04-03 immigrbrief 1 page 1 - aila dc - home page · ment that ability to pay the proffered wage be...

Immigration BriefingsMarch 2004

CURRENT ISSUES IN ESTABLISHING A PETITIONER'S ABILITY TO PAYby A. JAMES VÁZQUEZ-AZPIRI AND AMY REINHORN [FNa1]

Broadly speaking, a business organization wishing to obtain an employment-based immigration benefit, whether immig-rant or nonimmigrant, on behalf of a foreign employee has the burden of establishing three factors to the satisfaction of agovernment agency (typically the United States Bureau of Citizenship and Immigration Services (USCIS)). First, the type ofposition to be held by the alien must be shown to fall into one of the categories prescribed by statute. This will generally in-volve proving that the position is of a professional, executive, managerial, specialized knowledge, or specialty occupationvariety. Second, the employer must show that the alien possesses the educational or experiential credentials to qualify for theposition to be held. Here the frame of reference will not be the alien's ability to perform the duties of the position or even theprevailing industry standards surrounding such ability but how he or she measures up to the often subjective criteria spelt outin agency regulations and other standards. Third, the employer must provide documentation that shows that it is qualified tooffer employment to the alien. Such a showing will require the employer to prove that it exists, is authorized by law to dobusiness, is actually doing business, and has the financial wherewithal to pay the alien's compensation. This last componentof the case that has to be made in order to employ a foreign national in this country has acquired particular importance overthe past couple of years. This is so for four not entirely unrelated reasons: one, the economic recession since 2002 has meantthat many employers face considerable financial difficulties and find the task of documenting the resources necessary to paythe alien employee's compensation, let alone remaining in business, highly exacting. Two, the increasing sophistication ofcorporate finance has resulted in employers utilizing ever more complex financial instruments to facilitate their funding, andresorting to drawing correspondingly arcane pictures of their financial situations in order to maximize taxation and corporateadvantages. This, understandably, has caused considerable bafflement among government officers reviewing employment-based applications and petitions. Three, the refractory attitude that has evolved in government officers reviewing applicationsand petitions for immigration benefits since late September of 2001 has apparently driven these officers affirmatively to seekout reasons for issuing denials, with financial difficulties, however temporary, often providing a convenient basis for thedenial. Such an attitude will often lead officers, when faced with the bafflement referred to above, to deny an application orpetition, reassured by the comforting thought that no colleague has ever been fired for issuing a denial based on an inabilityto understand the material presented. Four, the well-publicized scandals involving corporate mismanagement and deceptionthat have occurred over the past couple of years have aroused considerable skepticism among the public about the candor ofbusiness organizations in proffering information about their finances, and have resulted in a widespread reluctance, not leastamong immigration officers, to accept at face value the statements made by such organizations about their financial well-be-ing.

This Briefing will examine the current state of affairs with respect to an employer's mandate to establish its ability topay the compensation of an alien employee, bearing in mind the four factors set out above. [FN1] We will limit the discus-sion to the preparation of employment-based immigrant petitions, the only context within the USCIS' jurisdiction in whichthe ability to pay is specifically prescribed as a criterion for approval. We will examine the regulatory authority for this man-date, focusing individually on each item of documentation enumerated in the USCIS' regulations as probative of the ability topay. We will also review the case law, both precedential and non-precedential, that has developed over the issue of the abil-ity to pay, as well as the statements made by the USCIS in various meetings with representatives of the American Immigra-tion Lawyers' Association (AILA) to explain its positions on this issue. Of particular importance to our discussion will be anexamination of decisions issued by the USCIS' Administrative Appeals Office (AAO) involving Service Center denials ofimmigrant petitions on the basis that a petitioner failed to show the ability to pay an employee's wage. We will draw largely

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on decisions that have overturned Service Center denials; this is based on the assumption that such decisions are likely to bethe most useful to immigration practitioners in successfully preempting issues that may be raised by a given Service Center inadjudicating an employment-based immigrant petition. The broad theme that should emerge in the course of our discussion isthat much of the difficulties involved in establishing an ability to pay can be traced to a simple issue that can popularly becharacterized as a failure to communicate. In attempting to prove an ability to pay, the evidence is generally presented bypersons who do not have the preparation and knowledge necessary to present such evidence (we practitioners) and is receivedby persons who are even less prepared and knowledgeable to understand this evidence (the Service Center USCIS officers).This flawed hermeneutic circle should be borne in mind in reading the discussion that follows.

Regulatory Authority

Any employer, regardless of size, that wishes to employ a foreign national permanently in the United States is requiredto establish financial ability to pay the offered salary in two contexts: the application for alien employment certification[FN2] and the I-140 immigrant visa petition. [FN3] As noted above, this Briefing will focus on the ability to pay requirementas it relates to the I-140 immigrant visa petition adjudication. Foreign nationals that self-petition for classification as aliens ofextraordinary ability, or petition for a national interest waiver are exempt from the requirement of a job offer and thereforefrom the legal requirement to demonstrate an ability to pay. [FN4]

The relevant regulatory authority pertaining to immigration visa petitions reads as follows: [FN5]Any petition filed by or for an employment based immigrant which requires an offer of employment must be accom-

panied by evidence that the prospective U.S. employer has the ability to pay the proffered wage. The petitioner mustdemonstrate this ability at the time the priority date is established and continuing until the beneficiary obtains lawful per-manent residence. Evidence of this ability shall be either in the form of copies of annual reports, federal tax returns, oraudited financial statements. In the case where the prospective U.S. employer employs 100 or more workers, the directormay accept a statement from a financial officer of the organization which establishes the prospective employer's abilityto pay the proffered wage. In appropriate cases, additional evidence, such as profit/loss statements, bank account re-cords, or personnel records may be submitted by the petitioner or requested by the Service. [FN6]

Several prefatory comments should be made about this text before analyzing its individual provisions. First, practitionersshould be mindful that no employer, however large or distinguished, can nowadays consider itself exempt from the require-ment that ability to pay the proffered wage be established. No practitioner should file such a petition without documentaryevidence demonstrating an ability to pay, regardless of his or her level of confidence that the size and fame of the companyspeak for themselves and make such evidence superfluous. In addition, it should be noted that it may not be enough to in-clude such documentation in a petition without specifically calling attention to the fact that it is being provided in order tosatisfy the ability to pay criterion. For example, it has been the authors' experience that the inclusion of an annual report withabundant financial information about the petitioning company in an immigrant petition will not prevent the issuance of a re-quest for evidence that questions the company's ability to pay unless the cover letter to the petition specifically emphasizesthe provision of this documentation in order to address the ability to pay issue. In addition, it is generally useful, in the coverletter, to refer the USCIS to the specific sections of this documentation that provide the relevant metrics concerning the abil-ity to pay, and, within this documentation, to highlight these figures in whatever color is likely to attract the attention of thereviewing officer. Of course, it has also been the authors' experience that the taking of all of these diligent precautions doesnot provide a guarantee that the request for evidence (RFEs) on the ability to pay will not arrive. At present, it appears to beService Center policy to spit out automatically boilerplate requests for evidence demanding proof of an ability to pay, re-gardless of what was submitted in the initial I-140 filing. In such cases, the best policy is to maintain good humor and resub-mit the previously provided information with a commentary that patiently and respectfully explains to the reviewing officer



why such information adequately establishes the petitioner's ability to pay the proffered wage.

Second, practitioners should be mindful of the elastic time dimension for establishing an ability to pay. Complicatingthe ability to pay equation is the required analysis of the employer's past finances at the time the immigrant priority date isestablished and a prediction as to whether the employer will continue to have the ability to pay until permanent residence isgranted. [FN7] In Matter of Great Wall, [FN8] a BIA decision, the petitioner could not pay the salary at the time the prioritydate was established and did not establish on appeal that it could pay the salary in the future. On appeal, the petitioner sub-mitted uncertified income statements reflecting a net loss as of the priority date, and only a letter from the beneficiary statingthat he was receiving wages and would continue to earn them, and assurances from the petitioner that future earnings wouldbe paid in company stock. Both at the time of the priority date, and prospectively, the employer did not meet its burden to es-tablish its ability to pay the proffered wage. In this case, the prediction of financial instability of the petitioner was not diffi-cult to determine based upon the insufficient evidence and lack of primary documentation, but current lengthy adjudicationtime frames, complex financial documentation, and unique modern tax and financial reporting strategies make the financialviability prediction of petitioners much more difficult, and leave much room for error on the part of adjudicators.

This financial analysis requires USCIS adjudicators to prophesize a company's ability to pay some two to three years inthe future when the adjustment of status application is finally adjudicated. [FN9] The lengthy processing time frame leavesroom for the analysis to continue beyond the labor certification and I-140 immigrant visa petition processing and into adjust-ment of status adjudication, or conceivably into the State Department's immigrant visa adjudication process.

Third, the regulatory section should be read carefully to understand exactly what evidence the USCIS will expect to seeto establish an ability to pay and how much of this evidence need be submitted. The plain language of the regulation pertain-ing to ability to pay breaks the evidentiary requirement into two types of evidence: primary and secondary. Primary evidenceincludes annual reports, federal tax returns, or audited financial statements. [FN10] It should be noted that this listing is dis-junctive; only one of these documents must be submitted to establish an ability to pay. Of course, if the petitioner is in thehappy position of having more than one of these documents available, then more than one can be submitted, although, for ob-vious reasons, many companies may wish to be sparing in the amount of documentation concerning their finances that theyturn over to a government agency. Although the itemization of these documents in the regulations is probably intended to fol-low neither an ascending nor descending order of importance, it has been the authors' experience that, of these three docu-ments, annual reports are viewed by the USCIS as the most compelling evidence of an ability to pay and audited financialstatements as the least.

A second level of documentation is available if the employer has 100 or more employees. Such employers may provide,apparently in lieu of any of the three forms of primary documentation, a "statement" from a financial officer that establishesthe ability to pay. The Service Centers will generally interpret the clause "the director may accept" in the relevant sentenceof the regulations to mean that the sufficiency of such a letter is a matter left to the discretion of the adjudicating officer, andthat, simply because a petitioner has more than 100 employees, he or she is not obligated to accept such a letter as probativeof the ability to pay. [FN11]

The regulation goes on to enumerate certain secondary documents that may be submitted to establish an ability to pay.These include profit/loss statements, bank account records, or personnel records. [FN12] Two points are relevant here: first,such documents are presented by apparent way of illustration and not limitation. Thus, employers may provide additionaldocuments not referred to in the regulation, such as evidence of lines of credit, venture financing, or assets of owners of thecompany. In addition, the fact that these are presented in the regulation as "additional evidence" suggests that these docu-ments cannot be provided to replace any of the enumerated primary financial documents. [FN13] The USCIS will again con-



sider acceptance of these secondary documents as a matter within its discretion; this is made clear by the use of the term "inappropriate cases[.]" [FN14]

The Glorious Mosaic of Ability to Pay Jurisprudence

It is all well and good for the USCIS to list the types of documents that a petitioner may marshal to document its abilityto pay a proffered wage, but such a listing, by itself, does little to help petitioners deal with the practical reality of having toconvince a Service Center that they do indeed have the resources to pay this wage. The regulations provide only a primitiveframework for practitioners as to how to evidence ability to pay and afford no insight into such critical questions as the quo-tient of proof that is required of petitioners, or which specific figures within the enumerated documents will be dispositive inan ability to pay finding. This means that USCIS adjudicating officers have virtually untrammeled discretion to make de-cisions regarding whether or not the burden of ability to pay the proffered wage has been met and can bring to bear any pre-judices they may harbor. Thus, adjudicating officers are given free rein to sift through complicated and voluminous materialssuch as corporate federal tax returns and schedules and annual reports and, if they wish, to cherry pick from that materialisolated items of information that can justify a denial, or, at least, trigger an onerous ability to pay RFE.

As Wada has indicated, a review of statements made by reviewing officers from the various Service Centers in RFEs andnotices of denial makes it clear that the USCIS, at present, feels no compunction in invoking purely ad hoc standards thathave no grounding in the regulations or in any other legal authority. [FN15] The Immigration Services Division ("ISD") ofthe legacy INS published in August 2002 a statement on the standards adopted by that agency to decide ability to pay ques-tions that remains the fullest elaboration of its position on this issue to date. [FN16] The ISD (now known as Service CenterOperations) holds regular discussions with representatives of AILA to clarify procedures and policies, and was established tofocus exclusively on improving service delivery, and to re-engineer the processes the legacy INS, now the USCIS, uses to re-view and decide cases in order to facilitate "consistent, high-quality service" at USCIS offices nationwide. [FN17] In the Au-gust 2002 statement, the ISD said much, as far as reiterating the text of the regulations is concerned, but said very little, interms of giving practitioners solid guidance as to how to make an ability to pay case. The ability to pay issue was raisedwith the ISD by AILA as an example of inconsistencies in adjudications at the Service Centers, and some statement reconcil-ing these inconsistencies and putting forward an articulation of a coherent policy on the ability to pay issue was reasonablyexpected. Instead, in a highly defensive and evasive response, the ISD simply restated the fact that discretion rests with a re-viewing officer to weigh the evidence and make a determination based upon the whole record. Specifically, the ISD noted, inpertinent part:

discretion rests with the officer to weigh the evidence and make a determination based upon the evidence in the re-cord...what is required is verifiable evidence that supports the entire record...it is the officer's task to look at the entire re-cord and assure that these pieces of evidence fit together and demonstrate that a genuine job offer exists as demonstratedby the petitioner's ability to pay the wage. [FN18]

What this translates into, as Wada has noted, is a quasi "totality of the circumstances" test that not only grants unfettereddiscretion to USCIS officers, but also allows them, in the spirit of looking at the big picture, to ignore probative evidence ofan ability to pay and to seek out other items of evidence in the record that undercut the ability to pay showing. The test foran ability to pay should be a relatively simple one, and should take the form of an inquiry involving nothing more than a re-view of a petitioner's assets or income to determine whether or not somewhere in the petitioner's organization there is a sumlarge enough to pay the beneficiary's annual wage. [FN19] The approach of some USCIS officers appears, however, to treatthe ability to pay criterion as an opportunity to perform wholesale due diligence on the petitioner's overall financial condi-tion.



Fortunately, the ISD and the various USCIS Service Centers do not have the final word on the ability to pay issue. In thepast few years, as more and more denials of immigrant petitions on the basis of an inability to pay a proffered wage have oc-curred, the number of cases being appealed to the AAO of the USCIS has increased sizably, and a substantial body of caselaw discussing the subject has evolved. This body of law provides perhaps the best resource for practitioners wishing to de-velop an understanding of the legal contours of the ability to pay issue. Thus, in an effort to help practitioners determine thebest practical approaches to address the ability to pay question, we have reviewed all the AAO decisions posted on the US-CIS website covering the last three years where the AAO reversed a USCIS Service Center denial on the basis of ability topay. [FN20] These are of course non-precedent decisions, but they are valuable in illuminating the straightforward approachadopted by the AAO as to what kind of financial figures practitioners should highlight in immigrant visa petitions, and theywill assist considerably in avoiding or successfully responding to an RFE.

According to the California Service Center (CSC), the AAO has overturned fewer than 2% of CSC decisions concerningability to pay. [FN21] Interestingly, the AAO produced a significantly higher proportion of Service Center reversals basedupon the sampling provided on the USCIS' website for the year 2003. Perhaps the reason is because the priority dates wereprimarily in 2001 when revenues were dramatically lower as a result of economic reverses, and the Service Centers raised thebar in the review of corporate earnings. Even if the CSC is correct about the AAO reversal rate, it is undeniable that petition-ers are receiving more and more onerous RFEs, and while most petitioners are ultimately successful in obtaining approvals,they must still expend great efforts and amounts of their clients' money in responding to kitchen-sink demands for hard to ob-tain corporate financial documentation.

Documents That May Establish an Ability to Pay

The following discussion will examine the various documents, both primary and secondary, that can be produced to doc-ument a petitioner's ability to pay a stated wage in the I-140 immigrant petition context. A perceived inability to pay theproffered wage is not likely to result in an outright denial of an immigrant visa petition, but RFEs are still the norm. Oftenvoluminous financial documentation is required of large multi-national corporations under the guise of ability to pay, but inreality as evidence that the corporation is doing business and/or as evidence of proving the qualifying relationship for mul-tinational manager cases. [FN22] For example, a multinational company may be requested to provide a copy of its annual re-port, copies of all federal tax returns with accompanying schedules, and all payroll summaries of the United States and for-eign company to evidence a qualifying relationship. These are all documents that even large companies may have difficultypulling together, and contain extensive private collateral information. Before submitting any primary financial documents, itis critical to think about its purpose, and what it reveals about the petitioning company.

Annual Reports

If a petitioning company is publicly traded, and of a certain size (generally having more than $10 million in assets, withsecurities held by more than 500 owners), the company is required to file annual and other periodic reports with the Securit-ies Exchange Commission (SEC). [FN23] An annual report, mailed at the end of each fiscal year to shareholders, is the mostcommonly used disclosure document. It is the least complex of the SEC reports, and provides a thorough overview of thecompany, along with an auditor's report and the company's statement of earnings, financial position and cash flows. Annualreports frequently include bar charts, graphs and pictures, are designed to present highlights in a visually pleasing format, andare generally designed to fulfill a public relations function. An annual report is often just a Form 10-K wrapped in the com-pany president's statements and glossy cover. [FN24]

A Form 10-K is the report that most publicly traded companies file with the SEC on an annual basis. It is designed to of-



fer complete transparency about every item of information about a company that an investor should find interesting, providesa comprehensive overview of the company's business and financial condition, and must be filed 90 days after the end of thefiscal year. [FN25] The Form 10-K must contain more detailed information about the company's business than an informalannual report, and covers such information as the company's principal products and services, markets, distribution channels,legal proceedings, any shareholder votes, selected financial data such as net sales and operating revenue, long-term obliga-tions, liquidity, capital resources and results of operations, as well as favorable and unfavorable trends, and the causes of anymaterial changes in the financial statement as a whole. The financial statement portions of the Form 10-K include auditedbalance sheets and income and cash flow statements. Any changes in accounting practices or disagreements with auditors areexplained. [FN26]

A Form 10-Q [FN27] is a quarterly report filed with the SEC that includes unaudited financial statements; a Form 10-Qwould therefore not be considered primary evidence of ability to pay by the USCIS, since it does not provide a view of thepublic company's financial position throughout the year. The report must be filed by a publicly-traded company for each ofthe first three quarters of the company's fiscal year. [FN28]

The SEC requires public companies to disclose all meaningful financial and other information to the public; the purposeof this detailed disclosure is to protect investors. The drafters of such documents are usually decidedly risk averse in theiroutlooks, and, often, information in such documents is couched in the most circumspect language possible, particularly in the"Facts that May Impact our Future Operating Results" section; this may lead a USCIS adjudicating officer unfamiliar withthis convention astray. Practitioners should carefully review the entire annual report to make sure collateral evidence is notprovided that may be self-defeating regarding the ability to pay, and perhaps a better approach is to submit a letter from afinancial officer substantiating the ability to pay the offered wage, or provide the relevant financial excerpt from the Form10-K and/or annual report. If the adjudicating officer is left to his or her unguided devices to peruse the annual report, andsees page after page of projections that appear to be less than sanguine, or numerous contingencies that must be met for thecompany to continue its business successfully, the officer may incorrectly assume the company cannot establish ability topay, and issue an RFE.

It has become even more critical to review the contents of the annual reports and SEC filings prior to relying on them toevidence ability to pay before the USCIS since enactment of the sweeping accounting and corporate reform of the Sarbanes-Oxley Act of 2002. [FN29] Aimed at restoring investor trust and confidence in public markets arising out of the Enron andWorld-Com scandals, the Sarbanes-Oxley Act seeks to prevent corporate and accounting fraud, particularly in relation to cor-porate financial disclosure and the collection and analysis of financial and operational information, through a variety of over-sight and deterrence measures requiring publicly-traded companies to provide more stringent financial accounting and audit-ing procedures. [FN30] In the wake of the Act, more negative disclosures may be included in annual reports and other SECfilings that previously were not included that may have harmful consequences for immigration purposes. Practitioners andemployers should thus be wary of collateral information in these financial documents that may lead to questioning beyondsimply an investigation of the ability to pay.

Federal Tax Returns

Reliance on federal income tax returns as the basis for determining a petitioner's ability to pay the proffered wage iswell established in both USCIS practice and judicial precedent. [FN31] Moreover, federal returns are often the only form ofdocumentation available to small and start-up companies, which lack annual reports and audited financial statements.

In a taxation context, what is good for establishing an ability to pay is not necessarily good for business. Sometimes it is



fiscally advantageous to companies to show a loss on their tax returns, or to minimize their taxable income. The AAO hasgranted considerable leeway to petitioners in this area, and in one case allowed a medical services company to establish abil-ity to pay where the company withdrew profits as "compensation to officers" in order to avoid double taxation. In this case,the sole owner of a medical practice established its ability to pay an internist position based upon compensation already paidto the officers of the company only because the peculiarities of the tax code create a unique circumstance for the sole ownerof a medical services company. The AAO also relied on copies of the beneficiary's paycheck stubs showing that the benefi-ciary was paid the proffered wage, with annual increases, proving that the employer's income was ample and growing. Theemployer successfully argued that sole stakeholders in medical services companies routinely minimize the taxable incomes oftheir corporations by withdrawing the profits as compensation to avoid double taxation. Consequently, the better measure ofthe profitability of a medical practice is to look at the total revenues less expenses (but not including compensation of theowner), not at the taxable income (usually a nominal amount). [FN32] The VSC had denied the case based upon commonpractice at the USCIS that compensation of officers as wages is for services rendered, and cannot under any circumstance beused to establish ability to pay. [FN33]

Supporting letters from accountants can be particularly helpful in this context, especially when unusual or more complextax scenarios are involved. They are certainly not substantive evidence in themselves, but are far superior to letters from at-torneys, especially immigration attorneys. Practitioners should also not overlook the completeness of the tax returns, and besure they are signed and dated, and all schedules are included. [FN34] Incomplete or formally defective submissions willsimply present USCIS officers with a basis for denial on a plate.

When evaluating an employer's ability to pay the proffered wage, the Service Center will examine the net income figurereflected on the petitioner's federal tax return, without consideration of depreciation or other expenses. Depreciation of assets,even if shown on the tax schedules, can generally not be used to show ability to pay. In Chi-Feng v. Thornburgh, the leadingcase on the issue, the petitioner unsuccessfully argued that analysis of certain income tax returns was beyond the expertise ofthe legacy AAU and that depreciation amounts are non-cash deductions, and should be added back as a cash asset. The courtrejected the argument, and noted that, even if the depreciation deductions of approximately $19,000 in 1985, the year the pri-ority date was established, and $16,000 in 1986 were added back to the net income figure, the total net income for those yearswould still fall well below the amount needed for the proffered salary of $14,400. [FN35] There are very limited examples ofcontrary practice both at the Service Centers and at the AAO, where annual depreciation in addition to annual taxable incomeresulted in an amount greater than the proffered wage, and the AAO approved the immigrant visa petitions. [FN36]

At the most basic level, to establish ability to pay, the petitioner's net income on the tax return must be greater than orequal to the proffered wage, or its current assets must be greater than or equal to the salary offered. It is well recognized thatthe USCIS relies upon the employer's net income, rather than gross income, and judicial precedent supports this view. [FN37]Several recent AAO decisions indicate, however, that gross income may be taken into account after an evaluation, ironically,of the totality of the circumstances. For example, a law firm established ability to pay a legal advisor-patent position whereits tax returns reflected a consistent increase in gross revenue, and where the position was considered new. The employer ar-gued that the beneficiary would replace a previously hired employee and contract workers who performed the duties de-scribed in the labor certification. [FN38] A jewelry manufacturer established its ability to pay a master jeweler/engraver pos-ition based upon its Form 1120 tax returns that showed annual gross sales in excess of $7 million and ordinary income ofmore than $150,000, amounts sufficient to pay the proffered hourly wage of $14. [FN39] Nevertheless, the cases that do notfocus on the net current assets or net income should be considered the exception rather than the rule.

The AAO approved an immigrant visa petition filed for a roofer position after finding that the roofing company's Form1120 showed sufficient net current assets to establish ability to pay even though its taxable income was well below the



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proffered wage. The petitioner submitted its Form 1120 corporate returns as of the priority date with the original I-140 peti-tion. On appeal, the petitioner submitted a letter from its accountant arguing that the Service failed to take into account depre-ciation expense, which the AAO did not find persuasive. The AAO found that while the Form 1120 for the priority date yearshowed a taxable income of $3,913, and the proffered wage could not be paid out of that amount, the Form 1120 also showednet current assets of $276,825, more than the amount needed to pay the proffered wage. [FN40]

In another example, a grower and wholesaler of mushrooms established ability to pay a biological researcher positionthrough net current assets greater than the proffered wage. With the original I-140 petition filed at the CSC, the employerprovided its Form 1120 copies since the priority date was established. The gross receipts and profits for the most recent taxyear (2001) exceeded $1 million and $400,000 respectively, but the taxable income was $30,694, and below the profferedwage. On appeal, counsel argued that 2001 was an uncharacteristically bad year, similarly to the circumstances of Matter ofSonegawa. [FN41] The AAO did not find any unusual circumstances to support that argument, but reviewed the Form 1120for 2001, which showed net current assets of $340,366, and held that a wage of $58,470 could be paid out of that amount.[FN42]

A ladies clothes manufacturer established its ability to pay a market research analyst position after finding that the com-pany had sufficient net current assets. With the original immigrant visa petition, the employer submitted each Form 1120filed since establishment of the priority date. The case was denied by the VSC due to negative net income reflected in the re-turns. On appeal, counsel successfully argued that the Service should revisit the company's current assets in Schedule L in re-lation to current liabilities. The employer's return for the priority date year showed an ordinary income of - $59,265, and itcould not pay a proffered salary of $69,368 out of that income, even if the wages paid that year, $26,324, were added. TheAAO found, however, that the net current assets of $5,397,702, revealed in Schedule L of the priority date year, and submit-ted with the original petition, were sufficient. [FN43]

In another successful AAO appeal, the federal tax returns submitted by a custom jeweler with the original immigrant visapetition reflected net current assets sufficient to pay the proffered wage of a jewelry designer. On appeal, the employer sub-mitted an unaudited business valuation document from the employer's accountant. The AAO found the document unneces-sary after review of the petitioner's federal tax returns, but noted that the document held little evidentiary value because it wasbased solely on the representations of the employer's management. [FN44]

A restaurant established its ability to pay the proffered wage of a cook based upon net current assets disclosed on Form1120 submitted with the original immigrant visa petition. On appeal, the employer argued that the beneficiary would replacean employee who left the restaurant after the labor certification was filed. The AAO found that the funds were not retained bythe employer for future use, and were not readily available for the beneficiary's salary. While this argument failed, the AAOapproved the petition based upon the employer's sufficient net current assets. [FN45]

A computer software development company established ability to pay a programmer/analyst position where its corpor-ate bank statements revealed that the company had sufficient cash at the end of every month since the priority date to pay thebeneficiary's monthly salary; and total current assets stated on Form 1120, Schedule L, exceeded the proffered wage. [FN46]

If a petitioner's primary evidence (audited financial statement, tax return or annual report) reflect net current assets in ex-cess of the proffered wage, then ability to pay is established, even if the net income, taxable income, and/or gross incomelevels are well below the proffered wage. If the petitioner is operating at a loss, the petition is still not automatically deniable.For example, the VSC has acknowledged that a posting of a loss on Form 1120 raises a question as to the ability to pay, butdoes not automatically make the petition deniable. [FN47]



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In the sampling of AAO decisions reviewed, the AAO time and again found sufficient the current net asset figure in the ori-ginal federal tax return submitted with the original I-140 petition filing, and the employer's alternative arguments on appealwere deemed unnecessary. It is not clear in these cases if the employer specifically highlighted for the adjudicating officerhow the current net asset ratio was calculated, or let the documents speak for themselves. It is an unsafe assumption that theadjudicating officer will calculate the net current asset ratio of his or her own accord. It is wise to clarify the important fig-ures in the tax returns, annual reports, or audited statements, to avoid the adjudicating officer turning directly to the net in-come loss figure and assuming the petitioner lacks the ability to pay.

The VSC has opined in AILA meetings that if the petitioning company can show that its current assets exceed current li-abilities (i.e, net current assets) with sufficient funds to pay a wage, then ability to pay can "generally" be established.[FN48] However, debt to equity ratios do not reflect the petitioner's liquidity and debt to asset ratios only express the percent-age of the employer's debt as compared to its total assets, and neither serves to establish that the company has sufficient cur-rent net assets to pay the proffered wage. The VSC does not favor the debt to equity ratio as compared to the net current assetanalysis. [FN49]

The adjusted gross income figure on Form 1040 has been the most persuasive evidence of ability to pay for sole propri-etorships; this is evidenced by the number of AAO decisions reversing Service Center decisions over the last three years. Forexample, a garment manufacturer established its ability to pay a supervisor/stitching department position because the adjus-ted gross income figure on the employer's Form 1040, $32,943, was sufficient to pay the proffered wage of $25,937. In addi-tion, tax returns for the three years following the priority date continued to show an ability to pay the wage. [FN50]

A computer graphic design company (a sole proprietorship) established ability to pay a software engineer/consultant po-sition where the petitioner's adjusted gross income was sufficient to pay the proffered wage and support the petitioner's wifeand two children. The petitioner submitted W-2s evidencing that, during the year of the priority date, $26,250.03 was paid tothe beneficiary, and Form 1099 showed that the beneficiary was paid an additional $9000, totaling $35,250.03. The petitionerwas required to show an ability to pay the entire proffered wage of $42,250. The difference between the proffered wage andthe amount the petitioner actually paid was $6,999.97. The AAO found that the employer had sufficient funds available fromthe adjusted gross income figure, $49,927, to pay the remaining amount of $6,999.97 to the beneficiary. [FN51]

A private household established ability to pay the proffered wage of a specialty cook based upon the adjusted gross in-come figure from its Form 1040. Note that the employer did not provide its Form 1040 pertaining to the year the priority datewas established until the case was on appeal. [FN52]

Another private household established its ability to pay a cook position based upon copies of bank statements and theemployer's Form 1040 tax returns. The AAO found that the tax returns showed an adjusted gross income of $78,410, anamount sufficient to pay a salary of $28,371.20. The petitioner submitted no evidence regarding ability to pay with the ori-ginal petition, and did not submit tax returns until the case was appealed, not even in response to the VSC's RFE. [FN53]

A restaurant established its ability to pay a specialty cook position after the AAO reviewed the restaurant's Form 1040that showed an adjusted gross income of $28,487, an amount sufficient to pay the proffered wage of $24,000. With the ori-ginal immigrant visa petition filing, the employer submitted a copy of its Form 1040 for the year before the priority date wasestablished. In response to the NSC's request for evidence, the employer submitted its Form 1040 for the priority date year.On appeal, the employer submitted recent profit and loss statements, but the AAO found them unnecessary after review ofthe Form 1040 submitted in response to the RFE. [FN54]

An auto repair and towing firm established the ability to pay an auto-body engineer position where the adjusted gross in-



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come on the employer's Form 1040 was greater than the proffered wage. [FN55] A property management firm established theability to pay a bookkeeper position because its adjusted gross income, $37,369, was greater than the proffered wage of$32,905.60. The employer submitted an unaudited balance sheet and checking account statements with the original immig-rant visa petition filing. In response to the RFE, the employer submitted a copy of its Form 1040, including Schedule C,Profit and Loss from Business Statement, for the year of the priority date that showed an adjusted gross income in excess ofthe proffered wage, and the AAO found the adjusted gross income figure in the Form 1040 sufficient evidence. [FN56]

It is often unclear in these AAO decisions which figure(s) the Service Center directors relied upon in their petition deni-als. In many of the AAO case examples, employers failed to provide tax return documentation even though specifically re-quested, or did not include the appropriate tax return document for the year the priority date was established. Thus, the prob-lem of a failure to communicate that so bedevils ability to pay questions cannot be laid solely at the door of the USCIS.Based on consistent AAO practice, employers that are faced with an RFE or a denial of a petition where their current net as-sets are greater than the proffered wage, or adjusted gross income in the case of sole proprietorships, certainly have strongsupport for a successful appeal based on the AAO's current net asset test, which examines the ratio between the company'scurrent assets versus current liabilities, since this analysis is applied consistently by the AAO.

Audited Financial Statements

Audited financial statements are those that have been prepared and certified by a Certified Public Accountant who servesas the auditor. The auditor certifies that the financial statements meet the requirements of the U.S. Generally Accepted Ac-counting Principles (GAAP). An auditor states either an unqualified or a qualified opinion. An unqualified opinion is one inwhich the auditor agrees with how the company prepared the statements, and one that is qualified states aspects of the com-pany's statements with which the auditor does not agree. In extreme cases, the auditor may express no opinion on financialstatements at all. In such a case, the scope of the audit would be considered insufficient.

Mid- to large-size companies typically can provide some kind of audited financial statement, but smaller and newer com-panies rarely go through such an expensive audit process, so tax returns are more likely the best means to satisfy the primarydocumentation requirement. Moreover, federal returns are often the only form of documentation available to small and start-up companies. The Texas Service Center (TSC) has at least acknowledged that audited financial statements should not be re-quired of small privately-held companies, since they are very expensive, and small companies are less likely to have such re-ports on-hand, and therefore it is most appropriate for these small companies to submit tax returns as alternative primaryevidence of ability to pay. [FN57]

It has become increasingly common for auditors to place "going concern" comments in financial statements. Such com-ments raise doubt about the ability of a company to continue as a going concern, i.e., to remain in business. Under GAAP,both assets and liabilities are recorded and classified on the assumption that the company will continue to operate. Assets, forexample, may be presented at amounts that are significantly greater than their liquidation values. Conditions that may causethe auditors to question the going concern assumption include negative cash flows from operations, defaults on loan agree-ments, adverse financial ratios, work stoppages, and legal proceedings. If a substantial doubt exists about the company's abil-ity to continue as a going concern for a period of one year from the balance sheet date, auditors will generally modify theirreport by adding a final paragraph that states more or less the following:

The accompanying financial statements have been prepared assuming that XXX corporation continues as a goingconcern. As discussed in Note 1 to the financial statements, XXX corporation has suffered recurring losses from opera-tions and has a net capital deficiency that raises substantial doubt about the entity's ability to continue as a going concern.The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



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Practitioners should carefully review the auditor's report in a petitioner's Form 10-K, annual report, or audited financial state-ments to see whether or not the document contains a "going concern" comment. If so, it is unlikely that the net income or netcurrent asset level exceeds the proffered wage, and practitioners should determine whether or not there are alternate meansfor the petitioner to prove its ability to pay. This may entail working with an accountant. It should be noted that the presenceof a "going concern" comment is not fatal to an ability to pay showing, but such a comment is likely to be given dispropor-tionate importance by the USCIS, given its propensity for seizing upon pejorative elements in a petition and for treating theability to pay issue as an opportunity for conducting a wholesale investigation into the viability of a petitioner, and its pres-ence must be squarely addressed by the practitioner preparing the petition to mitigate its effect by showing that, despite thequestionable outlook, adequate resources exist to pay the proffered wage.

Finally, as an elementary matter, it is the convention of accountants preparing financial statements to report all financialfigures in thousands. This means, for example, that a net income figure of $58 million would be reported as $58,000 in thefinancial statement. Even though this convention has been the norm in financial statements since time immemorial, and isconspicuously announced on such statements in bold typeface that even a severely myopic individual could see, it apparentlycontinues to escape the attention of some USCIS officers, who wrongly interpret multi-million amounts as representing fig-ures in the thousands. [FN58] It is therefore important, at the risk of laboring the obvious, to explain clearly in an immigrantpetition, by way of highlighting or otherwise, the true size of the amounts noted in such statements.

Letter from Financial Officer (Companies with More than 100 Employees)

Petitioning employers with over 100 employees have the option to submit a letter from one of its financial officers con-firming that the company has the ability to pay. Ideally, the letter will come from a chief financial officer. If the letter is froma human resources officer, even an executive, the Service Center is unlikely to accept it. Several cases have been raised to theAAO, often where counsel did not provide a letter from a financial officer of the company but from the company's CPA, oreven its corporate or immigration counsel. These would only suffice as secondary evidence and, given the authorship, do notmeet the evidentiary standard as primary documentation. The USCIS, through liaison minutes has insisted that accepting aletter from a petitioning company's financial office is purely discretionary on the part of the adjudicating officer, [FN59] butthis position is consistently reversed at the AAO level.

For example, a company that custom imprints stuffed animals established ability to pay a secretary position with a letterfrom one of its financial officers. The petitioner did not submit any evidence regarding ability to pay with its original immig-rant visa petition. In response to an RFE, the employer provided a letter from its accountant. The CSC denied the petitionspecifically because the letter contradicted the financial information contained in Form I-140. On successful appeal to theAAO, the employer submitted a letter from its vice president of operations, confirming that the company had 176 employees,earned gross annual revenues in excess of $21 million, and that the assets of the company far exceeded its liabilities. [FN60]

A long-term care facility established ability to pay the proffered wage of a registered nurse position based upon a letterfrom its Chief Financial Officer. The letter stated that it employed 6500 employees, generated $520 million revenue of which$70 million was paid towards rent, and the remaining $450 million was used towards operation of the facilities, includingpayment of employee wages. [FN61]

The AAO approved an immigrant visa petition for a poultry dresser position where the petitioner, a poultry processingplant, established ability to pay through letters from its financial officers. The letters were submitted with the original TSCfiling, and confirmed that the company employed over 20,500 persons, had annual sales in excess of $2.5 billion, was thelargest poultry producer in the country, and therefore could pay the proffered annual wage of $13,000. [FN62]



ISD guidance confirms the discretionary acceptance of these letters. The language of the regulation, "may accept" [FN63] islikely the source of the discretionary treatment of the letters. Based upon the authors' experience, RFEs from the CSC statethe following: "The Service will use the submitted tax forms that have been requested above to determine the petitioner'sability to pay. The petitioner may also submit additional evidence of the ability to pay in the form of copies of annual re-ports or audited financial statements. ...If the petitioner's company has one hundred (100) or more workers, the petitioner mayinstead [emphasis added] provide a statement from a financial officer of the organization that establishes the prospective em-ployer's ability to pay the proffered wage." [FN64] In situations involving branch offices, it is good practice to include em-ployees from the multiple office locations in attempting to reach the 100 threshold, and thus benefit from the preferentialtreatment accorded to such entities.

If an employer receives a denial in a case where a letter from a financial officer is an option, it is worth appealing thecase to the AAO, which apparently finds these letters more persuasive than the Service Centers.

"Additional" Evidence of Ability to Pay

According to USCIS regulation, "in appropriate cases, additional evidence, such as profit-loss statements, bank accountrecords, or personnel records may be submitted by the petitioner or requested by the Service." [FN65] As mentioned earlier,the USCIS will consider acceptance of secondary documents as a matter within its discretion.

Past Payment of the Proffered Wage

An area of continuing controversy is whether or not evidence that the beneficiary of the I-140 petition has been earningat least the proffered wage since the priority date establishes the petitioner's ability to pay. It seems logical that good evid-ence of the ability to pay is the fact that the employee beneficiary has been paid consistently in the past, and this serves tosuggest strongly that he or she will continue to be paid in the future. AAO decisions consistently show that if the petitioningemployer is paying the required wage at the time the priority date is established, not only should the petition not be denied forlack of ability to pay, but such confirmation should serve as prima facie evidence of the ability to pay. The following are ex-amples of AAO decisions overturning Service Center denials.

A restaurant established its ability to pay a specialty cook position even though its Form 1120, Schedule L, showed cur-rent liabilities greater than its assets. The AAO found that while one might argue that there was insufficient evidence to proveability to pay as of the of the priority date, the CSC specifically requested the employer's most recent Form DE-6 quarterlywage reports, and the employer established its ability to pay the proffered wage during the period to which the Form DE-6related. [FN66]

An employer established ability to pay where an amount equal to or greater than the proffered wage was paid to the be-neficiary as an independent contractor performing the same duties described in the labor certification. [FN67] However, anemployer that submits copies of the beneficiary's 1099 to establish payment of wages for ability to pay issues may be alsoacknowledging an I-9 violation if the individual does not have proper work authorization. [FN68]

An employer proved its ability to pay the salary of a manufacturing engineer position based upon current employmentof the beneficiary at the proffered wage. The AAO held that the Service may examine whether the petitioner employed thebeneficiary at the time the priority date was established at a salary equal or greater than the proffered wage as prima facieproof of the petitioner's ability to pay. Credible evidence included payroll records, the beneficiary's individual federal tax re-turns, W-2s, and 1099s. In response to the CSC's request for audited financial documentation, the employer provided un-audited financial statements. The employer submitted the beneficiary's paycheck stubs and W-2s only on appeal. [FN69]



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An international freight company established ability to pay a transportation coordinator position after review of the benefi-ciary's W-2s showed that the employer had been paying the proffered wage since the priority date with, annual increases.[FN70]

A horse farm established its ability to pay a horse trainer position by submission of cancelled payroll checks showingthat the proffered wage had been paid as of the priority date, continuing to the present. The petitioner had submitted the can-celled payroll checks with the original VSC filing, and unsuccessfully argued to the VSC in response to a request for evid-ence that actual payment of the wage to the beneficiary before and after the priority proved ability to pay. [FN71]

Despite these cases, the position of the USCIS Service Centers and the ISD remains that W-2 forms "do not present theentire picture," [FN72] are not sufficient by themselves as evidence, act only as secondary evidence, and that acceptance ofsuch evidence is discretionary. [FN73] The ISD agrees with Service Centers that in "some" situations submission of W-2forms will resolve the issue, however. [FN74]

The CSC has recently been issuing RFEs for I-140 and adjustment of status applications requesting proof that the alienbeneficiary is currently earning the proffered wage even though the law requires that the beneficiary be paid the salaryoffered on the labor certification at the time the adjustment application is approved or the beneficiary enters the U.S. as animmigrant. The CSC's response is that if the beneficiary is not receiving the wage, it could be an indication that the employerdoes not have the ability to pay the wage certified on the ETA Form 750A. [FN75] The CSC does not consider payment ofthe proffered wage sufficient evidence to meet the ability to pay burden, but if the alien beneficiary is not currently earningthe proffered wage, such evidence is used against the employer as proof that it does not have the ability to pay.

The ISD and the VSC have opined that, during adjudication of an adjustment of status portability application, the newemployer's ability to pay the proffered wage on the labor certification certified on behalf of the alien beneficiary for a previ-ous employer is relevant. [FN76] There are no regulations yet governing the American Competitiveness in the Twenty-FirstCentury Act, [FN77] but employers and practitioners should be mindful that the ability to pay issue is still present for a laborcertification they had nothing to do with, and it remains an open question whether the new employer is responsible to pay theproffered wage at the time of the permanent resident application is approved.

Practitioners should not be confident that payment of wages will be sufficient evidence to meet their ability to pay bur-den, but if the case is denied, the chance of successful appeal to the AAO is strong. As a result of the length of the permanentresidence application process, an employer has the burden of providing documentation stretching back two to three years, andthe ability to pay issue could conceivably arise at the I-485 stage, especially in the landscape of adjustment of status portabil-ity, since the obligation is continuing until permanent residence is granted.

Assets of Shareholders, Sole Proprietors or Other Corporate Entities

An employer's business structure is a consideration when making an ability to pay analysis. The personal income and as-sets of the owner of the I-140 sole proprietor petitioner, not just that of the petitioning entity, may be utilized to establishability to pay. In one AAO case, where the petitioner, a specialty auto repair and restoration business, was a sole proprietor-ship, the AAO held that the personal income and assets of the owner could be considered in an assessment of the ability topay. This included the value of the owner's personal stock, trust, and mutual fund investments. [FN78] The AAO also ap-proved an immigrant visa petition where the tax returns of the wife of the employer, a sole proprietorship jeweler, demon-strated additional income not taken into account by the CSC, and established the petitioner's ability to pay the profferedwage of a gem cutter. In its denial of the petition, the CSC found that, although the petitioner's profits were sufficient to paythe wage, the difference between those profits and the wage offer did not appear sufficient for the owner of the petition to



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support his household. [FN79]

To move outside the area of AAO case law, in a recent labor certification case, the BALCA found that the overall fiscalcircumstances of the owner of a sole proprietorship should be considered when assessing an employer's ability to pay. TheCertifying Officer (CO) denied the labor certification for a plant propagator position where the employer, a sole proprietor-ship farming operation, showed consistent annual losses in its Form 1040, Schedule F. Despite the lack of profits, the owners'personal income earned from several business interests established enough funds available to pay the offered wage. Withoutmaking an additional finding, the Board observed that if the employer has extensive farming related business activities, butpurports to employ an alien in a job for a particular business interest that is losing money, a CO might reasonably be suspi-cious that the job opportunity is not bona fide. The case was remanded to the CO for further consideration. [FN80]

A corporation is a separate and distinct legal entity from its owners and shareholders. Consequently, assets of its share-holders or of other enterprises or corporations cannot be considered in determining the petitioning corporation's ability topay the proffered wage. [FN81] In an unsuccessful AAO appeal, a dress manufacturer/retailer's immigrant visa petition for afashion designer was denied where the 1120S tax returns showed a loss and ordinary income less than the proffered wage inaddition to a letter from a CPA confirming current sales of over $720,000. The petition was denied and the appeal was unsuc-cessful because the employer submitted his personal Form 1040 as a shareholder of the petitioner reflecting income from an-other store owned in Palm Beach, Florida. The appeal failed not only because the returns were unsigned, undated, and incom-plete as to any schedules, but because the income from the shareholder of the petitioner, earned from a separate entity couldnot be considered in the ability to pay analysis. [FN82]

As a matter of practice, petitioners may successfully rely on the assets and income of their parent corporation, particu-larly if there is a deep pocket involved. [FN83] When drafting the I-140 petition, practitioners should ensure the source offunding is made very clear to the adjudicating officer to avoid a charge of misrepresentation.

As far as partnerships are concerned, two types of partnerships exist: general and limited. In a general partnership, eachpartner is, jointly and severally, personally liable for the debts and taxes of the partnership, and, if the partnership's assets areinsufficient to satisfy a creditor's claims, the partners' personal assets are subject to attachment and liquidation to pay thebusiness debts. A limited partnership is a corporate organization in which one or more general partners manage the businesswhile "limited" partners contribute capital and share in the profits but take no part in running the business. This type of ar-rangement is increasingly favored by law firms. General partners remain personally liable for partnership debts while limitedpartners incur no liability with respect to partnership obligations beyond their capital contributions. The purpose of this ar-rangement is to encourage investors to invest without risking more than the capital they have contributed. In a general part-nership, the assets of all partners may be calculated in demonstrating an ability to pay. In a limited partnership, only the as-sets of the general partner may be cited as supporting the petitioner's showing of an ability to pay. [FN84]

Reliance on Venture Funding

The past few years have seen an extraordinary upsurge in the number of companies, particularly start-up companies inthe information technology sector, looking to venture capital firms to provide the funding necessary to pay for their initial op-erations. Indeed, venture capital funding has become a significant industry in various regions of the United States, most not-ably the Silicon Valley in northern California. A striking aspect of the phenomenon has been the frequent lack of caution ex-hibited by such venture capital firms in making large monetary amounts available to enterprises that often have little sense ofwho they are or what they plan to do. [FN85]

Companies that rely on venture funding and have not realized the revenue they had expected over the last several years,



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face ability to pay questions if they continue to depend upon venture capital rather than earned revenue. The CSC, in AILAliaison meeting minutes, provides some room to establish ability to pay if the petitioning company has millions of dollars infunding, for example, pays all of its bills and salaries, but is still operating at a loss, and is not earning traditional incomefrom sales. The CSC suggests submission of an explanation of how the company intends to fund the permanent employmentalong with evidence of the funding, and if the company employs over 100 workers, a letter from a financial officer may besufficient. [FN86] However, RFEs from the CSC are in apparent disagreement with this stated position and have stated thatthe petitioner must establish sufficient revenue from gross receipts and sales, not just from investment capital before an im-migrant petition may be approved, since the USCIS must be "reasonably sure" that the petitioner will remain in business.[FN87]

Lines of Credit

Of the four Service Centers, only the VSC has addressed the sufficiency of lines of credit in an ability to pay showing.In its written answers of July 10, 2003, to AILA's question on the subject, the VSC indicated that lines of credit may "in someinstances" be "favorably considered" to establish ability to pay as long as the line of credit was in effect at the time the prior-ity date was established, and documentation regarding the terms of the credit line is provided. [FN88] In such cases, a de-tailed letter from the bank or other financial institution making the line of credit available to the petitioner is critical. The let-ter should address such issues as the amount of credit, the interest rate, and the events of default. The last item is of particularimportance, since a default may make the petitioner liable for the full amount of credit extended immediately.

Companies Operating at Loss

If an employer is operating at a net loss, and its Form 1120 tax return shows this loss, the petition is not automaticallydeniable. [FN89] If the petitioning company is able to show that this is an isolated year in a series of good years, and there isan expectation of an increase in profits, then ability to pay can be established under Matter of Sonegawa. [FN90] The immig-rant visa petition in Sonegawa was denied by the Service Center because the petitioner's net business profit was only $280 in1966, the year the priority date was established, and the proffered annual wage was $6,240. The decision was reversed be-cause the petitioner, a custom boutique and dress shop, evidenced "expectations of continued increase in business, and in-creasing profits are reasonable expectations." [FN91] The dress shop had been in business for over eleven years and routinelyearned a gross profit of about $100,000. During the year in which the labor certification was filed, the petitioner changedbusiness locations and paid double rent for the two locations over a five-month period. There were large moving costs and aperiod of time when the petitioner was unable to maintain regular business hours. The BIA determined that the petitioner'sprospects for a resumption of successful business operations were well established after a consideration of all surroundingcircumstances. The petitioner was a successful fashion designer whose work had been featured in Time and Look magazines.Her clients included Miss Universe, movie actresses and society matrons, and the petitioner's clients had been included inlists of the best-dressed California women. The petitioner also lectured on fashion design at design and fashion showsthroughout the United States. The holding in Sonegawa was based largely on the petitioner's sound business reputation andoutstanding reputation in couturiere.

Under Sonegawa, employers may be able to establish an ability to pay by evidencing their reasonable expectations of in-creased business and profits in the future. AAO non-precedent decisions after Sonegawa have demonstrated ability to pay ifthe petitioner shows ready cash on hand sufficient to pay the proffered wage, and increasing profits or demonstration of reas-onable expectation of increasing profits in the future. [FN92]

The AAO has demonstrated a willingness, in light of Sonegawa, to review the history of a petitioner's performance. For



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example, a restaurant established ability to pay a cook position given the magnitude of its business and the size of its payroll.The AAO found that although a business suffers a loss during a certain year, or during several years, the historical perspect-ive establishes an employer's ability to pay the proffered wage. The restaurant had been in business over ten years, paidwages exceeding $500,000 during the priority date year, and its gross receipts were more than $1.6 million. [FN93]

In a situation where a petitioner is reliant on a line of credit, venture funding, or operating at a loss, a detailed businessplan containing financial business and market projections is critical. Also, the employer can turn to various other indices ofability to pay, including the following: (1) payroll obligations being met on a continuous basis; (2) assets, including goodwillon hand; (3) cash on hand; (4) accounts receivable; or (5) non out-of-pocket deductions. [FN94] In describing such indices tothe USCIS, it is critical to work with the petitioner's accountants to ensure that the material is presented in a perspicuous andpersuasive manner.

Conclusion

The reality of Service Center practice is that RFEs generally consist of lengthy laundry lists of items with little, if any,thought going into examining the relevance of these documents to an employer's individual situation. Once this is grasped, itbecomes evident that there is little sense in attempting to provide every item requested in an RFE, and experience suggeststhat this can actually be a self-defeating exercise, since somewhere in this collection of materials there is likely to be informa-tion that is derogatory and provides a basis for denial. [FN95] Practitioners should instead focus on what they consider themost appropriate evidence to meet their burden after consideration of which specific documentation and financial figures arethe most persuasive. If such evidence shows that the petitioner's net income or net assets, or the adjusted gross income figurein the case of a sole proprietorship, documented in an annual report, tax return, or audited financial statement exceeds theproffered wage, ability to pay is established and the story should end there. If the petitioner cannot meet this threshold, prac-titioners should analyze the viability of alternative means of showing an ability to pay, bearing in mind the standards dis-cussed above. This might include evidence of a reasonable expectation of increased profits, and/or actual past payment of theproffered wage. Such evidence may not achieve success on its own at the Service Centers, but will probably result in a favor-able outcome at the AAO.

Having digested the montage of USCIS directives regarding how petitioners must prove ability to pay, as well as the of-ten conflicting standards from the AAO over the course of the last three years, practitioners can take away several practicepointers to assist them in presenting a sound immigrant petition that may even avoid an RFE.

• In the USCIS cover letter, explain what specific financial documentation is enclosed, and that the reason it is enclosed is toestablish ability to pay the proffered wage pursuant to 8 CFR § 204.5(g)(2).

• Copy, highlight, and include only the specific pages from the annual report, Form 10-K, or audited financial documentationthat show either net income or the ratio between current assets and current liabilities in excess of the proffered annu-al wage. Avoid submitting the entire document, particularly if it includes negative editorial comments that could un-necessarily concern an adjudicator.

• If the petitioner employs over 100 workers, the practitioner should consider submitting a letter from a financial officer con-firming the ability to pay the proffered wage in lieu of an annual report, tax return, or audited financial statement.While public comments from the Service Centers consider acceptance of this evidence discretionary and not accept-able in lieu of an annual report, tax return, or audited financial statement, RFEs, at least from the CSC, state thatsuch letters are accepted by the AAO as sufficient primary evidence of ability to pay.

• The ability to pay burden must be met at the time the priority date is established, with assurances to the adjudicator that the



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ability will continue through the approval of permanent resident status. Therefore, submission of the most recent taxreturn or audited financial statement will not suffice if the documentation does not include the priority date year.Note the benefit of including an annual report or 10-K statement as the audited financial figures typically span athree-year period, which hopefully will include the year the priority date was established, unless Department ofLabor processing time frames continue to slow.

• Review carefully auditor reports for negative predictions, specifically any "going concern" language. If such a comment ap-pears, it must be dealt with, preferably by an accountant.

• Submit tax returns in their entirety, including all schedules, and make sure the returns are properly signed and dated.• Consider including a written opinion from an accountant if the petitioner cannot meet its burden through submission of

primary documentation, in order to bolster a future expectation of profits argument or to otherwise construe the fin-ancial information presented in a manner that is likely to result in an approval. The ability to pay context is one inwhich it is generally not advisable to let secondary documents speak for themselves.

In the final analysis, practitioners should approach the issue of ability to pay with an understanding of the lack of expertiseof USCIS officers regarding financial documentation, as well as of the fact that today's "culture of no" means that such of-ficers are unlikely to give petitioners with questionable financial documentation the benefit of the doubt. Thus, clarity andbrevity are of paramount importance, as is an awareness of which types of material contain unnecessary and potentiallyharmful collateral information and are best left out.

In the coming years, the disappearance or diminution of one or more of the factors set out at the outset of this Briefingmay mean that proving ability to pay becomes a less complicated exercise; better coordination between the Service Centersand the AAO would also do much to clarify the currently muddied picture by reconciling some of the differing stances adop-ted by these bodies. Such reconciliation would also rectify the unacceptable situation of having officers within the same gov-ernment agency approaching the same legal issue according to inconsistent standards. In the meantime, practitioners repres-enting clients whose financial resources are marginal or not amendable to uncomplicated presentation should view the burdenof establishing ability to pay as a serious one, and one on which it is not possible to expend excessive time and effort.

[FN1]. This Briefing draws on sections of a presentation delivered by one of the authors at the 2003 AILA CaliforniaChapters conference in San Diego. For a recent and excellent treatment of the subject, see R. Wada, Demonstrating an Em-ployer's Ability to Pay, 8 Bender's Immig. Bull. 1559 (October 1, 2003) [hereinafter Wada]. See also R. Banta, "Show Themthe Money: Strategic Considerations in Documenting an Employer's Ability to Pay the Offered Wage, in Immigration andNationality Handbook 2003-04, at 229-237 (AILA 2003) [hereinafter Banta].

[FN2]. 20 CFR § 656.20(c)(1): "Job offers filed on behalf of aliens on the Application for Alien Employment Certificationform must clearly show that: (1) The employer has enough funds available to pay the wage or salary offered the alien[.]"

[FN3]. Ability to pay issues should not, for example, be raised in the context of an H-1B petition, at least by the USCIS. SeeINS Instructs on Supporting Documentation for H-1B Petitions, 73 Int. Rel. 364 (March 25, 1996).

[FN4]. Immigration and Nationality Act [hereinafter INA] § 203(b)(1)(A), (b)(2)(B); 8 CFR § 204.5(h),(k).

[FN5]. Nothing in the INA specifically mandates that an I-140 petitioner be able to show that it can pay the wage cited in thepetition. Nevertheless, the issue of the petitioner's ability to pay this salary is generally interpreted as a factor that bears dir-ectly on the question of whether or not the offer of employment required by INA § 203(b)(2)(A) for second preference aliensgenuinely exists, since inability to pay the promised wage precludes the petitioner's performance.




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[FN6]. 8 CFR § 204.5(g)(2). At the June 2003 AILA Annual Conference in New Orleans, USCIS officials announced thatthey are exploring a pilot program to "precertify" certain employers as having the financial resources to sponsor nonimmig-rant and immigrant petitions in order to streamline clearly approvable petitions and eliminate unnecessary duplication of ex-tensive documentation. Such a precertification program would obviously moot the ability to pay issue for participating com-panies. The USCIS suggests extremely high thresholds in order to qualify for the program, such as the filing of at least 100 I-140 petitions annually, many years of operation, and stratospheric capitalization figures. The USCIS anticipated that the pre-certification program would begin as early as September 2003, but to date no such program has been established. See BCISMay Implement a Pilot Precertification Program, posted on AILA InfoNet at Doc. No. 03071541 (July 15, 2003).

[FN7]. See Matter of Great Wall, 16 I & N Dec. 142 (B.I.A. 1977) at 145; Matter of Wing's Tea House, 16 I & N Dec. 158,1977 WL 39240 (Act. Reg. Comm. 1977); Chi-Feng Chang v. Thornburgh, 719 F. Supp. 532 (N.D. Tex. 1989).

[FN8]. Matter of Great Wall, 16 I & N Dec. 142, , 1977 WL 39236 (B.I.A. 1977).

[FN9]. According to the most recent processing report posted at www.USCIS.gov, the California Service Center is pro-cessing adjustment of status applications filed on December 16, 2001.

[FN10]. 8 CFR § 204.5(g)(2).

[FN11]. AILA/CSC Liaison Meeting Q&A, posted on AILA Infonet at Doc. No. 03051240 (May 12, 2003).

[FN12]. 8 CFR § 204.5(g)(2).

[FN13]. Anderson's Jewelry v. INS, 83 F3d 426 (9th Cir. 1996) (denial of I-140 petition where petitioner failed to submit anyprimary documents regarding ability to pay and relied exclusively on secondary documents).

[FN14]. 8 CFR § 204.5(g)(2).

[FN15]. Wada, supra n.1, at 1559-60, citing statements made in RFEs that are wholly unsupported in the law. For example,"the Service must be reasonably certain that [the petitioner] can guarantee permanent full time employment."

[FN16]. Written Answers for the August 1, 2002, AILA/ISD Liaison Meting, posted on AILA Infonet at Doc. No. 02080642(Aug. 6, 2002).

[FN17]. U.S. Department of Justice "Fact Sheet," posted on the USCIS website at ht-tp://uscisgov/graphics/publicaffairs/factsheets/mgmmtfs.htm (August 7, 1998).

[FN18]. Id.

[FN19]. The regulations require that the petitioner establish its ability to pay the proffered wage without quantifying the fig-ure in terms of an hourly, weekly, monthly or yearly amount. USCIS and AAO practice is to calculate the ability to payequation in terms of what the beneficiary will earn annually, and both generally require that the petitioner establish the abil-ity to pay the beneficiary's annual proffered wage; in other words, to show an amount large enough to cover his or her salaryfor a full year.

[FN20]. These decisions are available on the USCIS web site at http:// uscis.gov/graphics/lawsregs/admindec3/index.htm.




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[FN21]. AILA/CSC Liaison Q&A, posted on AILA InfoNet at Doc. No. 03111343 (Nov. 13, 2003).

[FN22]. INA § 203(b)(1)(C); 8 CFR § 204.5(j).

[FN23]. Securities Exchange Act of 1934, §§ 13 and 15(d). Details regarding which companies are subject to public financialreporting and disclosures may be found on the SEC's website at www.sec.gov.

[FN24]. Securities and Federal Corporate Law, H. S. Bloomenthal and S. Wolf, Volume 3A, West Publication, December2003 [hereinafter Securities and Federal Corporate Law].

[FN25]. Securities Exchange Act of 1934, § 13 or 15(d).

[FN26]. Id. See also Form 10-K found at www.sec.gov. See also Securities and Federal Corporate Law, supra n.24.

[FN27]. See Securities Exchange Act of 1934, § 13 or 15d.

[FN28]. Securities and Federal Corporate Law, supra n.24.

[FN29]. Sarbanes-Oxley Act of 2002, H.R. Rep. No. 107-610 (2002).

[FN30]. Id. at § 101, § 102, § 201, § 208, § 301, § 302, § 303, § 306, § 307, § 401, § 406, § 407, § 802, § 906. Note that therules originally adopted on June 5, 2003 for § 404 require Form 10-Ks to contain an "internal control report" that states theresponsibility of management for establishing and maintaining an adequate internal control structure and procedures for fin-ancial reporting, and includes management's assessment of the effectiveness of these controls. Under the very recently pub-lished compliance schedule, a company that is an "accelerated filer" must begin to comply with these new rules for its firstfiscal year ending on or after Nov. 15, 2004 (originally June 15, 2004). A non-accelerated filer must begin to comply withthese requirements for its first fiscal year ending on or after July 15, 2005 (originally April 15, 2005). The SEC has also ex-tended the compliance dates for related requirements regarding evaluation of internal control over financial reporting andmanagement certification requirements. See http:// www.sec.gov/news/press/2004-21.htm.

[FN31]. Elatos Restaurant Corp. v. Sava, 632 F. Supp. 1049 (S.D. N.Y. 1986), at 1054 (citing Tongatapu Woodcraft HawaiiLtd. V. Feldman, 736 F.2d 1305 (9th Cir. 1984); see also Chi-Feng Chang v. Thornburgh, 719 F.Supp. 532 (N.D. Texas1989); KCP Food Co., Inc. v. Sava, 623 F. Supp. 1080 (S.D.N.Y. 1985); Ubeda v. Palmer, 539 F.Supp. 647 (N.D. Ill. 1982),aff'd, 703 F.2d 571 (7th Cir. 1983).

[FN32]. Matter of X, EAC-01-018-50413 (AAO January 17, 2003) (Vermont Service Center).

[FN33]. VSC's Written Answers to AILA's Liaison Questions, posted on AILA InfoNet at Doc. No. 03051341 (May 13, 2003)("The compensation of officers expense that is itemized on federal tax returns refers to payments made to officers of the cor-poration. In order to claim this expense on the tax return, the person to whom these funds are paid must materially participatein the business. Further the level of compensation cannot be excessive in relation to the services rendered by that individualon behalf of the business.").

[FN34]. See Matter of Obaigbena, 19 I & N Dec. 533, 1988 WL 235440 (B.I.A. 1988), at 534; Matter of Ramirez-Sanchez,17 I & N Dec. 503, , 1980 WL 121924 (B.I.A. 1980) at 506, cited in Matter of X, EAC-00-107-51538.

[FN35]. Chi-Feng v. Thornburgh, 719 F.Supp 532 (N.D. Texas 1989). See also Elatos, 632 F.Supp. 1054, where the argu-
























ment to add back to net cash the depreciation expense charged for the year was also rejected.

[FN36]. Matter of X, EAC-00-194-52073, 2002 WL 32082465 (AAO January 17, 2002) (Vermont Service Center); and Mat-ter of X, EAC-98-270-51585, 2001 WL 34078278 (AAO March 12, 2001) (Vermont Service Center).

[FN37]. KCP Food Co. v. Sava, supra n. 31 at 1084 (The court specifically rejected the argument that the Service shouldhave considered income before expenses were paid rather than net income).

[FN38]. Matter of X, EAC-02-086-53457 (AAO April 9, 2003) (Vermont Service Center).

[FN39]. Matter of X, (no file number provided), 2001 WL 34078195 (AAO March 6, 2001) (Texas Service Center).

[FN40]. Matter of X, WAC-01-297-52252 (AAO May 6, 2003) (California Service Center).

[FN41]. Matter of Sonegawa, 12 I&N Dec. 612, Int. Dec. 1835 (BIA 1967). This case is discussed below.

[FN42]. Matter of X, WAC-02-031-56510 (AAO April 15, 2003) (California Service Center).

[FN43]. Matter of X, EAC-02-073-50160 (AAO April 15, 2003) (Vermont Service Center).

[FN44]. Matter of X, LIN-01-199-56309 (AAO March 26, 2003) (Nebraska Service Center).

[FN45]. Matter of X (no file number provided) (AAO March 26, 2003) (Texas Service Center).

[FN46]. Matter of X, (no file number provided), 2002 WL 32082463 (AAO January 11, 2002)(Nebraska Service Center).

[FN47]. VSC/AILA Official Liaison Minutes, posted on AILA InfoNet at Doc. No. 02011032 (Jan. 10, 2001).

[FN48]. See VSC minutes, supra n. 33. See AAO case, supra n. 43, Matter of X, EAC-02-073-50160 (AAO April 15, 2003)(AAO approves immigrant visa petition based upon working capital theory (net current assets)).

[FN49]. See VSC minutes, supra n. 33.

[FN50]. Matter of X, WAC-01-296-52765 (AAO May 6, 2003) (California Service Center).


[FN52]. Matter of X, WAC-01-245-58062 (AAO March 26, 2003) (California Service Center).

[FN53]. Matter of X, EAC-01-091-51829, 2003 WL 2008001 (AAO January 13, 2003) (Vermont Service Center).

[FN54]. Matter of X, LIN-01-136-54046, 2002 WL 32082516 (AAO June 28, 2002) (Nebraska Service Center).

[FN55]. Matter of X, EAC-01-085-52329, 2002 WL 32082483 (AAO June 18, 2002) (Vermont Service Center).

[FN56]. Matter of X, EAC-01-081-52149, 2002 WL 32082548 (AAO May 29, 2002) (Vermont Service Center).

[FN57]. TSC Liaison Meeting Minutes, posted on AILA InfoNet at Doc. No. 988173 (Feb. 17, 1999).














[FN58]. The authors are indebted to Ed Prud'homme of Las Vegas, a fellow panelist at the 2003 AILA California ChaptersConference, for sharing his experience of the USCIS' close reading of financial statements. An immigrant petition was filedby a company with net revenues of $100 million for an employee receiving an annual salary of $100,000. The petition wasfiled with the company's audited financial statements, which adopted the convention referred to above. An RFE was issuedby the USCIS, questioning ability to pay in light of the fact that the beneficiary's salary matched the company's entire net in-come. A respectful response to the RFE was prepared, gently drawing the USCIS' attention to the fact that the company's netrevenues were $100 million. The case was nonetheless denied on the basis of an inability to pay the proffered wage and thesubsequently filed motion to reconsider was also denied. The case is now at the AAO, which has at least a basic familiaritywith such financial documents, and a reversal of the Service Center denial should be expected.

[FN59]. Written Answers to AILA's Liaison Meeting, supra n. 16; AILA Liaison Q&A, Supplement & Sample RFE, posted onAILA InfoNet at Doc. No. 03060942 (June 9, 2003).


[FN61]. The same petitioner had the following five immigrant petitions denied by the NSC based upon failure to establish itsability to pay the proffered wage; the AAO subsequently reversed each decision. Matter of X, (no file number provided)(AAO April 9, 2003) (Nebraska Service Center); Matter of X, (no file number provided) (AAO March 26, 2003)(NebraskaService Center) Matter of X, (no file number provided) (AAO January 24, 2003)(Nebraska Service Center); Matter of X, (nofile number provided)(AAO January 13, 2003)(Nebraska Service Center); Matter of X, (no file number provided), 2003 WL2007990 (AAO January 24, 2003)(Nebraska Service Center).

[FN62]. Matter of X, (no file number provided) (AAO August 16, 2000) (Texas Service Center); Matter of X, (no file numberprovided) (AAO August 10, 2000) (Texas Service Center).

[FN63]. 8 CFR § 204.5(g)(2).

[FN64]. Selection from recent RFEs the authors of this article have received.

[FN65]. 8 CFR § 204.5(g)(2).


[FN67]. Matter of X, LIN-02-031-51832 (AAO March 26, 2003) (Nebraska Service Center); Matter of X, EAC-02-028-51368 (AAO February 11, 2003) (Vermont Service Center).

[FN68]. NSC Liaison Questions, posted on AILA InfoNet at Doc. No. 04020644 (February 6, 2004)("If ability to pay is be-ing based upon the fact that the employer has already been paying the wage to the alien, only legally paid wages will be con-sidered. W-2s, pay slips, Form 941, Employer's Quarterly Tax Statement.").

[FN69]. Matter of X (no file number provided) (AAO February 24, 2003) (California Service Center).

[FN70]. Matter of X, EAC-98-002-52471 (AAO March 6, 2001) (Vermont Service Center).

[FN71]. Matter of X, EAC-99-122-50111 (AAO August 11, 2000) (Vermont Service Center).

[FN72]. See Written Answers to AILA/ISD Liaison Meeting, supra n.16.







[FN73]. AILA/CSC Liaison Q&A, posted on AILA InfoNet at Doc. No. 0306-942 (June 9. 2003).

[FN74]. ISD minutes, posted on AILA Infonet Doc. No. 02071544 (July 15, 2002).

[FN75]. See AILA/ CSC Liaison Minutes Meeting Q&A, supra n.11.

[FN76]. ISD Addresses Concurrent Filing & AC21 Ability to Pay Issues, posted on AILA InfoNet at Doc. No. 02100371(Oct. 3, 2002); Vermont Service Center Answers Liaison Questions, posted on AILA InfoNet at Doc. No. 02091271 (Sep. 12,2002).

[FN77]. American Competitiveness in the Twenty-First Century Act of 2000, Pub. L. No. 106-313, § 106(a)(b), 114 Stat.1251, 1253-54.

[FN78]. Matter of X, (no file number provided)(AAO August 10, 2000) (Nebraska Service Center).

[FN79]. Matter of X, WAC-02-072-52514 (AAO February 27, 2003)(California Service Center).

[FN80]. Matter of Ranchito Coletero, 2002-INA-105, 2004 WL 192974 (Jan. 8, 2004).

[FN81]. See Matter of M, 8 I & N Dec. 24, 1958 WL 9868 (B.I.A. 1958), Matter of Aphrodite Investments, Ltd., 17 I & NDec. 530, 1980 WL 121930 (Comm. 1980), and Matter of Tessel, 17 I & N Dec. 631, 1981 WL 158802 (Act. Assoc. Comm.1980) cited in Matter of X, EAC-00-107-51538 (AAO January 21, 2003)(Vermont Service Center).

[FN82]. Matter of X, EAC-00-107-51538.

[FN83]. In the experience of the authors, immigrant petitions filed by small United States subsidiaries of a large overseasmulti-national corporation can overcome RFEs questioning their ability to pay by referring to the assets of the parent corpor-ation and indicating that such assets may be drawn upon by the subsidiary.

[FN84]. Banta, supra n. 1, at 235.

[FN85]. See generally J. Cassidy, Dot Con: The Greatest Story Ever Sold (2002).

[FN86]. AILA/CSC Liaison Questions and Updates, posted on AILA InfoNet at Doc. No. 00111602 (Nov. 16, 2000).

[FN87]. Wada, supra n. 1, at 1560.

[FN88]. VSC's Written Answers to AILA's Liaison Questions, supra n. 33.

[FN89]. See VSC/AILA Official Liaison Minutes, supra n. 47.

[FN90]. Sonegawa, supra n. 41.

[FN91]. Id. at 615.

[FN92]. See Wada, supra n.1 at 1561; see also Matter of X, EAC-01-018- 50413, supra n. 32.

[FN93]. Matter of X, WAC-01-275-57689 (AAO February 27, 2003)(California Service Center).



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[FN94]. See VSC/ AILA Official Liaison Minutes), supra n. 47.

[FN95]. Of course, it should be noted that the USCIS' regulations make it plain that there is only one opportunity to respondto an RFE: all evidence responsive to an RFE must be submitted "at one time." The presentation of partial or incompleteevidence in response to an RFE will be considered by the Service to be a request for a decision based on such partial or in-complete evidence. The effect of this restriction (which makes abundant sense from an administrative point of view) is that apetitioner or applicant responding to an RFE has only one bite at the apple. Simply not providing the item without an explan-ation exposes the petitioner or applicant to the risk that it may be considered to be requesting a decision based on incompleteevidence. See 8 C.F.R. § 103.2(b)(8).

[FNa1]. A. James Vázquez-Azpiri and Amy Reinhorn practice business immigration law in the San Francisco office ofCooley Godward LLP.

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04-03 IMMIGRBRIEF 1END OF DOCUMENT


