§105-163.014. (Repealed for investments made on or after January 1, 2014) Forfeiture of credit

(a)        Participation in Business. - A taxpayer who has received a credit under this Part for an investment in a qualified business forfeits the credit if, within three years after the investment was made, the taxpayer participates in the operation of the qualified business. For the purpose of this section, a taxpayer participates in the operation of a qualified business if the taxpayer, the taxpayer's spouse, parent, sibling, or child, or an employee of any of these individuals or of a business controlled by any of these individuals, provides services of any nature to the qualified business for compensation, whether as an employee, a contractor, or otherwise. However, a person who provides services to a qualified business, whether as an officer, a member of the board of directors, or otherwise does not participate in its operation if the person receives as compensation only reasonable reimbursement of expenses incurred in providing the services, participation in a stock option or stock bonus plan, or both.

(b)        False Application. - A taxpayer who has received a credit under this Part for an investment in a qualified business forfeits the credit if the registration of the qualified business is revoked because information in the registration application was false at the time the application was filed with the Secretary of State.

(c)        Repealed by Session Laws 1996, Second Extra Session, c. 14, s. 7.

(d)       Transfer or Redemption of Investment. - A taxpayer who has received a credit under this Part for an investment in a qualified business forfeits the credit in the following cases:

(1)        Within one year after the investment was made, the taxpayer transfers any of the securities received in the investment that qualified for the tax credit to another person or entity, other than in a transfer resulting from one of the following:

a.         The death of the taxpayer.

b.         A final distribution in liquidation to the owners of a taxpayer that is a corporation or other entity.

c.         A merger, conversion, consolidation, or similar transaction requiring approval by the owners of the qualified business under applicable State law, to the extent the taxpayer does not receive cash or tangible property in the merger, conversion, consolidation, or other similar transaction.

(2)        Except as provided in subsection (d1) of this section, within five years after the investment was made, the qualified business in which the investment was made makes a redemption with respect to the securities received in the investment.

In the event the taxpayer transfers fewer than all the securities in a manner that would result in a forfeiture, the amount of the credit that is forfeited is the product obtained by multiplying the aggregate credit attributable to the investment by a fraction whose numerator equals the number of securities transferred and whose denominator equals the number of securities received on account of the investment to which the credit was attributable. In addition, if the redemption amount is less than the amount invested by the taxpayer in the securities to which the redemption is attributable, the amount of the credit that is forfeited is further reduced by multiplying it by a fraction whose numerator equals the redemption amount and whose denominator equals the aggregate amount invested by the taxpayer in the securities involved in the redemption. The term "redemption amount" means all amounts paid that are treated as a distribution in part or full payment in exchange for securities under section 302(a) of the Code.

(d1)     Certain Redemptions Allowed. - Forfeiture of a credit does not occur under this section if a qualified business venture that engages primarily in motion picture film production makes a redemption with respect to securities received in an investment and the following conditions are met:

(1)        The redemption occurred because the qualified business venture completed production of a film, sold the film, and was liquidated.

(2)        Neither the qualified business venture nor a related person continues to engage in business with respect to the film produced by the qualified business venture.

(e)        Effect of Forfeiture. - A taxpayer who forfeits a credit under this section is liable for all past taxes avoided as a result of the credit plus interest at the rate established under G.S. 105-241.21, computed from the date the taxes would have been due if the credit had not been allowed. The past taxes and interest are due 30 days after the date the credit is forfeited; a taxpayer who fails to pay the past taxes and interest by the due date is subject to the penalties provided in G.S. 105-236.

(1987, c. 852, s. 1; 1991, c. 637, s. 5; 1993, c. 443, s. 5; 1996, 2nd Ex. Sess., c. 14, s. 7; 1998-98, s. 69; 1998-212, ss. 29A.15(a), 29A.16(a), (b); 1999-369, s. 5.8; 2003-414, s. 6; 2007-491, s. 44(1)a.)