The Creating Helpful Incentives to Produce Semiconductors Act of 2022 (CHIPS Act), passed by Congress and signed into law by President Biden in August 2022, incentivizes manufacturers of semiconductors and semiconductor manufacturing equipment in the U.S. via the Advanced Manufacturing Credit. On March 23, the IRS released proposed regulations regarding the implementation of the credit. Highlights of the legislation and proposed regulations include:
A 25 percent tax credit on “qualified investments” will be provided to enhance the competitiveness of U.S. manufacturers in the research and manufacture of semiconductor chips. The credit will fall under section 48D of the Internal Revenue Code.
A qualified investment is the basis of any “qualified property” placed into service by the taxpayer that is part of an advanced manufacturing facility. Qualified property must be “integral to the operation of the advanced manufacturing facility,” meaning the property must be used directly in the manufacturing operation and essential to the completeness of the manufacturing operation. For example, a research or storage facility could be considered qualified property if it is used in connection with the manufacture of semiconductors or semiconductor manufacturing equipment. Qualified property does not include offices or building space for a use that is unrelated to manufacturing, nor does it include facilities that manufacture, produce, grow, or extract materials or chemicals that are supplied to an advanced manufacturing facility. An advanced manufacturing facility is one for which the primary purpose is the manufacture of semiconductors or semiconductor manufacturing equipment.
Qualified property applies to property placed in service before December 31, 2022 that was constructed, reconstructed, or erected after August 9, 2022; it will no longer apply for property for which construction begins after December 31, 2026.
The proposed regulations are not yet final. For instance, the IRS and Treasury Department have requested clarification as to whether the term “semiconductor“ includes semiconductive substances. Further, they have requested additional information regarding the credit as it pertains to partnerships and S corporations, specifically concerning any limitations to the payment and the allocation of basis.
Do you have questions regarding your eligibility for the Advanced Manufacturing Credit? Contact a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.
