KPMG article: Federal income tax implications for taxpayers constructing advanced manufacturing facilities
Guidance highlights the importance of navigating complexities and assessing risks associated with taking positions contrary to the IRS's view
The IRS in November 2024 issued Announcement 2024–40, providing guidance on the federal income tax implications for taxpayers constructing advanced manufacturing facilities funded through grant agreements with the government under the CHIPS Act of 2022, Division A of the CHIPS and Science Act, P.L. 117–167 (CHIPS grant agreements). This announcement clarified that expenses covered by these grants can be considered "qualified investments" for the advanced manufacturing investment credit under section 48D, potentially increasing the credit available to taxpayers. However, it also specifies that CHIPS grant agreements do not qualify as long-term contracts under section 460, which may lead to a timing mismatch between recognizing grant income and recovering costs for taxpayers involved in construction activities.
While the announcement favors taxpayers seeking the section 48D credit, it challenges those relying on the percentage-of-completion method for long-term contracts, as the IRS suggests that the transfer of property or benefits under a contract is necessary for section 460 qualification. The guidance, while not mandatory, highlights the importance of navigating the complexities and assessing the risks associated with taking positions contrary to the IRS's view, particularly for recipients of construction-related grants.
Read a June 2025 report* prepared by KPMG LLP tax professionals
* This article originally appeared in The Tax Adviser and is provided with permission.