It is often a very good idea to understand how the other side views a case.  In E-2 visa applications it is critical.  Below is an excerpt of USCIS’s Adjudicators Field Manual as it relates to E-2 Treaty Investor Visa.  This section is all there is from the field manual, but not all there is to the tools and policies available to the adjudicator.  This is a good starting point in the evaluation, prior to filing if an E-2 visa application will be successful or not.  If you would like some more detailed information please click here and I will give you our E-2 Treaty Trader Overview as well as some additional tools to help you apply for the E-2 visa.

Introduction

U.S. Citizenship and Immigration Services (USCIS) regulations concerning investor based immigration petitions require a review of financial information from sources that may include income tax returns, audited financial statements, and other financial data evidencing the investor-petitioner’s initial and ongoing capital investment. The accurate presentation of financial documentation concerning the valuation of assets contributed to a business, and the financial status of a business, is critical to eligibility. At the end of the two-year conditional permanent residence period in EB-5 cases and ongoing reporting for renewals of E-2 cases, the investor must demonstrate that the investment and the enterprise have been sustained. An understanding of financial documentation, therefore, is essential to preparing petitions that will qualify the investor for immigration benefits.
It is important that your immigration lawyer be familiar with the details of accounting systems, financial and tax reporting. It is critical to understand there are many legitimate combinations of systems and methods of accounting used in business. This knowledge alone can be very valuable in identifying potential ways to helping you the client address the evidentiary requirements of immigration petitions. This article will discuss the three financial statements.

Different Financial Statements

Financial statements are an important tool for the investor to manage and control the investment. All investors no matter how small should have financial statements for both their use and as evidence for their future petitions. If the financial statements have been compiled, reviewed, or audited by a CPA, the financial statements should be accompanied by an accountant’s report that describes the CPA’s level of service and indicates whether the financial statements contain departures from GAAP. There are three general types of engagements.

Compiled Statements

Compilation engagements are engagements in which a CPA receives information supplied by the client and arranges it into proper financial statement form under GAAP, without attempting to express any assurance on those statements. The CPA is concerned that the assembly of information is arithmetically correct; however, the CPA does not verify the accuracy or completeness of the information provided. In a compilation engagement, the CPA does not have to make inquiries of management or perform other procedures to verify, corroborate, or review information supplied by the client. Compiled financial statements are common for most small companies or companies that do not have reporting requirements to a bank or other creditors.

Reviewed Statements

In a review engagement, the CPA goes beyond putting client information together. The CPA also makes certain inquiries of management and performs analytical procedures. However, in a review, the CPA does not have to understand the company’s internal control, test the accounting records, observe inventory, confirm receivables, or obtain other corroborating evidence, as required in an audit. Review engagements differ from audits because the scope of review is less than that of an audit and, therefore, the level of assurance provided is lower. A review consists primarily of enquiry, analytical procedures, and discussion related to information supplied to the public accountant by the enterprise with the limited objective of assessing whether information being reported on is plausible within the framework of criteria.

Audited Statements

In an audit engagement, the CPA goes beyond a review, and on a test basis, examines evidence supporting the amounts and disclosures in a company’s financial statements. The objective of an independent, external audit under accepted auditing standards (GAAS) is to express an opinion on whether an entity’s financial statements present fairly, materially, its financial position, results of operations, and cash flows in conformity with GAAP. This is the highest form of assurance. The auditor performs the audit with an attitude of professional skepticism and seeks reasonable assurance whether the financial statements are free of material misstatement. Materiality and audit risk affect the application of GAAS, especially the fieldwork and reporting standards, and are reflected in the auditor’s standard report. The auditor must make judgments about materiality and audit risk in determining the nature, timing, and extent of procedures to apply, and in evaluating the results.

The subsequent petitions for the immigrant investor require accurate and informative financial reports. These reports with other documentary evidence must be submitted to USCIS to meet the high evidentiary standards.

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The immigration regulations require the E-2 treaty investor to prove that the invested capital was “obtained through lawful means.”. USCIS often insist upon substantial documentation to prove lawful source of funds. Although the regulatory list of documents is in the disjunctive, in practice USCIS requests all of the listed categories of documents and, usually significant additional documentation. This is one area of the law where simply following the regulations will not be sufficient. The regulatory requirements should be viewed as a starting point. Sometimes tax returns will show a sufficient enough income to preclude the necessity of any further documentation.

Documenting lawful source of funds requires extreme attention to detail and knowledge of business documentation and sometimes of finance and accounting. Many financial transactions require a multitude of documents to evidence, and USCIS will insist on all of the detailed documentary evidence. It is only necessary to prove where and how the investor obtained the required invested funds. It is unnecessary to prove where the investor obtained every dollar he or she now has or ever had. The difficulty of documenting the lawful source of funds often varies greatly by country. It can be especially difficult in countries where no tax returns must be filed or where full disclosure of revenues and profits on tax returns is the exception rather than the rule. Where tax returns do not have to be filed, this should be documented. Where tax returns must be filed but the individual’s tax returns show little income, the documentation of the source of funds should provide overwhelming evidence to counter the negative implication that comes from a review of the tax returns.

Documenting lawful source of funds is a different requirement than the requirement to trace the funds from the individual investor to the investment enterprise. This also needs to be done in great detail. For countries with restrictions on the outflow of currency, this can be especially difficult, since the investor may engage in several layers of transactions between the money leaving the investor’s account overseas and arriving in the US enterprise.

In documenting lawful source of funds, the ultimate focus is on the person who originally obtained the funds. If the investor obtained all funds on her own, this is not an issue. If the funds resulted from a gift, the lawful source of the giftor’s funds must be documented. If the source of funds was a loan, the lawful source of the lender’s funds must be documented, and the lawful source of any collateral put up by the investor for the loan. If the source of funds is an inheritance, the decedent’s source of funds may be the issue.

Often in documenting lawful source of funds, the attorney or client must make a judgment regarding how far back to go with the documentation. If the source of funds is a real estate transaction that resulted in substantial proceeds from the sale of real estate, the documentation of the real estate sale is required. If the real estate was purchased within the last several years, it is highly recommended to document how the investor obtained the money to purchase the real estate now sold. If the real estate was purchased 30 years ago, it may be impossible to provide such documentation. There is no clear line regarding how far back one must go to obtain documentation, with “reasonableness” being the rule of thumb. The same concepts apply to securities transactions. For inherited money, if the decedent earned his or her money 50 years ago, USCIS may agree it is not possible to document the earning of those funds.

Although primary documents should be obtained wherever possible, written statements, affidavits and resumes can help fill some holes in the primary documentation and can help to paint a picture that satisfies the USCIS examiner that the invested capital had a lawful source. It is always a good idea to provide a narrative description of the investor and the invested funds, with citations to the documentary exhibits, rather than relying on the USCIS examiner to understand all of the documentation and to conclude that the investor wants drawn from the documentation.
In many investment cases, documenting the lawful source of funds can be the most arduous and time consuming part of the process. The investor should be forewarned of the need for substantial documentation. Sometimes, the investor may have gone to great lengths to avoid having documentation of the very transactions that now must be proved for the immigration petition. If transactions can be diagramed and supporting evidence provided showing where the money came from, the chances of satisfying USCIS should be greatly enhanced.

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