“What is the Immigrant Investor (EB-5) Program all about?” We are being asked this question more and more often by fellow attorneys. Our colleagues generally want to know how they can help foreign investors successfully petition for an EB-5 visa and how they can help American businesses qualify for EB-5 investments.
The first step in answering this question is always to dispel the myth that getting an EB-5 visa is simply a matter of writing a check. The reality is that an EB-5 petition can be an arduous process and, for some petitioners, coming up with a $1,000,000 investment (or $500,000 for investing within a Targeted Employment Area (TEA), where unemployment is at least 150 percent of the national average) is the easy part. The hard part is proving that the investment funds were “lawfully acquired.”
An EB-5 petitioner must provide sufficient documentary evidence to allow the U.S. Citizenship and Immigration Services (USCIS) to trace all of the investment capital back to a lawful source (or sources). Under 8CFR§204.6(j)(3), the USCIS may require any, or all, of the following documents to prove that this investment capital was lawfully obtained: foreign business registration records, tax returns filed within five years, evidence identifying any other source of capital, documentation of court judgments, or pending court cases. And these “regulatory” requirements are just the starting point.
The USCIS may also request additional evidence, such as wire transfer receipts, deposit/withdrawal slips or other primary financial records. Proving a single business transaction may require submitting a multitude of documents. And while it may be tempting for petitioners to try and overwhelm the USCIS with boxes of records that may or may not be relevant to the investment, such a document dump may only serve to frustrate the examiner and result in a request for evidence (RFE) or outright denial. Rather, the documentary evidence must be detailed and very well-organized.
The kind and amount of documentation that is needed largely depends on the source(s) of the funds. For example, if the petitioner receives more than an annual aggregate $100,000 of funds as a gift from his or her parent, the petitioner is required to file U.S. Treasury Internal Revenue Service (IRS) Form 3520 with his or her Income Tax Return (Form 1040), due for the year of receipt, including any extensions for filing. The gift itself is not subject to income tax of the petitioner and accordingly should not be reported as such on the Form 1040. It may be necessary for the parent to document a contemporaneous explanation to the recipient of why the gift is being made in order to demonstrate that this really was an actual arms-length true gift transaction and not a prospective return from other investments or other worldwide income, which may be subject to U.S. income taxation. It is important to keep in mind that the receiving financial institution would have been required by the U.S. Treasury Department of Financial Crimes Enforcement Network (FinCEN) to already report the currency transaction to Treasury.
Common forms of capital for the EB-5 investment include cash, cash equivalents such as certificates of deposit, treasury bonds and other liquid instruments, equipment, inventory, and other tangible property. Capital through indebtedness secured by assets owned by the foreign investor, such as a promissory note, is acceptable as long as the individual is personally and primarily liable, and as long as the assets of the new commercial enterprise upon which the petition is based are not used to secure any of the indebtedness. Thus, the EB-5 petitioner cannot use the American business in which they are investing as collateral for a loan and then use that loan to satisfy the investment requirement.
Documenting the lawful source of the EB-5 investment funds can be the most difficult and time-consuming part of the EB-5 petition process, especially if the capital originated from multiple sources. Written statements or affidavits may be necessary in order to fill in any holes that are left in the documentary evidence. Narratives, with citations to corresponding documents, can help map out a money trail that is clear and easy for the examiner to follow. An experienced attorney that is very familiar with the EB-5 process can be of great help preparing such documentation and may therefore be the most important investment a foreign investor can make.