The State of Illinois Approves Angel Tax Credit

Illinois Enacts Angel Investor Credit; Raises Cap on New Markets Credit

by Matthew G. Pickelle, Esq. (RIA)

Illinois Governor Pat Quinn approved legislation that creates an angel investor credit against income tax liability for tax years beginning in 2011 through 2016. The legislation also doubles the annual cap on the new markets credit. ( L. 2010, S2093 (P.A. 96â•„939, effective as stated .)

Angel investor credit enacted. For taxable years beginning after December 31, 2010, and ending on or before December 31, 2016, eligible taxpayers may claim a nonrefundable income tax credit in an amount equal to 25% of the claimant’s investment made directly in a qualified new business venture.

Qualified new business venture: A ╲qualified new business venture╡ means a business that is registered with the Department of Commerce and Economic Opportunity (DCEO). A business must submit an application in each taxable year for which the business desires registration. The DCEO may register the business only if the business satisfies all of the following conditions:

  • it has its headquarters in Illinois;
  • at least 51% of the employees employed by the business are employed in Illinois;
  • it has the potential for increasing jobs in Illinois, increasing capital investment in Illinois or both, and either of the following apply: (1) it is principally engaged in innovation in any of the following: manufacturing; biotechnology; nanotechnology; communications; agricultural sciences; clean energy creation or storage technology; processing or assembling products, including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, other innovative technology products, or other products that are produced using manufacturing methods that are enabled by applying proprietary technology; or providing services that are enabled by applying proprietary technology; or (2) it is undertaking pre-commercialization activity related to proprietary technology that includes conducting research, developing a new product or business process, or developing a service that is principally reliant on applying proprietary technology;
  • it is not principally engaged in real estate development, insurance, banking, lending, lobbying, political consulting, professional services provided by attorneys, accountants, business consultants, physicians, or health care consultants, wholesale or retail trade, leisure, hospitality, transportation, or construction, except construction of power production plants that derive energy from a renewable energy resource, as defined in § 1 of the Illinois Power Agency Act;
  • it has fewer than 100 employees;
  • it has been in operation in Illinois for not more than 10 consecutive years prior to the year of certification; and
  • it has received not more than $10 million in aggregate private equity investment in cash or $4 million in investments that qualified for tax credits.

Carryforward: If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the five taxable years following the excess credit year. The credit will be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit must be applied first. In the case of a partnership or Subchapter S corporation, the credit is allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Internal Revenue Code Sec. 702 and Internal Revenue Code Sec. 704 and Subchapter S of the Internal Revenue Code.

Limits: The maximum amount of an applicant’s investment that may be used as the basis for the credit is $2 million for each investment made directly in a qualified new business venture.

The aggregate amount of the tax credits that may be claimed for investments made in qualified new business ventures is limited at $10 million per calendar year.

A claimant may not sell or otherwise transfer the credit to another person.

Certification: The DCEO will implement a program to certify applicants for the credit. Upon satisfactory review, the DCEO will issue a tax credit certificate stating the amount of the tax credit to which the applicant is entitled. The DCEO must annually certify that the claimant’s investment has been made and remains in the qualified new business venture for no less than three years. If an investment for which a claimant is allowed a credit is held by the claimant for less than three years, or, if within that period of time the qualified new business venture is moved from the State of Illinois, the claimant must pay to the Department of Revenue the amount of the credit that the claimant received related to the investment.

On or before March 1 of each year, the Department must report to the governor and to the General Assembly on the tax credit certificates awarded for the prior calendar year.

New markets credit. Effective July 1, 2010, the legislation increases the annual cap on the new markets credit to $20 million from $10 million.

2 thoughts on “The State of Illinois Approves Angel Tax Credit

  1. jmcohen1991 says:

    Thanks for this–there’s little on the web about this program which should be important for Illinois small VC investors next year. Do you know anything about the DCEO process certification process you mention? A law firm’s blog said firms should enroll or be certified in 2010, but I don’t see anything on the DCEO website about the first step. I would like to help an Illinois tech startup to get certified.

    Like

  2. My suggestion would be to contact one of HPA’s sponsors. Frank Ballantine at Reed Smith might know. Also the folks at KPMG or Horwood Marcus and Birk or US Trust might know. If you need a contact, email HPA.

    Like

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