(1)
Statement of Purpose, Outline of Topics, Applicable Tax
Years.
(a)
Statement
of Purpose. 830 CMR
62.6.5 explains the calculation of the Angel
Investor Tax Credit allowed to taxpayer investors for qualifying investments in
qualifying businesses, established by St. 2016, c. 219, § 139; amended by
St. 2018, c. 228, §§ 13 and 14; and codified at M.G.L. c. 62, §
6(t).
830 CMR 62.6.5 is necessary to explain how to calculate and
claim the angel investor tax credit allowed to M.G.L. c. 62 taxpayers for
investments in certain qualifying small businesses. An investment must be made
by an accredited investor, as defined by the United States Securities and
Exchange Commission, to qualify for the credit and investments must be used to
support a qualifying business for purposes such as capital improvements, plant
equipment, research and development and working capital. Under M.G.L. c. 62,
§ 6(t), a taxpayer investor may be allowed a credit against the
Massachusetts personal income tax up to an amount equal to 20% of the
qualifying investments in a qualifying business. A taxpayer investor may be
allowed a credit up to an amount equal to 30% of the amount of qualifying
investments in a qualifying business located in a "Gateway Municipality", as
defined in M.G.L. c. 23A, § 3A.
Administration of the credit has been delegated to the
Massachusetts Life Sciences Center (MLSC), in consultation with the Executive
Office of Housing and Economic Development (EOHED) and the Department of
Revenue (DOR). Accordingly, 830 CMR 62.6.5 is being promulgated in
collaboration with theses agencies. M.G.L. c. 62, § 6(t)(b). Angel
investor tax credits awarded by MLSC are subject to the annual cap applicable
to other life sciences credits. No credit may be claimed prior to an award by
MLSC.
(b)
Outline of Topics. 830 CMR
62.6.5 is organized as
follows:
1. Statement of Purpose, Outline of
Topics, Applicable Tax Years;
2.
Definitions;
3. General
Rule;
4. Proof of Qualifying
Business Status;
5. Proof of
Qualifying Investment;
6. Proof of
Taxpayer Investor Status;
7.
Limitations on the Amount of the Credit;
8. Timing of Qualifying Investment;
9. Annual Cumulative Cap;
10. Process for Claiming the
Credit;
11. Carry Over of Unused
Credit;
12. Credit is
Nonrefundable;
13.
Recapture;
14. Offset Debt
Collection;
15. Special Rules
Applicable to Pass-through Entities;
16. Annual Reporting;
17. Examples.
(c)
Applicable Tax
Years. The credit is available for qualifying investments made on
or after January 1, 2020.
(2)
Definitions. For
purposes of 830 CMR
62.6.5, the following terms have the following meanings,
unless the context requires otherwise.
Business. A profession, sole
proprietorship, trade partnership, corporation, general partnership, limited
liability company, limited partnership, joint venture, business trust, public
benefit corporation, nonprofit entity or other business entity engaged in the
life sciences as defined in M.G.L. c. 23I, § 2.
Code. As defined in M.G.L. c. 62,
§ 1, which refers to the federal Internal Revenue Code, with certain
modifications.
Commissioner. The Commissioner of
Revenue or the Commissioner's duly authorized representative.
Credit. The angel investor credit
provided in M.G.L. c. 62, § 6(t).
DOR. The Massachusetts Department of
Revenue.
EOHED. The Executive Office of Housing
and Economic Development.
Gateway Municipality. A Gateway
Municipality as defined in M.G.L. c. 23A, § 3A.
MLSC. The Massachusetts Life Sciences
Center.
Qualifying Business. A business
that:
(a) has its principal
place of business in the Commonwealth;
(b) has at least 50% of its employees located
in the business's principal place of business; (c) has a fully developed
business plan that includes all appropriate long-term and shortterm forecasts
and contingencies of business operations, including research and development,
profit, loss and cash flow projections and details of angel investor
funding;
(d) employs 20 or fewer
full-time employees at the time of the taxpayer investor's initial qualifying
investment in a business;
(e) has a
federal tax identification number; and
(f) has gross revenues equal to or less than
$500,000 in the fiscal year prior to claiming eligibility.
Qualifying Investment. A monetary
investment that is at risk and is not secured or guaranteed; provided, however,
that a qualifying investment shall not include venture capital funds, hedge
funds or commodity funds with institutional investors or investments in a
business involved in retail, real estate, professional services, gaming or
financial services.
Taxpayer Investor. An accredited
investor, as defined by the United States Securities and Exchange Commission
pursuant to
15
USC §
77b(15)(ii), who
is not:
(a) the principal owner of the
qualifying business; or
(b)
involved in the qualifying business as a full-time professional
activity.
(3)
General Rule. In general, a taxpayer investor making a
qualifying investment in a qualifying business may be allowed a credit up to an
amount equal to 20% of the qualifying investment. A taxpayer investor who makes
a qualifying investment in a qualifying business with its principal place of
business located in a Gateway Municipality may be allowed a credit up to an
amount equal to 30% of the amount of the taxpayer's qualifying investment. The
credit may be applied only against tax due under M.G.L. c. 62. Any amount of
credit allowed that exceeds a taxpayer investor's tax due for a taxable year
under M.G.L. c. 62 may be carried forward to any of the three subsequent
taxable years. M.G.L. c. 62, § 6(t) provides for recapture if the
qualifying business ceases to have its principal place of business in the
Commonwealth within the three taxable years following the taxable year of the
investment.
Credits will be awarded by the MLSC in its sole discretion, in
accordance with the MLSC's statutory obligations to support economic
development in the life sciences across the Commonwealth and which contribute
to a balanced and strong portfolio of tax beneficiaries including, but not
limited to, consideration of the following:
(a) alignment with MLSC's strategic
priorities including, but not limited to, advancement of novel modalities,
expansion outside of Greater Boston, and growth in manufacturing, digital
health and data analytics;
(b)
ability to create and retain jobs;
(c) wide geographic distribution of life
sciences operations in the Commonwealth;
(d) wide distribution of life sciences
technologies and industries supported by the MLSC;
(e) diversity among businesses at different
stages of product development and commercialization; and
(f) ability of the taxpayer investor and the
qualifying business to verify eligibility.
(4)
Proof of Qualifying Business
Status. To demonstrate that a business is a qualifying business,
the business must provide the MLSC with the following:
(a) certification, in a form and substance
acceptable to the MLSC, executed by the Chief Executive Officer or other
authorized representative of the business, that attests to the location of the
principal place of business, the number of full-time-equivalent employees (35
hours or more per week) (FTEs) working for the business, and the percentage of
FTEs who work at the principal place of business;
(b) a fully developed business plan that
includes long-term 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;
(c) its federal tax identification
number;
(d) a letter from the
business's certified professional accountant that makes the representation that
the business has gross revenues equal to or less than $500,000 in the fiscal
year prior to application;
(e) a
Certificate of Good Standing, issued by the Massachusetts Secretary of the
Commonwealth within the previous six months; and
(f) a Certificate of Good Standing, issued by
the DOR within the previous six months.
(5)
Proof of Qualifying
Investment. A taxpayer investor must provide the MLSC with the
executed legal instruments of the investment for verification by the MLSC that
the investment meets the requirements of a qualifying investment.
(6)
Proof of Taxpayer Investor
Status. To demonstrate eligibility for the credit, a taxpayer
investor must provide the MLSC with the following:
(a) evidence of accredited investor status by
providing a letter from the taxpayer investor's certified professional
accountant or lawyer that makes the representation that such professional has
taken reasonable steps to verify the taxpayer investor's net income or net
worth and any other requirements as defined by the United States Securities and
Exchange Commission to establish accredited investor status, pursuant to 17 USC
§
230.501(a); and
(b) a
Certificate of Good Standing for the taxpayer investor, issued by the DOR
within the previous six months.
(7)
Limitations on the Amount of
Credit. A taxpayer investor 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 any one taxable year, the total amount of all tax credits
available to the taxpayer investor making qualified investments under 830 CMR
62.6.5(7) shall not exceed $50,000.
(8)
Timing of Qualifying
Investment. The credit shall be allowed for the taxable year in
which the qualifying investment is made by a taxpayer. A qualifying investment
is made at the time delivery is "effected" of the qualifying investment by a
taxpayer investor to a qualifying business, as that term is used in Treas. Reg.
§ 1.170A-1(b). Accordingly, for example, the unconditional delivery of a
cash contribution or mailing of a check by a taxpayer investor, which
subsequently clears in due course, to a qualifying business, shall constitute
an effective qualifying investment by the taxpayer investor on the date of
delivery or mailing.
(9)
Annual Cumulative Cap. Taxpayer investors may invest
up to $125,000 per qualifying business per year with a $250,000 maximum for
each qualifying business. The total of all tax credits available to a taxpayer
investor pursuant to 830 CMR
62.6.5(9) shall not exceed $50,000 in a single
calendar year. Tax credits authorized pursuant to M.G.L c. 62, § 6(t)(1)
shall be subject to the annual cumulative cap pursuant to M.G.L. c. 23I,
subsection (d).
(10)
Process for Claiming the Credit. Before a credit may
be claimed the following must occur:
(a) a
taxpayer investor and the qualifying business they invested in shall have been
approved by the MLSC's Board of Directors;
(b) a taxpayer investor and the qualifying
business shall enter into an agreement with the MLSC, in a form and substance
acceptable to the MLSC, that establishes the prerequisites to claiming the
credit have been met;
(c) if the
MLSC elects to award the credit, the contract shall be finalized in a form and
substance acceptable to the MLSC; and
(d) MLSC must certify to DOR that the
taxpayer investor made a cash contribution to a qualifying investment in a
qualifying business during a taxable year. No credit will be allowed in such
taxable year for such contribution, unless a copy of the agreement referenced
in 830 CMR
62.6.5(10)(b), or such other validation as the Commissioner may
require, has been received by the Commissioner, and it has been shown that all
prerequisites have been met for the taxable year in which the credit is
claimed.
(11)
Carry Over of Unused Credit. A taxpayer investor who
is entitled to claim a credit under M.G.L. c. 62, § 6(t)(1) for a taxable
year may carry over and apply against the taxpayer's tax liability under M.G.L.
c. 62 for any one or more of the succeeding three taxable years, the portion,
as reduced from year to year, of the credit that exceeds the tax for the
taxable year.
(12)
Credit is Nonrefundable. The credit is nonrefundable
and nontransferable.
(13)
Recapture. If a taxpayer investor is allowed a credit
for an investment in a qualifying business that ceases to have its principal
place of business in the Commonwealth within the three taxable years following
the taxable year for which the credit was allowed, the taxpayer investor must
repay the total credit amount to the Commonwealth. Where a taxpayer investor in
such a business has unused credit that has been carried forward from a prior
year, the taxpayer investor shall not claim any further credits and must repay
to the Commonwealth the total amount of credits already claimed. A business
will be treated as having ceased to have its principal place of business in the
Commonwealth if its principal place of business moves out of the Commonwealth,
or if it ceases to do business.
(14)
Offset Debt
Collection. The provisions of M.G.L. chs. 62C and 62D, including
without limitation, provisions allowing offsets of refunds for unpaid tax
assessments, child support obligations, or other applicable obligations, apply
to refunds and credits under 830 CMR
62.6.5.
(15)
Special Rules Applicable to
Pass-through Entities. In the case of a qualifying investment by a
pass-through entity such as a partnership, the credit allowed under M.G.L. c.
62, § 6(t) shall be passed through to the entity's partners or owners
pro rata or pursuant to an executed agreement among the
entity's partners or owners documenting an alternative distribution method
without regard to their sharing of other tax or economic attributes of the
entity. The total aggregate amount of the credit passed through such entity and
claimed by its partners or owners in any taxable year shall not exceed the
credit amount allowed by the MLSC, and 830 CMR
62.6.5.
(16)
Annual
Reporting.
(a)
Reporting Required by the Qualifying Business. On an
annual basis, the Chief Executive Officer or other authorized representative of
every qualifying business that receives cash contributions from taxpayer
investors shall maintain records and shall certify on a form required by the
MLSC the following information:
1. each
investment contribution received by the qualifying business, including the name
and address of the taxpayer investor making the contribution, or other
claimant, if applicable, if the contribution is made by a pass-through entity,
along with the dollar amount of each such contribution, and the date the
contribution was made;
2. the
location of the principal place of business; and
3. a list of the uses and dollar amounts to
which any qualifying investment was applied or, alternatively, an attestation
that no portion of any qualifying investment was used to pay dividends, fund or
repay shareholders' loans, redeem shares, and/or repay debt or pay wages or
other benefits of the taxpayer investor.
(b)
Reporting Required by the
Taxpayer Investor. On an annual basis, a taxpayer investor that
has been awarded a credit for a qualifying investment shall provide any
additional information as the MLSC shall require including, but not limited to,
the amount of the credit claimed by the taxpayer on its return filed that
year.
(17)
Examples. The following examples illustrate the
provisions of 830 CMR
62.6.5; they are not intended to be exhaustive.
(a)
Example 1.
Qualifying Investments in Qualifying Businesses Not Located in Gateway
Municipality. On June 1, 2020, James, a Massachusetts resident, makes a
$100,000 qualifying investment in X Corporation, a qualifying business
not located in a Gateway Municipality within
Massachusetts. Upon approval by the MLSC's Board of Directors, MLSC certifies
to DOR that James and X Corporation entered into an agreement with the MLSC and
that James is a taxpayer investor and made a qualifying investment in a
qualifying business. The total allowable credit in the agreement is $20,000. As
stated in 830 CMR
62.6.5, the credit is equal to 20% of the total qualifying
investment made by the taxpayer investor for the taxable year. James may claim
the $20,000 credit on his 2020 Massachusetts income tax return.
(b)
Example 2.
Qualifying Investments in Qualifying Businesses Located in Gateway
Municipality. On June 1, 2020, Julia, a Massachusetts resident, makes a
$100,000 qualifying investment in X Corporation, a qualifying business located
in a Gateway Municipality within Massachusetts. Upon approval by the MLSC's
Board of Directors, MLSC certifies to DOR that Julia and X Corporation entered
into an agreement with the MLSC and that Julia is a taxpayer investor who made
a qualifying investment in a qualifying business. The total allowable credit in
the agreement is $30,000. As stated in 830 CMR
62.6.5, the credit is equal to
30% of the total qualifying investment made by the taxpayer investor for the
taxable year. Julia may claim the $30,000 credit on her 2020 Massachusetts
income tax return.
(c)
Example 3. Qualifying Investments by a Nonresident
Taxpayer. On June 1, 2020, Jack, a resident of New York, with no Massachusetts
source income as defined in M.G.L. c. 62, § 5A, makes a $100,000
qualifying investment in X Corporation, a Massachusetts qualifying business
located in a Gateway Municipality within Massachusetts. Upon approval by the
MLSC's Board of Directors, MLSC certifies to DOR that Jack and X Corporation
entered into an agreement and that Jack is a taxpayer investor who made a
qualifying investment in a qualifying business. The total allowable credit in
the agreement is $30,000. As a nonresident with no Massachusetts source income,
Jack is not able to claim the credit for the 2020 taxable year because he has
no Massachusetts source income with which to offset the credit. In the
following taxable year, Jack plays the Lottery in Massachusetts and wins. Jack
now has Massachusetts source income and is required to file a 2021 Form 1-NR/PY
nonresident income tax return in Massachusetts. Jack can carry forward the
unused credit from 2020 to offset the amount of tax due for the 2021 taxable
year. Any unused credit may be carried forward for up to two additional years
and used to offset Massachusetts source income, if any, recognized in those
years.