CHIPS Investment Tax Credit Guidance

IRS Releases NPRM for Advanced Manufacturing Investment Credit

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Treasury and the Internal Revenue Service released a notice of proposed rulemaking for the Advanced Manufacturing Investment Credit (CHIPS ITC) established by the CHIPS Act of 2022.

The Investment Tax Credit is a federal income tax credit for qualifying investments in facilities manufacturing semiconductors or semiconductor manufacturing equipment, and a critical component of the suite of incentives provided by the CHIPS and Science Act.

“By providing detailed eligibility guidance for this tax credit, we’re equipping taxpayers with the clarity and certainty they need to make investments that will increase semiconductor manufacturing and strengthen America’s semiconductor supply chain,” said Treasury Secretary Janet Yellen. 

The proposed regulations also define key terms for the credit, which is generally equal to 25% of an eligible taxpayer’s qualified investment in a facility with the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment and are integral to the operation of the facility. The credit is generally available for qualified property that began construction after enactment of the CHIPS Act (August 9, 2022) and placed in service after December 31, 2022.

The CHIPS and Science Act prohibits "foreign entities of concern" from claiming the tax credit.

The statute also included a requirement that generally claws back the full value of the credit claimed in all prior years if within 10 years of claiming the credit a taxpayer (or affiliates) engages in a significant transaction that materially expands the semiconductor manufacturing capacity of the taxpayer in a foreign country of concern.

The proposed regulations define what constitutes a foreign entity of concern and under what circumstances the IRS would claw back the credit.

This document also requests comments on the proposed regulations, including the definition of the term “semiconductor.” These proposed regulations affect taxpayers that claim the advanced manufacturing investment credit or instead make an elective payment election

IRS Notice of Proposed Rule: [FR 2023-05871]

 

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