Illinois offers the Illinois Angel Investment Tax Credit Program to boost the amount of capital injected into the working capital needs of innovative startups in Illinois. The tax credit is equal to 25% of the investment up to $2 million in Qualified New Business Ventures (QNBVs). To be a QNBV the business has to apply annually. Yearly, there is a total of $10 million in tax credits awarded to investors and of the $10 million there is $500,000 set aside for minority investments and $500,000 for investments in counties with a population 250,000 or less. Below are guidelines to qualify for this tax credit. 1
Qualified New Business Venture Guidelines
- The principal place of business in Illinois;
- Must be registered in good standing with the Illinois Secretary of State’s Office to transact business in Illinois;
- At least 51% of the employees employed by the business are located in Illinois;
- Has the potential for increasing jobs, increasing capital investment in Illinois, or both;
- Principally engaged in innovation in a qualifying sector outlined on page 6 through 7 of the statute;
- Not principally engaged in a disqualifying sector as defined by statute;
- Fewer than 100 employees;
- Has been in operation in Illinois for not more than 10 consecutive years;
- Has not received more than $10,000,000 in aggregate investments; or more than $4,000,000 in investments that qualified for tax credits;
- Agrees to maintain a minimum employment threshold in the State of Illinois for 3 years from the issue date of the last tax credit certificate.
Angel Investor Guidelines
- Investments must be made in a certified QNBV.
- Investments must be made on or after the date the QNBV was certified to participate in the program in the eligible CY.
- Investments must be given at a risk of loss and in consideration for an equity interest of the QNBV. For the purposes of this definition, an investment is at risk of loss if its repayment depends entirely upon the success of the business operations of the qualified new business venture.
- $10,000 is the minimum amount an applicant must invest in any single QNBV to be used as the basis for a credit.
- $2,000,000 is the maximum amount an applicant may invest in a single QNBV to be used as the basis for a credit.
- Investments must remain in the QNBV for a minimum of 3 years. Investors must attest their investment remains in the QNBV on the first, second and third anniversary of investment. Attestation forms will be accepted within 30 days prior to the anniversary of the investment.
- Tax credits cannot be sold or otherwise transferred.
- Only equity investments are eligible for tax credits.
- The Department may accept a Simple Agreement for Future Equity (SAFE agreement) as an eligible investment if the agreement has certain provisions that keep a SAFE investor in more or less the same position as a non-SAFE equity investor in terms of risk exposure and the SAFE must convert automatically and unconditionally within three years from the investment date.
- Investors must submit proof that funds were transferred and received by the QNBV. Acceptable documentation may include front and back of cancelled check or incoming wire documentation from the QNBV. The Department may request additional documentation as needed.
How do I apply for the Illinois Angel Investment Tax Credit Program?
This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.