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Client Alert: Insight on Massachusetts' Angel Investor Credit

In 2016, Governor Baker signed into law a Massachusetts tax credit program intended to spur angel investments into local high-tech start-ups, and particularly those in the fields of digital e-health, information technology and healthcare. This law became effective August 10, 2017. Whether you are considering making an angel investment or you are interested in this kind of funding for your high-tech start-up company, here’s an overview of what you need to know.   

The tax credit program is limited to $25 million annually, with the credits being doled out by the Massachusetts Life Sciences Center (MLSC). The MLSC has not yet promulgated the regulations that will govern the program. Individual investors should urge their companies of interest to seek qualification with the MLSC where appropriate. Companies interested in attracting angel funding in 2017 can monitor developments of the program by subscribing on the MLSC’s website here to receive updates.

Who is Eligible to Claim Credit?
Investors must be accredited investors. As defined by the SEC, an accredited investor is any natural person whose individual net worth, or joint net worth with that person's spouse, exceeds $1,000,000, although additional definitions exist as well.

Additionally:

  • Qualifying investors cannot be the principal owner of the business and must be involved in the qualifying business as a full-time professional activity.
  • Investors in qualifying businesses will be permitted to take a personal tax credit of 20% of the amount invested, or 30% if the business is in a “Gateway Municipality”  
  • No single taxpayer can claim more than $50,000 in tax credits in a year, but investors may carry forward any unused tax credits for up to three years

What is a Qualifying Investment?
Qualifying investments are limited to $125,000 in any one business per year and $250,000 total for any one business. Qualifying investments may not be used to pay dividends, repay shareholder loans or redeem shares. Additionally, the program does not cover investments in hedge funds, venture capital funds, retail operations, real estate, professional services, gaming or financial services.

Companies wishing to be qualified for the program must have the following:

  • A principal place of business in Massachusetts
  • 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
  • Twenty or fewer full-time employees (at least half of whom work out of the company’s principal place of business)
  • Less than $500,000 in gross revenue in the prior fiscal year to being eligible for the credit

Moreover, tax credits claimed are subject to forfeiture if the company moves out of Massachusetts within three years.

What is a Gateway Municipality (30% Credit)?
A gateway municipality is a municipality with a population greater than 35,000 and less than 250,000, with a median household income below the commonwealth's average and a rate of educational attainment of a bachelor's degree or above that is below the commonwealth's average.

Gateway municipalities in Massachusetts include: Attleboro, Barnstable, Brockton, Chelsea, Chicopee, Everett, Fall River, Fitchburg, Haverhill, Holyoke, Lawrence, Leominster, Lowell, Lynn, Malden, Methuen, New Bedford, Peabody, Pittsfield, Quincy, Revere, Salem, Springfield, Taunton, Westfield and Worcester.

If you have any questions on the Massachusetts Angel Investor tax credit, please contact Hillary Burr, CPA, MST, CAP, Member of the Firm, at 617-428-5460 or hburr@wolfandco.com, or Gary J. Emond, Jr., CPA, MST, Principal, at 617-261-8164 or gemond@wolfandco.com.