Using Gifted Funds for an E-2 Investment

9 FAM 402.9-6(B) expressly lists gifts among the possible sources of E-2 investment capital.

The gift should be genuine rather than a temporary transfer that another person expects to recover.

Current 9 FAM 402.9 expressly recognizes gifts as a potential legitimate source of E-2 investment capital when the investor obtains possession and control of the funds. A genuine gift can therefore provide the money later committed to the enterprise, but the gift itself does not satisfy the separate requirements of commercial risk, substantiality, and commitment. The transaction should be real rather than a temporary transfer expected to be returned to the donor. The filing should identify the donor, recipient, amount, date, and nature of the gift and then trace the gifted capital into the qualifying E-2 investment.

A gift letter or agreement can identify the donor, recipient, amount, date, and nature of the transfer.

Bank evidence should show the money moving from the donor to the investor or, where appropriate, directly into the investment on the investor's behalf.

The evidence should establish that ownership of the gifted funds or assets actually passed to the investor. A gift declaration or agreement can identify the donor, recipient, amount, date, and whether repayment is expected. Bank records can show the corresponding debit and credit, or a direct payment to escrow, a seller, or the enterprise on the investor's behalf. If the donor transferred an asset instead of cash, ownership and any later sale should be documented. The transaction should be consistent with a genuine gift rather than a disguised loan, temporary accommodation, or arrangement in which the donor continues to control the funds.

The FAM permits officers to request whatever documentation is needed to assess source.

Where a large gift appears inconsistent with the donor's circumstances or the transaction is unusual, evidence concerning the legitimate availability of the funds may become important.

Because the E-2 record must establish a legitimate source of capital, the donor's circumstances may matter when the gift is large or unusual. Current FAM guidance allows officers to request documentation needed to assess the source of funds. Depending on the facts, relevant evidence may include the donor's bank records, employment or business income, asset-sale documentation, tax records, or other proof showing how the donor acquired the capital. The scope should be proportionate to the issue. A routine family gift supported by a credible financial history may require less explanation than a transfer that appears inconsistent with the donor's known resources.

A donor should not retain undisclosed control over capital that is presented as the investor's own committed funds.

The post-gift record should show that the investor can legally commit the capital to the enterprise.

After the gift, the investor should have genuine possession and control over the capital. The donor should not retain undisclosed authority to reclaim or direct money that is presented as the investor's own funds. Bank records, the gift instrument, and the later investment documents should show that the investor could legally commit the money to the enterprise. A direct payment by the donor to escrow or a seller may still be documented as a gift when the surrounding records establish that the transfer was made for the investor and that the investor received the economic benefit and control necessary for the E-2 transaction.

The financial record should connect the gift to the later purchase, escrow deposit, startup expenditure, or business contribution.

Gifted capital should remain traceable from the donor through the investor, escrow, seller, vendor, or enterprise as appropriate. The record can connect the gift declaration with bank transfers, exchange records, escrow statements, purchase payments, startup expenditures, or business contributions. If the funds passed through several accounts or were converted between currencies, the filing should explain the material steps. The source analysis ends only after the record shows what happened to the gifted capital. Proof that the investor received a legitimate gift does not by itself establish that the same money was later placed at commercial risk in the E-2 enterprise.

• Gift declaration or agreement
• Donor identification
• Donor bank evidence
• Transfer records
• Investor bank evidence
• Source documentation where needed
• Investment or escrow records

A practical gift exhibit set may include the gift declaration, donor identification, donor bank evidence, proof of the donor's legitimate source where needed, transfer records, the investor's account statements, currency-exchange evidence, and the documents showing later commitment to the enterprise. The amount of donor-side evidence should depend on the size and circumstances of the transaction. A concise chronology can identify when the donor acquired the funds, when the gift occurred, when the investor obtained control, and how the capital entered the business. Consistent dates and amounts help distinguish a genuine gift from an unexplained third-party transfer.