Thursday, December 1, 2011

Minnesota Angel Tax Credit—What Else You Need to Know for 2012

Many of you saw Karen Wenzel’s blog post on the Minnesota Angel Tax Credit earlier this week, which noted that Minnesota has exhausted its $15.9 million of available credits for 2011 and is now accepting applications for credits in 2012, when it will have $12 million available to allocate. This post will provide some additional information regarding the application process for 2012. 

If you are intending to take advantage of the angel tax credit in 2012, the process is the same as for 2011. That is, a qualified investor needs to make a qualifying investment in a qualified business and apply to receive a tax credit allocation before the pool of available tax credits has been fully allocated. The first step in the process is for the company and the investor to become qualified. This is accomplished by submitting a certification to the Minnesota Department of Employment and Economic Development (DEED). There are separate forms for businesses, individuals, and funds.

There are several requirements to becoming a qualified business or qualified investor, all of which are summarized on DEED’s website. After the business and investor have been qualified for the angel tax credit program, they must use this form to jointly request an allocation of available tax credits before the qualifying investment is made. Once the investment has been approved for an allocation by DEED, the investment must be made within 60 days. Within 15 days of completing the investment, the investor must send evidence to DEED of the investment using this form. 

The process for obtaining a tax credit is not particularly difficult, and all of these forms are short and straightforward, but it can take several weeks (6-8) before an allocation is granted. That time period can be a serious challenge for a company that needs money and has investors ready to invest. My recommendation is for companies and investors to begin the application process as soon as possible, preferably at the beginning of an offering, so that there is no unnecessary delay waiting to become qualified for the investment. I know of at least one company that is already beginning the process of certification for the angel tax credit in anticipation of raising capital in 2012. 

Given that $15.9 million in tax credits was exhausted before Thanksgiving this year, it’s likely that the $12 million available for allocation next year will go even more quickly.

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