What Exactly Defines The EB-5 Source Of Funds?

Let me take you through two examples regarding the source of funds. There are two main ways people demonstrate where they got money to invest $900,000, which is not just $900,000, because every regional center has an add-on of between $40,000 to $60,000 for administrative and acquisition fees. These fees primarily go to pay a finder, an agent overseas who sources the investors and towards expenses that the regional center had for setting up their program.

The first example that I usually hear is when the client tells me they are selling a piece of property, or their parents were selling a piece of property and the money from that sale would be transferred to the U.S to invest in whatever investment they chose. The first question I would ask is how long the individual had owned a property, because the general rule would be to show 5 years of tax returns assuming there were tax returns. It would be a separate issue if there were no tax returns, but assuming there were tax returns, the person would have to show when they bought the property and from where they got the money to buy it, so they would have to trace it back. Generally speaking, if the person owned the property for only 5 years, then they would have to trace back to where they got the money from to buy that property.

If they sold a piece of property 5 years ago to buy the property they were currently selling, and they had owned that for only 5 years, then they would have to show from where they got the money to buy the previous property. It can be very burdensome and difficult if the individual had only owned property for a short period of time. The definition of a short period of time from an immigration perspective has moved from 5 years to 10 years to sometimes 15 years. So, if the individual had property that had been in the family for 20 years, then they would have to show that they had money over the years, although they may not have to show from where they got the money 20 years ago to buy the property. We would be looking for someone who had owned property for a long time if possible.

The second way would be based on savings. The person would have to show that they had income over the period of years on earnings that they had paid taxes on. They would need to be able to show how long it took them to save that $550,000 including the administrative fee. If the person had saved a lot of money over the 5 years, they would have to show it for 5 years. There are a lot of countries where people do not have to pay taxes on what they earn or they would just pay taxes on a very small percentage of income. So in those cases, we would not be able to show that the person saved $900,000 if they only paid taxes on $40,000 yearly of income for 10 years. This is where we would need other options and other ways of doing it. We would need to see whether there were other people who could gift the person the money or loan the person the money because those two options would work as well.

Even on gifted money and borrowed money, the person would still have to show source of funds from the parent or whoever gifted the money or whoever was loaning the money, so there would be the same issues as there would be for the principal as for the person who was gifting or the person who had loaned the money.

How Is Legal Source Defined?

Legal source primarily means the person had paid taxes on the income they were using for the investment. We have had people from China, for example, where if they had not paid taxes, they could pay back taxes, and justify it that way. Otherwise, they would have to find another way of proving source of funds. Another way would be if the person sold the piece of property, but did not have the documentation that the sale was done legally with the right stamps on the value of the property, because some people have cash transactions separate as an adjunct to an official transaction. Let us consider an example, if the official transaction for the sale of a house was for $200,000, meaning that was what the paperwork showed, but in reality, the sale was for over $400,000 because the person got $200,000 cash. Then they would not be able to use the $400,000 sale price. They would only be able to use $200,000 for which taxes had been paid. These are the two examples where everything would have to be done legally and be documented.

What Is The Process To Prove Funds Are From A Legal Source?

There have been a number of cases that we thought were going to be very straight forward. In case there was a sale of property and the person owned it for 5 years, they would have to show where the money came from to buy the property 5 years ago. If the money had come from savings, then they would have to show how they had made that money and paid taxes on it 5, 6, 7, 8 years ago in order to get the money to buy that property 5 years ago. If they were able to buy the current property because of the sale of another piece of property, then they would have to trace it back to there.

With regards to savings, let us assume someone saved money and had actually earned enough money over 8 years to save $550,000 or more. This money initially went into the person’s savings account, but then it did not stay there and it was used to buy stocks, to buy properties or to buy other things. It would be good if there was a stock portfolio, because there would generally be a broker and the person would be able to document what happened with their stock portfolio for X number of years through their broker. If the person used some of that money to buy another piece of property and then sold it, then in that case they would have to trace that sideways, meaning from the savings account to the property, regarding what happened to it and then document it back.

When we do get cases like that, we see if there are other easier ways of documenting the source of funds that would require less documentation and that would be more straightforward.

For more information on EB-5 Source Of Funds, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (310) 477-3000 today.