# Bulletin No. 2023–15

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URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7acc87fc6117b55a

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2023–15
April 10, 2023

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, EXCISE TAX

EXCISE TAX

Rev. Proc. 2023-20, page 636.

Notice 2023-28, page 635.

This revenue procedure modifies the effective date of additions to the list of taxable substances under § 4672(a) of the
Internal Revenue Code (List). Specifically, this revenue procedure modifies paragraphs (1) and (3) of section 11.02 of
Rev. Proc. 2022-26 , 2022-29 I.R.B. 90, to change the date
on which substances are added to the List for purposes of
refund claims under § 4662(e). This revenue procedure also
modifies section 11.03 of Rev. Proc. 2022-26 for petitions
received by the IRS between July 1, 2022, and December
31, 2022, but not accepted by the IRS until after December
31, 2022. In addition, this revenue procedure adds a new
section 11.04 to Rev. Proc. 2022-26 for petitions received
by the IRS after December 31, 2022.

EMPLOYEE PLANS
Notice 2023-27, page 634.

The notice announces that the Treasury Department and
the IRS intend to issue guidance related to the treatment of
certain nonfungible tokens (NFTs) as section 408(m) collectibles. This treatment is also relevant for other purposes of
the Internal Revenue Code, including the long-term capital
gains tax rate under section 1(h). The notice also describes
how the IRS intends to determine whether an NFT constitutes a section 408(m) collectible, pending the issuance
of that guidance, and requests comments generally on the
treatment of an NFT as a section 408(m) collectible, as well
as comments on specific questions listed in the notice.

Finding Lists begin on page ii.

The Infrastructure Investment and Jobs Act reinstated the
excise taxes imposed by sections 4661 and 4671 of the
Internal Revenue Code (the Superfund chemical taxes),
effective July 1, 2022. The Superfund chemical taxes are
subject to the deposit rules set forth in § 40.6302(c)-1
of the Excise Tax Procedural Regulations. The IRS issued
Notice 2022-15, which provides in section 3(a) temporary
rules for the third and fourth calendar quarters of 2022,
and the first calendar quarter of 2023, regarding the failure
to deposit penalty imposed by section 6656 as that penalty
relates to the Superfund chemical taxes. Notice 2022-15
also provides in section 3(b) that during the first, second,
and third calendar quarters of 2023, the IRS will not withdraw the taxpayer’s right to use the deposit safe harbor
rules of § 40.6302(c)-1(b)(2) if certain requirements are
met. Notice 2023-28 extends this relief.

EXEMPT ORGANIZATIONS
Announcement 2023-9, page 639.

Revocation of IRC 501(c)(3) Organizations for failure to
meet the code section requirements. Contributions made to
the organizations by individual donors are no longer deductible under IRC 170(b)(1)(A).

INCOME TAX
REG-120653-22, page 640.

These proposed regulations implement the advanced
manufacturing investment credit, a new current year business tax credit under section 48D of the Internal Revenue
Code established by the CHIPS Act of 2022 to incentivize
the manufacture of semiconductors and semiconductor
manufacturing equipment within the United States. The
regulations address the credit’s eligibility requirements, an
election that eligible taxpayers may make to be treated as
making a payment of tax (including an overpayment of tax),
or for an eligible partnership or S corporation to receive

an elective payment, instead of claiming a credit, and a
special 10-year credit recapture rule that applies if there is
a significant transaction involving the material expansion of
semiconductor manufacturing capacity in a foreign country
of concern.

Rev. Rul. 2023-7, page 633.

Fringe benefits aircraft valuation formula. For purposes of
section 1.61-21(g) of the Income Tax Regulations, relating
to the rule for valuing non-commercial flights on employer-provided aircraft, the Standard Industry Fare Level (SIFL)
cents-per-mile rates and terminal charge in effect for the
first half of 2023 are set forth.

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.

April 10, 2023 

Bulletin No. 2023–15

Part I
Section 61. Gross Income
Defined
26 CFR 1.61-21: Taxation of Fringe Benefits

Rev. Rul. 2023-7
For purposes of the taxation of fringe
benefits under section 61 of the Internal

Period During Which
the Flight Is Taken

Revenue Code, section 1.61-21(g) of the
Income Tax Regulations provides a rule
for valuing noncommercial flights on
employer-provided aircraft. Section 1.6121(g)(5) provides an aircraft valuation
formula to determine the value of such
flights. The value of a flight is determined
under the base aircraft valuation formula
(also known as the Standard Industry Fare
Level formula or SIFL) by multiplying
the SIFL cents-per-mile rates applicable
Terminal
Charge

for the period during which the flight was
taken by the appropriate aircraft multiple
provided in section 1.61-21(g)(7) and then
adding the applicable terminal charge. The
SIFL cents-per-mile rates in the formula
and the terminal charge are calculated by
the Department of Transportation (DOT)
and are reviewed semi-annually.
The following chart sets forth the terminal charge and SIFL mileage rates:

SIFL Mileage
Rates

1/1/23 - 6/30/23
$52.35

Up to 500 miles
= $.2864 per mile

501-1500 miles
= $.2183 per mile

Over 1500 miles
= $.2099 per mile

DRAFTING INFORMATION
The principal author of this revenue ruling is Kathleen Edmondson of the Office

Bulletin No. 2023–15

of Associate Chief Counsel (Employee
Benefits, Exempt Organizations and
Employment Taxes). For further information regarding this revenue ruling, contact

633

Ms. Edmondson at (202) 317-6798 (not a
toll-free number).

April 10, 2023

Part III
Treatment of certain
nonfungible tokens as
collectibles
Notice 2023-27
SECTION 1. PURPOSE
This notice announces that the
Department of the Treasury (Treasury
Department) and the Internal Revenue Service (IRS) intend to issue guidance related
to the treatment of certain nonfungible
tokens (NFTs) as collectibles under section 408(m) of the Internal Revenue Code
(Code). This treatment is also relevant for
other purposes of the Code, including the
long-term capital gains tax rate under section 1(h). This notice also describes how
the IRS intends to determine whether an
NFT constitutes a collectible under section 408(m) (a section 408(m) collectible),
pending the issuance of that guidance.
This notice requests comments generally on the treatment of NFTs as a
section 408(m) collectible, as well as
comments on the questions listed in section 3 of this notice. Comments received
in response to this notice will help to
inform the development of guidance
regarding the treatment of an NFT as a
section 408(m) collectible.
SECTION 2. BACKGROUND
A. NFTs, distributed ledger technology,
and digital files
An NFT is a unique digital identifier
that is recorded using distributed ledger
technology and may be used to certify
authenticity and ownership of an associated right or asset. Ownership of an NFT
may provide the holder a right with respect

to a digital file (such as a digital image,
digital music, a digital trading card, or a
digital sports moment)1 that typically is
separate from the NFT. Alternatively, NFT
ownership may provide the holder a right
with respect to an asset that is not a digital file, such as a right to attend a ticketed
event, or certify ownership of a physical
item. For purposes of this notice, the right
that an NFT provides or the ownership of
an asset that an NFT certifies is referred to
as the NFT’s associated right or asset.
Distributed ledger technology, such as
blockchain technology, uses independent
digital systems to record, share, and synchronize transactions, the details of which
are recorded simultaneously on multiple
nodes in a network. A token is an entry
of data encoded on a distributed ledger. A
distributed ledger can be used to identify
ownership of both fungible tokens (such
as cryptocurrency, as described in Rev.
Rul. 2019-24, 2019-44 IRB 1004) and
NFTs.
B. Treatment of a section 408(m)
collectible within certain retirement
accounts
Section 408(m)(1) provides that the
acquisition by an individual retirement
account (IRA) of a collectible shall be
treated as a distribution from the IRA
equal to the cost to the IRA of the collectible.2 Section 408(m)(1) also provides that
the acquisition by an individually directed
account under a qualified plan under section 401(a) of a collectible shall be treated
as a distribution from the account equal to
the cost to the account of the collectible.3
Section 408(m)(2) provides that, “[f]or
purposes of this subsection, the term
‘collectible’ means(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,

(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property
specified by the Secretary for purposes of
this subsection.”
Section 408(m)(3) provides that certain
coins and bullion are excluded from the
definition of collectible.
C. Applicability of the section 408(m)
collectible definition for items subject to
section 1(h) and for other purposes of the
Code
Whether an asset is a section 408(m)
collectible is also relevant for other sections of the Code. For example, under
section 1(h)(4) and (5), the sale or
exchange of a collectible (as defined in
section 408(m), but including the coins
and bullion otherwise excepted from that
definition under section 408(m)(3)) that
is a capital asset held for more than one
year is subject to a maximum 28% capital gains tax rate (while an asset that is
not a collectible is generally subject to a
lower maximum long-term capital gains
tax rate).
The definition of collectible under
section 408(m) is also relevant to section
45D (new markets tax credit), section
1397C (enterprise zone business defined),
Treas. Reg. § 301.6111-1T, Q&As-24
and -57E (tax shelter registration), and
Notice 2004-50, 2004-2 CB 196, Q&A65 (regarding permissible investments for
health savings accounts).
SECTION 3. DETERMINATIONS
PENDING FURTHER GUIDANCE
AND REQUEST FOR COMMENTS
The Treasury Department and the
IRS intend to issue guidance regarding
the treatment of certain NFTs as section
408(m) collectibles.

1
A digital file is not the same as a digital asset, as defined in section 6045(g). For purposes of reporting by brokers under section 6045(g), a digital asset is defined as, except as provided by
the Secretary, any digital representation of value that is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.
2
In addition to the section 408(m) deemed distribution treatment, if an NFT constitutes a collectible, other issues may arise from the acquisition of the NFT by an IRA resulting in adverse
tax consequences for the IRA owner (for example, it would be a prohibited transaction if an IRA owner who is a disqualified person under section 4975(e)(2) deals with the NFT’s associated
right or asset in the owner’s own interest).
3
This notice does not address the fiduciary duty and related provisions applicable to investments in NFTs, cryptocurrency, or other digital assets, by or through a retirement plan covered by
Title I of the Employee Retirement Income Security Act of 1974 (ERISA). The U.S. Department of Labor has jurisdiction over ERISA’s fiduciary provisions. See, e.g., Compliance Assistance
Release No. 2022-01, 401(k) Plan Investments in “Cryptocurrencies,” U.S. Department of Labor, Employee Benefits Security Administration (March 10, 2022) (available at www.dol.gov/
agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/compliance-assistance-releases).

April 10, 2023

634

Bulletin No. 2023–15

Pending the issuance of that guidance,
the IRS intends to determine whether an
NFT constitutes a section 408(m) collectible by analyzing whether the NFT’s
associated right or asset is a section
408(m) collectible (referred to in this
notice as the “look-through analysis”).
Under the look-through analysis, an NFT
constitutes a section 408(m) collectible
if the NFT’s associated right or asset is
a section 408(m) collectible. For example, a gem is a section 408(m) collectible
under section 408(m)(2)(C), and therefore
an NFT that certifies ownership of a gem
constitutes a section 408(m) collectible.
Similarly, an NFT does not constitute a
section 408(m) collectible if the NFT’s
associated right or asset is not a section
408(m) collectible. For example, a right to
use or develop a “plot of land” in a virtual environment generally is not a section
408(m) collectible, and therefore, an NFT
that provides a right to use or develop the
“plot of land” in the virtual environment
generally does not constitute a section 408(m) collectible.
Applying the look-through analysis to
an NFT if its associated right or asset is a
digital file raises the question as to whether
the digital file constitutes a “work of art”
under section 408(m)(2)(A) (in which
case, the NFT would be a section 408(m)
collectible). The Treasury Department
and the IRS are considering the extent to
which a digital file may constitute a “work
of art” under section 408(m)(2)(A).4
The Treasury Department and the IRS
request comments on any aspect of NFTs
that might affect the treatment of an NFT
as a section 408(m) collectible. In particular, the Treasury Department and the IRS
request comments on the following:
1. Does this notice provide an accurate
definition of an NFT or are there other
definitions of NFTs that should be
used in future guidance?
2. With respect to the look-through
analysis—
a) Are there instances in which
there are concerns with applying the analysis and in which an
alternate analysis may be more
appropriate?

b) What burdens does the analysis
impose?
c) How might the analysis be
applied to an NFT with more
than one associated right or asset
(for example, if one of the associated rights or assets of an NFT
is a section 408(m) collectible
but another one is not a section
408(m) collectible)?
d) How might the potential for
the owner of an NFT to receive
additional rights or assets (such
as additional NFTs) due to ownership of the NFT (even in the
absence of a specific contractual
right under the NFT) be treated?
3. Are there other factors to consider
when determining whether an NFT
is a section 408(m) collectible? For
example –
a) What factors might be considered to determine whether a
digital file constitutes a “work of
art” under section 408(m)(2)(A)?
b) What factors might be used to
determine whether an asset is
“tangible personal property”
under section 408(m)(2)(F), particularly in the context of digital
files?
c) What factors might be relevant if
the NFT’s associated right is less
than full ownership of an asset
(for example, if the associated
right is simply personal use of a
digital file)?
4. Does the application of section
408(m) to an individually directed
account under a qualified plan raise
any issues other than those raised for
individual retirement accounts?
5. What other guidance relating to NFTs
would be helpful?
Comments should be submitted in
writing on or before June 19, 2023, and
should include a reference to Notice
2023-27. Comments may be submitted
electronically via the Federal eRulemaking Portal at www.regulations.gov (type
“Notice 2023-27” in the search field on
the Regulations.gov home page to find
this notice and submit comments). Alter-

natively, comments may be submitted by
mail to:
Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2023-27),
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044.
The Treasury Department and the IRS
will publish for public availability any
comment submitted electronically or on
paper to its public docket.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Patrick Gutierrez of the Office of Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
this notice, contact Mr. Gutierrez at (202)
317-4148 (not a toll-free number).

Extension of Temporary
Relief Related to the
Penalty for Failure to
Deposit Superfund
Chemical Taxes
Notice 2023-28
SECTION 1. PURPOSE
This notice extends temporary relief
provided in Notice 2022-15, 2022-18
I.R.B. 1043, regarding deposits of the
excise tax imposed on certain chemicals
under § 4661 of the Internal Revenue
Code (Code)1 and the excise tax imposed
on certain imported chemical substances
under § 4671 (collectively, Superfund
chemical taxes). This notice extends the
temporary relief provided in section 3(a)
of Notice 2022-15 related to the failure to
deposit penalty imposed by § 6656. The
extended relief is available in connection
with deposits of the Superfund chemical
taxes for semimonthly periods in the sec-

The Treasury Department and the IRS currently believe that digital files are not included under any of the categories listed in section 408(m)(2)(B)-(E) (any rug, antique, metal, gem, stamp,
coin, or alcoholic beverage).
1
Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Excise Tax Procedural Regulations (26 CFR part 40).
4

Bulletin No. 2023–15

635

April 10, 2023

ond, third, and fourth calendar quarters of
2023.
This notice also extends the temporary
relief provided in section 3(b) of Notice
2022-15 related to the authority of the
Internal Revenue Service (IRS) to withdraw a taxpayer’s right to use the deposit
safe harbor rules of § 40.6302(c)-1(b)(2),
through the second calendar quarter of
2024.
SECTION 2. BACKGROUND
Section 2(b) of Notice 2022-15 notes
that a taxpayer may avoid penalties under
§ 6656 for underpayment of deposits of
the Superfund chemical taxes if the taxpayer makes an affirmative showing that
such failure is due to reasonable cause
and not due to willful neglect (reasonable
cause standard).
Section 3(a) of Notice 2022-15 provides temporary relief regarding the
failure to deposit penalty imposed by
§ 6656 as the penalty relates to the Superfund chemical taxes. Specifically, section
3(a) of Notice 2022-15 provides that for
semimonthly periods in the third and
fourth calendar quarters of 2022 and the
first calendar quarter of 2023, a taxpayer
owing Superfund chemical taxes will be
deemed to have satisfied the reasonable
cause standard and no penalty under
§ 6656 for failure to deposit Superfund
chemical taxes will be imposed if (i) the
taxpayer makes timely deposits of applicable Superfund chemical taxes, even
if the deposit amounts are computed
incorrectly, and (ii) the amount of any
underpayment of the applicable Superfund chemical taxes for each calendar
quarter is paid in full by the due date for
filing the Form 720, Quarterly Federal
Excise Tax Return (Form 720 return), for
that calendar quarter.
Section 2(c) of Notice 2022-15 notes
that the deposit safe harbor rules of
§ 40.6302(c)-1(b)(2) require a second
preceding calendar quarter (look-back
quarter) in which the same taxes are
imposed to determine deposit amounts in
the current calendar quarter.
Section 3(b) of Notice 2022-15 provides that during the first, second, and
third calendar quarters of 2023, the IRS
1

will not exercise its authority under
§ 40.6302(c)-1(b)(2)(v) to withdraw a taxpayer’s right to use the deposit safe harbor
rules of § 40.6302(c)-1(b)(2) for failure
to make required deposits if the requirements of section 3(a) of Notice 2022-15
are met for the look-back quarter at issue.
SECTION 3. EXTENSION OF
RELIEF REGARDING § 6656
PENALTY
(a) Extension of deemed satisfaction of
reasonable cause standard.
For semimonthly periods in the second, third, and fourth calendar quarters of
2023, a taxpayer owing Superfund chemical taxes will be deemed to have satisfied
the reasonable cause standard and no penalty under § 6656 for failure to deposit
Superfund chemical taxes will be imposed
if (i) the taxpayer makes timely deposits
of applicable Superfund chemical taxes,
even if the deposit amounts are computed
incorrectly, and (ii) the amount of any
underpayment of the applicable Superfund
chemical taxes for each calendar quarter is
paid in full by the due date for filing the
Form 720 return for that calendar quarter.
(b) Extension of non-exercise of authority to withdraw use of deposit safe harbor.
During the fourth calendar quarter of
2023 and the first and second calendar
quarters of 2024, the IRS will not exercise
its authority under § 40.6302(c)-1(b)(2)(v)
to withdraw a taxpayer’s right to use the
deposit safe harbor of § 40.6302(c)-1(b)
(2) due to a failure to make deposits of
Superfund chemical taxes as required,
provided the taxpayer satisfies the requirements of section 3(a) of this notice for the
look-back quarter at issue.
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Camille Edwards Bennehoff of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). For questions
regarding this notice, contact Ms. Edwards
Bennehoff at (202) 317-6855 (not a tollfree number).
26 CFR 601.601: Rules and Regulations.

(Also Part I, §§ 4672; 52.0-1.)

Rev. Proc. 2023-20
SECTION 1. PURPOSE
This revenue procedure modifies the
effective date of additions to the list of
taxable substances under § 4672(a) of
the Internal Revenue Code1 (List). Specifically, this revenue procedure modifies
paragraphs (1) and (3) of section 11.02 of
Rev. Proc. 2022-26, 2022-29 I.R.B. 90, to
change the date on which substances are
added to the List for purposes of refund
claims under § 4662(e). This revenue procedure also modifies section 11.03 of Rev.
Proc. 2022-26 for petitions received by the
Internal Revenue Service (IRS) between
July 1, 2022, and December 31, 2022,
but not accepted by the IRS until after
December 31, 2022. In addition, this revenue procedure adds a new section 11.04 to
Rev. Proc. 2022-26 for petitions received
by the IRS after December 31, 2022.
SECTION 2. BACKGROUND
.01 Procedure for requesting a determination under § 4672(a)(2). Rev. Proc.
2022-26 provides the exclusive procedures for requesting a determination under
§ 4672(a)(2) that a substance be added to
or removed from the List. An importer
or exporter of any substance, or an interested person (any person other than an
importer or exporter of such substance),
may request to add such substance to the
List or remove such substance from the
List by submitting a petition to the IRS in
accordance with sections 5 and 6 of Rev.
Proc. 2022-26.
.02 Time frame for making determinations under § 4672(a)(2); filing date of
petitions. The last sentence of § 4672(a)(2)
provides that if an importer or exporter of
any substance requests that the Secretary
of the Treasury or her delegate (Secretary)
determine that such substance be added to
or removed from the List, the Secretary
must make that determination within 180
days after the date the request was filed.
Section 5.02 of Rev. Proc. 2022-26 provides that a petition is considered “filed”
for purposes of the 180-day determination

Unless otherwise specified, all “section” or “§” references are to sections of the Internal Revenue Code.

April 10, 2023

636

Bulletin No. 2023–15

period only when it is accepted by the
IRS. Section 5.03 of Rev. Proc. 2022-26
provides that the filing date of the petition
is the date of the acknowledgment letter
from the IRS accepting the petition.
.03 Date a substance is added to the
List for purposes of § 4662(e) claims for
refund. Under section 11.02(1) of Rev.
Proc. 2022-26, if the Secretary makes
a determination to add a substance to
the List and that substance is exported,
for purposes of claims for refund under
§ 4662(e), that substance is deemed to
have been added to the List as of the date
the petition was filed. As a result, a person that paid the § 4661(a) tax to the IRS
on taxable chemicals used in the production of a substance that was exported on
or after the filing date of the petition may
be entitled to a refund if a determination
is ultimately made to add the substance
to the List. Section 4662(e)(2) provides
that a refund is available to the person that
paid the tax if the person establishes that it
has repaid or agreed to repay the amount
of the tax to the exporter of the taxable
substance or has obtained the written
consent of the exporter to the making of
the refund. Under certain circumstances,
§ 4662(e)(3) allows the exporter of the
taxable substance to claim the refund
if the person that paid the tax waives its
claim to the amount of the refund.
.04 Retroactive effect of determinations
on claims for refund under § 4662(e). For
purposes of the retroactive effect of determinations on § 4662(e) refund claims,
section 11.03 of Rev. Proc. 2022-26 deems
any petition that was both submitted by an
importer or exporter and accepted by the
IRS between July 1, 2022, and December
31, 2022, as filed on July 1, 2022.
.05 Reasons for modifications to Rev.
Proc. 2022-26. The Department of the
Treasury and the IRS have determined that
it is appropriate to modify certain aspects
of Rev. Proc. 2022-26 related to refund
claims under § 4662(e), in the interest
of sound tax administration. Specifically,
the modifications to paragraphs (1) and
(3) of section 11.02 of Rev. Proc. 202226, and the addition of new section 11.04,
make refund claims more administrable
by tying the effective date of additions
of substances to the List to the first day
of a calendar quarter. The modification
to section 11.03 of Rev. Proc. 2022-26

Bulletin No. 2023–15

expands the scope of that section so that
it applies to petitions received by the IRS
by December 31, 2022, without regard to
whether they are accepted by the IRS by
that date.
SECTION 3. MODIFICATIONS TO
SECTION 11 OF REV. PROC. 2022-26
.01 Section 11.02(1) of Rev. Proc. 202226 is modified to read as follows:
(1) If the Secretary makes a determination to add a substance to the List
and that substance is exported, for purposes of claims for refund, that substance
is deemed to have been added to the
List as of (i) the first day of the calendar quarter during which the petition is
filed (in the case of a petition submitted
by an interested person), or (ii) the day
on which the petition is deemed filed in
accordance with section 11.03 or 11.04
of this revenue procedure (in the case of
a petition submitted by an importer or
exporter). As a result, a person that paid
the § 4661(a) tax to the IRS on taxable
chemicals used in the production of a
substance that was exported on or after
the day the substance is deemed to have
been added to the List may be entitled to
a refund if a determination is ultimately
made to add the substance to the List. A
refund is available to the person that paid
the tax if the person establishes that it
has repaid or agreed to repay the amount
of the tax to the exporter of the taxable
substance or has obtained the written
consent of the exporter to the making of
the refund. See § 4662(e)(2). Under certain circumstances, the exporter of the
taxable substance may claim the refund
if the person that paid the tax waives its
claim to the amount of the refund. See
§ 4662(e)(3).
.02 Section 11.02(3) of Rev. Proc. 202226 is modified to read as follows:
(3) Refunds of tax related to a substance for which a petition is pending
are available only for exports made on
or after (i) the first day of the calendar quarter during which the petition is
filed (in the case of a petition submitted
by an interested person), or (ii) the day
on which the petition is deemed filed in
accordance with section 11.03 or 11.04
of this revenue procedure (in the case of
a petition submitted by an importer or

637

exporter), and only if a determination is
ultimately made to add the substance to
the List. In addition, a refund of tax is
available only if the claim is filed within
the statutory period of limitation.
.03 Section 11.03 of Rev. Proc. 2022-26
is modified to read as follows:
.03 Petitions received between July
1, 2022, and December 31, 2022. The
Treasury Department and the IRS recognize the short time frame between the
issuance of guidance regarding the procedure for requesting a determination under
§ 4672(a)(2) and the reinstatement of the
Superfund chemical taxes. If certain substances are listed as taxable substances
under § 4672(a) at the time of export,
then § 4662(e) allows the taxpayer or
exporter to claim a credit or refund of the
tax paid under § 4661(a) with respect to
the taxable chemicals used in the production of the exported taxable substance. In
consideration of this issue, the Treasury
Department and the IRS have determined
that for purposes of section 11.02 of this
revenue procedure, it is in the interest of
sound tax administration to deem any petition submitted by an importer or exporter
that is received by the IRS between July
1, 2022, and December 31, 2022, and subsequently accepted by the IRS, as filed on
July 1, 2022. However, for purposes of
the time frame within which the Secretary
must make a determination, a petition submitted by an importer or exporter will be
considered filed on the date it is accepted
by the IRS as described in section 5.02 of
this revenue procedure.
.04 Section 11 of Rev. Proc. 2022-26 is
modified by adding new section 11.04 to
read as follows:
.04 Petitions received after December
31, 2022. For purposes of section 11.02
of this revenue procedure, the Treasury
Department and the IRS have determined
that it is in the interest of sound tax administration to deem any petition submitted
by an importer or exporter that is received
by the IRS after December 31, 2022, and
subsequently accepted by the IRS, as filed
on the first day of the calendar quarter
during which the petition was received.
However, for purposes of the time frame
within which the Secretary must make a
determination, a petition submitted by an
importer or exporter will be considered
filed on the date it is accepted by the IRS

April 10, 2023

as described in section 5.02 of this revenue procedure.

SECTION 5. DRAFTING
INFORMATION

SECTION 4. EFFECT ON OTHER
DOCUMENTS

The principal authors of this revenue
procedure are Amanda F. Dunlap and
Michael H. Beker of the Office of Associate Chief Counsel (Passthroughs & Special
Industries). For legal questions regarding

Rev. Proc. 2022-26 is modified.

April 10, 2023

638

this revenue procedure, contact Ms. Dunlap or Mr. Beker at (202) 317-6855 (not a
toll-free number). For questions regarding
submitting a petition, please contact Alan
Anderson at (503) 265-3736 (not a tollfree number).

Bulletin No. 2023–15

Part IV
Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code
Announcement 2023-09
Table of Contents
The Internal Revenue Service has
revoked its determination that the
organizations listed below qualify as organizations described in sections 501(c)(3)
and 170(c)(2) of the Internal Revenue
Code of 1986.

Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not precluded from disallowing a deduction for
any contributions made after an organization ceases to qualify under section 170(c)
(2) if the organization has not timely filed
a suit for declaratory judgment under section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.

NAME OF ORGANIZATION
Teachers Organizing Property Inc
Next Level Foundation
LWL Foundation
Maxcess Foundation Inc
Matthew Kull Foundation for Healing
A 2nd Cup
Atchafalya Bit & Bridle Club Inc
FCPA Community Outreach
FL-AL Toy Breeds Inc
Goff Moll Post Building Association
Hawaii Coral Reef and Garden

Bulletin No. 2023–15

639

If on the other hand a suit for declaratory judgment has been timely filed,
contributions from individuals and organizations described in section 170(c)(2)
that are otherwise allowable will continue to be deductible. Protection under
section 7428(c) would begin on April
10, 2023 and would end on the date the
court first determines the organization is
not described in section 170(c)(2) as more
particularly set for in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a husband and wife treated as one contributor.
This benefit is not extended to any individual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.

Effective Date of
Revocation

LOCATION

12/29/2017
1/1/2019
12/1/2018
1/1/2018
1/1/2018
1/1/2019
1/1/2020
1/1/2020
1/1/2020
9/1/2019
10/7/2019

Greenville, MS
Las Vegas, NV
Danville, CA
Boca Raton, FL
New Milford, CT
Houston, TX
Houston, TX
Shelton, CT
Theodore, AL
Brentwood, MO
Sparks, NV

April 10, 2023

Advanced Manufacturing
Investment Credit
REG-120653-22
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed 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
regulations address the credit’s eligibility
requirements, an election that eligible taxpayers may make to be treated as making
a payment of tax (including an overpayment of tax), or for an eligible partnership
or S corporation to receive an elective
payment, instead of claiming a credit,
and a special 10-year credit recapture rule
that applies if there is a significant transaction involving the material expansion
of semiconductor manufacturing capacity in a foreign country of concern. This
document also requests comments on the
proposed regulations, including the definition of the term “semiconductor.” These
proposed regulations affect taxpayers that
claim the advanced manufacturing investment credit or instead make an elective
payment election.
DATES: Written or electronic comments
and requests for a public hearing must be
received by May 22, 2023. Requests for a
public hearing must be submitted as prescribed in the “Comments and Requests
for a Public Hearing” section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic submissions via the Federal eRulemaking Portal
at www.regulations.gov (indicate IRS and
REG-120653-22) by following the online
instructions for submitting comments.
Once submitted to the Federal eRulemaking Portal, comments cannot be edited or
withdrawn. The Department of the Treasury (Treasury Department) and the IRS

April 10, 2023

will publish for public availability any
comments submitted electronically and
comments submitted on paper to its public docket. Send hard copy submissions
to: CC:PA:LPD:PR (REG-120653-22),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Jason P. Deirmenjian of
the Office of Associate Chief Counsel
(Passthroughs and Special Industries),
(202) 317-4137 (not a toll-free number);
concerning submissions of comments and
requests for a public hearing, call Vivian
Hayes (202-317-5306) (not a toll-free
number) or by email to publichearings@
irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Income Tax Regulations (26 CFR part 1) under section 48D
of the Internal Revenue Code (Code).
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
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.
The amount of the section 48D credit
allowable to a taxpayer for any taxable
year is generally an amount equal to
25 percent of the basis of any qualified
property that is part of an eligible taxpayer’s advanced manufacturing facility
if the qualified property is placed in service during such taxable year and after
December 31, 2022. See section 48D(a),
and (b)(1) of the Code and section 107(f)
(1) of the CHIPS Act. However, section
48D(e) provides that the section 48D
credit does not apply to property the construction of which begins after December
31, 2026. In addition, in the case of any
qualified property placed in service after
December 31, 2022, but the construction of which began prior to January 1,

640

2023, the section 48D credit is available
only to the extent of the basis of qualified
property 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 portion of the basis
of any such property that is attributable to
qualified rehabilitation expenditures (as
defined in section 47(c)(2) of the Code) in
determining the rehabilitation credit under
section 47 is excluded from a taxpayer’s
qualified investment with respect to any
advanced manufacturing facility for any
taxable year.
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 § 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. See section 48D(c).
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. 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(d)(1) allows a taxpayer
to elect to treat the section 48D credit

Bulletin No. 2023–15

determined for the taxpayer for a taxable
year as a payment against the tax imposed
by subtitle A of the Code (that is, treated
as a payment of Federal income tax)
equal to the amount of the credit rather
than a credit against the taxpayer’s Federal income tax liability for that taxable
year (elective payment election). Section
48D(d)(2) provides special rules relating
to an elective payment election made for
(A) property held directly by a partnership
(within the meaning of section 761(a) of
the Code) or an S corporation (as defined
in section 1361(a)(1) of the Code) in
which the partnership or S corporation
actually receives a payment rather than
a credit, (B) the period during which an
elective payment election can be made,
(C) the timing of the elective payment,
(D) appropriations for making elective
payments to partnerships and S corporations, (E) authority of the Secretary of the
Treasury or her delegate (Secretary) to
require additional information or registration of taxpayers, and (F) repayment of an
excessive elective payment, plus a penalty
of an amount equal to 20 percent of such
excessive payment. Section 48D(d)(3)
provides that the section 48D credit is zero
for a taxpayer making an elective payment
election.
Section 48D(d)(4) provides that the
elective payment election will not be
treated as part of the income tax laws of
any U.S. territory with a mirror code tax
system (as defined in section 24(k) of
the Code) unless the U.S. territory elects
to have the elective payment election
apply under its income tax laws. Under
section 48D(d)(5), basis reduction and
recapture rules similar to the rules of
section 50(a) and (c) of the Code apply
with respect to amounts treated as paid
or actually received by a taxpayer under
an elective payment election. Finally, section 48D(d)(6) authorizes the Secretary to
issue regulations or other guidance determined to be necessary or appropriate to
carry out the elective payment election
provisions of section 48D(d), including
(A) regulations or other guidance providing rules for determining a partner’s
distributive share of deemed tax-exempt
income, and (B) guidance to ensure that
the amount treated as a payment made
or the payment received by a taxpayer
is commensurate with the amount of the

Bulletin No. 2023–15

section 48D credit that generally would be
otherwise allowable (determined without
regard to section 38(c)).
Pursuant to section 107(c) of the
CHIPS Act, payments made to a partnership or S corporation pursuant to the
elective payment election, as well as
amounts treated as payments against tax
by taxpayers making an elective payment
election, are exempt from reduction under
any sequestration order issued under the
Balanced Budget and Emergency Deficit
Control Act of 1985 (2 U.S.C. 900 et seq.)
on or after December 31, 2022.
Section 107(b) of the CHIPS Act added
new sections 50(a)(3) and (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
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),

641

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(7) 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). As discussed in
the Explanation of Provisions section of
this preamble, the proposed 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
and, consistent with statute, incorporate
definitional concepts as determined by
the Secretary of Commerce, which are
provided in proposed 15 CFR part 231, as
contained in the proposed rule, Preventing
the Improper Use of CHIPS Act Funding,
issued by the CHIPS Program Office,
National Institute of Standards and
Technology, Department of Commerce
(Commerce Proposed Rule). The Commerce Proposed Rule provides guardrails
to prevent the improper use of CHIPS Act
funding overseen by the Department of
Commerce.
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.
Explanation of Provisions
I. Advanced Manufacturing Investment
Credit Determined
The proposed regulations provide
rules for calculating the amount of a taxpayer’s qualified investment pursuant to
section 48D(b)(1), generally, and in the

April 10, 2023

context of certain passthrough entities.
Section 48D(b)(1) specifies that qualified
investment “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.” The
statute is silent as to manner in which a
taxpayer’s basis in qualified property is
allocated in the context of passthrough
entities. The proposed regulations clarify
that a partner’s share of basis in the qualified property of a partnership is determined
under the rules in §1.46-3(f). Section
1.46-3(f) contains rules for determining a
partner’s share of the qualified basis of a
partnership under the former investment
tax credit provisions (former sections
46(a) (amount of investment credit) and
(c) (qualified basis)). Under those regulations and consistent with section 48D(b)
(1), a partner is treated as the taxpayer
with respect to its share of the basis of the
partnership’s qualified property for calculating its qualified investment. A partner’s
share of the partnership’s basis generally
is determined in accordance with the ratio
in which the partners divide the general
profits of the partnership (that is, taxable
income of the partnership as described in
section 702(a)(8)).
The proposed regulations specify that
an S corporation must apportion the basis
of qualified property pro rata among its
shareholders. A shareholder is treated as
the taxpayer with respect to the shareholder’s share of basis in the qualified
property of the S corporation. The proposed regulations further specify that an
estate or trust must apportion the basis
of the estate or trust’s qualified property
among the estate or trust and its beneficiaries on the basis of the income of the
estate or trust allocable to each for that
taxable year. A beneficiary to which the
basis of qualified property is apportioned
is, for purposes of the section 48D credit,
treated as the taxpayer with respect to the
property. The proposed regulations are
consistent with the rules for allocating
basis with respect to an electing small
business corporation and estates and
trusts under §1.48-5 and §1.48-6, respectively, which contain rules for allocating
basis for purposes of former sections
48(e) and (f), respectively. Comments
are requested as to whether it would be
helpful for the final regulations or other

April 10, 2023

guidance to further address the manner
in which a taxpayer’s basis in qualified
property is allocated in the context of
passthrough entities.
Under section 48D(b)(5), “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).” The proposed regulations address a taxpayer’s
ability to make a qualified progress expenditure election, as provided in §1.46-5, to
increase its qualified investment by any
qualified progress expenditures, made
after December 31, 2022. Comments
are requested as to whether it would be
helpful for the final regulations or other
guidance to expand or clarify a taxpayer’s
ability to claim a section 48D credit for
qualified progress expenditures.
Section 48D(b)(4) excludes from qualified investment “that portion of the basis
of any property which is attributable to
qualified rehabilitation expenditures (as
defined in section 47(c)(2)).” The proposed regulations clarify that a taxpayer’s
qualified investment does not include the
amount of any capital expenditures that
meet the definition of a qualified rehabilitation expenditure.
II. Qualified Property
Section 48D(b)(2)(B)(ii) excepts from
the definition of qualified property “a
building, or a portion of a building, used
for offices, administrative services, or
other functions unrelated to manufacturing.” The proposed regulations clarify that
human resources or personnel services,
payroll services, legal and accounting
services, and procurement services; sales
and distribution functions; and security
services (not including cybersecurity
operations) are among functions unrelated
to manufacturing semiconductors or semiconductor manufacturing equipment.
Under section 48D(b)(2)(A)(iii)(II), the
term “qualified property” means property
acquired by the taxpayer if the original
use of such property commences with the
taxpayer. The proposed regulations define
the term “original use” generally as the
first use to which the property is put by
any taxpayer in connection with a trade or
business or for the production of income.

642

In addition, the proposed regulations add
rules related to the definition of “original
use” for inventory.
Under section 48D(b)(2)(A)(iv) property must be “integral to the operation of
the advanced manufacturing facility” to
meet the definition of qualified property.
The proposed regulations specify that
property is integral to the manufacturing of semiconductors or semiconductor
manufacturing equipment if it is used
directly in the manufacturing operation
and is essential to the completeness of
the manufacturing operation. The proposed regulations further specify that
property, including a building and its
structural components, that constitutes a
research or storage facility may qualify as
integral to the operation of an advanced
manufacturing facility if the property is
used in connection with the manufacturing of semiconductors or semiconductor
manufacturing equipment. Conversely, a
research facility that does not manufacture
any type of semiconductors or semiconductor manufacturing equipment does not
qualify.
III. Advanced Manufacturing Facility
Section 48D(b)(3) provides that an
advanced manufacturing facility must be
a “facility for which the primary purpose
is the manufacturing of semiconductors
or semiconductor manufacturing equipment.” The proposed regulations explain
that the determination of whether the primary purpose of a facility is manufacturing
finished semiconductors or manufacturing
finished semiconductor manufacturing
equipment will be made based on all the
facts and circumstances and list certain
facts and circumstances relevant to this
test. The proposed regulations make clear
that a facility that manufactures, produces,
grows, or extracts materials or chemicals
that are supplied to an advanced manufacturing facility that manufactures
semiconductors, or semiconductor manufacturing equipment, does not meet the
primary purpose requirement.
The proposed regulations also define
the terms “semiconductor manufacturing”
or “manufacturing of semiconductors”
and “manufacturing of semiconductor
manufacturing equipment” for purposes
of section 48D.

Bulletin No. 2023–15

The Treasury Department and the
IRS specifically request comments on
the scope of the definition in proposed
§1.48-2(k) of the term “semiconductor.”
Specifically, comments are requested as
to whether this term, for purposes of the
section 48D credit, should include semiconductive substances—materials with
electronic properties controllable by the
addition of, typically small, quantities of
specific elements or dopants—on which
an electronic device or system is manufactured, such as, but not limited to
polysilicon and compound semiconductor
wafers. If so, commenters are requested to
explain in detail what principle, standard,
or parameters could be incorporated in a
definition of the term “semiconductor” so
as to prevent extending the definition of
that term to also include other materials
and supplies used in the manufacture of
finished semiconductors.
IV. Beginning of Construction
The proposed regulations provide
guidance regarding the beginning of construction requirement for purposes of the
effective date provision in section 107(f)
(1) of the CHIPS Act, and the credit termination rule in section 48D(e). The
proposed regulations specify that a taxpayer can establish that construction of a
property has begun by meeting the Physical Work Test or the Five Percent Safe
Harbor, as that test and safe harbor are
described in the proposed regulation. The
proposed regulations define what is considered the unit of property for purposes
of determining the beginning of construction under section 48D(e). Solely
for purposes of determining whether
construction of a property has begun for
purposes of section 48D and the section
48D regulations, multiple items of qualified property or advanced manufacturing
facilities that are operated as part of a
single advanced manufacturing facility project are treated as a single item
of property. Whether multiple qualified
properties or advanced manufacturing
facilities are operated as part of a single
advanced manufacturing facility project will depend on all the relevant facts
and circumstances. Thus, whether the
beginning of construction requirement is
satisfied with respect to any item of prop-

Bulletin No. 2023–15

erty generally is determined based on the
date construction of the item of property
began, or the date construction of the
single advanced manufacturing facility
project that the item is part of began.
In addition, the proposed regulations
further explain that under either the
Physical Work Test or the Five Percent
Safe Harbor, a taxpayer must meet the
Continuity Requirement, as described
in the proposed regulation, to establish
the beginning of construction. For this
requirement, a taxpayer must demonstrate
that either continuous construction or continuous efforts have occurred. Whether a
taxpayer meets the Continuity Requirement under either test is determined by all
the relevant facts and circumstances. The
IRS will closely scrutinize a unit of property and may determine that the beginning
of construction is not satisfied with respect
to property if a taxpayer does not meet the
Continuity Requirement.
Finally, section 1 of Executive Order
14080 of August 25, 2022 (E.O. 14080),
Implementation of the CHIPS Act of 2022
(87 FR 52847), states that the policy
underlying the CHIPS Act (which established the section 48D credit) is, in part,
to “make transformative investments to
restore and advance our Nation’s leadership in the research, development, and
manufacturing of semiconductors” and to
“bolster United States technology leadership; and reduce our dependence on
critical technologies from China and other
vulnerable or overly concentrated foreign
supply chains.” In this regard, section
2 of E.O. 14080 directs, in part, that in
implementing the CHIPS Act, as appropriate, and to the extent consistent with
the law, the Treasury Department and the
IRS prioritize, economic, sustainability,
and national security needs, by building
domestic manufacturing capacity that
reduces reliance on vulnerable or overly
concentrated foreign production for both
leading-edge and mature microelectronics, and ensuring long-term United States
leadership in the microelectronics sector. Given the critical national security
and foreign policies of the United States
that the section 48D credit, as part of the
CHIPS Act, is intended to achieve, the
Department of the Treasury and the IRS
have determined that it is appropriate for
the proposed regulations to provide an

643

extended safe harbor for satisfying the
Continuity Requirement in this unique
case. Under the safe harbor provided in
proposed §1.48D-5(e)(6), a taxpayer is
deemed to satisfy the Continuity Requirement provided the property is placed in
service no more than 10 calendar years
after the date that the Physical Work Test
or the Five Percent Safe Harbor is first
satisfied with respect to that item of property or the single advanced manufacturing
facility project that the item of property is
part of.
V. Elective Payment Election
Section 48D(d)(2)(A)(i) provides that,
in the case of a partnership or an S corporation that makes an election under
section 48D(d)(1) (in such manner as
the Secretary may provide) with respect
to the section 48D credit, “the Secretary
shall make a payment to such partnership
or S corporation equal to the amount of
such credit.” Comments are requested
on any guidance needed to determine the
extent to which, if any, other Code provisions that limit the amount of a credit to
a taxpayer, such as section 469 (passive
activity credits), section 49 (at-risk credit
rules), and section 50, may be applied to
limit the amount of the Secretary’s payment to the partnership or S corporation
pursuant to section 48D(d)(2)(A)(i)(I).
Comments are also generally requested on
the treatment of the Secretary’s payment
to the partnership or S corporation under
the provisions of subchapters K and S of
chapter 1, respectively.
Section 48D(d)(2)(E) provides that “as
a condition of, and prior to, any amount
being treated as a payment which is made
by the taxpayer under [section 48D(d)(1)]
or any payment being made pursuant to
[section 48D(d)(2)(A)(i)(I)], the Secretary
may require such information or registration as the Secretary deems necessary or
appropriate for purposes of preventing
duplication, fraud, improper payments or
excessive payments under [section 48D].”
The IRS intends to provide, through forms
and instructions, the procedures for registration of properties for which an election
under section 48D(d) will be made. Comments are requested on the registration
requirements and other procedures for
purposes of section 48D(d)(2)(E).

April 10, 2023

Section 48D(d)(2)(F)(i) provides that
in the case of an elective payment election,
that the Secretary determines constitutes
an excessive payment, the tax imposed
on such taxpayer by chapter 1 for the
taxable year in which such determination
is made will be increased by an amount
equal to the sum of (I) the amount of such
excessive payment, plus (II) an amount
equal to 20 percent of such excessive payment. Section 48D(d)(2)(F)(iii) defines an
excessive payment as “an amount equal to
the excess of—(I) the amount treated as
a payment under [section 48D(d)(1)], or
the amount of the payment made pursuant to [section 48D(d)(2)(A)], . . . over (II)
the amount of the credit which, without
application of this subsection, would be
otherwise allowable (determined without
regard to section 38(c)) under [section
48D(a)] with respect to such property
for such taxable year.” Comments are
requested on any guidance needed with
respect to the amount that “would be otherwise allowable” for purposes of section
48D(d)(2)(F)(iii)(II).
Section 48D(d)(5) provides that “rules
similar to the rules of [sections 50(a) and
(c)] shall apply with respect to – (A) any
amount treated as a payment which is made
by the taxpayer under [section 48D(d)
(1)], and (B) any payment made pursuant
to [section 48D(d)(2)(A)].” Comments
are requested on the guidance necessary
to clarify the rules that are similar to the
rules of sections 50(a) (investment credit
recapture in the case of dispositions, etc.)
and (c) (basis adjustment to investment
credit property) for purposes of section
48D(d)(5).
VI. Recapture in the Case of Certain
Expansions
The statutory applicable transaction recapture rule in section 50(a)(3) is
intended to dissuade an “applicable taxpayer” from engaging in an “applicable
transaction” after property qualifying for
a section 48D credit is placed in service.
Section 50(a)(6)(D) defines an applicable transaction to mean, 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 semi-

April 10, 2023

conductor manufacturing capacity of such
applicable taxpayer in a foreign country
of concern. The term “foreign country
of concern” is defined in section 9901(a)
(7) of the William M. (Mac) Thornberry
National Defense Authorization Act for
Fiscal Year 2021, as amended by section
103 of the CHIPS Act, to mean a country
that is a covered nation (as defined in section 4872(d) of title 10) and any country
that the Secretary of Commerce, in consultation with the Secretary of Defense,
the Secretary of State, and the Director
of National Intelligence, determines to be
engaged in conduct that is detrimental to
the national security or foreign policy of
the United States. The proposed regulations define a foreign country of concern
consistent with the statute. Additionally,
in coordination with the Secretary of
Commerce and the Secretary of Defense
and pursuant to the Secretary’s authority
under section 50(a)(6)(D)(i) to determine
whether transactions are significant transactions, the proposed regulations define
the term “significant transaction” to align
and harmonize the scope of applicable
transactions under section 50(a)(3) with
the scope of prohibited expansion transactions within the meaning of proposed
§231.202 (relating to the Prohibition on
Certain Expansion Transactions) as contained in the Commerce Proposed Rule.
Accordingly, proposed §1.50-2(b)(10)
defines the term “significant transaction” consistent with proposed §231.202
as contained in the Commerce Proposed
Rule to include certain transactions
engaged in by an applicable taxpayer
or an applicable taxpayer’s affiliates
(within the meaning of proposed §231.101
as contained in the Commerce Proposed
Rule).
Section 50(a)(6)(E) defines an applicable taxpayer to mean “any taxpayer
who has been allowed a credit under section 48D(a) for any prior taxable year.”
The proposed regulations provide that an
applicable taxpayer also includes (i) any
member of an affiliated group under section 1504(a) of the Code, determined
without regard to section 1504(b)(3) of
the Code, that includes a taxpayer who
has been allowed a credit under section
48D(a) for any prior taxable year, (ii) any
taxpayer who has made an election under
section 48D(d)(1), (iii) any partnership or

644

S corporation that has made an election
under section 48D(d)(2), and (iv) any partner in a partnership (directly or indirectly
through one or more tiered partnerships)
or shareholder in an S corporation for
which the entity has made an election
under section 48D(d)(2) with respect to a
credit determined under section 48D(a)(1)
for any taxable year prior to the taxable
year in which such entity entered into an
applicable transaction.
If an applicable taxpayer engages in an
applicable transaction before the close of
the 10-year period beginning on the date
such taxpayer placed in service any property eligible for the section 48D credit,
then the applicable taxpayer is subject to
an increase in tax under chapter 1 for the
taxable year in which the applicable transaction occurs, as provided in section 50(a)
(3). The proposed regulations generally
address the amount of recapture required
pursuant to section 50(a)(3). For example,
if a taxpayer claims a section 48D credit on
property it owns directly and also claims a
section 48D credit on property placed in
service by a partnership in which it is a
partner, and that taxpayer subsequently
enters into an applicable transaction
within 10 years of claiming those section
48D credits, then the proposed regulations
require that the taxpayer recapture all the
credits claimed (that is, credits for property
owned directly and through its investment
in the partnership). The proposed regulations provide for the same result if, instead
of the taxpayer entering into the applicable transaction, the partnership enters into
the applicable transaction. Comments are
requested on the appropriate amount of
recapture required in the context of partnerships and S corporations, including the
appropriateness of the recapture results in
the above examples.
As noted in the Background section
of this preamble, 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 providing for recordkeeping requirements or
information reporting for purposes of
administering the requirements of section 50(a)(3). The Treasury Department
and the IRS are considering proposing

Bulletin No. 2023–15

record retention and information reporting requirements for applicable taxpayers
in addition to those required under current law such that the IRS would have
sufficient knowledge regarding proposed
applicable transactions and applicable
transactions the taxpayer has engaged in.
For example, record retention or information reporting requirements may require
an applicable taxpayer to maintain records
or file information with the IRS related to
any proposed or planned significant transaction for a period not ending earlier than
the applicable period of limitations under
section 6501 of the Code on assessment
and collection of tax under chapter 1 with
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.
Additionally, the Treasury Department
and the IRS are considering information
reporting requirements that would require
notifying the IRS regarding any planned
significant transactions of the applicable
taxpayer involving the material expansion
of semiconductor manufacturing capacity
in a foreign country of concern, including
any transaction the applicable taxpayer
considers to be eligible for an exception
under section 50(a)(3) or proposed §1.502. For example, such requirements may
require the applicable taxpayer to report
accurate and complete information relating
to the applicable transaction, including: (i)
the name, employer identification number, and other identifying information
regarding the applicable taxpayer that is
proposing or engaging in a planned applicable transaction, and all other parties to
the applicable transaction; (ii) the name
and location of any business in a foreign
country of concern where semiconductor
manufacturing capacity may be materially
expanded by the applicable transaction;
(iii) a brief description of the planned
applicable transaction, including the specific semiconductor products currently
manufactured, the current production
technology node and semiconductor manufacturing capacity, as well as the specific
semiconductor products proposed for
manufacture, the proposed production
technology node, and proposed semiconductor manufacturing capacity; (iv) if the

Bulletin No. 2023–15

planned applicable transaction involves
the material expansion of semiconductor manufacturing capacity that produces
legacy semiconductors for which the
products will predominately serve the
market of a foreign country of concern,
documentation as to where the final
products incorporating the legacy semiconductors are to be used or consumed
including the percentage of semiconductor manufacturing capacity or percentage
of sales revenue that will be accounted for
by use or consumption of the final goods
in the foreign country of concern; and (v)
if applicable, a statement explaining how
the planned significant transaction meets
the requirements of an exception to the
applicable transaction recapture rule that
involve the material expansion of semiconductor manufacturing capacity in
proposed §1.50-2. The Treasury Department and the IRS request comments on the
ability of applicable taxpayers to comply
with such requirements and 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 §1.50-2.
VII. Applicability Date
These regulations (§§1.48D-1 through
1.48D-6, and §1.50-2) are proposed to
apply to taxable years ending on or after the
date the Treasury decision adopting these
regulations as final regulations are published in the Federal Register. Taxpayers
may rely on these proposed regulations for
property placed in service after December
31, 2022, in taxable years ending before the
date the Treasury decision adopting these
regulations as final regulations is published
in the Federal Register, provided the taxpayers follow proposed §§1.48D-1 through
1.48D-6, and §1.50-2 in their entirety and
in a consistent manner.
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

645

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.
For purposes of the PRA, the reporting
burden associated with the collection of
information in proposed §1.48D-6(a)(1)
and (2) will be reflected in the Paperwork
Reduction Act Submissions associated
with Form 3468 (OMB control number
1545-0155). The reporting burden associated with the collection of information
in proposed §1.48D-6(c) will be reflected
in the Paperwork Reduction Act Submissions associated with Form 15396 (OMB
control number pending). The reporting
burden associated with the collection of
information proposed in §1.50-2(a) will be
reflected in the Paperwork Reduction Act
Submissions associated with Form 4255
(OMB control number 1545-0166). The
IRS anticipates providing an opportunity
to comment on any revisions to the forms
through subsequent notice in the Federal
Register and on www.irs.gov/draftforms.
II. Regulatory Flexibility Act
In accordance with the Regulatory
Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these proposed
regulations will not have a significant
economic impact on a substantial number
of small entities. Although the rules may
affect small entities, data are not readily
available about the number of taxpayers
affected. The economic impact of these
regulations is not likely to be significant,
because these proposed regulations substantially incorporate statutory changes by
the CHIPS Act in establishing section 48D
and amending section 50(a) and assist taxpayers in understanding section 48D and
the changes to section 50(a). The proposed regulations will also make it easier
for taxpayers to comply with section 48D
and the changes to section 50(a). Notwithstanding this certification, the Treasury
Department and the IRS welcome comments on the impact of these regulations
on small entities.
III. Section 7805(f)
Pursuant to section 7805(f), this notice
of proposed rulemaking has been submit-

April 10, 2023

ted to the Chief Counsel for the Office of
Advocacy of the Small Business Administration for comment on its impact on small
business.
IV. 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 proposed 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.
IV. Executive Order 13132: Federalism
Executive Order 13132 (Federalism)
prohibits an agency from publishing any
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 proposed 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
The Administrator of the Office of
Information and Regulatory Affairs
(OIRA), Office of Management and
Budget, has determined that this proposed rule is not a significant regulatory
action, as that term is defined in section 3(f) of Executive Order 12866.
Therefore, OIRA has not reviewed this
proposed rule pursuant to section 6(a)
(3)(A) of Executive Order 12866 and the
April 11, 2018, Memorandum of Agreement between the Treasury Department
and the Office of Management and Budget (OMB).

April 10, 2023

Comments and Requests for a Public
Hearing
Before the proposed regulations are
adopted as final regulations, consideration
will be given to comments that are submitted timely to the IRS as prescribed in
the preamble under the ADDRESSES
section. The Treasury Department and the
IRS request comments on all aspects of
the proposed regulations. Any comments
submitted will be made available at www.
regulations.gov or upon request. A public
hearing will be scheduled if requested in
writing by any person who timely submits
electronic or written comments. Requests
for a public hearing are encouraged to be
made electronically. If a public hearing is
scheduled, notice of the date and time for
the public hearing will be published in the
Federal Register. Announcement 2020-4,
2020-17 IRB 1, provides that until further
notice, public hearings conducted by the IRS
will be held telephonically. Any telephonic
hearing will be made accessible to people
requesting a reasonable accommodation.
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 proposed regulations is Jason P. Deirmenjian
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.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:

646

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding sectional
authorities for §§1.48D-6 and 1.50-2 to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.48D-6 also issued under 26
U.S.C. 48D(d)(6).
Section 1.50-2 also issued under 26
U.S.C. 50(a)(3)(C).
*****
Par. 2. Sections 1.48D-0 through
1.48D-6 are added to read as follows:
Sec.
*****
1.48D-0. Table of contents.
1.48D-1 Advanced manufacturing investment credit determined.
1.48D-2 Definitions.
1.48D-3 Qualified property.
1.48D-4 Advanced manufacturing facility
of an eligible taxpayer.
1.48D-5 Beginning of construction.
1.48D-6 Elective payment election.
*****
§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
(d) Beginning of construction
(e) Eligible taxpayer
(f) Foreign entities
(1) Foreign entity
(2) Foreign entity of concern
(3) Owned by, controlled by, or subject
to the jurisdiction or direction of
(g) Placed in service

Bulletin No. 2023–15

(h) Qualified investment
(1) In general
(2) Special rules for certain passthrough
entities
(i) Partnerships
(ii) S corporations
(iii) Estate or trust
(3) Qualified progress expenditures
election
(4) Examples
(i) Example 1
(ii) Example 2
(i) Section 48D credit
(j) Section 48D regulations
(k) Semiconductor
(l) Semiconductor manufacturing
(1) In general
(2) Semiconductor manufacturing
processes
(i) Packaging
(ii) Advanced Packaging
(m) Semiconductor manufacturing
equipment
(n) Manufacturing semiconductor
manufacturing equipment
(o) Applicability date
§1.48D-3 Qualified property
(a) In general
(b) Qualified property
(c) Tangible depreciable property
(1) In general
(2) Exception
(d) Constructed, reconstructed, or
erected by the taxpayer
(e) Original use
(1) In general
(2) Treatment of inventory
(f) Integral to the operation of an
advanced manufacturing facility
(1) In general
(2) Research or storage facilities
(g) Applicability date
§1.48D-4 Advanced manufacturing
facility of an eligible taxpayer
(a) In general
(b) Advanced manufacturing facility
(c) Primary purpose
(1) In general
(2) No primary purpose
(3) Examples
(i) Example 1
(ii) Example 2
(d) Applicability date

Bulletin No. 2023–15

§1.48D-5 Beginning of construction
(a) Termination of credit
(1) In general
(2) Property
(3) Single advanced manufacturing
facility project
(i) Factors used for single advanced
manufacturing
facility
project
determination
(ii) Example
(iii) Timing of single advanced manufacturing facility project determination
(iv) Disaggregation
(v) Example
(b) Beginning of construction
(1) In general
(2) Continuity requirement
(c) Physical work test
(1) In general
(2) Physical work of significant nature
(i) In general
(ii) Exceptions
(d) Five percent safe harbor
(1) In general
(2) Costs
(3) Cost overruns
(i) Single advanced manufacturing
facility project
(ii) Example
(iii) Single property
(A) Example
(B) [Reserved]
(e) Continuity requirement
(1) In general
(2) Continuous construction
(3) Continuous efforts
(4) Excusable disruptions to continuous construction and continuous efforts
tests
(i) In general
(ii) Effect of excusable disruptions on
continuity safe harbor
(iii) Non-exclusive list of construction
disruptions
(5) Timing of excusable disruption
determination
(6) Continuity safe harbor
(i) In general
(ii) Example
(f) Applicability date
§1.48D-6 Elective payment election
(a) Elective payment election
(1) In general
(2) Timing of election

647

(3) Irrevocable
(4) Denial of double benefit
(5) Treatment of payment
(b) Special rules for partnerships and S
corporations
(1) In general
(2) [Reserved]
(c) Registration requirement
(1) In general
(2) [Reserved]
(d) Excessive payment
(1) In general
(2) Reasonable cause
(3) Excessive payment defined
(4) [Reserved]
(e) Basis reduction and recapture
(1) In general
(2) [Reserved]
(f) Mirror code territories
(g) Applicability date
§1.48D-1 Advanced manufacturing
investment credit determined.
(a) Overview. For purposes of section
46 of the Internal Revenue Code (Code),
the amount of the advanced manufacturing
investment credit under section 48D of the
Code determined for any taxable year is
the amount determined under section 48D
and the section 48D regulations (subject
to any applicable provisions of the Code
that may limit the amount determined
under section 48D), for such taxable year
with respect to any advanced manufacturing facility of an eligible taxpayer.
Paragraph (b) of this section provides the
general rules for determining the amount
of a taxpayer’s section 48D credit for a
taxable year. Paragraph (c) of this section
provides rules coordinating the section
48D credit with the rules of section 47
(relating to the rehabilitation credit). Section 1.48D-2 provides definitions that
apply for purposes of section 48D and the
section 48D regulations. Section 1.48D-3
provides rules relating to the definition
of qualified property for purposes of the
section 48D credit. Section 1.48D-4 provides rules relating to the definition of
an advanced manufacturing facility of an
eligible taxpayer for purposes of the section 48D credit. Section 1.48D-5 provides
rules regarding the beginning of construction of property for purposes of the section
48D credit. Section 1.48D-6 provides
rules relating to the elective payment

April 10, 2023

election available to a taxpayer under
section 48D(d) to be treated as making a
payment of tax, or for a partnership or S
corporation to receive an actual payment,
in lieu of claiming a section 48D credit.
See §1.50-2 for additional rules under section 50(a)(3) and (6) of the Code relating
to applicable transactions that result in the
recapture of section 48D credits.
(b) Determination of credit. Subject to
any applicable sections of the Code that
may limit the credit determined under section 48D, the section 48D credit for any
taxable year of an eligible taxpayer with
respect to any advanced manufacturing
facility is an amount equal to 25 percent of
the taxpayer’s qualified investment for the
taxable year with respect to that advanced
manufacturing facility. A section 48D
credit is available only with respect to
qualified property that a taxpayer places
in service after December 31, 2022, and,
for any qualified property the construction
of which began prior to January 1, 2023,
but only to the extent of the basis of that
property attributable to the construction,
reconstruction, or erection of that property occurring after August 9, 2022. Under
section 48D(e), no section 48D credit is
allowed to a taxpayer for placing qualified
property in service in any taxable year
if the beginning of construction of that
qualified property as determined under
§1.48D-5 begins after December 31, 2026
(the date specified in section 48D(e)).
(c) Coordination with section 47—
(1) In general. The qualified investment
with respect to any advanced manufacturing facility of an eligible taxpayer for
any taxable year does not include that
portion of the basis of any property that
is attributable to qualified rehabilitation
expenditures, as defined in section 47(c)
(2) and §1.48-12(c), with respect to a
qualified rehabilitated building, as defined
in section 47(c)(1) and §1.48-12(b).

(2) Example: Coordination with section 47. X
Corp, a calendar-year C corporation, owns Building
A, a certified historic structure. X Corp’s adjusted
basis in Building A is $100,000. Between August 1,
2024, and October 31, 2024, X Corp incurs $1 million to reconstruct, within the meaning of section
48D(b)(2)(A)(iii)(I) and §1.48-12(b)(2)(iv), Building A. X Corp places the reconstructed Building
A, a qualified rehabilitated building, in service on
November 15, 2024. Of the $1 million of capitalized expenditures incurred to reconstruct Building A
(all of which would meet the definition of qualified
investment), $250,000 also meets the definition of

April 10, 2023

qualified rehabilitation expenditures. As such, X’s
qualified investment in Building A is $750,000 ($1
million - $250,000).

(d) Applicability date. This section
applies to property that is placed in service after December 31, 2022, and during
a taxable year ending on or after [DATE
OF PUBLICATION OF FINAL RULE].
§1.48D-2 Definitions.
(a) In general. The definitions in paragraphs (b) through (n) of this section
apply for purposes of sections 48D and 50
of the Internal Revenue Code (Code) and
the section 48D regulations.
(b) Applicable transaction. The term
applicable transaction has the meaning
provided in section 50(a)(6) of the Code
and §1.50-2.
(c) Basis. With respect to any qualified
property, the term basis means the basis
of the qualified property determined
immediately before the qualified property is placed in service by the taxpayer
and in accordance with the general rules
of subtitle A of the Code (subtitle A) for
determining the basis of property (see
subtitle A, subchapter O, part II). Thus,
the basis of qualified property would
generally be its cost (see section 1012)
unreduced by any adjustments to basis
and would include all items properly
included by the taxpayer in the depreciable basis of the property.
(d) Beginning of construction. The
term beginning of construction has the
meaning provided in §1.48D-4.
(e) Eligible taxpayer. The term eligible
taxpayer means any taxpayer that—
(1) Is not a foreign entity of concern;
and
(2) Has not made an applicable transaction during the taxable year.
(f) Foreign entities—(1) Foreign entity.
The term foreign entity has the same
meaning as provided in 15 CFR 231.105.
(2) Foreign entity of concern. The term
foreign entity of concern has the same
meaning as provided in 15 CFR 231.106.
(3) Owned by, controlled by, or subject
to the jurisdiction or direction of. The term
owned by, controlled by, or subject to the
jurisdiction or direction of has the same
meaning as provided in 15 CFR 231.112
for purposes of determining whether an
entity is a foreign entity under paragraph

648

(f)(1) of this section or a foreign entity
of concern under paragraph (f)(2) of this
section.
(g) Placed in service. The term placed
in service has the same meaning as provided in §1.46-3(d).
(h) Qualified Investment—(1) In general. Except as provided in paragraphs
(h)(2) and (3) of this section, the term
qualified investment with respect to an
advanced manufacturing facility means,
for any taxable year, the basis of any qualified property that is part of an advanced
manufacturing facility and placed in service by the taxpayer during the taxable
year.
(2) Special rules for certain
passthrough entities. In the case of
any qualified property that is part of an
advanced manufacturing facility of an
eligible taxpayer and placed in service by
an entity described in paragraphs (h)(2)(i)
through (iii) of this section during a taxable year, the rules of this paragraph (h)(2)
apply to determine the qualified investment for the taxable year with respect to
the advanced manufacturing facility.
(i) Partnership. In the case of a partnership that places in service qualified
property that is part of an advanced manufacturing facility of an eligible taxpayer,
each partner in the partnership must take
into account separately the partner’s share
of the basis of the qualified property
placed in service by the partnership during
the taxable year as provided in §1.46-3(f).
(ii) S corporation. The basis of qualified property that is part of an advanced
manufacturing facility of an eligible
taxpayer and placed in service during
the taxable year by an S corporation (as
defined in section 1361(a) of the Code)
must be apportioned pro rata among the S
corporation’s shareholders on the last day
of the S corporation’s taxable year as provided in section 1366.
(iii) Estate or trust. The basis of qualified property that is part of an advanced
manufacturing facility of an eligible taxpayer and placed in service during the
taxable year by an estate or trust must be
apportioned among the estate or trust and
its beneficiaries on the basis of the income
of the estate or trust allocable to each for
that taxable year.
(3) Qualified progress expenditures
election. A taxpayer may elect, as pro-

Bulletin No. 2023–15

vided in §1.46-5, to increase the qualified
investment with respect to any advanced
manufacturing facility of an eligible taxpayer for the taxable year, by any qualified
progress expenditures made after August
9, 2022.
(4) Examples. The provisions of this
paragraph (h) are illustrated by the following examples.
(i) Example 1: Advanced manufacturing investment credit — qualified investment in general. On
November 1, 2023, X, a calendar-year C corporation,
places in service qualified property with a basis of
$200,000, and on December 1, 2023, X places in service qualified property with a basis of $300,000. X’s
qualified investment for the taxable year is $500,000
($200,000 + $300,000).
(ii) Example 2: Advanced manufacturing investment credit, qualified investment for partnerships. A,
B, C, and D, all calendar-year C corporations, are
partners in the ABCD partnership. Partners A, B, C,
and D share partnership profits equally. On November 1, 2023, the ABCD partnership placed in service
qualified property with a basis of $1 million. Each
partner’s share of the basis of the qualified property,
as determined in §1.46-3(f)(2), is $250,000 ($1m
x 0.25) and each partner’s qualified investment is
$250,000.

(i) Section 48D credit. The term section
48D credit means the advanced manufacturing investment credit determined
under section 48D and the section 48D
regulations.
(j) Section 48D regulations. The term
section 48D regulations means this section and §§1.48D-2 through 1.48D-6 and
1.50-2.
(k) Semiconductor means, consistent
with 15 CFR 231.117, 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.
(l) Semiconductor manufacturing—(1)
In general. The term semiconductor manufacturing and the term manufacturing
of semiconductors are synonymous and
mean, consistent with 15 CFR 231.118,
semiconductor fabrication or semiconductor packaging. Semiconductor fabrication
includes the process of forming devices
like transistors, poly capacitors, non-metal
resistors, and diodes, as well as intercon-

Bulletin No. 2023–15

nects between such devices, on a wafer of
semiconductor material. Semiconductor
packaging means the process of enclosing
a semiconductor in a protective container
(package) and providing external power
and signal connectivity for the assembled
integrated circuit.
(2) Semiconductor manufacturing processes. The following definitions apply for
purposes of section 48D and the section
48D regulations:
(i) Packaging means the process of
enclosing a semiconductor in a protective
container (package) and providing external power and signal connectivity for the
assembled integrated circuit.
(ii) Advanced packaging means a subset of packaging technologies that uses
novel techniques and materials to increase
the performance, power, modularity, and/
or durability of an integrated circuit.
Advanced packaging technologies include
flip-chip, 2D, 2.5D, and 3D stacking,
fan-out and fan-in, and embedded die/system-in-package (SiP).
(m) Semiconductor manufacturing
equipment. The term semiconductor manufacturing equipment means the specialized
equipment integral to the manufacturing
of semiconductors and subsystems that
enable or are incorporated into the manufacturing equipment. Specific examples of
semiconductor manufacturing equipment
and subsystems that enable semiconductor
manufacturing equipment include:
(1) Deposition equipment, including,
Chemical Vapor Deposition (CVD), Physical Vapor Deposition (PVD), and Atomic
Layer Deposition (ALD);
(2) Etching equipment (wet etch, dry
etch);
(3) Lithography equipment (steppers,
scanners, extreme ultraviolet (EUV));
(4) Wafer slicing equipment, wafer dicing equipment, and wire bonders;
(5) Inspection and measuring equipment, including scanning electron
microscopes, atomic force microscopes,
optical inspection systems, and wafer
probes;
(6) Certain metrology and inspection
systems; and
(7) Ion implantation and diffusion/oxidation furnaces.
(n) Manufacturing semiconductor
manufacturing equipment. The term manufacturing semiconductor manufacturing

649

equipment means the physical production
of semiconductor manufacturing equipment in a manufacturing facility.
(o) Applicability date. This section
applies to property that is placed in service after December 31, 2022, and during
a taxable year ending on or after [DATE
OF PUBLICATION OF FINAL RULE].
§1.48D-3 Qualified property.
(a) In general. This section provides
definitions and rules relating to qualified
property for purposes of section 48D of
the Internal Revenue Code and the section
48D regulations.
(b) Qualified property. The term qualified property means tangible depreciable
property that is integral to the operation of
an advanced manufacturing facility and
that is either—
(1) Constructed, reconstructed, or
erected by the taxpayer; or
(2) Acquired by the taxpayer if the
original use of such property commences
with the taxpayer.
(c) Tangible depreciable property—(1)
In general. The term tangible depreciable
property means tangible personal property
(as defined in §1.48-1(c)), other tangible
property (as defined in §1.48-1(d)), and
building and structural components (as
defined in §1.48-1(e), except as provided
in paragraph (c)(2) of this section) with
respect to which depreciation (or amortization in lieu of depreciation) is allowable.
The law of a State or local jurisdiction is
not controlling for purposes of determining whether property is tangible property
for purposes of section 48D or the section
48D regulations.
(2) Exception. Pursuant to section
48D(b)(2)(B)(ii), the term tangible depreciable property does not include a building
and its structural components, or a portion
thereof, used for:
(i) Offices;
(ii) Administrative services such as
human resources or personnel services,
payroll services, legal and accounting services, and procurement services;
(iii) Sales or distribution functions;
(iv) Security services (not including
cybersecurity operations); or
(v) Any other functions unrelated to
manufacturing of semiconductors or semiconductor manufacturing equipment.

April 10, 2023

(d) Constructed, reconstructed, or
erected by the taxpayer. Property is considered constructed, reconstructed, or
erected by the taxpayer if the work is done
for the benefit of the taxpayer in accordance with the taxpayer’s specifications.
(e) Original use—(1) In general.
Except as provided in paragraph (e)(2) of
this section, the term original use means
with respect to any property the first use to
which the property is put by any taxpayer
in connection with a trade or business or
for the production of income. Additional
capital expenditures paid or incurred by
a taxpayer to recondition or rebuild property acquired or owned by the taxpayer
satisfy the original use requirement to the
extent of the amount of the expenditures
paid or incurred by a taxpayer. However, a
taxpayer’s cost to acquire property reconditioned or rebuilt by another taxpayer
does not satisfy the original use requirement. Whether property is reconditioned
or rebuilt property will be determined
based on the facts and circumstances.
(2) Treatment of inventory. For purposes of paragraph (e)(1) of this section,
if a taxpayer initially acquires new property and holds the property primarily for
sale to customers in the ordinary course of
the taxpayer’s trade or business and subsequently withdraws the property from
inventory and uses the property primarily in the taxpayer’s trade or business or
primarily for the taxpayer’s production
of income, the taxpayer is considered the
original user of the property. If a person
initially acquires new property and holds
the property primarily for sale to customers in the ordinary course of the person’s
business and a taxpayer subsequently
acquires the property from the person for
use primarily in the taxpayer’s trade or
business or primarily for the taxpayer’s
production of income, the taxpayer is considered the original user of the property.
For purposes of this paragraph (e), the
original use of the property by the taxpayer commences on the date on which
the taxpayer first uses the property primarily in the taxpayer’s trade or business
or primarily for the taxpayer’s production
of income.
(f) Integral to the operation of an
advanced manufacturing facility—(1)
In general. To qualify for the section
48D credit, property must be integral

April 10, 2023

to the operation of manufacturing
semiconductors or manufacturing semiconductor manufacturing equipment,
both as provided in § 1.48D-2. Property is
integral to the operation of manufacturing
semiconductors or semiconductor manufacturing equipment if such property is
used directly in the manufacturing operation, is essential to the completeness of the
manufacturing operation, and is not transformed in any material way as a result of
the manufacturing operation. 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. In addition, property
such as pavements, parking areas, inherently permanent advertising displays, or
inherently permanent outdoor lighting
facilities, although used in the operation
of a business, ordinarily are not integral to
the operation of manufacturing semiconductors or semiconductor manufacturing
equipment. Thus, for example, all property used by the taxpayer to acquire or
transport materials or supplies to the point
where the actual manufacturing activity commences (such as docks, railroad
tracks, and bridges), or all property (other
than materials or supplies) used by the taxpayer to manufacture semiconductors or
to manufacture semiconductor manufacturing equipment within the meaning of
§ 1.48D-2, would be considered property
integral to the operation of an advanced
manufacturing facility of an eligible taxpayer. Property is considered integral to
the operation of an advanced manufacturing facility of an eligible taxpayer if so
used either by the owner of the property
or by the lessee of the property. Specific
examples of property which normally
would be integral to the operation of the
advanced manufacturing facility of an eligible taxpayer are:
(i) Deposition equipment used in the
processes of Chemical Vapor Deposition
(CVD), and Physical Vapor Deposition
(PVD), Etching Equipment, lithography
equipment, including Extreme Ultraviolet
Lithography (EUV);
(ii) Wet process tools, analytical tools,
E-Beam operation tools, mask manufac-

650

turing equipment, chemical mechanical
polishing equipment, reticle handlers, and
stockers;
(iii) Inspection and metrology
equipment;
(iv) Clean room facilities, including
specialized lighting systems, automated
material systems for wafer handling,
locker and growing rooms, specialized
recirculating air handlers, to maintain
the cleanroom free from particles, control temperature and humidity levels, and
specialized ceilings comprised of HEPA
filters;
(v) Electrical power facilities, cooling
facilities, chemical supply systems, and
wastewater systems;
(vi) Sub-fab levels containing pumps,
transformers, abatement systems, ultrapure water systems, uninterruptible
power supply, and boilers, pipes, storage
systems, wafer routing systems and databases, backup systems, quality assurance
equipment, and computer data centers;
and
(vii) Utility level equipment including chillers, systems to handle nitrogen,
argon, and other gases, compressor systems, and pipes.
(2) Research or storage facilities.
If property, including a building and
its structural components, constitutes a
research or storage facility and is used
in connection with the manufacturing of
semiconductors or semiconductor manufacturing equipment, the property may
qualify as integral to the operation of the
advanced manufacturing facility under
section 48D(b)(2)(A)(iv). Specific examples of research facilities include research
facilities that manufacture semiconductors in connection with research, such as
pre-pilot production lines and prototypes,
including semiconductor packaging.
Specific examples of storage facilities
are mineral, chemical, and gas storage
tanks, including high pressure cylinders
or specially designed tanks and drums. A
research facility that does not manufacture
any type of semiconductors, as provided
in § 1.48D-2(k), or semiconductor manufacturing equipment, as provided in
§ 1.48D-2(m), does not qualify.
(g) Applicability date. This section
applies to property that is placed in service after December 31, 2022, and during

Bulletin No. 2023–15

a taxable year ending on or after [DATE
OF PUBLICATION OF FINAL RULE].
§1.48D-4 Advanced manufacturing
facility of an eligible taxpayer.
(a) In general. This section provides
definitions and rules relating to advanced
manufacturing facilities of eligible taxpayers for purposes of section 48D of the
Internal Revenue Code and the section
48D regulations.
(b) Advanced manufacturing facility.
For purposes of section 48D(b)(3) and this
section, the term advanced manufacturing
facility means a facility of an eligible taxpayer for which the primary purpose, as
determined under paragraph (c)(1) of this
section, is the manufacturing of finished
semiconductors, as defined in §1.48D2(l), or the manufacturing of finished
semiconductor manufacturing equipment,
as defined in §1.48D-2(n).
(c) Primary purpose—(1) In general.
The determination of the primary purpose
of a facility will be made based on all the
facts and circumstances surrounding the
construction, reconstruction, or erection
of the advanced manufacturing facility of
an eligible taxpayer. Facts that may indicate a facility has a primary purpose of
manufacturing finished semiconductors
or manufacturing finished semiconductor
manufacturing equipment include designs
or other documents for the facility that
demonstrate that the facility is designed
to make finished semiconductors or finished products consisting of specialized
equipment that can only be used for semiconductor manufacturing; the possession
of permits or licenses needed to manufacture finished semiconductors or finished
semiconductor manufacturing equipment;
and executed contracts to supply finished
semiconductor manufacturing equipment
to a finished semiconductor manufacturer
in place either before or within 6 months
after the facility is placed in service.
(2) No primary purpose. A facility that
manufactures, produces, grows, or extracts
materials or chemicals that are supplied to
an advanced manufacturing facility is not
a facility for which the primary purpose
is the manufacturing of semiconductors or
semiconductor manufacturing equipment.
Thus, for example, facilities that grow
wafers or produce gases, or that manu-

Bulletin No. 2023–15

facture components or parts, to supply
an advanced manufacturing facility that
manufactures semiconductors or semiconductor manufacturing equipment are not
facilities for which the primary purpose is
the manufacturing of semiconductors or
the manufacturing of semiconductor manufacturing equipment.
(3) Examples. The following examples
illustrate the rules of this paragraph (c):

(i) Example 1 — Primary purpose. In January 2023, X Corp, a calendar-year C corporation,
begins construction of a facility that will manufacture equipment that is integral to the manufacturing
operations of a manufacturer of semiconductors. A
portion of the equipment, however, could be used for
other manufacturing operations. X Corp enters into a
contract with Y Corp, which is building a semiconductor manufacturing facility to be placed in service
in July 2024, to supply Y Corp with the equipment it
will need for its semiconductor manufacturing operations. Such equipment represents approximately 75
percent of the potential output of X Corp’s facility
(by cost to produce such equipment) of X Corp’s
facility for the first year of operations. X Corp will
be considered as having a primary purpose of manufacturing semiconductor manufacturing equipment.
(ii) Example 2 — Primary purpose. In January
2023, Y Corp, a C corporation, with a calendar-year
taxable year, begins construction of a facility that
will manufacture scanning electron microscopes. Y
Corp enters into a contract with Z Corp, which is
building a semiconductor manufacturing facility to
be placed in service in July 2024, to supply Z Corp
with equipment it will use as an integral part of its
semiconductor manufacturing operations. Such
equipment represents approximately 75 percent
of the potential output (by cost) of Y Corp’s facility for the first year of operations. Y Corp will be
considered as having a primary purpose of manufacturing semiconductor manufacturing equipment
because scanning electron microscopes are specialized equipment integral to the manufacturing of
semiconductors.

(d) Applicability date. This section
applies to property that is placed in service after December 31, 2022, and during
a taxable year ending on or after [DATE
OF PUBLICATION OF FINAL RULE].
§1.48D-5 Beginning of construction.

(a) Termination of credit—(1) In general. The credit allowed under section 48D
of the Internal Revenue Code (Code) and
the section 48D regulations does not apply
to property that is part of an advanced
manufacturing facility of an eligible taxpayer if the beginning of construction of
the property, as defined in paragraph (a)
(2) of this section, begins after December 31, 2026 (the date specified in section
48D(e)).

651

(2) Property. For purposes of determining beginning of construction of property
under this section, the unit of property
is—
(i) A single advanced manufacturing
facility project as described in paragraph
(a)(3) of this section; or
(ii) An item of qualified property (as
defined in § 1.48D-3(b)).
(3) Single advanced manufacturing
facility project. Solely for purposes of
determining whether construction of a
qualified property has begun for purposes of section 48D and the section 48D
regulations, multiple items of qualified
property or advanced manufacturing facilities that are operated as part of a single
advanced manufacturing facility project
(along with any items of property, such as
clean rooms, chemical delivery systems,
chemical storage facilities, temperature
control systems, and robotic handling systems that are integral to the operation of
the single advanced manufacturing facility project) will be treated as a single item
of qualified property. Whether multiple
qualified properties or advanced manufacturing facilities are operated as part of
a single advanced manufacturing facility
project will depend on all the relevant
facts and circumstances.
(i) Factors used for single advanced
manufacturing facility project determination. Factors indicating that multiple
qualified properties or advanced manufacturing facilities are operated as part of
a single advanced manufacturing facility
project may include:
(A) The properties or facilities are
owned by a single legal entity;
(B) The properties or facilities are constructed on contiguous pieces of land;
(C) The properties or facilities are
described in a common supply contract or
other type of relevant contract;
(D) The properties or facilities share a
common electricity and/or water supply;
(E) The properties or facilities are
described in one or more common environmental or other regulatory permits;
(F) The properties or facilities were
constructed pursuant to a single master
construction contract; or
(G) The construction of the properties
or facilities was financed pursuant to the
same loan agreement or other financing
arrangement.

April 10, 2023

(ii) Example. A taxpayer is developing Project C, a project that will consist
of 3 advanced manufacturing facilities
constructed on the same campus. Project
C will share a common electricity supply, and semiconductors manufactured by
Project C will be sold to Buyer through a
single supply contract. In 2023, for 1 of the
3 advanced manufacturing facilities, the
taxpayer installs deposition equipment.
Thereafter, the taxpayer completes the
construction of all 3 advanced manufacturing facilities pursuant to a continuous
program of construction. For purposes
of the section 48D credit, Project C is a
single project that will be treated as a single property, and the taxpayer performed
physical work of a significant nature that
constitutes the beginning of construction
of Project C in 2023.
(iii) Timing of single advanced manufacturing facility project determination.
Whether multiple properties or advanced
manufacturing facilities are operated as
part of a single advanced manufacturing
facility project and are treated as a single item of property for purposes of the
beginning of construction requirement
of section 48D and the section 48D regulations is determined in the taxable year
during which the last of the multiple properties or facilities is placed in service.
(iv) Disaggregation. Multiple properties or advanced manufacturing
facilities that are operated as part of a
single advanced manufacturing facility
project and treated as a single item of
qualified property under paragraph (a)(3)
of this section for purposes of determining whether construction of a qualified
property or advanced manufacturing facility has begun may be disaggregated and
treated as separate items of qualified property for purposes of determining whether
a separate advanced manufacturing facility or item of qualified property satisfies
the continuity safe harbor (as defined
in paragraph (e) of this section). Those
disaggregated separate advanced manufacturing facilities or items of qualified
property that are placed in service prior to
the continuity safe harbor deadline will be
eligible for the continuity safe harbor. The
remaining disaggregated separate items
of property or facilities may satisfy the
continuity requirement under a facts and
circumstances determination.

April 10, 2023

(v) Example. A taxpayer is developing Project D, a project that will consist
of 4 separate properties. Project D will
use the same water supply and each property within Project D will be constructed
pursuant to a single master construction
contract. Under the single project rule provided in paragraph (a)(3) of this section,
Project D is a single project that will be
treated as a single property. In 2024, for 3
of the 4 separate properties, the taxpayer
installs property integral to the operation
of the advanced manufacturing facility.
Accordingly, the taxpayer has performed
physical work of a significant nature that
constitutes the beginning of construction of Project D for purposes of section
48D(e). Thereafter, on the last day of the
10-year continuity safe harbor period, the
taxpayer places in service only 3 of the 4
separate properties within Project D. The
taxpayer disaggregates Project D under
paragraph (a)(3)(iv) of this section and
accordingly, only 3 of the 4 separate properties satisfy the Continuity Safe Harbor.
For the remaining 1 separate property, the
taxpayer may demonstrate that it satisfies
the continuity requirement provided in
paragraph (e) of this section based on the
facts and circumstances, to enable the taxpayer to claim the section 48D credit.
(b) Beginning of construction—(1)
In general. For purposes of section 48D,
the section 48D regulations, and section
107(f)(1) of the CHIPS Act of 2022, Public Law 117-167, div. A, 136 Stat. 1366,
1399 (August 9, 2022), a taxpayer may
establish that construction of an item of
property (as defined in paragraph (a)(2) of
this section) of the taxpayer begins under
either:
(i) The physical work test of paragraph
(c) of this section; or
(ii) The five percent safe harbor of
paragraph (d) of this section.
(2) Continuity requirement. See paragraph (e) of this section for the continuity
requirement applicable for purposes of
the physical work test and the five percent
safe harbor, which must be demonstrated
either by maintaining continuous construction (as defined in paragraph (e)(2)
of this section) or continuous efforts (as
defined in paragraph (e)(3) of this section).
(c) Physical work test—(1) In general.
Under the physical work test, construction
of an item of property begins when phys-

652

ical work of a significant nature begins,
provided that the taxpayer maintains continuous construction or continuous efforts.
This test focuses on nature of the work
performed, not the amount of the costs.
Assuming the work performed is of a significant nature, there is no fixed minimum
amount of work, monetary or percentage
threshold required to satisfy the physical
work test.
(2) Physical work of significant
nature—(i) In general. Work performed
by the taxpayer and work performed for
the taxpayer by other persons under a
binding written contract that is entered
into prior to the manufacture, construction, or production of the property for
use by the taxpayer in the taxpayer’s
trade or business of manufacturing
semiconductors or semiconductor manufacturing equipment is taken into account
in determining whether physical work of a
significant nature has begun. Both on-site
and off-site work (performed either by
the taxpayer or by another person under
a binding written contract) may be taken
into account for purposes of demonstrating that physical work of a significant
nature has begun. A written contract is
binding only if it is enforceable under
local law against the taxpayer or a predecessor and does not limit damages to a
specified amount (for example, by use of
a liquidated damages provision). For this
purpose, a contractual provision that limits damages to an amount equal to at least
five percent of the total contract price
will not be treated as limiting damages to
a specified amount. For additional guidance regarding the definition of a binding
written contract, see §1.168(k)-1(b)(4)
(ii)(A) through (D).
(ii) Exceptions. Physical work of
significant nature does not include preliminary activities, including but not limited
to planning or designing, securing financing, exploring, researching, obtaining
permits, licensing, conducting surveys,
environmental and engineering studies,
or clearing a site, even if the cost of those
preliminary activities is properly included
in the depreciable basis of the property.
Physical work of a significant nature
also does not include work (performed
either by the taxpayer or by another person under a binding written contract) to
produce property that is either in existing

Bulletin No. 2023–15

inventory or is normally held in inventory
by a vendor.
(d) Five percent safe harbor—(1) In
general. Construction of a property will
be considered as having begun if:
(i) A taxpayer 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; and
(ii) Thereafter, the taxpayer maintains
continuous construction or continuous
efforts.
(2) Costs. All costs properly included
in the basis of the property are taken
into account to determine whether the
five percent safe harbor has been met.
For property that is manufactured, constructed, or produced for the taxpayer by
another person under a binding written
contract with the taxpayer, costs incurred
with respect to the property by the other
person before the property is provided to
the taxpayer are deemed incurred by the
taxpayer when the costs are incurred by
the other person under the principles of
section 461 of the Code.
(3)
Cost
overruns—(i)
Single
advanced manufacturing facility project. If the total cost of a property that is
a single advanced manufacturing facility
project comprised of multiple properties
(as described in paragraph (a)(3) of this
section) exceeds its anticipated total cost
such that the a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A7acc87fc6117b55a. Public record. Not legal advice.