The EB-5 Reform and Integrity Act reinforced documentation requirements for proving the source of funds, ensuring greater transparency and compliance. To meet the requirements, investors must show clear documentation that traces their investment funds from the original source to the EB-5 project.
While the documentation process may seem complex, following the rules can increase the chances of approval. In this article, we will discuss the sources of funds requirements under the EB-5 program so your application meets the compliance standards.
What Does Source of Funds Mean in EB-5?
Key Source of Funds Requirements Under the EB-5 Reform and Integrity Act (RIA)
What Does Source of Funds Mean in EB-5?
In the EB-5 visa process, source of funds refers to the origin of the money you use to meet the program’s minimum investment requirement of $800,000 in a targeted employment area (TEA) and $1,050,000 in non-TEA locations. The United States Citizenship and Immigration Services (USCIS) requires you to show clear evidence of where your money came from and how it was obtained.
If any part of the financial trail with supporting documents is missing or unclear, your EB-5 petition may face delays or denials. There are several common sources of funds, each requiring their specific documentation, that USCIS considers acceptable. These include:
- Income from employment.
- Profits from business operations.
- Proceeds from the sale of property or investments.
- Inheritance.
- Gifts.
For example, if the funds come from your salary, you must provide tax returns, pay stubs, and employer verification. If the funds are from a property sale, you need to show the property deed, sale agreement, and proof of the transaction.
Key Source of Funds Requirements Under the EB-5 Reform and Integrity Act (RIA)
Before the RIA, source of funds requirements primarily focused on proving that funds were legally obtained. This led to situations where the funds were legal, but the path of funds wasn’t as clear as it should have been. Under the RIA, investors need to give a more detailed explanation of how their funds moved from the original source to the project.
This strengthened rule is part of RIA’s effort towards more transparency and integrity in the EB-5 program. Below are the key requirements that investors must meet under the most recent regulations.
1. Clear Documentation of the Funds’ Path
The EB-5 process requires you to provide documents that show how your funds were earned, transferred, and deposited. You must create a clear, uninterrupted chain of the money’s movement, including any bank accounts, wire transfers, or financial institutions involved.
2. Proof of Tax Compliance
Investors must demonstrate that they have paid any applicable taxes on the income used for their EB-5 investment. This applies to income earned both in their home country and abroad. Tax compliance is typically shown through income tax returns, payroll records, or other official documents.
3. Validity of Gifted Funds
If the investment fund is a gift, USCIS requires documentation both from you and the person giving the gift. This includes a gift letter that states the funds are a gift and do not require repayment. The person giving the gift must also prove that they obtained the money legally, using documents such as tax returns, bank statements, or other financial records.
4. Validity of Loans
Loans can serve as a source of funds, but if secured, they must be secured by your assets, not the EB-5 project itself. The investor needs to provide the loan agreement, proof of collateral, and evidence of loan disbursement.
5. Transparent Business Earnings
If an investor uses profits from a business to fund their EB-5 investment, they must provide detailed evidence of the business’s operations and financial health. This typically includes business licenses, tax returns, profit and loss statements, and other financial records. Investors must also prove that the business activities were legal and that the income was reported to tax authorities.
6. Inheritance Must Be Properly Documented
Inheritance is an allowed source of EB-5 funds, but you must show that you received it legally. Therefore, documents such as a will, probate records, or legal confirmation of the inheritance must be provided. In addition, investors may need to provide evidence that the deceased individual acquired the assets through legal means.
7. Currency Exchange Must Follow Legal Channels
For international investors, converting local currency into U.S. dollars is often necessary. The EB-5 program requires that all currency exchanges follow the legal regulations of both the investor’s home country and the United States. Investors must provide receipts or bank records that show the currency exchange process, including the financial institutions involved. Any use of informal or unauthorized channels can lead to a visa denial.
8. No Use of Untraceable Cash
Cash payments that cannot be traced back to a legal source are not allowed under the EB-5 program. Investors must use transparent financial channels, such as bank transfers, to document the movement of their funds.
9. Compliance With Local Financial Laws
Investors must comply with the financial regulations of their home country when transferring funds abroad. This includes adhering to any limits on international transfers and obtaining required government approvals. Failure to follow local laws can raise concerns about the legality of the funds and lead to a visa denial.
In addition to these requirements, investors should be prepared to submit additional documentation if requested by USCIS.
The Battineni Case
The Battineni v. Mayorkas case addressed whether USCIS could require investors to trace their funds back to the original source, even when the immediate source was proven lawful. The Battinenis invested through an approved EB-5 regional center in Washington, D.C., using proceeds from the sale of their IT business in India.
However, USCIS denied their I-526 petitions, asserting that the documentation provided did not sufficiently demonstrate the lawful source of their investment funds. USCIS argued that the Battinenis failed to trace every transaction leading to the funds’ origin.
The Battinenis filed a lawsuit challenging USCIS’s decision, arguing that the agency’s interpretation of the “path of funds” was overly strict and exceeded what EB-5 regulations mandate. They contended that proving the legality of the immediate source of funds should suffice, and the insistence on tracing every transaction back to its origin was unreasonable. The case eventually reached the federal court.
The Battineni v. Mayorkas case has become a landmark decision in the EB-5 program, reshaping how the USCIS enforces its “path of funds” requirement. A key takeaway from the court’s ruling was that while EB-5 regulations require investors to demonstrate their funds were lawfully obtained, there is no need to trace every transaction leading back to its origin.
This simplifies the process by focusing on proving that the immediate source of funds is legal.
The court’s ruling provides greater clarity on fund tracing requirements and reduces unnecessary burdens on investors while reinforcing the importance of demonstrating lawful sources of capital. For current and future EB-5 investors, this ruling emphasizes the following:
- Simplified documentation: Investors no longer face excessive demands for tracing every financial transaction leading back to its original source.
- Focus on legality: The primary concern is ensuring that investment funds are lawfully obtained rather than detailing every transfer along the way.
- Reduced burden: This shift reduces unnecessary delays or denials caused by over-stringent requirements.
While this decision makes certain aspects of the EB-5 application process easier, thorough documentation and legal guidance are still essential every step of the way.
EB5AN Can Offer Professional Guidance For Your EB-5 Investment
When going through the EB-5 application process, you should ensure that your financial records are complete, well-organized, and easy to verify. Working with immigration attorneys and financial professionals can help ensure that all documentation meets USCIS standards, improving the chances of a successful application.
At EB5AN, we understand the intricacies of this process. With our team of experienced professionals, we’ve helped over 2,000 families from 70+ countries secure permanent residency in the United States. Start your EB-5 journey today with EB5AN by booking a free consultation with us.