Three Costly EB-5 Errors Without Fund Administration

2025 was a clarifying year across the EB-5 ecosystem. Across the industry, recurring operational and compliance patterns continued to surface as more projects advanced through their EB-5 lifecycle. While these problems are not new, they do reinforce how frequently they surface and how costly they can be when left unchecked. As we look toward 2026, the lessons are straightforward: stakeholders who implement disciplined EB-5 fund administration and internal fund controls early avoid the mistakes that later create regulatory, tax, and immigration risk.

That perspective matters because the operational backdrop hasn’t gotten any easier. Maintaining compliance in EB-5 has never been more challenging. Between the Reform & Integrity Act (RIA) and USCIS heightened audits and site visits, weak processes for money movement and reporting aren't merely "ops headaches." They pose immigration risk to investors and genuine regulatory risk to stakeholders. USCIS now audits Regional Centers at least every five years and reviews the investor capital flow into projects, with site visits and document pulls to boot.

Below are three avoidable mistakes that consistently arise in EB-5 structures where professional fund administration is absent.

1) Blending investor capital with operating cash

What 2025 reinforced:

Even experienced EB-5 stakeholders opting for audits over fund administration faced challenges maintaining properly segregated capital accounts across projects. This remains one of the most common operational breakdowns observed across both new and mature EB-5 structures.

What goes wrong: Instead of keeping each EB-5 investor’s capital in a true segregated principal capital account, NCEs often let other cash slip into that account; typically operating cash, interest, or profit allocations that should never touch principal. Once those non-principal dollars hit the EB-5 capital account, if there is a remaining capital balance in the principal capital account, the other cash becomes commingled with the EB-5 principal dollars, which is not allowed under the law. If the error isn't spotted immediately, the NCE may unknowingly transfer a mixture of EB-5 principal and non-principal cash out of the NCE account, compromising the RIA's segregated account requirement, and potentially causing irreparable harm to investor's I-829 petitions.

Why it matters in EB-5: By law (section Q), EB-5 capital must be contained in a separate account and it can only move to three places: back to the investor, down to the JCE, or into another NCE separate account (i.e. another account that only holds EB-5 principal cash). When operating cash or earnings are mistakenly routed into the same account it may be impossible to correct after the fact.

What a Fund Administrator does: It sets up segregated bank arrangements (NCE operating vs. subscription/escrow vs. project disbursement), dual-approves funds, and records each release in accordance with the USCIS-approved use-of-funds schedule in the NCE’s offering documents, which builds an audit-ready ledger that tracks each dollar back to the project budget line item it funded. (Read our recent article on proactive fund administration vs. annual after-the-fact audits for a deeper comparison.) 

Key takeaway: If ever you need to explain if an investor’s funds were spent on "verifiable job creating expenses," you need an immaculate, unbroken flow-of-funds chain from investor wire → NCE → JCE. A summary bank statement with fungible balances simply isn’t enough.

2) No professional review of “what the money is being used for” — especially in bridge scenarios

What 2025 reinforced:

Across the EB-5 market, projects without proper fund administration continued to struggle with aligning disbursement documentation to actual use-of-funds requirements, particularly where bridge financing was involved. The core issue was often a lack of clarity around the use of funds: What is the money being used for? What is it actually paying? Is it covering a bill that’s currently due, or reimbursing a person or entity that paid the bill earlier?

Evidence that bills have already been paid (often framed as proof that “construction is moving”) does not, on its own, justify an EB-5 draw unless the underlying bridge financing arrangements are clearly documented and compliant.

What goes wrong: The disbursements are approved on “construction is advancing” instead of specific, documented eligibility (“this Pay Application is due, payable, within budget, and tied to job creation”). In bridge financing, the issue is even more pronounced. Transactions may occur months before EB-5 closing, and without contemporaneous eligibility testing, it becomes easy to slip into non-qualifying expenditures.

Why it matters in EB-5: USCIS doesn’t prohibit using EB-5 funds to replace short-term bridge financing. What they do care about is how that EB-5 capital ties to job creation. The real questions are whether the bridge was truly short term and whether the spending lines up with the approved project plan. It’s not enough that the expenses merely existed at some point.

When documentation isn’t tight, the consequences often surface later  (during I-829 adjudication or an audit) when fixes are no longer possible. These risks are largely preventable with proper structuring and ongoing fund oversight.

RIA realities: USCIS audits now look explicitly at the flow of capital and supporting financial documentation; findings can inform ongoing eligibility and compliance assessments. If your records can’t show the discretionary review behind releases (especially retroactive ones) you’re at risk.

What a Fund Administrator does: A fund administrator reviews each disbursement before funds move, confirms invoices align with the USCIS-approved use-of-funds, flags non-qualifying expenses, and documents each release against the vetted project plan. This ensures bridge-related expenditures are clearly categorized and defensible, rather than left to retrospective cleanup after mistakes are made and irreparable harm to investors occurs.

A common concern is whether this level of review slows projects down. In practice, it does not.

Modern Fund Administration platforms like PRXY’s automate most of the review and documentation work, so you still get fast, smooth draw approvals without the usual back-and-forth. You get stronger compliance without extra friction, which is exactly how it should be.

Key takeaway: In EB-5, “we spent it on the project” doesn’t cut it; you need professional, documented discretion showing each payment must be counted.

3) Missing or mishandled tax withholding and waterfall mechanics

What 2025 reinforced:

Tax operations are one of the areas EB-5 stakeholders underestimate most. Too often, tax treatment, withholding and waterfall mechanics get deferred until year-end, or years later, raising regulatory risk and frustrating investors in the process. These are very expensive mistakes that compound if not addressed in real time and may ultimately erode the investment returns of investors. 

What goes wrong: Newer EB-5 operators often underestimate tax operations. This includes tax elections made at the formation of the NCE such as 1446(a)/(f) withholding on ECI to foreign partners, partner documentation, Forms 8804/8805, state overlays, and how these obligations interact with the NCE’s waterfall. When a step is missed, the result is either under-withholding that creates regulatory exposure or over-withholding that frustrates LPs by creating unnecessary above the line expense at the NCE level. These mistakes then cascade into having to file late K-1s and corrected statements, which are costly and erode profits.

Why it matters in EB-5: Foreign partners' partnerships must withhold on effectively connected allocable taxable income under IRC §1446; they must provide Forms 8805 so foreign partners can claim the credit. These are not voluntary, and waterfall math must estimate them in real-time.

What a Fund Administrator does: Tracks partner tax status and withholding certificates, makes period-end ECI estimates, reserves and remits withholding, and books distributions exactly per PPM waterfall (fees, reserves, preferred return, catch-up, profit split) so you don’t “fix” a year of distributions in Q4.

Key takeaway: Waterfalls only work if the books and tax calendar run on rails. In EB-5, that means real-time withholding and reconciliations, not a year-end scramble.

Other traps with which stakeholders who avoid professional fund administration are likely to struggle

• Conduct readiness gaps. The RIA requires periodic Regional Center audits. USCIS also conducts site visits. If your document room can’t produce bank-to-invoice tracing, job creation support, and investor-level ledgers quickly, the process drags, and findings can affect continued eligibility.
  
  
• Investor-level traceability. Without a proper sub-ledger, tying each investor’s capital, distributions, and redeployments to cash flows is manual, and risky at sustainment/I-829 review. (USCIS Policy Manual updates since 2024 reinforce program-integrity scrutiny across NCEs and JCEs.)
  
  
• Redeployment controls. Monitoring redeployment policy, approvals, and new cash flows before proceeds return before investors finish sustainment is important; ad-hoc processes create "at risk" and disclosure issues.
  
  
• Weak bank controls. Single-signer releases and failure to have dual approval are warning signs in an audit that examines internal controls as well as transactions. 

How PRXY fund administration prevents these mistakes

• Segregated accounts & dual approvals to prevent co-mingling and maintain clean flow-of-funds evidence.
  
  
• Pre-disbursement review aligned to the USCIS-approved budget and timeline, which is critical in bridge-finance cleanups. 
  
  
• Waterfall-accurate books & tax ops (1446 tracking, 8804/8805, K-1 cadence) so withholding and distributions are right the first time.
  
  
• Audit/site-visit readiness with investor-level ledgers, source docs, and job-creation support at your fingertips.
  
  

Bottom line

2025 underscored a clear industry divide: stakeholders who treated fund administration as a core compliance control were better positioned for audits, investor confidence, and operational predictability.

RIA compliance rewards stakeholders who treat Fund Administration as a control layer, not as a cost center. If you’re finding problems through annual audits, you’re finding them too late (and at far too great an expense). A proactive Fund Administrator isolates capital, releases defendable, and tax/waterfall calculations correctly, so you can pass audits, maintain investors, and remain laser-focused on building.

As we head into 2026, the message is simple: these patterns are preventable, and the earlier robust control systems are implemented, the more durable EB-5 projects and investor outcomes become.

(Photo by Vitaly Gariev on Unsplash)

Frequently Asked Questions (FAQ)

Q: Can’t our project accountant or auditor handle these fund flow and compliance tasks?
A: Accountants and auditors play critical roles, but their mandate is different. An auditor checks past records selectively, while a project accountant tracks books for GAAP or tax. Fund Administration in EB-5 requires proactive, real-time oversight of investor capital segregation, USCIS-aligned disbursements, withholding, and waterfall compliance. It’s not a retroactive clean-up, but rather a control layer that prevents mistakes before they occur. 

A competent EB-5 fund administrator provides a comprehensive audit of your uses of funds in real-time and which allows for issues to be resolved before mistakes happen, often with irreparable consequences. 

Q: How often does USCIS really look at fund flow?
A: Every year through the filing of the Form I-956G, Regional Centers must report on how much EB-5 capital was deployed into their sponsored projects and the processes and procedures undertaken to ensure that EB-5 capital was used correctly. Furthermore, under the Reform & Integrity Act, USCIS now audits Regional Centers at least once every five years and has increased the frequency of site visits and document pulls. 

These reviews focus on whether immigrant investor capital was used exactly as represented. Weak documentation or mingled accounts raise red flags, and those findings can directly affect project approvals and investor petitions. Finally, at the investors’ I-829 stage, the investor must adequately demonstrate via Project expenditure documentation how their EB-5 capital was deployed into the project and created the requisite number of jobs. 

Rather than having to cull through a dump truck load of project expenditure documents spanning several years, or even a decade, a good fund administrator will account for these documents throughout the project lifecycle and will organize the documents in a comprehensive repository for I-829 compliance purposes. 

Q: If our investors are happy, does compliance still matter?
A: Yes. Even if investors trust you, USCIS requires independent verification. A Regional Center that fails an audit or produces incomplete records risks jeopardizing investor I-829 approvals and the Regional Center’s ongoing designation. Compliance isn’t optional; it protects both stakeholders and investors.

Q: Is Fund Administration just an added cost?
A: Think of Fund Administration as preventive medicine to an audit’s open-heart surgery.  It is insurance against expensive downstream problems. Fixing errors during an I-829 review, reissuing K-1s, or scrambling during an audit can cost far more than upfront administration. Proactive administration reduces risk, keeps investors informed, and preserves sponsor credibility.

Q: What happens if we already have bridge financing or complex waterfalls in place?
A: That’s precisely when Fund Administration matters most. Bridge scenarios, redeployments, and layered waterfalls are where USCIS scrutiny is highest and sponsor errors are most common. A Fund Administrator documents eligibility testing for each disbursement, ensures redeployment flows meet “at risk” requirements, and books tax/waterfall mechanics correctly from the outset.

Q: When should we engage a Fund Administrator?
A: Ideally, before the first investor dollar is wired. Setting up segregated accounts, dual approvals, and reporting protocols early avoids costly retroactive fixes. That said, even midstream projects can benefit from professional administration as it demonstrates corrective action and prepares the sponsor for upcoming audits.

Author

Sam Newbold is the Chief Strategy Officer and Co-Founder of PRXY. A lawyer of 15+ years, Sam brings extensive experience in the area of EB-5 investment. His collaborative work with corporate, securities, lending, real estate, bankruptcy and litigation attorneys helped build the foundation of PRXY’s intuitive Fund Administration platform. 

Sam serves on the EB5 National Committee for the America Immigration Lawyers Association where he regularly interacts with the leading immigration lawyers in the United States on all matters impacting the EB5 Program.

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