Angel Investor Tax Credit

Overview
Qualified Investor Tax Credit. This provides a 35% credit for amounts invested in a registered qualified business. The aggregate amount of credit allowed an individual person for one or more qualified investments in a single taxable year, whether made directly or by a pass-through entity and allocated to such individual, shall not exceed $50,000.00. The credit is available for investments made in 2011, 2012, 2013, 2014, 2015, 2016, 2017, and 2018. The credit is claimed 2 years later, in 2013, 2014, 2015, 2016, 2017, 2018, 2019, and 2020 respectively. The aggregate amount of tax credits allowed is $10 million for investments made in calendar years 2011, 2012, and 2013; and $5 million for investments made in calendar years 2014, 2015, 2016, 2017, and 2018. The taxpayer must get approval as provided in O.C.G.A. § 48-7-40.30 before claiming the credit. This became effective January 1, 2011. See Code Section 48-7-40.30 and Regulation 560-7-8-.52 for more information.
 
Here is a link to the Qualified Investor Tax Credit Regulation, Revenue Regulation 560-7-8-.52, which explains how a qualified investor that made a qualified investment applies for preapproval by submitting the electronic Form IT-QI-AP through the Department’s Georgia Tax Center (GTC) and when the taxpayer can apply for preapproval:  http://rules.sos.ga.gov/nllxml/georgiacodesGetcode.aspx?urlRedirected=yes&data=admin&lookingfor=560-7-8-.52
 
Qualifying Investors
Eligible investors must be accredited by the U.S. Securities and Exchange Commission. http://www.sec.gov/answers/accred.htm
 
Investments can be made by individuals or pass through entities without business operations that manage less than $5 million in capital.  Venture capital funds, hedge funds, and commodity funds with institutional investors do not qualify.
 
Investments in qualified businesses must be paid in cash for the exchange of stock, an equity interest, or Qualified Subordinated Debt with a maturity of less than five years.  Investments cannot have been raised as a result of another tax incentive program and it is not allowed for commissions or other remuneration to be paid directly or indirectly for solicitation of the investment.
 
Qualifying Business
Prior to receiving the investment capital, a business must qualify as an eligible investment and register with the tax commissioner using the Department of Revenue’s Qualified Business Registration Form .
 
Once approved, the business will receive 12 months of eligibility for investment on behalf of the credit. 
 
To qualify, a business:
  • Must be a corporation, LLC, or partnership located in Georgia
  • Must be organized no more than three 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 the 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)
  • Cannot have utilized the GA film tax credit.
 
Application
An original application must be filed by the qualified investor by June 30 of the year following the investment, and the application must be submitted between September 1 and October 31 of the year for which the credit is claimed.  During this period of time 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 according to their calculated share. 
 
Approval
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. 
 
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.  In addition, 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.
 
Summary
The Angel Investor Tax Credit promotes the growth of innovative start-up companies and bridges the critical gap between self-financing and venture capital.  By stepping in to support early-stage endeavors, angel investors eventually provide investment opportunities for venture capital firms and therefore support a crucial link in the business cycle that reduces the need for growing companies to relocate out of state for venture funding.
 
Additional Information
 
 
House Bill 1069
 
O.C.G.A. § 48-7-40.30
 
 
 
                    
 
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