In our experience, about 1/3 of the investors in the EB-5 program do so as the result of a gift. A parent, an uncle, a civil marriage spouse gives a loved one the $500,000 needed for participation in the program. Some countries’ laws, such as Russia’s, make this a favorable endeavor as they do not tax the cash gift between immediate relatives or other individuals.
The motivations are obvious: they understand that the United States may offer a better future, education, career, or lifestyle than their home countries. A typical situation is a wealthy, middle-aged or older entrepreneur who gives a gift to an adult child, so that he/she and family may obtain green cards, so that future grandchildren born in the US will be automatically granted US citizenship. The entrepreneur may not have an interest in re-locating to the US – he lives well in his home country and has a successful business. He will only visit periodically. He may understand that if his adult child obtains US citizenship, the adult child may petition for a green card later on if he so desires.
In pursuing an EB-5 green card through a gift, it must be kept in mind that the requirement for confirmation of the lawful source of funds applies to the donor. It is up to the investor to present documentation from the donor showing that the funds were lawfully earned. This may be bothersome and burdensome to the donor, but necessary. If this were not the case, then donors with illicit funds would be able to launder their money through the EB-5 program by donating to family members and relatives.
In addition, when making a gift, it is imperative to either show that taxes were paid on the gift, or if not, the legal basis for not paying taxes. This can take the form of a Legal Opinion or excerpts from the appropriate tax laws.
By permitting gifts to serve as the source of an investment in the EB-5 program, the US government is opening up the program to thousands of individuals who may not otherwise qualify. It also gives the US a competitive advantage over other programs, such as Canada’s, which requires immigrant investors to have a larger net worth (C$1.6 million) and to have management experience. The green card is the gift that keeps on giving, but the donor must understand up front that in order for his loved one to obtain the green card, he will be scrutinized. For most, the scrutiny is worth it.