The Internal Revenue Service and the Treasury Department posted
The notice of proposed rulemaking would implement the advanced manufacturing investment credit established by the Creating Helpful Incentives to Produce Semiconductors Act, also known as the CHIPS and Science Act, to incentivize the manufacture of semiconductors and semiconductor manufacturing equipment within the U.S.
The regulations address the credit's eligibility requirements, an election that eligible taxpayers can make to be treated as making a tax payment (including an overpayment of tax), or for an eligible partnership or S corporation to receive an elective payment, instead of claiming a credit.
There's also a special 10-year credit recapture rule that applies if there's a significant transaction involving the material expansion of semiconductor manufacturing capacity in a foreign "country of concern," that is, a foreign country deemed by U.S. officials to be engaged in conduct that's detrimental to the national security or foreign policy of the U.S.
The document also asks for comments on the proposed regulations, including the definition of the term "semiconductor." The proposed regulations affect taxpayers that claim the advanced manufacturing investment credit or instead make an elective payment election.
The CHIPS investment tax credit's mission is to strengthen the resilience of the semiconductor supply chain and create jobs by incentivizing manufacturing investments in semiconductor facilities across the U.S. The Treasury and the IRS outline detailed proposed rules to ensure the investment tax credit is appropriately tailored to the economic and technological realities of the semiconductor industry. The proposed regulations also provide information on how to claim the credit.
"Today, Treasury is taking steps that will mobilize investments in American semiconductor manufacturing, spurring job growth innovation for generations to come," said Treasury Secretary Janet Yellen in a statement. "By providing detailed eligibility guidance for this tax credit, we're equipping taxpayers with the clarity and certainty they need to make investments that will increase semiconductor manufacturing and strengthen America's semiconductor supply chain."
The proposed rules also define key terms for the credit, which generally equates to 25% of an eligible taxpayer's qualified investment in a facility with the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment and are integral to the operation of the facility. The credit is generally available for qualified property that began construction after enactment of the CHIPS Act on Aug. 9, 2022 and placed in service after Dec. 31, 2022.
The proposed regulations also provide detailed rules to safeguard national security, as the CHIPS and Science Act prohibits foreign entities of concern from claiming the tax credit.
The statute also included a requirement that generally claws back the full value of the credit claimed in all prior years if within 10 years of claiming the credit a taxpayer (or affiliates) engages in a significant transaction that materially expands the semiconductor manufacturing capacity of the taxpayer in a foreign country of concern. The proposed regulations define what constitutes a foreign entity of concern and under what circumstances the IRS would claw back the credit. The CHIPS investment tax credit, along with the $39 billion in CHIPS for America funding administered by the U.S. Department of Commerce, is part of the suite of incentives to achieve the Biden administration's economic and national security goals.
In conjunction with the proposed regulations from the Treasury and the IRS, the Commerce Department is also releasing its own
The proposed rule offers additional details on national security measures applicable to the CHIPS Incentives Program included in the CHIPS and Science Act, limiting recipients of funding from investing in the expansion of semiconductor manufacturing in foreign countries of concern.
The statute identifies those countries as the People's Republic of China, Russia, Iran and North Korea. These guardrails will advance shared national security interests as the U.S. continues coordinating and collaborating with allies and partners to make global supply chains more resilient and diversified.
"The innovation and technology funded in the CHIPS Act is how we plan to expand the technological and national security advantages of America and our allies; these guardrails will help ensure we stay ahead of adversaries for decades to come," said Commerce Secretary Gina Raimondo in a statement. "CHIPS for America is fundamentally a national security initiative and these guardrails will help ensure malign actors do not have access to the cutting-edge technology that can be used against America and our allies. We will also continue coordinating with our allies and partners to ensure this program advances our shared goals, strengthens global supply chains, and enhances our collective security."
The Treasury, the IRS and the Commerce Department are asking for public comments on their proposed regulations. The documents include details on how to submit comments.
The CHIPS Act received wide support when Congress passed it last year.
"When the supply chains for semiconductors broke down early on in the pandemic, it became alarmingly clear that the U.S. needed to launch a revival of chip manufacturing here at home," said Senate Finance Committee chairman Ron Wyden, D-Oregon, in a statement. "That's what I designed the tax incentives in the CHIPS Act to help accomplish, and today's announcement is a major step forward in the process of rebuilding our domestic production and economic security. Now that the Commerce Department and Treasury are laying out the rules of the road, there's going to be a race to lock in the huge investments that come with chip manufacturing."
