Section 57-38-01.26 - Angel investor tax credit1. For investments made after June 30, 2017, an angel investor is entitled to a credit against the income tax liability under section 57-38-30.3 for investments made by a certified angel fund into an in-state qualified business or an out-of-state qualified business. The credit is equal to thirty-five percent of the amount invested by the angel fund on behalf of the angel investor in an in-state qualified business during the taxable year and twenty-five percent of the amount invested by the angel fund on behalf of the angel investor in an out-of-state qualified business during the taxable year. a. The aggregate amount of credits allowed to an angel investor in a taxable year is limited to forty-five thousand dollars. The aggregate amount of credits allowed to an angel investor for investments made in all taxable years is five hundred thousand dollars. The limitation under this subdivision does not apply to the angel fund but applies to each angel investor.b. The credit must be claimed in the taxable year in which the investment is made in an in-state qualified business or an out-of-state qualified business. The credit allowed may not exceed the liability for tax under this chapter. If the amount of the credit determined under this section exceeds the liability for tax under this chapter, the excess may be carried forward to each of the five succeeding taxable years.c. The investment used to calculate the credit under this section may not be used to calculate any other income tax deduction or credit allowed by law.d. Angel investors may not receive more than five million dollars in aggregate credits under this section during the life of an angel fund but this provision may not be interpreted to limit additional investments in that angel fund.e. Investments placed in escrow do not qualify for the credit.f. A passthrough entity entitled to the credit under this section must be considered to be the taxpayer for purposes of calculating the credit. The amount of the allowable credit must be determined at the passthrough entity level. The total credit determined at the entity level must be passed through to the partners, shareholders, or members in proportion to their respective interests in the passthrough entity. An individual taxpayer may take the credit passed through under this section against the individual's state income tax liability under section 57-38-30.3.2. For purposes of this section: a. "Early-stage entity" means an entity with annual revenues of up to two million dollars.b. "In-state qualified business" means an early-stage or mid-stage private, nonpublicly traded enterprise that: (1) Is created, or its satellite operation is created, as a for-profit entity under the laws of this state.(2) Has its principal office in this state and has the majority of its business activity performed in this state, except sales activity, or has a significant operation in this state that has or is projected to have more than ten employees in this state.(3) Relies on research or the development of new products and processes in its plans for growth and profitability.(4) Is in compliance with state and federal securities laws.(5) Is not an entity or enterprise which is engaged in real estate development, is a real estate holding company, derives income from the selling or leasing of residential or commercial real estate, or carries on operations in the hotel, restaurant, convention, or hospitality industries, or makes any other similar use of real estate.(6) Is certified as an in-state qualified business that meets the requirements of this section by the department of commerce.c. "Investment" means a cash investment in an in-state qualified business or out-of-state qualified business that is made in exchange for common stock, a partnership or membership interest, preferred stock, debt with a mandatory conversion to equity, or an equivalent ownership interest as determined by the tax commissioner.d. "Mid-stage entity" means an entity with annual revenues over two million dollars not to exceed ten million dollars.e. "Out-of-state qualified business" means an early-stage or mid-stage private, nonpublicly traded enterprise that:(1) Is created as a for-profit entity.(2) Relies on research or the development of new products and processes in its plans for growth and profitability.(3) Is in compliance with state and federal securities laws.(4) Is not an entity or enterprise engaged in real estate development, is a real estate holding company, derives income from the selling or leasing of residential or commercial real estate, or carries on operations in the hotel, restaurant, convention, or hospitality industries, or makes any other similar use of real estate.(5) Is certified as an out-of-state qualified business that meets the requirements of this section by the department of commerce.3. An angel fund must:a. Be a passthrough entity organized after June 30, 2017, as a domestic for-profit entity under the laws of this state, and have its headquarters in this state.b. Not have invested, or intend on investing during its certification period, in real estate or real estate activities as described under subdivision e of subsection 2.c. Consist of at least six accredited investors as defined in regulation D, rule 501 of the federal Securities Act of 1933.d. Not have more than twenty-five percent of its capitalized investment assets owned by any one investor.e. Have at least five hundred thousand dollars in commitments from accredited investors which are subject to call to be invested over an unspecified number of years to build a portfolio of investments in enterprises.f. Be member-managed or a manager-managed limited liability company and the investor members or a designated board that includes investor members must make decisions as a group on which enterprises are worthy of investments.g. Be certified as an angel fund that meets the requirements of this subsection by the department of commerce.h. Be in, and remain in, compliance with state and federal securities laws, and invest only in in-state qualified businesses or an out-of-state qualified business that are issuing securities in compliance with state and federal securities laws.4. On or before December 31, 2019, and every two calendar years thereafter, a minimum of fifty percent of an angel fund's investments, as defined under subdivision c of subsection 2, must be invested into an in-state qualified business.5. An angel fund shall hold the investment in an in-state qualified business or an out-of-state qualified business for at least three years from the date of investment. The three-year period does not apply if, before the end of the three-year period: a. The investment becomes worthless;b. Eighty percent or more of the assets of the in-state qualified business or out-of-state qualified business are sold;c. The in-state qualified business or out-of-state qualified business is sold;d. The common stock of the in-state qualified business or out-of-state qualified business begins trading on a public exchange; ore. A partner, shareholder, or member of the angel fund dies, in which case the exception to the three-year holding period only applies to the deceased individual's portion of the investment and related credit.6. Within thirty days after the date on which an angel fund makes an investment in an in-state qualified business or an out-of-state qualified business, the angel fund shall report the investment to the tax commissioner on forms and in the manner prescribed by the tax commissioner. The report must contain:a. The name, address, and federal employer identification number of the angel fund;b. The total amount of the investment from all angel investors investing in the in-state qualified business or out-of-state qualified business;c. The name, address, and social security or federal identification number of each angel investor investing in the in-state qualified business or out-of-state qualified business;d. The amount invested by each angel investor in the in-state qualified business or out-of-state qualified business;e. The type of security received by the angel fund in exchange for the investment;f. The name, address, and federal employer identification number of the in-state qualified business or out-of-state qualified business;g. The type of industry in which the in-state qualified business or out-of-state qualified business is engaged; andh. Any other information the tax commissioner determines is necessary for administration of this section.7. An angel fund is subject to a penalty of one thousand dollars per month for each month, or fraction thereof, the report under subsection 6 is not filed. The tax commissioner, for good cause shown, may waive all or part of the penalty imposed under this subsection.8. By January thirty-first of each year, the angel fund shall file with the tax commissioner a report showing: a. The name and address of each in-state qualified business or out-of-state qualified business in which the angel fund has made an investment;b. The principal place of business for each in-state qualified business or out-of-state qualified business reported under subdivision a;c. The total amount invested in each in-state qualified business or out-of-state qualified business; andd. Any other information the tax commissioner determines is necessary for administration of this section.9. For an angel fund certified before July 1, 2017, within thirty days after the end of each calendar year, the angel fund shall file with the tax commissioner a report showing the name and principal place of business of each enterprise in which the angel fund has an investment and the amount of the investment.10. Upon receipt of a written request from the chairman of the legislative management or the chairman of a standing committee of the legislative assembly, the tax commissioner shall disclose any information described under subsections 6, 8, and 9. This subsection does not authorize disclosure of the angel investor's name, social security number or federal employer identification number, address, or any other information prohibited from disclosure under this chapter.11. Angel investors may be actively involved in the in-state qualified businesses or out-of-state qualified businesses in which the angel fund invests but the angel fund may not invest in any in-state qualified business or out-of-state qualified business if any one angel investor owns directly or indirectly more than forty-nine percent of the ownership interests in the in-state qualified business or out-of-state qualified business. The angel fund may not invest in an in-state qualified business or an out-of-state qualified business if any one angel investor is a partner, shareholder, or member of another passthrough entity that directly or indirectly owns more than forty-nine percent of the ownership interests in the in-state qualified business or out-of-state qualified business.12. Failure to comply with any provision of this section is cause to revoke the certification of an angel fund or an in-state qualified business or an out-of-state qualified business, or disallow the credit attributable to the noncompliance. a. Notice of the revocation of the angel fund or an in-state qualified business's or out-of-state qualified business's certification must be provided to the angel fund or the in-state qualified business or out-of-state qualified business by the tax commissioner, department of commerce, or securities commissioner. Within thirty days of receipt of the notice, the angel fund shall provide a copy of the notice to each of its angel investors.b. The angel fund's investors shall file an amended return for each taxable year in which the disallowed credit reduced the investor's income tax liability and pay the amount due. The amended return, if required, must be filed within ninety days after the date of the written notice given to the angel fund.c. If the amended return is not timely filed, the tax commissioner shall disallow the credit and assess any tax due. An assessment of tax made under this subsection is final and irrevocably fixed.d. If an amended return is filed as required under subdivision b, the tax commissioner has two years after the amended return is filed in which to audit and assess any tax due attributable to the revocation of the credit, even though other time periods for assessment under this chapter have expired. This subdivision does not limit or restrict any other time period for assessment under this chapter that has not expired.13. An angel fund or a representative of the fund that knowingly makes, or causes to be made, any material false statement or representation in any application, report, or other document required to be filed under any provision of this section, or omits to state any material statement or fact in any such application, report, or other document required to be filed under any provision of this section, or fails to file the report required in subsection 8 or 9, and after thirty days' notice to file is given by the tax commissioner, is subject to a penalty of ten thousand dollars.14. Notwithstanding any other provision of law, the tax commissioner, securities commissioner, and the department of commerce may exchange any information obtained under this section to the extent necessary to administer this section.Amended by S.L. 2017, ch. 399 (HB 1045),§ 2, eff. for investments made after 6/30/2017.Amended by S.L. 2017, ch. 399 (HB 1045),§ 1, eff. for investments made before 7/1/2017.Amended by S.L. 2013 , ch. 449( SB 2325 ), § 9, eff. 1/1/2013.Amended by S.L. 2013 , ch. 451( SB 2156 ), § 1, eff. 1/1/2013.Amended by S.L. 2013 , ch. 443( HB 1106 ), § 21, eff. 1/1/2013.Amended by S.L. 2011 , ch. 461( HB 1057 ), § 1, eff. 1/1/2011.