The minimum $500,000 investment amount into a qualifying EB-5 project in either a rural or high unemployment area (better known as “Targeted Employment Areas or TEAs”) has not changed since the United States Congress created the modern EB-5 program in 1990. The $500,000 program has had a great run for nearly the past three-decades, but as Jim Morrison and The Doors once sang “This is the End.” And while rumored changes to the EB-5 program have been nearly as numerous and equally false as Elvis sightings at Las Vegas trailer parks, this time the rumored changes appear real. The window for participating in EB-5 at the $500,000 level is likely closing soon.
What makes this round of assumed changes more real than the previously rumored changes that have filled up endless EB-5 blogs and conference panels? Why should the market, tired of hearing pollyannaish screeds from the EB-5 industry about how “EB-5 is coming to an end, so invest now” take it any more seriously this time?
The reason to take it more seriously is that the United States government appears to have spoken on the issue. On June 27, 2019, the Office of Management and Budget (OMB) announced that it has concluded its review of the EB-5 Immigrant Investor Program Modernization Rule. Nearly 2 ½ years in the making, the original proposed rule sought to significantly increase the minimum investment amount from $500,000 to $1,350,000, and also proposed numerous other technical rule changes. Industry feedback about the proposed new investment amount increase was vociferous in opposition.
The June 27, 2019 OMB announcement did not specify what the actual new rules would be, making only a passing reference that “substantial changes” have been made to the original proposal. More importantly, this announcement did not specify when the new rules would become effective (thus clarifying how much longer applicants have to move forward at the $500,000 level) but it hints that publication of these new rules was imminent.
Reason and common practice for these types of administrative rule changes usually dictates either a 30 or 60-day window before the new rules become effective. And while there is a (minimal) possibility that the new rules would either become effective upon publication or hopefully, not with retroactive effect, such retroactive implementation is generally disfavored in the law and such an action would be manifestly unfair and would result in significant litigation.
While the EB-5 industry awaits publication of the final rule, those individuals considering EB-5 would be smart to move forward at once since time really is running out. Some industry players are advocating or suggesting to potential applicants that they should even consider submitting “skeletal” EB-5 petitions. Examples of “skeletal” EB-5 petitions include, but are not limited to, EB-5 petitions in which less than $500,000 has been invested into the EB-5 project prior to filing and/or an EB-5 submission with incomplete source and/or path of funds documents.
While skeletal filings may be appropriate in limited circumstances, they should be approached with caution and should only be undertaken after consultation with qualified legal counsel specializing in EB-5 matters. At a minimum, “skeletal” filings will be delayed by the likely issuance of a Request for Evidence (RFE), in which USCIS will ask for the applicant to add some flesh to the skeleton of their EB-5 filing. In some instances, the initial filing may be considered so “skeletal” that attempts to address the underlying issues may be unsuccessful, citing Matter of Katigbak, which has been interpreted to mean that an applicant must have been eligible for the benefit sought at the time of filing, disallowing material changes that render the person eligible only after the fact. In other instances, USCIS may reserve the right to simply issue an outright denial, with no chance to cure any deficiencies, if the filing was considered too skeletal. Thus, skeletal filings are best avoided unless absolutely necessary.
The EB-5 industry knew that this day of reckoning would eventually arrive, and it appear it is now imminent. There is still time to participate in the $500,000 EB-5 program, but this window of opportunity will likely close shortly.
For more information please REGISTER HERE for our July 11, 2019 webinar on this and other key topics.