Establishing I-140 Ability to Pay: How to Avoid an RFE?
The XYZ Corporation is preparing to file a PERM application on behalf of their employee Robert. The DOL had issued a Prevailing Wage Determination which stated that the proffered salary for his position must be no less than $120,000.
1. Employers filing employment based immigrant petitions must be able to prove they have the ability to pay the proffered wage.
2. Net Income, Net Current Assets and the Beneficiary’s Salary are the most common methods in proving ability to pay.
3. There are several less traditional methods to establish ability to pay despite losses on the tax return.
Robert is only getting paid $50,000 and, their net income is $40,000. Combined with his salary, the company now needs to figure out how it can cover a $30,000 shortfall [120,000 – (40,000 + 50,000)] or the I-140 will not be approved when it’s filed. They don’t want to continue preparing the PERM application unless they are confident they can prove the ability to pay at the I-140 stage.What are their options?
I. Ability to Pay the Proffered Wage – Why is it important?
The regulations require that every employment-based immigrant visa petition that requires a job offer must be accompanied by evidence that the U.S. employer has the ability to pay the “proffered” wage.
Perform an assessment of ability to pay as soon as the PWD is issued and before the labor certification application is filed.
The employer must demonstrate this ability as of the time of filing the labor certification application and continuing until the beneficiary obtains permanent residence.
Note 1: In cases with a labor certification, the proffered wage is generally set by the Department of Labor (DOL) through the issuance of a prevailing wage determination or PWD.
Note 2: In cases with no labor certification, the proffered wage is generally set by the employer and the ability to pay must be proven as of the time the Form I-140 is filed.
The burden always remains on the petitioner to establish its ability to pay the “proffered” wage when submitting the Form I-140, Petition for Immigrant Worker. Failure to prove the ability to pay the proffered wage will result in the denial of the I-140.
II. Establishing Ability to Pay – What to Submit?
The regulations require that every employment-based immigrant visa petition that requires a job offer must be accompanied by at least one of the following as initial evidence of ability to pay:
- Annual reports, federal tax returns, or audited financial statements
Note: If submitting an audited financial statement, it must actually have been prepared by a certified accountant and the statement should be accompanied by a statement from the accountant certifying that the report therein is based on audited figures.
- In the case of employer with more than 100 employees, a statement from a financial officer of the organization regarding its ability to pay the proffered wage
Note: The statement from a financial officer of the company must be on the letterhead of the company, confirming that the company has more than 100 employees and that it has the ability to pay the sponsored employee. USCIS may request additional evidence to prove that the company does indeed have more than 100 employees.
Every employment based immigrant petition that requires the employer to prove ability to pay MUST be accompanied by one of the above forms of evidence.
Discretionary and Additional Evidence:
Under the regulations, where appropriate, additional evidence like profit/loss statements, bank account records, or personnel records, may be submitted by the petitioner or requested by the USCIS to supplement the record. However, it was unclear on how and when this supplemental evidence will be viewed by USCIS.
In response to confusion and frustration of many companies, USCIS released a Memorandum with clarification and additional information on how to prove the ability to pay the proffered wage – “Determination of Ability to Pay Under 8 CFR 204.5(g)(2)” dated May 4, 2004 – popularly referred to as the “Yates Memo” or “Yates Memo on Determination of Ability to Pay” after William R. Yates, the Associate Director for Operations of USCIS, under whose direction the memo was issued.
After citing the federal regulations, the Yates Memo explains that employers may submit a financial statement in lieu of initial evidence and/or additional evidence such as profit/loss statements, bank account records, or personnel records. However, acceptance of these documents by USCIS is discretionary. If USCIS exercises discretion to accept either the financial statement or additional financial evidence, that evidence must clearly establish the employer's ability to pay. If USCIS has any doubts about whether the additional documents establish the employer's ability to pay, USCIS may deny the petition and not RFE for additional evidence to further clarify the discretionary evidence that was accepted.
Additionally, according to the Yates Memo, a USCIS officer can make a positive determination in regards to ability to pay through: net income, net current assets and/or employment of the beneficiary as below:
- Net income: The initial evidence reflects that the petitioner's net income is equal to or greater than the proffered wage.
- Net current assets: The initial evidence reflects that the petitioner's net current assets are equal to or greater than the proffered wage, just as with net income.
Net Current Assets (“NCA”) are the difference between a company’s current assets and current liabilities. The calculation of net current assets is done through an examination of a company’s tax returns. USCIS allows an examination of net assets as some assets are not necessarily included in the calculation of a company’s net income but evidence a company’s financial stability. The calculation of net current assets depends on the type of tax returns filed for the company (e.g. Form 1120, Form 1065, etc.)
- Corporations- Form 1120 or Form 1120S
In order to calculate the NCA, go to Schedule L of the Form 1120 or Form 1120S. The NCA is the difference of current assets [1(d) to 6(d)] and current liabilities [[16(d) to 18].
- Partnerships- Form 1065
In order to calculate the NCA, go to Schedule L of the Form 1065. The NCA is the difference of current assets [1(d) to 6(d)] and current liabilities [15(d) to 17(d)].
- Audited Financial Statement/Annual Report
The most appropriate calculation would be to take the difference of “current assets” or “total current assets” and “current liabilities” or “total current liabilities.” It is important not take the difference of total assets and total liabilities as the difference there will always be “0.”
Note: Net Current Assets CANNOT be used to offset any shortfall in the net income, i.e., NCA cannot be combined with the net income to prove ability to pay. In order to prove ability to pay, USCIS will either take the net income or NCA.
In the case of a future job offer, an employer may be able to prove ability to pay by using the wages of the employee that the applicant is or will be replacing.
- Employment of the
The record contains credible verifiable evidence that the petitioner not only is employing the beneficiary but also has paid or currently is paying the proffered wage.
Note: Wages paid to a beneficiary can be used to offset the amount the petitioner needs to establish if the wages are less than the proffered wage.
If the proffered wage is $70,000 and the net income is $40,000, it is too low. If the beneficiary is getting paid $45,000, then the petitioner can use the net income in combination with the beneficiary’s salary to prove ability to pay. The same can be done with Net Current Assets.
III. Overcoming Ability to Pay Issues: Deficient Net Income, Deficient Net Current Assets!
How do you establish Ability to Pay if your net income, net current assets and/or beneficiary’s salary are all deficient or the beneficiary is not working for you?
The analysis of ability to pay does not necessarily end at the net income, NCA or a beneficiary’s salary. There are several other ways in which you can establish the ability to pay.
- Bank Statements
Although the bank statements or bank account records are listed as acceptable supplemental evidence in the regulations, USCIS has severely limited the usefulness of these records. There are instances however, where bank statement or bank account records can help to prove ability to pay.
- Where a tax return or audited financial statement is not available for a certain period of time, the bank statements covering that period can be submitted to show that company has enough cash on hand to pay the beneficiary. It is important to note that the ending balance of each month must exceed the proffered monthly wage of the beneficiary.
- Statements for Lines of Credit, which are usually not reflected on tax returns, may be submitted to show additional resources for ability to pay.
- Compensation of Officers
Ability to pay can be established by reducing the compensation of officers in a corporation or by the election of a partner in a partnership to reduce their share of net income or profits.
- Privately held corporations and closely held corporations have the option of paying officers a salary, whereby reducing the company’s net income. In many instances, the amount paid to the officer is determined by the company in order to specifically reduce the company’s net income, thereby reducing that company’s tax liability. Therefore, the officer(s) of the company can decide to reduce or forgo a portion of or the entire amount of officer compensation in order to pay the beneficiary.
- The net income or profits of a partnership generally are to be divided between the partners. In order to use the net income of a partnership, the partners must agree to reduce their share in order to pay the beneficiary.
Note: It is important to remember that when an officer or partner elects to reduce their income from the business, he or she is electing to reduce what is already considered personal income. The officer or partner must be ready and willing to submit documents (personal tax returns, expense reports, etc.) that show that the officer can continue to support him or herself as well as any dependents even with a reduction in income.
- Overcoming Losses: ‘Totality of Circumstances’ and the Matter of Sonegawa
How do you establish Ability to Pay if your company has been losing money? The decision in a case called Matter of Sonegawa may come to your aid!
In the Matter of Sonegawa, the Court ruled that in making a decision about ability to pay, USCIS must look at the “totality of the circumstances.” The Court said that looking at net income in isolation, when other evidence is also given, is not only insufficient, it is improper.
Hence, a solution in your situation may be to present sufficient evidence to USCIS to show that despite the losses in the past, the company is in a position to increase revenue and be able to support the beneficiary.
The ruling in Matter of Sonegawa can help an otherwise unapprovable case in several ways:
- Several successful years of profits followed by losses:
You may be able to prove ability to pay by showing that the company was successful and had the ability to pay in the past but for the unexpected event the caused the reduction in financial viability. You must then be able to show that things are changing or turning around and you realistically expect to be successful again.
- Reduction in income due to expansion:
Reduction in income may occur as money is spent on expansion. A company can prove ability to pay by showing the strong financial viability in the past and proffer evidence about the expansion plans with strong evidence that the expansion will increase profits.
- New companies:
New companies have an especially difficult time establishing ability to pay. This does not, however, mean that a new company cannot necessarily sponsor someone for permanent residence. The methods mentioned above can be used in the context of a new company. Further, arguing totality of the circumstances may also help. A new company, for example, can show a steady increase in revenues as well as other verifiable evidence that the company’s outlook is good. Further, the company can argue that the addition of the beneficiary is specifically to further increase profits.
Started a year ago, ABC specializes in making an important part needed for building computers. The company has contracted with several large, world-renown computer manufacturers to provide them with the part they need. ABC offered Mary, a foreign national, the position of General Manager of the company. In addition to sponsoring her for the work visa, ABC is also sponsoring her for an employment based Green Card through the labor certification process. When ABC received a Prevailing Wage Determination of $60,000 from DOL, Mary was getting paid $40,000, and their first year tax returns showed a net loss of $50,000.ABC would like to offer her the higher salary when she gets the green card but it’s not sure how to prove ability to pay at the I-140 stage.
Notwithstanding the fact that their tax returns show a loss, ABC has major contracts in place with large, well-known companies which show that their revenues will dramatically increase this year. Providing evidence of the contracts, retainers already received and even letters of intent from these companies, ABC may be able to show USCIS that the company will be more than able to pay her $20,000 above the $40,000 she is already receiving.
Upon a review of their tax returns and speaking with the accountant, XYZ Corp. saw that they had over $100,000 in net current assets. Furthermore, the company had paid their sole officer $250,000 in officer compensation. This officer reviewed his financial situation and saw that a reduction of $30,000 in his compensation to pay Robert, a valued employee, the proffered wage would not affect his ability to pay his own expenses or support his family. Therefore, he would be willing to issue a letter stating that he would be willing to forgo $30,000 of his compensation or any amount necessary to cover any part of the proffered wage not already covered by Robert’s current wages or net current assets. XYZ Corp. can continue preparing the PERM application confident in the fact that they will be able to prove the ability to pay the proffered wage when the time comes to file the I-140.
For companies that have strong net incomes on their tax returns or over 100 employees, the task of establishing ability to pay is less complicated. For others, they must look beyond their tax returns and net income. The key is to remember that there are alternative methods to proving ability to pay- those suggested by USCIS as well as tried and tested methods used by immigration practitioners and confirmed by USCIS through approvals.
Contact VisaPro if are an employer looking to sponsor a Green Card for your foreign national employee. Our experienced attorneys will be happy to assist you.