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  • Article: Detailed Analysis of EB-5 Reauthorization Bill: Source and Path of Funds. By Anu Nair

    Detailed Analysis of EB-5 Reauthorization Bill: Source and Path of Funds.

    by


    On June 3, 2015, Senators Charles Grassley and Patrick Leahy introduced a bi-partisan bill to extend and amend the Immigrant Investor Program. As part of a multi-series examination of the bill, below is detailed analysis of how the bill will change key aspects of the program as it relates to source and path of funds.

    1. Administrative Fees Must Be Sourced

      Current: In a 2012 Stakeholder抯 meeting, Alejandro Mayorkas, then director of USCIS, confirmed that the administrative fees must be sourced. In its February 2015 Stakeholder抯 meeting, USCIS indicated that administrative fees do not need to be sourced as USCIS did not have a 搇egal basis for requiring the . . . administrative fee . . . [to have] a lawful source.?

      Proposed Changes: Under the proposed legislation, USCIS will have a 搇egal basis?for requiring investors to source the administrative fee. Proposed INA 203.5(b)(5)(L) states in pertinent part that the investor must show that 揳ny funds used to pay administrative costs and fees associated with the alien抯 investment were obtained from a lawful source and through lawful means.?

      As currently written, the proposed changes leave open the possibility that investors may have to source legal and filing fees in addition to the investment and administrative fees.

    2. Tax Returns: 7 years of tax returns prior to I-526 filing tax returns mandatory for investors

      Current: Filing tax returns as part of I-526 documentation is not mandatory as tax returns are included as one of several options to document source of funds, as supported by the use of a disjunctive 搊r?in the regulations.

      8 CFR 204.6(j)(3) states in pertinent part:

    To show that the petitioner has invested, or is actively in the process of investing, capital obtained through lawful means, the petition must be accompanied by:

    1. Foreign business registration records;
    2. Corporate, partnership and personal tax returns of any kind filed within 5 years;
    3. Evidence identifying any other source(s) of capital; OR
    4. Certified copies of judgments or evidence of all pending governmental civil or criminal actions.

    Proposed Changes: Under the proposed bill, the following language, reproduced in pertinent part, would be added under INA 203(b)(5)(L):

      1. The Secretary of Homeland Security shall require, as applicable, that an alien entrepreneur petition contain:
        1. Business and tax including:
          1. Foreign business registration records;
          2. Corporate, partnership and personal tax returns of any kind filed within 7 years with any tax jurisdiction;
          3. Evidence identifying any other source(s) of capital; AND
        2. Certified copies of judgments or evidence of all pending governmental civil or criminal actions.

    Accordingly the new proposed changes to the INA appear to make mandatory the filing of 7 years of corporate, partnership, and personal tax returns for all investors.

    1. Identity of Intermediaries

      Current: Currently, neither the regulations nor the INA requires any identity documents of intermediaries used by the investor in the exchange of funds into USD and transfer of USD funds into the U.S.

      Proposed Changes: Investors will have to provide the identity documents of all intermediaries used in the exchange and transfer of the investment funds as well as administrative fees and costs.

    2. Restrictions on Gifts: Must be gifted by a close family member and giftor may be required to provide tax returns

      Current: Currently, neither the regulations nor the INA place any restrictions on gifted funds as the EB-5 investment. Instead, under USCIS policy, investors simply had to document the source of the gifted funds and provide an affidavit confirming the gifting of the investment funds with no obligation or expectation to repay.

      Proposed Changes: An investor may only use gifted funds for EB-5 investment if the funds are gifted by a spouse, parent, child, sibling, or grandparent. Further, the gift must be made in 揼ood faith?and not used to circumvent any limitations on permissible sources of income.

      Additionally, if a 搒ignificant portion?of the EB-5 funds are gifted, the giftor must also provide 7 years of tax returns prior to the I-526 filing and documentation of any monetary judgments against the giftor. The amount of funds that would constitute a 搒ignificant portion?of EB-5 funds is not defined.

    3. Restrictions on Loans: Must be secured by assets owned by the investor and lender must be a 搑eputable?bank or licensed lending institution

      Current: Based on 8 CFR 204.6(e) and USCIS?May 30, 2013 EB-5 Policy Memorandum, investors have the option of depositing cash, equipment, property, or indebtedness (a promissory note) as capital; the regulation only requires an investor who uses indebtedness as capital to secure the capital on assets owned by the investor.

      Prior to December 2014, USCIS was routinely approving cases wherein the investor obtained a home equity loan using a third party抯 property as collateral. In most cases, the third party was the investor抯 minor child. Beginning in 2014, with no statutory or regulatory authority and no prior notice to stakeholders of a change in policy, USCIS began denying such cases. As the basis for the denials, USCIS argued that such loans were not appropriate for EB-5 investment under the regulations as 8 CFR 204.6(e) required indebtedness to be secured by assets owned by the alien entrepreneur.

      Categorization of capital in such an instance as 搃ndebtedness?is incorrect. The investor is not investing indebtedness as capital as there is no debt arrangement between the investor and the NCE; that is, no promissory note exists between them. Instead, the investor obtains a home-equity loan, secured by lawfully obtained and owned assets, and then uses the cash proceeds from the loan as the EB-5 investment. Thus, under 8 CFR 204.6(e) the investor is investing 揷ash?as capital; the regulations do not require the underlying home-equity loan to be secured by any personal assets.

      Proposed Changes: Under the proposed legislation, 揫c]apital that is derived from indebtedness can only be counted toward the minimum capital investment requirement only if such capital is (i) secured by assets owned by the investor.?Additionally, the lender must be either a 搑eputable?bank or licensed lending institution.

      First, it appears that the legislation is allowing for a scenario wherein USCIS has the power to determine the reputability of a bank after I-526 filing, when the investor has already obtained the loan and invested the capital.

      Additionally, if this legislation passes, it appears that investors would no longer be able to use a company equity loan as the source of their funds unless the company issuing the loan happens to be a licensed lending institution.

      Finally, if passed, the new law may provide USCIS with statutory authority to deny cases where the investor uses loan proceeds from a home equity loan using a third party抯 property as collateral.

    4. Changes to Investment Amount

      Current: Investment amount is 1 million or $500,000 in a TEA.

      Proposed: Investment amount is 1.2 million or $800,000 in a TEA. Investment amounts are subject to increase every 5 years (starting January 1, 2020) by the amount of the cumulative percentage change (CPU). 

    5. This post originally appeared on EB-5 Resource Center. Reprinted with permission.


      About The Author


      Anu Nair

      Anusree Nair (Anu), an Associate in the Firm's Philadelphia office, is head of the Investor Division of the firm's EB-5 Practice, which includes the preparation and filing of I-526 Petitions, consular processing and adjustment of status applications, and I-829 Petitions. As head of the Investor Division, Anu is responsible for the preparation and filing of all I-526 petitions, both through the regional center investments and individual investment opportunities. She has extensive experience working with investors to document complex source and path of funds; Anu's command of source and path of funds issues has been recognized within the field and she is called on frequently to review I-526 petitions prepared by other firms engaged in EB-5 practice to ensure their own compliance with the extremely rigorous USCIS Standards. She has successfully represented clients at their visa interviews at U.S. Consulates overseas or with the Citizenship and Immigration Services in the United States.


      The opinions expressed in this article do not necessarily reflect the opinion of ILW.COM.

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