You have run the three ability-to-pay tests against the company’s returns and one year failed. Maybe it was the year the business moved, or the year it bought out a competitor, or the pandemic year. Maybe the company is two years old and has not yet had a profitable year at all. The question now is whether the I-140 can still be approved, and the honest answer depends far less on how promising the business is than on what its records already show.
Three kinds of employer end up on this page, and the law treats them very differently. The first is the established, profitable business that had one bad year for a reason it can name. The second is the business in a transition year, when a relocation, an expansion, or an acquisition pushed the return into the red. The third is the startup, or any business still operating near breakeven, that has no profitable years behind it. All three have heard that USCIS will look at “the totality of the circumstances” and consider the company’s prospects. What most of them have not heard is the rule that decides which of the three gets that look, and it is not a rule about the future. This page is the companion to our guide to the three ability-to-pay tests for the I-140, which explains the routine case. This one is about what happens when the numbers do not work.
Which year failed, and why does that matter so much?
The year that matters most is the priority-date year, and a loss in that year is the hardest problem on this page, because no later year can cure it. The regulation, 8 C.F.R. § 204.5(g)(2), says the employer “must demonstrate this ability at the time the priority date is established and continuing until the beneficiary obtains lawful permanent residence.” Every year in that span has to pass on its own, and the first one is the year the Department of Labor accepted the PERM labor certification for processing.
A federal court in Montana showed exactly how this plays out in Howell v. Garland, No. CV 23-23-BLG-KLD (D. Mont. May 5, 2025). The employer there, a small food business, had a 2020 priority date and a 2020 loss. On a motion to reopen it submitted 2021 financial statements, including a personal financial statement from the owner, and USCIS, applying the treatment of single-member LLCs then in use, accepted that the wage could be paid in 2021. The petition was still denied, because nothing in the record showed the company could pay the wage from the priority date through the end of 2020, and the court upheld that result. A good year that comes after the priority date is necessary, but it is not sufficient. The bad year has to be answered on its own terms.
A loss year that comes later, after a clean priority-date year, is a different and more manageable problem. The obligation continues until the worker becomes a permanent resident, so the loss still has to be addressed, but by then the employer usually has something the startup never has: a documented profitable history immediately before the loss, which is precisely what the totality analysis is built for. And if the priority-date year’s return is not yet available when the petition is filed, the Policy Manual allows USCIS to consider the prior year’s return, annual report, or audited statement as part of the totality analysis in the meantime, which makes the timing of the filing a decision worth thinking about rather than an accident of the calendar.
What did Matter of Sonegawa actually decide?
It decided that a documented, profitable past can carry a petition through one explained bad year. It did not decide that a promising future can. Read the facts of Matter of Sonegawa, 12 I&N Dec. 612 (Reg’l Comm’r 1967), before you read the sentence everyone quotes from it.
The petitioner was a Pasadena dress designer whose shop had been open since 1956, more than eleven years by the time of the decision, doing about $100,000 a year in gross business, with four regular employees and one to four part-timers. The job offered paid $3.00 an hour, $6,240 a year, and her 1966 return showed a net profit of $280. Her explanation was specific: in 1966 she had moved to a better location, paid double rent for five months, absorbed large moving costs, and gone through a stretch when she could not do regular business. Her proof of recovery was already in hand: an accountant’s statement dated May 31, 1967, showing a net profit of $4,774 for the first five months of the new year. On appeal she added her 1966 return showing more than $19,000 in wages paid to eight employees, and a scrapbook of national coverage, including full-color pages in Time and Look. On that record the Regional Commissioner found that her “expectations of continued increase in business and increasing profits are reasonable expectations” and approved the petition.
Notice the structure. The expectation of future profits is the last sentence of the analysis, not the first. It rests on eleven years of operation, on a one-time disruption the petitioner could name and document, on a rebound that had already shown up in the accountant’s numbers, and on a payroll and a reputation that proved the business was real. Take away the history and the expectation has nothing to stand on. That is why the decision almost never helps the businesses that most want to use it.
Who gets the totality analysis, and who is shut out?
Under the reading the Ninth Circuit adopted in an unpublished decision, and which the federal court in Montana followed in Howell, an employer gets the Sonegawa analysis only if the loss year was an exception to an otherwise profitable record. An employer with no profitable years does not get it at all. In Taiyang Foods Inc. v. USCIS, 444 F. App’x 115 (9th Cir. 2011), an unpublished decision that district courts have followed since, the company had been newly created when its 2002 priority date was established. The court’s reasoning fits in two sentences: “Because Taiyang Foods was newly created at that time and did not have a record of profitable performance in prior years, it could not demonstrate that 2002 was anomalous. Thus, the USCIS was not required to address whether Matter of Sonegawa, 12 I. & N. Dec. 612 (BIA 1967), was applicable.” Then the rule: “Sonegawa is applicable to this case only if the failure of Taiyang Foods to pay the proffered wage was an anomaly amongst profitable years.”
Apply that to the three employers from the opening. The established business with one bad year is inside the rule, and its job is evidence. The business in a transition year is inside the rule too, if it had profitable years before the transition; Sonegawa itself was a relocation year. The startup, and the business that has hovered around breakeven since it opened, is outside the rule. Its loss is not an anomaly among profitable years because there are no profitable years for it to be an anomaly among. It fails the three tests, and then it is excluded from the exception that exists for businesses that fail the three tests. The Montana decision discussed above applied Taiyang to a business that had opened in late 2017 and showed losses in 2019 and 2020; USCIS acknowledged that the pandemic may have contributed to the 2020 loss, and the court found the denial reasonable anyway, because the record did not establish a profitable pattern for the loss to be measured against.
The Seventh Circuit reads the law more generously, and it is worth knowing about because employers sometimes find it and assume it is the rule everywhere. In Construction & Design Co. v. USCIS, 563 F.3d 593 (7th Cir. 2009), Judge Posner wrote that “a company’s tax returns are not a reliable basis for determining whether the company can afford to hire another employee,” that the agency “must not take too static a view” of a hiring decision, and that a firm with enough cash flow, “either existing or anticipated,” can afford a salary. The employer still lost. Its net income and net assets were near zero, and the court could find no evidence of a new contract, of financing, of capital being raised, or of the owner cutting his own salary, that would show where the extra money was going to come from. So the more generous reading arrives at the same place as the strict one: the employer has to prove the source of the funds with documents. The difference is only in how the door is labeled.
One more fact belongs here because employers deserve to hear it before they spend money. We looked for a reported federal court decision that ordered USCIS to approve an I-140 on a Sonegawa or cash-flow theory after a loss year, and we did not find one. Every decision we located that reached a final judgment under USCIS’s current three-test framework, in the First, Seventh, and Ninth Circuits and in the district courts, upheld the agency. The standard of review is deferential, the record closes when the agency decides, and the employer carries the burden throughout. Whatever a loss-year petition is going to win, it is going to win in the petition and the response to the request for evidence, not in court.
What is the Policy Manual’s list of factors really asking for?
It is asking for documents that prove a history, not adjectives that describe a future. Put in plain terms, the USCIS Policy Manual says that when the three tests fail, USCIS may weigh the company’s gross sales and revenues, the total wages it has paid its current employees in recent fiscal years, media coverage of the business, how many years it has operated, its historical growth, any recent change that disrupted the business (it names reorganizations, mergers, and bankruptcies), its number of employees, any uncharacteristic expense or loss the company has since recovered from (it names fire and flood damage), and its reputation in the industry. The manual’s own summary of when those factors work is one sentence: “In some cases, such as when a petitioner has one unprofitable year despite a history of profitability, these factors may establish a petitioner’s ability to pay the proffered wage despite a shortfall in net income or net current assets.”
Every item on that list is a document the business already has or can get. Years in business is a Secretary of State filing and a run of tax returns. Historical growth is the gross-receipts line on each of those returns, laid side by side. Total wages paid is the payroll line on the return and the quarterly wage reports filed with the state. The disruption is a lease showing the move, a closing statement showing the acquisition, an insurance claim showing the fire. Recovery is the next year’s return, or if that year is not over, a monthly profit-and-loss statement showing the trend, exactly as Sonegawa’s May 31 accountant’s statement did. Reputation and media coverage are clippings and awards. The manual adds two narrower factors it may also take into account: the sponsored worker is replacing a former employee or an outsourced service the company was already paying for, or an officer of the company is willing and able to give up compensation to cover the wage. Both are provable, and both are routinely asserted without proof, which is the subject of the next two sections.
Can the numbers be repaired before anyone has to argue about them?
Often, yes, and a repaired number beats a good argument every time, because a company that passes one of the three tests never reaches the totality analysis at all. Before building a loss-year case, check whether the loss can be taken out of the case.
The first repair is wages already paid. The Policy Manual applies a shortfall rule: if the company has been paying the worker part of the proffered wage, it only has to show net income or net current assets equal to the difference. A company that lost money but paid the sponsored worker $38,000 against a $45,000 proffered wage needs to prove $7,000, not $45,000, and net current assets of $7,000 at year-end is a low bar for most operating businesses. Employing the worker now, at any lawful wage, is the single most effective thing an employer can do about a future loss year, and it produces the W-2s and state wage reports that USCIS treats as the standard proof of wages paid.
The second repair is the balance sheet. Net current assets are current assets minus current liabilities as shown on the return, and small-business returns are often prepared without any thought for how that line will read. A loan from the owner that has no due date within twelve months is a long-term liability; if the preparer has parked it among the current liabilities, reclassifying it can move net current assets by more than any letter will, though on a return already filed that means an amendment, with the transcript request described below. Capital that an owner intends to put into the company should be deposited before the end of the year in question, because deposited cash is a current asset and a promise to deposit it is nothing. The Ninth Circuit made this point in Taiyang, where USCIS refused to count loans the company had made to its own shareholder as assets available for the wage because there were no formal loan documents, no evidence beyond the shareholder’s own statement that the loans were payable on demand, and no evidence that the shareholder could repay them if called. The same logic applies to receivables: a cash-basis return that shows no receivables for a business that invoices heavily can be supplemented with an accrual-basis statement, but only an audited statement stands in for the return, and even then the receivables need an aging schedule, the invoices behind it, and proof that the money was later collected.
The third repair is proration in the priority-date year. If the priority date fell mid-year, the Policy Manual lets the employer prove the wage for the part of the year after the priority date, using net income or wages paid specifically for that period, which usually means monthly income statements rather than the annual return. Net current assets at the end of the year are not prorated; they count in full against the prorated wage. A company that lost money in the first half of the year and turned the corner in the second half may pass on a prorated basis when it fails on the annual numbers. The proof has to cover the period, though. A sole proprietor in California lost this argument in Estrada-Hernandez v. Holder, 108 F. Supp. 3d 936 (S.D. Cal. 2015), because the only usable wage evidence for the priority-date year was a W-2 covering all twelve months, and USCIS will not count twelve months of income against a shorter period of the wage.
The fourth repair is the return itself. If the company amends its return while the petition is pending, USCIS may ask for IRS transcripts, so an amendment made to fix the ability-to-pay picture should be expected to draw that request and should be supportable line by line. And if the priority-date year’s return does not exist yet, the prior year’s return can be offered under the manual’s totality provision while the current year is finished properly.
What documents prove that a loss year was an anomaly?
The documents that prove three things separately: that the company was profitable before the loss, that something specific and non-recurring caused the loss, and that the company has already recovered. Cases are lost by asserting these things and proving none of them.
Start with the years before the loss, because that is the comparison USCIS will ask for. In Just Bagels Manufacturing, Inc. v. Mayorkas, 900 F. Supp. 2d 363 (S.D.N.Y. 2012), a Bronx bakery with a 2001 priority date showed a 2001 net loss of $86,308 and negative net current assets, then four years that passed the tests. Its explanation was the September 11 attacks. USCIS asked for the 2000 return so it could see whether 2001 was uncharacteristic or simply the low point of a rising trend; the company said it could not find the return, and the officer observed that a transcript was available from the IRS. It never came. The court upheld the denial in part because, without the 2000 return, there was nothing to show that 2001 was anomalous “in comparison to previous years.” Order the transcripts for at least the two years before the loss before the petition is filed, not after the request for evidence arrives.
Next, prove the disruption in the company’s own records, not in the region’s. Just Bagels answered the request for evidence with a two-page city comptroller’s report on the economic effect of September 11 and a letter saying tourism had dropped. The agency’s answer was that the report “does not provide any evidence that relates directly to the petitioner’s financial standing,” and that the record contained no evidence “specifically connecting the petitioner’s business decline” to the attacks. A Michigan restaurant made the same mistake in Taco Especial v. Napolitano, 696 F. Supp. 2d 873 (E.D. Mich. 2010), offering 2009 regional unemployment data to explain a business that had been unable to pay the wage since 2001, along with news articles about its own lawsuit as evidence of its reputation. What works is what Sonegawa had: the lease on the new location and the rent ledger showing the months of double rent; the purchase agreement and closing statement for the acquisition; the insurance claim and adjuster’s report for the fire; the invoices for the expansion; a monthly profit-and-loss series that shows revenue falling in the months the disruption happened and recovering afterward.
Then prove the recovery with numbers, not with confidence. The next year’s return is best. If the year is not over, a monthly or quarterly profit-and-loss statement from the company’s accountant, prepared on a consistent basis with the returns, shows the trend, and it is the same kind of document that carried Sonegawa. Interim statements are supporting evidence rather than a substitute for the return, so expect USCIS to look for the return itself when it becomes available, and be ready to supplement.
Payroll and loan records prove the two claims every loss-year letter makes. If the company met payroll through the loss year, the payroll registers and the quarterly state wage reports show it, employee by employee, quarter by quarter. If the company stayed current on its debt, the loan statements show every payment. In Howell, the company’s accountant wrote that it had met its banking obligations and paid its employees, and the bank’s loan officer wrote that it was paying its loans as agreed. The court’s response was short: “But these general assertions were not supported with any evidence documenting Plaintiff’s loan and wage payments. An agency does not act arbitrarily and capriciously by refusing to credit letters that are not supported by documentary evidence.” The registers and statements existed. Attaching them would have cost nothing. Our guide to the three tests covers why letters from the accountant or the bank do not work on their own; the rule for a loss-year package is that a sentence with no exhibit behind it does not go in the letter.
Two more items are worth their own paragraph because employers claim them constantly and document them almost never. If the sponsored worker is replacing someone who left, USCIS needs that person’s name, position, duties, wages, and termination date, with payroll records to match, because the Policy Manual does not count wages paid to other employees as available for the proffered wage unless the worker is replacing a former employee. The bakery in Just Bagels claimed $75,260 in wages freed up by departed employees and documented none of it; the claim was rejected and then abandoned. If an officer of the company is willing to give up compensation to cover the wage, the proof is that officer’s W-2 showing compensation large enough to give up, a signed and specific undertaking, and, ideally, a payroll change already made. In Taco Especial, the argument failed on arithmetic: the owner’s compensation ranged from $26,200 to $67,750 and was below the $52,000 wage in all but two years, so there was not enough to give up.
What about a startup that is losing money on purpose?
The Policy Manual holds one door open for it, and the price of admission is proof of where the money comes from. Start with a rule that catches most small startups off guard: the owner’s own money does not count unless it is in the company. As the manual reads today, USCIS does not consider the personal assets of the member of a single-member LLC, because the member is not personally liable for the company’s debts and so has no legal obligation to pay the wage; the same is true of corporate shareholders and of the members of any LLC, however the IRS taxes it. Only a sole proprietor (or an individual employing a domestic worker), and in some cases a general partner who is willing and able to pay, gets personal income and assets counted, and in those cases USCIS subtracts personal living expenses first. Howell was decided under the earlier treatment, in which USCIS counted the owner’s personal financial statement for the years the company was a single-member LLC; footnote 15 of the current manual reverses that, and the safe assumption today is that the company must pass on its own numbers. A founder with money in the bank and a company with none has, for I-140 purposes, a company with none. The fix is the one described above: put the capital into the company, before the year ends, and keep the deposit record.
With that settled, the manual’s startup paragraph, put in plain terms, says that some companies deliberately operate at a loss for a period to build their position, offering research-and-development spending that will not produce revenue for years as its example, and that in those cases the documentation should fully explain the sources of funding for the company and the expected profit potential. Whether ability to pay is established then depends on the specific facts and all of the circumstances. That language is written for the funded technology or research company, and for that company it is real. “Sources of funding” means executed investment agreements with the money actually received, bank statements showing the capital in the company’s account, a funded loan agreement rather than a term sheet, a grant award letter with the disbursement schedule. “Expected profit potential” means a written plan with dated milestones and the contracts or letters of intent that support the revenue assumptions. A line of credit can be part of the picture, but the manual treats an undrawn line the way it treats an unused credit card: it is not cash and is not added to net income or net current assets, though the monthly statements can be offered to show that the credit strengthens rather than weakens the company’s position.
What this paragraph does not do is rescue an ordinary business that is simply losing money. A restaurant, a contractor, a retail store, or a service company in its second year with no capital behind it and no profitable history is not operating at a loss to improve its long-run position; it is operating at a loss. For that company the realistic paths are the repairs described above, or time.
Does depreciation, gross revenue, or a healthy bank balance help?
No, not on its own, and each of these has been litigated and lost. Depreciation is the most common argument, because a capital-intensive business can show a large tax loss driven entirely by a non-cash deduction. USCIS stopped adding depreciation back to net income in 2003, and in River Street Donuts, LLC v. Napolitano, 558 F.3d 111 (1st Cir. 2009), the First Circuit accepted the agency’s reasoning that depreciation is the real cost of long-lived assets and does not represent cash available for wages. The Policy Manual now states flatly that USCIS does not add back depreciation. The bakery in Just Bagels argued that its $213,083 depreciation deduction turned a loss into a $119,028 profit; the court acknowledged that the argument had some force and rejected it anyway, because a court cannot order the agency to adopt a more logical accounting policy.
Gross revenue proves the business is active, not that it can absorb another salary. In Taco Especial, a restaurant argued that its gross income should be the measure because a C corporation has every incentive to minimize net income; the court agreed that net income understates a company’s capacity, and then held that gross profit overstates it, because it ignores rent, supplies, payroll, and everything else that comes out before a new wage can be paid. The company also could not show what it was currently paying the sponsored chef; it produced W-2s from 1992 to 2001 and nothing for the years after the priority date.
Bank balances prove only what was in the account on one day. The Policy Manual says bank statements do not show whether the funds are already committed elsewhere and often reflect the same cash that already appears in the net current assets calculation, so an employer relying on them has to show that the balances are not already counted and represent surplus over operating needs. Just Bagels shows why that showing is hard: its 2001 statements averaged an ending balance of $188,779.64, and its average monthly debits were $536,102.80, which the court read as evidence of a shortage of operating capital rather than a surplus. A bank balance can support a loss-year case as one piece of a reconciled picture. It cannot carry one.
What mistakes turn a hard loss-year case into a lost one?
Inconsistency, lateness, and midstream changes, in that order, and all three are self-inflicted. Inconsistency is the most damaging, because it lets the agency discount evidence it would otherwise have to weigh. In Howell, the W-2 forms offered to prove wages paid had the printed year crossed out and earlier years handwritten in, and named a different employer with a different tax identification number; USCIS treated them as creating an inconsistency the employer had not resolved. In Estrada-Hernandez, the W-2s carried a Social Security number that was not the worker’s. In Just Bagels, the record contained three different accounts of when the worker had been employed, and the agency concluded that the company probably had unreported wage expenses and withdrew its finding that even the good years were proven. A loss-year petition is already asking for a favorable reading of a mixed record. Every inconsistency costs it that reading.
Lateness is the second. The employer’s evidence has to be in the record before the agency decides, and the place to offer it is the response to the request for evidence. The Administrative Appeals Office and a motion to reopen can take new evidence; a federal court cannot, and even the agency can decline evidence that arrives late without explanation. In River Street Donuts, the employer filed bank records and an audited statement fifteen months after its appeal brief, without explanation, and then failed to argue in the district court that the agency had ignored them; the First Circuit held the point waived and never reached the documents. A federal court reviews the record the agency had. A document that would have won the case in the RFE response is invisible if it arrives afterward.
Midstream changes are the third. The wage and the job are fixed by the labor certification. The restaurant in Taco Especial, unable to prove it could pay a chef’s $52,000 wage, argued that it could pay the prevailing wage for a cook; the court held that the petition is judged against the certified job exactly as the employer wrote it, and that a different job and wage require a new labor certification and a new petition. An employer that sees a loss year coming has room to act before the prevailing wage determination fixes the number and the PERM filing fixes the priority date. It has almost none afterward.
Add one caution from Howell for employers with more than one petition. The employer there had one petition denied and another approved on similar records. It sued, and argued the two decisions were inconsistent. USCIS re-examined the approved petition, concluded the approval had been a mistake, and revoked it; the court held that it could not review the revocation and rejected the employer’s claim that the revocation was retaliation. An inconsistency between two agency decisions can be cured in either direction.
Should the employer file at all, and if so, when?
That is a decision for the employer, and it is a better decision made before the labor certification is filed than after, because the priority date, once set, is the year that has to be answered. Here are the options as we walk clients through them, with what each one trades away.
Filing now and building the totality case trades certainty for time. It is the right frame for the established business with one explained bad year and the documents to prove it, and the package described on this page is what that case needs. It is a poor frame for a startup with no profitable years, because under the Taiyang reading that the Montana court applied, the analysis may not be reached at all.
Repairing the numbers before the priority date is set trades time for certainty. Employing the worker now at a lawful wage, contributing capital before year-end, correcting how the balance sheet classifies owner loans, and running the three tests on a prorated basis are all things an employer controls, and any one of them can move a company from the totality analysis back into the routine case. Timing the PERM filing so the priority date falls in a year the company expects to pass is the same idea applied to the calendar.
Waiting a year trades the worker’s time for the employer’s record. A profitable year after the loss year does two things at once: it gives the company a passing year to file in, and it turns last year’s loss into an anomaly against a documented recovery. For a business that is on its way up, waiting is often the cheapest route through. For a worker whose own status has a clock on it, it may not be an option, and that is a conversation the employer and the worker should have together, with the facts in front of them.
Whatever the choice, the documents are the same, and the earlier they are gathered the more choices remain. Employers deciding whether permanent sponsorship is realistic at all will find the temporary and permanent routes compared in our guide to immigration options for employers, and agricultural employers, whose returns show loss years more often than most, will find the same question addressed in our guide to immigration for farmers and ranchers. If you want the three tests run against real numbers and the loss year assessed before anything is filed, a strategy consultation is the right first step, and you can reach us through our contact page. Bring the last three years of returns, the payroll reports for the loss year, and the story of what happened that year. The story is usually true. The work is proving it.
