Bulletin No. 2024–51
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HIGHLIGHTS
OF THIS ISSUE
Bulletin No. 2024–51
December 16, 2024
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
Notice 2024-85, page 1349.
Notice 2024-85 provides that calendar years 2024 and 2025
will be regarded as the final transition period for purposes of
IRS enforcement and administration of the minimum reporting threshold for Form 1099-K, Payment Card and Third Party
Network Transactions. Under Notice 2024-85, a third party
settlement organization (TPSO) will be required to report payments in settlement of third party network transactions with
respect to a participating payee when the amount of total
payments for those transactions is more than $5,000 during
calendar year 2024; more than $2,500 during calendar year
2025; and more than $600 during calendar year 2026 and
after. Notice 2024-85 also provides that for calendar year
2024, the IRS will not assert penalties under section 6651
or 6656 for a TPSO’s failure to withhold and pay backup
withholding tax during the calendar year.
INCOME TAX
Announcement 2024-40, page 1352.
This announcement addresses the Federal income tax treatment of certain amounts paid or incurred pursuant to agreements with the Department of Commerce required under the
CHIPS Act of 2022.
Rev. Rul. 2024-27, page 1240.
2024 Base Period T-Bill Rate. The “base period T-bill rate”
for the period ending September 30, 2024 is published as
required by section 995(f) of the Internal Revenue Code.
T.D. 10009, page 1251.
These final regulations provide guidance regarding the
advanced manufacturing investment credit under section
Finding Lists begin on page ii.
48D of the Internal Revenue Code (Code) and the special
rules for the investment credit in section 50(a) of the Code.
The final regulations reflect changes made by the CHIPS Act
of 2022. The section 48D credit may be claimed for qualified investments in an advanced manufacturing facility that
engages in the manufacturing of semiconductors or semiconductor manufacturing equipment.
T.D. 10010, page 1286.
The final regulations provide the rules for claiming the
Advanced Manufacturing Production Credit under section
45X of the Internal Revenue Code. The final regulations
describe the requirements for the production of eligible components, including the domestic production requirement. The
final regulations also provide rules regarding the sale of eligible components to unrelated persons, as well as special
rules that apply to sales between related persons. Finally, the
final regulations provide definitions of eligible components,
rules related to calculating the credit, and specific recordkeeping and reporting requirements.
T.D. 10014, page 1340.
These final regulations provide guidance under § 752 of
the Internal Revenue Code relating to a partner’s share of a
recourse partnership liability. A partner’s share of a recourse
partnership liability is the amount of a liability for which the
partner or a related person bears the economic risk of loss.
These final regulations clarify when a person is related to
a partner, address how a liability is allocated when multiple
partners bear the economic risk of loss for the same liability,
and provide guidance regarding tiered partnerships when a
partner that bears economic risk of loss is a partner in both
an upper-tier and lower-tier partnership.
The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
December 16, 2024
Bulletin No. 2024–51
Part I
Section 995.—Taxation
of DISC Income to
Shareholders
2024 Base Period T-Bill Rate. The “base period
T-bill rate” for the period ending September 30,
2024, is published as required by section 995(f) of
the Internal Revenue Code.
Rev. Rul. 2024-27
Section 995(f)(1) of the Internal Revenue Code provides that a shareholder of
a domestic international sales corporation
(“DISC”) shall pay interest for each taxable
year in an amount equal to the product of
the “shareholder’s DISC-related deferred
tax liability” for the year (as defined in
section 995(f)(2)) and the “base period
T-bill rate.” Under section 995(f)(4), the
base period T-bill rate is “the annual rate of
interest determined by the Secretary to be
equivalent to the average of the 1-year constant maturity Treasury yields, as published
by the Board of Governors of the Federal
Reserve System, for the 1-year period ending on September 30 of the calendar year
ending with (or of the most recent calendar
year ending before) the close of the taxable
year of the shareholder.”
The base period T-bill rate for the
period ending September 30, 2024, is 4.93
percent.
Pursuant to section 6622 of the Internal Revenue Code, interest must be compounded daily. The table below provides factors for compounding the 2024 base period
T-bill rate daily for any number of days in
the shareholder’s taxable year (including
for a 52-53 week taxable year). To compute the amount of the interest charge for
the shareholder’s taxable year, multiply the
amount of the shareholder’s DISC-related
deferred tax liability for that year by the
base period T-bill rate factor corresponding
to the number of days in the shareholder’s
taxable year for which the interest charge
is being computed. Generally, one would
use the factor for 365 days. One would use
a different factor only if the shareholder’s
taxable year for which the interest charge is
being determined is a short taxable year, if
the shareholder uses a 52-53 week taxable
year, or if the shareholder’s taxable year
is a leap year. As a 366-day year is used
when calculating the daily factors for leap
years such as 2024, the daily factors below
diverge from Rev. Rul. 2023-23 despite the
identical annual rate.
For the base period T-bill rates for periods ending in prior years, see Rev. Rul.
2023-23, 2023-51 I.R.B. 1472; Rev. Rul.
2022-21, 2022-47 I.R.B. 468; Rev. Rul.
2021-22, 2021-47 I.R.B. 726; Rev. Rul.
2020-25, 2020-48 I.R.B. 1109; Rev. Rul.
2019-27, 2019-51 I.R.B. 1378; and Rev.
Rul. 2018-31, 2018-50 I.R.B. 848.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Stefan A. Pruessmann of the
Office of Associate Chief Counsel (International). For further information regarding the revenue ruling, contact Mr. Pruessmann at (202) 317-3800 (not a toll-free
number).
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
1
2
3
4
5
0.000134699
0.000269417
0.000404153
0.000538907
0.000673679
6
7
8
9
10
0.000808469
0.000943277
0.001078104
0.001212948
0.001347811
11
12
13
14
15
0.001482692
0.001617591
0.001752509
0.001887444
0.002022398
1240
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
Bulletin No. 2024–51
16
17
18
19
20
0.002157370
0.002292360
0.002427368
0.002562395
0.002697439
21
22
23
24
25
0.002832502
0.002967583
0.003102682
0.003237800
0.003372935
26
27
28
29
30
0.003508089
0.003643261
0.003778451
0.003913660
0.004048886
31
32
33
34
35
0.004184131
0.004319394
0.004454675
0.004589975
0.004725293
36
37
38
39
40
0.004860628
0.004995983
0.005131355
0.005266746
0.005402155
41
42
43
44
45
0.005537582
0.005673027
0.005808491
0.005943973
0.006079473
46
47
48
49
50
0.006214991
0.006350528
0.006486082
0.006621656
0.006757247
1241
December 16, 2024
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
51
52
53
54
55
0.006892857
0.007028485
0.007164131
0.007299795
0.007435478
56
57
58
59
60
0.007571179
0.007706898
0.007842636
0.007978392
0.008114166
61
62
63
64
65
0.008249958
0.008385769
0.008521598
0.008657445
0.008793311
66
67
68
69
70
0.008929195
0.009065097
0.009201017
0.009336956
0.009472913
71
72
73
74
75
0.009608889
0.009744883
0.009880895
0.010016925
0.010152974
76
77
78
79
80
0.010289041
0.010425126
0.010561230
0.010697352
0.010833492
81
82
83
84
85
0.010969651
0.011105828
0.011242024
0.011378237
0.011514469
1242
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
Bulletin No. 2024–51
86
87
88
89
90
0.011650720
0.011786989
0.011923276
0.012059581
0.012195905
91
92
93
94
95
0.012332248
0.012468608
0.012604987
0.012741384
0.012877800
96
97
98
99
100
0.013014234
0.013150687
0.013287158
0.013423647
0.013560154
101
102
103
104
105
0.013696680
0.013833225
0.013969788
0.014106369
0.014242968
106
107
108
109
110
0.014379586
0.014516223
0.014652877
0.014789551
0.014926242
111
112
113
114
115
0.015062952
0.015199681
0.015336427
0.015473193
0.015609976
116
117
118
119
120
0.015746779
0.015883599
0.016020438
0.016157295
0.016294171
1243
December 16, 2024
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
121
122
123
124
125
0.016431066
0.016567978
0.016704909
0.016841859
0.016978827
126
127
128
129
130
0.017115814
0.017252818
0.017389842
0.017526884
0.017663944
131
132
133
134
135
0.017801023
0.017938120
0.018075236
0.018212370
0.018349523
136
137
138
139
140
0.018486694
0.018623883
0.018761091
0.018898318
0.019035563
141
142
143
144
145
0.019172827
0.019310109
0.019447409
0.019584728
0.019722066
146
147
148
149
150
0.019859422
0.019996796
0.020134189
0.020271601
0.020409031
151
152
153
154
155
0.020546479
0.020683946
0.020821432
0.020958936
0.021096459
1244
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
Bulletin No. 2024–51
156
157
158
159
160
0.021234000
0.021371559
0.021509138
0.021646734
0.021784349
161
162
163
164
165
0.021921983
0.022059636
0.022197306
0.022334996
0.022472704
166
167
168
169
170
0.022610430
0.022748175
0.022885939
0.023023721
0.023161522
171
172
173
174
175
0.023299341
0.023437179
0.023575036
0.023712911
0.023850804
176
177
178
179
180
0.023988716
0.024126647
0.024264596
0.024402564
0.024540551
181
182
183
184
185
0.024678556
0.024816579
0.024954622
0.025092682
0.025230762
186
187
188
189
190
0.025368860
0.025506976
0.025645112
0.025783266
0.025921438
1245
December 16, 2024
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
191
192
193
194
195
0.026059629
0.026197839
0.026336067
0.026474314
0.026612579
196
197
198
199
200
0.026750864
0.026889166
0.027027488
0.027165828
0.027304187
201
202
203
204
205
0.027442564
0.027580960
0.027719374
0.027857808
0.027996259
206
207
208
209
210
0.028134730
0.028273219
0.028411727
0.028550254
0.028688799
211
212
213
214
215
0.028827363
0.028965945
0.029104546
0.029243166
0.029381804
216
217
218
219
220
0.029520462
0.029659137
0.029797832
0.029936545
0.030075277
221
222
223
224
225
0.030214028
0.030352797
0.030491585
0.030630392
0.030769217
1246
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
Bulletin No. 2024–51
226
227
228
229
230
0.030908061
0.031046924
0.031185805
0.031324705
0.031463624
231
232
233
234
235
0.031602562
0.031741518
0.031880493
0.032019487
0.032158499
236
237
238
239
240
0.032297530
0.032436580
0.032575649
0.032714736
0.032853843
241
242
243
244
245
0.032992967
0.033132111
0.033271273
0.033410454
0.033549654
246
247
248
249
250
0.033688873
0.033828110
0.033967366
0.034106641
0.034245935
251
252
253
254
255
0.034385247
0.034524578
0.034663928
0.034803297
0.034942684
256
257
258
259
260
0.035082090
0.035221515
0.035360959
0.035500422
0.035639903
1247
December 16, 2024
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
261
262
263
264
265
0.035779403
0.035918922
0.036058460
0.036198016
0.036337592
266
267
268
269
270
0.036477186
0.036616799
0.036756430
0.036896081
0.037035750
271
272
273
274
275
0.037175438
0.037315145
0.037454871
0.037594616
0.037734379
276
277
278
279
280
0.037874161
0.038013962
0.038153782
0.038293621
0.038433479
281
282
283
284
285
0.038573355
0.038713250
0.038853164
0.038993097
0.039133049
286
287
288
289
290
0.039273020
0.039413009
0.039553018
0.039693045
0.039833091
291
292
293
294
295
0.039973156
0.040113240
0.040253342
0.040393464
0.040533604
1248
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
Bulletin No. 2024–51
296
297
298
299
300
0.040673764
0.040813942
0.040954139
0.041094355
0.041234590
301
302
303
304
305
0.041374844
0.041515116
0.041655408
0.041795718
0.041936047
306
307
308
309
310
0.042076396
0.042216763
0.042357149
0.042497554
0.042637978
311
312
313
314
315
0.042778420
0.042918882
0.043059363
0.043199862
0.043340381
316
317
318
319
320
0.043480918
0.043621474
0.043762050
0.043902644
0.044043257
321
322
323
324
325
0.044183889
0.044324540
0.044465210
0.044605899
0.044746607
326
327
328
329
330
0.044887333
0.045028079
0.045168844
0.045309628
0.045450430
1249
December 16, 2024
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
December 16, 2024
331
332
333
334
335
0.045591252
0.045732092
0.045872952
0.046013830
0.046154728
336
337
338
339
340
0.046295644
0.046436580
0.046577534
0.046718508
0.046859500
341
342
343
344
345
0.047000511
0.047141542
0.047282591
0.047423660
0.047564747
346
347
348
349
350
0.047705853
0.047846979
0.047988123
0.048129287
0.048270469
351
352
353
354
355
0.048411671
0.048552891
0.048694131
0.048835389
0.048976667
356
357
358
359
360
0.049117963
0.049259279
0.049400614
0.049541967
0.049683340
361
362
363
364
365
0.049824732
0.049966143
0.050107572
0.050249021
0.050390489
1250
Bulletin No. 2024–51
ANNUAL RATE (4.93%), COMPOUNDED DAILY
DAYS
FACTOR
366
367
368
369
370
0.050531976
0.050673482
0.050815008
0.050956552
0.051098115
371
0.051239697
T.D. 10009
manufacturing capacity in a foreign country of concern. The final regulations affect
taxpayers that claim the advanced manufacturing investment credit.
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
DATES: Effective date: These regulations
are effective on December 23, 2024.
Applicability dates: For dates of applicability see §§1.48D-1(d), 1.48D-2(q),
1.48D-3(h), 1.48D-4(d), 1.48D-5(f) and
1.50-2(e).
26 CFR 1.48D-0 through -5; 26 CFR
1.50-0 and -2
Advanced Manufacturing
Investment Credit Rules
under Sections 48D and 50
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final rule.
SUMMARY: This document contains final regulations to implement the
advanced manufacturing investment credit
established by the CHIPS Act of 2022 to
incentivize the manufacture of semiconductors and semiconductor manufacturing equipment within the United States.
The final regulations adopt with certain
modifications rules proposed in the first
of two notices of proposed rulemaking to
implement the credit, other than proposed
rules regarding the elective payment election that were addressed in the final rule
adopted in connection with the second
notice of proposed rulemaking. The final
regulations provide the eligibility requirements for the credit, and a special 10-year
credit recapture rule that applies if there
is a significant transaction involving the
material expansion of semiconductor
Bulletin No. 2024–51
FOR FURTHER INFORMATION
CONTACT: Concerning these final regulations, contact Lani Sinfield of the Office
of Associate Chief Counsel (Passthroughs
and Special Industries), (202) 317-4137
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document amends the Income
Tax Regulations (26 CFR part 1) by adding regulations authorized to be issued
by the Secretary of the Treasury or her
delegate (Secretary) under sections 50(a)
and 7805(a) of the Internal Revenue Code
(Code) regarding the application of sections 48D and 50(a)(3) and (a)(6)(D) and
(E) of the Code (final regulations).
Section 50(a)(3)(C) provides an
express delegation of authority to the Secretary to provide guidance relating to the
recapture requirement in section 50(a)(3)
for the advanced manufacturing investment credit, stating, “The Secretary shall
issue such regulations or other guidance
as the Secretary determines necessary or
appropriate to carry out the purposes of
this paragraph, including regulations or
1251
other guidance which provide for requirements for recordkeeping or information
reporting for purposes of administering
the requirements of this paragraph.”
In addition, section 50(a)(6)(D)(i) provides an express delegation of authority
to the Secretary to determine, in coordination with the Secretary of Commerce
and the Secretary of Defense, significant
transactions, stating, “[t]he term ‘applicable transaction’ means, with respect to
any applicable taxpayer, any significant
transaction (as determined by the Secretary, in coordination with the Secretary of
Commerce and the Secretary of Defense)
involving the material expansion of semiconductor manufacturing capacity of
such applicable taxpayer in the People’s
Republic of China or a foreign country
of concern (as defined in section 9901(7)
of the William M. (Mac) Thornberry
National Defense Authorization Act for
Fiscal Year 2021).”
The final regulations are also issued
under the express delegation of authority
under section 7805(a), which provides that
“[t]he Secretary shall prescribe all needful
rules and regulations for the enforcement
of [the Code], including all rules and regulations as may be necessary by reason of
any alteration of law in relation to internal
revenue.”
Background
I. Overview
Section 107(a) of the CHIPS Act of
2022 (CHIPS Act), enacted as Division
A of Public Law 117-167, 136 Stat. 1366,
1393 (August 9, 2022), added section
48D to the Code to establish the advanced
December 16, 2024
manufacturing investment credit (section
48D credit) as an investment credit for
purposes of section 46 of the Code, which
is a current year general business credit
under section 38 of the Code.
Section 48D(a) provides that the section
48D credit is an amount equal to 25 percent of the qualified investment for any
taxable year with respect to any advanced
manufacturing facility of an eligible taxpayer. Section 48D(b)(1) provides that the
“qualified investment” with respect to any
advanced manufacturing facility for any
taxable year is the basis of any qualified
property placed in service by the taxpayer
during such taxable year which is part of
an advanced manufacturing facility. However, the section 48D credit only applies to
property placed in service after December
31, 2022, and, for any property the construction of which begins prior to January
1, 2023, only to the extent of the basis
thereof attributable to the construction,
reconstruction, or erection after August 9,
2022 (the date of enactment of the CHIPS
Act). See section 107(f)(1) of the CHIPS
Act. In addition, the section 48D credit
does not apply to property the construction of which begins after December 31,
2026. See section 48D(e).
Section 48D(b)(2) provides that, for
purposes of section 48D(b), the term
“qualified property” means tangible property with respect to which depreciation
(or amortization in lieu of depreciation)
is allowable that is integral to the operation of the advanced manufacturing facility if (I) constructed, reconstructed, or
erected by the taxpayer, or (II) acquired
by the taxpayer, if the original use of such
property commences with the taxpayer.
Qualified property includes any building
or its structural components satisfying
such requirements unless the building or
portion of the building is used for offices,
administrative services, or other functions
unrelated to manufacturing.
Section 48D(b)(3) provides that the
term “advanced manufacturing facility”
means a facility for which the primary
purpose is the manufacturing of semiconductors or semiconductor manufacturing
equipment.
Section 48D(b)(4) provides that the
qualified investment with respect to any
advanced manufacturing facility for any
taxable year shall not include the portion
December 16, 2024
of the basis of any such property that is
attributable to qualified rehabilitation
expenditures (as defined in section 47(c)
(2) of the Code).
Section 48D(b)(5) states that rules similar to the rules of subsections (c)(4) and
(d) of section 46 (as in effect on the day
before the date of the enactment of the
Revenue Reconciliation Act of 1990) shall
apply for purposes of section 48D(a).
Section 48D(c) provides that, for purposes of the section 48D credit, an “eligible taxpayer” is any taxpayer that (1) is not
a foreign entity of concern (as defined in
section 9901(6) of the William M. (Mac)
Thornberry National Defense Authorization Act for Fiscal Year 2021, as amended
by section 103 of the CHIPS Act), and (2)
has not made an applicable transaction
(as defined in section 50(a) of the Code)
during the taxable year.
Section 107(b) of the CHIPS Act added
new section 50(a)(3), (6)(D) and (E) to
the Code to provide special recapture
rules for certain expansions in connection
with advanced manufacturing facilities.
Under section 50(a)(3)(A), if there is an
applicable transaction by an applicable
taxpayer before the close of the 10-year
period beginning on the date such taxpayer placed in service property that is
eligible for the section 48D credit, then
the taxpayer’s Federal income tax liability
under chapter 1 of the Code (chapter 1) for
the taxable year in which such transaction
occurs must be increased by 100 percent
of the aggregate decrease in the credits allowed under section 38 for all prior
taxable years which would have resulted
solely from reducing to zero any investment credit determined under section 46
that is attributable to the section 48D
credit with respect to such property (applicable transaction recapture rule). Section
50(a)(3)(B) provides an exception to the
applicable transaction recapture rule for
an applicable taxpayer that demonstrates
to the satisfaction of the Secretary that the
applicable transaction has been ceased or
abandoned within 45 days of a determination and notice by the Secretary. Section
50(a)(3)(C) authorizes the Secretary to
issue such regulations or other guidance
as the Secretary determines necessary or
appropriate to carry out the purposes of
the applicable transaction recapture rule,
including regulations or other guidance
1252
providing for recordkeeping requirements
or information reporting for purposes of
administering the requirements of section 50(a)(3).
As added to the Code by section 107(b)
(2) of the CHIPS Act, section 50(a)(6)(D)
provides that for purposes of section 50(a),
the term “applicable transaction” means,
with respect to any applicable taxpayer,
any significant transaction (as determined
by the Secretary, in coordination with the
Secretary of Commerce and the Secretary
of Defense) involving the material expansion of semiconductor manufacturing
capacity of such applicable taxpayer in a
foreign country of concern (as defined in
section 9901(6) of the William M. (Mac)
Thornberry National Defense Authorization Act for Fiscal Year 2021, as amended
by section 103 of the CHIPS Act) other
than certain transactions that primarily
involve the expansion of manufacturing capacity for legacy semiconductors
(as defined in section 9902(a)(6) of the
William M. (Mac) Thornberry National
Defense Authorization Act for Fiscal Year
2021, as amended by section 103 of the
CHIPS Act).
Section 50(a)(6)(E) defines an “applicable taxpayer” for purposes of section 50(a) as any taxpayer who has been
allowed a section 48D credit for any prior
taxable year.
II. Proposed and Temporary Regulations
On March 23, 2023, the Department of
the Treasury (Treasury Department) and
the IRS published proposed regulations
(REG-120653-22) in the Federal Register (88 FR 17451) related to the section
48D credit under the authority granted
by sections 48D(d), 50(a), and 7805(a)
(March 2023 proposed regulations). The
March 2023 proposed regulations primarily would apply long-established credit
mechanics and procedures common to
all investment tax credits (including the
section 48D credit) previously set forth in
regulations and subregulatory guidance.
In addition, the March 2023 proposed regulations included proposed definitions and
rules that would apply for determining
who is an eligible taxpayer, what qualifies as qualified property or an advanced
manufacturing facility, whether the beginning of construction requirement is met,
Bulletin No. 2024–51
and what qualifies as a significant transaction involving a material expansion of
semiconductor manufacturing capacity
in a foreign country of concern for purposes of the special 10-year recapture rule
under section 50(a)(3). Consistent with
the statutory directive in section 50(a)
(6)(D)(i) to coordinate with the Department of Commerce and the Department
of Defense regarding such significant
transactions, the Treasury Department and
the IRS, in coordination with the Department of Commerce and the Department of
Defense, incorporated in the March 2023
proposed regulations definitional concepts
set forth in proposed 15 CFR part 231 as
contained in the proposed rule, Preventing
the Improper Use of CHIPS Act Funding, published in the Federal Register
(88 FR 17439) by the CHIPS Program
Office, National Institute of Standards and
Technology, Department of Commerce
(Commerce Proposed Rule). The Commerce Proposed Rule would have provided guardrails to prevent the improper
use of CHIPS Act funding overseen by
the Department of Commerce. On September 25, 2023, the CHIPS Program
Office, National Institute of Standards and
Technology, Department of Commerce
published the final rule, Preventing the
Improper Use of CHIPS Act Funding, in
the Federal Register (88 FR 65600) to
add part 231, subchapter C, to 15 CFR
chapter II (Commerce Final Rule).
In addition, §1.48D-6 of the March
2023 proposed regulations set forth the
general requirements that would apply for
making an elective payment election under
section 48D(d), and the general requirement that an eligible taxpayer, partnership,
or S corporation would need to comply
with the registration procedures in proposed §1.48D-6(c)(2) as a condition of, and
prior to, any amount being treated as a payment under section 48D(d)(1) or (d)(2)(A)
(i)(I). However, the March 2023 proposed
regulations under proposed §1.48D-6(c)(2)
reserved on the procedures and additional
information required for completing the
pre-filing registration process.
On June 21, 2023, the Treasury Department and the IRS published proposed
regulations (REG-105595-23) in the Federal Register (88 FR 40123) authorized
by section 48D(d)(6) to update proposed
§1.48D-6 of the March 2023 proposed
Bulletin No. 2024–51
regulations (June 2023 proposed regulations). Also on June 21, 2023, the Treasury
Department and the IRS published temporary regulations (TD 9975) in the Federal
Register (88 FR 40086) authorized by
section 48D(d)(6) under §1.48D-6T to
set forth mandatory information and registration requirements for taxpayers planning to make an elective payment election
under section 48D(d) to treat the amount
of the section 48D credit as a payment
of Federal income tax, or in the case of
a partnership or S corporation, to receive
a payment in the amount of such credit.
The temporary regulations are applicable
to property placed in service on or after
December 31, 2022, and during a taxable
year ending on or after June 21, 2023, and
will expire on June 12, 2026. A public
hearing on the June 2023 proposed regulations was held on August 24, 2023. On
March 11, 2024, the Treasury Department
and the IRS published final regulations
(TD 9989) in the Federal Register (89 FR
17596) authorized by section 48D(d)(6)
under §1.48D-6 to remove the temporary
regulations (TD 9975) and adopt the June
2023 proposed regulations with modifications in response to all comments received
on the proposed rules and all testimony
heard at the public hearings held on July
26, 2023 (March 2023 proposed regulations) and August 24, 2023 (June 2023
proposed regulations) (March 2024 final
regulations).
The Treasury Department and the IRS
received more than 40 comments responding to the March 2023 proposed regulations. A public hearing on the March 2023
proposed regulations was held on July 26,
2023. As described in the following Summary of Comments and Explanation of
Revisions, this Treasury decision adopts
§§1.48D-1 through 1.48D-5 and 1.50-2 of
the March 2023 proposed regulations with
certain modifications after full consideration of all comments received on those
proposed rules and all testimony heard at
the July 26, 2023, public hearing.
Summary of Comments and
Explanation of Revisions
I. Overview
The final regulations set forth in
§§1.48D-1 through 1.48D-5 and 1.50-2
1253
retain the basic approach and structure of
the March 2023 proposed regulations, with
certain revisions in response to comments
submitted by commenters in response to
the March 2023 proposed regulations.
The Treasury Department and the IRS
have refined and clarified certain aspects
of the proposed regulations in these final
regulations. Specifically, the definitions of
“semiconductor manufacturing,” “semiconductor manufacturing equipment,”
and “significant transaction” have been
clarified. The final regulations do not set
forth rules for §1.48D-6 of the March
2023 proposed regulations, because the
June 2023 proposed regulations updated
§1.48D-6 of the March 2023 proposed
regulations and the June 2023 proposed
regulations were finalized by the March
2024 final regulations. Consistent with
the proposed regulations, the final regulations primarily apply long-established
credit mechanics and procedures common
to all investment tax credits (including the
section 48D credit) previously set forth in
regulations and subregulatory guidance.
In addition, consistent with the statutory
directive in section 50(a)(6)(D)(i) to coordinate with the Department of Commerce
and the Department of Defense regarding
the scope of significant transactions that
are applicable transactions, the Treasury
Department and the IRS, in coordination
with the Department of Commerce and
the Department of Defense, have incorporated in the final regulations definitional
concepts, as determined by the Secretary
of Commerce in the Commerce Final Rule
in 15 CFR part 231, necessary to align
the final regulations related to applicable
transactions that result in the recapture of
the section 48D credit with the provisions
of the Commerce Final Rule.
II. Comments on and Changes to
Proposed §1.48D-1
Commenters requested that the final
regulations address whether the taxpayer
in proposed §1.48D-1(c)(2) actually
claims a rehabilitation credit. Proposed
§1.48D-1(c)(2) includes an example
(proposed example) in which a taxpayer
incurred capital expenditures to reconstruct a building. The proposed example
indicates that all of the expenditures are
“qualified investment” for purposes of the
December 16, 2024
section 48D credit and a portion of those
expenditures are also qualified rehabilitation expenditures (QREs) (as defined in
section 47(c)(2) and §1.48-12(c)) for purposes of the rehabilitation credit. The proposed example concludes that the amount
of the taxpayer’s qualified investment
does not include the portion of the basis
of the property that is attributable to any
QREs.
Section 48D(b)(4) and proposed
§1.48D-1(c)(1) provide that qualified
investment with respect to any advanced
manufacturing facility for any taxable
year does not include the portion of the
basis of the property that is attributable
to QREs. The Treasury Department and
the IRS have determined that it would
be inconsistent with section 48D(b)(4) to
exclude from qualified basis the portion of
the basis that is attributable to QREs only
when a taxpayer actually claims a rehabilitation credit. Accordingly, the final regulations modify the proposed example to
clarify that qualified investment does not
include the basis of the property that is
attributable to QREs even if the taxpayer
does not determine a rehabilitation credit.
Commenters requested that the final
regulations clarify whether the section
48D credit has an impact on any other
credits established by the Code. The Treasury Department and the IRS note that section 48D(b)(4) provides a special rule for
coordination with the rehabilitation credit
but does not provide any special rules to
coordinate section 48D with other credits established by the Code. Additionally,
the Code includes numerous tax credits.
Addressing the impact of the section 48D
credit on every other credit established by
the Code (if any) would require a careful
examination of numerous provisions apart
from those found in section 48D and the
section 48D regulations. For these reasons, addressing whether the section 48D
credit has an impact on other credits established by the Code is not necessary for
purposes of the final regulations.
III. Comments on and Changes to
Proposed §1.48D-2
A. Basis
Commenters requested clarification
on the proper method for determining the
December 16, 2024
portion of basis attributable to the construction, reconstruction, or erection after
the date of enactment (August 9, 2022)
for property the construction of which
began prior to the effective date (January 1, 2023) of section 107 of the CHIPS
Act. The commenters requested that the
final regulations provide some flexibility
to address the difficulties associated with
tracking and allocating costs around a
date occurring in the middle of the month
(August 9, 2022). The commenters also
requested that the final regulations allow
for the use of any reasonable method and
specifically provide that rules similar to
the cost allocation rules in §§1.48-2(b)(2),
1.48-11(b)(5)(i), and 1.48-12(c)(1) are
applicable. One commenter requested that
the final regulations clarify that basis can
be determined on the principles of section
461 of the Code. The commenter argued
that this would clarify, for example, that
in cases where a taxpayer has made a payment for construction services prior to
August 10, 2022, such payment will be
included in the basis of qualified property
because the amount is incurred only when
the service is performed.
For the avoidance of doubt, no provision of Federal law, including the CHIPS
Act or the Code, permits determining
any amount of a section 48D credit with
respect to any basis in property attributable
to construction, reconstruction, or erection
that occurred before August 10, 2022 (the
first day after the August 9, 2022, date of
enactment of the CHIPS Act). However,
a rule to address the proper method for
allocating basis attributable to the period
beginning on the day after the date of
enactment (August 10, 2022) and ending
on the day immediately before the effective date of section 48D (December 31,
2022) is consistent with the purpose and
structure of the statute. Accordingly, the
final regulations clarify that for property
the construction of which began before
January 1, 2023, the portion of basis of
such property attributable to construction,
reconstruction, or erection after August 9,
2022, the date of enactment of the CHIPS
Act, (if any) must be allocated using any
reasonable method, including by applying
the principles of section 461. The final
regulations further clarify that rules similar to the rules in §§1.48-2(b)(2), 1.4811(b)(5)(i), and 1.48-12(c)(1) apply.
1254
Commenters requested that the final
regulations provide methods for allocating basis for dual-use property or property comprised of eligible and non-eligible components by square footage,
cost, or allow the taxpayer to utilize any
reasonable method for allocating cost
among properties and time periods. Two
commenters requested that the final regulations provide a percentage-based safe
harbor rule that allows 100 percent of the
basis to qualify if, for example, 80 or 90
percent of the basis is allocable to qualified basis. Commenters also requested
that the Treasury Department and the IRS
consider whether rules are needed to allocate basis in qualified property in the case
of vertically integrated companies that
manufacture, for example, ingots, wafers,
and semiconductors. Section 48D does
not address methods of allocating basis.
Section 48D is an investment credit under
section 46, and, thus, the investment credit
rules for allocating the basis of qualified
property apply. Further, the Code includes
provisions that control for such purposes
(see, for example, section 1012). For these
reasons, the inclusion of special rules for
allocating basis in qualified property as
requested by the commenters is not necessary for purposes of the final regulations.
One commenter requested that the final
regulations revise the definition of “basis”
in proposed §1.48D-2(c) to allow capitalized costs incurred after the placed in
service date of qualified property to qualify for the section 48D credit. Another
commenter requested that the final regulations state that the basis of an item of
qualified property or properties placed in
service during the taxable year is the basis
on which the credit is claimed for each
year and provide examples illustrating this
rule in the context of multi-unit or multiphase manufacturing projects. The Treasury Department and the IRS agree that a
revision is needed and have removed from
the final regulations the proposed requirement that basis is determined immediately
before the qualified property is placed in
service. The final regulations clarify that
with respect to any qualified property, the
term “basis” has the same meaning as provided in §1.46-3(c). Thus, if, for the first
taxable year in which property is placed
in service by the taxpayer, the property
meets the definition of qualified prop-
Bulletin No. 2024–51
erty but the basis of the property does not
reflect its full cost for the reason that the
total amount to be paid or incurred by the
taxpayer for the property is indeterminate,
a credit will be allowed to the taxpayer for
such first taxable year with respect to so
much of the cost as is reflected in the basis
of the property as of the close of such taxable year, and a credit will be allowed to
the taxpayer for any subsequent taxable
year with respect to any additional cost
paid or incurred during such subsequent
taxable year and reflected in the basis of
the property as of the close of such subsequent taxable year. The basis of property
determined can include capital expenditures, as defined in section 263 of the Code
and §§1.263(a)-1 through 1.263(f)-1,
with respect to the property. Additionally,
§1.48D-2(h) clarifies that the term “placed
in service” has the same meaning as provided in §1.46-3(d). Because the revision
made to the final regulations clarifies that
the term “basis” has the same meaning as
provided in §1.46-3(c), it is not necessary
to provide specific examples of this rule
as applied to qualified property placed in
service during a taxable year.
B. Foreign Entity of Concern and Owned
By, Controlled By, or Subject to the
Jurisdiction or Direction of
Proposed §1.48D-2 defined the terms
“foreign entity of concern” and “owned
by, controlled by, or subject to the jurisdiction or direction of” to have the same
meaning as those terms in the Commerce
Proposed Rule. The Commerce Final Rule
does not include a definition of “owned by,
controlled by, or subject to the jurisdiction
or direction of,” but includes a revised
definition of “foreign entity of concern.”
The Department of Commerce removed
the definition of “owned by, controlled by,
or subject to the jurisdiction or direction
of” from the Commerce Final Rule to provide greater specificity and incorporated
the definition of “owned by, controlled by,
or subject to the jurisdiction of” into the
definition of “foreign entity of concern”
to clarify that the scope of the terms are
limited to defining foreign entities of concern. To address the concern that foreign
entities of concern could circumvent the
restrictions of the rules by establishing
entities for which multiple foreign entities
Bulletin No. 2024–51
of concern each have ownership below
the 25 percent threshold, the Commerce
Final Rule clarifies that, where at least 25
percent of the person’s outstanding voting
interest is held directly or indirectly by
any combination of persons who would
otherwise be foreign entities of concern
themselves, that person is a foreign entity
of concern.
As stated in the Background section of
this preamble, consistent with the statutory
authority provided under sections 50(a)(3)
and (a)(6)(D)(i) and 7805(a), the Treasury
Department and the IRS, in coordination
with the Department of Commerce and the
Department of Defense, have incorporated
in the final regulations definitional concepts
as determined by the Secretary of Commerce, and contained in the Commerce
Final Rule, necessary for the determination
of applicable transactions under section
50(a)(3) and (a)(6)(D). Section 48D(c)(1)
defines the term “eligible taxpayer,” in part,
as any taxpayer that is not a foreign entity
of concern (as defined in section 9901(6) of
the William M. (Mac) Thornberry National
Defense Authorization Act for Fiscal Year
2021 (amending 15 U.S.C. 4651)). Section
50(a)(6)(D)(i) provides rules for when an
advanced manufacturing investment credit
allowable under section 48D is subject to
recapture and defines a foreign entity of
concern in the same manner as in section
48D(c)(1). Because section 48D(c)(1)
provides rules for when a taxpayer is eligible to claim the advanced manufacturing
investment credit, and section 50(a)(6)(D)
(i) provides rules for when a taxpayer is
no longer eligible for the credit, the statute
requires the definition of “foreign entity
of concern” in both sections to be synonymous. For these reasons, removing the term
“owned by, controlled by, or subject to the
jurisdiction or direction of” from the final
regulations and defining the term “foreign
entity of concern” in the final regulations
as having the same meaning as that term as
defined in the Commerce Final Rule is consistent with the language and purpose of
the statute. The final regulations are revised
accordingly.
C. Qualified Investment, Special Rules
for Partnerships
Commenters requested a modification
to §1.46-3(f) to permit a partner’s share of
1255
the basis of qualified property to be determined independent of the ratio in which
the partners divide the general profits of
the partnership as required under §1.463(f). One of the commenters noted that
section 48D is silent as to how a taxpayer’s
basis in qualified property should be allocated in the context of passthrough entities. Section 48D is among the investment
credits listed under section 46. See section
46(6). The investment credit under section
46 is a business credit under section 38(b)
(1). Thus, property with respect to which a
section 48D credit is determined is section
38 property.
Section
1.704-1(b)(4)(ii),
which
requires allocations with respect to the
investment credit provided by section
38(b)(1) to be made in accordance with
the partners’ interests in the partnership,
provides that allocations of cost or qualified investment made in accordance
with §1.46-3(f) are deemed to be made
in accordance with the partners’ interests
in the partnership. Pursuant to §1.46-3(f)
(1), in the case of a partnership that owns
section 38 property, a partner in a partnership is treated as the taxpayer with
respect to the partner’s share of the basis
of partnership section 38 property. Section
1.46-3(f)(2)(i) provides that a partner’s
share of basis is determined in accordance
with the ratio in which the partners share
general profits. Pursuant to §1.46-3(f)(2)
(ii), if all related items of income, gain,
loss, and deduction with respect to any
item of partnership section 38 property
are specially allocated in the same manner
as if such special allocation is recognized
under section 704(a) and (b) and §1.7041(b), then each partner’s share of the basis
of such item of section 38 property is
determined by reference to such special
allocation effective for the date on which
the property is placed in service, rather
than in accordance with the ratio in which
the partners share general profits. Thus,
§1.46-3(f), as currently in effect already
permits special allocations of a partner’s
share of the basis of an item of section 38
property independent of the ratio in which
the partners divide the general profits of
the partnership if all requirements under
§1.46-3(f)(2)(ii) are met. Also, modifying
the regulations under §1.46-3(f) to allow
for allocations beyond what is already
permitted under §1.46-3(f), including
December 16, 2024
§1.46-3(f)(2)(ii), would have broad implications beyond the application of section
48D, and for that reason, such modifications would not be appropriate to include
in the final regulations. For the foregoing
reasons, the final regulations do not incorporate the commenters’ recommendations
regarding §1.46-3(f).
D. Qualified Progress Expenditures
Election
One commenter requested that the final
regulations clarify whether an election
for qualified progress expenditure can be
made for expenses paid or incurred after
August 9, 2022, through December 31,
2022. The Treasury Department and the
IRS have determined that no further clarification is necessary concerning the availability of a progress expenditures election.
Section 48D(b)(5) applies rules similar to
the progress expenditures rules of section
46(c)(4) and (d) as in effect on the day
before the date of enactment of the Revenue Reconciliation Act of 1990. Section
107(f)(1) of the CHIPS Act provides that
the section 48D credit can be claimed for
property placed in service after December
31, 2022, and for any property the construction of which began prior to January
1, 2023, only to the extent of the basis
thereof attributable to the construction,
reconstruction or erection after the date
of enactment (August 9, 2022). Consistent with the statute, §1.48D-2(j)(3)(i) of
the final regulations provides that the taxpayer may elect, as provided in §1.46-5,
which provides the rules governing qualified progress expenditures, to increase the
qualified investment with respect to an
advanced manufacturing facility of an eligible taxpayer for the taxable year by any
qualified progress expenditures made after
August 9, 2022. Accordingly, an election
for qualified progress expenditures can be
made for expenses paid or incurred after
August 9, 2022, and on or before December 31, 2022. In addition, the final regulations under §1.48D-2(j)(3)(ii) clarify that,
if progress expenditure property is being
constructed by or for a partnership or S
corporation, the rules of §1.46-5(o)(1) and
(p) do not prohibit a partnership or S corporation from making a qualified progress
expenditure election under §1.46-5 if such
partnership or S corporation intends to
December 16, 2024
make an elective payment election under
section 48D(d) and §1.48D-6 with respect
to a section 48D credit determined with
respect to such qualified property.
One commenter requested that the final
regulations or other guidance provide
guidance on the definitions of “self-constructed” versus “non-self-constructed
property” and “integrated unit” for purposes of determining the construction
period under §1.46-5. Pursuant to §1.465(d), whether a property, including qualified property under section 48D(b)(2)
and the section 48D regulations, is progress expenditure property is determined
based on the facts known at the close of
the first taxable year in which construction
begins, or if later, at the close of the first
taxable year to which a progress expenditures election is made. Whether property
is “self-constructed” versus “non-selfconstructed property” or an “integrated
unit” pursuant to §1.46-5(k), (l) and (e)
(3), respectively, is also a factual determination. Additional guidance on the definitions of “self-constructed” versus “nonself-constructed property” and “integrated
unit,” would inject significant complexity
into the final regulations and likely cause
additional uncertainty regarding the scope
of those terms. Such guidance would
have implications for any investment tax
credit, including, for example, the rehabilitation credit under section 47 and the
energy credit under section 48, for which
a taxpayer can make a qualified progress
expenditures election. For these reasons,
such guidance is not appropriate to be
included in the final regulations. Accordingly, the final regulations do not address
the modifications requested by the commenter.
One commenter requested that the
final regulations provide that the percentage of completion limitation for non-selfconstructed property under §1.46-5(j)(6)
does not apply or that it be amended to
allow for a greater percentage (up to 66
percent) of completion for semiconductor tooling equipment. The commenter
argued that some tooling equipment manufacturers require a payment of as much
as 90 percent of the total contract price in
the first year the order is placed. Section
1.46-5(j)(6)(i) provides: (1) payments
made in any taxable year may be considered qualified progress expenditures
1256
for non-self-constructed property only to
the extent they are attributable to progress made in construction (percentage of
completion limitation); (2) progress will
generally be measured in terms of the
manufacturer’s incurred cost as a fraction
of the anticipated cost (as adjusted from
year to year); and (3) progress is presumed to occur not more rapidly than ratably over the normal construction period
but the taxpayer may rebut the presumption by clear and convincing evidence
of a greater percentage of completion.
Section 1.46-5(j)(6)(i) provides sufficient
flexibility for taxpayers that intend to
claim a section 48D credit for qualified
progress expenditures. The commenter
requested a modification to the percentage of completion limitation for non-selfconstructed property under §1.46-5(j)(6)
for semiconductor tooling equipment
only; however, such modification would
require a careful examination of any
implications for all other investment tax
credits for which a taxpayer can make a
qualified progress expenditures election,
including, for example, the rehabilitation
credit under section 47 and the energy
credit under section 48. For these reasons, the final regulations do not adopt
the commenter’s recommendations.
E. Definitions of Semiconductor and
Semiconductor Manufacturing
1. In General
Commenters requested that the final
regulations expand the definition of
“semiconductor” and “semiconductor
manufacturing” to encompass additional
products, substances, and processes. The
commenters requested that, among other
materials and substances, wafers, diamond
wafer substrates, ingots, boules, high-purity silicon, silicon carbide, polysilicon,
semiconductive substances, III-V compounds, ceramics, lithographic materials,
specialty adhesives and cleaners, metals
and dielectrics, and quantum electronics
be included in the definition of “semiconductor.” Commenters also requested that
the final regulations modify the definition
of “semiconductor manufacturing” if the
definition of “semiconductor” is expanded
to include additional products and substances.
Bulletin No. 2024–51
Consistent with the statutory authority provided under sections 50(a)(3) and
(a)(6)(D)(i) and 7805(a), the Treasury
Department and the IRS, in coordination
with the Department of Commerce and
the Department of Defense, have incorporated in the final regulations definitional concepts that are consistent with
the Commerce Final Rule and necessary
for the determination of both eligibility
for the section 48D credit and applicable
transactions under section 50(a)(3) and
(a)(6)(D).
Accordingly, the final regulations provide that a taxpayer may claim a section
48D credit for qualified property placed
in service as part of an advanced manufacturing facility the primary purpose of
which is semiconductor manufacturing.
The final regulations define “semiconductor manufacturing” as semiconductor
wafer production, semiconductor fabrication, and semiconductor packaging.
The remainder of this section III.E of
this Summary of Comments and Explanation of Revisions discusses the definitions adopted in the final regulations of the
terms “semiconductors,” “semiconductor
manufacturing,” “semiconductor wafer
production,” “semiconductor fabrication,”
and “semiconductor packaging.”
2. Semiconductors
The term “semiconductor” is among
those definitional concepts necessary for
the determination of whether a transaction is a significant transaction involving
the material expansion of semiconductor
manufacturing capacity in a foreign country of concern (emphasis added). Because
the term “semiconductor” is also a definitional concept necessary for the determination of when a taxpayer is eligible to
claim the advanced manufacturing investment credit, the statute requires the definition of “semiconductor” for purposes
of sections 48D and 50(a)(6)(D)(i) to be
synonymous. Moreover, failing to define
the term “semiconductor” for purposes
of the section 48D regulations would
contravene the statutory directive under
section 50(a)(6)(D)(i) to define what is a
“significant transaction” for the expansion
of semiconductor manufacturing capacity
other than with regard to certain “legacy
semiconductors.” In addition, section
Bulletin No. 2024–51
9901(9) of the William M. (Mac) Thornberry National Defense Authorization
Act, as redesignated by section 103(a)(2)
of the CHIPS Act, for Fiscal Year 2021
(15 U.S.C. 4651), provides that the term
“semiconductor” has the same meaning given that term by the Secretary of
Commerce. For these reasons, the Treasury Department and the IRS decline to
expand the definition of “semiconductor”
to include additional products and substances beyond what is provided in the
Commerce Final Rule, as suggested by
the commenters.
Consistent with the definition of
“semiconductor” in the Commerce Final
Rule (15 CFR 231.115), and pursuant to
the statutory authority provided under
sections 50(a)(3) and (a)(6)(D)(i) and
7805(a), the final regulations provide that
a semiconductor is an integrated electronic device or system most commonly
manufactured using materials such as, but
not limited to, silicon, silicon carbide, or
III-V compounds, and processes such as,
but not limited to, lithography, deposition,
and etching. Such devices and systems
include, but are not limited to, analog and
digital electronics, power electronics, and
photonics, for memory, processing, sensing, actuation, and communications applications.
3. Definition of Semiconductor
Manufacturing
One commenter requested that the
final regulations expand the definition of
“semiconductor manufacturing” to cover
a broader space (aerospace) semiconductor manufacturing process. As noted in
section IV.E of this Summary of Comments and Explanation of Revisions, section 48D is silent on the topic of semiconductor manufacturing in space or whether
semiconductor manufacturing can occur
in space. Whether semiconductor manufacturing can occur in space would require
a careful examination of all relevant facts
and circumstances, any applicable Code
provisions and Federal income tax principles apart from those found in section 48D
and the section 48D regulations. As such,
changing the definition of semiconductor
manufacturing to include an aerospace
semiconductor manufacturing process, as
requested by the commenter, is beyond the
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scope of section 48D and the section 48D
regulations. Accordingly, the final regulations do not adopt rules to address semiconductor manufacturing in space.
4. Semiconductor Wafer Production
As previously discussed, commenters requested that the final regulations
modify the definition of “semiconductor
manufacturing” (and synonymously, the
term “manufacturing of semiconductors”)
if the definition of “semiconductor” is
expanded to include additional products
and substances. Although the final regulations do not expand the definition of
“semiconductor” beyond what is provided
in the Commerce Final Rule, the final
regulations clarify the definition of “semiconductor manufacturing” by specifying
that it includes “semiconductor wafer
production” but not further upstream production processes, pursuant to the statutory authority provided under sections
50(a)(3) and (a)(6)(D)(i) and 7805(a).
The clarification that “semiconductor
manufacturing” includes “semiconductor
wafer production” is consistent with the
definition of “semiconductor manufacturing” in the Commerce Final Rule (15 CFR
231.116) issued pursuant to section 103(b)
of the CHIPS Act (15 USC 4652), which
provides that, for purposes of the Expansion Clawback (described later), the term
“semiconductor manufacturing” has the
same meaning given that term by the Secretary of Commerce, in consultation with
the Secretary of Defense and the Director
of National Intelligence.
However, the production of additional products and substances requested
by commenters to be included in “semiconductor manufacturing” would not be
appropriate as those are materials that are
consumed or substantially transformed
during the semiconductor manufacturing
processes, and not included in the definition of “semiconductor manufacturing”
in the Commerce Final Rule. For these
reasons, the final regulations clarify that
the definition of the term “manufacturing of semiconductors” (and synonymously “semiconductor manufacturing”)
includes semiconductor wafer production
but excludes the production of precursor
materials such as polysilicon from the
scope of the definition.
December 16, 2024
The final regulations define the term
“semiconductor wafer production” to
include “the processes of growing single-crystal ingots and boules, wafer
slicing, etching and polishing, bonding,
cleaning, epitaxial deposition, and metrology” (emphasis added). The Commerce
Final Rule defines the term “semiconductor wafer production” to include the processes of wafer slicing, polishing, cleaning, epitaxial deposition, and metrology.
The final regulations differ from the Commerce Final Rule by including “growing
single-crystal ingots and boules,” “etching,” and “bonding” in the definition
of “semiconductor wafer production”
because the purposes of the relevant provisions in the Commerce Final Rule and
those in the section 48D regulations differ.
The CHIPS Act established the section
48D credit for the purpose of incentivizing
the manufacturing of semiconductors and
semiconductor manufacturing equipment
within the United States and amended
section 50(a) to provide for recapture of
the section 48D credit if an applicable
taxpayer engages in an applicable transaction. Thus, the section 48D regulations
include definitions and rules that apply for
determining who is an eligible taxpayer,
what qualifies as qualified property or
an advanced manufacturing facility, and
whether the beginning of construction
requirement is met.
However, the purposes of relevant
definitions and rules in the section 48D
regulations differ from the purpose of the
Commerce Final Rule, which relates to
implementing the CHIPS Act’s “Expansion Clawback.” As a matter of United
States national security interests, a
funding recipient is required by statute to enter into an agreement with the
Department of Commerce restricting
engagement by the funding recipient or
its affiliates in any significant transaction involving the material expansion of
semiconductor manufacturing capacity
in foreign countries of concern. Failure
by a funding recipient (or its affiliate) to
comply with the restriction on semiconductor manufacturing capacity expansion in foreign countries of concern may
cause the Expansion Clawback to apply,
resulting in recovery of the full amount
of Federal financial assistance provided
to the funding recipient.
December 16, 2024
The differences between the meaning
of “semiconductor wafer production”
in the Commerce Final Rule and in the
final regulations reflects the difference
between the purposes of the two rules as
intended by Congress. The Expansion
Clawback prohibits funding recipients
from knowingly engaging in a significant
transaction, and the section 48D credit
incentivizes taxpayers to engage in the
manufacturing of semiconductors and
semiconductor manufacturing equipment
in the United States, provided the applicable taxpayer does not also engage in
an applicable transaction. For these reasons, the Treasury Department and the
IRS, after consultation with the Department of Commerce and the Department of
Defense pursuant to the statutory authority provided under sections 50(a)(3) and
(a)(6)(D)(i) and 7805(a), have determined
that a clarification is necessary to confirm that for purposes of the section 48D
credit, “semiconductor wafer production”
includes growing single-crystal ingots
and boules, wafer slicing, etching and
polishing, bonding, cleaning, epitaxial
deposition, and metrology. The Treasury
Department and the IRS note that the term
“semiconductor wafer production” in the
final regulations also includes growing
single-crystal ingots and boules, wafer
slicing, etching and polishing, bonding,
cleaning, epitaxial deposition, and metrology as applied to the production of solar
wafers. The Treasury Department and the
IRS note this after coordination with the
Department of Commerce and the Department of Defense due to specific supply
chain and national security considerations
regarding the production of solar wafers
not present in the case of other related
products.
5. Semiconductor Fabrication
The final regulations provide that the
term “semiconductor fabrication” includes
“the process of forming devices such as
transistors, poly capacitors, non-metal
resistors, and diodes, as well as interconnects between such devices, on a wafer
of semiconductor material” (emphasis
added). The Commerce Final Rule defines
the term “semiconductor fabrication” to
include the process of forming devices
such as transistors, poly capacitors, non-
1258
metal resistors, and diodes on a wafer of
semiconductor material. The final regulations differ from the Commerce final rule
by including “interconnects between such
devices.”
The difference between the definition of “semiconductor fabrication” in
the Commerce Final Rule and the final
regulations with respect to “interconnects between such devices” reflects the
difference between the purpose of the
section 48D regulations and the Expansion Clawback. As explained in section
III.E.4 of this Summary of Comments and
Explanation of Revisions, the Expansion
Clawback prohibits funding recipients
from knowingly engaging in a significant transaction, whereas the section 48D
credit incentivizes taxpayers to engage in
the manufacturing of semiconductors and
semiconductor manufacturing equipment
in the United States, provided the applicable taxpayer does not also engage in an
applicable transaction. For these reasons,
the Treasury Department and the IRS, in
coordination with the Department of Commerce and the Department of Defense,
and pursuant to the statutory authority
provided under sections 50(a)(3) and (a)
(6)(D)(i) and 7805(a), have determined
that a clarification is necessary to confirm
that for purposes of the section 48D credit,
“semiconductor fabrication” includes the
process of forming interconnects between
such devices.
6. Semiconductor Packaging
Several commenters requested that the
definition of “semiconductor manufacturing” be revised to include assembly
and testing within all stages of packaging. Commenters also requested that the
final regulations provide definitions of the
terms “assembly” and “testing.” As previously noted, consistent with the statutory
authority provided under sections 50(a)(3)
and (a)(6)(D)(i) and 7805(a), the Treasury
Department and the IRS, in coordination
with the Department of Commerce and
the Department of Defense, have incorporated in the final regulations definitional
concepts as determined by the Secretary
of Commerce, and contained in the Commerce Final Rule necessary for the determination of applicable transactions under
section 50(a)(3) and (a)(6)(D). The pre-
Bulletin No. 2024–51
amble to the Commerce Proposed Rule
clarifies that “semiconductor manufacturing” includes both front-end fabrication as
well as back-end manufacturing including
assembly, testing, and packaging of semiconductors. Accordingly, revising the definition of “semiconductor manufacturing”
to include “assembly” and “testing” and
providing definitions of “assembly” and
“testing” is consistent with the purpose of
the section 48D credit to incentivize the
manufacture of semiconductors within the
United States. Accordingly, §1.48D-2(n)
of the final regulations provides that semiconductor packaging includes assembly
and testing. Section 1.48D-2(n)(4) and (5)
of the final regulations provide definitions
of “assembly” and “testing,” respectively.
One commenter requested that the final
regulations clarify that the term “semi
conductor packaging” include the manu
facturing of IC-substrates. As stated in
the Background section of this preamble, consistent with the statutory authority provided under sections 50(a)(3) and
(a)(6)(D)(i) and 7805(a), the Treasury
Department and the IRS, in coordination
with the Department of Commerce and
the Department of Defense, have incorporated in the final regulations definitional
concepts as determined by the Secretary
of Commerce, and contained in the Commerce Final Rule necessary for the determination of applicable transactions under
section 50(a)(3) and (a)(6)(D). Consistent
with the Commerce Final Rule, the final
regulations define the term “semiconductor packaging” as the process of enclosing
a semiconductor in a protective container
(package) and providing external connectivity for the assembled integrated circuit.
The manufacturing of a substrate used
during the semiconductor packaging process is not part of “semiconductor packaging” as defined under the final regulations. For the foregoing reason, the final
regulations do not adopt the commenter’s
recommendation.
F. Definitions of Semiconductor
Manufacturing Equipment, Subsystems,
and Manufacturing Semiconductor
Manufacturing Equipment
Commenters requested that the final
regulations modify the definition of “semiconductor manufacturing equipment” to
Bulletin No. 2024–51
include direct and indirect materials integral to the semiconductor manufacturing equipment, such as, electronic grade
isopropyl alcohol, precision bearings,
industrial gases including high purity
and general purpose nitrogen, chemicals
such as fluoropolymers peroxides and
fluorogases, lens and mirrors, and components. Commenters requested that the
final regulations define the term “subsystem” as highly engineered and specialty
equipment that is either sold directly to,
or primarily produced for, a semiconductor fabricator or a third-party equipment
manufacturer.
Among other requirements, section
48D(b)(2) and §1.48D-3(c) (referencing
§1.48-1(c) and (d)) require that property be tangible depreciable property, for
example, production machinery, to meet
the definition of qualified property. Gases,
chemicals, and materials, such as IC-substrates and diamond wafer substrates,
and semiconductive substances, that are
consumed, utilized, or substantially transformed in a similar manner during the
manufacturing process does not meet the
threshold requirement of section 48D(b)
(2) and §1.48D-3(c) because they are not
tangible depreciable property for purposes
of the section 48D credit.
For the foregoing reason, the Treasury
Department and the IRS decline to adopt
the commenters’ requests to modify the
definition of “semiconductor manufacturing equipment” to include such materials.
The final regulations clarify that “semiconductor manufacturing equipment”
means the highly engineered specialized
equipment used in the manufacturing of
semiconductors as defined in §1.48D2(g) and the subsystems that enable, or
are incorporated into, the manufacturing
equipment. This definition will eliminate uncertainty in determining whether
property is semiconductor manufacturing
equipment, as opposed to consumable
materials, chemicals, or gases, that do not
meet the definition of semiconductor manufacturing equipment.
The Treasury Department and the IRS
decline to adopt the commenters’ recommendations to define the term “subsystem” as highly engineered and specialty
equipment that is either sold directly to, or
is primarily produced for, a semiconductor fabricator or a third-party equipment
1259
manufacturer. Providing such a definition
would inject significant complexity into
the final regulations. Consistent with the
definition of semiconductor manufacturing equipment in the proposed regulations,
§1.48D-2(o) provides that the term “semiconductor manufacturing equipment”
includes the subsystems that enable, or
are incorporated into, the manufacturing
equipment. Additionally, property that
may be considered a subsystem must also
meet the requirements of section 48D and
the section 48D regulations.
Commenters also requested that the list
of examples of “semiconductor manufacturing equipment” be expanded to include
any property that is considered property
integral to the operation of an advanced
manufacturing facility under proposed
§1.48D-3(f)(1). The Treasury Department
and the IRS have determined that such a
rule is inconsistent with the purpose and
structure of the statute, which clearly contemplates that not all property integral to
the operation of an advanced manufacturing facility be treated as semiconductor manufacturing equipment. Although
certain property, such as a gas handling
system, may be property integral to the
operation of an advanced manufacturing
facility under section 48D(b)(2)(A)(iv)
and proposed §1.48D-3(f), that property
does not, by application of the standard
in section 48D(b)(2)(A)(iv) and proposed §1.48D-3(f), meet the definition of
semiconductor manufacturing equipment
under §1.48D-2(o) of the final regulations.
Commenters requested that the final
regulations clarify that the list of examples
of semiconductor manufacturing equipment is non-exclusive and provide an
illustrative list of subsystems to include,
items such as specialty glass lenses, photomasks, lenses and mirrors like those
made of calcium fluoride or high-purity
fused silica, lens assemblies for wafer
defect inspection following wafer printing, light sources or other major components of photolithography systems, and
advanced ceramic products. The Treasury
Department and the IRS have determined
that such clarifications are appropriate for
defining “semiconductor manufacturing
equipment.” Accordingly, the final regulations clarify that the list of examples
of semiconductor manufacturing equipment and subsystems is non-exclusive and
December 16, 2024
includes additional examples of property
that may qualify as semiconductor manufacturing equipment and subsystems. The
Treasury Department and the IRS again
note that property that may be considered
a subsystem must also meet the requirements of section 48D and the section 48D
regulations.
Commenters further requested that the
final regulations clarify that a component,
part or subsystem may be considered
semiconductor manufacturing equipment
on a case-by-case basis, and provide factors that are persuasive, including industry
definitions, CHIPS Act funding, complexity of part, or other United States Government Agency categorizations that define
it as semiconductor equipment. As stated
in the Background section of this preamble, consistent with the authority granted
by sections 50(a)(3) and (a)(6)(D)(i) and
7805(a), the Treasury Department and
the IRS, in coordination with the Department of Commerce and the Department
of Defense, have incorporated in the final
regulations definitional concepts as determined by the Secretary of Commerce, and
contained in the Commerce Final Rule
necessary for the determination of applicable transactions under section 50(a)(3)
and (a)(6)(D). For this reason, the Treasury Department and the IRS have determined that incorporating definitions from
other United States Government agencies
that define semiconductor equipment for
other purposes would not be appropriate.
The Treasury Department and the IRS
have further determined that including a
case-by-case facts and circumstances rule
as suggested by the commenters would
inject significant complexity into the
final regulations and likely cause additional uncertainty regarding the scope of
the term “semiconductor manufacturing
equipment” due to its inherently factual
nature. As a result, the final regulations do
not incorporate the commenters’ recommendations.
The Treasury Department and the IRS
note that proposed §1.48D-2(n) would
define “manufacturing semiconductor
manufacturing equipment” as the physical
production of semiconductor manufacturing equipment in a manufacturing facility.
As further described in section V.A. of this
Summary of Comments and Explanation
of Revisions, the final regulations mod-
December 16, 2024
ify the proposed definition of “advanced
manufacturing facility” by removing the
requirement that such a facility manufacture “finished” semiconductor manufacturing equipment. Consistent with the
modification, the final regulations define
the term “manufacturing of semiconductor
manufacturing equipment” to require that
that such semiconductor manufacturing
equipment be used by an advanced manufacturing facility engaged in the manufacturing of semiconductors as defined in
§1.48D-2(g) of the final regulations.
IV. Comments on and Changes to
Proposed §1.48D-3
A. Part of an Advanced Manufacturing
Facility
Commenters
requested
clarification that a taxpayer’s ownership of an
advanced manufacturing facility is not a
prerequisite for claiming the section 48D
credit when a taxpayer places in service
qualified property that is co-located on an
advanced manufacturing facility and otherwise meets the requirements of section
48D and the final regulations. One commenter requested that the final regulations
provide that property that is physically
located or co-located on an advanced
manufacturing facility and integral to
the operation of the advanced manufacturing facility be considered part of the
advanced manufacturing facility. The
Treasury Department and the IRS agree
that neither section 48D(b)(1) and (2), nor
any other provision under section 48D,
require a taxpayer to own the advanced
manufacturing facility as a prerequisite to
determining a section 48D credit. Section
48D(b)(1) and (2) mandate that, among
other requirements, property be placed
in service as part of, and, integral to the
operation of an advanced manufacturing
facility to be “qualified property” for purposes of the section 48D credit. Therefore,
the final regulations include a definition of
“part of an advanced manufacturing facility” to clarify that property is part of the
advanced manufacturing facility if the
property is physically located or co-located either (1) at the advanced manufacturing facility, or (2) on a contiguous
piece of land to the advanced manufacturing facility. The final regulations clarify
1260
that parcels or tracts of land are considered contiguous if they possess common
boundaries and would be contiguous but
for the interposition of a road, street, railroad, public utility, stream or similar property. Generally, property that is not physically located or co-located at the advanced
manufacturing facility or on a piece of
land contiguous to the advanced manufacturing facility is not part of an advanced
manufacturing facility.
The Treasury Department and the
IRS are aware that certain properties, for
example, a water or wastewater treatment
plant, may not be physically located or
co-located at an advanced manufacturing
facility or on a contiguous piece of land
to the advanced manufacturing facility,
but could be integral to the operation of
the advanced manufacturing facility. For
this reason, a rule allowing such properties in certain situations to be considered part of an advanced manufacturing
facility is appropriate for purposes of the
section 48D credit. Accordingly, the final
regulations provide that property that is
not located or co-located at an advanced
manufacturing facility or on a contiguous
piece of land to the advanced manufacturing facility may be considered part of
an advanced manufacturing facility if the
property is (1) owned by the same taxpayer as the entire advanced manufacturing facility, (2) connected to the advanced
manufacturing facility (for example, via
pipeline), and (3) the sole purpose, function, and output of the property is dedicated to the operation of the advanced
manufacturing facility. However, such
property must also meet the requirements
of section 48D and the section 48D regulations. The final regulations include two
examples to illustrate the application of
section 48D(b) and §1.48D-3(f).
B. Buildings and Offices
Commenters requested that the final
regulations expand the definition of
“qualified property” to include an existing building that is purchased but not
reconditioned or re-built by the taxpayer.
It would be inconsistent with the statute
to allow a building that is purchased but
not reconstructed by the taxpayer to be
“qualified property” for purposes of the
section 48D credit. Section 48D(b)(2)(A)
Bulletin No. 2024–51
(iii)(I) provides that the term “qualified
property” means property that is, among
meeting other requirements, “constructed,
reconstructed, or erected by the taxpayer.”
Therefore, the final regulations retain the
rule set forth in proposed §1.48D-3(b)(1).
Commenters requested that the final
regulations remove “offices” from the
exception to the definition of tangible
depreciable property in §1.48D-3(c)(2) in
order to allow certain office space within
an advanced manufacturing facility to
meet the definition of tangible depreciable property in §1.48D-3(c)(1). It would
be inconsistent with the statute to omit
“offices” from the exception to the definition of tangible depreciable property,
but further clarification is necessary concerning the meaning of the term “office”.
Section 48D(b)(2)(B)(ii) excludes from
the definition of “qualified property” “a
building or portion of a building used for
offices, administrative services, or other
functions unrelated to manufacturing.”
Accordingly, the final regulations clarify
that the term “tangible depreciable property” does not include a building and its
structural components used for offices.
But, in response to the comments received,
the final regulations also provide a list of
certain buildings or portions of a building
within an advanced manufacturing facility
that are considered related to manufacturing and not considered offices. However,
whether a particular building or portion of
a building is used as an office, for administrative services, or is unrelated to manufacturing is a factual determination.
C. Certain Leasing Transactions and
Original Use
A commenter requested that the final
regulations clarify that a lessor election
under §1.48-4 to treat the lessee as having acquired investment credit property is
permitted with respect to the section 48D
credit. The commenter also requested that
the final regulations address whether a lessor or lessee that purchases a previously
leased advanced manufacturing facility
and subsequently reconditions or rebuilds
the facility is eligible to claim a section
48D credit. The Treasury Department and
the IRS agree with the commenter that
a lessor election under §1.48-4 to treat
the lessee as having acquired investment
Bulletin No. 2024–51
credit property is permitted by operation
of the statute. Section 48D is an investment
credit under section 46. Section 50(d)(5)
provides that, for purposes of computing
the investment credit, rules similar to the
rules of former section 48(d) (relating to
certain leased property) (as in effect on the
day before the date of the enactment of the
Revenue Reconciliation Act of 1990 (Public Law 101-508, 104 Stat. 1388 (November 5, 1990)) apply. Section 1.48-4 provides the regulatory requirements for the
time and manner for making an election
to treat the lessee as having purchased
the property for purpose of the credit
allowed and the regulatory requirements,
including for original use, that must be
met and are applicable for purposes of the
election. The Treasury Department and
the IRS decline to address specific examples of leasing transactions in the final
regulations and note that the investment
credit recapture provisions under section
50(a) and regulations, including §§1.47-1
through 1.47-3 apply for purposes of the
section 48D credit.
Commenters also requested that the
definition of “original use” in proposed
§1.48D-3(e) be modified in the final regulations to include acquired property that
is reconditioned or rebuilt by a different
taxpayer. Section 48D(b)(2)(A)(iii)(I)
and (II) provide that “qualified property”
includes property that is constructed,
reconstructed, or erected by the taxpayer,
or acquired by the taxpayer if the “original
use” of such property begins with the taxpayer. Thus, the taxpayer must reconstruct
or rebuild a property to meet the “original
use” requirement under section 48D(b)
(2)(A)(iii). Accordingly, the Treasury
Department and the IRS decline to adopt
this recommendation.
D. Property Integral to the Operation of
an Advanced Manufacturing Facility
One commenter requested that the
sentence in proposed §1.48D-3(f)(1) that
states, “Materials, supplies, and other
inventoriable items of property that are
transformed into a finished semiconductor
or into a finished unit of semiconductor
manufacturing equipment are not considered property integral to the operation of
manufacturing semiconductors or semiconductor manufacturing equipment” be
1261
modified to provide that such materials are
integral to the operation of an advanced
manufacturing facility. The Treasury
Department and the IRS decline to adopt
this recommendation. As noted in section III.F. of this Summary of Comments
and Explanation of Revisions, among
other requirements, section 48D(b)(2)
and §1.48D-3(c) (referencing §1.48-1(c)
and (d)) require that property be tangible
depreciable property, for example, production machinery, to meet the definition
of qualified property. Gases, chemicals,
and materials, such as diamond wafer
substrates, and other semiconductive substances, that are consumed, utilized, or
substantially transformed during the manufacturing process, or any other inventoriable items of property do not meet the
threshold requirement of section 48D(b)
(2) and §1.48D-3(c) to be “qualified property” because they are not tangible depreciable property for purposes of the section
48D credit. Thus, such property would not
be property “integral to the operation of an
advanced manufacturing facility” under
the statute.
Another commenter requested that
the final regulations clarify that the term
“transformed” in proposed §1.48D-3(f)(1)
does not refer to the normal degradation of
components of semiconductor manufacturing equipment. However, a clarification
is appropriate for establishing whether
property is integral to the operation of an
advanced manufacturing facility. Accordingly, §1.48D-3(g)(1) of the final regulations clarifies that the term “transformed”
does not include the normal degradation
of components of semiconductor manufacturing equipment.
The final regulations include a special
rule for purposes of establishing whether
property is integral to the operation of a
vertically integrated manufacturing facility. As discussed in section III.E. of this
Summary of Comments and Explanation
of Revisions, the final regulations clarify
that the term “semiconductor manufacturing” includes semiconductor packaging,
semiconductor fabrication, and semiconductor wafer production but excludes
manufacturing processes related to precursor materials such as polysilicon. Consistent with this modification, the final
regulations provide that, if an advanced
manufacturing facility that is engaged
December 16, 2024
in the manufacturing of semiconductors
within the meaning of §1.48D-2 also conducts vertically integrated activities (for
example, producing raw materials and
manufacturing ingots, wafers, and semiconductors), then property integral to the
operation of such an advanced manufacturing facility includes only the property
used in the manufacturing of semiconductors within the meaning of §1.48D-2.
Commenters requested that examples of property that would normally be
integral to the operation of an advanced
manufacturing facility in proposed
§1.48D-3(f)(1) be modified to reflect any
modifications to the definitions of “semiconductor” and “semiconductor manufacturing equipment” in the final regulations.
Commenters also requested that the final
regulations include additions to the list of
specific property under §1.48D-3(f)(1) to
provide certainty to taxpayers. The commenters requested that the list include,
property such as electricity distribution
equipment, industrial automation and control equipment, communications devices,
lighting products, water management,
conservation, water treatment equipment,
materials, and technologies, and tooling
equipment. The Treasury Department and
the IRS have determined that adding to
the list of specified property that would
“normally be integral to the operation of
an advanced manufacturing facility” consistent with the modification to the definitions of “semiconductor manufacturing”
and “semiconductor manufacturing equipment” under §1.48D-2(n) and (o) of the
final regulations is appropriate for determining whether property is “integral to
the operation of an advanced manufacturing facility.” Accordingly, §1.48D-3(g)(3)
of the final regulations includes additional
examples of such property.
One commenter requested that proposed §1.48D-3(f)(2) be modified to
treat research facilities that do not manufacture any type of semiconductor or
semiconductor manufacturing equipment
to qualify as integral to the operation of
an advanced manufacturing facility. The
commenter further stated that the restriction in §1.48D-3(f)(2) of the March 2023
proposed regulations exceeds the statutory exclusions in section 48D(b)(2)(B)
(ii) for a building or portion of a building
used for offices, administrative services,
December 16, 2024
or other functions unrelated to manufacturing. The statute is silent concerning
the treatment of research facilities, but
does require, pursuant to section 48D(b)
(2)(A)(iv), that property be integral to
the operation of an “advanced manufacturing facility” to meet the definition of
“qualified property.” As previously noted
in the Background section of this preamble, the March 2023 proposed regulations
primarily applied long-established credit
mechanics and procedures common to all
investment tax credits previously set forth
in regulations and subregulatory guidance. Those long-established mechanics and procedures, including those set
forth in §1.48-1 generally require that a
research facility be used “in connection”
with the qualifying activity to be considered used as integral part of the activity.
Section 48D(b)(3) defines an “advanced
manufacturing facility” as a “facility for
which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment.” Under
both the March 2023 proposed regulations
and the final regulations, facilities built for
pre-pilot production lines and the manufacture of prototypes would be qualified
property integral to the operation of an
advanced manufacturing facility. Based
on the foregoing, a research facility that
does not manufacture semiconductors or
semiconductor manufacturing equipment
is not used “in connection” with the manufacturing of semiconductors or semiconductor manufacturing equipment. For
these reasons, the final regulations do not
adopt the commenter’s recommendation.
E. Semiconductor Manufacturing in
Space
One commenter requested that the
final regulations clarify that section 48D
directly contemplates semiconductor
manufacturing work in space and explicitly confirm that qualifying advanced
manufacturing activity can occur in
space, and on a low-earth orbiter, in particular. More specifically, the commenter
requested that the final regulations: (1)
provide an exception to the definition of
buildings and structural components unrelated to manufacturing for functions that
are critical for human habitation in space;
and (2) expand the examples of property
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integral to the operations of an advanced
manufacturing facility to include space
delivery vehicles, as all of the examples
currently describe either the facility itself
or related infrastructure for land-based
manufacturing (for example, docks, railroad tracks, and bridges).
Section 48D does not expressly address
semiconductor manufacturing in space, or
whether a “qualifying advanced manufacturing activity” can occur in space, and
on a low-earth orbiter, in particular. Section 48D is among the investment credits under section 46. Section 50(b)(1)(A)
makes ineligible for the investment credit
property that is used predominantly outside the United States. However, section
50(b)(1)(B) provides an exception for
property described in section 168(g)(4).
Section 168(g)(4)(L) includes an exception for any satellite (not described in section 168(g)(4)(H), which applies to communication satellites) or other spacecraft
(or any interest therein) held by a United
States person if such satellite or other
spacecraft was launched from within the
United States. Whether a low-earth orbiter
or property placed in service on a lowearth orbiter is described in section 168(g)
(4)(L) would require a careful examination of all relevant facts and circumstances, any applicable Code sections and
Federal income tax principles apart from
those found in section 48D and the section
48D regulations. Whether “buildings” or
structural components that are critical for
human habitation in space are included
among the exception for a building or portion of a building used for offices administrative services, or other functions unrelated to manufacturing pursuant to section
48D(b)(2)(B)(ii), also would require a
careful examination of all relevant facts
and circumstances, any applicable Code
sections, and Federal income tax principles apart from those found in section 48D
and the section 48D regulations. Similarly,
whether property integral to the operation
of an advanced manufacturing facility can
include space delivery vehicles requires a
careful examination of all relevant facts
and circumstances. For these reasons, the
issues addressed by the commenter are
beyond the scope of the final regulations.
Accordingly, the final regulations do not
adopt rules to address semiconductor
manufacturing in space.
Bulletin No. 2024–51
V. Comments on and Changes to
Proposed §1.48D-4
A. Definition of Advanced Manufacturing
Facility
Section 1.48D-4(b) of the March 2023
proposed regulations would have provided
that the term “advanced manufacturing
facility” means a facility of an eligible taxpayer for which the primary purpose is the
manufacturing of finished semiconductors
or the manufacturing of finished semiconductor manufacturing equipment. Commenters requested that the final regulations
omit the term “finished” from the definition
of “advanced manufacturing facility,” or,
define the term “finished” if it is retained
in the final regulations. Commenters also
requested that conforming changes be
made to the definition of “advanced manufacturing facility” if the definitions of
“semiconductor,” “semiconductor manufacturing equipment,” or “subsystems” are
modified by the final regulations.
The Treasury Department and the IRS
agree with the commenters that the term
“finished” should be removed from the
definition of “advanced manufacturing
facility” in the final regulations to reflect
industry practice and the modifications to
the definitions of “semiconductor manufacturing” and “semiconductor manufacturing equipment” under §1.48D-2(n) and
(o) of the final regulations. Accordingly,
the definition of “advanced manufacturing facility” is revised in the final regulations by removing the term “finished.”
Consistent with the revision to the definition of “advanced manufacturing facility,” the term “finished” is also removed
from §1.48D-4(b) and (c)(1) of the final
regulations, for purposes of determining
whether the primary purpose of a facility
is the manufacturing of semiconductors or
semiconductor manufacturing equipment.
Commenters requested that the definition of an advanced manufacturing facility be modified to ensure that industrial
gas and other equipment qualifies when
co-located on an advanced manufacturing
facility, and, similarly, clarify what constitutes an advanced manufacturing facility
when multiple taxpayers place in service
qualified property at the same facility.
Commenters also requested that the final
regulations define the term “facility” as a
Bulletin No. 2024–51
reasonably identifiable space, an amenity,
a piece of equipment, or an assembly line
that can be distinguished from an entire
campus or building where multiple activities are performed and would allow for
bifurcation of manufacturing campuses or
within buildings where certain facilities
may be leveraging the section 48D credit
while other facilities may be leveraging
a different tax incentive. One commenter
requested that the final regulations define
an advanced manufacturing facility consistent with the definition of qualified
property integral to the operation of an
advanced manufacturing facility in proposed §1.48D-3(f). Another commenter
requested that the final regulations provide
that the definition of an advanced manufacturing facility include design facilities
that are related to the semiconductor manufacturing process.
The Treasury Department and the IRS
decline to adopt these recommendations
by further modifying the definition of
an “advanced manufacturing facility” or
defining “facility” in the final regulations.
Section 48D(b)(3) and §1.48D-4(b) of the
final regulations define an advanced manufacturing facility as a facility for which
the primary purpose is the manufacturing
of semiconductors or the manufacturing
of semiconductor manufacturing equipment within the meaning of §1.48D-2.
Section 1.48D-2 defines the terms semiconductor, semiconductor manufacturing,
semiconductor manufacturing equipment,
manufacturing of semiconductors, and
manufacturing of semiconductor manufacturing equipment. Taken together, the
statutory and regulatory provisions define
what constitutes an advanced manufacturing facility for purposes of the section
48D credit. For these reasons, the final
regulations do not include a separate definition of “facility” as requested by the
commenters. The treatment of co-located
property is addressed in section IV.A of
this Summary of Comments and Explanation of Revisions.
B. Primary Purpose
Commenters requested that the final
regulations include a minimum threshold
that would satisfy the “primary purpose”
requirement. In proposed §1.48D-4(c)(3)
(i) (Example 1), a taxpayer manufactures
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semiconductor manufacturing equipment
that represents approximately 75 percent
of the potential output of the taxpayer’s
facility by cost to produce such equipment. Section 1.48D-4(c)(3)(i) (Example
1) shows that the taxpayer satisfied the
primary purpose test in proposed §1.48D4(c). Proposed §1.48D-4(c)(3)(ii) (Example 2) reaches the same conclusion when
the taxpayer manufactures certain microscopes for a semiconductor manufacturing facility and such equipment represents
approximately 75 percent of the potential
output (by cost) of the taxpayer’s facility.
Commenters requested that the final regulations state the minimum threshold that
would satisfy the primary purpose test as
more than 50 percent. One commenter
requested that the final regulations specify the types of cost that should be considered in the output test and if research
costs in connection with manufacturing
semiconductor or semiconductor equipment should be considered in the numerator of output test. The commenter further
requested that the regulations should clarify that the output capacity in the quantitative test should be measured at full life
cycle instead of the year placed in service
when the credit is determined. The commenter also requested that the threshold
requirement rule be provided in the regulatory text. Another commenter requested
that the final regulations include an example of a facility that does not meet the “primary purpose” requirement, especially for
facilities that do not meet the 75 percent
threshold.
The Treasury Department and the IRS
have determined that the final regulations
should include a minimum threshold
that would satisfy the “primary purpose”
requirement. Accordingly, §1.48D-4(c)(1)
of the final regulations provides that a minimum threshold of more than 50 percent
by cost of production, revenue received
in an arm’s length transaction, or units
produced satisfies the “primary purpose”
requirement. Section 1.48D-4(c)(3) of the
final regulations include examples illustrating the application of this rule, including
examples involving semiconductor wafer
production and a vertically integrated
manufacturer. However, property placed
in service in a taxable year must still meet
the definition of qualified property under
section 48D(b)(2) and §1.48D-3 for its
December 16, 2024
basis to be included as part of the qualified
investment in the advanced manufacturing
facility eligible for the section 48D credit.
Specifying the types of cost that should be
considered in the output test and the time
period for the measurement would require
a careful examination of all relevant facts
and circumstances, any applicable Code
sections and Federal income tax principles apart from those found in section 48D
and the section 48D regulations. For these
reasons, specifying the types of costs that
should be considered and the time period
for measurement is not appropriate for purposes of the final regulations.
One commenter requested that the
words “grows” and “grow wafers” in proposed §1.48D-4(c)(2) be removed in the
final regulations if the definition of “semiconductor” is revised in the final regulations
to include polysilicon, boules, wafers, and
similar materials with electronic properties
manufactured specifically for the purpose
of semiconductor manufacturing. Another
commenter requested that the final regulations clarify that “primary purpose” can
include intermediate manufacturing steps
or production of components for finished
semiconductors. One commenter requested
that the final regulations provide that, in
the case of a vertically integrated company
that manufactures semiconductors, property used in the crystal and boule growth be
treated as property integral to the operation
of an advanced manufacturing facility.
The Treasury Department and the IRS
agree, in part, with commenters and the
final regulations adopt, in part, the commenter’s request for a modification to
proposed §1.48D-4(c)(2) by removing
“grows” and “grow wafers” from the final
regulations, and providing that primary
purpose can include certain intermediate
manufacturing steps to conform with the
definition of “semiconductor manufacturing” in §1.48D-2(n) of the final regulations. As previously described in section
III.E. of this Summary of Comments and
Explanation of Revisions, semiconductor
wafer production includes the processes
of growing single-crystal ingots and
boules, as well as wafer slicing, bonding,
etching and polishing, cleaning, epitaxial deposition, and metrology. Including
property used in steps prior to growing
single-crystal ingots and boules in the
case of a vertically integrated semicon-
December 16, 2024
ductor manufacturer is not consistent with
the purpose and structure of the statute
because the primary purpose of such property is not the manufacturing of semiconductors (as defined in §1.48D-2(g) of the
final regulations) or the manufacturing of
semiconductor manufacturing equipment
(as defined in §1.48D-2(h) of the final
regulations). Accordingly, the final regulations do not include such a rule for such
vertically integrated businesses.
The final regulations provide examples
to illustrate whether a facility has a primary
purpose of manufacturing of semiconductors or manufacturing of semiconductor
manufacturing equipment. The examples
address whether the facility meets the primary purpose test in the taxable year the
property is placed in service. Because the
section 48D is an investment tax credit,
and pursuant to §1.46-3(d)(4), the investment credit is allowed in the taxable year
the property is placed in service. In addition, the investment tax credit recapture
rules under section 50(a) apply to the section 48D credit. If the property for which
the section 48D credit is claimed ceases to
be investment credit property (as defined
in section 50(a)(6)(A)) with respect to the
taxpayer before the close of the 5-year
recapture period, then all or a portion of the
section 48D credit is recaptured. If a taxpayer fails to meet the primary purpose test
during any of the years during the 5-year
recapture period, then the facility is no longer an advanced manufacturing facility, as
defined in section 48D(b)(3) and the final
regulations. The property the taxpayer
placed in service to claim the section 48D
credit is no longer qualified property under
section 48D(b)(2)(A)(iv), because such
property is no longer integral to the operation of an advanced manufacturing facility.
Thus, the property has ceased to be investment credit property with respect to the
taxpayer and, pursuant to section 50(a)(1)
(A) and (B), all or a portion of the section
48D credit claimed is recaptured.
VI. Comments on and Changes to
Proposed §1.48D-5
A. Definition of Single Advanced
Manufacturing Facility Project
Commenters requested that the final
regulations expand the list of items of
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property that may be treated as a single
item for purposes of the beginning of construction rules to include “tooling equipment” and “semiconductor manufacturing
equipment.” The list in proposed §1.48D5(a)(3) is non-exclusive. However, the
Treasury Department and the IRS have
determined that a clarification is appropriate to clarify that “tooling equipment”
and “semiconductor manufacturing equipment” can be treated as a single item for
purposes of the beginning of construction. Accordingly, §1.48D-5(a)(3)(i) of
the final regulations is revised to include
“tooling equipment” and “semiconductor
manufacturing equipment.”
Commenters requested that the final
regulations establish a safe harbor for
satisfying the single advanced manufacturing facility project determination if a
taxpayer meets at least four of the factors
listed under proposed §1.48D-5(a)(3)(i).
As noted in the Background section of
this preamble, the final regulations primarily apply credit mechanics and procedures common to all investment credits.
It is therefore appropriate for purposes
of section 48D to provide a single project
test similar to the test provided in other
recent guidance applicable to investment
credits. Accordingly, §1.48D-5(a)(3)(i) of
the final regulations provides that multiple properties or facilities will be treated
as a single project if, at any point during
construction of the multiple properties
or facilities, they are owned by a single
taxpayer (subject to the related taxpayer
rule discussed later in this section of this
Summary of Comments and Explanation
of Revisions), and any two or more of the
factors listed in §1.48D-5(a)(3)(i) are met.
Under §1.48D-5(a)(3)(ii) of the final regulations, related taxpayers would be treated
as one taxpayer in determining whether
multiple facilities or properties are treated
as a single project. Related taxpayers
would be defined as members of a group
of trades or businesses that are under common control (as defined in §1.52-1(b)).
Commenters also requested that the
final regulations modify proposed §1.48D5(a)(3)(i)(F) by changing “single master
construction contract” to a “single master
construction plan,” and add a new factor
based on whether the properties or facilities achieve efficiencies and economies of
scale through shared semiconductor man-
Bulletin No. 2024–51
ufacturing resources. However, planning
and designing are generally regarded as
preliminary activities that would not satisfy the Physical Work Test, and treating
multiple items of qualified property as a
single item based on a “construction plan”
as opposed to a “construction contract”
would not inform whether construction
has begun for purposes of section 48D.
Including a factor based on whether the
properties or facilities achieve efficiencies
and economies of scale through shared
semiconductor manufacturing resources
would inject significant complexity into
the final regulations and likely cause additional uncertainty regarding the scope of
the term “single advanced manufacturing
facility project” due to its inherently factual nature. Accordingly, the final regulations do not incorporate the commenters’
recommendations.
One commenter requested that the final
regulations clarify the disaggregation of
a single advanced manufacturing facility
project under proposed §1.48D-5(a)(3)
(iv). The commenter requested that the
final regulations clarify that the relevant
facts and circumstances to satisfy the continuity requirement for disaggregated separate items of property or facilities should
be the facts and circumstances from the
time that the continuity safe harbor period
ends until the property is placed in service. The Treasury Department and the
IRS decline to adopt the recommendation
because it would be inconsistent with the
continuity requirement. Those disaggregated separate items of property or facilities were not placed in service prior to the
continuity safe harbor deadline and therefore, the taxpayer is not deemed to satisfy
the continuity requirement with respect
to those items from the beginning of construction date through the end of the continuity safe harbor period. Accordingly,
the final regulations do not incorporate the
commenter’s recommendation.
The commenter also requested that the
final regulations address the time period
for which the remaining disaggregated
separate items of property or facilities
may satisfy the continuity requirement
under a facts and circumstances determination, pursuant to proposed §1.48D-5(a)
(3)(iv). The commenter recommended
that the period start when physical work of
a significant nature begins with respect to
Bulletin No. 2024–51
the disaggregated separate item of property rather than when construction began
based on the single advanced manufacturing facility project. The commenter
recommended that, alternatively, a continuous construction or continuous effort for
any one item of property within the single
advanced manufacturing facility project
be attributed to all properties within the
project to satisfy the continuity requirement. The Treasury Department and the
IRS have determined that the relevant
facts and circumstances determination in
proposed §1.48D-5(a)(3)(iv) is appropriate for determining whether a disaggregated separate item of property satisfies
the continuity requirement. Accordingly,
the final regulations do not incorporate the
commenter’s recommendation.
B. Beginning of Construction, In General
A commenter requested that the final
regulation clarify whether a taxpayer
applies the same test for all construction
in progress at one contiguous location to
determine whether construction began
before December 31, 2026. Proposed
§1.48D-5(b)(1) provides that a taxpayer
may establish that construction of an item
of property (defined as a single advanced
manufacturing facility project under proposed §1.48D-5(a)(3), or an item of qualified property under proposed §1.48D3(b)) of a taxpayer begins under either the
Physical Work Test or the Five Percent
Safe Harbor. Thus, whether a taxpayer
applies the same test for all construction
in progress at one contiguous location
depends on the unit of property being
measured. For this reason, the Treasury
Department and the IRS have determined
that a clarification is not necessary.
C. Physical Work Test
Commenters requested that the final
regulations include examples of on-site
and off-site physical work of a significant nature specific to the semiconductor
industry. One commenter recommended,
at a minimum, including on-site activities such as excavation for the foundation of a facility, pouring concrete into
a foundation of a facility, and installing
underground utilities, and including offsite activities such as the acquisition of
1265
key systems, manufacture of components,
mounting equipment, and constructing
support structures such as steel trusses.
The Treasury Department and the IRS
have determined that including certain
examples of on-site and off-site work to
provide additional certainty to taxpayers
is appropriate for determining whether
physical work of a significant nature has
occurred. Accordingly, §1.48D-5(c)(2) of
the final regulations includes a non-exclusive list of examples of on-site and off-site
activities, consistent with IRS guidance
pertaining to beginning of construction.
D. Five Percent Safe Harbor
One commenter requested that a payment made by the taxpayer for property
that is manufactured, constructed, or produced for the taxpayer by another person
under a binding written contract but is not
yet provided to the taxpayer and is not yet
incurred by the other person is considered paid or incurred with respect to the
taxpayer for purposes of the Five Percent
Safe Harbor. As noted, the section 48D
regulations primarily apply long-established credit mechanics and procedures
common to all investment credits, including application of the principles of section
461. Therefore, the final regulations retain
the rule set forth in proposed §1.48D-5(d)
(2).
E. Continuity Requirement
Commenters requested that the final
regulations provide examples of the facts
and circumstances that would support
the conclusion that the taxpayer satisfied
the continuity requirement. The Treasury
Department and the IRS have determined
that including an example of facts and
circumstances that would support a particular factor being met under the continuity facts and circumstances test is
appropriate for clarifying the continuity
requirement in this context. Accordingly,
the final regulations clarify that a taxpayer
has met the factor of paying or incurring
additional amounts included in the total
cost of the property for a taxable year in
which it pays or incurs (within the meaning of §1.461-1(a)(1) and (2)) five percent
or more of the total cost of the property
each calendar year after the calendar year
December 16, 2024
during which construction of the property
began for purposes of section 48D and the
section 48D regulations.
One commenter requested that the final
regulations include “industry downturns”
in the non-exclusive list of construction
disruptions under proposed §1.48D-5(e)
(4)(iii). The commenter explained that the
semiconductor industry is highly cyclical in nature and semiconductor companies typically reduce capital expenditures
and delay on-going construction of new
semiconductor facilities during industry
downturns. The commenter recommended
defining “industry downturn” as a 20 percent reduction to publicly traded stock
value during the preceding 12-month
period. The commenter also requested
that the final regulations include a provision that Treasury may exercise its authority to identify per se construction disruptions in future guidance. The Treasury
Department and the IRS decline to adopt
these recommendations, but will consider
whether future guidance, specific to any
market and construction disruptions, is
necessary, as needed.
A commenter requested that the final
regulations modify the continuity safe
harbor in proposed §1.48D-5(e)(6) by
creating a bright-line rule that all property
placed in service before December 31,
2036, will be deemed to satisfy the continuity safe harbor. The commenter argued
that the structure of a continuity safe harbor that measures from the beginning of
construction, in the context of semiconductor manufacturing, creates an incentive to intentionally delay the beginning
of construction date to as late in 2026 as
possible to more closely align the time
that construction begins to the beginning
of the tolling of the 10-year safe harbor
period. Section 48D(e) provides that a
section 48D credit may not be claimed for
property the construction of which begins
after December 31, 2026. The March
2023 proposed regulations provide that a
taxpayer can establish that construction
of property has begun by meeting either
the Physical Work Test or the Five Percent
Safe Harbor. Under either test, a taxpayer
must meet the Continuity Requirement by
demonstrating continuous construction or
continuous efforts based on the relevant
facts and circumstances. In lieu of demonstrating continuous construction or con-
December 16, 2024
tinuous efforts, however, the taxpayer is
deemed to satisfy the continuity requirement, under the continuity safe harbor,
by placing the property in service within
ten calendar years after the date that the
Physical Work Test or the Five Percent
Safe Harbor is first satisfied. Taxpayers
are not obligated to satisfy the continuity
safe harbor to meet the continuity requirement. For these reasons, the Treasury
Department and the IRS decline to adopt
the commenter’s recommendation in the
final regulations.
A commenter requested that the final
regulations include a monetary safe harbor in which a taxpayer is deemed to
satisfy the continuous construction test
or continuous efforts test in the case an
advanced manufacturing facility project if
the taxpayer pays or incurs a certain dollar amount of the total cost of the property during each taxable year before the
property is placed in service. Paying or
incurring costs towards completion of a
project is one of many factors that may
indicate the continuity requirement is met.
As such, the Treasury Department and
the IRS decline to include an additional
safe harbor in the final regulations that is
solely dependent on the dollar amount of
monetary spend in a given taxable year.
However, as previously described, the
final regulations clarify that a taxpayer
has met the factor of paying or incurring
additional amounts included in the total
cost of the property for a taxable year in
which it pays or incurs (within the meaning of §1.461-1(a)(1) and (2)) five percent
or more of the total cost of the property
each calendar year after the calendar year
during which construction of the property
began.
VII. Comments on and Changes to
Proposed §1.50-2
A. Applicable Transaction
One commenter requested clarification
of whether the term “applicable transaction” includes the expansion of manufacturing semiconductor manufacturing
equipment in a foreign country of concern.
Section 50(a)(6)(D) provides that “applicable transaction” means a “significant
transaction” involving the material expansion of “semiconductor manufacturing
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capacity” in a foreign country of concern.
Section 50(a)(6)(D) does not refer to manufacturing semiconductor manufacturing equipment. For that reason, the term
“applicable transaction” does not include
the expansion of manufacturing semiconductor manufacturing equipment in a
foreign country of concern. Section 50(a)
(6)(E), however, defines the term “applicable taxpayer” as any taxpayer who has
been allowed a section 48D credit for any
prior taxable year. Thus, a taxpayer that
was allowed a section 48D credit for manufacturing semiconductor manufacturing equipment as defined in §1.48D-2(h)
of the final regulations is an “applicable
taxpayer” for purposes of section 50(a)
(3) and (a)(6)(D) and would be subject
to recapture under those provisions if the
taxpayer engaged in an “applicable transaction” involving the material expansion
of semiconductor manufacturing in a foreign country of concern.
Commenters suggested that the final
regulations provide that a transaction does
not trigger recapture under section 50(a)
(3) if such transaction does not trigger a
clawback under an entity’s required agreement with the Department of Commerce.
Consistent with section 50(a)(6)(D), if a
taxpayer enters into a required agreement
with the Secretary of Commerce, the final
regulations define the term “significant
transaction” to have the same meaning
as provided in the required agreement for
purposes of section 48D and the section
48D regulations.
B. Definition of Applicable Taxpayer
Several commenters requested that the
final regulations treat only partners that
actually claim a section 48D credit as an
“applicable taxpayer,” as opposed to all
partners in the partnership as required
under proposed §1.50-2(b)(2)(i)(C). Two
of the commenters argued that activities
undertaken outside the partnership by one
partner should not trigger recapture of the
section 48D credit claimed by another
partner in the partnership. The Treasury
Department and the IRS have determined
that certain modifications are appropriate
for defining “applicable taxpayer” in the
context of qualified property owned by a
partnership or S corporation. Accordingly,
the final regulations retain the general
Bulletin No. 2024–51
definition of “applicable taxpayer” from
proposed §1.50-2(b)(2)(i)(A) and include
special rules for partnerships and S corporations.
The final regulations clarify that in the
case of property placed in service by a partnership, the term “applicable taxpayer”
means any direct or indirect partner in a
partnership: (1) who was allowed a section
48D credit for such property for any taxable year prior to when such partnership
entered into an applicable transaction and
includes such partnership; (2) with respect
to the partner’s share of any section 48D
credit allowed for such property prior to
when such partner entered into an applicable transaction; or (3) with respect to the
partner’s share of any tax-exempt income
from a partnership that made an election
under section 48D(d)(2) for any taxable
year prior to when such partner entered
into an applicable transaction. Consistent with proposed §1.50-2(b)(2)(i)(B),
the final regulations provide that the term
“applicable taxpayer” means a partnership that made an election under section
48D(d)(2) for any taxable year prior to
the taxable year in which the partnership
entered into an applicable transaction. The
final regulations include similar rules for
S corporations and shareholders. The final
regulations also include additional examples to clarify the application of the rules
regarding the term “applicable taxpayer.”
C. Significant Transactions in General
and Certain Required Agreements under
Section 103(b) of the CHIPS Act
Section 50(a)(6)(D) requires that the
meaning of the term “significant transaction” be determined by the Secretary
in coordination with the Secretary of
Commerce and the Secretary of Defense.
Accordingly, the March 2023 proposed
regulations defined the term “significant
transaction” to align and harmonize the
scope of applicable transactions under section 50(a)(3) with the scope of prohibited
material expansion transactions within the
meaning of proposed 15 CFR 231.121
(relating to the Prohibition on Certain
Expansion Transactions) and included the
definition of “significant transaction” in
proposed 15 CFR 231.101 as contained in
the Commerce Proposed Rule. However,
unlike the Commerce Proposed Rule, the
Bulletin No. 2024–51
Commerce Final Rule does not include
a definition of “significant transaction.”
Rather, pursuant to section 103(b) of the
CHIPS Act, what constitutes a “significant transaction” is to be defined in the
required agreement entered into between
a funding recipient and the Secretary of
Commerce. Accordingly, the Treasury
Department and the IRS (in coordination
with the Secretary of Commerce and the
Secretary of Defense) have determined
that, consistent with section 50(a)(6)(D),
the term “significant transaction” means
either a “significant transaction” as that
term is generally defined in §1.50-2(b)
(10)(i) of the final regulations, or, with
respect to a taxpayer that has entered into
a required agreement with the Secretary of
Commerce, as the term “significant transaction” is defined in §1.50-2(b)(10)(ii) of
the final regulations, in the required agreement with the Department of Commerce.
Consistent with the definition of “significant transaction” in §1.50-2(b)(10)(ii) of
the final regulations, the defined terms in
the required agreement with the Department of Commerce control for purposes
of determining the meaning of the term
“significant transaction.”
One commenter requested that the
section 50(a)(3) and (a)(6)(D) recapture
provisions and the Department of Commerce’s award clawback rules should
align the set of restrictions on transactions
in foreign countries of concern to avoid
disrupting ordinary business activities at
existing legacy facilities, especially given
the length of time of the advanced manufacturing investment credit recapture
period. The Treasury Department and the
IRS note that the final regulations harmonize the restrictions to the extent provided
under the statute.
D. Definition of Significant Transaction
Several commenters requested modifications to the definition of “significant
transaction” in the March 2023 proposed
regulations. Some commenters requested
the final regulations increase the $100,000
threshold for determining whether a
transaction is a “significant transaction.”
Commenters also requested that the final
regulations explicitly state that transactions with a principal purpose of funding
ordinary course operations (for example,
1267
payroll, rent and utilities, marketing and
advertising, and similar items) are not
considered significant.
In response to comments, the Treasury
Department and the IRS are removing the
monetary threshold for “significant transaction”, and, instead, the revised definition focuses on the type of transaction
that could result in material expansion.
This approach is consistent with the intent
of the recapture rule in section 50(a)(3).
Accordingly, the definition of “significant
transaction” has been modified to include
(1) an investment, whether proposed,
pending, or completed, including any capital expenditure, loan, or gift; (2) the formation of a subsidiary, whether classified
as a corporation or partnership for Federal
tax purposes; (3) a merger, acquisition, or
takeover, including (a) the acquisition of
a new or additional ownership interest in
an entity, (b) the acquisition of a material
portion of the assets of an entity, or (c) a
consolidation; (4) the formation of a joint
venture; or (5) a long-term lease or concession arrangement under which a lessee
(or equivalent) makes substantially all
business decisions concerning the operation of a leased entity (or equivalent), as if
it were the owner. This definition, coupled
with the revision to the definition of material expansion, would clarify that transactions with a principal purpose of funding
ordinary course operations are not significant transactions.
One commenter requested that the final
regulations eliminate the 85 percent rule
under proposed §1.50-2(b)(10)(iii) from
the definition of “significant transaction”
or replace it with a simpler metric based
on the ratio of units an entity manufactures in a foreign country of concern to
the units shipped into a foreign country
of concern. Another commenter requested
that the Treasury Department and the IRS
coordinate with the Department of Commerce to finalize a single uniform standard to identify what is a “final product”
for purposes of proposed §1.50-2(b)(10)
(iii). The proposed definition of “significant transaction” was intended to align
and harmonize with the scope of certain
prohibited expansion transactions under
the Commerce Proposed Rule, pursuant
to the Secretary’s authority under section 50(a)(6)(D)(i) to determine whether
transactions are significant transactions.
December 16, 2024
Accordingly, to maintain this alignment,
the final regulations retain the 85 percent
threshold in its consideration of whether
certain production of legacy semiconductors “predominately serves the market”
in a foreign country of concern. Because
the meaning of the term “predominately
serves the market” is intended to be consistent with the Commerce Final Rule, the
Treasury Department and the IRS decline
to interpret “serves the market” to refer to
the location to which the semiconductors
are first shipped.
Two commenters requested that the
prohibition on technology licensing and
joint research be removed from the definition of significant transaction, noting that
the CHIPS Act does not refer to “technology licensing.” Several commenters suggested that the definition of “technology
licensing” in proposed §1.50-2(b)(11)
is overly broad and could include general business operations, nondisclosure
agreements, the discussion of products or
technology, patents, trade secrets, knowhow, intraparty transfer agreements, or
arrangements operating under current
export control authorization. The commenters requested that the final regulations narrow the definition to focus on
the actual licensing of the technology or
products that are subject to restrictions
rather than just the discussion of products
or technology. One commenter suggested
that taxpayers and their affiliate will be
required to review and possibly terminate pre-existing agreements based on
the proposed definition.
Removing the prohibition on joint
research or technology licensing agreements with a foreign entity of concern
would allow a taxpayer to circumvent
section 50(a)(3) and (a)(6)(D) through the
use of joint research or technology licensing transactions. However, the Treasury
Department and the IRS agree with the
commenter’s suggestions concerning the
scope of the term “technology licensing”
in the March 2023 proposed regulations
given that the definition of “technology
licensing” in the Commerce Final Rule
was modified, consistent with these comments. Accordingly, the final regulations
provide that the terms “joint research”
and “technology licensing” have the same
meaning as provided in 15 CFR 231.105
and 231.120, respectively.
December 16, 2024
One commenter stated that the affiliated group rule under proposed §1.50-2(b)
(10)(v) (establishing a 50 percent ownership test) is inconsistent with the reference in 15 U.S.C. 4652(a)(6)(C)(iii) to
section 1504(a) of the Code. The Treasury
Department and the IRS agree that the
affiliated group rule is inconsistent with
the reference in 15 U.S.C. 4652(a)(6)(C)
(iii) to section 1504(a) and for that reason,
the affiliate group rule has been removed
from the final regulations.
E. Existing Facility
Commenters requested that the definition of an “existing facility” in proposed
§1.50-2(b)(5) be revised in the final regulations to clarify whether the term includes
a facility undergoing production ramp-up
and thus, on the date on which qualified property was placed in service, was
not operating at full production level for
which it was designed. One commenter
requested that the final regulations clarify
that upgrades and productivity improvements made to a facility during the ordinary course of business operations is not
considered a significant renovation and the
date for measuring semiconductor manufacturing capacity is the placed in service
date as intended by the statute. The Treasury Department and the IRS have determined that only facilities built, equipped,
and operating prior to a taxpayer placing
in service qualified property as defined in
section 48D(b)(2) and §1.48D-3 are considered to be existing facilities. A facility
that undergoes significant renovations as
defined in §1.50-2(b)(9) of the final regulations would no longer qualify as an
existing facility. The final regulations do
not require the existing facility to be operating at the semiconductor manufacturing
capacity for which it was designed, as
required by the March 2023 proposed regulations. As noted in section VII.G of this
Summary of Comments and Explanation
of Revisions, the final regulations modify
the definition of a “significant renovation”
to mean building new cleanroom space or
adding a production line or other physical space to an existing facility, such that
upgrades and productivity improvements
made to a facility during the ordinary
course of business operations would not
be considered a significant renovation.
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F. Material Expansion
Commenters requested that the definition of “material expansion” in proposed
§1.50-2(b)(7) be modified in the final regulations to allow for an increase of semiconductor manufacturing capacity greater
than 5 percent. One commenter requested
that the 5 percent increase in capacity
be measured on an average basis over
the course of a year. Commenters also
requested that the final regulations provide a finite list specifying business activities, products and processes that constitute
a material expansion of semiconductor
manufacturing. The Treasury Department
and the IRS have determined that raising
the five percent threshold for allowable
material expansions or measuring the five
percent increase capacity on average over
the course of a year would undermine the
objective of the recapture rule under section 50(a)(3). The Treasury Department
and the IRS have further determined that
specifying business activities, products
and process that constitute a material
expansion of semiconductor manufacturing is consistent with the statute. Accordingly, the final regulations retain the five
percent threshold and clarify that the
increase in capacity is due to the addition
of a cleanroom, production line or other
physical space, or series of such additions
during the applicable period. The final
regulations clarify that the term “material
expansion” includes any construction of a
new facility for semiconductor manufacturing.
G. Significant Renovations and
Semiconductor Manufacturing Capacity
Several commenters requested that the
scope of the definition of “significant renovation” in proposed §1.50-2(b)(9) be modified to encompass only new cleanroom
construction, production space, increase
in the square footage of an existing facility
by a specified percentage, or actual output of the facility. The commenters argued
that the March 2023 proposed regulations
unnecessarily narrowed the scope of the
exemption for legacy semiconductors as
enacted, noting that the CHIPS Act does
not include the term “significant renovation.” Some commenters also requested
that the ten percent ceiling for increasing
Bulletin No. 2024–51
semiconductor manufacturing capacity
be increased to fifteen percent. The commenters further requested that the final
regulations clarify that an operating facility that has not yet reached its full capacity
will be considered an “existing facility.”
The Treasury Department and the IRS
have considered the commenters’ suggestions and have determined that the “significant renovation” and ten percent threshold provisions are necessary to prevent a
taxpayer from circumventing the recapture provisions of section 50(a)(3)(A) by
engaging in a “significant renovation”
of an “existing facility.” However, the
Treasury Department and the IRS agree
with the commenters that clarification is
needed concerning what is the scope of a
“significant renovation.” Accordingly, the
final regulations retain the rules for a “significant renovation” of an existing facility
but clarify that a “significant renovation”
means building new cleanroom space or
adding a production line or other physical
space to an existing facility that, in the
aggregate during the applicable period,
increases semiconductor manufacturing
capacity by 10 percent or more.
One commenter requested that the final
regulations clarify that, with respect to a
specific facility, a taxpayer’s semiconductor manufacturing capacity is measured by
taking into account both (i) the taxpayer’s
own semiconductor manufacturing capacity in that facility, and (ii) any semiconductor manufacturing capacity of another
party to the extent the other party’s operations are carried on for the benefit of the
taxpayer. The commenter noted that semiconductor fabrication companies commonly outsource assembly and test work
to third parties referred to as outsourced
semiconductor assembly and test providers, or “OSATs.” The commenter further
noted that semiconductor manufacturer
may lease a portion of a facility in a foreign country of concern to an OSAT that
performs assembly and test work for the
benefit of the taxpayer within the same
facility. One commenter, included as an
attachment to its comments on the March
2023 proposed regulations, a letter that
the commenter sent to the Department
of Commerce concerning the Commerce
Proposed Rule. The commenter requested
that the Commerce Final Rule provide
that semiconductor manufacturing capac-
Bulletin No. 2024–51
ity be measured in wafer starts per year, as
opposed to wafer starts per month.
Consistent with the Commerce Final
Rule in 15 CFR 231.117, the final regulations provide that semiconductor manufacturing capacity is appropriately measured in
wafer starts per month not including OSAT
production. Section 1.50-2(b)(8) of the final
regulations include a rule for determining
“semiconductor manufacturing capacity”
in the case of semiconductor wafer production. The final regulations clarify that wafer
production is measured in starts per month
and in the case of a semiconductor wafer
production facility that includes the processes of growing single-crystal ingots and
boules, wafer slicing, etching and polishing,
cleaning, epitaxial deposition, and metrology, manufacturing capacity is measured in
wafer starts per month.
H. Technology or Product that Raises
National Security Concerns
One commenter requested that the
final regulations exclude from the definition of semiconductors critical to national
security, any semiconductors that reduce
carbon emissions because they enhance
rather than reduce U.S. national security
(specifically SiC power semiconductors).
The Treasury Department and the IRS
appreciate that the performance advantages offered by compound semiconductors over silicon semiconductors, such as
wider bandgap, lower operating voltages,
and higher electron mobility, are vital to
many military applications. Moreover,
the governments of some foreign countries of concern have identified compound
semiconductors as a strategic emerging industry. They have set ambitious
goals for acquisition and development
of compound semiconductor technology
and strive to become global leaders in
the industry. However, while exports of
certain semiconductors are not subject
to national security or regional stability
export controls, joint research, or technology licensing involving these products
with foreign entities of concern can nevertheless pose a significant risk to national
security. Taxpayers that claim a section
48D credit should not further that risk. For
these reasons, the Treasury Department
and the IRS decline to adopt the commenter’s request.
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I. Exception from the Definition
of Applicable Transaction for
the Manufacturing of Legacy
Semiconductors
Several commenters requested that
the final regulations specifically include
assembly test manufacturing (ATM) that
uses non-3D packaging in the definition
of legacy semiconductor. The commenters argued that given that ATM is generally a back-end operation, with billions of
pre-existing investments, it is appropriate
for these operations to be viewed under
the definition of legacy unless they specifically perform 3D integration. The Treasury Department and the IRS agree with
the commenters’ suggestion. Accordingly,
the final regulations, consistent with 15
CFR 231.107, clarify that only semiconductors utilizing advanced 3D integration
packaging such as by directly attaching
one or more die or wafer, through silicon
vias (TSV) or through mold vias (TMV),
or other advanced methods are not considered to be legacy semiconductors.
Commenters requested that the final
regulations conform the example of
memory semiconductor under proposed
§1.50-2(c)(2)(ii) to current export controls. Section 50(a)(6)(D)(ii) provides
that the exception for legacy semiconductors applies as defined in section 9902(a)
(6) of the William M. (Mac) Thornberry
National Defense Authorization Act for
Fiscal Year 2021, as amended by section
103 of the CHIPS Act. The example of
a memory semiconductor in proposed
§1.50-2(c)(2)(ii) is consisted with the statutory definition of a legacy semiconductor. Accordingly, the Treasury Department
and the IRS decline to revise the example
of a memory semiconductor in the final
regulations.
Commenters requested that what is
considered a leading or “legacy” semiconductor should be adjusted over the course
of a 10-year period and should be connected to authorization permitted under
export control licensing. Proposed §1.502(c)(2)(iii) includes among the definition
of a “legacy semiconductor” a semiconductor identified by the Secretary of Commerce in a public notice issued under 15
U.S.C. 4652(a)(6)(A)(ii). The Secretary
of Commerce is required, pursuant to 15
U.S.C. 4652(a)(6)(A)(ii), to update the
December 16, 2024
definition of “legacy semiconductor” on a
regular basis and at least every two years.
Thus, the definition of what is considered
a leading or legacy semiconductor will
be adjusted over the course of a 10-year
period, as the Secretary of Commerce
deems appropriate as reflected in §1.502(c)(2) of the final regulation.
One commenter requested that the final
regulations provide that the exclusion of
any technology from the definition of “legacy semiconductor” in the future pursuant
to 15 U.S.C. 4652(a)(6)(A)(ii) be applied
only prospectively and not to any transactions previously entered into. Section
50(a)(6)(D)(ii) provides that the exception for legacy semiconductors applies
as defined in section 9902(a)(6) of the
William M. (Mac) Thornberry National
Defense Authorization Act for Fiscal Year
2021, as amended by section 103 of the
CHIPS Act. Section 103(b) of the CHIPS
Act added 15 U.S.C. 4652(a)(6)(A)(ii)
and requires the Secretary of Commerce,
after public notice and an opportunity for
comment and if applicable and necessary, to issue a public notice identifying
any additional semiconductor technology
included in the meaning of the term “legacy semiconductor” on a regular basis, and
at least every two years. The commenter’s
recommendation to apply only prospectively any technology excluded from the
definition of “legacy semiconductor” by
the Secretary of Commerce pursuant to
15 U.S.C. 4652(a)(6)(A)(ii) is beyond
the application of sections 48D and 50
and the section 48D regulations. For that
reason, the Treasury Department and the
IRS decline to adopt the commenter’s recommendation. One commenter requested
that the final regulations modify the definition of legacy semiconductors that is of
28 nanometer generation or older under
proposed §1.50-2(c)(2)(i) by deleting the
reference to gate length and including
technologies using the planar transistor
architecture that should be considered the
same as 28 nanometer generation technology. The Treasury Department and the
IRS decline to adopt the commenter’s recommendation. The proposed definition of
legacy semiconductor with respect to 28
nanometer generation technology is consistent with the CHIPS Act and accurately
captures the definition of legacy semiconductors. The proposed definition also pre-
December 16, 2024
vents a company from using or creating a
derivation of their existing 28 nanometer
technology for use in a foreign country of
concern that is inconsistent with the kind
of material expansion of semiconductor
manufacturing the CHIPS Act seeks to
constrain.
Several commenters requested that
the final regulations narrow the exception under proposed §1.50-2(c)(3)(iii) to
“advanced” 3D packaging techniques, so
that TSV and TMV are excluded from
the definition of legacy semiconductor. In coordination with the Department
of Commerce and the Department of
Defense, the Treasury Department and
the IRS have incorporated this recommendation in the final regulations. The Commerce Final Rule clarifies the meaning
of the term “legacy semiconductor” with
respect to a semiconductor wafer facility, a semiconductor fabrication facility,
and a semiconductor packaging facility.
Again, in coordination with the Department of Commerce and the Department of
Defense, the Treasury Department and the
IRS have incorporated this clarification in
the final regulations.
The March 2023 proposed regulations
provided a definition of “legacy semiconductor” that was identical to the definition
in Commerce Proposed Rule. Consistent
with section 50(a)(6)(D)(ii) of the Code
and section 9902(a)(6) of the William
M. (Mac) Thornberry National Defense
Authorization Act for Fiscal Year 2021,
as amended by section 103 of the CHIPS
Act, the final regulations define the term
“legacy semiconductor” as having the
same meaning as that term is defined in the
Commerce Final Rule, 15 CFR 231.107.
J. Standards for Determining the
Satisfaction of the Commissioner
Commenters requested that the final
regulations include standards for establishing what is considered to be to “the
satisfaction of the Secretary” or “the satisfaction of the Commissioner” for purposes of section 50(a)(3)(B) and proposed
§1.50-2(a)(2), respectively. Commenters
suggested that the final regulations address
how a taxpayer may demonstrate cessation
or abandonment of a project, and further
suggested that those actions could include
proof of cancelled contracts, the with-
1270
drawal or cancellation of work permits, a
board resolution that expressly cancels the
applicable transaction, or the issuance of a
public statement that expressly cancels the
applicable transaction. Commenters also
suggested that final regulations include a
non-exhaustive list of documents that can
be used to establish cessation or abandonment of a project. The Treasury Department and the IRS have determined that
the rules suggested by the commenters,
as well as similar provisions, would likely
cause additional uncertainty regarding the
scope of the term “to the satisfaction of
the Commissioner” due to its inherently
factual nature. As a result, the final regulations do not incorporate the commenters
recommendations.
K. Records Retention
The Treasury Department and the
IRS requested comments on the ability
of applicable taxpayers to comply with
potential record keeping requirements in
addition to those required by current law
and on what specific procedures should be
considered to ensure that the IRS has sufficient information to determine whether
an applicable taxpayer engages in an
applicable transaction within the meaning
of section 50(a)(3) and proposed §1.502. Several commenters suggested that
any record retention should be limited to
records obtained in the ordinary course of
business. Another commenter suggested
the IRS could include a form or attachment
to annual tax returns with basic questions
for the IRS to ascertain whether an applicable taxpayer may have engaged in an
applicable transaction during the taxable
year. Section 50(a)(3)(C) provides that the
Secretary shall issue regulations or other
guidance as the Secretary determines
necessary or appropriate to carry out the
purposes of section 50(a)(3), including
regulations or other guidance which provides for requirements for recordkeeping
or information reporting for purposes of
administering the requirements of section 50(a)(3). The Treasury Department
and the IRS have determined that records
retained in a taxpayer’s ordinary course
of business, and as required under current
applicable periods of limitations under
section 6501 of the Code on assessment
and collection of tax under chapter 1 with
Bulletin No. 2024–51
respect to the applicable taxpayer’s return
filed for the taxable year that includes the
close of the 10-year period beginning on
the date such taxpayer placed in service
investment credit property that is eligible
for the section 48D credit, are sufficient.
Accordingly, the final regulations do not
incorporate any additional record keeping
requirements.
Some commenters requested that the
final regulations provide for more of
an alignment of the section 48D credit
requirements and the Department of
Commerce grant regulatory requirements
including standardizing the same 10-year
recapture or clawback period and streamline reporting and recordkeeping requirements. The commenters also requested
that responsibility for administering the
various overlapping rules and taxpayer
notification requirements be delegated to
a single agency or an interagency body.
Section 50(a)(3) provides for recapture
of the section 48D credit if there is an
applicable transaction by an applicable
taxpayer before the close of the ten-year
period beginning on the date such property
is placed in service. Pursuant to 15 USC
4652(a)(6)(C)(i), the Commerce Final
Rule, 15 CFR 231.202, provides that the
10-year period for the Expansion Clawback begins on the date of the award of
Federal financial assistance under 15 USC
4652. The preamble to the Commerce
Final Rule clarifies that the applicable
term for the technology clawback (15 CFR
231.203) is defined in the relevant award
documents. Pursuant to the relevant statutes, the recapture period for a section 48D
credit begins on the date the qualified property is placed in service, and the Expansion Clawback and technology clawback
periods begin on the date of the award of
financial assistance and as defined in the
award documents, respectively. For this
reason, aligning the recapture period with
the clawback period would be inconsistent
with section 50(a)(3)(A).
Section 50(a)(6)(D)(i) requires that
the Secretary (in coordination with the
Secretary of Commerce and the Secretary
of Defense) define the term “significant
transaction” for purposes of section 50.
Consistent with the statutory directive in
section 50(a)(6)(D)(i), §1.50-2(b)(10) of
the final regulations defines the term “significant transaction” as determined by the
Bulletin No. 2024–51
Treasury Department and the IRS in coordination with the Department of Commerce and the Department of Defense.
Treasury regulations that otherwise would
align or streamline the reporting and
recordkeeping requirements or delegate
the administrative functions to a single
agency or interagency body are beyond
the scope of the statute.
L. Private Letter Rulings
Commenters requested that the IRS
grant private letter rulings or other determinations on the beginning of construction, effective date, costs, and or other
matters relevant to section 48D. Consistent with guidance published in the Internal Revenue Bulletin, the IRS ordinarily
will not issue private letter rulings to a
taxpayer regarding the beginning of construction requirement under section 48D
with respect to property placed in service
after these final regulations are published
in the Federal Register. In addition, the
IRS may decline to issue a letter ruling or
a determination letter when appropriate in
the interest of sound tax administration,
including due to resource constraints, or
on other grounds whenever warranted by
the facts or circumstances of a particular
case.
Applicability Date
The final regulations set forth in
§§1.48D-1 through 1.48D-5, and 1.50-2
apply to property that is placed in service
after December 31, 2022, and during a
taxable year ending on or after October
23, 2024.
Special Analyses
I. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501-3520) (PRA) generally
requires that a Federal agency obtain the
approval of the Office of Management and
Budget (OMB) before collecting information from the public, whether such
collection of information is mandatory,
voluntary, or required to obtain or retain a
benefit. A Federal agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information
1271
unless the collection of information displays a valid control number.
This regulation mentions elections
that are made in accordance with section 48D(d)(1) and (d)(2) of the Code
and §1.46-5 of the Treasury Regulations.
These elections are made with Form 3468,
Investment Credit, which are already
approved by the OMB under 1545-0074
for individual/sole proprietor filers, 15450123 for business filers, and 1545-0155
for trust and estate filers. This regulation is
not changing those election requirements;
and is not telling taxpayers to make these
elections but explaining their treatment
for the credit if they have made these elections.
This regulation also describes recapture
of the advanced manufacturing investment
credit in the case of certain expansions, as
detailed in §1.50-2(a). The reporting of the
recapture event will still be required to be
reported using Form 4255, Recapture of
Investment Credit. This form is approved
under OMB control numbers 1545–0074
for individuals/sole proprietors, 1545–
0123 for business entities, and 1545–0166
for trust and estate filers. The final regulation is not changing or creating new collection requirements not already approved by
OMB on Form 4255.
This regulation includes recordkeeping requirements outlined in §1.50-2 for
recording transactions, investments, facilities information, and agreements with
the Department of Commerce. The IRS
expects that these records are usual and
customary business records; however, the
taxpayers will need to keep these records
as long as they are admissible by the statute, typically for 10 years. Therefore, the
IRS is considering these to be general tax
records under §1.6001-1. These records
are required for the IRS to validate that the
taxpayers have met the regulatory requirements; and are required as proof that the
taxpayer has not engaged in an applicable
transaction or that the taxpayer has ceased
or abandoned the applicable transaction
within 45 days of a determination and
notice by the Commissioner, pursuant to
section 50(a)(3). For PRA purposes, general tax records are already approved by
OMB under 1545-0074 for individual/sole
proprietor filers, 1545-0123 for business
filers, and 1545-0092 for trust and estate
filers.
December 16, 2024
II. Regulatory Flexibility Act
The Treasury Department and the IRS
determined the rule will not have a significant economic impact on a substantial
number of small entities. Although the rules
affect small entities, data are not readily
available about the number of taxpayers
affected. Section 48D affects the semiconductor manufacturing industry, and specifically, individuals and entities that make
qualified investments in facilities engaged
in the manufacturing of semiconductors and
semiconductor manufacturing equipment.
The economic impact of these regulations is
not likely to be significant, because the regulations substantially incorporate statutory
changes by the CHIPS Act in establishing
section 48D and amending section 50(a).
The regulations will also make it easier for
taxpayers to comply with section 48D and
the changes to section 50(a). Pursuant to
the RFA (5 U.S.C. chapter 6), the Secretary
hereby certifies that these regulations will
not have a significant economic impact on a
substantial number of small entities.
Pursuant to section 7805(f), the notice
of proposed rulemaking has been submitted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on its impact on small
business. The Chief Counsel for the Office
of Advocacy of the SBA did not provide
any comments on the March 2023 proposed regulations.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) requires
that agencies assess anticipated costs and
benefits and take certain other actions
before issuing a final rule that includes
any Federal mandate that may result in
expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This
rule does not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the private sector in excess of that threshold.
rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local governments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Executive
order. This rule does not have federalism
implications and does not impose substantial direct compliance costs on State and
local governments or preempt State law
within the meaning of the Executive order.
V. Regulatory Planning and Review
Pursuant to the Memorandum of
Agreement, Review of Treasury Regulations under Executive Order 12866 (June
9, 2023), tax regulatory actions issued by
the IRS are not subject to the requirements
of section 6 of Executive Order 12866, as
amended. Therefore, a regulatory impact
assessment is not required.
VI. Congressional Review Act
Pursuant to the Congressional Review
Act (5 U.S.C. 801 et seq.), the Office of
Information and Regulatory Affairs has
designated this rule as a major rule as
defined by 5 U.S.C. 804(2).
Statement of Availability of IRS
Documents
Guidance cited in this preamble is published in the Internal Revenue Bulletin
and is available from the Superintendent
of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Drafting Information
The principal author of these final
regulations is Lani Sinfield, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. However,
other personnel from the Treasury Department and the IRS participated in their
development.
IV. Executive Order 13132: Federalism
List of Subjects in 26 CFR Part 1
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
Income taxes, Reporting and recordkeeping requirements.
December 16, 2024
1272
Amendments to the Regulations
Accordingly, the 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry,
in numerical order, for §1.50-2 to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
*****
Section 1.50-2 also issued under 26
U.S.C. 50(a)(3)(C), and 50(a)(6).
*****
Par. 2. Section 1.48D-0 is revised to
read as follows:
§1.48D-0 Table of contents.
This section lists the table of contents
for §§1.48D-1 through 1.48D-6.
§1.48D-1 Advanced manufacturing
investment credit determined.
(a) Overview.
(b) Determination of credit.
(c) Coordination with section 47.
(1) In general.
(2) Example.
(d) Applicability date.
§1.48D-2 Definitions.
(a) In general.
(b) Applicable transaction.
(c) Basis.
(1) In general.
(2) Transition rule.
(d) Beginning of construction.
(e) Eligible taxpayer.
(f) Foreign entities.
(1) Foreign entity.
(2) Foreign entity of concern.
(g) Manufacturing of semiconductors.
(h) Manufacturing of semiconductor
manufacturing equipment.
(i) Placed in service.
(j) Qualified investment.
(1) In general.
(2) Special rules for certain passthrough
entities.
(i) Partnership.
(ii) S corporation.
(iii) Estate or trust.
Bulletin No. 2024–51
(3) Qualified progress expenditures
election.
(i) In general.
(ii) Special rules for certain passthrough
entities.
(4) Examples.
(i) Example 1.
(ii) Example 2.
(k) Section 48D credit.
(l) Section 48D regulations.
(m) Semiconductor.
(n) Semiconductor manufacturing.
(1) Semiconductor wafer production.
(2) Semiconductor fabrication.
(3) Semiconductor packaging.
(4) Assembly.
(5) Testing.
(6) Advanced packaging.
(o) Semiconductor manufacturing
equipment.
(p) Statutory references.
(1) Chapter 1.
(2) Code.
(3) Subtitle A.
(q) Applicability date.
§1.48D-3 Qualified property.
(a) In general.
(b) Qualified property.
(c) Tangible depreciable property.
(1) In general.
(2) Exception.
(3) Buildings or portions of a building
not excluded by section 48D(b)(2)(B)(ii).
(d) Constructed, reconstructed, or
erected by the taxpayer.
(e) Original use.
(1) In general.
(2) Treatment of inventory.
(f) Part of an advanced manufacturing
facility.
(1) In general.
(2) Property that is not located or co-located at an
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