The IRS has finalized rules (T.D. 10009) for the Section 48D advanced manufacturing tax credit for investing in facilities that directly manufacture semiconductors or manufacture the equipment needed to manufacture semiconductors.
The credit was created by the CHIPS Act and is calculated as 25% of the qualified investment. The property must be placed into service after 2022, and construction on planned property must begin before Jan. 1, 2027, to qualify. The credit is available as a refundable payment, but taxpayers are not eligible for a tax credit if they expand semiconductor manufacturing in China or several other “foreign countries of concern” within 10 years of placing a U.S. facility in service. Additionally, foreign entities of concern, defined as any entity (including a U.S.-based one) owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation (currently Russia, China, North Korea, or Iran) are ineligible.
The final regulations make several favorable changes to the proposed version, including expanding the definition of semiconductor manufacturing, and making changes to align with the Commerce Department’s own rulemaking on the credit, especially on “foreign entities of concern.”
The proposed regulations had cut off many suppliers from eligibility, including those manufacturing, producing, growing, or extracting materials or chemicals that are supplied to an advanced manufacturing facility and facilities that grow wafers or produce gases, or manufacture components or parts to supply an advanced manufacturing facility. The final regulations expand the scope of qualified activities to include wafer production “including the processes of growing single-crystal ingots and boules, wafer slicing, etching and polishing, bonding, cleaning, epitaxial deposition, and metrology.”
The final regulations provide a more detailed, lengthier list of examples of qualified semiconductor manufacturing equipment eligible for the credit, which includes:
- Semiconductor fabrication, including the process of forming devices such as transistors, poly capacitors, non-metal resistors and diodes, as well as interconnects between such devices, on a wafer of semiconductor material.
- Semiconductor packaging, meaning the process of enclosing a semiconductor in a protective container (package) and providing external power and signal connectivity for the assembled integrated circuit and includes the process of assembly and testing of semiconductors and advanced packaging of semiconductors.
- Semiconductor assembly: wafer-dicing, die-bonding, wire bonding, solder bum
- Semiconductor testing: probing, screening, and burn-in work
The final regulations apply to tax years ending on or after Oct. 23, 2024.
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