Last week the proposed Massachusetts Angel Investor Tax Credit was filed with the Secretary of State’s Office and a Notice of Public Hearing was published indicating the proposed law may likely get final approval. The angel tax credit provides qualifying investors with tax credits for investments into qualifying businesses and will be administered by the Massachusetts Life Sciences Center (MLSC) in conjunction with the Executive Office of housing and Economic Development and the Massachusetts Department of Revenue (DOR).
Taxpayers investors may be allowed a tax credit against Massachusetts personal income tax up to amounts equal to 20% of a qualifying investment in a qualifying business or 30% of a qualifying investment if the business is located in a Gateway municipality as defined in M.G.L. c. 23A.
Taxpayer investors may be allowed a credit in connection with up to $125,000 of qualifying investments per qualifying business per year and up to $250,000 in cumulative qualifying investments for each qualifying business. In one taxable year, the total of all tax credits available to a taxpayer investors cannot exceed $50,000.
Tax credits exceeding a taxpayers tax liability may be carried forward three years.
Tax credits awarded are subject to recapture if the qualifying business ceases to have its principal place of business in the Commonwealth within three taxable years following the investment.
An eligible taxpayer investor is an accredited investor, as defined by the US Securities and Exchange Commission, whose net worth exceeds $1 million dollars and is not the principal owner of the qualifying business or involved in the qualifying business as a full-time professional activity. The investor must also demonstrate eligibility to the MLSC.
A monetary investment that is at risk (unsecured without guarantee).
Qualifying investments shall not include investments in venture capital funds, hedge funds, or commodity funds with institutional investors or investments involved in retail, real estate, professional services, gaming or financial services.
Qualifying business meets the following requirements:
- Principal place of business is in the Commonwealth of Massachusetts
- 50% of its employees are located in the business’s principal place of business
- Developed a business plan that include appropriate long and short term forecasts and contingencies of business operations, including research and development, profit/loss and cash flow projections and details of angel investor funding
- Employs 20 or fewer employees at the time of taxpayer investor’s initial qualifying investment
- Has a federal tax identification number
- Gross revenue are equal to or less than $500,000 in the fiscal year prior to claiming eligibility
Claiming the Credit
Prior to claiming a credit, the following must occur:
- Taxpayer investor and qualifying business shall have been approved by the MLSC’s Board of Directors
- Taxpayer investor and qualifying business shall enter into an agreement with the MLSC that establishes the prerequisites to claim the credit
- MLSC must award the credit and certify to the DOR the taxpayer investor made the qualifying investment
- The tax credit is available for qualifying investments made on or after January 1, 2020
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