New Investment Credit Created by CHIPS Act
August 25, 2022
By Richard Shapiro and Kevin Harris
On August 9, 2022, President Biden signed the CHIPS and Science Act (Pub. L. 117-167), which seeks to bolster the United States semiconductor supply chain and promote research and development of advanced technologies in the U.S.
Included in the Act is IRC Sec. 48D, which creates a new “advanced manufacturing investment credit.” This credit for any taxable year is an amount equal to 25% of the qualified investment for that year in a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment.
The qualified investment for any taxable year is the taxpayer’s basis in “qualified property” placed in service by the taxpayer during that taxable year, which is –
- Tangible depreciable or amortizable property;
- Either constructed, reconstructed or erected by the taxpayer or property acquired by the taxpayer where original use commences with the taxpayer; and
- Integral to the operation of the advanced manufacturing facility.
The credit is allowed for property placed in service after December 31, 2022. In addition, the credit is also available for any property under construction prior to January 1, 2023, only to the extent of the basis attributable to construction, reconstruction or erection after August 9, 2022, the date of enactment of the Act. The credit will not apply to property the construction of which begins after December 31, 2026.
Rather than claiming the credit as an offset against tax liability on a tax return, the taxpayer may elect to treat the full amount of the credit as a payment of tax for the taxable year with respect to which the credit was determined. The additional payment of tax may be refunded. Partnerships and S corporations may also be eligible for this election, which would result in a payment being made directly to the partnership or S corporation (and not to partners or shareholders taking the credit on their returns).
Over a ten-year period beginning on the date a taxpayer places in service property eligible for this IRC Sec. 48D credit, if a taxpayer has a material expansion of semiconductor manufacturing capacity in China or a foreign “country of concern,” the tax for that year will generally be increased by the amount of the aggregate IRC Sec. 48D credits taken.
Significant regulations can be anticipated to implement this new credit.