By Sonia Mann, Attorney at Parikh Law Group
This article is for editorial discussion purposes only. Please do not interpret the content contained herein to constitute legal advice or be an interpretation of any laws or statutes. As always, seek counsel with an attorney with regard to your specific legal issue.
EB-5 Investors Update: Proving your funds come from lawful means
In this article, we discuss some the evidence required from EB-5 investors when proving that the source of funds used for their EB-5 investment were derived from lawful means. As discussed in previous articles, foreign investors wishing to apply for EB-5 Visas must either invest $500,000 USD or $1 million USD into a US commercial enterprise. Often, investors rely on the sale proceeds from liquidating assets in their home countries, such as the sale of real estate or interests in a business, to come up with the monetary requirements for EB-5 investments. Many investors also utilize inheritance money or gifts as a source of funding for EB-5 funds. Regardless of the monetary source, USCIS requires that substantial proofs be provided showing that the monies came from lawful means and are not in any way traceable to illegal activities or black-market transactions. The regulations specifically request EB-5 investors to provide tax returns, transaction records, and business records going back 5 years to prove legitimacy of the capital. While other evidence may be offered, the attorneys at PLG generally advise our clients to show tax returns and the documents requested in the application in order to have an easier application process and increase their chances of approval. For example, at PLG we regularly go above and beyond by assisting our clients in searching for records in their home countries, often contacting foreign court clerks, tax authorities, or overseas recorder of deeds offices so that our client’s applications are thorough and contain all of the requisite proofs needed to ensure approval. We work diligently so that ample evidence is provided on our client’s behalf, and we attribute our many EB-5 success stories to our detail-oriented approach.
We often encounter situations where our clients are unable or have much difficulty in obtaining the requisite documents requested by USCIS, such as income tax returns. USCIS requires an applicant to provide tax returns of ALL taxes dating back 5 years, which would include income, business, and property taxes. In the case of an individual who has not been required to file any income taxes in their home country, for example if they are retired, then the investor must provide other sufficient evidence of income sources. This may include annual statements from brokerage accounts, bank account statements, investment returns statements, closing documents from the sale of property or real estate, or other relevant documentation supporting their income or accumulated wealth. We often urge our investors to provide evidence of their last tax return filed and any paid income taxes from the last period where they were still required to file one. Investors in this circumstance must also execute an affidavit attesting that they do not have income tax returns, reasons why they do not have them, or reasons why they are not required to file or pay income taxes. Lastly, if the income from the investor’s tax returns is not of an amount sufficient to support the EB-5 capital amount, the actual source of funds will be deemed to have not been proven and therefore the investor will still have to clearly establish his source of funds.
If the source of funds is from the activity or sale of a business, USCIS regulations are equally stringent. Foreign investors are required to show proofs of registration of a legal entity if they owned or co-owned a business, such as certificates of registration or articles of incorporation/organization. Likewise, tax returns and proof of income taxes paid by the business dating back five years will be required. If the proceeds from the activity or sale of a business are being used to fund an EB-5 investment project, then as with income, the money must be of a sufficient amount to justify that it is being used as the source of funding. If not, an investor’s application could risk denial if other sources are not adequately established. Lastly, as is the case with the sale of a home, if an applicant is using the proceeds from the sale of a business or their shareholder interest in a business, then adequate documentation demonstrating the transaction will be necessary. This could be in the form of executed closing documents, sales purchase agreements, or stock purchase agreements, to name a few.
In the case of gifts or inheritance monies being used to fund an EB-5 project, the investor will be required to not only show the relationship between themselves and the donor, but also provide additional documentation that the donor obtained the funds through lawful means. So, if a wealthy relative has given or left you money, you are certainly entitled to use that to meet the EB-5 minimum investment thresholds, so long as you are able to prove that the relative obtained the money through legitimate means. This may include providing the relative’s tax returns, estate paperwork such as Will and Trust documents, affidavits from an executor of the estate, etc. USCIS will then conduct their own investigation and conclude whether the funds were derived from lawful means or not.
An investor may also use a loan to raise funds for their EB-5 project, provided that, however, the income or assets of the EB-5 enterprise may NOT serve as collateral for the loan. This means that an investor may utilize their own personal assets as collateral for the loan but not the assets of the project itself. In the case of a private loan, the investor again must provide ample evidence that the money has been derived from legal sources. This means that the individual loaning the money will be required to turn over documents supporting the source of money used for the loan and show that it did not come from illegal or black-market transactions. The purpose of this extra step is to ensure that lenders cannot try to pass money obtained through illegal means to an investor who will then repay the loan with “clean” money.
As previously discussed, the best way to ensure success on your EB-5 application is to offer ample evidence supporting your investment’s sources, and the best way to do so is through tax documents, public records, transaction receipts and/or sale contracts. The regulations imposed by USCIS can be quite difficult to navigate and for this reason it is imperative that you discuss your EB-5 matter with an immigration attorney highly experienced in this area of law. The attorneys at PLG are have a proven track record of EB-5 success and are happy to discuss your investment options or other immigration-related issues. Please contact us at (312) 725-3476 for a consultation today.