Ability To Pay Issues For The Small Business
It is commonly said that there are only two certainties in life: death and taxes. The seasoned business immigration attorney might expand the list to include the following: The untimely death of an immigrant worker petition when the taxes of the sponsoring employer are insufficient to prove ability to pay. While this writer should be excused for using levity to make her point, the denial of an employment-based petition is no laughing matter to either the employer, employee, or counsel.
According to 8 C.F.R. Section 204.5(g)(2), a U.S. employer seeking to qualify an alien worker for immigrant status must prove, inter alia, that it has the ability to pay the proffered annual wage to the alien beneficiary at the time that the offer of employment was originally made. In cases requiring labor certifications, i.e. second and third preference petitions the relevant date is the certification’s priority date. In other words, an employer must provide evidence that the business had sufficient funds to pay the beneficiary’s salary as of the date that the 750 ETA forms are filed with the Department of Labor. See generally Matter of Wing’s Tea House, 16 I & N Dec. 158 (Acct, Reg. Comm. 1977). Additionally, the employer must be able to prove that it has the wherewithal to pay the salary until the beneficiary attains permanent residence. Given the fact that the entire process from the filing of the labor certification petition until the ultimate approval of an adjustment of status application can last for a number of years, this is a daunting task for the business practitioner who does not have a Fortune 500 company for a client. So how does the small to medium-sized business owner satisfy the ability to pay requirement? What follows are some suggestions gleaned from the author’s personal case files.
When seeking to prove ability to pay, the regulations state that acceptable evidence includes “copies of annual reports, federal tax returns, or audited financial statements.” Where the sponsor employs more than a hundred workers, the Service Center will accept a statement from the financial officer of the organization. If the foregoing materials are not sufficient to prove fiscal viability, the sponsor may provide “evidence such as profit/loss statement, bank account records, or personnel records…” Id.
As a general rule, there are three basic approaches that can be used to establish a petitioner’s ability to pay in the year of filing: (1) the petitioner’s net income in the year of filing was equal to or greater than the proffered wage; (2) the petitioner’s net current assets in the year of filing were equal to or greater than the proffered wage; and (3) the petitioner paid the beneficiary a salary equal to or greater than the proffered wage in that year. A recent Request for Evidence (RFE) from the Vermont Service Center confirmed that these are the three most common ways of satisfying 8 C.F.R. Section 204.5(g)(2).
However, what happens if the business shows a loss for the relevant year, an all too common occurrence in an economy that has suffered a downturn? The first alternative is to subtract the business’ liabilities from its total assets. If the remaining sum is equal to or greater than the proffered wage, 8 C.F.R. Section 204.5(g)(2) is satisfied. There are also situations where the alien beneficiary has already been employed by the petitioner. Proof in the form of W-2s or payroll statements would also be useful to show that the business is in a financial position to pay the required salary since, in fact, it has already done so. Unfortunately, the fact that an alien has been employed by the business in the past is no guarantee that the employer will have proof of payment, since many small business owners pay their staff on a cash basis, and don’t keep any records.
What alternatives does a petitioner have if neither the taxable income, net assets, or payroll are sufficient to prove that he can pay the proffered salary? A review of several unpublished decisions from the Administrative Appeals Unit show that other sources of income may be considered when assessing fiscal health . In In Re Matter of [Name not Provided], EAC 00 088 52775 (October 1, 2001; Vermont Service Center), the employer, a restaurant, showed a loss of $21,710.00. For this reason alone, the Vermont Service Center denied the petition, holding that the sponsor failed to show that the business had sufficient funds to pay an annual salary of $25,000.00 . On appeal, the AAU reviewed the restaurant’s tax returns and observed that the depreciation, tax on hand at year end and taxable income yielded the sum of $32,007.00, which exceeded the proffered annual wage by approximately $7,000.00. It therefore overturned the decision of the Service Center, and approved the Immigrant Worker petition.
Similarly, in In Re Matter of [Name not Provided], EAC01 018 50419 (May 13, 2002, Vermont Service Center), the Service denied the sponsor’s petition on the grounds that the business income was $484.00, well below the proffered annual wage of $25,000.00. Holding that when the depreciation was added back to the income, the resulting amount was $50,965.00, the AAU reversed the denial.
In In re Matter of [Name not Provided], EAC 0210353128, (January 10, 2003 Vermont Service Center) the Administrative Appeals Unit again added taxable income, depreciation and cash on hand at the end of the year to find that the petitioning business had the ability to pay the proffered annual wage to the alien beneficiary. This was a significant decision insofar as the original denial was premised upon the fact that the business’ liabilities exceeded its assets, even though the business had registered a sufficient sum between profit, depreciation and year-end cash balance.
Recently, the AAU issued a decision which gives the immigration practitioner a powerful tool in assessing ability to pay. There are some cases where, during the year that the offer of employment was made to the alien beneficiary, the business did not show that it could pay an entire year’s salary to the employee. This can occur when the economy has taken a downturn, when the business is a start-up, or when the business has had to suspend operations for several months. Is the petition doomed to denial if the business fails to demonstrate that it was in a position to pay the entire salary to the alien beneficiary on the date that the offer was made to him or her? Fortunately, no.
In Re Matter of [Name not Provided], File Number A 96 322 294 (Vermont Service Center April 7, 2004), the AAU made the novel, but eminently reasonable determination that a “petitioner is not obliged to demonstrate the ability to pay the entire proffered wage during [complete fiscal year], but only that portion which would have been due if it had hired the petitioner on the priority date.” Id at 4. In other words, the business was only required to show that it had the ability to pay that pro-rata share of the annual wage which would have been owing to the alien beneficiary on the date that the offer was originally made (i.e. the priority date on the labor certification). Following this reasoning, then, if a business files the labor certification application on July 1, 2004, and the proffered annual wage is $24,000.00, the employer need only show that it had the ability to pay six month’s worth of salary to the beneficiary or, in this case, $12,000.00. Of course, this does not relieve the employer from showing continued ability to pay the entire annual wage in the subsequent years leading up to the beneficiary’s adjustment to permanent residence. However, it is extremely useful in neutralizing a common tactic employed by all of the Service Centers, i.e. denying a petition if ability to pay is not demonstrated when the offer of employment is initially made. 8 C.F.R. Section 204.5(g)(2).
Unfortunately, recent decisions indicate that the Service Centers, the AAU and even the Federal Courts, are becoming much more critical when assessing ability to pay. In many cases, the Service will deny a petition even where it appears that the sponsor had sufficient funds to pay the wage, since they have refused to consider depreciation as well as year-end cash balance as relevant sources of income. In Chi-Feng Chang v. Thornburgh, 719 F.Supp. 532 (N.D. Texas 1989), the court held that there was no precedent for allowing the petitioner to “add back to net cash the depreciation expense charged for the year.” Id. at 537. This reasoning was followed by the AAU in In Re Matter of [Name not Provided], File Number A 96 322 294, supra, and has also been adopted by the Service Centers. This author recently received an RFE with the following language: “The burden is on the petitioner to establish that any deduction on the tax returns was not an actual expense to the enterprise during the time period covered by the document, and that the deduction represents actually available funds. The record does not currently establish that the depreciation/amortization deduction was not an actual expense to the business and that it represents available funds to meet the wage.” This type of boiler-plate language is becoming increasingly common in requests for additional evidence. Notwithstanding the foregoing, this author has had some success in arguing that depreciation and year-end cash balance must still be considered when attempting to prove ability to pay.
Indeed, despite what the Service has stated in its most recent opinions, a large number of accountants agree that depreciation must be considered to at least some degree as a viable source of income. As one accountant has noted, and this language has proven useful in winning several recent cases, “depreciation does not represent an expense to the business during the year that it is declared, and must be included as ‘income’ to the business.” This is particularly effective when the petitioner can prove that it has been claimed against fixed assets.
Another source of income which is commonly ignored by the Service is year-end cash balance. This form of income is particularly useful, because it represents funds which would have been immediately available to the business during the fiscal year. If the year-end cash balance is equal to or greater than the proffered wage, this would be satisfactory proof of ability to pay. Even if it does not amount to the entire annual salary, it can be used to supplement the taxable income where the former insufficient.
When approaching ability to pay issues, it is important to remember that adjudicators are not accountants, and need to have the facts explained to them in clear, concise terms. To the extent that not every attorney is also a financial wizard, it is helpful to consult with an accountant and, wherever possible, have them prepare a statement detailing the petitioner’s fiscal health. Adjudicators seem more inclined to find that a business has proven its ability to pay the proffered annual wage if they are provided with an expert opinion.
On May 4, 2004, in a Memorandum from William R. Yates, Associate Director of Operations, it was established that a petition could be denied without a request for additional evidence. One such situation is when the record is complete with respect to all of the required initial evidence as specified in regulations and on the petition. Based upon the foregoing, the Service Centers have begun to issue denials on immigrant worker petitions where the initial evidence supplied with the petition does not convince the adjudicator that the employer had the requisite ability to pay. This makes it even more crucial that counsel provide a comprehensive, well-argued and documented explanation as to why the sponsoring business is able to pay the alien beneficiary’s salary. It may be the only opportunity that he or she has to win the case.
While the Service Centers are becoming stringent in adjudicating employment-based petitions, and while it is more likely than not that a small business owner will either receive an RFE or, in the worst case scenario, a denial if ability to pay is not immediately ascertainable, creative arguments, the assistance of accounting professionals and citation to prior, favorable decisions (even those without precedential value) are of immense assistance and can represent the difference between a denial and a happy client. That, like death and taxes, is a certainty.
About The Author
Christine Flowers practices immigration law with the law firm of Joseph M. Rollo and Associates, P.C. in Philadelphia, Pennsylvania. She can be reached at email@example.com.
The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.
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