The Department of Treasury proposed rules Friday to provide a clear path for companies seeking a direct payment instead of the tax credit for investing in semiconductor manufacturing facilities.
Last August, the CHIPS Act established the Advanced Manufacturing Tax Credit equal to 25% of a qualified investment in a facility for chip or related equipment manufacturing for that year. Eligible taxpayers are able to elect to treat the credit as a payment against their federal income tax liabilities.
“It gives [taxpayers] the option of taking that cash now,” said President and CEO of International Accounting & Tax Consultants Donya Curry. “Say they’ve got things they have to pay right now, [they] can use that payment and make it apply to any tax liabilities they have as well.”
The proposed guidance for direct pay would garner confidence from taxpayers financing greenfield or other domestic facility investments by providing “procedural certainty” for those electing to receive the full amount of CHIPS Investment Tax Credit, according to the Treasury.
“By establishing clear rules of the road, we’re making sure investors seeking to strengthen America’s semiconductor supply chain have the certainty around the elective payment provisions they need to propel manufacturing efforts forward,” Treasury Department Assistant Secretary for Tax Policy Lily Batchelder said in a statement.
The proposed regulations clarify the timing of when direct payment elections are made, and explain how to determine the amount of credit and payment. They also lay out rules for electing taxpayers on repayment of excessive payments, basis reduction and recapture, and how they must pre-register with the IRS. Special rules concerning partnerships and S corporations are also described.
The proposed guidance is subject to a 60-day public comment period before final rulings are issued.
Curry said this credit guidance offers a lot more details on the process compared to guidance previously put out. “Their guidance on most things is pretty vague,” he said.
“They don’t really tell you how to do things, they tell you what you can do and the forms you can probably use,” Curry explained, adding that it’s mostly up to the accountants and companies to sort it out.
“The more information you have is already better, because it helps you go through the decision process a lot easier to know if you qualify for these things instead of wasting a lot of time paying consultants and contractors to figure it out for you,” Curry added.
