On 21 March 2023, the Department of Treasury and the Internal Revenue Service (IRS) proposed regulations to implement the advanced manufacturing investment credit created by the Chips and Science Act of 2022, which aims to boost the semiconductor manufacturing industry in the US. The proposed regulations will appear in the 23 March 2023 issue of the Federal Register.
The tax credit 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. In general, it is available for qualified property that began construction after 9 August 2022 and placed in service after 31 December 2022. The CHIPS Act, however, prohibits foreign entities of concern from claiming the tax credit.
The proposed regulations seek to address the following:
- eligibility for the credits;
- an election to be treated as making a payment of tax (including overpayment of tax) or to receive an elective payment (for eligible partnerships or S corporations), rather than claiming a credit; and
- a special recapture rule that applies if there is a significant transaction involving the material expansion of semiconductor manufacturing capacity in a foreign country of concern.
The Department and the IRS request public comments on the proposed regulations, including the definition of the term "semiconductor" by 22 May 2023.