,i #aaeth ,,congress #ast ,session ,h4 ,r4 #dage ,,in ,,the ,,house ,,of ,,representatives ,october #ca1 #bjag,mr4 ,smith of ,missouri 7for himself and ,mr4 ,schneider7 introduced the following bill2 which was referred to the ,committee on ,ways and ,means ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to allow a credit against income tax for equity investments in small business concerns4 #a4 ,short title ,this ,act may be cited as the ,invest in ,innovative ,small ,businesses ,act4 #b4 ,angel investment tax credit 7a7 ,in general ,subpart ,b of part ,,iv of subchapter ,a of chapter #a of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new section3 #cj;,e4 ,angel investment tax credit 7a7 ,allowance of credit ,there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to #be percent of the qualified equity investments made by a qualified investor during the taxable year4 7b7 ,qualified equity investment ,for purposes of this section-- 7#a7 ,in general ,the term qualified equity investment means any equity investment in a qualified small business entity if-- 7,a7 such investment is acquired by the taxpayer at its original issue 7directly or through an underwriter7 solely in exchange for cash1 and 7,b7 such investment is designated for purposes of this section by the qualified small business entity4 7#b7 ,equity investment ,the term equity investment means-- 7,a7 any form of equity1 including a general or limited partnership interest1 common stock1 preferred stock 7other than nonqualified preferred stock as defined in section #cea7;g77#b771 with or without voting rights1 without regard to seniority position and whether or not convertible into common stock or any form of subordinate or convertible debt1 or both1 with warrants or other means of equity conversion1 and 7,b7 any capital interest in an entity which is a partnership4 7#c7 ,redemptions ,a rule similar to the rule of section #abjb7;c77#c7 shall apply for purposes of this subsection4 7c7 ,qualified small business entity ,for purposes of this section-- 7#a7 ,in general ,the term qualified small business entity means any domestic corporation or partnership if such corporation or partnership-- 7,a7 is a small business 7as defined in section #da7;b77#c77;,d77iii771 7,b7 has its headquarters in the ,united ,states1 7,c7 is engaged in a high technology trade or business related to-- 7i7 advanced materials1 nanotechnology1 or precision manufacturing1 7ii7 aerospace1 aeronautics1 or defense1 7iii7 biotechnology or pharmaceuticals1 7iv7 electronics1 semiconductors1 software1 or computer technology1 7v7 energy1 environment1 or clean technologies1 7vi7 forest products or agriculture1 7vii7 information technology1 communication technology1 digital media1 or photonics1 7viii7 life sciences or medical sciences1 7ix7 marine technology or aquaculture1 7x7 transportation1 or 7xi7 any other high technology trade or business as determined by the ,secretary1 7,d7 has been in existence for less than #e years as of the date of the qualified equity investment1 7,e7 employs less than #ajj full-time equivalent employees as of the date of such investment1 7,f7 has more than #ej percent of the employees performing substantially all of their services in the ,united ,states as of the date of such investment1 and 7,g7 has equity investments designated for purposes of this paragraph4 7#b7 ,designation of equity investments ,for purposes of paragraph 7#a77;,g71 an equity investment shall not be treated as designated if such designation would result in the aggregate amount which may be taken into account under this section with respect to equity investments in such corporation or partnership exceeds-- 7,a7 #aj1jjj1jjj1 taking into account the total amount of all qualified equity investments made by all taxpayers for the taxable year and all preceding taxable years1 7,b7 #b1jjj1jjj1 taking into account the total amount of all qualified equity investments made by all taxpayers for such taxable year1 and 7,c7 #a1jjj1jjj1 taking into account the total amount of all qualified equity investments made by the taxpayer for such taxable year4 7d7 ,qualified investor ,for purposes of this section-- 7#a7 ,in general ,the term qualified investor means an accredited investor1 as defined by the ,securities and ,exchange ,commission1 investor network1 or investor fund who review new or proposed businesses for potential investment4 7#b7 ,investor network ,the term investor network means a group of accredited investors organized for the sole purpose of making qualified equity investments4 7#c7 ,investor fund 7,a7 ,in general ,the term investor fund means a corporation that for the applicable taxable year is treated as an ,s corporation or a general partnership1 limited partnership1 limited liability partnership1 trust1 or limited liability company and which for the applicable taxable year is not taxed as a corporation4 7,b7 ,allocation of credit 7i7 ,in general ,except as provided in clause 7ii71 the credit allowed under subsection 7a7 shall be allocated to the shareholders or partners of the investor fund in proportion to their ownership interest or as specified in the fund's organizational documents1 except that tax-exempt investors shall be allowed to transfer their interest to investors within the fund in exchange for future financial consideration4 7ii7 ,single member limited liability company ,if the investor fund is a single member limited liability company that is disregarded as an entity separate from its owner1 the credit allowed under subsection 7a7 may be claimed by such limited liability company's owner1 if such owner is a person subject to the tax under this title4 7#d7 ,exclusion ,the term qualified investor does not include-- 7,a7 a person controlling at least #ej percent of the qualified small business entity1 7,b7 an employee of such entity1 or 7,c7 any bank1 bank and trust company1 insurance company1 trust company1 national bank1 savings association or building and loan association for activities that are a part of its normal course of business4 7e7 ,national limitation on amount of investments designated 7#a7 ,in general ,there is an angel investment tax credit limitation of #ejj1jjj1jjj for each of calendar years #bjah through #bjbb4 7#b7 ,allocation of limitation ,the limitation under paragraph 7#a7 shall be allocated by the ,secretary among qualified small business entities selected by the ,secretary4 7#c7 ,carryover of unused limitation ,if the angel investment tax credit limitation for any calendar year exceeds the aggregate amount allocated under paragraph 7#b7 for such year1 such limitation for the succeeding calendar year shall be increased by the amount of such excess4 ,no amount may be carried under the preceding sentence to any calendar year after #bjbg4 7f7 ,application with other credits 7#a7 ,business credit treated as part of general business credit ,except as provided in paragraph 7#b71 the credit which would be allowed under subsection 7a7 for any taxable year 7determined without regard to this subsection7 shall be treated as a credit listed in section #ch7;b7 for such taxable year 7and not allowed under subsection 7a774 7#b7 ,personal credit 7,a7 ,in general ,in the case of an individual who elects the application of this paragraph1 for purposes of this title1 the credit allowed under subsection 7a7 for any taxable year 7determined after application of paragraph 7#a77 shall be treated as a credit allowable under subpart ,a for such taxable year4 7,b7 ,limitation based on amount of tax ,in the case of a taxable year to which section #bf7;a77#b7 does not apply1 the credit allowed under subpart ,a for any taxable year 7determined after application of paragraph 7#a77 by reason of subparagraph 7,a7 shall not exceed the excess of-- 7i7 the sum of the regular tax liability 7as defined in section #bf7;b77 plus the tax imposed by section #ee1 over 7ii7 the sum of the credits allowable under subpart ,a 7other than this section7 and section #bg for the taxable year4 7,c7 ,carryforward of unused credit ,if the credit allowable under subsection 7a7 by reason of subparagraph 7,a7 exceeds the limitation imposed by section #bf7;a77#a7 or subparagraph 7,b71 whichever is applicable1 for such taxable year1 reduced by the sum of the credits allowable under subpart ,a 7other than this section7 for such taxable year1 such excess shall be carried to each of the succeeding #bj taxable years to the extent that such unused credit may not be taken into account under subsection 7a7 by reason of subparagraph 7,a7 for a prior taxable year because of such limitation4 7g7 ,special rules 7#a7 ,related parties ,for purposes of this section-- 7,a7 ,in general ,all related persons shall be treated as #a person4 7,b7 ,related persons ,a person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section #bfg or #gjg7;b74 7#b7 ,basis ,for purposes of this subtitle1 the basis of any investment with respect to which a credit is allowable under this section shall be reduced by the amount of such credit so allowed4 ,this subsection shall not apply for purposes of sections #abjb1 #acig;,b1 and #adjj;,b4 7#c7 ,recapture ,the ,secretary shall1 by regulations1 provide for recapturing the benefit of any credit allowable under subsection 7a7 with respect to any qualified equity investment which is held by the taxpayer less than #c years1 except that no benefit shall be recaptured in the case of-- 7,a7 transfer of such investment by reason of the death of the taxpayer1 7,b7 transfer between spouses1 7,c7 transfer incident to the divorce 7as defined in section #ajda7 of such taxpayer1 or 7,d7 a transaction to which section #cha7;a7 applies 7relating to certain acquisitions of the assets of one corporation by another corporation74 7h7 ,regulations ,the ,secretary shall prescribe such regulations as may be appropriate to carry out this section1 including regulations-- 7#a7 which prevent the abuse of the purposes of this section1 7#b7 which impose appropriate reporting requirements1 and 7#c7 which apply the provisions of this section to newly formed entities4 4 7b7 ,credit made part of general business credit ,subsection 7b7 of section #ch of the ,internal ,revenue ,code of #aihf is amended-- 7#a7 in paragraph 7#ce71 by striking plus2 7#b7 in paragraph 7#cf71 by striking the period at the end and inserting 1 plus2 and 7#c7 by adding at the end the following new paragraph3 7#cg7 the portion of the angel investment tax credit to which section #cj;,e7f77#a7 applies4 4 7c7 ,conforming amendments 7#a7 ,section #ajaf7;a7 of the ,internal ,revenue ,code of #aihf is amended by striking and at the end of paragraph 7#cf71 by striking the period at the end of paragraph 7#cg7 and inserting 1 and1 and by inserting after paragraph 7#cg7 the following new paragraph3 7#ch7 to the extent provided in section #cj;,e7g77#b74 4 7d7 ,clerical amendment ,the table of sections for subpart ,b of part ,,iv of subchapter ,a of chapter #a of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new item3 ,sec4 #cj;,e4 ,angel investment tax credit4 4 7e7 ,effective date ,the amendments made by this section shall apply to investments made after ,december #ca1 #bjag1 in taxable years ending after such date4 7f7 ,regulations on allocation of national limitation ,not later than #abj days after the date of the enactment of this ,act1 the ,secretary of the ,treasury or the ,secretary's delegate shall prescribe regulations which specify-- 7#a7 how small business entities shall apply for an allocation under section #cj;,e7e77#b7 of the ,internal ,revenue ,code of #aihf1 as added by this section2 7#b7 the competitive procedure through which such allocations are made2 7#c7 the criteria for determining an allocation to a small business entity1 including-- 7,a7 whether the small business entity is located in a ,state that is historically underserved by angel investors and venture capital investors2 7,b7 whether the small business entity has received an angel investment tax credit1 or its equivalent1 from the ,state in which the small business entity is located and registered2 7,c7 whether small business entities in low-1 medium-1 and high-population density ,states are receiving allocations2 and 7,d7 whether the small business entity has been awarded a ,small ,business ,innovative ,research or ,small ,business ,technology ,transfer grant from a ,federal agency2 7#d7 the actions that such ,secretary or delegate shall take to ensure that such allocations are properly made to qualified small business entities2 and 7#e7 the actions that such ,secretary or delegate shall take to ensure that angel investment tax credits are allocated and issued to the taxpayer4 7g7 ,audit and report ,not later than ,january #ca1 #bjba1 the ,comptroller ,general of the ,united ,states1 pursuant to an audit of the angel investment tax credit program established under section #cj;,e of the ,internal ,revenue ,code of #aihf 7as added by subsection 7a771 shall report to ,congress on such program1 including all qualified small business entities that receive an allocation of an angel investment credit under such section4