My client's Minnesota-based attorney claims the 1099-Misc amount is not taxable. My client says the amount on the 1099 (which is 25% of his investment) is a return of a portion of his investment.

I have found no guidance other than this:

From BHB Advisors.com - Investors who receive the Angel Tax Credit will have additional tax considerations. The Minnesota Department of Revenue will issue investors a 1099-Misc that will be required to be reported on the investors federal and state tax returns as income for the year the credit was received.

S

strongsilence

Level 10

Is this the rationale for the idea that there is Federal taxable income from the MN Angel tax credit? Because the taxpayer received a state tax benefit, it is taxable Federal income.

S

strongsilence

Level 10

I think I have the answer: It is taxable income for Federal. It is a refundable credit, even for non-residents.

Taxpayer pays federal tax and gets her capital returned. So that is not a good tax result.

BUT, MN Dept of Revenue says that is is MN taxable income. They wrote to me: The IRS has determined that the credit is taxable income. The Minnesota Department of Revenue will issue you a 1099-MISC in the amount of the credit and it needs to be reported on your federal 1040 as income. It is also income for Minnesota state income tax purposes and is considered Minnesota-sourced income.

S

strongsilence

Level 10

Final answer, I swear.

It is taxable for Fed.

It is taxable for MN.

It is a refundable MN credit, unless...

The taxpayer has already received the money, like my client. And that means no MN return is required.

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