KPMG report: CHIPS Act tax credit—direct pay final regulations
Notable updates and deviations from the proposed regulations
The U.S. Treasury Department and IRS issued final regulations related to the direct payment (formally known as “elective payment,” but more commonly referred to as “direct payment”) of the section 48D advanced manufacturing investment tax credit enacted in the “The CHIPS and Science Act of 2022” (CHIPS Act). These regulations respond to comments submitted by taxpayers, and describe the rules for making the election, special rules applicable to partnership and S corporations, penalties for excessive payments, basis reductions and recapture, denial of double benefit, and the pre-filing registration process. The final regulations are effective beginning May 10, 2024.
Section 48D provides a 25% investment tax credit (ITC) for an investment in an advanced manufacturing facility, defined in the statute as a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. Section 48D allows taxpayers to elect to treat the amount of the section 48D credit determined under section 48D(a) as a payment against tax.
Proposed section 48D regulations relating to definitional and eligibility issues were issued in February 2023. Proposed and temporary section 48D regulations relating to direct payments were issued (along with similar rules for certain IRA tax credits) in June 2023.
These final regulations a largely consistent with the June 2023 proposed and temporary regulations, but with some clarifications and changes in response to comments received.
Read a March 2024 report [PDF 280 KB] prepared by KPMG LLP that describes notable updates and deviations from the proposed regulations.