What Is the Most Common Reason That an I-526 Petition Is Denied?

Although the EB-5 Immigrant Investor Program has a high approval rate, the program has no guarantees. However, by carefully and diligently compiling their I-526 petition, investors can increase the chances that their I-526 petitions are approved.

What Exactly Does an I-526 Petition Entail?

The first petition that an EB-5 applicant files with United States Citizenship and Immigration Services (USCIS) is called Form I-526. The I-526 petition asks personal information about the investor and the investor’s accompanying family members and requires several documents, including the investor’s driver’s license and passport.

The I-526 petition also requires the investor to submit information about the project that they are investing in. To provide this information, the investor must obtain project documentation from the new commercial enterprise (NCE) or regional center. If the project has already received exemplar status for its regional center investors, the investors likely have nothing to worry about unless substantial material changes to the project have occurred.

If the project is in a targeted employment area (TEA), an I-526 petition also requires EB-5 investors to provide data and documentation justifying the TEA designation of the project. If the investor made their investment through an EB-5 regional center, the regional center will typically provide the relevant TEA justification documents.

The most challenging aspect of the I-526 petition is the source-of-funds documentation section. Investors must prove that their entire EB-5 investment amount has been lawfully sourced and committed to their EB-5 project. The specifics vary wildly based on the source of funds and the country where the capital was obtained, making this aspect particularly difficult for investors to satisfy. These difficulties also make source-of-funds issues the most common reason for I-526 denial.

What Complicates the Source-of-Funds Process?

The source-of-funds requirement is conceptually straightforward—the U.S. government wants to ensure that it is using lawfully obtained capital to fund its economy and create new jobs for U.S. workers. However, USCIS scrutinizes each source-of-funds case. For instance, if a foreign national used the sale of a property to fund EB-5 investment capital, it would not be enough for the investor to present the sale deed. Instead, the investor would additionally have to prove that they had legally purchased the property, legally earned the capital to make that purchase, and paid all relevant taxes on the property.

Using a gift or inheritance to fund an EB5 investment is similarly complicated. In the case of a gift, an investor must present a gift agreement stating that the recipient does not have to repay the sum, and the gift’s donor must also provide documentation proving that they obtained the capital lawfully. For inheritance, an investor must demonstrate that they rightfully inherited the asset and that the decedent then earned the amount lawfully.

What about a currency swap entity? Investors from many countries face difficulty transferring large amounts of capital abroad, even if they can prove that these funds are lawfully sourced. USCIS is knowledgeable about remittance limits in countries including Vietnam, China, India, and South Africa but requires evidence on how investors legally bypassed these restrictions.

How Should Investors Approach Source of Funds?

Before anything else, an EB-5 investor should consult with an experienced EB-5 immigration attorney about their source-of-funds situation. This attorney should preferably be one who is experienced with EB-5 investors from the same country. Experienced attorneys can help an investor go over their options and advise them on the easiest sources to use for their EB5 investment.

Depending on an investor’s exact situation, they may be required to submit the following documents. EB-5 capital can be derived from many different sources as long as it is appropriately documented:

  • Employment records
  • Tax returns
  • Gift contracts
  • Investment records
  • Loan documents
  • Property deeds
  • Sale-of-asset records
  • Bank statements
  • Business accounting records

USCIS will occasionally demand documentation for the path of funds from the source to the EB-5 project’s escrow account. If an investor is using, for example, the sale of real estate as part of their EB-5 investment capital, they may be required to provide the below documentation:

  • Evidence that the seed capital used to purchase the real estate asset was lawfully sourced
  • The real estate asset’s purchase deed
  • An appraisal evaluating the market value of the real estate asset
  • The real estate asset’s sale deed
  • A bank statement showing that the sale proceeds were deposited into the investor’s foreign bank account
  • A bank statement showing that the sale proceeds were deposited into the NCE’s escrow account

An additional layer of difficulty is that some countries do not have detailed record-keeping practices, making the source-of-funds documentation process tricky, particularly if the records date back several decades. In these instances, it may be necessary to have a local tax or legal expert sign a statement attesting that it is not possible to obtain the required records. As USCIS uses a “more likely than not” standard when determining whether an investor’s capital is lawfully sourced, it is possible to be approved even if some documentary evidence is not available.

Insufficient source-of-funds documentation may also result in a request for evidence (RFE) instead of a denial. If an EB-5 investor receives an RFE, they are given a window to compile and send in any requested documentation. If the provided documentation satisfies USCIS, they are likely to approve the I-526 petition.

If an investor has a limited window to file their I-526 petition, including having a child close to aging out of visa availability for the program, they can purposely provide insufficient source-of-funds documentation and begin preparing more rigorous documentation even before an RFE has been issued.