Using Gifted or Loaned Funds for EB-5: What’s Allowed and What’s Not

The EB-5 Immigrant Investor Program requires that all capital invested in a new commercial enterprise (NCE) must come from a lawful source of funds. When investors utilize gifted or loaned capital, strict USCIS regulations must be met to ensure compliance and prevent allegations of fraud or misrepresentation.

Understanding Lawful Sources of Funds

USCIS mandates that the source of the investment funds must be clearly documented and legally obtained. This applies equally to funds the investor earned, saved, or received from others.

Gifted Funds in EB-5 Investments

Gifts are permissible, provided the donor has a lawful source for those funds, and the transaction is structured correctly. The key distinction is that the gift must be an irrevocable transfer.

• Irrevocable Transfer: The donor cannot retain any control or interest in the gifted funds after the transfer to the investor.
• Documentation Required: The investor must provide evidence of the gift (e.g., a signed gift letter) and documentation tracing the donor's funds back to their lawful source.
• Tax Implications: While USCIS focuses on the source, investors must also consider potential gift tax implications in their home country or the US, though these are separate from immigration requirements.

Tracing the Donor's Source

It is insufficient simply to show a gift was made. USCIS requires a paper trail demonstrating the donor's funds originated from a verifiable, lawful source, such as:

1. Wages and salaries (tax returns, employment verification).
2. Profits from a legitimate business (business financials, tax records).
3. Sale of assets (proof of sale and ownership).

Loaned Funds in EB-5 Investments

Loans are generally allowed, but they introduce significant complexity because the investor must demonstrate that they, not the lender, are the true source of the investment capital at the time of filing Form I-526/I-526E.

For a loan to be acceptable, it must meet the following criteria:

The loan must be fully secured by the investor's personal assets, and the investor must be personally liable for repayment. A loan secured only by the EB-5 investment itself is typically viewed as an invalid source of funds.

Requirements for Acceptable Loans

The following documentation proves the loan is a legitimate source of funds:

• A formal, written loan agreement detailing repayment terms.
• Evidence that the investor is personally liable for the debt.
• Documentation showing the lender's source of funds (if the lender is a third party).
• Evidence that the investor has sufficient assets to secure the loan, independent of the EB-5 project.

What is Strictly Prohibited?

Certain arrangements are explicitly disallowed by USCIS because they imply the investor does not truly control the capital or that the source is questionable.

Prohibited Sources Include:

• Unsecured or Contingent Loans: Loans where the investor has no personal liability or where repayment is contingent upon the success of the EB-5 project.
• Funds Held in Escrow by the Project: Funds transferred directly from a third party to the NCE, bypassing the investor's control, are often scrutinized.
• Funds with Retained Interest: Any scenario where the donor or lender retains a beneficial interest or right to reclaim the funds is invalid.

The Importance of "Comingled" Funds

When an investor uses a combination of personal savings and gifted/loaned funds, the investor must clearly delineate which portion of the investment comes from which source. USCIS scrutinizes the entire investment amount; therefore, every dollar must be traceable to a lawful origin.

For example, if an investor invests $1,050,000, and $500,000 was a gift, both the $550,000 personal portion and the $500,000 gifted portion must be fully documented.

Conclusion

Utilizing gifted or loaned funds for the EB-5 investment is possible, but it demands meticulous documentation. Investors must prove that the funds were irrevocably transferred (in the case of gifts) or properly secured by personal assets (in the case of loans), and that the original source of the money—whether the investor's or the donor/lender's—is entirely lawful. Failure to provide this comprehensive paper trail is a primary reason for Requests for Evidence (RFEs) or denials.