Second Insurance Reinvestment Fund Tax Credit
Conn. Gen. Stat. §38a-88a
Description and Applicable Taxes
In 2010, the legislature amended the Insurance Reinvestment Fund tax credit to provide a new tax credit that may be used against the taxes imposed by Chapter 207 and section 38a-743 of the Connecticut General Statutes. The Second Insurance Reinvestment Fund tax credit is available to insurance companies that invest eligible capital with approved fund managers, who in turn invest such capital in eligible businesses. The tax credit is administered by the Department of Economic and Community Development (DECD).
For purposes of this tax credit:
Eligible business means a business that has its principal business operations in Connecticut, has fewer than 250 employees at the time of investment, and not more than $10 million dollars in net income in the previous year.
Eligible capital means an investment of cash by a taxpayer in an insurance reinvestment fund that fully funds the purchase price of an equity interest in the insurance reinvestment fund or an eligible debt instrument issued by an insurance reinvestment fund, at par value or a premium, that has:
1. An original maturity date of at least five years after the date of issuance;
2. A repayment schedule that is not faster than a level principal amortization over five years; and
3. No interest, distribution or payment features tied to the insurance reinvestment fund’s profitability or the success of the investments.
Green technology business means an eligible business with not less than 25% of its employment positions being positions in which green technology is employed or developed and may include the occupation code identified as green jobs by DECD and the Department of Labor.
Insurance Reinvestment Fund means a Connecticut partnership, corporation, trust, or limited liability company, whether organized on a profit or not-for-profit basis, that: 1) is managed by at least two principals or persons that have at least four years of experience in managing venture capital or private equity funds, with at least $50 million of such funds from people unaffiliated with the manager; 2) has received an equity investment of capital other than eligible capital equal to no less than 5% of the total amount of the eligible capital to be invested in such Insurance Reinvestment Fund; and 3) is not, or will not be after the receipt of eligible capital, controlled by or under common control with, one or more insurance companies.
Principal business operations means at least 80% of the business organization’s employees reside in the state or 80% of the business payroll is paid to individuals living in this state.
Tax Credit Amount
The tax credit is allowable over ten years as follows:
- Calendar year in which the investment was made and the two succeeding calendar years, 0%;
- Third full calendar year following the year in which the investment was made and the three succeeding calendar years, 10%; and
- Seventh full calendar year following the year in which the investment was made and the two succeeding calendar years, 20%.
The same investment cannot generate tax credits for both the investor and the business. For example, the investment that allows a business to qualify for the Fixed Capital Investment tax credit cannot also be used to claim this tax credit.
Carryforward and Carryback Limitations
Any tax credit not used in the calendar year for which it was allowed may be carried forward for the five immediately succeeding calendar years until the entire tax credit is taken. No carryback is allowed.
How to Apply
To be certified as an Insurance Reinvestment Fund, an application must be submitted to DECD. The application must include information regarding: 1) the amount of eligible capital the applicant will raise; 2) a nonrefundable $7,500 application fee; 3) evidence that the applicant qualifies as an Insurance Reinvestment Fund; 4) an affidavit by each taxpayer committing an investment of eligible capital; 5) a business plan; 6) a commitment to invest at least 25% of its eligible capital in green technology businesses; and 7) a commitment to invest by the third anniversary of its tax credit allocation date, 3% of its eligible capital in preseed investments in consultation with Connecticut Innovations, Incorporated.
The business plan that is submitted with the application must provide the following:1) the approximate percentage of eligible capital the applicant will invest in eligible businesses by the third, fifth, seventh, and ninth anniversaries of the tax credit allocation date; 2) the industry segments listed by the North American Industrial Classification System (NAICS) code and the percentage of eligible capital in which the applicant will invest; 3) the number of jobs that will be created or retained as a result of applicants’ investments once all investments have been made; 4) the percentage of eligible capital to be invested in eligible businesses primarily engaged in conducting research and development or manufacturing, processing or assembling technology-based products; and 5) a revenue impact assessment demonstrating that the applicant’s business plan has a revenue neutral or positive impact on the state. DECD may require that an independent third party conduct the revenue impact assessment.
Once the application is approved, DECD will issue an allocation of the tax credits. The fund manager must then confirm that the fund has received taxpayer investments equal to the tax credits that have been allocated.
How to Claim the Tax Credit
Assignment and Transfer
A taxpayer may assign the Second Insurance Reinvestment Fund tax credit only to an affiliate of such taxpayer.
Each Insurance Reinvestment Fund must submit an annual report to DECD no later than January 31 of each year, including but not limited to the following information:
- Amount of eligible capital remaining from the preceding year;
- Each investment during the preceding year, including details on the type of investment, jobs as of the investment date and jobs as of the end of the annual report period, net income in the year prior to investment, investment location, business in which the investment was made;
- Percentage of eligible capital invested in green technology businesses and preseed businesses;
- Distributions made by the Insurance Reinvestment Fund;
- Information in the third, fifth, seventh, and ninth years on compliance with the investment parameters described in the original plan and updated revenue impact assessment reflecting actual results through the end of the period for reports due; and
- An audited financial statement.
An Insurance Reinvestment Fund is subject to decertification if it is not in compliance with:
- Its business plan;
- The revenue impact assessment submitted with the original application;
- Investment of no more than 15% of an Insurance Reinvestment Fund’s eligible capital in any one eligible business without prior approval by DECD;
- Investment of 60% of its eligible capital by the fourth anniversary of its allocation date;
- Investment of 100% of its eligible capital by the tenth anniversary of its allocation date; and
- The reporting and fund distribution requirements.
Decertification of an Insurance Reinvestment Fund shall cause the forfeiture of future Tax credits when:1) such decertification occurs on or before the fourth anniversary of the fund’s allocation date; and 2) such fund has invested less than 60% of its eligible capital in eligible businesses by said anniversary.
Where to Get Additional Information
Direct inquiries to:
Connecticut Department of Economic and Community Development
505 Hudson Street 2nd Floor
Hartford CT 06106-7107
Statutory and Regulatory References
Conn. Gen. Stat. §38a-88a
Last updated January 1, 2014