstanding the question, not with providing misinformation. Another rule of thumb is that the safest answer to any question is probably the answer most consistent with information previously filed by the RC with USCIS. [Update: see the I-924a Questions and Answers published on 12/06/11 by USCIS]

And now this weeks’ EB-5 tragedy: the USCIS list of approved Regional Centers has been completely reformatted, and currently lists only the names of Regional Centers! I wonder if the webmaster got sick of being called on to change phone numbers and fix spelling mistakes. What will I do for entertainment now that I can’t stalk RC contact people? How will we know the industries and geographic areas being approved for each center?  I hope that the full directory is restored to us soon!

But not to forget the good news: we have a golden opportunity to help flesh out the new draft EB-5 Adjudications Policy. The comment period ends December 9, 2011.

Joseph Whalen, who manages to keep up with the Federal Register, reminds me that USCIS published this week an Information Collection on the Form I-526, which means an opportunity for the public to suggest changes to the form. Relevant info is published at at www.regulations.gov.

Form I-924A due 12/29

Approved regional centers should should start thinking about the annual reports to USCIS that they’ll be filing with the Form I-924A. (Click here for the form and instructions).

The Form I-924A, Supplement to Form I-924, is the Form for approved regional centers to use for the yearly RC reporting requirement in 8 CFR 204.6(m)(6). Each approved RC is now required to file the I-924A to report RC-related activities for the preceding fiscal year within 90-days of the end of the fiscal year (on or before December 29th of the calendar year in which the fiscal year ended.) The filing of Form I-924A will be required for all approved RCs for Fiscal Year 2011 on or before December 29, 2011.

Update: see the I-924a Questions and Answers published on 12/06/11 by USCIS

Options for investing in an existing business

By far the easiest scenario for EB-5 involves investment in a start-up business or brand new project. But options involving existing business are available as well. I have attempted sort through the rather confusing regulations and to lay out the various scenarios and their requirements. Please click here for the full size version of my draft table of options for EB-5 investment in “new” and “existing” business as well as references to the relevant regulations.

Note: My presentation probably includes errors. Please help me to correct it! I will post corrections as I receive them. I appreciate your help to make this clear for all of us.

Advice for the EB-5 economic analysis

I like to think that business plans are the most important part of a Regional Center proposal, but a good economic analysis is essential too. The economist will help you determine how to count the direct jobs created by your enterprise, will calculate indirect and induced jobs using IMPLAN, RIMS II, or another methodology, and will project economic benefits to the region as required by EB-5 regulations. The requirements for an EB-5 economic analysis are very specific and not easy to find, and I’m often frustrated working with analyses that are not appropriate to the program. So, hoping to make my life easier (and possibly speed up review at the California Service Center as well!) I have put together information and guidance related to preparing the economic analysis for a Regional Center application. You’re welcome.