Holmes Shum EB and US Securities Laws Revised 2-27-2015
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By Catherine Holmes, Brad Cohen and Jamie Ogden

The latest IRS Proposed Regulations Released April 17, 2019 provide greater flexibility to real estate developers seeking capital from investors for Opportunity Zone projects.

Some of the problems posed for real estate developers and others under the new Opportunity Zone (“OZ”) tax incentive program, codified as Sections 1400Z-1, and 1400Z-2 of the Internal Revenue Code, have been potentially solved by the latest round of IRS proposed regulations. In particular, the proposed regulations now provide helpful guidance and assurance regarding:

  • development of property that was acquired by a developer prior to December 31, 2017;
  • clarification regarding when real property will be considered to meet the “original use” requirement;
  • capital contributions received from new investors in a “qualified opportunity fund” (or “QOF”) with multiple closings;
  • distributions of debt financed proceeds by a QOF to investors during the 10 year required holding period;
  • greater flexibility to deal with “real world” problems (such as delays in governmental permitting);
  • sales of assets by QOFs before the 10-year holding period for investors and reinvestment of proceeds of sale;
  • sales of assets by QOFs organized as limited liability companies or limited partnerships after the 10 year holding period for investors;
  • clarification that a property rental business is considered an active trade or business (other than a triple net lease); and
  • clarification that depreciation recapture should not be taxable upon a sale of property by a QOF .

This article explains how these new proposed regulations help real estate developers and their eligible investors qualify for the tax benefits under the OZ program.  For information regarding the potential benefits to investors in a QOF and the basic requirements necessary to qualify as a QOF, see our prior article “How Real Estate Developers Can Use Opportunity Zone Funds to Finance New Real Estate Projects.”

Real property acquired before December 31, 2017 can now qualify for development by a QOF through a ground lease arrangement between a real property lessor and an affiliated real property lessee.

One of the requirements for a real estate development to achieve the status of “qualified opportunity zone business property” (“QOZBP”) under Section 1400Z-2 is that the property being developed must have been purchased after December 31, 2017.  Developers who acquired their properties before that date were prevented from qualifying for the OZ tax incentives unless they sold at least 80% of the property to an unaffiliated purchaser, and retained no more than a 20% capital and profits interest.  However, the latest proposed regulations offer another option to a developer in this situation – it can form an affiliated QOF, enter into a ground lease with the QOF as lessee, and have the QOF finance the development of the property. The requirements for ground leases between affiliates under the latest OZ regulations are that:

  • the lease is entered into after 2017;
  • the lease is on market rate terms when it is entered into;
  • the lease does not contain a prepayment of more than 12 months;
  • there is not a plan, intent or expectation that the QOF would purchase the property for other than fair market value to be determined at the time of purchase.

Continue reading →

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Recent posts on the Investment Law Blog have focused on Opportunity Zone Funds, a new source of financing for real estate development projects, created by the Tax Cuts and Jobs Act of 2017.

While these articles have focused broadly on real estate investment, I recently spoke with Bryan Wroten of HotelNewsNow, specifically about hotel development and Opportunity Zone investment.

His article, “What opportunity zones mean for US hotel development,” describes both the opportunities and challenges that hotel developers face when it comes to taking advantage of Opportunity Zone development.

The article also describes how the Peachtree Development Group is taking advantage of opportunity zones for viable projects that were already in their pipeline.

Read the full article here.

— Catherine DeBono Holmes


Cathy HolmesCatherine DeBono Holmes is the chair of JMBM’s Investment Capital Law Group, and has practiced law at JMBM for over 30 years.  She has also worked as a senior member of the JMBM Global Hospitality Group and JMBM Chinese Investment Group. Within the Investment Capital Law Group, she helps real estate developers and business owners, brokers, investment advisers and investment managers raise and manage investment capital from U.S. and non-U.S. investors. In the last ten years, she has represented over 100 real estate developers obtain financing through the EB-5 immigrant investor visa program for the development of hotels, multi-family and mixed use developments throughout the U.S. She also advises real estate developers on Qualified Opportunity Zone investments. She has also represented private investment fund managers, registered securities broker-dealers and investment advisers on securities offerings, business transactions and regulatory compliance issues. For the last two years, she has been named as one of the top 25 securities lawyers in the country by EB5 Investors magazine. Contact Cathy at CHolmes@jmbm.com or +1 310.201.3553.

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LOS ANGELES—Jeffer Mangels Butler & Mitchell LLP (JMBM) is pleased to announce that Catherine DeBono Holmes has been included on EB5 Investors Magazine’s list of “Top 15 Corporate Attorneys” for the second year in 2018.

Chair of the firm’s Investment Capital Law Group and author of the Investment Law Blog, Holmes has practiced law at JMBM for over 30 years, focusing on investment capital and business transactions.

She has extensive experience helping clients from around the world raise, invest and manage capital for real estate projects in the United States and abroad, and has obtained financing for over 200 hotels, multi-family, and mixed-used developments through the EB-5 immigrant investor visa program.

“The EB-5 program is in transition as waiting periods for visas and the issue of redeployment leaves investors and developers with a lot of questions,” said Holmes. “EB5 Investors Magazine offers important guidance, and I’m honored to be included on their Corporate Attorney list again.”

In the hospitality industry, Holmes specializes in resort and urban mixed-use financing and development, hotel management and franchise agreements, resort and hotel purchase and sale transactions, and public-private hotel development. Her finance and investment experience includes handling business formations for entrepreneurs, private securities offerings, structuring and offering of private investment funds, and business and regulatory matters for investment bankers, investment advisers, securities broker-dealers and real estate/mortgage brokers.

About JMBM’s Investment Capital Law Group
JMBM’s Investment Capital Law Group provides legal and business advice to assist our clients with raising capital for investment in U.S. real estate development and business; structuring offerings of investment securities, primarily for private investment; conducting offerings of investment securities in compliance with U.S. federal and state securities laws; and forming and obtaining approval of EB-5 Regional Centers for investment in U.S. business through the EB-5 immigrant investor visa program. We represents real estate developers, EB-5 Regional Centers, private fund managers and registered securities broker-dealers and advisors with respect to capital raising.

About EB5 Investors Magazine
EB5 Investors Magazine serves as a companion to EB5Investors.com and strives to deliver compelling and comprehensive articles and information for everything EB-5 related. EB5 Investors Magazine provides a platform for skilled EB-5 professionals to discuss pressing matters and keep readers up to date on the constantly changing laws and legislation pertaining to EB-5. Each of the publication’s articles is peer-reviewed and provides high-quality objective analysis to an audience of attorneys, EB-5 regional centers, migration agents, wealth managers, and EB-5 service providers.

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By Catherine Holmes, Brad Cohen and Guy Maisnik

On October 19, 2018, the IRS issued the first set of proposed regulations and a New Revenue Ruling on new Internal Revenue Code Section 1400Z-2 governing Opportunity Zone investments.

Under the new Opportunity Zone tax law, taxpayers who realize taxable capital gains from the sale of any asset (stock, property, etc.) and who reinvest those gains into “Qualified Opportunity Funds” (“QOFs”) or “Qualified Opportunity Zone Property” (“QOZP”) will be eligible to receive significant tax benefits, including deferral of their original gain, reduction of their original taxable gains after holding periods of five years or seven years, and no tax on capital gains realized from the new investment in a QOF or QOZP after a holding period of 10 years.

The first set of proposed regulations issued by the IRS under Code Section 1400Z-2 cover a number of issues that apply to individual taxpayers with respect to gains eligible for deferral, types of taxpayers eligible for deferral, the “180-day rule” defining when a qualified investment must be made in order to qualify for the deferral, and how to elect a deferral of the initial capital gain. In addition, the proposed regulations, along with new Revenue Ruling 2018-29, provide guidance to real estate developers seeking to form QOFs or determine whether their properties qualify as QOZP. This article focuses on the regulations and the Revenue Ruling that apply to QOFs and QOZP, and addresses how those regulations and the Revenue Ruling will help real estate developers seeking to raise Opportunity Zone investments to finance real estate development.

How to designate an entity as a QOF and how that Impacts the 90% Test for Eligibility as a QOF

The Regulations specify that any corporation or entity taxed as a partnership, including pre-existing entities, may self-certify as a QOF by using a form that has been proposed by the IRS. The Regulations further allow the QOF to choose the month in which the entity elects to be designated a QOF. If the QOF does not designate a month on the tax form, the Regulations provide that the designation will commence with the first month of the taxable year of the entity. This is important, because a QOF must hold at least 90% of its assets in QOZP as measured on the last day of the first 6-month period of the taxable year of the QOF and on the last day of the taxable year of the QOF. Therefore, if a QOF designates January as the first month of designation, the first six month test will apply in July. If a QOF designates any month after June of the taxable year, the Regulations state that the first test period will be the end of the first taxable year. Continue reading →

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by Catherine DeBono Holmes and Bradford S. Cohen

Real estate developers have a new source of investment for their development projects, created by the Tax Cuts and Jobs Act of 2017

A new tax incentive for investment in low-income areas designated as “Opportunity Zones” was included in the Tax Cuts and Jobs Act of 2017, signed into law on December 22, 2017. Under this section of the Act, codified as sections 1400Z-1, and 1400Z-2 of the Internal Revenue Code, taxpayers with taxable capital gains from the sale of any asset (stock, property, etc.) who reinvest those gains within 180 days of the date of sale of the asset into “Qualified Opportunity Zone Property” will become eligible to receive significant tax benefits. These potential tax benefits are expected to result in substantial new investment by investors in real estate projects that meet the requirements of “Qualified Opportunity Zone Property.” This article explains what the requirements are for designation as Qualified Opportunity Zone Property, and discusses the structure of Opportunity Zone investments.

What are the potential benefits to persons who invest in a Qualified Opportunity Zone Property?

There are three potential benefits that investors may receive from an investment of their taxable capital gains into a Qualified Opportunity Zone Property:

Deferral of Capital Gains Tax – Investors will receive a deferral of taxation on 100% of the taxable capital gains invested in Qualified Opportunity Zone Property until the earlier of the date that their investment is sold or December 31, 2026;

Reduction of Capital Gains – Investors who invest by December 31, 2019 will be eligible to receive a 10% reduction of the taxable gain amount invested in Qualified Opportunity Zone Property if the investment is retained for at least 5 years, increasing to a 15% reduction if the investment is held for at least 7 years; and

No Tax on Capital Gains realized on Qualified Opportunity Zone Property – Investors who invest by December 31, 2019 and hold their investment in a Qualified Opportunity Zone Property will pay no tax on any capital gains realized when that investment is sold.

What are the requirements for Qualified Opportunity Zone Property?

There are four primary requirements for a real estate development to achieve the status of “Qualified Opportunity Zone Business Property”: Continue reading →

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JMBM’s Investment Capital Law Group is pleased to announce that Catherine DeBono Holmes, Chair of the Group, will participate as a panelist during the webinar, “How can EB-5 issuers make the most of the Opportunity Zone program?” sponsored by NES Financial.

Last year’s tax reform created massive incentives for holders of unrealized capital gains to put their money into “Opportunity Zones” (OZs) — economically distressed census tracts across the US. The list of Opportunity Zones was finalized in June 2018, with 8,700 census tracks designated – 11% of the country.

The Opportunity Zone program is likely to grow into a sizeable source of development funding over the coming years. The total available market is estimated around $6 trillion. The question is: How can your business benefit?

The webinar will be of interest to regional center operators, issuers and project managers, immigration and securities attorneys, and economists and business consultants.

Date: Thursday, September 20, 2018
Time: 11:00 AM PT (2:00 PM ET)

No registration fee is required. Register here.

Topics that will be covered include:

  • An introduction to Opportunity Zones
  • Requirements to set up an OZ Fund
  • Overlap of EB-5 Targeted Employment Areas and Opportunity Zones
  • Modifying EB-5 projects to welcome OZ investment
  • Emerging best practices in operation and administration of OZ Funds

We invite you to join us for this free and informative webinar. Register now!

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LOS ANGELES—Jeffer Mangels Butler & Mitchell LLP (JMBM) is pleased to announce that Catherine DeBono Holmes has been named to EB-5 Investors Magazine’s “Top 15 Corporate Attorneys” list for 2017.

Holmes is the Chair of JMBM’s Investment Capital Law Group and the author of the Investment Law Blog. She helps clients worldwide to raise, invest and manage capital from U.S. and non-U.S. investors.

Holmes has represented more than 100 real estate developers in obtaining financing through the EB-5 immigrant investor visa program for the development of hotels, multi-family, and mixed-use developments through the U.S., and has represented numerous Chinese investors in the purchase of hotels and businesses in the U.S.

“The EB-5 Immigrant Investor Visa Program has successfully provided funds to developers and businesses that create employment for Americans, as well as a pathway to legal immigration to the U.S. for foreign investors.  As the program continues to undergo scrutiny and change, EB5 Investors plays an important role by collecting and disseminating critical information to professionals in the EB5 community,” said Holmes.  “I am honored to be recognized by EB5 Investors as a top attorney.” Continue reading →

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Now that the USCIS has issued guidance requiring redeployment of capital proceeds received by a new commercial enterprise (“NCE”) from repayment of its initial investment in a job-creating entity (“JCE”) for EB-5 investors who have not completed their “sustainment period,” every General Partner or Manager of an NCE will need to consider their fiduciary duties to the NCE’s EB-5 investors in making a reinvestment decision on behalf of the NCE. Each NCE will have its own particular facts and circumstances that will need to be analyzed to determine which reinvestment option is most appropriate, but there are general principles of fiduciary duty that will apply to every General Partner or Manager of an NCE. The purpose of this article is to highlight some of the most important issues that will arise in making a reinvestment decision, and to describe how the General Partner’s or Manager’s fiduciary duties should influence their decision-making.

The basic duty of a General Partner or Manager of an NCE is to make investment decisions that are in the best interests of the EB-5 investors in the NCE. EB-5 investors have two primary goals in making an EB-5 investment: (1) to obtain a permanent visa and (2) to obtain repayment of their investment, to the extent possible, after they become eligible to receive a return of their capital under USCIS policies. Therefore, the General Partner or Manager must determine whether these two goals will be met with respect to every reinvestment decision made on behalf of the NCE. In particular, we suggest that the following issues must be considered in making any reinvestment decision: Continue reading →

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The white paper below was updated on July 24, 2017. It first appeared in the Investment Law Blog on February 21, 2017.

Now that the USCIS has released amendments to its Policy Manual regarding the required “sustainment period” for EB-5 investors to retain their investments “at risk”, the authors of this updated White Paper have revised our original standards and guidelines for redeployment of EB-5 investment capital issued in February 2017 to reflect the new policies adopted by the USCIS on redeployment.  We believe that the guidelines provided in this updated White Paper should meet the “sustainment” requirements established by USCIS in its amended Policy Manual, and should also meet the requirements of federal securities laws and the fiduciary duties of the general partner or manager of each new commercial enterprise when making a decision to redeploy their investment capital in a new investment.

— Catherine DeBono Holmes


A White Paper prepared by:

Klasko Immigration Law Partners, LLP
Arnstein & Lehr LLP
Jeffer Mangels Butler & Mitchell LLP

This White Paper sets forth a legal framework for establishing the standards and guidelines for redeployment of investment funds by a “new commercial enterprise” (“NCE”) received from investors (“EB-5 Investors”) seeking to qualify for visas pursuant to the EB-5 Immigrant Investor Program under Section 203(b)(5) of the Immigration and Nationality Act (“INA”), (8 U.S.C. § 1153(b)(5)) (the “EB-5 Program”). This White Paper assumes that the initial investment was made by the NCE in a “job creating entity” (“JCE”), the investment funds have been utilized by the JCE in accordance with a business plan approved by United States Citizenship and Immigration Services (“USCIS”) and then repaid by the JCE to the NCE after the requisite 10 jobs per EB-5 Investor have been created.  Here we conclude that a redeployment by the NCE that meets the guidelines described in this White Paper would reflect industry best practices for compliance with USCIS policy, securities laws and fiduciary duties of the general partner or manager of the NCE.

Reasons Why Redeployment of EB-5 Investment Funds Has Become Necessary

The EB-5 industry has dramatically changed over the past few years, due to the substantial increase in EB-5 Investors applying for EB-5 immigrant visas, particularly from the Peoples Republic of China.  The EB-5 Program limits the number of visas that are issued each fiscal year to alien investors and their spouse and qualifying children to a maximum of approximately 10,000.  In the event that the number of applicants exceeds the maximum available visas, the Visa Control and Reporting Division (“Visa Control Division”) of the U.S. Department of State will limit the number of applicants from each country to an aggregate maximum of 7% of the total number of EB-5 immigrant visas available each fiscal year (the “Visa Cap”). Until fiscal year 2015, the annual worldwide quota was not reached.  Continue reading →

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This article is co-authored by Daniel B. Lundy, Esq., of Klasko Immigration Law Partners, LLP. His Firm’s blog is available here.


By: Catherine DeBono Holmes, Esq., Daniel B Lundy, Esq. and Jeffrey E. Brandlin, CPA, CIRA, CFF

Managers and Investors in EB-5 Investment Funds should regularly monitor their investments in EB-5 Projects and be ready to take protective actions if their EB-5 Projects show signs of trouble.

It is vitally important for managers and investors in EB-5 investment funds[1] to stay informed of the status of their EB-5 projects[2], because EB-5 investors must demonstrate that the projects in which they invested were completed and, in some cases, that those projects are operating in accordance with projections, in order to qualify for approval of their I-829 petitions to remove conditions to their residence.  If the manager or EB-5 investors in an EB-5 investment fund discover signs that their EB-5 project may be experiencing financial distress or other difficulties that could prevent the project from being completed or operated in accordance with the original business plan for the project, the manager, the investors or their representatives need to evaluate whether there are any actions that could be taken to save the project, so that the EB-5 investors will ultimately qualify for approval of their I-829 petitions.  The manager or investors are in a far better position to take protective actions before the problems with their EB-5 project result in litigation, foreclosure, or SEC enforcement action, although it is still possible to take protective actions after one of these events occurs.  This article is the first of a series of articles that will describe how managers or investors can monitor their EB-5 projects to discover potential problems before they become a crisis, and the protective actions that may be taken to protect EB-5 investors if their EB-5 projects are in trouble.

Both managers and investors in EB-5 investment funds should continuously monitor and evaluate the progress of their EB-5 projects, and collect documentation of transfers of EB-5 funds, payments of project expenditures, and other financial records that will be required as part of the I-829 petitions.  An unwillingness to provide such documentation, which is mostly generated in the normal course of business, can be a red flag indicating that something is wrong.  The manager of each EB-5 investment fund is the primary party responsible for monitoring the EB-5 fund’s investment in the EB-5 project.  However, in cases in which the manager is affiliated with the EB-5 project developer, or the manager is not fulfilling its obligation to properly supervise and monitor the EB-5 project, the EB-5 investors should have their own independent representatives monitor the EB-5 project and evaluate if and when protective actions are necessary to protect the E-5 investors.  The manager of an EB-5 investment fund, or third party service provider where the manager is affiliated with the developer, should provide regular reports (preferably on a quarterly basis) to the EB-5 investors in the fund regarding the status of construction and financing of the project, payments made to the EB-5 investment fund and whether or not the EB-5 project is in compliance with the terms of the investment made by the EB-5 investment fund in the project.  EB-5 investors should insist that the manager of their EB-5 investment fund make these periodic reports if the manager is not already doing so.  If EB-5 investors do not receive these reports, they should engage an independent representative to meet with the manager, review the EB-5 project and advise the EB-5 investors directly regarding the status of the project and any problems that are discovered as a result of the review.  In the paragraphs below, we provide further information regarding how that may be done. Continue reading →