II 

117TH CONGRESS 

2D SESSION S. 5262 

To amend the Internal Revenue Code of 1986 to allow a credit against 

income tax for equity investments by angel investors. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 14, 2022 

Mr. MURPHY introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to allow a 

credit against income tax for equity investments by angel 

investors. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Angel Tax Credit Act’’. 

5 SEC. 2. ANGEL INVESTMENT TAX CREDIT. 

6 (a) IN GENERAL.—Subpart B of part IV of sub7 chapter A of chapter 1 of the Internal Revenue Code of 

8 1986 is amended by adding at the end the following new 

9 section: 


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1 ‘‘SEC. 30E. ANGEL INVESTMENT TAX CREDIT. 

2 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be al3 lowed as a credit against the tax imposed by this chapter 

4 for the taxable year an amount equal to 25 percent of the 

5 qualified equity investments made by a qualified investor 

6 during the taxable year. 

7 ‘‘(b) LIMITATION.—The amount of the credit allowed 

8 under subsection (a) for any taxpayer for any taxable year 

9 shall not exceed $250,000. 

10 ‘‘(c) QUALIFIED EQUITY INVESTMENT.—For pur11 poses of this section— 

12 ‘‘(1) IN GENERAL.—The term ‘qualified equity 

13 investment’ means any equity investment in a quali14 fying business entity if— 

15 ‘‘(A) the aggregate amount of such invest16 ments made by the taxpayer during the taxable 

17 year is $25,000 or more, 

18 ‘‘(B) such investment is acquired by the 

19 taxpayer at its original issue (directly or 

20 through an underwriter) solely in exchange for 

21 cash, and 

22 ‘‘(C) such investment is designated for 

23 purposes of this section by the qualifying busi24 ness entity. 

25 ‘‘(2) EQUITY INVESTMENT.—The term ‘equity 

26 investment’ means— 


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1 ‘‘(A) any form of equity, including a gen2 eral or limited partnership interest, common 

3 stock, preferred stock (other than nonqualified 

4 preferred stock as defined in section 351(g)(2)), 

5 with or without voting rights, without regard to 

6 seniority position and whether or not convert7 ible into common stock or any form of subordi8 nate or convertible debt, or both, with warrants 

9 or other means of equity conversion, and 

10 ‘‘(B) any capital interest in an entity 

11 which is a partnership. 

12 ‘‘(3) REDEMPTIONS.—A rule similar to the rule 

13 of section 1202(c)(3) shall apply for purposes of this 

14 subsection. 

15 ‘‘(d) QUALIFYING BUSINESS ENTITY.—For purposes 

16 of this section— 

17 ‘‘(1) IN GENERAL.—The term ‘qualifying busi18 ness entity’ means any domestic corporation or part19 nership if such corporation or partnership— 

20 ‘‘(A) has its headquarters in the United 

21 States, 

22 ‘‘(B) has gross revenues for the taxable 

23 year preceding the date of the qualified equity 

24 investment of less than $1,000,000, 


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1 ‘‘(C) employs less than 25 full-time equiva2 lent employees as of the date of such invest3 ment, 

4 ‘‘(D) has been in existence for less than 7 

5 years as of the date of the qualified equity in6 vestment, 

7 ‘‘(E) has more than 50 percent of the em8 ployees performing substantially all of their 

9 services in the United States as of the date of 

10 such investment, 

11 ‘‘(F) is engaged in a high technology trade 

12 or business related to— 

13 ‘‘(i) advanced materials, nanotechnol14 ogy, or precision manufacturing, 

15 ‘‘(ii) aerospace, aeronautics, or de16 fense, 

17 ‘‘(iii) biotechnology or pharma18 ceuticals, 

19 ‘‘(iv) electronics, semiconductors, soft20 ware, or computer technology, 

21 ‘‘(v) energy, environment, or clean 

22 technologies, 

23 ‘‘(vi) forest products or agriculture, 


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1 ‘‘(vii) information technology, commu2 nication technology, digital media, or 

3 photonics, 

4 ‘‘(viii) life sciences or medical 

5 sciences, 

6 ‘‘(ix) marine technology or aqua7 culture, 

8 ‘‘(x) transportation, or 

9 ‘‘(xi) any other high technology trade 

10 or business, as determined by the Sec11 retary of the Treasury, and 

12 ‘‘(G) has equity investments designated for 

13 purposes of this paragraph. 

14 ‘‘(2) DESIGNATION OF EQUITY INVEST15 MENTS.—For purposes of paragraph (1)(G), an eq16 uity investment shall not be treated as designated if 

17 such designation would result in the aggregate 

18 amount which may be taken into account under this 

19 section with respect to equity investments in such 

20 corporation or partnership exceeds $2,000,000, tak21 ing into account the total amount of all qualified eq22 uity investments made by all taxpayers for the tax23 able year and all preceding taxable years. 

24 ‘‘(e) QUALIFIED INVESTOR.—For purposes of this 

25 section— 


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1 ‘‘(1) IN GENERAL.—The term ‘qualified inves2 tor’ means an accredited investor, as defined by the 

3 Securities and Exchange Commission. 

4 ‘‘(2) EXCLUSION.—The term ‘qualified investor’ 

5 does not include— 

6 ‘‘(A) a person controlling at least 50 per7 cent of the qualifying business entity, 

8 ‘‘(B) any venture capital fund (within the 

9 meaning of section 203(l) of the Investment 

10 Advisers Act of 1940 (15 U.S.C. 80b–3(l))), or 

11 ‘‘(C) any bank, savings association, loan 

12 association, trust company, insurance company, 

13 or similar entity whose business activities in14 clude making similar investments to invest15 ments of a venture capital fund (as so defined). 

16 ‘‘(f) NATIONAL LIMITATION ON AMOUNT OF INVEST17 MENTS DESIGNATED.— 

18 ‘‘(1) IN GENERAL.—There is an angel invest19 ment tax credit limitation of $500,000,000 for each 

20 of calendar years 2023 through 2027. 

21 ‘‘(2) ALLOCATION OF LIMITATION.—The limita22 tion under paragraph (1) shall be allocated by the 

23 Secretary among qualified business entities selected 

24 by the Secretary. 


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1 ‘‘(3) CARRYOVER OF UNUSED LIMITATION.—If 

2 the angel investment tax credit limitation for any 

3 calendar year exceeds the aggregate amount allo4 cated under paragraph (2) for such year, such limi5 tation for the succeeding calendar year shall be in6 creased by the amount of such excess. No amount 

7 may be carried under the preceding sentence to any 

8 calendar year after 2032. 

9 ‘‘(g) APPLICATION WITH OTHER CREDITS.— 

10 ‘‘(1) BUSINESS CREDIT TREATED AS PART OF

11 GENERAL BUSINESS CREDIT.—Except as provided in 

12 paragraph (2), the credit which would be allowed 

13 under subsection (a) for any taxable year (deter14 mined without regard to this subsection) shall be 

15 treated as a credit listed in section 38(b) for such 

16 taxable year (and not allowed under subsection (a)). 

17 ‘‘(2) PERSONAL CREDIT.— 

18 ‘‘(A) IN GENERAL.—In the case of an indi19 vidual who elects the application of this para20 graph, for purposes of this title, the credit al21 lowed under subsection (a) for any taxable year 

22 (determined after application of paragraph (1)) 

23 shall be treated as a credit allowable under sub24 part A for such taxable year. 


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1 ‘‘(B) CARRYFORWARD OF UNUSED CRED2 IT.—If the credit allowable under subsection (a) 

3 by reason of subparagraph (A) exceeds the limi4 tation imposed by section 26(a) for such taxable 

5 year, reduced by the sum of the credits allow6 able under subpart A (other than this section) 

7 for such taxable year, such excess shall be car8 ried to each of the succeeding 20 taxable years 

9 to the extent that such unused credit may not 

10 be taken into account under subsection (a) by 

11 reason of subparagraph (A) for a prior taxable 

12 year because of such limitation. 

13 ‘‘(h) SPECIAL RULES.— 

14 ‘‘(1) RELATED PARTIES.—For purposes of this 

15 section— 

16 ‘‘(A) IN GENERAL.—All related persons 

17 shall be treated as 1 person. 

18 ‘‘(B) RELATED PERSONS.—A person shall 

19 be treated as related to another person if— 

20 ‘‘(i) the relationship between such per21 sons would result in the disallowance of 

22 losses under section 267 or 707(b), or 

23 ‘‘(ii) for purposes of subsection (e), 

24 the person is an individual who is the 


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1 spouse of a lineal descendant of an indi2 vidual described in subsection (e)(2)(A). 

3 ‘‘(2) BASIS.—For purposes of this subtitle, the 

4 basis of any investment with respect to which a cred5 it is allowable under this section shall be reduced by 

6 the amount of such credit so allowed. This sub7 section shall not apply for purposes of sections 1202 

8 and 1397B. 

9 ‘‘(3) RECAPTURE.—The Secretary shall, by reg10 ulations, provide for recapturing the benefit of any 

11 credit allowable under subsection (a) with respect to 

12 any qualified equity investment which is held by the 

13 taxpayer less than 3 years, except that no benefit 

14 shall be recaptured in the case of— 

15 ‘‘(A) transfer of such investment by reason 

16 of the death of the taxpayer, 

17 ‘‘(B) transfer between spouses, 

18 ‘‘(C) transfer incident to the divorce (as 

19 defined in section 1041) of such taxpayer, or 

20 ‘‘(D) a transaction to which section 381(a) 

21 applies (relating to certain acquisitions of the 

22 assets of one corporation by another corpora23 tion). 


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1 ‘‘(i) REGULATIONS.—The Secretary shall prescribe 

2 such regulations as may be appropriate to carry out this 

3 section, including regulations— 

4 ‘‘(1) which prevent the abuse of the purposes of 

5 this section, 

6 ‘‘(2) which impose appropriate reporting re7 quirements, and 

8 ‘‘(3) which apply the provisions of this section 

9 to newly formed entities.’’. 

10 (b) CREDIT MADE PART OF GENERAL BUSINESS

11 CREDIT.—Subsection (b) of section 38 of the Internal 

12 Revenue Code of 1986, as amended by Public Law 117– 

13 169, is amended— 

14 (1) in paragraph (39), by striking ‘‘plus’’; 

15 (2) in paragraph (40), by striking the period at 

16 the end and inserting ‘‘, plus’’; and 

17 (3) by adding at the end the following new 

18 paragraph: 

19 ‘‘(41) the portion of the angel investment tax 

20 credit to which section 30E(g)(1) applies.’’. 

21 (c) CONFORMING AMENDMENTS.— 

22 (1) Section 1016(a) of the Internal Revenue 

23 Code of 1986 is amended by striking ‘‘and’’ at the 

24 end of paragraph (37), by striking the period at the 

25 end of paragraph (38) and inserting ‘‘, and’’, and by 


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1 inserting after paragraph (38) the following new 

2 paragraph: 

3 ‘‘(39) to the extent provided in section 

4 30E(h)(2).’’. 

5 (2) The table of sections for subpart B of part 

6 IV of subchapter A of chapter 1 of the Internal Rev7 enue Code of 1986 is amended by adding at the end 

8 the following new item: 

‘‘Sec. 30E. Angel investment tax credit.’’. 

9 (d) EFFECTIVE DATE.—The amendments made by 

10 this section shall apply to investments made after Decem11 ber 31, 2022, in taxable years ending after such date. 

Æ 


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