EB-5 Investment - New Regulations Increase Minimum Investment of $500,000

On June 27, 2019 the Office of Management & Budget (OMB) reported on its website that it has finished its review of the Obama-era regulations that would significant changes to the minimum investment amount, as well as other consequential changes. The regulations where proposed to have increased the minimum investment of $500,000 to $1.35 million, and the $1 million investment to $1.8 million (See actual minimum investment below). Upon the regulation’s publishing in the Federal Register, the final effective date may be between 30 to 60 days.  

Now as of November 21, 2019, the new EB-5 Immigrant Investor Program Modernization Regulations are effective. Although there are many changes to the EB-5 program that are included in the new regulations, the biggest changes are:

1. Increased minimum investment amounts,
2. New targeted employment area (TEA) definitions, and
3. Designating authority of TEAs is taken away from the State and the United States Citizenship and Immigration Services (USCIS), will now be directly responsible for verifying the project is located in a qualified TEA.

The EB-5 investment amounts have increased from $500,000 to $900,000 

if the project is located in a TEA, and from $1 million to $1.8 million for a project not located in a TEA. Since the investment amounts have not changed since the program’s inception an inflation study was conducted by the Department of Homeland Security (DHS) consulting with the Departments of State and Labor. The federal agencies determined that the increase will reflect the present-day dollar value of the original investment amount set in 1990 by the U.S. Congress. They have also added that every fifth year there will be an inflation correction to the dollar amount.

Additionally, the new regulations outline what is required to qualify a project as a TEA and requires that the USCIS will make the determination, not the individual states. Prior to the new regulations, a regional center could simply request a TEA letter from the state, county or city government where the project was located (depending on the state). This will not be the process anymore, since the USCIS will adjudicate all TEA requests. This will improve integrity within the EB-5 program since the regional center operators will not be able to gerrymander their projects into qualifying as a TEA when they do not.



 E-2 Investor Visa Alternative
 

Alternatively, potential investors seeking an EB-5 should also consider an E-2 investor visa. They are an appealing options for foreign business persons, investors, managers, and employees who wish to stay in the United States for extended periods of time to oversee:

1. an enterprise that is engaged in trade between the United States and a foreign country; or 
2. a major investment in the United States.

The E visa isn’t for just anyone who has a trade or investment. This visa class is exclusively for what the USCIS terms “treaty traders and investors”. This means that all applicants must be nationals of a country that holds a treaty of trade and commerce with the United States.

 

If you’re wondering if your country is a treaty country, you can look for it on the comprehensive list provided by the Department of State.

 

The regulations state that you must be a national of one of these countries, but you do not necessarily need to be currently living there. 

 

Treaty Investor (E-2) Visa

Treaty investor applicants must meet specific requirements to qualify for a treaty investor (E-2) visa under immigration law. The consular officer will determine whether a treaty investor applicant qualifies for a visa.

• The investor, either a real or corporate person, must be a national of a treaty country.
• The investment must be substantial. (Usually $100,000 in a corporate bank account) It must be sufficient to ensure the successful operation of the enterprise. The percentage of investment for a low-cost business enterprise must be higher than the percentage of investment in a high-cost enterprise.
• The investment must be a real operating enterprise. Speculative or idle investment does not qualify. Uncommitted funds in a bank account or similar security are not considered an investment.
• The investment may not be marginal. It must generate significantly more income than just to provide a living to the investor and family, or it must have a significant economic impact in the U.S.
• The investor must have control of the funds, and the investment must be at risk in the commercial sense. Loans secured with the assets of the investment enterprise are not allowed.
• The investor must be coming to the U.S. to develop and direct the enterprise. If the applicant is not the principal investor, he or she must be employed in a supervisory, executive, or highly specialized skill capacity. Ordinary skilled and unskilled workers do not qualify. 

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How NOT To Handle an IRS Collection Matter

According to DoJ, Wagdy A. Guirguis, owner of several engineering businesses, was sentenced June 28, 2019 to 5 (five) years in prison in Honolulu.

On Nov. 20, 2018, a jury convicted Guirguis of:

 

1. Conspiracy to defraud the United States along with co-conspirator Michael Higa,
2. Three counts of filing false corporate income tax returns,
3. One count of failure to file a corporate income tax return,
4. Three counts of tax evasion,
5. One count of corruptly endeavoring to obstruct and impede the Internal Revenue Service (IRS), and
6. One count of witness tampering.

The convictions arose from a scheme to divert funds from Guirguis’ business entities for his own personal benefit and to avoid the payment of federal employment taxes, corporate and individual income taxes, and IRS penalties.

According to the evidence presented at trial, Guirguis operated numerous engineering businesses. Higa, a Certified Public Accountant (CPA), was the controller of these businesses.

Higa also served as a nominee officer of another entity controlled by Guirguis.

When The IRS Determined Guirguis’ Businesses Owed Over $800,000 In Federal Employment Taxes And Assessed An $812,000 Penalty, Guirguis And Higa Took Steps To Place Income And Assets Out Of The Reach Of The IRS.

For instance, Guirguis and Higa used the nominee entity to fraudulently convey a condominium to Guirguis’ wife. After an IRS revenue officer began questioning Mrs. Guirguis’ sole ownership of this condominium, Guirguis and Higa instructed a bookkeeper to alter the books and records in an attempt to conceal this transaction from the IRS.


From 2001 through 2012, Guirguis and Higa also used the nominee entity to divert approximately $1.3 million from Guirguis’ businesses for Guirguis’ personal use. As a result of their diversion and the concealment efforts, Guirguis’ 2010 through 2012 returns omitted $553,000 in income, resulting in a tax deficiency of $165,000.

In addition, Guirguis filed corporate income tax returns that fraudulently omitted millions of dollars of gross receipts. For one of his businesses, Guirguis simply did not file a corporate tax return, thereby not reporting more than $1.7 million in gross receipts.

After the IRS levied the bank accounts of one business, Guirguis diverted incoming funds owed to that business, directing payment of the funds to a different business. Guirguis also instructed a tenant to disregard IRS collection notices and pay rent directly to him rather than to the IRS. Moreover, Guirguis made false and misleading statements to IRS revenue officers, all in an effort to obstruct the IRS’ efforts to collect on the taxes he and his companies owed.

To impede the criminal investigation into his tax violations, Guirguis falsely told an employee, who had testified before the grand jury, that he did not know about the false backdating in the books of the nominee entity, and asked the employee to sign a false statement to that effect.

In addition to the term of imprisonment, U.S. District Judge Helen Gillmor ordered Guirguis to:

• Serve 3 years of supervised release, and
• to pay a $925 special assessment,
• to pay $6,730.24 in prosecution costs, and
• to pay $3,308,868 in restitution to the IRS minus any payments already made to the IRS.

Sentencing for Michael Higa is scheduled for July 1.



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U.S. Citizen Resident in US Possession Was A Nonresident/Noncitizen For Estate, Gift, GST Purposes

A taxpayer who was born outside the U.S. and its possessions, whose parents were not U.S. citizens at the time of his birth, and who became a U.S. citizen after residing in a U.S. possession was a "nonresident not a citizen of the U.S." for estate, gift, and generation skipping transfer tax (GST) purposes. PLR 201924009

Various estate, gift, and GST rules apply to a nonresident not a citizen of the U.S. IRC Sec. 2101(a) imposes a tax, in general, on the transfer of the taxable estate of every "decedent nonresident not a citizen of the U.S." Code Sec. 2209 provides that a decedent who was a citizen of the U.S. and a resident of a possession thereof at the time of his death is considered, for purposes of the estate tax, a "nonresident not a citizen of the U.S." but only if that person acquired his U.S. citizenship solely by reason of (1) his being a citizen of the U.S. possession, or (2) his birth or residence within that U.S.

The taxpayer was born in Country A, which was not the U.S. or one of its possessions. At the time of his birth, neither of taxpayer's parents were citizens, nationals, or residents of the U.S. nor any of its possessions or territories. And neither of taxpayer's parents were born in the U.S. nor any of its possessions or territories.

Taxpayer relocated to Possession, a possession of the U.S. under Code Sec. 7701(d), with a student visa. After graduating from college, taxpayer began working in Possession with a work visa. Taxpayer has continuously resided in Possession since college. A few years later, taxpayer became a citizen of the U.S. through naturalization proceedings in the U.S. District Court for the district of Possession.

Taxpayer was (1) not born in the U.S. or one of its possessions, and (2) not born of parents at least one of whom was a citizen of the U.S. Therefore, under the 1940 Act, Taxpayer did not acquire citizenship on account of his birth.

Taxpayer became a U.S. citizen under the 1952 Act's naturalization provision based on his continuous residency in Possession. As discussed above, taxpayer did not become a U.S. citizen under the 1940 Act based on his birth. Accordingly, IRS concluded, based on the facts presented and representations made, that taxpayer acquired his U.S. citizenship solely by reason of residence within a possession of the U.S.

Thus, taxpayer met one of the requirements of Code Sec. 2209 and therefore was a nonresident not a citizen of the U.S.

Have a US Estate Tax Problem?

 

Estate Tax Problems Require an

Experienced Estate Tax Attorney

 

 

 

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Robert S. Blumenfeld  - 

 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts. 



 

Minority Shareholder & President Libel For Trust Fund Recovery Penalty

A district court has found that the IRS properly determined that a corporation’s minority shareholder and president was liable for the trust fund recovery penalty under Code Sec. 6672. As president, the individual approved, signed, and submitted a variety of tax forms and documents to Federal and state authorities on behalf of the corporation. Therefore, he was a responsible person, and he failed to ensure the trust fund taxes were being paid.

The Mr. A was the sole shareholder and president of a concrete construction (Concrete) company. As president of Concrete, he oversaw all aspects of the business, including reviewing and signing all federal and state tax returns for Concrete. Mr. A was also a minority shareholder and president of Company B. As president of Company B, Mr. A approved, signed, and submitted a variety of tax forms and documents to Federal and state authorities on behalf of Company B and Concrete had the same business address and phone number. The two companies also shared top-level management and employees. In 2008, Concrete subcontracted Company B to help it with a construction project.

While Mr. A was president of Concrete and Company B, he signed checks from a Concrete account to pay Company B's liability for state unemployment compensation insurance. Mr. A also approved, signed and submitted to the IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, for Company B.

On September 12, 2014, the IRS assessed a trust fund recovery penalty under Code Sec. 6672 against Mr. A. The IRS determined that Mr. A was a responsible person who failed to collect, account for, and pay over trust fund taxes for four quarters during which Company B was working with Concrete as a subcontractor.

Mr. A paid part of the assessed tax liability and filed a refund claim alleging that he was only a minority shareholder in Company B, he had no knowledge of Company B's finances, operations, or general decision making, and he had no power or authority to pay Company B's taxes.

Mr. A was a person responsible for paying trust fund taxes who willfully failed to pay such taxes to the government; therefore, he was liable for the trust fund penalty under Code Sec. 6672. The district court rejected Mr. A's claims that he was not a responsible person because he had no oversight or control of Company B's finances.

Mr. A signed and certified government forms for Company B as its "manager" or as its "president." In addition, he paid taxes owed by Company B using funds from a Concrete account for which he had signatory authority. Thus, he clearly had enough authority to be a responsible person for Company B under Code Sec. 6672.

The district court also rejected Mr. A's argument that, even if he was a responsible person, he did not willfully fail to pay over the trust fund taxes to the government. He testified that he did not take any steps to ensure that Company B's trust fund taxes were, in fact, being paid to the government. Mr. A's admission, coupled with the fact he was a responsible person, was sufficient to establish that he acted willfully.

Given his position as president of Company B, Mr. A should have known that there was a grave risk that the trust fund taxes were not being paid, he was in a position to very easily find out for certain whether they were being paid, but he did nothing to find out if the trust fund taxes were actually being paid.

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The House Sues Treasury For Trump’s Tax Returns

According to Law360, The House’s tax committee sued the U.S. Department of the Treasury in federal court for President Donald Trump’s tax return information on Tuesday, setting in motion a legal battle that will likely end at the U.S. Supreme Court.

Ways and Means Chairman Rep. Richard Neal, D-Mass., made the request for Trump's tax information under Section 6103 of the Internal Revenue Code, which states that the Treasury secretary “shall furnish” the tax records of any individual to the chairs of the Ways and Means Committee, Senate Finance Committee or the Joint Committee on Taxation upon their request.

 

"Defendants Have Now, For What The Committee Believes Is The First Time Ever, Denied A Section 6103(F) Request In Order To Shield President Trump’s Tax Return Information From Congressional Scrutiny,"

the complaint said. "In refusing to comply with the statute, defendants have mounted an extraordinary attack on the authority of Congress to obtain information needed to conduct oversight of Treasury, the IRS, and the tax laws on behalf of the American people who participate in the nation’s voluntary tax system."

Neal and Mnuchin had previously said that they expected the request for Trump’s tax returns to land in court. The dispute will likely be decided by the Supreme Court, given that either side would appeal an unfavorable ruling.

In his suit, Neal averred that Congress’ broad oversight authority easily surpasses the legal bar for obtaining the documents. In his original request, Neal said that the committee had an interest in reviewing the IRS’ auditing practices as they relate to the president’s tax return information.
 

 

Neal Wrote To Rettig And Mnuchin On June 28 That He Had "Serious Concerns" About The Briefing, According To The Complaint. That Episode Underscored The Committee's Need To Review The Actual Return Information As Part Of Its "Oversight Duties," He Said In The Letter.

 

 

Mnuchin had previously invited committee members to consult with officials at Treasury regarding their concerns about the presidential auditing program.

Mnuchin has previously said that he would not comply with Neal’s request because it lacked a “legitimate legislative purpose” and was politically motivated. In a legal memorandum released in June, the U.S. Department of Justice said Mnuchin should not comply with the request because House Democratic lawmakers intend to publicly disclose Trump's tax information.

Ways and Means Committee ranking member Rep. Kevin Brady, R-Texas, criticized the complaint on the grounds that neither the committee nor the full chamber voted to authorize it.  Brady pledged to introduce a resolution “to preserve the integrity of the people’s house from the attacks of the elite few and restore the voice of every American.”

Now That The Battle Over Trump’s Tax Returns Has Hit The Court System, The Process Could Drag Out Beyond The November 2020 Elections.

 The committee petitioned the court to move swiftly in addressing the committee’s complaint.

“If this court does not redress defendants’ noncompliance quickly, the committee will be unable to fulfill its essential role of overseeing the executive branch or to carry out its constitutional obligation to legislate on issues of paramount national importance before the current Congress ends,” the complaint said.

The current congressional session ends Jan. 3, 2021. After that date, the entire process for attempting to procure the tax returns would have to restart.

The case is Committee on Ways and Means v. U.S. Department of the Treasury et al., case number 1:19-cv-01974, in the U.S. District Court for the District of Columbia.

 

 

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IRS Revamp Legislation Signed Into Law by President Trump

According to Law360, President Donald Trump signed a bill on July 1, 2019 that in part will prevent private debt collectors from pursuing low-income individuals who owe money to the Internal Revenue Service.

 

Trump signed into law H.R. 3151, the Taxpayer First Act, which will also make a host of administrative changes to the IRS to improve customer service and technology and overhaul the agency's appeals process.

“New protections for low-income taxpayers, practical enforcement reforms, and upgraded assistance for taxpayers and small businesses will all now go into place,” House Ways and Means Committee Chairman Richard Neal, D-Mass., said in a statement after the signing.

The original version of the bill, H.R. 1957, sailed through the House by voice vote in April. But the legislation later hit a snag in the Senate when lawmakers and outside groups expressed concerns that codifying the Free File Alliance would prevent the Internal Revenue Service from developing its own cost-free filing portal.

Eventually, both the House and the Senate passed a version that excluded the free file provision. Both chambers approved the legislation by voice vote, which is a procedure reserved for noncontroversial items.

"I’m Proud That After Three Years Of Thoughtful Bipartisan Work, Our Bold Package Of Reforms To The Internal Revenue Service Are The Law Of The Land," He Said.

 According to updated estimates that the Joint Committee on Taxation released last month, the revised bill would raise $36 million over a decade.

 

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