The IRS specified in a November 26 announcement that the amounts a CHIPS Incentives Program awardee pays or incurs for a semiconductor facility under an agreement with the Commerce Department may constitute a “qualified investment” for purposes of the Advanced Manufacturing Investment Credit. (Ann. 2024-40, 11/26/2024).
The 48D credit.
The Advanced Manufacturing Investment Credit under Code Sec. 48D, established by the 2022 Chips and Science Act (P.L. 117-167), provides eligible taxpayers with a credit equal to 25% percent of their “qualified investment” in an advanced manufacturing facility during the tax year.
The 48D credit, also known as the semiconductor credit or the CHIPS credit, is available to facilities that manufacture semiconductors or semiconductor manufacturing equipment.
A qualified investment for 48D purposes is the basis of the qualified property placed in service in a taxable year that is part of an advanced manufacturing facility, including capital expenditures.
Commerce Department awards.
The CHIPS Incentives Program, administered by the Commerce Department, incentivizes investments in U.S. semiconductor manufacturing and research and development facilities, as well as related equipment.
Under the program, Commerce awards funding for the construction, expansion, and modernization of semiconductor facilities. Funding may be provided via grants, cooperative agreements, loans, loan guarantees, and other transactions.
Award recipients must enter an agreement with Commerce that sets facility performance milestones. Agreements also allow Commerce to claw back awards if certain terms and conditions are not satisfied.
Tax treatment of award recipients.
The announcement clarifies that awards received under the CHIPS Incentives Program are not long-term contracts and do not “purport to compensate the taxpayer for the cost of the project.” For this reason, the awards, as well as costs paid or incurred, are not subject to the “percentage of completion method” under Code Sec. 460(a) and Reg. § 1.460-4(b).
The IRS also provides that because the agreements are not long-term contracts subject to Code Sec. 460, amounts paid or incurred that are capital expenditures under Code Sec. 263(a) may constitute a qualified investment for 48D credit purposes.
For more on the Code Sec. 48D credit, see Checkpoint’s Federal Tax Coordinator ¶ L-17960. For more on the percentage of completion method, see ¶ G-3123.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
