I-140 issues

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There are two issues that present problems for employers in connection with I-140 employment based immigrant preference petitions. One is showing that the employer has the "ability to pay" the offered salary, going forward from the time the PERM is filed. The other is establishing that the employee is qualified for the preference classification sought.

Ability to Pay

Employers frequently encounter difficulties proving "ability to pay" for I-140 immigrant preference petition purposes. The CIS regulations at 8 CFR 204.5(g)(2) provide:

Ability of prospective employer to pay wage. Any petition filed by or for an employment-based immigrant which requires an offer of employment must be accompanied by evidence that the prospective United States employer has the ability to pay the proffered wage. The petitioner must demonstrate this ability at the time the priority date is established and continuing until the beneficiary obtains lawful permanent residence. Evidence of this ability shall be either in the form of copies of annual reports, federal tax returns, or audited financial statements. In a case where the prospective United States employer employs 100 or more workers, the director may accept a statement from a financial officer of the organization which establishes the prospective employer's ability to pay the proffered wage. In appropriate cases, additional evidence, such as profit/loss statements, bank account records, or personnel records, may be submitted by the petitioner or requested by the Service.

Historically, the CIS has taken the position that they will only look at the "net income" or "net assets" lines on the employer's tax return to see if that amount exceeds the offered wage for each year from the date the labor certification was submitted until the date of adjudication of the I-140. In the alternative, if the petitioning employer can show that the beneficiary was actually paid the offered wage during this interval (by means of showing W-2 forms and quarterly tax returns), then that generally will be accepted as proof of "ability to pay."

The CIS methodology has not been accepted wholly by the federal courts. In a recent decision, Construction and Design Co. v. Holder, 563 F.3d 593 (Seventh Circuit, 2009), that court held:

"We were thrown by the government’s brief. It argues that when as in this case the employer’s net taxable income and net assets are smaller than the alien’s projected salary, the employer must show either that the salary is replacing a higher salary (or other cost) or that the employer usually makes an adequate profit but has encountered a “rough patch,” as in In re Sonegawa, 12 I & N 612 (Regional Comm. 1967). That is not the position of the Department of Homeland Security, makes no sense, and was renounced by the government’s lawyer in a postargument submission after he had taken some heavy blows at the oral argument.

The distinction that the government’s brief missed is between accounting entities and cash flow. Accounting entities such as depreciation and other reserves are intended to provide information valuable to investors and creditors (and the audited enterprise itself) and to minimize tax liability. E.g., Resser v. Commissioner, 74 F.3d 1528, 1538 (7th Cir. 1996). They are not intended to tell a firm whether to hire another employee or incur some other operating expense. If the firm has enough cash flow, either existing or anticipated, to be able to pay the salary of a new employee along with its other expenses, it can “afford” that salary unless there is some reason, which might or might not be revealed by its balance sheet or other accounting records, why it would be an improvident expenditure. See generally Jae K. Shim & Joel G. Siegel, Handbook of Financial Analysis, Forecasting, and Modeling 84-85 (3d ed. 2007).

The distinction between accounting profits, losses, assets, and liabilities, on the one hand and cash flow on the other is especially important when one is dealing with either a firm undergoing reorganization in bankruptcy or a small privately held firm; in the latter case, in order to avoid double taxation (corporate income tax plus personal income tax on dividends), the company might try to make its profits disappear into officers’ salaries. See Menard, Inc. v. Commissioner, No. 08-2125, 2009 WL 595587, at *1 (7th Cir. Mar. 10, 2009). The owners of a Subchapter S corporation, however, have the opposite incentive—to alchemize salary into earnings. A corporation has to pay employment taxes, such as state unemployment insurance tax and social security tax, on the salaries it pays. A Subchapter S corporation can avoid paying them by recharacterizing salary as a distribution of corporate income. To limit the ability of shareholder-employees to minimize their salaries and thus the company’s employment taxes, the government requires that they be paid “reasonable salaries.” Michael Schlesinger, Practical Guide to S Corporations ¶ 102.9, pp. 5-6; ¶ 1302.10, p. 461 (4th ed. 2007).

Because tax considerations drive a wedge between accounting income and economic income, a company’s tax returns are not a reliable basis for determining whether the company can afford to hire another employee. A profitable company might have no taxable income because it was able to transmute income into salaries (the closely held corporation that is not organized under Subchapter S), or more taxable than real income because it was able to transmute salaries into income (the Subchapter S corporation). The Department of Homeland Security realizes this, and while to save time it looks at a firm’s income tax returns and balance sheet first, it doesn’t stop there unless those documents make clear that the salary of the alien whom the firm proposes to hire would not imperil the company’s solvency. If that isn’t clear, the firm has to prove by other evidence its ability to pay the alien’s salary. O’Conner v. Attorney General of the United States, 1987 WL 18243, at *1 (D. Mass, Sept. 29, 1987); Elatos Restaurant Corp. v. Sava, 632 F. Supp. 1049, 1054 (S.D.N.Y. 1986); In re X, 15 Immigration Rptr. B2-22 (Admin. Appeals Unit Aug. 16, 1995); In re X, 13 Immigration Rptr. B2-166 (Admin. Appeals Unit Sept. 23, 1994); In re Sonegawa, supra, 12 I & N Dec. at 615. The employer in our case concedes as it must that it bears the burden of proof. 8 U.S.C. § 1361; River Street Donuts, LLC v. Chertoff, 2007 WL 2259105, at *3 (D. Mass. Aug. 3, 2007); Sitar Restaurant v. Ashcroft, 2003 WL 22203713, at *3 (D. Mass. Sept. 18, 2003); Elatos Restaurant Corp. v. Sava, supra, 632 F. Supp. at 1054."

It is essential that an employer make certain that it will be able to proffer credible proof of its ability to pay the employee the offered wage, at all times going forward from the date the PERM labor certification is filed. It does little good to go to the trouble of getting a PERM approval, only to discover that the required immigration preference petition (I-140) cannot be approved because the employer cannot establish its ability to pay the offered wage.

Immigrant Preference Classification

The employment based immigrant preference categories are pretty straightforward, for the most part. There is considerable confusion, however, with respect to two categories: the "advanced degree" second preference and the "other worker" third preference classifications.

Advanced degree second preference

The Immigration and Nationality Act (Section 203(b)(2)(A) [8 U.S.C. 1153]) provides for the allocation of visa in the second employment based preference:

"to qualified immigrants who are members of the professions holding advanced degrees or their equivalent . . . , and whose services in the sciences, arts, professions, or business are sought by an employer in the United States."

The statute imposes two elements of proof:

members of the professions
holding advanced degrees or their equivalent

An employee who is not a "member of the professions" may not qualify for EB second preference even if he or she holds an advanced degree. The regulations define the term "profession" as:

"Profession means one of the occupations listed in section 101(a)(32) of the Act, as well as any occupation for which a United States baccalaureate degree or its foreign equivalent is the minimum requirement for entry into the occupation."

The implementing regulations, however, impose additional requirements. For example, the term "advanced degree" is specially defined as:

"Advanced degree means any United States academic or professional degree or a foreign equivalent degree above that of baccalaureate. A United States baccalaureate degree or a foreign equivalent degree followed by at least five years of progressive experience in the specialty shall be considered the equivalent of a master's degree. If a doctoral degree is customarily required by the specialty, the alien must have a United States doctorate or a foreign equivalent degree."

While not specifically set forth in the regulations, the CIS also requires that the petitioner show that the advanced degree is customarily required, on an industry wide basis, for entry into the specified job. In other words, an employer cannot simply require an advanced degree for no purpose other than to qualify the employee for the second preference classification.

The CIS takes a very strict position on equivalency. Their position is that the job must require either a United States master's degree, or in the alternative, a United States bachelor's degree followed by five years of progressive experience in the specialized field. They will accept foreign degrees, if they are certified by expert authorities as the equivalent of U.S. degrees. They will not, however, accept a combination of a foreign degree and additional studies, or a foreign degree combined with experience that has been held (in combination) to be the equivalent of a U.S. degree. The foreign degree, by itself, must be shown to be the equivalent of the required U.S. degree.

"Other workers"

Less common, but still a problem, is the issue of the "other worker" category. The law provides that no more than 10,000 visas per year (effectively 5,000 for the next few years) may be issued to third preference "other workers." This term is used to described workers who do not qualify as "skilled workers." A "skilled worker" is someone who is coming to the United States to perform skilled labor that requires at least two years of training or experience as a minimum entry requirement for the job. "Other workers" are those who work in jobs that do not required at least two years of specific vocational preparation.

As a practical matter, if an employee is classified as an "other worker" he or she will likely wait more than ten years for an available visa.