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INS ANNOUNCES H-1B VISAS USED UP FOR FISCAL YEAR 
For the first time in the seven years since the Immigration Act of 1990, the annual 65,000 visa limit in the H-1B category appears to have been met. The H-1B visa is the visa used by professional workers and is widely used in American industry and academia. The cap was reached on August 29th - more than a month before the beginning of the new fiscal year on October 1st. 
The INS is only supposed to count applicants who are new to the H-1B visa category, not persons applying for a new H-1B because of change in employer or applicants for extensions or amendments of the H-1B visas. The American Immigration Lawyers Association ("AILA") has criticized the INS for not accurately counting the number of H-1B visas. Last year, the INS was forced to drastically revise downward its count on the number of visas used after being challenged by AILA. This year, however, they insist they've got the correct count. The INS conducted a random audit of issued visas to see whether their counting methods are flawed (which would seem to have to be the case based on the description of the counting method described by the INS to AILA). Based on the audit, the INS ended up revising their initial figures downward by just over 3%.
The INS is continuing to adjudicate H-1B cases, but they will only authorize employment beginning October 1, 1997. INS adjudicators will first determine if a case is subject to the H-1B cap. If it is, then the INS will call the employer sponsor or the attorney and ask if the INS should process with an October 1st start date. If this is okay, then the INS will process the petition with the October 1st start date. To speed up the process, however, attorneys are marking packages and petitions prominently to make it clear that should the cap be found to apply, the application should be approved with an October 1st start date. Attorneys are also prominently marking filings to indicate that the cap does not apply in order to avoid delays in correcting INS misfilings.
For new H-1B applicants, starting work before the October 1st start date would be illegal. F-1 practical training workers are expected to be the main people to whom this caution applies. The INS will not consider persons who file change of status applications prior to expiration of their previous visas will not be considered to be out of status even though the H-1B visa is not immediately available as long as they do not work illegally. 
Processing at a Canadian or Mexican consulate for third country nationals will not be affected if the applications are filed before the old visa expires. Also, the State Department will issue visas to enter the US up to ten days before October 1st.
Unfortunately, by "borrowing" visas for next year now, it is easy to predict that next year the cap will be reached much earlier. While the disruption to business and academia this year will be important, next year the damage could be extreme. Some companies are already looking at the option of opening up overseas operations in order to avoid the lack of access to the best qualified labor. Ironically, the cap on H-1B visas designed to protect American workers may actually result in an overall loss of job opportunities as good jobs are exported. Fortunately, there is now a movement to either eliminate the cap or raise it beyond the 65,000 limit. This week, the Information Technology Association of America called for such legislation and it is expected that many other groups will lead a similar charge. 
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