Current through September 18, 2024
A. General: As
applicable, deductions or modifications for investments in certified venture
capital partnerships or in qualifying business entities are allowed in the
computation of business corporation tax (R.I. Gen. Laws Chapter 44-11), public
service corporation tax (R.I. Gen. Laws Chapter 44-13), bank excise tax (R.I.
Gen. Laws Chapter 44-14), gross premiums tax (R.I. Gen. Laws Chapter 44-17)
and personal income tax (R.I. Gen. Laws Chapter 44-30).
B. Calculation and Documentation: The
deduction or modification allowed is equal to the taxpayer's qualifying
investment in a certified venture capital partnership or equal to the
entrepreneur's investment in a qualifying business entity. The amount is
measured at the year end of the certified venture capital partnership, the year
end of the qualifying business entity or the year end of the investing
taxpayer, whichever comes first. The deduction or modification is allowed only
in the year in which the taxpayer first makes an investment.
1. EXAMPLE: C Corporation makes a first time
investment of $40,000 in a certified venture capital partnership which invests
90% of its capital in qualifying activities. All year ends coincide. C
Corporation may deduct 90% of the $40,000 or $36,000 from net income in
computing its business corporation tax under R.I. Gen. Laws Chapter
44-11.
2. EXAMPLE: John Taxpayer is
an entrepreneur in Small Company, a qualifying business entity, and makes two
investments of $10,000 each. One investment is made on March 10 and the other
is made on July 10. John is a calendar year taxpayer and Small Company is a
June 30 year end. John is entitled to a modification of $10,000 reducing his
federal adjusted gross income because Small Company's year end (June 30) occurs
first and, at that time, John had made only the March 10th investment of
$10,000. Taxpayers seeking the deduction or modification must provide proof of
the investment in a certified venture capital partnership or qualifying
business entity; of that partnership's or entity's status AT THE DATE OF
INVESTMENT; of the amount of investment and of the year ends of the taxpayer
and partnership or entity. The taxpayer must show the certification number of
the certified venture capital partnership or qualifying business entity where
indicated on appropriate tax forms.
C. Restrictions and Carryovers:
1. The deduction or modification cannot
reduce the business corporation tax, public service corporation tax or bank
excise tax to less than $100.
2.
The deduction or modification cannot reduce the personal income tax or gross
premiums tax to less than $0.
3. If
the investor entitled to a deduction is a partnership, joint venture or small
business corporation, the deduction shall be divided in the same manner as
income.
4. The deduction allowed in
the computation of net income (business corporation tax) shall only be allowed
to that corporation (included in a consolidated return) that qualifies for the
deduction and may not be used in the computation of net income of other
corporations that may join in the filing of a consolidated return.
5. Amounts of unused deduction or
modification may not be carried over to the following year.
D. Recapture:
1. The taxpayer or entrepreneur which has
been allowed a deduction or modification must recapture ALL the deduction or
modification in the year:
a. the taxpayer or
entrepreneur sells, exchanges or otherwise has a reduction in his/her interest
in a qualifying business entity, or
b. in which there is a reduction in the
taxpayer's interest in a qualifying investment in a certified venture capital
partnership.
2. The
recapture is limited to the proceeds resulting from any such
reduction.
3. There will be no
recapture as a result of the death of an entrepreneur or taxpayer, nor will
there be recapture of any investment held by the entrepreneur or taxpayer for
at least 5 years.
