Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 304 - Adjustments to Computed Tax and Tax Credits › Rule 701-304.22 - Venture Capital Credits

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
Investment tax credit for an equity investment in a qualifying business
				or community-based seed capital fund.
a.
Equity investments in a qualifying
				business or community-based seed capital fund before January 1, 2011.
See rule 123-2.1 (15E) for the discussion
				of the investment tax credit for an equity investment in a qualifying business
				or community-based seed capital fund, along with the issuance of tax credit
				certificates by the Iowa capital investment board, for equity investments made
				before January 1, 2011. For equity investments made in a qualifying business
				prior to January 1, 2004, only direct investments made by an individual are
				eligible for the investment tax credit. Individuals receiving income from a
				revocable trust's investment in a qualifying business are eligible for the
				investment tax credit for the portion of the revocable trust's equity
				investment in a qualifying business.
b.
Equity investments in a qualifying
				business or community-based seed capital fund on or after January 1, 2011, and
				before July 2, 2015.
For equity investments made on or after January
				1, 2011, see 261-Chapter 115 for information regarding eligibility for
				qualifying businesses and community-based seed capital funds, applications for
				the investment tax credit for equity investments in a qualifying business or
				community-based seed capital fund, and the issuance of tax credit certificates
				by the economic development authority.
(1)
				Certificate issuance. The department of revenue will be notified by the
				economic development authority when the tax credit certificates are
				issued.
(2) Amount of the tax
				credit. The credit is equal to 20 percent of the taxpayer's equity investment
				in a qualifying business or community-based seed capital fund.
(3) Year in which the tax credit may be
				claimed. An investment shall be deemed to have been made on the same date as
				the date of acquisition of the equity interest as determined by the Internal
				Revenue Code. For investments made prior to January 1, 2014, a taxpayer shall
				not claim the tax credit prior to the third tax year following the tax year in
				which the investment is made. For investments made in qualifying businesses on
				or after January 1, 2014, the credit can be claimed in the year of the
				investment. However, for investments made in qualifying businesses during the
				2014 calendar year, the credit cannot be redeemed prior to January 1, 2016. For
				example, if an individual taxpayer whose tax year ends on December 31, 2012,
				makes an equity investment during the 2012 calendar year, the individual
				taxpayer cannot claim the tax credit until the tax year ending December 31,
				2015. However, if the taxpayer dies prior to redeeming the tax credit, the
				remaining tax credit may be redeemed on the decedent's final income tax return.
				For fiscal years beginning July 1, 2011, the amount of tax credits authorized
				cannot exceed $2 million. The tax credit certificate must be included with the
				taxpayer's return for the tax year in which the credit may be redeemed as
				stated on the tax credit certificate.
(4) Carried over tax credits. If a tax credit
				is carried over and issued for the tax year immediately following the year in
				which the investment was made because the $2 million cap has been reached, the
				tax credit may be claimed by the taxpayer for the third tax year following the
				tax year for which the credit is issued. For example, if an individual taxpayer
				makes an equity investment in December 2012 and the $2 million cap for the
				fiscal year ending June 30, 2013, had already been reached, the tax credit will
				be issued for the tax year ending December 31, 2013, and cannot be redeemed
				until the tax year ending December 31, 2016.
(5) Limitations. Any credit in excess of the
				tax liability for the tax year may be credited to the tax liability for the
				following five years or until used, whichever is the earlier. The tax credit
				cannot be carried back to a tax year prior to the tax year in which the
				taxpayer claims the tax credit. The tax credit is not transferable to any other
				taxpayer.
(6) Pro rata tax credit
				claims for certain business entities. For equity investments made in a
				community-based seed capital fund or equity investments made in a qualifying
				business on or after January 1, 2004, an individual may claim the credit if the
				investment was made by a partnership, S corporation, limited liability company,
				or an estate or trust electing to have the income directly taxed to the
				individual. The amount claimed by an individual must be based on the
				individual's pro rata share of the individual's earnings of the partnership, S
				corporation, limited liability company, or estate or trust.
c.
Equity investments in a
				qualifying business on or after July 2, 2015.
For equity investments
				made on or after July 2, 2015, see 261-Chapter 115 for information regarding
				eligibility for qualifying businesses, applications for the investment tax
				credit for equity investments in a qualifying business, and the issuance of tax
				credit certificates by the economic development authority.
(1) Certificate issuance. The department of
				revenue will be notified by the economic development authority when the tax
				credit certificates are issued.
(2)
				Amount of the tax credit. For fiscal years beginning July 1, 2011, the amount
				of the tax credits authorized cannot exceed $2 million. The credit is equal to
				25 percent of the taxpayer's equity investment in a qualifying business. In any
				one calendar year, the amount of tax credits issued for any one qualifying
				business shall not exceed $500,000. The maximum amount of tax credit that may
				be issued per calendar year to a natural person and the person's spouse or
				dependent shall not exceed $100,000 combined. For purposes of this paragraph,
				"dependent" has the same meaning as provided by the Internal Revenue
				Code.
(3) Year in which the tax
				credit may be claimed. A taxpayer shall not claim a tax credit prior to
				September 1, 2016. The tax credit certificate must be included with the
				taxpayer's return for the tax year in which the credit may be redeemed as
				stated on the tax credit certificate. For purposes of this paragraph, an
				investment shall be deemed to have been made on the same date as the date of
				acquisition of the equity interest as determined by the Internal Revenue
				Code.
(4) Pro rata tax credit
				claims for certain business entities. An individual may claim the credit if the
				investment was made by a partnership, S corporation, limited liability company,
				or an estate or trust electing to have the income directly taxed to the
				individual. The amount claimed by an individual must be based on the
				individual's pro rata share of the individual's earnings of the partnership, S
				corporation, limited liability company, or estate or trust. Any credits claimed
				by an individual are subject to the limitations provided in
				42.22(1)
"c"
(2) above.
(5) Refundability. For a tax credit claimed
				against the taxes imposed in Iowa Code chapter 422, division II, any tax credit
				in excess of the tax liability is refundable. In lieu of claiming a refund, the
				taxpayer may elect to have the overpayment shown on the taxpayer's final
				completed return credited to the tax liability for the following tax
				year.
(6) Transfers and carryback
				of tax credits prohibited. The tax credit cannot be carried back to a tax year
				prior to the tax year in which the taxpayer claims the tax credit. The tax
				credit is not transferable to any other taxpayer.