EB-5 visa demand saw an upturn in 2023, largely because of the new immigration benefits for EB-5 investors. The new policies introduced by the EB-5 Reform and Integrity Act of 2022 (“the RIA”) allow EB-5 investors to get U.S. Green Cards years faster than previously—many applicants have recently been approved for Green Cards in as little as 11 months.
One of the most challenging stages of applying for an EB-5 visa is documenting the source of funds on Form I-526E, the initial petition for a Green Card. The source of funds evidence submitted here can either result in a timely USCIS approval, a request for further evidence, or even an outright denial.
Anahita George, one of the leading immigration attorneys in the EB-5 industry, recently held a comprehensive webinar on documenting two of the most common sources of EB-5 funds: gifts and loans.
In this article, we summarize the key points from the webinar. These actionable insights from one of the most successful EB-5 attorneys will help EB-5 investors get a timely USCIS approval and avoid costly delays.
The Importance of Documenting the Source of EB-5 Funds
Choosing Between a Gift and or a Loan for Your EB-5 Funds
Documenting the Source of EB-5 Gifts and Loans
Get Started on the EB-5 Immigration Process
The Importance of Documenting the Source of EB-5 Funds
One of the key aspects of an I-526E petition is proving that the funds used for investment were sourced legally and taxed adequately. This means showing not only that the funds were generated legally but also that they have been declared and taxed appropriately.
The U.S. government scrutinizes the submitted evidence to ensure the integrity of the EB-5 program and to prevent money laundering or other illegal activities.
One common misconception among EB-5 investors is that submitting W-2 forms and tax returns is enough to show that the funds were legal. However, USCIS requires more comprehensive evidence. This includes providing up to seven years of bank statements to demonstrate a continuity in income and wealth accumulation.
These statements should reflect the investor’s financial activities, including investments in equities, real estate, or savings in bank accounts. The aim is to trace the investor’s financial history and explain how they acquired the funds used for the EB-5 investment.
Given the complexity and volume of documentation involved–often thousands of pages–it is crucial that the information presented to the USCIS immigration official is clear, concise, and free from major errors. A well-prepared petition makes it easier for the officer to understand and verify the source of funds—and approve the petition more quickly.
The presentation of the source of funds to USCIS can also make a difference. This involves not just submitting documents in Form I-526E but organizing them in a way that highlights key financial transactions.
For instance, creating an Excel table summarizing significant income entries can help USCIS officers quickly verify large transactions without having to comb through every page of the bank statements.
Another important aspect is tracing the path of the funds, especially when they have moved between different accounts. It is essential to demonstrate that these transfers are legitimate and not attempts to obscure the source of the funds. The type of documentation required can vary significantly depending on the nature of the funds – whether they come from selling property, stocks, or other assets.
The process of compiling and presenting these documents can take anywhere from a few weeks to longer, depending on the complexity of the investor’s financial history.
Close collaboration between the investor and their immigration attorney is crucial—it will ensure that the documentation is comprehensive and meets the legal requirements of the EB-5 program. This collaboration often requires flexibility from immigration attorneys, including working outside of regular business hours, to assist their EB-5 investor clients effectively.
Choosing Between a Gift and or a Loan for Your EB-5 Funds
Pros of Gifts and Loans
When an EB-5 investor receives funds as a gift, especially from family members, the process is generally straightforward. The family member gifting the funds must file a gift tax return. In the United States, for example, the donor is responsible for paying the taxes. However, gifts from friends can be more complex, as they often require additional proof to establish the legitimacy of the gift. This could involve demonstrating a long-standing relationship or providing evidence of the donor’s financial ability to give such a gift.
Loans, on the other hand, are a good source of funds if the lender’s financial background is clear and the borrower can document their ability to repay the loan. For EB-5 investors with substantial income, loans are particularly advantageous, as investors can more easily demonstrate their ability to repay the loan. Loan terms should be simple, with adherence to Applicable Federal Rate (AFR) interest rates and regular monthly payments.
It’s important to make sure that loan repayments are traceable and legitimate, as USCIS may request evidence to verify the source of funds used for repayment.
Loans must be structured at market terms. A common misconception is that EB-5 loans can have a 0% interest rate. This is not feasible due to tax implications and the need to adhere to market terms as defined by the IRS. Loans exceeding a certain duration, like seven years, are also not typical in the market and may raise questions.
For unsecured loans, USCIS often issues requests for evidence, particularly concerning the source of funds for loan repayment. Therefore, it’s crucial to maintain transparency in financial transactions and ensure that loan payments are made using taxed and legitimately earned income.
Cons of Gifts and Loans
EB-5 investors must also weigh the potential disadvantages of using a gift or a loan.
For gifts, issues can arise with the filing of gift tax returns. Changes in tax laws, like the expiration of certain acts or adjustments in gift tax exemption limits, can impact donors’ willingness to file necessary tax returns. Additionally, USCIS may scrutinize gifted funds to ensure they are not in name only, especially when the lender has borrowed against an asset to make the gift. Therefore, the EB-5 investor must be aware of the details of the lender’s repayment plan.
In the case of loans, the primary downside is the interest cost, which, while lower than typical bank rates, still represents a significant expense. Lenders must also declare interest income on their tax returns. USCIS closely examines loans to make sure they are not disguised as gifts and that the repayment terms are consistent with market standards.
Ultimately, the choice between a gift and a loan depends on various factors, including the investor’s income prospects, tax implications, past gifting history, and whether the loan is secured.
Because these transactions have tax implications, EB-5 investors should involve their accountants in the process. Additionally, the jurisdiction of the transaction plays a crucial role, as tax regulations vary across countries. For instance, India offers tax exemptions for gifts from lineal ascendants and descendants, making such transactions tax-free for both parties in certain scenarios.
Documenting the Source of EB-5 Gifts and Loans
For gifts, including inheritances, USCIS frequently requests specific documentation, such as a will or, in its absence, evidence that adheres to local succession laws. This becomes particularly relevant in countries like India, where inheritance laws distinctly outline the division of assets.
In cases where the funds are inherited, whether in the form of land or cash, USCIS is interested in understanding how the original owner acquired these assets. Often, transactions might be so historical that original documentation is unavailable. In such scenarios, sworn affidavits from relatives attesting to the legal acquisition of these assets become crucial. These affidavits play a pivotal role, especially when dealing with older transactions that fall beyond standard document retention periods.
Furthermore, compliance with local tax laws is a critical aspect of the documentation process.
For instance, in countries like the United Arab Emirates, where traditional tax documents might not be applicable, EB-5 investors need to provide background information on the specific tax regime. For example, an I-526E petition can cite articles from top accounting firms. For transactions within certain time frames, providing bank statements for both the donor and the recipient is necessary to verify the transfer of funds.
In the context of loans, USCIS pays close attention to the source of assets used as collateral. Whether these assets are home equity lines of credit (HELOCs) or securities, understanding their source is fundamental.
Investors can use bank statements reflecting the accumulation of down payments and mortgage payments. Additionally, detailed loan agreements and promissory notes can clarify the terms of the loan.
Keeping a record of loan repayments is essential, particularly during the Green Card processing period. USCIS may inquire about the continuation of loan repayments after the EB-5 investor moves to the U.S.
An often overlooked yet significant aspect is the source of funds for non-banking institutions, relatives, or friends who provide the loan. In these cases, it’s crucial to ensure that these parties have sourced their funds legally and have adhered to tax regulations. This includes verifying that interest payments received by these individuals are declared and taxed appropriately.
If the EB-5 funds were gifted by a friend, USCIS may examine the documentation more closely to ensure the gift is genuine. In such instances, tax compliance and thorough documentation of the donor’s source of funds are vital. Creating a secure and confidential channel for document exchange between the donor and the immigration attorney can help maintain privacy.
For loans, the primary concern often revolves around the repayment of the borrowed funds. It’s crucial to demonstrate that the assets used as collateral were acquired legally, alongside compliance with relevant tax obligations.
This is particularly important for Indian H-1B visa holders in the U.S., who are subject to tax regulations in both India and the U.S.
Get Started on the EB-5 Immigration Process
While documenting the source of EB-5 funds requires careful planning, working with the right immigration attorney can significantly improve an investor’s chances of immigration success.
As an immigration attorney from India who became a naturalized citizen of the United States, Anahita George is in a unique position to help EB-5 investors compile a thorough source-of-funds package and get a timely USCIS approval.
Anahita has compiled hundreds of EB-5 petitions and is currently a partner of George & Marzialo, PLLC. Foreign nationals from around the world choose to work with her because of her ample track record of successful EB-5 filings.
To get started on the EB-5 process, we invite you to contact Anahita George or EB5AN and get firsthand guidance on the best way to get U.S. Green Cards for yourself and your family.
Contact Anahita George, Esq. today:
📞 Phone: (425)328-9339
✉️ Email: ageorge@selectgm.com
🌐 Website: https://selectgm.com/
