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The Most Common Reason for I-526 Petition Denial

The Most Common Reason for I-526 Petition Denial

In the EB-5 Immigrant Investor Program, as in life, there are no guarantees. There are no steps an EB-5 investor can take in preparing their I-526 petition to guarantee that United States Citizenship and Immigration Services (USCIS) will approve. The majority of I-526 petitions are approved, so anyone who makes an EB-5 investment has a relatively high chance of gaining approval. However, an investment in one’s future in the United States is not something to leave to chance—by carefully preparing their I-526 petition, EB-5 investors can elevate their likelihood of I-526 petition approval.

What Does an I-526 Petition Entail?

Form I-526 is the first petition an EB-5 applicant files with USCIS after committing their EB5 investment funds to their chosen new commercial enterprise (NCE). Part of the petition asks for personal information about the investor and any accompanying family members and requires documents such as passports and driver’s licenses as supporting documentation.

Another portion of the I-526 petition focuses on the project in which the applicant has made their EB-5 investment. For this, the investor must obtain the relevant project documentation from the NCE or the EB-5 regional center through which they are investing. If the project has obtained exemplar status, the investor likely has nothing to worry about, unless there have been substantial material changes to the project.

If the EB-5 project is located in a targeted employment area (TEA), EB-5 investors must append an additional section to their I-526 petition package—data and documentation justifying the TEA designation of the project. If USCIS approves the TEA designation, the investor may make an EB-5 investment of $900,000, as opposed to the minimum $1.8 million required for non-TEA projects. If an investor is working with an EB-5 regional center, the regional center will generally help with the provision of TEA justification documents.

The final aspect of the I-526 petition is the most challenging and time-consuming—the source-of-funds documentation section. Investors must provide documentary evidence that their full EB5 investment amount derives from lawful sources and has been committed to their EB-5 project, as well as that any applicable taxes have been paid. The complexity of this task varies based on the source of funds and the country in which the capital was obtained, but in general, it’s more complicated than EB-5 investors realize—and it’s the most common reason for I-526 denial.

What Makes the Source-of-Funds Process So Complicated?

The source-of-funds requirement makes sense—the U.S. government wants to ensure that it’s funding its economy and the creation of new jobs for U.S. workers with legally obtained capital. But USCIS’s source-of-funds scrutiny goes fairly deep. For example, if a foreign national brought property and later sold it and used the resulting capital gains as EB-5 investment capital, simply presenting the deed of sale would be insufficient. They would also have to prove that they legally purchased the property in the first place, lawfully earned the seed capital to make that purchase, and paid all applicable property taxes on the asset.

Gifts and inheritance, which are by all means valid sources of EB5 investment capital, are similarly complicated. For a gift, the investor must provide a gift agreement that states the recipient is under no obligation to repay the sum to the donor, and the donor must provide source-of-funds documentation to prove that they obtained the capital lawfully. In the case of inheritance, the investor must show that they rightfully inherited the capital (or any relevant asset) and that the decedent earned the amount lawfully. The requirement to prove the lawful source of third-party funds even extends to loans from third-party entities other than well-established banks.

And it gets even more complicated. Using a currency swap entity? Investors from countries like Vietnam, China, India, and South Africa, which place limits on the amount of capital than can be transferred abroad, face obstacles simply in transferring their EB5 investment capital to the applicable escrow account in the United States, even if they can easily prove the legal sources of their funds. USCIS is aware of remittance limits in these and other countries and will require evidence from investors of how they legally bypassed the restrictions. Several options exist to circumnavigate remittance limits, but investors must always opt for a legal route.

How to Approach the Source-of-Funds Process

The first step any EB-5 investor should take toward the source-of-funds process is consulting with an experienced EB-5 immigration attorney, particularly one with extensive experience with investors from the same country. Experienced EB-5 immigration counsel is aware of both USCIS requirements and the challenges posed by particular countries, and they can go over an investor’s options and advise them regarding the easiest sources to use for their EB5 investment.

Depending on an investor’s source of funds, they may have to submit the following documents. Bear in mind that EB-5 capital may derive from any number of sources, as long as they are all appropriately documented.

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

In some cases, USCIS will demand documentation of the full path of the funds from the source to the EB-5 project escrow account. For example, if an investor is using the capital gains earned from the sale of real estate for their EB-5 investment, they may have to provide the following documentation:

  1. Evidence of the lawful sources of the seed capital to purchase the real estate asset (e.g., employment records, business accounting records, inheritance records)
  2. The deed for the purchase of the real estate asset
  3. The deed for the sale of the real estate asset
  4. An appraisal evaluating the market value of the real estate asset
  5. A bank statement showing the sale proceeds deposited into the investor’s foreign bank account

It’s important to note that some countries may not have stringent recordkeeping practices, which can complicate the source-of-funds documentation process, especially if the records date back decades. In such cases, it may be possible to have a local legal or tax expert produce a signed statement attesting to the impossibility of obtaining such records. USCIS evaluates source of funds on the basis that they are “more likely than not” lawful, so approval is possible even without irrefutable evidence of the EB5 investment capital’s lawful sources.

Another point to bear in mind is that insufficient source-of-funds documentation may result in a request for evidence (RFE) rather than a denial. If an investor receives an RFE, they have a limited window of time to collect and send any documentation that USCIS requests, and if USCIS is satisfied with the provided evidence, they will likely go on to approve the I-526 petition. If an investor is in a rush to file their I-526 petition—such as to prevent their child from aging out of EB-5 visa eligibility—they may submit insufficient source-of-funds documentation and prepare more rigorous documents for the later RFE.