Angel investment tax credit

(a)

In general

Subpart B of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

30E.

Angel investment tax credit

(a)

Allowance of credit

There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 25 percent of the qualified equity investments made by a qualified investor during the taxable year. (b)

Qualified equity investment

For purposes of this section— (1)

In general

The term qualified equity investment means any equity investment in a qualified small business entity if— (A)such investment is acquired by the taxpayer at its original issue (directly or through an underwriter) solely in exchange for cash, and (B)such investment is designated for purposes of this section by the qualified small business entity. (2)

Equity investment

The term equity investment means— (A)any form of equity, including a general or limited partnership interest, common stock, preferred stock (other than nonqualified preferred stock as defined in section 351(g)(2)), with or without voting rights, without regard to seniority position and whether or not convertible into common stock or any form of subordinate or convertible debt, or both, with warrants or other means of equity conversion, and (B)any capital interest in an entity which is a partnership. (3)

Redemptions

A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this subsection. (c)

Qualified small business entity

For purposes of this section— (1)

In general

The term qualified small business entity means any domestic corporation or partnership if such corporation or partnership— (A)is a small business (as defined in section 41(b)(3)(D)(iii)), (B)has its headquarters in the United States, (C)is engaged in a high technology trade or business related to— (i)advanced materials, nanotechnology, or precision manufacturing, (ii)aerospace, aeronautics, or defense, (iii)biotechnology or pharmaceuticals, (iv)electronics, semiconductors, software, or computer technology, (v)energy, environment, or clean technologies, (vi)forest products or agriculture, (vii)information technology, communication technology, digital media, or photonics, (viii)life sciences or medical sciences, (ix)marine technology or aquaculture, (x)transportation, or (xi)any other high technology trade or business as determined by the Secretary, (D)has been in existence for less than 5 years as of the date of the qualified equity investment, (E)employs less than 100 full-time equivalent employees as of the date of such investment, (F)has more than 50 percent of the employees performing substantially all of their services in the United States as of the date of such investment, and (G)has equity investments designated for purposes of this paragraph. (2)

Designation of equity investments

For purposes of paragraph (1)(G), an equity investment shall not be treated as designated if such designation would result in the aggregate amount which may be taken into account under this section with respect to equity investments in such corporation or partnership exceeds— (A)$10,000,000, taking into account the total amount of all qualified equity investments made by all taxpayers for the taxable year and all preceding taxable years, (B)$2,000,000, taking into account the total amount of all qualified equity investments made by all taxpayers for such taxable year, and (C)$1,000,000, taking into account the total amount of all qualified equity investments made by the taxpayer for such taxable year. (d)

Qualified investor

For purposes of this section— (1)

In general

The term qualified investor means an accredited investor, as defined by the Securities and Exchange Commission, investor network, or investor fund who review new or proposed businesses for potential investment. (2)

Investor network

The term investor network means a group of accredited investors organized for the sole purpose of making qualified equity investments. (3)

Investor fund

(A)

In general

The term investor fund means a corporation that for the applicable taxable year is treated as an S corporation or a general partnership, limited partnership, limited liability partnership, trust, or limited liability company and which for the applicable taxable year is not taxed as a corporation. (B)

Allocation of credit

(i)

In general

Except as provided in clause (ii), the credit allowed under subsection (a) shall be allocated to the shareholders or partners of the investor fund in proportion to their ownership interest or as specified in the fund's organizational documents, except that tax-exempt investors shall be allowed to transfer their interest to investors within the fund in exchange for future financial consideration. (ii)

Single member limited liability company

If the investor fund is a single member limited liability company that is disregarded as an entity separate from its owner, the credit allowed under subsection (a) may be claimed by such limited liability company's owner, if such owner is a person subject to the tax under this title. (4)

Exclusion

The term qualified investor does not include— (A)a person controlling at least 50 percent of the qualified small business entity, (B)an employee of such entity, or (C)any bank, bank and trust company, insurance company, trust company, national bank, savings association or building and loan association for activities that are a part of its normal course of business. (e)

National limitation on amount of investments designated

(1)

In general

There is an angel investment tax credit limitation of $500,000,000 for each of calendar years 2011 through 2015. (2)

Allocation of limitation

The limitation under paragraph (1) shall be allocated by the Secretary among qualified small business entities selected by the Secretary. (3)

Carryover of unused limitation

If the angel investment tax credit limitation for any calendar year exceeds the aggregate amount allocated under paragraph (2) for such year, such limitation for the succeeding calendar year shall be increased by the amount of such excess. No amount may be carried under the preceding sentence to any calendar year after 2020. (f)

Application with other credits

(1)

Business credit treated as part of general business credit

Except as provided in paragraph (2), the credit which would be allowed under subsection (a) for any taxable year (determined without regard to this subsection) shall be treated as a credit listed in section 38(b) for such taxable year (and not allowed under subsection (a)). (2)

Personal credit

(A)

In general

In the case of an individual who elects the application of this paragraph, for purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year. (B)

Limitation based on amount of tax

In the case of a taxable year to which section 26(a)(2) does not apply, the credit allowed under subpart A for any taxable year (determined after application of paragraph (1)) by reason of subparagraph (A) shall not exceed the excess of— (i)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (ii)the sum of the credits allowable under subpart A (other than this section) and section 27 for the taxable year. (C)

Carryforward of unused credit

If the credit allowable under subsection (a) by reason of subparagraph (A) exceeds the limitation imposed by section 26(a)(1) or subparagraph (B), whichever is applicable, for such taxable year, reduced by the sum of the credits allowable under subpart A (other than this section) for such taxable year, such excess shall be carried to each of the succeeding 20 taxable years to the extent that such unused credit may not be taken into account under subsection (a) by reason of subparagraph (A) for a prior taxable year because of such limitation. (g)

Special rules

(1)

Related parties

For purposes of this section— (A)

In general

All related persons shall be treated as 1 person. (B)

Related persons

A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b). (2)

Basis

For purposes of this subtitle, the basis of any investment with respect to which a credit is allowable under this section shall be reduced by the amount of such credit so allowed. This subsection shall not apply for purposes of sections 1202, 1397B, and 1400B. (3)

Recapture

The Secretary shall, by regulations, provide for recapturing the benefit of any credit allowable under subsection (a) with respect to any qualified equity investment which is held by the taxpayer less than 3 years, except that no benefit shall be recaptured in the case of— (A)transfer of such investment by reason of the death of the taxpayer, (B)transfer between spouses, (C)transfer incident to the divorce (as defined in section 1041) of such taxpayer, or (D)a transaction to which section 381(a) applies (relating to certain acquisitions of the assets of one corporation by another corporation). (h)

Regulations

The Secretary shall prescribe such regulations as may be appropriate to carry out this section, including regulations— (1)which prevent the abuse of the purposes of this section, (2)which impose appropriate reporting requirements, and (3)which apply the provisions of this section to newly formed entities.

(b)

Credit made part of general business credit

Subsection (b) of section 38 of the Internal Revenue Code of 1986 is amended— (1)in paragraph (35), by striking plus; (2)in paragraph (36), by striking the period at the end and inserting , plus; and (3)by adding at the end the following new paragraph:

(37)the portion of the angel investment tax credit to which section 30E(f)(1) applies.

(c)

Conforming amendments

(1)Section 1016(a) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and, and by inserting after paragraph (37) the following new paragraph:

(38)to the extent provided in section 30E(g)(2).

(2)Section 24(b)(3)(B) of such Code is amended by striking and 30D and inserting 30D, and 30E. (3)Section 25(e)(1)(C)(ii) of such Code is amended by inserting 30E, after 30D,. (4)Section 25A(i)(5)(B) of such Code is amended by striking and 30D and inserting , 30D, and 30E. (5)Section 25A(i)(5) of such Code is amended by inserting 30E, after 30D,. (6)Section 25B(g)(2) of such Code is amended by striking and 30D and inserting 30D, and 30E. (7)Section 26(a)(1) of such Code is amended by striking and 30D and inserting 30D, and 30E. (8)Section 30(c)(2)(B)(ii) of such Code is amended by striking and 30D and inserting , 30D, and 30E. (9)Section 30B(g)(2)(B)(ii) of such Code is amended by striking and 30D and inserting 30D, and 30E. (10)Section 30D(d)(2)(B)(ii) of such Code is amended by striking and 25D and inserting , 25D, and 30E. (11)Section 904(i) of such Code is amended by striking and 30D and inserting 30D, and 30E. (12)Section 1400C(d)(2) of such Code is amended by striking and 30D and inserting 30D, and 30E. (d)

Clerical amendment

The table of sections for subpart B of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Sec. 30E. Angel investment tax credit.

(e)

Effective date

The amendments made by this section shall apply to investments made after December 31, 2010, in taxable years ending after such date. (f)

Regulations on allocation of national limitation

Not later than 120 days after the date of the enactment of this Act, the Secretary of the Treasury or the Secretary's delegate shall prescribe regulations which specify— (1)how small business entities shall apply for an allocation under section 30E(e)(2) of the Internal Revenue Code of 1986, as added by this section, (2)the competitive procedure through which such allocations are made, (3)the criteria for determining an allocation to a small business entity, including— (A)whether the small business entity is located in a State that is historically underserved by angel investors and venture capital investors, (B)whether the small business entity has received an angel investment tax credit, or its equivalent, from the State in which the small business entity is located and registered, (C)whether small business entities in low-, medium-, and high-population density States are receiving allocations, and (D)whether the small business entity has been awarded a Small Business Innovative Research or Small Business Technology Transfer grant from a Federal agency, (4)the actions that such Secretary or delegate shall take to ensure that such allocations are properly made to qualified small business entities, and (5)the actions that such Secretary or delegate shall take to ensure that angel investment tax credits are allocated and issued to the taxpayer. (g)

Audit and report

Not later than January 31, 2014, the Comptroller General of the United States, pursuant to an audit of the angel investment tax credit program established under section 30E of the Internal Revenue Code of 1986 (as added by subsection (a)), shall report to Congress on such program, including all qualified small business entities that receive an allocation of an angel investment credit under such section.