Establishing Ability to Pay for USCIS
The Courts have specifically rejected the argument that gross profits should be used to establish ability to pay rather than net profits. K.C.P. Food Co., Inc. v. Sava, 623 F. Supp. 1080 (S.D.N.Y. 1985). The reasoning for this is further explained in Taco Especial v. Napolitano, 696 F. Supp. 2d 873 (E.D. Mich. 2010), in which the Court stated that reliance on gross profits overstates the employer’s ability to pay because it does not take into account necessary expenses.
Sole Proprieter Personal Guarantee to Pay Wages
It is well established that the personal finances of a sole proprietor may be used to establish ability to pay. Since in the instant case the Petitioner is operating no differently than a sole proprietor the personal finances of the owner may be used to establish ability to pay.
Moreover, 8 C.F.R. 3 204.5 permits USCIS to consider the finances of any person or entity with a legal obligation to pay the beneficiary's wage. Since the owner of the Petitioner has contracted to pay the Beneficiary’s wage from his personal resources should the Petitioner be unable to pay, he has a legal obligation to pay the wage. Since the owner is legally obligated to pay the wage USCIS may consider his finances in accordance with 8 C.F.R. 3204.5.
USCIS has previously recognized an employer’s ability to pay where an owner is willing to waiver compensation or transfer personal funds for us in paying the beneficiary the proffered wage. Matter of [no name provided], A028-913-883 (AAU Oct. 24, 1988) (New York) (EAC). In the instant matter the sole owner of the Petitioner explicitly states in an attestation that he will take the Beneficiary’s wages as a personal liability, which he will waive, his compensation or transfer personal funds to pay.
Further, according to the IRS a single-member LLC is a "disregarded entity" and the individual owner is taxed in the same manner as a sole proprietor. So USCIS' distinction between an LLC and single-member LLC is misplaced. The tax records of a single-member LLC are never going to accurately account for the cash flow of the company or its financially wellbeing because it is being taxed via pass-through on a Schedule C. As a result of this tax structure expenses are accounted for in multiple places such as on the single-member’s personal taxes as well as the Schedule C of the LLC. This tax structure also results in an inability to accurately account for assets. In a single-member LLC such as the Petitioner the personal assets of the owner and the Petitioner’s assets will often overlap or be at times indistinguishable.
USCIS is literally stating that a single-member LLC must provide the same tax documents of a sole proprietor but those documents will not be analyzed in the same manner as a sole proprietor but instead they will be analyzed as a multiple-member LLC, which files a completely different set of documents. USCIS has created an impossible task.
Lastly, USCIS’ presumption ignores the fact that a single member LLC offers no asset liability protection. NYS Corporate law recognizes that a single member LLC has no other members that would need protection from liabilities of another. NYS law does not afford much protection to single member LLC's from personal creditors of the owner. Since there are no other members to protect a single-member LLC would serve no purpose but to allow individuals to hide money and assets from creditors.
Single member LLC's are not afforded asset protection if the member files for bankruptcy. Therefore, a single-member LLC in NYS offers no asset protection, because creditors, who may then liquidate the LLC and distribute the assets of the LLC to pay the single member’s personal liabilities, can take membership interest. Once again, demonstrating how the distinction made by USCIS does not really exist.
THE PETITIONER MADE DISCRETIONARY DISBURSEMENTS TO THE OWNER.
In 2013 the Petitioner paid wages not only to employees but also to the owner. Executive compensation is discretionary and while the amount of money paid to the owner would reduce the Petitioner’s net profits for tax purposes it should not reduce the Petitioner’s net profits for purposes of establishing ability to pay. Officer compensation is discretionary. Consequently, money paid to the owner is available to be used to pay the salary of employees or any other expense for that matter.
If the Petitioner had an outstanding debt or the need to purchase additional supplies those items would be paid before distributing any money to the owner. Similarly, the Petitioner would be obligated to pay wages to its employees before distributing any money to the owner.
DISCRETIONARY DEDUCTIONS AND PURCHASES SHOULD NOT BE DEDUCTED FROM THE NET PROFIT.
It is logical that gross income not be used to establish ability to pay as it fails to consider expenditures on materials, labor, and other necessary overhead that must be deducted from the gross income to avoid overstating an employer’s ability to pay. Taco Especial v. Napolitano, 696 F. Supp. 2d 873 (E.D. Mich. 2010); K.C.P. Food Co., Inc. v. Sava, 623 F. Supp. 1080 (S.D.N.Y. 1985). These expenditures were necessary for business operations and the employer could not have provided its services without them.
However, purchases of equipment and other investments in capital improvements are discretionary and not necessary for the business to provide services generating its revenue. As such, these purchases should be added to net income for purposes of establishing ability to pay because the money was available to pay wages if needed.
In 2013 the Petitioner spent $176,672 on materials and supplies. Those materials and supplies were used to provide services rendered therefore this amount must be deducted when calculating profit because the money was spent and the money had to be spent. That same year the Petitioner deducted $1,104 in meals and entertainment, which resulted in a lower net income. Unlike materials and supplies, which are essential to the Petitioner’s business operation, the $1,104 deducted on line 24b of the Schedule C was not essential to the Petitioner’s business operation. The Petitioner could not have installed tiles that were installed in 2013 without purchasing tiles. The Petitioner could have installed the tiles that were installed in 2013 even if he had not expended $1,104 on meals and entertainment.
MONEY DEDUCTED FROM PROFITS TO DETERMINE TAXABLE NET INCOME DO NOT AFFECT THE ACTUAL NET INCOME.
The IRS Instructions for Schedule C state that meals are deductible if the employer or employee is present, it is not lavish1, and is associated or related to the business. These expenses are not necessary to the business’ operation. IRS Publication 463 states on page 9 of Chapter 1, that in 2013 up to $2,000 may be deducted for meetings on cruise ships, and employers may expense up to $734 per day for luxury water travel on ocean liners. IRS Publication 463 states on page 12 of Chapter 2 that deductible entertainment expenses, “include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing ,vacation, and similar trips.”
These expenses are not necessary to the business’ operation. A corporation is not going to bounce a payroll check in order to go yachting. It is therefore unreasonable to conclude that the $1,104 of deductible meals and entertainment indicated on Line 24b of the Schedule C was not money available to pay the proffered wage or was not potential net profit.
The fact that the IRS sets guidelines regarding what can and cannot be expensed on Line 24b indicates that this is not an expense in terms of cash flow analysis but rather the product of federal tax policy. The number on Line 24b of the Schedule C serves no purpose in calculating the financial viability of a corporation or the amount of money on hand. The value of Line 24b is intangible legal fiction.
According to the IRS Instructions when calculating the value of Line 24b only 50% of the actual cost of the meal may be used. The other 50% of the actual cost was paid—money was expended to cover that cost yet it is unaccounted for on Line 24b. The reason being, Line 24b is not the calculation of actual money transferred/expended but rather a calculation of a deductible amount that may be listed to reduce the corporation’s tax liability.
This is also true for Line 30 of the Schedule L, expenses for business use of your home. The Petitioner was eligible for a tax deduction based on the use of the owner’s home for business purposes but this was not an actual expense incurred by the Petitioner. The Petitioner did not actually transfer possession of the $2,336 claimed in Line 30. The value of $2,336 is a deduction permitted for the sole purpose of reducing corporate tax liability. Thus, the net profit of the Petitioner for tax purposes was $22,734 but the actual profit netted was $25,070 since the Petitioner still maintains possession of the $2,336 that was deducted in Line 30.
The Petitioner, like any other corporation, has an incentive to expense as much money as possible and to reduce profit in order to avoid taxation. This is why the Petitioner claimed these deductions, as is their legal right. However, these deductions are legal fiction, the mathematical equivalent of a novel written by the IRS. If the relevant inquiry is actual money available then these deductions must be disregarded.
The actual tangible cash net profit for the Petitioner in 2013 was $26,1742 and the Petitioner has demonstrated ability to pay the proffered wage.
1 The generous leeway the IRS afford in determining what is considered lavish or extravagant is worth noting. In Publication 463, Chapter 2, Page 12, “expenses will not be disallowed just because they are more than a fixed dollar amount or take place at deluxe restaurants, hotels, nightclubs or resorts.”
2 $22,734 (taxable net profit) + $2, 336 (home use deduction) + $1,104 (meal and entertainment deduction) = $26,174 (actual net profit)
USCIS may look at the Petitioner's long-term business activities and reputation/history in determining ability to pay. Matter of Sonegawa, 12 I&N Dec. 612 (BIA ). The Petitioner in this case has been in business in the same community for twenty-seven years and has consistently shown profits and growth. n Sonegawa, the Board noted that a single year of poor financial performance does not disprove a company’s ability to pay, especially when the company shows it financially rebounded from the poor year.
THE BRIGHTLINE APPLICATION OF ANY OF THESE RULES IS ARBITRARY AND CAPRICIOUS
The fundamental purpose and focus of USCIS’ determination of whether the petitioner has the ability to pay is whether the employer is making a realistic job offer. Matter of Great Wall, 16 I&N Dec. 142, 145 (1977). The purpose of the ability to pay requirement is to prevent employers from petitioning for employees for jobs that they cannot realistically offer. The ability to pay requirement was not created to be a mere procedural hoop for employers and potential employees to jump through.
Considering the intent of the law it cannot be interpreted as a bright line rule. The intent of the law is to require the employer prove the job being offered is realistic which is evidenced by all available data.
An inquiry into the assets of a company will provide evidence of the company’s assets. An inquiry into the net income of a company will provide evidence of the company’s net income. Examining payroll records will provide evidence of how much money an employer paid its employee. None of this information is of any consequence in isolation.
The relevant inquiry is to the Petitioner’s realistic ability to pay the offered wage. To determine whether there is a realistic ability to pay the offered wage the adjudicator must look past singular tests, overly-simplified accounting formulas, and look at the big picture. Id.
To deny the instant visa because the wages paid to the Beneficiary combined with the net income of the Petitioner do not equal a particular number would be arbitrary and capricious. It would be not be a denial based on inability to pay the offered wage but a denial based on the Petitioner’s financials not fitting into a formula that is but one of many ways to establish ability to pay. The relevant inquiry is not whether the wages paid to the Beneficiary are greater than or equal to the proffered wage when combined with the Petitioner’s net income. The Notice sent by USCIS seems to indicate that this is the relevant inquiry but it is not and cannot be as such a rule would be arbitrary and capricious, failing to take into consideration the relevant circumstances.
Law is the collective organization of the defense of individual rights. Individuals have rights such as liberty and property and individuals may defend those rights. The law is simply the substitution of the collective for the individual in the defense of those rights. Therefore, law must always be interpreted to defend rights.
A broad interpretation of the ability to pay requirement that takes into consideration all relevant evidence in order to assess whether the job offered is realistic defends rights. It protects the right of Beneficiary to a fair wage for his labor; it protects the rights of other potential US citizen workers that may otherwise been made redundant by low cost foreign labor; and it protects the rights of all US citizens to maintain a sovereign nation.
A narrow interpretation of the ability to pay requirement that is based solely on numbers, as they appear particular lines of tax documents defends no rights and thus, serves no lawful purpose. This interpretation imposes a restriction on liberty but not in defense of individual right. The authority for the law to restrict liberty is derived from defense of individual right therefore, this interpretation of the law results in a restriction on liberty without authority.
This is contrary to the intent of the law, ideals of liberty, and principles of fundamental fairness.