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Massachusetts Creates Tax Credit Program for Angel Investors

Thomas C. Carey

Thomas C. Carey | Partner, Business Chair View more articles

Thomas is a member of our Business Practice Group

On August 10, 2016, Governor Baker signed HB4569 into law, creating a tax credit program intended to spur angel investments into local high-tech start-ups, particularly those in the fields of digital e-health, information technology and healthcare. The program will permit investors in qualifying businesses to take a tax credit of 20% of the amount invested – or 30% if the business is in a Gateway Municipality. This tax credit program is limited to $25 million annually, with the credits being doled out by the Massachusetts Life Sciences Center.

Companies wishing to be qualified for the program must have (i) a principal place of business in Massachusetts, (ii) a fully-developed business plan with short- and long-term forecasts including R&D, profit and loss, cash flow and details of angel investor funding, (iii) 20 or fewer full-time employees (at least half of whom work out of the company’s principal place of business), and (iv) less than $500,000 in gross revenue in the prior fiscal year.

The program does not cover investments in hedge funds, venture capital funds, retail operations, real estate, professional services, gaming or financial services.

Investors must be accredited investors, as defined by the SEC. Their qualifying investments are limited to $125,000 in any one business per year and $250,000 total for any one business. No single taxpayer can claim more than $50,000 in tax credits in a year but investors may defer claiming tax credits for up to three years. Qualifying investors may not be the principal owner of the business and be involved in it on a full-time basis.

Qualifying investments may not be used to pay dividends, repay shareholder loans or redeem shares. Tax credits claimed are subject to forfeiture if the company moves out of the state within three years.

This program will be effective for tax years 2017 and beyond. Since this is an entirely new program, the Massachusetts Life Sciences Center has not yet promulgated the regulations that will govern the program. The regulations will be keyed in part to the goal of creating and maintaining jobs. Companies interested in attracting angel funding in 2017 may wish to monitor developments on that front and individual investors should urge their companies of interest to seek qualification with the Massachusetts Life Sciences Center where appropriate.

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