Section 531.10  Purpose

 

The Department is charged with implementation of the Angel Investment Credit Program in order to provide tax credit awards to claimants to help stimulate job growth and expand capital investment in Illinois. 

 

Section 531.20  Definitions

 

The following definitions are applicable to the Angel Investment Credit Program.

 

"Act" means the Illinois Income Tax Act [35 ILCS 5].

 

"Applicant" means a corporation, partnership, limited liability company, or a natural person that makes an investment in a qualified new business venture that applies to the Angel Investment Tax Credit. The term "applicant" does not include a corporation, partnership, limited liability company, or a natural person who has a direct or indirect ownership interest of at least 51% in the profits, capital, or value of the qualified new business venture receiving the investment or a related member. [35 ILCS 5/220(a)]

 

"Claimant" means an applicant certified by the Department who files a claim for a credit under Section 531.50. [35 ILCS 5/220(a)]

 

"Contingent equity investment" means money (or its equivalent) given to a qualified new business venture in consideration for a future equity interest that matures or converts to equity within three years after the investment. If the agreement governing investment does not provide for mandatory and unconditional conversion within three years after the investment, the investment will not be considered a contingent equity investment. Contingent equity investments that have features of a debt instrument may be ineligible for a tax credit if the agreement contains unreasonable risk mitigation provisions, as determined by the Department.

 

"Department" means the Illinois Department of Commerce and Economic Opportunity. [35 ILCS 5/220(a)]

 

"Employee" means an individual who is employed for consideration for at least 35 hours each week or who renders any other standard of service generally accepted by industry custom or practice as full-time employment. Annually scheduled periods for inventory or repairs, vacations, holidays and paid time for sick leave, vacation or other leave is included in this computation of full-time employment.  An individual for whom a W-2 is issued by a Professional Employer Organization (PEO) is a full-time employee if employed in the service of the applicant for consideration for at least 35 hours each week or who renders to the applicant any other standard of service generally accepted by industry custom or practice as full-time employment. For example, an employee who works 25 hours per week meets the industry standard for full-time in the package delivery industry, and an employee who is employed for a least 35 hours per week during the historical seasonal production meets the industry standard for full-time in the candy manufacturing industry.

 

"Full-time equivalent job" means the number of hours worked by multiple employees to equal the number of hours worked by one full-time employee.  For purposes of this definition, full-time employee means a person who works a minimum of 35 hours per week for a minimum of 13 consecutive weeks to be counted toward full-time equivalency.

 

"Investment" means money (or its equivalent) given to a qualified new business venture, at a risk of loss, in consideration for an equity interest of the qualified new business venture. [35 ILCS 5/220(a)]  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. A contingent equity investment is an investment.

 

"Liquidity event" means any event that would be considered an exit for an illiquid investment, including any event that allows the equity holders of the business (or any material portion of the business) to cash out some or all of their respective equity interests. [35 ILCS 5/220(i)(3)]

 

"Minimum employment threshold" means:

 

at least 51% of the business' employee positions are in Illinois; or

 

the principal place of business is in Illinois.

 

"Principal place of business" means the place where the business' high-level officers direct, control, and coordinate the business' activities.

 

"Qualified new business venture" means a business that is registered with the Department under Section 531.60. [35 ILCS 5/220(a)]

 

"Qualifying liquidity event" means a liquidity event in which the claimant does not convey an equity interest to the qualified new business venture or a related member of the qualified new business venture.

 

"Related member" means a person that, with respect to the term "applicant", is any one of the following:

 

An individual, if the individual and the members of the individual's family (as defined in section 318 of the Internal Revenue Code (26 U.S.C. 318)) own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the value of the outstanding profits, capital, stock, or other ownership interest in the recipient of the applicant's investment.

 

A partnership, estate or trust and any partner or beneficiary, if the partnership, estate or trust and its partners or beneficiaries own directly, indirectly, beneficially, or constructively, in the aggregate, at least 50% of the profits, capital, stock or other ownership interest in the recipient of the applicant's investment.

 

A corporation and any party related to the corporation in a manner that would require an attribution of stock from the corporation under the attribution rules of section 318 of the Internal Revenue Code (26 U.S.C. 318), if the applicant and any other related member own, in the aggregate, directly, indirectly, beneficially, or constructively, at least 50% of the value of the outstanding stock of the recipient of the applicant's investment.

 

A corporation and any party related to that corporation in a manner that would require an attribution of stock from the corporation to the party or from the party to the corporation under the attribution rules of section 318 of the Internal Revenue Code if the corporation and all such related parties own, in the aggregate, at least 50% of the profits, capital, stock, or other ownership interest in the recipient of the applicant's investment.

 

A person to or from whom there is attribution of ownership of the stock of the recipient of the applicant's investment in accordance with section 1563(e) of the Internal Revenue Code (26 U.S.C. 1563(e)), except that, for purposes of determining whether a person is a related member under this paragraph, "20%" shall be substituted for "5%" whenever "5%" appears in section 1563(e) of the Internal Revenue Code. [35 ILCS 5/220(a)]

 

"Unreasonable risk mitigation provisions" means investment terms that remove a significant degree of the risk of loss, as determined by the Department, during the three years following the investment. Examples of these provisions include provisions for interest payments, security, and priority in the event of liquidation.

 

(Source:  Amended at 48 Ill. Reg. 11949, effective July 29, 2024)

 

Section 531.30  Tax Credit Directives

 

a)         For taxable years beginning after December 31, 2010 and ending on or before December 31, 2026, subject to the limitations provided in the Act, a claimant may claim, as a credit against the tax imposed under Section 201(a) and (b) of the Act, an amount equal to 25% of the claimant's investment made directly in a qualified new business venture. However, effective January 1, 2024, the amount of the credit is 35% of the claimant's investment made directly in the qualified new business venture if the investment is made in:

 

1)         a qualified new business venture that is:

 

A)        a minority-owned business, defined as, a business which is at least 51% owned by one or more minority persons, or in the case of a corporation, at least 51% of the stock in which is owned by one or more minority persons or in the case of a corporation, at least 51% of the stock in which is owned by one or more minority persons; and the management and daily business operations of which are controlled by one or more of the minority individuals who own it;

 

B)        a women-owned business, defined as, a business which is at least 51% owned by one or more women, or, in the case of a corporation, at least 51% of the stock in which is owned by one or more women; and the management and daily business operations of which are controlled by one or more of the women who own it; or

 

C)        a business owned by a person with a disability, defined as, a business that is at least 51% owned by one or more persons with a disability and the management and daily business operations of which are controlled by one or more persons with disabilities that is exempt from taxation under Section 501 of the Internal Revenue Code of 1986 is also considered a "business owned by a person with a disability" [30 ILCS 575/2(A)]; or

 

2)         a qualified new business venture in which the principal place of business is located in a county with population of not more than 250,000.  [35 ILCS 5/220(b)]

 

b)         The credit under this Section may not exceed the taxpayer's Illinois income tax liability for the taxable year. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first. In the case of a partnership or subchapter S corporation, the credit is allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under sections 702 and 704 and subchapter S of the Internal Revenue Code (26 U.S.C. 702, 704 and subchapter S). [35 ILCS 5/220(b)]

 

c)         The minimum amount an applicant must invest in any single qualified new business venture in order to be eligible for a credit under the Act is $10,000. The maximum amount of an applicant's total investment in any single qualified new business venture that may be used as the basis for a credit under the Act is $2,000,000.  [35 ILCS 5/220(c)]

 

d)         The aggregate amount of the tax credits that may be claimed under the Act for investments made in qualified new business ventures shall be limited to $15,000,000 per calendar year, of which $5,000,000 will be reserved for certain qualified new business ventures as set forth in Section 531.55. [35 ILCS 5/220(f)] 

 

e)         A claimant may not sell or otherwise transfer a credit award under the Act to another person or entity. [35 ILCS 5/220(g)]

 

(Source:  Amended at 48 Ill. Reg. 11949, effective July 29, 2024)

 

Section 531.40  Application Requirements

 

a)         In order to qualify for a tax credit certificate under the Act, an applicant must adhere to the requirements established by the Department. The Department will provide interested applicants with information upon request. Submittal of a tax credit claimant application does not commit the Department to award a tax credit or to pay any costs incurred by the applicant in the preparation of an application. Applications are valid only for the calendar year quarter in which they are submitted to the Department.

 

b)         All applications shall be submitted to the Department. The application shall at a minimum include:

 

1)         The name, address, email, and telephone number of applicant; key contact and title; applicant Social Security Number or Federal Employer Identification Number (FEIN);

 

2)         The total amount of investment the claimant has made in the qualified new business venture;

 

3)         A complete copy of the agreement governing the investment;

 

4)         Proof, as determined by the Department, that the investment has been made;

 

5)         Any other provisions or information the Department determines necessary to facilitate the Department's evaluation.

 

c)         The applicant is responsible for the accuracy of all data, information and documentation submitted to the Department.

 

d)         Except for information mandated to be reported to the General Assembly, any materials or data made available or received by any agent or employee of the Department shall be deemed confidential and shall not be deemed public records to the extent that the materials or data consist of trade secrets, commercial or financial information regarding the operation of the business conducted by the applicant for, or recipient of, any tax credit under the Act.

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)

 

Section 531.50  Application Review and Approval  

 

a)         The Department shall accept applications after January 1, 2011 and via the procedures established by the Department. Applications will be reviewed in order received at the Department's Springfield office or electronically at Angelinvestment@illinois.gov.  Application tracking procedures shall be determined and established at the discretion of the Department.

 

b)         After receipt of an application and upon satisfactory review, the Department shall issue a tax credit certificate stating the amount of the tax credit. [35 ILCS 5/220(d)]

 

c)         On a form provided by the Department, the claimant must annually report and certify that claimant's investment has been made and remains in the qualified new business venture.  Upon satisfactory review, the Department shall annually certify that:

 

1)         each qualified new business venture that receives an investment under this Section has maintained a minimum employment threshold in the State (and continues to maintain a minimum employment threshold in the State for a period of no less than 3 years from the issue date of the last tax credit certificate issued by the Department with respect to that business); and

 

2)         the claimant's investment has been made and remains in the qualified new business venture for no less than 3 years, except in the event of a qualifying liquidity event. [35 ILCS 5/220(d)]

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)

 

Section 531.55  Allocation of Tax Credits

 

a)         For taxable years beginning before January 1, 2024:

 

1)         The aggregate amount of the tax credits that may be claimed under the Angel Investment Credit Program for investments made in qualified new business ventures shall be limited to $10,000,000 per calendar year. [35 ILCS 5/220(f)]

 

2)         Of the aggregate amount, $500,000 shall be reserved for investments made in qualified new business ventures that are "minority-owned businesses", "women-owned businesses", or "businesses owned by a person with a disability" (as those terms are used and defined in the Business Enterprise for Minorities, Females, and Persons with Disabilities Act [30 ILCS 575/2]), and an additional $500,000 shall be reserved for investments made in qualified new business ventures with their principal place of business in counties with a population of not more than 250,000. [35 ILCS 5/220(f)]

 

b)         For the taxable years beginning on or after January 1, 2024:

 

1)         The aggregate amount of the tax credits that may be claimed under the Angel Investment Credit Program for investments made in qualified new business ventures shall be limited to $15,000,000 per calendar year.

 

2)         $2,500,000 of such aggregate amount shall be reserved for investments made in qualified new business ventures that are minority-owned businesses, as the term is defined in 30 ILCS 575/2(A)(3).

 

c)         The foregoing annual allowable amounts shall be allocated by the Department, on a per calendar quarter basis and prior to the commencement of each calendar year, in such proportion as determined by the Department, provided that:

 

1)         the amount initially allocated by the Department for any one calendar quarter shall not exceed $3,500,000; and

 

2)         any portion of the allocated allowable amount remaining unused as of the end of any of the first 2 calendar quarters of a given calendar year shall be rolled into, and added to, the total allocated amount for the next available calendar quarter. [35 ILCS 5/220(f)]

 

d)         The Department may roll over any unused credits at the end of the third calendar quarter into the fourth calendar quarter.

 

(Source:  Amended at 48 Ill. Reg. 11949, effective July 29, 2024)

 

Section 531.60  Qualified New Business Registration Guidelines  

 

a)         A business desiring registration shall submit an application to the Department in each taxable year for which the business desires registration. [35 ILCS 5/220(e)]

 

b)         The Department may register the business only if the business satisfies all of the following conditions:

 

1)         It has its principal place of business in this State;

 

2)         At least 51% of the employees employed by the business are employed in this State;

 

3)         It has the potential for increasing jobs in this State, increasing capital investment in this State, or both, as determined by the Department, and either of the following apply:

 

A)        It is principally engaged in innovation in any of the following: manufacturing; biotechnology; nanotechnology; communications; agricultural sciences; clean energy creation or storage technology; processing or assembling products, including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, other innovative technology products, or other products that are produced using manufacturing methods that are enabled by applying proprietary technology; or providing services that are enabled by applying proprietary technology; or

 

B)        It is undertaking pre-commercialization activity related to proprietary technology that includes conducting research, developing a new product or business process, or developing a service that is principally reliant on applying proprietary technology;

 

4)         It is not principally engaged in real estate development; insurance; banking; lending; lobbying; political consulting; professional services provided by attorneys, accountants, business consultants, physicians, or health care consultants; wholesale or retail trade; leisure; hospitality; transportation; or construction, except construction of power production plants that derive energy from a renewable energy resource, as defined in Section 1 of the Illinois Power Agency Act [20 ILCS 3855];

 

5)         It has fewer than 100 employees at initial time of registration;

 

6)         It has been in operation in Illinois for not more than 10 consecutive years prior to beginning of the year of certification;

 

7)         It has received not more than:

 

A)        $10,000,000 in aggregate investments; or

 

B)        $4,000,000 in investments that qualified for tax credits; and

 

8)         It agrees to maintain a minimum employment threshold in the State of Illinois for at least 3 years from the date of issuance of any tax credit certificate issued to a claimant with respect to that business. [35 ILCS 5/220(e)]

 

c)         For purposes of subsection (b), the number of employees of a business shall be determined on a full-time equivalent basis.

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)

 

Section 531.70  Tax Credit Certificate 

 

a)         Per the requirements of the Act and upon satisfactory compliance with registration and reporting guidelines, the Department shall provide the claimant with a tax credit certificate.  The certificate shall include the following:

 

1)         The name and Social Security Number or FEIN of the claimant;

 

2)         The date on which the certificate is issued;

 

3)         The tax credit amount; and

 

4)         Any other information the Department determines to be appropriate.

 

b)         Except as provided in Section 531.40(d), information contained in certificates issued under the Act shall be subject to reporting under Section 531.80.

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)

 

Section 531.80  Reporting and Tracking Procedures

 

a)         On or before March 1 of each year, the Department shall report to the Governor and to the General Assembly on the tax credit certificates awarded under this Section for the prior calendar year.  [35 ILCS 5/220(h)]

 

b)         This report must include, for each tax credit certificate awarded:

 

1)         The name of the claimant and the amount of credit awarded or allocated to that claimant;

 

2)         The name and address of the qualified new business venture that received the investment giving rise to the credit and the county in which the qualified new business venture is located;

 

3)         The North American Industry Classification System (NAICS) code applicable to that qualified new business venture;

 

4)         The number of employees of the qualified new business venture, and the locations of their employment; and

 

5)         The date of approval by the Department of the applications for the tax credit certificate. [35 ILCS 5/220(h)(1)]

 

c)         The report must also include:

 

1)         The total number of applicants and the total number of claimants, including the amount awarded to each claimant under the Act in the prior calendar year;

 

2)         The total number of applications from businesses seeking registration under the Act, the total number of first-time qualified new business venture registrants, and the aggregate amount of investment upon which tax credit certificates were issued in the prior calendar year; and

 

3)         The total amount of tax credit certificates sought by applicants, the aggregate amount of all tax credit certificates issued in the prior calendar year, and the aggregate amount of tax credit certificates issued as authorized under the Act for all calendar years.  [35 ILCS 5/220(h)(2)]  

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)

 

Section 531.90  Noncompliance

 

a)         If the Department determines that a claimant who has received a credit under the   Act or a qualified new business venture that was the recipient of an investment under the Act is not complying with the requirements or provisions of the Act,  the claimant shall pay to the Department of Revenue, in the manner prescribed by the Department of Revenue, the amount of the credit that the claimant received related to the investment. [35 ILCS 5/220(d)]

 

b)         A qualified new business venture may be found in noncompliance for:

 

1)         Failing to maintain the minimum employment threshold for at least through the date 3 years from the issue date of the last tax credit certificate issued by the Department with respect to the business;

 

2)         Failing to provide the Department or the Department of Revenue with information and records necessary to verify compliance with the Act;

 

3)         Failing to submit the report required by Section 220(i) of the Act; or

 

4)         Otherwise not being in compliance with the Act.

 

c)         A claimant may be found in noncompliance if:

 

1)         The claimant does not hold the investment for which the claimant is allowed an Angel Investment Credit Program credit for at least 3 years. This 3 year holding requirement does not apply if the investment is sold as part of a qualifying liquidity event or if the qualified new business venture ceases operations and the investment becomes worthless, as determined by the Department;

 

2)         In the case of an investment made in the form of a contingent equity investment, there is no conversion to equity within 3 years after the investment; or

 

3)         The claimant fails to provide the Department or the Department of Revenue with information and records necessary to verify compliance with the Act, including, but not limited to, copies of any investment agreement.

 

(Source:  Amended at 42 Ill. Reg. 16493, effective August 21, 2018)