October 2024
IRS Finalizes Regulations for Advanced Manufacturing Investment Credit
The IRS has finalized the rules for the advanced manufacturing investment credit under Code Sec. 48D. This credit, created by the CHIPS Act of 2022, is designed to boost U.S. production of semiconductors and related equipment by offering a 25% credit for qualified investments in advanced manufacturing facilities.
To qualify, the property must be put into service after December 31, 2022, with construction happening between August 9, 2022, and December 31, 2026.
First issued on March 23, 2023, these rules lay out who’s eligible, what counts as qualified property, and the construction requirements. They also include a 10-year credit recapture rule for major foreign expansions. There was a lot of feedback from groups like the U.S. Chamber of Commerce wanting more explanation, so the final rules now have broader definitions, covering semiconductor wafer production but not precursor materials like polysilicon. These rules also clarify definitions and expand what counts as semiconductor fabrication and packaging. They refine the rules on significant foreign expansions, focusing on transaction types rather than monetary thresholds.
The final regulations take effect on December 23, 2024, providing clear guidelines and incentives for the semiconductor manufacturing industry. The following are the areas of the regulations that were changed in the final regulations.
Summary of Comments and Explanation of Revisions
Overview
The final regulations retain the basic approach of the proposed regulations with certain revisions based on public comments. Definitions of “semiconductor manufacturing,” “semiconductor manufacturing equipment,” and “significant transaction” have been clarified.
The examples of semiconductor manufacturing equipment were included in the final regulations. The final regulations provide a comprehensive list of specific types of equipment that qualify as semiconductor manufacturing equipment. This broadened and clarified certain uncertainty in the proposed regulations. Below are the equipment areas listed.
Included Examples of Semiconductor Manufacturing Equipment
- Deposition Equipment:
- Chemical Vapor Deposition (CVD)
- Physical Vapor Deposition (PVD)
- Electrodeposition
- Atomic Layer Deposition (ALD)
- Etching Equipment:
- Wet etch
- Dry etch
- Epitaxial Growth Equipment:
- Equipment for epitaxial growth of transistor features
- Chemical-Mechanical Polishing Equipment:
- Equipment to planarize layers through the semiconductor fabrication process
- Lithography Equipment:
- Steppers and scanners of various light wavelengths (e.g., deep UV, extreme ultraviolet (EUV))
- Photoresist coating and developer tracks
- Wafer Production Equipment:
- Equipment for producing ingots and boules
- Wafer growth equipment
- Wafer slicing equipment
- Wafer dicing equipment
- Wire bonders
- Inspection and Measuring Equipment:
- Scanning electron microscopes
- Atomic force microscopes
- Optical inspection systems
- Wafer probes and optical scatterometer
- Energy Dispersive Spectroscopy (EDS)
- Metrology and Inspection Systems:
- Systems to measure critical dimensions of integrated circuit features
- Systems for detection and measurement of defects on wafers
- Ion Implantation and Diffusion/Oxidation Furnaces
- Specialty Glass Components:
- EUV mirrors and optical pathways
- Lenses and mirrors used in inspection equipment and other fabrication processes
- Lens assemblies for wafer defect inspection
- Electrostatic Chucks
- High Performance Pumps
- High Purity Quartz Devices
- Ultra-High Vacuum Chamber Components
- Photomasks and Light Sources:
- Used in photolithography
Clarifications
- Non-Exclusive List: The list provided in the final regulations is non-exclusive, meaning other types of equipment that meet the criteria can also qualify as semiconductor manufacturing equipment.
- Subsystems: The definition includes subsystems that enable or are incorporated into the manufacturing equipment.
These examples and clarifications were added to provide more certainty and guidance to taxpayers on what constitutes semiconductor manufacturing equipment for the purposes of the advanced manufacturing investment credit.
Next are the key clarifications and changes made to the sections of the final regulations.
Comments on and Changes to Proposed §1.48D-1
Clarifications were made regarding the exclusion of qualified rehabilitation expenditures from the qualified investment.
Comments on and Changes to Proposed §1.48D-2
Clarifications were made on the method for determining the portion of basis attributable to construction after the enactment date, and the definition of “foreign entity of concern” was updated.
Comments on and Changes to Proposed §1.48D-3
Clarifications were made on what constitutes “qualified property” and “property integral to the operation of an advanced manufacturing facility.”
Comments on and Changes to Proposed §1.48D-4
The definition of “advanced manufacturing facility” was revised to remove the term “finished” and clarify the primary purpose requirement.
Comments on and Changes to Proposed §1.48D-5
Clarifications were made on the beginning of construction rules, including the physical work test and the five percent safe harbor.
Comments on and Changes to Proposed §1.50-2 The definition of “significant transaction” was revised to align with the Commerce Final Rule, and the rules for determining “applicable taxpayer” were clarified.
If you have questions or want to discuss, please don’t hesitate to reach out to CFO Services.
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