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Rural Capital Formation Incentive Act

Editor: This is one place where the the requirement that the investment be cash was removed and the term qualified investment was slipped in. B.4.a & b. While 20.E specifically authorizes the use of borrowed money to claim credits, without specifying the how or if borrowed money has to be used. With no provisions to disallow an artifical loan (similar to a Counterfeit loan) where the money is left in the bank as collateral preventing it being taken out and used this can meet the criteria. I.e., it is "not illegal."

SECTION 20.     AMENDATORY     68 O.S. 2001, Section 2357.74, as last amended by Section 6, Chapter 299, O.S.L. 2005 (68 O.S. Supp. 2005, Section 2357.74), is amended to read as follows:

Section 2357.74 

A.  For taxable years beginning after December 31, 2000, and before January 1, 2008 2012, there shall be allowed a credit against the tax imposed by Section 2355 or, effective January 1, 2001, Section 2370 of this title or, effective July 1, 2001, against the tax imposed by Section 624 or 628 of Title 36 of the Oklahoma Statutes, or effective July 1, 2006, against the taxes imposed by Section 1001, 1101 or 1102 of this title, for qualified investment made in Oklahoma rural small business ventures in conjunction with investment in such ventures made by a qualified rural small business capital company.  Credits shall be allowed based upon investments, occurring after May 31, 2004, using capitalization pursuant to subparagraph c of paragraph 2 of Section 2357.72 of this title; however, no credits may be claimed for an investment in conjunction with capitalization pursuant to subparagraph c of paragraph 2 of Section 2357.72 of this title prior to July 1, 2005.

B.  The credit provided for in this section shall be thirty percent (30%) of the cash amount of qualified investment made in Oklahoma rural small business ventures in conjunction with qualified investment in such ventures made by a qualified rural small business capital company and shall be allowed for a the taxable year during which the qualified investment is made in an Oklahoma rural small business venture.  If the tax credit allowed pursuant to subsection A of this section exceeds the amount of taxes due or if there are no state taxes due of the taxpayer, the amount of the claim not used as an offset against the taxes of a taxable year may be carried forward for a period not to exceed ten (10) three (3) taxable years.  To qualify for the credit authorized by this section, an a qualified investment shall be:

1.  Made by a shareholder or partner of a qualified rural small business capital company that has invested funds made a qualified investment in an Oklahoma rural small business venture;

2.  Invested in the purchase of equity or near-equity in an Oklahoma rural small business venture;

3.  Made under the same terms and conditions as the qualified investment made by the qualified rural small business capital company; and

4.  Limited to the lesser of:

a.         two hundred percent (200%) of any qualified investment by the taxpayer in the qualified rural small business capital company, or

b.         two hundred percent (200%) of the qualified investment made by the qualified rural small business capital company in the Oklahoma rural small business venture.

Note: The area of the law addressing the 200% limitations is ambiguous leaving it unclear, what, if anything, is in fact limited to 200%.

C.  No taxpayer may claim the credit provided for in this section for qualified investment made prior to January 1, 2001.

D.  No taxpayer may claim the credit authorized by this section for the same invested qualified investment amount for which any credit is claimed pursuant to either Section 2357.62 or 2357.63 of this title.

E.  If a pass-through entity is entitled to a credit under this section, the pass-through entity shall allocate such credit to one or more of the shareholders, partners or members of the pass-through entity; provided, the total of all credits allocated shall not exceed the amount of the credit to which the pass-through entity is entitled. The credit may also be claimed for funds borrowed by the pass-through entity to make a qualified investment if a shareholder, partner or member to whom the credit is allocated has a legal obligation to repay the borrowed funds but the allocation may not exceed such shareholder's, partner's or member's pro-rata equity share of the pass-through entity even if the taxpayer's legal obligation to repay the borrowed funds is in excess of such amount. For purposes of this act, "pass-through entity" means a corporation that for the applicable tax years is treated as an S corporation under the Internal Revenue Code, general partnership, limited partnership, limited liability partnership, trust, or limited liability company that for the applicable tax year is not taxed as a corporation for federal income tax purposes.

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