DRS: Insurance Reinvestment Fund Tax Credit 25JAN2017

Insurance Reinvestment Fund Tax Credit  

Conn. Gen. Stat. 38a-88a


For income years beginning on or after January 1, 2010, the Insurance Reinvestment Fund tax credit statute was amended to add the Second Insurance Reinvestment Fund tax credit. The Second Insurance Reinvestment Fund tax credit has different investment criteria than the tax credit summarized below and may only be claimed against the taxes imposed under Chapter 207 (Insurance Companies and Health Care Centers Tax) and Conn. Gen. Stat. 38a-743 (Surplus Lines Brokers Tax). See the Second Insurance Reinvestment Fund tax credit summary for additional information.

 

 

Description and Applicable Taxes

Tax credits are available for investments made in an Insurance Reinvestment Fund that invests in Connecticut companies engaged in an insurance business or providing services to insurance companies. This tax credit is administered by the Department of Economic and Community Development  (DECD).

 

The tax credit may be applied against the taxes imposed under:

  • Chapter 207 (Insurance Companies and Health Care Centers Tax);
  • Chapter 208 (Corporation Business Tax);
  • Chapter 229 (Income Tax); and
  • Section 38a-743 (Surplus Lines Brokers Tax).


Qualifying for the Tax Credit

A taxpayer must make an investment through a fund manager in an insurance business. The fund manager must be registered with DECD, and the insurance business must initially apply for and receive an eligible certificate.

 

DECD will issue an eligibility certificate if an insurance business occupies a new facility and employs at least 25% of its workforce in new jobs. An insurance business that has been issued an eligibility certificate shall provide information to DECD showing that the insurance business has, at all times during an income year, met the occupancy and employment requirements. If the insurance business has met such requirements, then DECD will issue a certificate of continued eligibility for that income year.

 

The tax credit may only be claimed with respect to an income year for which DECD issues a certification of continued eligibility to the insurance business in which the investment was made. On and after June 30, 2010, no eligibility certificate shall be issued to an insurance business by DECD. On and after July 1, 2011, no tax credit shall be allowed for an investment of less than $1 million even if DECD has already issued an eligibility certificate to an insurance business.  A fund manager shall provide documentation to DECD by June 30, 2011, that the fund has made an investment of $1 million or more. On and after July 1, 2011, DECD shall revoke a certificate of eligibility issued to an insurance business if a fund manager has failed to provide such documentation.

 

The same investment in an insurance business cannot generate tax credits for both the investor and the insurance business. For example, the investment that allows an eligible insurance business to qualify for the Fixed Capital Investment tax credit cannot also be used to claim the Insurance Reinvestment Fund tax credit.

 

 

Tax Credit Amount

The tax credit is allowable over ten years as follows:

  • Income year in which the investment was made and the two succeeding income years, 0%;
  • Third full income year following the year in which the investment in the insurance business was made and the three succeeding income years, 10%; and
  • Seventh full income year following the year in which the investment in the insurance business was made and the two succeeding income years, 20%.

 

Carryforward and Carryback Limitations

Any unused tax credit balance may be carried forward for the five immediately succeeding income years until the entire tax credit is taken. No carryback is allowed.

 

 

Assignment and Transfer

The tax credit may be transferred or assigned by the taxpayer to another person provided the person may claim the tax credit only with respect to a calendar year for which the transferring taxpayer would have been eligible to claim the tax credit. No subsequent assignments will be allowed. 

 

Insurance Companies and Health Care Centers: In addition to the assignments that are permitted under the specific provisions of this tax credit statute, this credit may also be assigned by an insurance company or health care center to an affiliate provided that the affiliate may only apply the assigned credit against its tax liability under Chapter 207 (Insurance Companies and Health Care Centers Taxes).

 

 

How to Claim the Tax Credit

The tax credit is claimed by completing Form CT-IRF, Insurance Reinvestment Fund Tax Credit, Attach Form CT-IRF to Form CT-1120K, Business Tax Credit Summary, and/or Form CT-207K, Insurance/Health Care Tax Credit Schedule.

 

To take this tax credit against the tax imposed by Chapter 229 (Income Tax), see the applicable income tax instruction booklet.

 

 

Recapture

A taxpayer must recapture a percentage of the tax credit allowed for the entire period of eligibility if an investment is made in an insurance company or in a company that provides services to an insurance business if:

 

  • The number of new employees on account of which a taxpayer claimed the tax credit decreases to less than 25% of its total work force for more than 60 days during any of the taxable years for which the tax credit is claimed;
  • Those employees are not replaced by other employees who have not been shifted from an existing location of the subject insurance business in Connecticut; and
  • The insurance business in which the investment was made has relocated to a location outside Connecticut. 

 

The recapture will not apply and the tax credits may continue to be claimed if, for the entire period that the tax credit is applicable, the decrease in the percentage of total work force employed in Connecticut on a regular, full-time, and permanent basis does not result in an actual decrease in the number of persons employed by the subject insurance business in Connecticut.  

 

The taxpayer must recapture a percentage of the tax credit that is related to an investment in a company that meets the requirements provided above as follows:

 

Year

Percentage

Year 4

90%

Year 5

65%

Year 6

50%

Year 7

30%

Year 8

20%

Years 9 and 10

10%

 

The Department of Revenue Services (DRS) may recapture the tax credit first from any taxpayer who claimed the tax credit, then from any taxpayer who assigned the tax credit, and finally from any fund through which the investment that generated the tax credit was made.

 

 

Where to Get Additional Information

Direct inquiries to:


Connecticut Department of Economic and Community Development

450 Columbus Boulevard

Hartford CT 06103

860-500-2300

www.ct.gov/ecd

 

 

Statutory and Regulatory References

Conn. Gen. Stat. 38a-88a

 

 

Last updated January 25, 2017