OAR 150-316-0640
Subtraction for Qualified Investment of Severance Pay

(1)

Definitions.

(a)

“Invest” means to exchange cash for equity, debt, convertible debt, or management responsibilities, accompanied by terms that substantiate ownership or control of an interest in a business. “Invest” does not mean to make a loan to a business.

(b)

“Material participation” means regular, continuous, and substantial participation in the small business. A taxpayer is considered to have materially participated in the small business if the taxpayer:

(A)

Worked for the small business for more than 500 hours in each of the 12 month periods required under section 2(b) of this rule;

(B)

Worked for the small business for more than 100 hours in each of the 12 month periods required under section 2(b) of this rule and at least as much as any other owner or employee; or

(C)

Performed substantially all the work in the small business.

(c)

“Severance pay” means compensation payable, other than back wages, vacation pay or sick pay, on voluntary termination or involuntary termination of employment based on length of service, a percentage of final salary, a contract between the employer and the employee, or some other reasonable method. “Severance pay” does not include retirement income as defined in ORS 316.127 (Income of nonresident from Oregon sources)(9).

(d)

“Small business” means a corporation, partnership, sole proprietorship or other legal entity formed for the purpose of making a profit, which is independently owned and operated from all other businesses and which has 50 or fewer employees.

(2)

Qualifications. Severance pay that a taxpayer receives during the tax year and invests in a new or existing small business in Oregon may be subtracted from federal taxable income if:

(a)

The investment occurs on or before the due date of the return, including extensions, for the first tax year in which the subtraction may be claimed;

(b)

The investment continues for at least 24 consecutive calendar months following the termination of employment (for example - July 13, 2010 through July 12, 2012);

(c)

The small business is not the employer that paid the severance pay and does not have any owner in common with the employer that paid the severance pay;

(d)

No subtraction has previously been claimed under this section;

(e)

The taxpayer completes a form provided by the department that is attached to the return of the taxpayer or is otherwise maintained or filed pursuant to form instructions; and

(f)

The taxpayer materially participates in the small business for the period required under subsection (b) of this section.

(3)

The taxpayer must demonstrate to the department’s satisfaction that the small business is carrying on an activity for profit. If requested, the taxpayer must provide documentation to that effect to the department. In making such a determination, the department may consider the following nonexclusive list of factors:

(a)

Whether the small business keeps and maintains a detailed business plan that includes strategies or methods to make a profit or improve profitability;

(b)

Whether separate books, records and bank account(s) are maintained for the small business;

(c)

Whether the taxpayer carries on the activity in a businesslike manner.

(4)

Severance pay received as an annuity. Only cash invested on or before the due date of the return, including extensions, qualifies for this subtraction. Any severance pay invested after the return is filed does not qualify for a subtraction under this section.

(5)

Severance pay received as stock options. All stock options must be converted to cash before being invested to qualify for a subtraction under this section.

(6)

The subtraction may not exceed the lesser of:

(a)

The minimum balance of principal that remains invested by the taxpayer in the small business at the close of any month during the 24 consecutive calendar months following the termination of employment; or

(b)

$500,000.

(7)

Interest accrues as provided in ORS 305.220 (Interest on deficiency, delinquency or refunds) on any unpaid tax attributable to any disallowance or withdrawal of principal.
Example 1: Maggie was terminated from employment on October 1, 2010, and received severance pay of $50,000 as a condition of her termination. On April 1, 2011, Maggie filed her personal income tax return, for which she had not requested an extension of time to file. On August 11, 2011, Maggie invested the severance pay in a qualifying small business. Maggie does not qualify for the subtraction because she did not invest the severance pay by the due date of the return.
Example 2: Joe was terminated from employment on July 1, 2010, and received severance pay of $20,000 as a condition of his termination. Joe invested the entire $20,000 in Company A, which qualifies as a small business, on September 1, 2010, and took a $20,000 subtraction on his 2010 return. On January 30, 2012, Joe withdrew the entire $20,000 he invested. Joe must file an amended return for tax year 2010 to remove the $20,000 subtraction (and pay any additional tax and interest that may be due) because he did not continue the investment for at least 24 consecutive months following the termination of employment.
Example 3: Alicia was terminated from employment on October 1, 2010, and received severance pay of $80,000 as a condition of her termination. Alicia invested the entire $80,000 in Company B, which qualifies as a small business, on December 1, 2010. Alicia took an $80,000 subtraction on her 2010 personal income tax return. On July 30, 2012, Alicia withdrew $20,000 of principal from her initial investment for personal use. Alicia must amend her 2010 return to remove $20,000 of the subtraction (and pay any additional tax and interest that may be due).
Example 4: Ryan was terminated from employment on October 1, 2010. He received severance pay in the form of a $1,000 a month annuity over 5 years beginning in October of 2010. Ryan accumulated his severance payments for 6 months and invested the $6,000 in a small business. He claimed a subtraction of $6,000 on his return he filed on April 1, 2011. Ryan continues to accumulate his severance pay for the next year and invests another $12,000 in the small business on March 1, 2012. Ryan cannot claim a subtraction for the additional severance pay he invested because it was invested after the return was filed.

(8)

Intentionally left blank —Ed.

(a)

If the small business is doing business both in Oregon and some other place outside of Oregon, the amount of the subtraction allowed is generally determined by multiplying the total qualifying amount of severance pay invested by the sales factor determined under ORS 314.665 (Determination of sales factor) and associated administrative rules.

(b)

The taxpayer may present an alternative method of calculating the amount of the qualified subtraction if the calculation under subsection (a) does not result in a reasonable reflection of the extent of the business activity in Oregon. To be considered reasonable, the method of calculation must take into account the business activity taking place within Oregon versus the activity taking place outside of Oregon. The method must be fully described in an attachment to the taxpayer’s return on which the subtraction is claimed.
[Publications: Publications referenced are available from the agency.]

Source: Rule 150-316-0640 — Subtraction for Qualified Investment of Severance Pay, https://secure.­sos.­state.­or.­us/oard/view.­action?ruleNumber=150-316-0640.

150‑316‑0006
Application of Capital Losses and Capital Loss Carryforwards 150‑316‑0007
Policy — Application of Various Provisions of the Federal Internal Revenue Code 150‑316‑0009
Policy — Application of Various Provisions of Tax Law to Domestic Partners 150‑316‑0015
Adoption of Federal Law 150‑316‑0020
Tax Reform Act of 1984 Adjustments 150‑316‑0025
Definition: “Resident” 150‑316‑0027
Status of Individuals in a Foreign Country 150‑316‑0035
Oregon Net Operating Losses — Treatment After 1984 150‑316‑0040
Administrative and Judicial Interpretations 150‑316‑0043
Qualified Business Income Reduced Tax Rate (QBIRTR) 150‑316‑0045
Taxable Income of Nonresidents and Part-year Residents 150‑316‑0050
Farm Capital Gain 150‑316‑0055
Transitional Provision to Prevent Doubling Income or Deductions 150‑316‑0060
Taxable Income of Resident 150‑316‑0065
Social Security and Railroad Retirement Benefits Eligible for Subtraction 150‑316‑0080
Credit for Income Taxes Paid to Another State 150‑316‑0082
Credit for Taxes Paid to Another State When Paid by a Pass-Through Entity 150‑316‑0084
Credit for Income Taxes Paid to Another State — Computation 150‑316‑0086
Credit for Income Taxes Paid to Other States — Proof Required and Procedure for Obtaining the Credit 150‑316‑0088
Addition of Taxes Paid to Another State Claimed as an Itemized Deduction 150‑316‑0090
Credit for Duplicative State Taxation Relating to Different Years 150‑316‑0115
Disabled Child Exemption Credit 150‑316‑0120
Credit for Political Contributions 150‑316‑0125
Credit for the Gain on the Sale of a Residence Taxed by Another State 150‑316‑0130
Credit for Installation of Alternative Energy Devices 150‑316‑0135
Proration of Income and Deductions for Nonresidents and Part-Year Residents 150‑316‑0145
Proration for Pass-through Entity Income of Part Year Oregon Residents 150‑316‑0150
Separate or Joint Federal Returns for Spouses in a Marriage 150‑316‑0155
Nonresident Partners: Guaranteed Payments 150‑316‑0157
Nonresident Partners: Other Methods of Allocation and Apportionment 150‑316‑0165
Gross Income of Nonresidents 150‑316‑0167
Gross Income of Nonresidents 150‑316‑0169
Gross Income of Nonresidents 150‑316‑0171
Gross Income of Nonresidents 150‑316‑0173
Gross Income of Nonresidents 150‑316‑0175
Gross Income of Nonresidents 150‑316‑0179
Student Loan Interest Deduction — for Part-Year and Nonresidents 150‑316‑0181
Moving Expense Deduction — for Part-year and Nonresidents 150‑316‑0183
Gross Income of Nonresidents 150‑316‑0185
Gross Income of Nonresidents: Waterway Workers 150‑316‑0195
Alimony Deduction — for Part-Year and Nonresidents 150‑316‑0197
Nonresident Deduction for Contributions to IRA, Keogh, or Qualified Medical Savings Accounts 150‑316‑0205
Credit for Taxes Paid to State of Residence 150‑316‑0225
Retirement Income Credit 150‑316‑0230
Subtraction for Previously Taxed Contributions 150‑316‑0234
“Withholding Statement” and “Exemption Certificate” 150‑316‑0235
Withholding: Basis of Amount Withheld 150‑316‑0237
Employees Exempt from Withholding 150‑316‑0239
Withholding on Fringe Benefits 150‑316‑0241
Independent Contractor Definition 150‑316‑0243
Personal Liability of Responsible Officers, Members, or Employees for Taxes Withheld 150‑316‑0250
Bonding Requirements for Delinquent Withholding Employers 150‑316‑0255
Withholding by Employers 150‑316‑0257
Employer’s Election of Method of Computing Withholding 150‑316‑0265
Withholding Payments: Cash Basis 150‑316‑0267
Additional Time to File Reports 150‑316‑0275
Treatment of Payroll Based Program Overpayments 150‑316‑0282
Exemptions for Military Personnel 150‑316‑0284
Penalty 150‑316‑0290
Procedure for Correcting the Filing of Withholding Certificates 150‑316‑0295
Credit for Tax Withheld 150‑316‑0297
Where Taxpayer Reports on Fiscal Year Basis 150‑316‑0305
Withholding Income Taxes on IRAs, Annuities, and Compensation Plans 150‑316‑0307
Withholding Income Taxes on IRAs, Annuities, and Compensation Plans 150‑316‑0315
Alternative Withholding Payment Method for Employers to Avoid Undue Burden 150‑316‑0320
Voluntary Withholding for Retired Members of the Uniformed Services 150‑316‑0325
Voluntary Withholding for Civil Service Annuitants 150‑316‑0330
Semiannual Reports and Payments 150‑316‑0332
Withholding: Payment Due Dates 150‑316‑0334
Withholding Tax Payment Requirements for Agricultural Employers 150‑316‑0336
Employee’s Rights 150‑316‑0345
Requirement to use Electronic Funds Transfer 150‑316‑0347
Electronic Funds Transfer. Payroll taxes and corporation estimated income and excise taxes not combined in determining mandate. Payments to be included. 150‑316‑0355
Withholding: Payment and Reports 150‑316‑0357
Waiver of Termination Reports 150‑316‑0359
Withholding: Annual Report by Employer 150‑316‑0361
Combined Reports and Statewide Transit Tax Reports: Agricultural Employers 150‑316‑0370
Liability for Unpaid Withholdings 150‑316‑0372
Officer Liability: Joint Determination of Liability Conference 150‑316‑0380
Withholding Penalties 150‑316‑0385
Nonresident Alternate Filing 150‑316‑0390
Deductions Allowed on Either the Inheritance Tax Return or the Fiduciary Income Tax Return 150‑316‑0395
Tax Treatment of Unincorporated Organization 150‑316‑0400
Resident and Nonresident Estates and Trusts 150‑316‑0402
Oregon Qualified Trust Tax Return 150‑316‑0410
Fiduciary Adjustment 150‑316‑0415
Accumulation Distribution Credit for Oregon Taxes Paid by Trust During Income Accumulation Years 150‑316‑0420
Taxable Income of Nonresident Estate or Trust 150‑316‑0425
Oregon Multiple Funeral Trust Tax Return 150‑316‑0427
Persons Required to Make Returns 150‑316‑0435
Petitioning Department to Equally Split Joint Liability 150‑316‑0440
Innocent Spouse, Separation of Liability, and Equitable Relief Provisions 150‑316‑0445
Liability of Fiduciaries 150‑316‑0450
Decedent’s Estate: Request for a Final Tax Determination 150‑316‑0452
Decedents’ Estate: Application for Discharge from Personal Liability for Tax on Decedent’s Income 150‑316‑0465
Estimated Tax 150‑316‑0470
Allocation of Joint Estimated Tax Payments 150‑316‑0475
Estimated Tax: Farmer’s and Fisher’s 150‑316‑0480
Estimated Tax: Application of Prior Year Overpayment (Refund) 150‑316‑0485
Tax Used to Compute Underpayment of Estimated Tax 150‑316‑0487
Estimated Tax: Underpayment Interest Not Imposed if There is a Casualty, Disaster or Other Unusual Circumstances 150‑316‑0489
Estimated Tax: Underpayment Interest Not Imposed If There Is Reasonable Cause 150‑316‑0491
Estimated Tax: Partnership and S Corporation Income of Part-year Residents and Nonresidents 150‑316‑0493
Required Installments for Estimated Tax 150‑316‑0495
Estimated Tax: Joint Return to Single or Separate Return 150‑316‑0497
Estimated Tax: Single or Separate Returns to Joint Return 150‑316‑0505
Oregon Lottery Winnings and Losses 150‑316‑0507
Modification of Federal Taxable Income: Interest and Dividends 150‑316‑0509
U.S. Government Obligations 150‑316‑0511
Addition for Original Issue Discount (OID) 150‑316‑0513
Modification of Federal Taxable Income: Adding Interest or Dividends of the United States Exempted by Federal Income Tax Law 150‑316‑0515
Modification of Federal Taxable Income: Adding Federal Estate Tax Attributable to Income in Respect of a Decedent Not Taxable by Oregon 150‑316‑0519
Gain or Loss Upon the Sale of State and Municipal Bonds of Other States (Foreign States) 150‑316‑0525
U.S. Government Interest in Retirement Accounts 150‑316‑0530
Pool of Assets that Qualify to Pay State Exempt-Interest Dividends 150‑316‑0535
Federal Tax Deduction: Accrual Method of Accounting Required 150‑316‑0537
Adjustment of Federal Tax Liability 150‑316‑0545
Election to Include Child’s Unearned Income — Addition Required 150‑316‑0550
Special Oregon Medical Subtraction 150‑316‑0555
Modification of Federal Taxable Income: Itemized vs. Standard Deduction 150‑316‑0557
Modification of Federal Taxable Income: Oregon Income Tax Claimed as an Itemized Deduction 150‑316‑0559
Modification of Federal Taxable Income: Previously Taxed Contributions to Pension or Annuity 150‑316‑0565
Basis of Depreciable Assets Moved into Oregon 150‑316‑0567
Property Subject to Accelerated Cost Recovery System 150‑316‑0569
Adjustment to Income for Basis Differences 150‑316‑0575
Amount Specially Taxed Under Federal Law to Be Included in Computation of State Taxable Income: Accumulation Distributions 150‑316‑0580
Definition for Severely Disabled Exemption 150‑316‑0585
Exemption for Blind and Severely Disabled 150‑316‑0590
Substantiation for Permanently Severely Disabled 150‑316‑0595
Exempt Income of Native Americans 150‑316‑0600
Oregon Investment Advantage Apportionable Income Exemption 150‑316‑0605
Military Pay Subtraction 150‑316‑0607
First-time Home Buyer Savings Account 150‑316‑0610
Road Construction Worker’s Travel Expenses 150‑316‑0615
Substantiation Required for Construction Worker and Loggers Expenses 150‑316‑0625
(Miscellaneous) Valuation of Forest Land or “Farm Use” Land for Oregon Inheritance Tax Purposes 150‑316‑0630
Scholarship Awards used for Housing Expenses 150‑316‑0635
Subtraction for Land Contributed to Educational Institutions 150‑316‑0640
Subtraction for Qualified Investment of Severance Pay 150‑316‑0650
Waiver of Frivolous Return Penalty Imposed Under ORS 316.992 150‑316‑0652
Frivolous Return Penalty
Last Updated

Jun. 8, 2021

Rule 150-316-0640’s source at or​.us