Proposed regulations address Section 48D semiconductor credit

In brief

The CHIPS Act of 2022 enacted Section 48D, the advanced manufacturing tax credit, which applies to facilities that manufacture semiconductors or the equipment to manufacture semiconductors. In lieu of claiming the credit, a taxpayer may elect to be treated as making a payment against tax otherwise due (direct payment).

The credit applies to qualified property placed in service after December 31, 2022, for which construction begins before January 1, 2027. For property for which construction begins before January 1, 2023, the credit applies only to the basis of the property attributable to construction, reconstruction, or erection of the property after August 9, 2022 (the CHIPS Act date of enactment).

On March 21, 2023, the IRS and Treasury released proposed regulations implementing Section 48D. The regulations are proposed to apply to property placed in service after 2022 during a tax year ending on or after the date of publication of final regulations. The preamble states that taxpayers may rely on the proposed regulations for qualified property placed in service before publication of final regulations if they follow the proposed regulations consistently and in their entirety. Comments are due by May 22, 2023.

For consideration: In addition to the Section 48D credit, the CHIPS ACT provides grant funding. Taxpayers applying for a grant will have to estimate their allowable Section 48D credit, as Treasury will consider both sources of government funding when making grant determinations.

See the March 27 episode of Policy on Demand for additional discussion of the Section 48D credit.