When does the EB-5 investment need to be made?

The EB-5 Immigrant Investor Visa requires a substantial investment into the EB-5 business, which must directly lead to the creation of at least ten jobs for U.S. workers. For more information on this and the other EB-5 visa requirements, see here. Given the significant investment amount required for the EB-5 visa, applicants often ask when the investment must be completed. The answer to this question very much depends on when the EB-5 application was submitted.

In order to answer this question, it is essential to first look at the date the Form I-526 was filed, since the rules changed for all applications filed on or after March 15, 2022 (the date on which President Biden signed the EB-5 Reform and Integrity Act). We will first consider applications filed before March 15, 2022; then, we will consider applications filed on or after March 15, 2022.

It is still helpful to consider the rules that apply to application filed before March 15, 2022, since the government has made clear that USCIS will adjudicate applications that were filed before the new law using the rules and requirements that applied before the new law was passed. In other words, the new requirements under the EB-5 Reform and Integrity Act do not retroactively apply to applications that were filed before that law was passed.

For EB-5 applications filed before March 15, 2022, it was possible to make the EB-5 investment after the date the EB-5 application was submitted. 8 CFR 204.6(j)(2), as it was written before March 15, 2022, required the EB-5 applicant to show that he or she either “has invested” or “is actively in the process of investing the required amount of capital” at the time the Form I-526 is submitted.

To understand when the required EB-5 investment needed to be made in applications filed before March 15, 2022, it is important to understand that the EB-5 application has several steps.

First, filing the Form I-526 starts the process. The second step in the process is to apply for the immigrant visa or green card, which is done by filing the Form I-485 (if inside the United States), or the DS-260 (if applying at a consulate). The applicant receives conditional lawful permanent resident status once either is approved. After two years of conditional LPR status, the applicant submits a Form I-829, which, once approved, grants the applicant unconditional permanent resident status.

This process can take an extensive amount of time. The government estimates that it takes five years for USCIS to process the I-526 – which is just the first step in the process. It can also take several years for USCIS to process the I-829 to remove the conditions on LPR status. In the face of these extensive delays, our firm has helped a number of clients expedite their cases by filing lawsuits against the government. To learn more about this option, see our prior post on mandamus lawsuits here.

For EB-5 applications filed before March 15, 2022, there were several key requirements that applied to an applicant who planned to make the full investment amount after filing the EB-5 application. The applicant needed to show that they made a real, legally binding promise to commit the required funds to the EB-5 business, and that the applicant’s personal assets secured the financial commitment. If the applicant were to fail to provide the promised funds to the business, the business must be able to seize the applicant’s assets.

To satisfy these requirements, an instrument like a promissory note or an escrow agreement could be used.

If the applicant applied before March 15, 2022, and made a binding promise to commit funds to the business through a promissory note, the government requires that the full amount of the required investment must be made before the two year conditional residency period ends. USCIS has suggested that the promissory note must be payable no later than two years from the date the I-526 is submitted.

There are a number of requirements that must be met in order for USCIS to accept a promissory note. First, as mentioned already, the EB-5 application must have been filed before March 15, 2022. In the initial application, the applicant must show that they personally have a legitimate, legally binding obligation requiring them to pay the amount promised. They must have primary responsibility to pay the note. The applicant must also submit evidence proving that they have the ability to pay the business the amount promised, and that their assets adequately secure the promissory note. The assets that secure the promissory note must be owned by the applicant and cannot include assets of the EB-5 business. The applicant must prove that the security interest has been perfected, and that the assets can actually be seized by the business. Also, the government will only count the value of indebtedness to the business up to the fair market value of the applicant’s assets that secure the debt. In other words, if the applicant promises to transfer $1 million to the business, but the assets that secure that debt only have a fair market value of $500,000, the government will only consider the value of the debt to be $500,000.

If the applicant is using an escrow agreement, the funds must be immediately and irrevocably released once the applicant is granted conditional resident status. The escrow agreement can only be contingent on the applicant entering the US as a conditional permanent resident or being granted an adjustment of status, both of which would occur after the I-526 is approved. If there are any other contingencies in the escrow agreement, the funds in escrow will not be considered toward the required investment amount.

At the time the I-526 is filed, the applicant must provide the fully executed escrow agreements. They also need to show that the escrow agent actually received the amount of capital that will be released once conditional permanent residence status is granted.

When USCIS adjudicates the Form I829 – the application to remove conditions from the applicant’s permanent resident status – USCIS will require evidence showing that the funds that were held in escrow were released and held in the EB-5 business.

It is generally recommended that the escrowed funds be held in the United States in order to avoid fluctuations in currency. Those fluctuations could bring the amount held in escrow below the required investment amount.

To better understand the risks and pitfalls of delaying the EB-5 investment under the rules that apply to applications filed before March 15, 2022, two cases are informative: Matter of Hsiung and Matter of Izummi.

In Matter of Hsiung, an EB-5 applicant promised to pay the EB-5 business $500,000. He planned to pay this amount over an extended period. He would pay the business $50,000 initially, then pay $50,000 after the EB-5 visa was approved, $200,000 one year after he entered the United States on the EB-5 visa, and a final $200,000 before the application to remove the conditions on his permanent resident status was approved.

The government denied Hsiung’s application, citing a number of concerns. First, the government found that he did not adequately specify what assets secured the promissory note. He also did not prove that he actually owned the assets.

The government also took issue with the fact that the assets were located outside the United States. The government doubted that the EB-5 business would be able to seize the assets held abroad if the applicant failed to pay the promissory note. Even if the business could seize the assets, the government determined that this would be expensive to do, so the full value of the assets should not be counted.

Finally, the government said that the value of a promissory note depends on its present value. Since a dollar received tomorrow is worth less than a dollar received today, the value of a promissory note – which is paid in the future – must be discounted. Ultimately, the government concluded that Hsiung had not provided sufficient evidence of the present value of his promissory note.

The applicant in Matter of Izummi faced similar scrutiny on his promissory note. In spite of this, the decision in Matter of Izummi, like in Matter of Hsiung, did acknowledge that a promissory note can count as capital toward the EB-5 investment.

The EB-5 Reform and Integrity Act that was signed into law on March 15, 2022, fundamentally changed when the EB-5 investment must be completed. That law and the regulations that followed removed the language at 8 CFR 204.6(j)(2) allowing the applicant to show that they were “actively in the process of investing the required amount of capital” at the time the Form I-526 is submitted. Now, the applicant must show that he or she “has invested” the required amount.

The new law explicitly changed the definition of “capital” to exclude money invested in exchange for a debt arrangement between the applicant and the EB-5 company. This means that promissory notes can no longer be used to satisfy the EB-5 investment amount as of March 15, 2022.

Escrow agreements are still permitted under the new law. The requirements for an escrow agreement that were shared before still apply. Namely, the escrowed funds must be immediately and irrevocably released once the applicant is granted conditional resident status, and it is recommended that the escrowed funds be held in the United States. The escrow agreement can only be contingent on the applicant entering the US as a conditional permanent resident or being granted an adjustment of status. The applicant must provide with the I-526 the fully executed escrow agreements and must show that the escrow agent actually received the amount of capital that will be released once conditional permanent residence status is granted. When USCIS adjudicates the Form I829 – the application to remove conditions from the applicant’s permanent resident status – USCIS will require evidence showing that the funds that were held in escrow were released and held in the EB-5 business.

As the decisions in Matter of Hsiung and Matter of Izummi show, the use of promissory notes and other debt arrangements between the EB-5 applicant and the EB-5 business have always been fraught with risk. In light of the EB-5 Reform and Integrity Act passed on March 15, 2022, the government has now made it explicit that such debt arrangements will no longer be accepted for applications submitted on or after March 15, 2022.

For applications filed before March 15, 2022, it is best to reduce, to the extent possible, any doubt that the government might have as to whether the applicant’s investment will actually lead to the creation of jobs. Since job creation is fundamental to the EB-5 program, a delayed investment could cast doubt on the applicant’s (and the business’s) ability to satisfy this requirement, which could lead to a denial. Rather than delaying the investment, if at all possible, clearly and unconditionally commit the required funds to the EB-5 business. By ensuring that the investment requirement is satisfied before the I-526 is submitted, the applicant reduces the odds that they will receive a decision or RFE years into the application process stating that the government does not accept the escrow agreement or the terms of the promissory note.