by David Appel, Senior Partner, Tax & Business Services; Jana K. Aristizabal, Senior Manager, Tax & Business Services, Marcum LLP; Alexander Oujevolk, Senior Manager, Tax & Business Services, Marcum LLP
You have your project, you have your investors, you have your loans in place, and your USCIS filings are complete. Now, what comes next?
The EB-5 process is intricate and complex for all parties involved at any stage of the process. With the increase in oversight anticipated from the new U.S. Congress, tax compliance and planning will become more critical to the success of any EB-5 project.
In this article, we will discuss accounting and tax matters pertaining to the project loan model. The loan model represents the majority of EB-5 investments made into qualifying programs. Under the loan model, individual EB-5 investors do not make a loan to a project directly but, rather, make an equity investment in a New Commercial Enterprise (NCE), which in turn makes a loan to the EB-5 Job Creating Entity (JCE). These models are accepted by the U.S. Citizenship and Immigration Services (USCIS) as qualifying investments.
The administrative accounting oversight of a NCE is often overlooked and not properly budgeted. This is a common concern because NCE managers and general partners frequently underestimate the extent of accounting and tax compliance required to maintain the NCE. Not only is accounting recordkeeping important for project management and reporting, but the U.S. tax system has required considerably more compliance by international investors in recent years. This article will provide insight into the complexity of tax law compliance, internal accounting requirements, investor reporting, and the need for proper documentation. In addition, it will discuss liability exposure for not properly withholding taxes.