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Navigating the World of H-1B Cap Exemptions

April 26, 2024

Introducing the H-1B Cap Exempt Model

There are roughly 319 pages (over 110,000 words) in 8 § CFR 214.2 “Special requirements for admission, extension, and maintenance of status” – a section within a larger “Subchapter B - Immigration Regulations” outlined in an even more grandiose Code of Federal Regulations (CFR) totaling nearly 186,000 pages

Part 214 is concerned with non-immigrant classes, including the H-1B visa. Further refining our point of inquiry, we find ourselves within paragraph (F) of the regulations defining “Cap Exemptions under sections 214(g)(5)(A) and (B) of the Act.” It is here, where less than 1,000 words have provided a legally compliant foundation and immigration pathway for global talent contributing to the economic prosperity of the United States. An excerpt of this clause depicts the following:

(F) Cap exemptions under sections 214(g)(5)(A) and (B) of the Act. An alien is not subject to the numerical limitations identified in section 214(g)(1)(A) of the Act if the alien qualifies for an exemption under section 214(g)(5) of the Act. For purposes of section 214(g)(5)(A) and (B) of the Act:

(1) “Institution of higher education” has the same definition as described at section 101(a) of the Higher Education Act of 1965 (20 U.S.C. 1001(a)).

(2) A nonprofit entity shall be considered to be related to or affiliated with an institution of higher education if it satisfies any one of the following conditions:

(i) The nonprofit entity is connected to or associated with an institution of higher education through shared ownership or control by the same board or federation;

(ii) The nonprofit entity is operated by an institution of higher education;

(iii) The nonprofit entity is attached to an institution of higher education as a member, branch, cooperative, or subsidiary; or

(iv) The nonprofit entity has entered into a formal written affiliation agreement with an institution of higher education that establishes an active working relationship between the nonprofit entity and the institution of higher education for the purposes of research or education, and a fundamental activity of the nonprofit entity is to directly contribute to the research or education mission of the institution of higher education.

(3) An entity is considered a “nonprofit entity” if it meets the definition described at paragraph (h)(19)(iv) of this section. “Nonprofit research organization” and “governmental research organization” have the same definitions as described at paragraph (h)(19)(iii)(C) of this section.

(4) An H–1B beneficiary who is not directly employed by a qualifying institution, organization or entity identified in section 214(g)(5)(A) or (B) of the Act shall qualify for an exemption under such section if the H–1B beneficiary will spend the majority of his or her work time performing job duties at a qualifying institution, organization or entity and those job duties directly and predominantly further the essential purpose, mission, objectives or functions of the qualifying institution, organization or entity, namely, either higher education, nonprofit research or government research. The burden is on the H–1B petitioner to establish that there is a nexus between the duties to be performed by the H–1B beneficiary and the essential purpose, mission, objectives or functions of the qualifying institution, organization or entity.

This needle in a haystack regulation has threaded mission-driven narratives for a diverse range of organizations and entities throughout the United States. Operating within this legally compliant orbit of H-1B cap-exemptions, stakeholders – ranging from Immigration Lawyers to Governors – are realizing the full-potential for offering an innovative immigration solution, fostering global talent and fueling economic opportunity within the United States.

As the federal regulations imply, cap exemptions are not subject to traditional restraints of the H-1B lottery. There is no lottery-based system. Applications can be lodged on a rolling basis. There are no numerical limits. At first glance, it seems too good to be true. Yet, this is where USCIS and State Department authorities buckle down – and rightfully so, this is where regulatory compliance is invaluable.

Already, the regulatory language appearing in 8 C.F .R. § 214 suggests several critical pillars of the H-1B cap exempt model discussed herein:

 (1) A “nonprofit entity”; 

(2) an “institution of higher education”;  and 

(3) an active working relationship between the nonprofit entity and the institution of higher education for the purposes of research or education.

Indeed, for purposes of this article we are laser focused on the language contained within 8 C.F.R. § 214.2(h)(8)(ii)(F)(2)(iv).

Defining a nonprofit entity for purposes of cap exemption petitions.

Reading further into this language for purposes of adjudicating cap-exempt petitions, USCIS first examines whether the Petitioner is a nonprofit organization under 8 C.F.R. § 214.2(h)(l9)(iv). In this legal analysis, USCIS clearly states that the burden of proof for being categorized as a nonprofit organization “hinges on approval of the IRS” as a tax-exempt organization. 

Therefore, as an initial requirement, the Petitioner must establish that it is a nonprofit or tax exempt organization as defined within 26 U.S.C. § 50l(c)(3), (c)(4) or (c)(6), and must have been "approved as a tax exempt organization for research or educational purposes by the Internal Revenue Service."  

Further research reveals that the IRS applies both an "organizational" and an "operational" test as a condition for nonprofit status. An organization may qualify for exemption from federal income tax under section 501(c)(3) of the Internal Revenue Code (IRC), 26 U.S.C. § 501(c)(3), for example, if it is organized and operated exclusively for one or more of the following purposes: religious, charitable, scientific, testing for public safety, literary, educational, or the prevention of cruelty to children or animals. 26 C.F.R. § 1.50l(c)(3)-l(d)(l)(i).

Notably, "research" is not listed as an exempt purpose under section 50l(c)(3) of the IRC. Instead, IRS regulations discuss "research" in the context of exempt scientific purposes, and it is accepted that research may be performed in furtherance of other categorical purposes. Specifically relevant for the context of our H-1B cap-exempt model, education. Likewise, education may be consistent with other exempt purposes. See, e.g. United States v. Dykema, 666 F.2d 1096, 1100 (7th Cir. 1981) (listing education as a "typical activity" for a religious organization). It follows that the IRS may not necessarily "approve" a tax exempt organization "for research or educational purposes," as required in 8 C.F .R. § 214.2(h)(l 9)(iv), but rather those activities may be in furtherance of: or consistent with, other exempt purposes. 

Ultimately, in its analysis of whether or not a petitioner can be classified as a nonprofit entity, USCIS declares that research and education are permissible activities that may be performed in furtherance of other qualifying purposes. It concludes that the phrase "approved as a tax exempt organization for research or educational purposes by the Internal Revenue Service" is ambiguous in this context. 

Accordingly, absent some indication that the organization was not authorized to engage in research or education, an official IRS recognition letter should suffice to satisfy 8 C.F.R. § 214.2(h)(l9)(iv).

Categorizing a nonprofit research organization for purposes of the Cap Exemption.

Although not the central focal point of the H-1B cap exemption model outlined in this article, it is worth noting that there is an additional way to establish a nonprofit organization as being compliant for these purposes. This specific category does not require a relationship between a nonprofit and an institution of higher education, rather it concentrates on classifying the Petitioner as a “nonprofit research organization.” 

The regulation at 8 C.F.R. § 214.2(h)(l9)(iii)(C) defines a nonprofit research organization as an "organization that is primarily engaged in basic research and/or applied research." Therefore, to be a nonprofit research organization, the Petitioner must be "primarily engaged" in research.

Compared to the legal analysis above (i.e. simply classifying the Petition as a nonprofit), USCIS takes a much more strict interpretation to defining a nonprofit “research” organization for purposes of meeting the H-1B cap exempt requirements. The logic behind this narrow regulatory approach makes sense, considering there is no affiliation with an institution of higher education required for nonprofit research organizations. 

In a non-precedent decision of the Administrative Appeals Office (AAO), USCIS takes the view that the grant of a cap exemption under section 214(g)(5) of the Act is a matter of legislative grace and that accordingly it should be given a rigid interpretation. “Considering how narrowly Congress tailored the section 214(g)(5) exemptions to only three types of organizations within the broader statutory scheme to limit the number of initial H-1 B visas (or grants of status) in order to protect the wages and working conditions of U.S. workers…and in light of the general legislative purpose of section 214(g)(5), which provides limited exemptions to the numerical limitations in section 214(g)(l)(A), we narrowly interpret the requirement that research organizations be "primarily engaged" in basic or applied research.”

All of this to say that if a petitioner is seeking to establish themselves as a “nonprofit research organization” for purposes of the H-1B Cap Exemptions – the thresholds and requirements for compliance are separate in scope from the model discussed herein. 

Defining an institution of higher education for purposes of cap exemption petitions.

For purposes of defining an institution of higher education, or a related or affiliated nonprofit entity, H-1B regulations adopt the definition of institution of higher education set forth in section 101(a) of the Higher Education Act of 1965. Section 101(a) of the Higher Education Act of 1965, (Pub. Law 89-329), 20 U.S.C. 5 1001(a), defines an institution of higher education as an educational institution in any state that: 

  1. admits as regular students only persons having a certificate of graduation from a school providing secondary education, or the recognized equivalent of such a certificate;
  2. is legally authorized within such State to provide a program of education beyond secondary education;
  3. provides an educational program for which the institution awards a bachelor's degree or provides not less than a 2-year program that is acceptable for full credit toward such a degree;
  4. is a public or other nonprofit institution; and
  5. is accredited by a nationally recognized accrediting agency or association, or if not so accredited, is an institution that has been granted pre accreditation status by such an agency or association that has been recognized by the Secretary for the granting of pre-accreditation status, and the Secretary has determined that there is satisfactory assurance that the institution will meet the accreditation standards of such an agency or association within a reasonable time. 

As it relates to our H-1B cap exempt model, we are particularly interested in the relationship of this institution of higher education with a nonprofit organization.

Section 214(g)(5)(A) of the Act states that the H-1B cap shall not apply to any nonimmigrant individual issued a visa or otherwise provided status under section 10l(a)(15)(H)(i)(b) of the Act who "is employed (or has received an offer of employment) at an institution of higher education (as defined in . . . (20 U.S.C. [§] lOOl(a)), or a related or affiliated nonprofit entity .... The regulation at 8 C.F.R. § 214.2(h)(8)(ii)(F)(2)(iv) currently defines "affiliated or related nonprofit entity" for purposes of the H-1 B cap exemption as follows: 

The nonprofit entity has entered into a formal written affiliation agreement with an institution of higher education that establishes an active working relationship between the nonprofit entity and the institution of higher education for the purposes of research or education, and a fundamental activity of the nonprofit entity is to directly contribute to the research or education mission of the institution of higher education.

The affiliation of an institution of higher education and nonprofit entity.

Herein lies the perfect elixir for two of the most critical stakeholders in our H-1B cap exempt model. In order to be fully compliant, C.F.R. § 214.2(h)(8)(ii)(F)(2)(iv) maintains two legal prongs that must be satisfied. First, the Petitioner must establish that it has entered into a formal written affiliation agreement with an institution of higher education that establishes an active working relationship between the nonprofit entity and the institution of higher education for the purposes of research or education. Second, the Petitioner must also establish that one of its fundamental activities is to directly contribute to the research or education mission of the institution of higher education. 

It is these two fundamental measures of compliance that have given rise to some of the most meaningful and impactful H-1B cap exempt programs in the United States. 

The Global Entrepreneur in Residence (GEIR) Program

Launched in 2014, the Global Entrepreneur in Residence (GEIR) Program enables highly-skilled foreign entrepreneurs across the United States to start their own businesses. By plugging into a network of Universities and Academic Institutions, top foreign talent accepted into GEIR programs simultaneously engage in meaningful mentorship and build valuable connections to launch their business ventures.

GEIR leverages the H-1B cap exempt framework with a specific focus on an institute of higher learning (i.e. Universities) and was arguably the first of its kind. Generally speaking, there are two avenues of cap-exempt sponsorship through the GEIR model:

  1. Primary H-1B Filing. The foreign-national’s start-up company can serve as the primary H-1B petitioner so long as the start-up employment is physically located on the campus of the GEIR-affiliated university. 
  2. Concurrent H-1B Filing. The foreign-national entrepreneur can pursue a cap-exempt petition by being directly employed and sponsored by the university in a part-time capacity. The entrepreneur-in-residence can then separately file a cap-exempt petition for concurrent employment sponsored by his or her own start-up company. 

We will discuss the significance of concurrent H-1B filings later in this article. 

In either scenario, the entrepreneur will be required to engage in entrepreneurial mentoring or similar educational roles for students at the school. Another important and “mission-oriented” dimension to our overall cap-exempt model.

And the impact of GEIR has been notable. 

One of the first GEIR programs to launch was piloted within the Commonwealth of Massachusetts, where it was formally declared by the Governor Deval Patrick as “An Act Promoting Economic Growth Across the Commonwealth.” Since its inception in 2014, the Venture Development Center or (VDC), i.e. the Commonwealth GEIR program, has raised more than $1 billion in funding, launched 70 new startups, created thousands of jobs, and generated $500 million for Massachusetts’s economy. Even more impressive is that all of this stems from roughly 80 individual entrepreneurs accepted into the program.

In the last decade, the success of GEIR has cascaded throughout the United States – from regional levels to statewide initiatives for raising hundreds of millions to fund these innovative H-1B cap exempt programs. Oftentimes, stakeholders have referred to the GEIR immigration solution as the United States “start-up visa”, although when framed alongside other “start-up visas” offered throughout the world, it pales in comparison. Simply put, there are simply too many moving parts to be considered a pure, turn-key start-up visa.

Still, for purposes of this article the progress and impact of GEIR is unparalleled. Altogether, this initiative has brought together thousands of regional and nationwide stakeholders at the intersection of higher education, public policy and private venture capital. Furthermore, there is a shared theme that threads it all – a mission to empower global talent in the United States.

A contemporary example of this GEIR impact was aptly captured by two highly acclaimed foreign national entrepreneurs, Vivek Wadwha and Alex Salkever. Recognizing California as a hub of technological innovation, they praise a Governor's action to galvanize support for the program. 

"This innovative approach aims to take advantage of two opportunities. First, it aims to retain foreign-born graduates who obtain their degrees from Californian institutions and who would otherwise take their skills elsewhere due to visa obstacles. Second, the program will strategically target expertise in semiconductor research and manufacturing to align with the federal CHIPS Act’s $53 billion investment in revitalizing America’s position as a chipmaking superpower. Although the U.S. has many experts in semiconductor design and tooling, it sorely lacks cutting-edge expertise in the latest fabrication technologies. The U.S. share of global semiconductor manufacturing capacity has consequently fallen from 37% in 1990 to just 12% today. Korea and Taiwan have raced ahead of the U.S. in recent years, and much of the best talent in this rarified area works in those places.”

In reference to the University of California’s involvement, Wadhwa and Salkever explain that “the U.C. GEIR will select accomplished foreign graduates from STEM programs to receive mentorship and resources to help them launch companies. As ‘entrepreneurs-in-residence’, participants will collaborate with U.C. researchers, lending their own technical skills. U.C. will sponsor their work visas, allowing them to continue developing their ventures.”

Conclusion

In summary, the intricacies of the H-1B cap exemption model offer a specialized avenue for harnessing global talent, fostering innovation, and contributing significantly to the U.S. economy. By understanding and navigating the complexities of these regulatory frameworks, stakeholders can effectively leverage these exemptions to support mission-driven objectives within educational and research institutions. This model not only facilitates the growth of U.S. enterprises but also provides a platform for international professionals to contribute their skills in a meaningful way. As exemplified by programs like GEIR, the impact of such initiatives extends beyond individual organizations, catalyzing broader economic development and reinforcing the U.S. as a leading destination for skilled immigrants.

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