On June 14, 2023, the U.S. Department of Treasury and the Internal Revenue Service (IRS) released proposed regulations aimed at providing guidelines for the utilization of the Section 48D Advanced Manufacturing Investment Credit (CHIPS ITC). This tax credit, which amounts to 25% of an eligible taxpayer's qualified investments in semiconductor manufacturing facilities or equipment to manufacture semiconductors, is intended to encourage advanced semiconductor manufacturing in the United States. The proposed rules seek to provide better guidance for taxpayers looking to utilize the benefits of this credit, ensuring procedural certainty and promoting investment in the U.S. semiconductor manufacturing industry.
Clarifying Elective Payment Option
The proposed regulations seek to establish a procedural framework for taxpayers who wish to elect the full amount of the CHIPS ITC. They clarify the timing of payment elections, provide guidance on determining the credit and elective payment amounts, and outline procedural rules for electing taxpayers, including partnerships and S corporations. These regulations would apply to taxable years ending on or after their publication as final regulations in the Federal Register.
Public Comment Period
The proposed regulations are currently undergoing a 60-day public comment period, during which interested parties can provide feedback. A public hearing is scheduled for August 24, 2023, further enabling public participation in shaping the final rules that will govern the CHIPS ITC.
Temporary Regulations and Pre-Filing Registration Requirement
In conjunction with the proposed regulations, the IRS has released temporary regulations that mandate the pre-registration of taxpayers seeking to make direct payments under Section 48D. These regulations apply to tax years ending on or after June 21, 2023, the publication date in the Federal Register. Notably, taxpayers may rely on the proposed regulations for tax years ending before the final regulations' publication if they consistently apply the proposed rules in their entirety. Taxpayers are required to register for a Section 48D direct payment election through the IRS portal before making the election on their tax returns.
Navigating the Direct Payment Election Process
The direct payment election process under Section 48D involves multiple steps and compliance requirements. It is advisable to consult legal professionals for further guidance on eligibility and the procedures outlined in the proposed regulations. Please let your Calfee attorney or one of the authors know if Calfee can be of assistance.
Following the Guidelines
The proposed regulations surrounding the CHIPS ITC offer a crucial roadmap for taxpayers interested in capitalizing on the benefits of the Section 48D Advanced Manufacturing Investment Credit. By providing the guidelines, these regulations aim to drive investment in domestic semiconductor manufacturing, bolstering the country's resilience in this strategically important industry.
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