Feature
Article
Angel
Investor Tax Credit
By
Jeff Weinkle and Mitchell
Kopelman
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HA&W News Archive
Georgia
House Bill 1069 was signed into law by Governor Perdue in
June of 2010. Section Two of this bill is known as the "Angel
Investor Tax Credit" and provides for a Georgia tax
credit of up to $50,000 annually for investors of early-stage,
start-up companies in Georgia.
Access
to early-stage growth in young companies is often difficult
to obtain and the purpose of this tax credit is to encourage
direct investment from individuals into start-up companies
in Georgia. The bill aims to expand the economy of Georgia
by enlarging its base of wealth-creating businesses, thus
increasing the number of quality and high-paying jobs. Additionally,
it aims to attract qualified individuals to move to and
work within Georgia, retain talented individuals educated
in Georgia's university systems, and to support businesses
seeking to commercialize technology invented and developed
in Georgia's universities.
The
Credit
The
credit equals 35 percent of the amount invested in the start-up
company and is available for investments made in 2011, 2012,
and 2013. This credit can be used beginning with the second
year following the year the investment is made.
The
aggregate amount of credit allowed against taxable income
for any number of qualified investments is $50,000 at the
individual level annually. If the taxpayer does not use
the entire credit in any one year, it may be carried forward
five years from the close of the year the investment was
made. The annual maximum tax credit of $50,000 can be obtained
by investing $142,857 into one or more eligible businesses
per year. At this level, the credit will offset $833,333
in Georgia taxable income.
Angel
Credit Recap: |
Investor
Limit per Year |
Georgia
Total per Year |
Georgia
Total for 3 Years |
| Maximum
investment |
$
142,857 |
$
28,571,429 |
$
85,714,286 |
| Maximum
credit usage |
$
50,000 |
$
10,000,000 |
$
30,000,000 |
| Income
to offset with credit* |
$
833,333 |
$
166,666,667 |
$
500,000,000 |
*Based
on the 6% current income tax rate for individuals in Georgia
Qualifying
Investors
Angel
investors eligible for the credit must be accredited investors
as defined by the SEC. This is limited to individuals who
are obligated to pay Georgia income taxes or pass-through
investment entities and manage $5 million or less in capital.
Venture capital funds, hedge funds, and commodity funds
with institutional investors do not qualify.
Investments
in the companies that qualify for the credit must be paid
for in cash by a qualified investor to a qualified business
in exchange for stock, an equity interest, or Qualified
Subordinated Debt (with a maturity of less than 5 years)
and cannot have been raised as a result of another tax incentive
program. Further, no commissions or other remuneration may
be paid directly or indirectly for solicitation of the investment.
Qualifying
Businesses
In
order for a business to qualify as an eligible investment
under the credit, the business must register with the tax
commissioner using Form
IT-QBR (PDF File) prior to receiving the investment
capital. Upon approval, the business is considered eligible
for investment for the credit for 12 months. To qualify,
a business:
-
Must be a corporation, LLC, or partnership located in
Georgia;
-
Must be organized no more than 3 years before the investment
is made;
-
Cannot be engaged substantially in retail sales, real
estate and construction, professional services, gambling,
natural resource extraction, investment activities and
insurance, or activities where admission or membership
is charged;
-
Must have its headquarters located in GA from the time
the investment is made through the entire duration that
an investor benefits from the credit;
-
Must employ 20 or fewer people at the time of registration;
-
Cannot have gross revenues that exceed $500,000 in any
prior fiscal year;
-
Cannot have obtained more than $1 million in gross cash
proceeds from issuing debt or equity instruments (does
not include commercial loans); and
-
Cannot have utilized the GA film tax credit.
Application
and Approval
An
original application must be filed by the qualified investor
by June 30 of the year following the investment. Additionally,
the qualified investor must submit an application between
September 1 and October 31 of the year for which the credit
is claimed. During this period, the credits will be approved
for taxpayers up to the $10 million annual limit. If the
annual limit is reached, the credits will be allocated to
all timely applicants on a pro-rata basis.
It is
important to note that investors receiving the credit must
follow certain provisions after the credits are obtained.
Credits must be recaptured if the investor transfers any
of the securities or subordinated debt received in the investment
to another person or entity within two years of the transaction.
Recapture is not triggered if the investor dies, transfers
to a spouse incident to divorce, or if a merger, conversion,
or sale of the business occurs where the investor does not
receive cash or tangible property. Additionally, credits
must be recaptured if the qualified business redeems the
investor's securities or pays principal on any subordinated
debt within five years of the date the investment was made.
Finally, the qualified investor or his/her immediate family
may not participate in any operation of the business for
compensation within two years of the date the investment
was made. Compensation does not include stock or stock options.
Recap
The
Angel Investor Tax Credit is a great move taken by the Georgia
legislature to promote the development of start-up companies
in the state. This measure, along with the other credits
and incentives available to Georgia companies, confirm Georgia's
enduring commitment to establish the state as the center
of entrepreneurship in our region.
Department
of Revenue Regulations to the Angel Investor Tax Credit (PDF
File)
Registration
Form IT-QBR for Qualifying Investments (PDF File)
Summary
Prepared by:
IRS CIRCULAR
230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS,
we inform you that any U.S. tax advice contained in this
communication (including any attachments) is not intended
or written to be used, and cannot be used, for the purpose
of (i) avoiding penalties under the Internal Revenue Code
or (ii) promoting, marketing or recommending to another
party any transaction or matter addressed herein. Please
do not hesitate to contact us, however, if you have any
questions regarding this matter.
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