A guest blog today from AILA Board of Governors member Dagmar Butte:

If you have been feeling lately as though there are ever more new and creative ways for your employment based permanent residence case to get denied, you are not alone. The worst part is that some bases for denial arise out of regulations and interpretations of regulations that bear no relevance to the way American companies actually do business. In addition, they actually hamper American competitiveness by limiting the opportunity for growth and innovation.

One area where this is very apparent is in the requirement – for most employment based cases – that the employer establish an ability to pay the worker from the date the application is first filed going forward. In a substantial portion of cases, this is an easy burden to meet because the foreign worker is already working for the employer when the application is filed and generally continues to work for that employer until the application is approved or at least until the date the ability to pay determination is made by USCIS. Even if the employee is a future employee, if the company employs more than 100 people it can simply submit a statement from its CFO attesting to the ability to pay. Where the problems arise is if the application is for a worker that the employer plans to hire in the future and the employer employs less than 100. Since the majority of businesses in the US employ fewer than 100 workers and often find themselves in a position where they are creating new jobs as a result of expansion, this means the issue arises fairly frequently.

The general rule is that USCIS looks to the income tax return or audited financial statement of the employer first and if – for example – the tax return does not show sufficient net income to pay the salary for the period in question, then USCIS “may” consider other secondary evidence such as P/Ls, W-2s for existing employees whom the future employee will replace and money in the company’s bank account during the period in question. The problem is with that word “may” and the manner in which USCIS has been interpreting it recently.

First, the agency has elevated the tax return to be the be all and end all of the ability to pay and relied almost exclusively on “net income.” As Justice Posner of the US 7th Circuit noted a couple of weeks ago in Construction and Design Co. v. USCIS, this is simply not realistic because business’s goal is to minimize tax liability. Especially small businesses that operate S-Corporations and other pass-through entities have many different ways of passing their income through to the owners other than the sole method USCIS seems to recognize – namely the corporate tax return lines dealing with Officer, Director and Shareholder compensation and distributions. Finally, tax decisions such as whether to defer depreciation or not are driven by where else money needs to go in a particular year and how much revenue was taken in and do not necessarily mean these decisions would have been the same had there been another demand on the money – such as the need to pay salary.

As a result, USCIS frequent and often categorical refusal to: 1) consider all of the ways in which income is passed through in a pass through entity, 2) consider how much income the employment of the new worker will add to the company’s bottom line, 3) consider the personal assets of the sole owner of a pass-through entity which are often available to the entity to boost cash flow, 4) give credit for depreciation, 5) consider ability to borrow or 6) pro-rate net income if the application is not filed at the beginning of the year (unless the employer can show the money was in the bank during the months in question) hurts US employers seeking to hire foreign workers. It prevents their ability to expand if that expansion will come through a foreign worker and it hurts the economy as a whole. Furthermore, it does not even meet the stated goal of actually determining whether there is or is not an ability to pay because it does not look at the real financial ability of the prospective employer but rather at the employer’s accounting strategies to avoid taxation.

Second, “may” is interpreted to mean that the agency essentially has absolute discretion to disregard additional or secondary evidence of the ability to pay if the primary evidence (tax return, audited financial statement or CFO statement) does not establish ability to pay. This is true even if the secondary evidence establishes the ability to pay and even if it is in fact a much better reflection of the employer’s actual financial condition than the primary evidence. No one is suggesting that USCIS always ignores the secondary evidence or acts in bad faith in any way, rather, the problem lies in the very fact that the evidence is considered “secondary” and therefore only discretionarily considered. Given that the burden is on the employer and given that the “best evidence” rule governs immigration filings, it would seem that there should be no hierarchy at all and any and all evidence that is reasonably probative of the ability to pay – in light of real world accounting and business management practices – should be considered to determine whether the totality of the circumstances establishes by a preponderance of the evidence that the employer has the ability to pay.