84732 Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10009] 

RIN 1545–BQ54 

Advanced Manufacturing Investment 

Credit Rules Under Sections 48D and 

50 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final rule. 

SUMMARY: This document contains final 

regulations to implement the advanced 

manufacturing investment credit 

established by the CHIPS Act of 2022 to 

incentivize the manufacture of 

semiconductors and semiconductor 

manufacturing equipment within the 

United States. The final regulations 

adopt with certain modifications rules 

proposed in the first of two notices of 

proposed rulemaking to implement the 

credit, other than proposed rules 

regarding the elective payment election 

that were addressed in the final rule 

adopted in connection with the second 

notice of proposed rulemaking. The 

final regulations provide the eligibility 

requirements for the credit, and a 

special 10-year credit recapture rule that 

applies if there is a significant 

transaction involving the material 

expansion of semiconductor 

manufacturing capacity in a foreign 

country of concern. The final 

regulations affect taxpayers that claim 

the advanced manufacturing investment 

credit. 

DATES: 

Effective date: These regulations are 

effective on December 23, 2024. 

Applicability dates: For dates of 

applicability see §§ 1.48D–1(d), 1.48D– 

2(q), 1.48D–3(h), 1.48D–4(d), 1.48D–5(f) 

and 1.50–2(e). 

FOR FURTHER INFORMATION CONTACT: 

Concerning these final regulations, 

contact Lani Sinfield of the Office of 

Associate Chief Counsel (Passthroughs 

and Special Industries), (202) 317–4137 

(not a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document amends the Income 

Tax Regulations (26 CFR part 1) by 

adding regulations authorized to be 

issued by the Secretary of the Treasury 

or her delegate (Secretary) under 

sections 50(a) and 7805(a) of the 

Internal Revenue Code (Code) regarding 

the application of sections 48D and 

50(a)(3) and (a)(6)(D) and (E) of the Code 

(final regulations). 

Section 50(a)(3)(C) provides an 

express delegation of authority to the 

Secretary to provide guidance relating to 

the recapture requirement in section 

50(a)(3) for the advanced manufacturing 

investment credit, stating, ‘‘The 

Secretary shall issue such regulations or 

other guidance as the Secretary 

determines necessary or appropriate to 

carry out the purposes of this paragraph, 

including regulations or other guidance 

which provide for requirements for 

recordkeeping or information reporting 

for purposes of administering the 

requirements of this paragraph.’’ 

In addition, section 50(a)(6)(D)(i) 

provides an express delegation of 

authority to the Secretary to determine, 

in coordination with the Secretary of 

Commerce and the Secretary of Defense, 

significant transactions, stating, ‘‘[t]he 

term ‘applicable transaction’ means, 

with respect to any applicable taxpayer, 

any significant transaction (as 

determined by the Secretary, in 

coordination with the Secretary of 

Commerce and the Secretary of Defense) 

involving the material expansion of 

semiconductor manufacturing capacity 

of such applicable taxpayer in the 

People’s Republic of China or a foreign 

country of concern (as defined in 

section 9901(7) of the William M. (Mac) 

Thornberry National Defense 

Authorization Act for Fiscal Year 

2021).’’ 

The final regulations are also issued 

under the express delegation of 

authority under section 7805(a), which 

provides that ‘‘[t]he Secretary shall 

prescribe all needful rules and 

regulations for the enforcement of [the 

Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

I. Overview 

Section 107(a) of the CHIPS Act of 

2022 (CHIPS Act), enacted as Division A 

of Public Law 117–167, 136 Stat. 1366, 

1393 (August 9, 2022), added section 

48D to the Code to establish the 

advanced manufacturing investment 

credit (section 48D credit) as an 

investment credit for purposes of 

section 46 of the Code, which is a 

current year general business credit 

under section 38 of the Code. 

Section 48D(a) provides that the 

section 48D credit is an amount equal to 

25 percent of the qualified investment 

for any taxable year with respect to any 

advanced manufacturing facility of an 

eligible taxpayer. Section 48D(b)(1) 

provides that the ‘‘qualified investment’’ 

with respect to any advanced 

manufacturing facility for any taxable 

year is the basis of any qualified 

property placed in service by the 

taxpayer during such taxable year which 

is part of an advanced manufacturing 

facility. However, the section 48D credit 

only applies to property placed in 

service after December 31, 2022, and, for 

any property the construction of which 

begins prior to January 1, 2023, only to 

the extent of the basis thereof 

attributable to the construction, 

reconstruction, or erection after August 

9, 2022 (the date of enactment of the 

CHIPS Act). See section 107(f)(1) of the 

CHIPS Act. In addition, the section 48D 

credit does not apply to property the 

construction of which begins after 

December 31, 2026. See section 48D(e). 

Section 48D(b)(2) provides that, for 

purposes of section 48D(b), the term 

‘‘qualified property’’ means tangible 

property with respect to which 

depreciation (or amortization in lieu of 

depreciation) is allowable that is 

integral to the operation of the advanced 

manufacturing facility if (I) constructed, 

reconstructed, or erected by the 

taxpayer, or (II) acquired by the 

taxpayer, if the original use of such 

property commences with the taxpayer. 

Qualified property includes any 

building or its structural components 

satisfying such requirements unless the 

building or portion of the building is 

used for offices, administrative services, 

or other functions unrelated to 

manufacturing. 

Section 48D(b)(3) provides that the 

term ‘‘advanced manufacturing facility’’ 

means a facility for which the primary 

purpose is the manufacturing of 

semiconductors or semiconductor 

manufacturing equipment. 

Section 48D(b)(4) provides that the 

qualified investment with respect to any 

advanced manufacturing facility for any 

taxable year shall not include the 

portion of the basis of any such property 

that is attributable to qualified 

rehabilitation expenditures (as defined 

in section 47(c)(2) of the Code). 

Section 48D(b)(5) states that rules 

similar to the rules of subsections (c)(4) 

and (d) of section 46 (as in effect on the 

day before the date of the enactment of 

the Revenue Reconciliation Act of 1990) 

shall apply for purposes of section 

48D(a). 

Section 48D(c) provides that, for 

purposes of the section 48D credit, an 

‘‘eligible taxpayer’’ is any taxpayer that 

(1) is not a foreign entity of concern (as 

defined in section 9901(6) of the 

William M. (Mac) Thornberry National 

Defense Authorization Act for Fiscal 

Year 2021, as amended by section 103 


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of the CHIPS Act), and (2) has not made 

an applicable transaction (as defined in 

section 50(a) of the Code) during the 

taxable year. 

Section 107(b) of the CHIPS Act 

added new section 50(a)(3), (6)(D) and 

(E) to the Code to provide special 

recapture rules for certain expansions in 

connection with advanced 

manufacturing facilities. Under section 

50(a)(3)(A), if there is an applicable 

transaction by an applicable taxpayer 

before the close of the 10-year period 

beginning on the date such taxpayer 

placed in service property that is 

eligible for the section 48D credit, then 

the taxpayer’s Federal income tax 

liability under chapter 1 of the Code 

(chapter 1) for the taxable year in which 

such transaction occurs must be 

increased by 100 percent of the 

aggregate decrease in the credits 

allowed under section 38 for all prior 

taxable years which would have 

resulted solely from reducing to zero 

any investment credit determined under 

section 46 that is attributable to the 

section 48D credit with respect to such 

property (applicable transaction 

recapture rule). Section 50(a)(3)(B) 

provides an exception to the applicable 

transaction recapture rule for an 

applicable taxpayer that demonstrates to 

the satisfaction of the Secretary that the 

applicable transaction has been ceased 

or abandoned within 45 days of a 

determination and notice by the 

Secretary. Section 50(a)(3)(C) authorizes 

the Secretary to issue such regulations 

or other guidance as the Secretary 

determines necessary or appropriate to 

carry out the purposes of the applicable 

transaction recapture rule, including 

regulations or other guidance providing 

for recordkeeping requirements or 

information reporting for purposes of 

administering the requirements of 

section 50(a)(3). 

As added to the Code by section 

107(b)(2) of the CHIPS Act, section 

50(a)(6)(D) provides that for purposes of 

section 50(a), the term ‘‘applicable 

transaction’’ means, with respect to any 

applicable taxpayer, any significant 

transaction (as determined by the 

Secretary, in coordination with the 

Secretary of Commerce and the 

Secretary of Defense) involving the 

material expansion of semiconductor 

manufacturing capacity of such 

applicable taxpayer in a foreign country 

of concern (as defined in section 9901(6) 

of the William M. (Mac) Thornberry 

National Defense Authorization Act for 

Fiscal Year 2021, as amended by section 

103 of the CHIPS Act) other than certain 

transactions that primarily involve the 

expansion of manufacturing capacity for 

legacy semiconductors (as defined in 

section 9902(a)(6) of the William M. 

(Mac) Thornberry National Defense 

Authorization Act for Fiscal Year 2021, 

as amended by section 103 of the CHIPS 

Act). 

Section 50(a)(6)(E) defines an 

‘‘applicable taxpayer’’ for purposes of 

section 50(a) as any taxpayer who has 

been allowed a section 48D credit for 

any prior taxable year. 

II. Proposed and Temporary Regulations 

On March 23, 2023, the Department of 

the Treasury (Treasury Department) and 

the IRS published proposed regulations 

(REG–120653–22) in the Federal 

Register (88 FR 17451) related to the 

section 48D credit under the authority 

granted by sections 48D(d), 50(a), and 

7805(a) (March 2023 proposed 

regulations). The March 2023 proposed 

regulations primarily would apply longestablished credit mechanics and 

procedures common to all investment 

tax credits (including the section 48D 

credit) previously set forth in 

regulations and subregulatory guidance. 

In addition, the March 2023 proposed 

regulations included proposed 

definitions and rules that would apply 

for determining who is an eligible 

taxpayer, what qualifies as qualified 

property or an advanced manufacturing 

facility, whether the beginning of 

construction requirement is met, and 

what qualifies as a significant 

transaction involving a material 

expansion of semiconductor 

manufacturing capacity in a foreign 

country of concern for purposes of the 

special 10-year recapture rule under 

section 50(a)(3). Consistent with the 

statutory directive in section 

50(a)(6)(D)(i) to coordinate with the 

Department of Commerce and the 

Department of Defense regarding such 

significant transactions, the Treasury 

Department and the IRS, in coordination 

with the Department of Commerce and 

the Department of Defense, incorporated 

in the March 2023 proposed regulations 

definitional concepts set forth in 

proposed 15 CFR part 231 as contained 

in the proposed rule, Preventing the 

Improper Use of CHIPS Act Funding, 

published in the Federal Register (88 

FR 17439) by the CHIPS Program Office, 

National Institute of Standards and 

Technology, Department of Commerce 

(Commerce Proposed Rule). The 

Commerce Proposed Rule would have 

provided guardrails to prevent the 

improper use of CHIPS Act funding 

overseen by the Department of 

Commerce. On September 25, 2023, the 

CHIPS Program Office, National 

Institute of Standards and Technology, 

Department of Commerce published the 

final rule, Preventing the Improper Use 

of CHIPS Act Funding, in the Federal 

Register (88 FR 65600) to add part 231, 

subchapter C, to 15 CFR chapter II 

(Commerce Final Rule). 

In addition, § 1.48D–6 of the March 

2023 proposed regulations set forth the 

general requirements that would apply 

for making an elective payment election 

under section 48D(d), and the general 

requirement that an eligible taxpayer, 

partnership, or S corporation would 

need to comply with the registration 

procedures in proposed § 1.48D–6(c)(2) 

as a condition of, and prior to, any 

amount being treated as a payment 

under section 48D(d)(1) or (d)(2)(A)(i)(I). 

However, the March 2023 proposed 

regulations under proposed § 1.48D– 

6(c)(2) reserved on the procedures and 

additional information required for 

completing the pre-filing registration 

process. 

On June 21, 2023, the Treasury 

Department and the IRS published 

proposed regulations (REG–105595–23) 

in the Federal Register (88 FR 40123) 

authorized by section 48D(d)(6) to 

update proposed § 1.48D–6 of the March 

2023 proposed regulations (June 2023 

proposed regulations). Also on June 21, 

2023, the Treasury Department and the 

IRS published temporary regulations 

(TD 9975) in the Federal Register (88 FR 

40086) authorized by section 48D(d)(6) 

under § 1.48D–6T to set forth mandatory 

information and registration 

requirements for taxpayers planning to 

make an elective payment election 

under section 48D(d) to treat the amount 

of the section 48D credit as a payment 

of Federal income tax, or in the case of 

a partnership or S corporation, to 

receive a payment in the amount of such 

credit. The temporary regulations are 

applicable to property placed in service 

on or after December 31, 2022, and 

during a taxable year ending on or after 

June 21, 2023, and will expire on June 

12, 2026. A public hearing on the June 

2023 proposed regulations was held on 

August 24, 2023. On March 11, 2024, 

the Treasury Department and the IRS 

published final regulations (TD 9989) in 

the Federal Register (89 FR 17596) 

authorized by section 48D(d)(6) under 

§ 1.48D–6 to remove the temporary 

regulations (TD 9975) and adopt the 

June 2023 proposed regulations with 

modifications in response to all 

comments received on the proposed 

rules and all testimony heard at the 

public hearings held on July 26, 2023 

(March 2023 proposed regulations) and 

August 24, 2023 (June 2023 proposed 

regulations) (March 2024 final 

regulations). 

The Treasury Department and the IRS 

received more than 40 comments 

responding to the March 2023 proposed 


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84734 Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 / Rules and Regulations 

regulations. A public hearing on the 

March 2023 proposed regulations was 

held on July 26, 2023. As described in 

the following Summary of Comments 

and Explanation of Revisions, this 

Treasury decision adopts §§ 1.48D–1 

through 1.48D–5 and 1.50–2 of the 

March 2023 proposed regulations with 

certain modifications after full 

consideration of all comments received 

on those proposed rules and all 

testimony heard at the July 26, 2023, 

public hearing. 

Summary of Comments and 

Explanation of Revisions 

I. Overview 

The final regulations set forth in 

§§ 1.48D–1 through 1.48D–5 and 1.50–2 

retain the basic approach and structure 

of the March 2023 proposed regulations, 

with certain revisions in response to 

comments submitted by commenters in 

response to the March 2023 proposed 

regulations. 

The Treasury Department and the IRS 

have refined and clarified certain 

aspects of the proposed regulations in 

these final regulations. Specifically, the 

definitions of ‘‘semiconductor 

manufacturing,’’ ‘‘semiconductor 

manufacturing equipment,’’ and 

‘‘significant transaction’’ have been 

clarified. The final regulations do not 

set forth rules for § 1.48D–6 of the 

March 2023 proposed regulations, 

because the June 2023 proposed 

regulations updated § 1.48D–6 of the 

March 2023 proposed regulations and 

the June 2023 proposed regulations 

were finalized by the March 2024 final 

regulations. Consistent with the 

proposed regulations, the final 

regulations primarily apply longestablished credit mechanics and 

procedures common to all investment 

tax credits (including the section 48D 

credit) previously set forth in 

regulations and subregulatory guidance. 

In addition, consistent with the 

statutory directive in section 

50(a)(6)(D)(i) to coordinate with the 

Department of Commerce and the 

Department of Defense regarding the 

scope of significant transactions that are 

applicable transactions, the Treasury 

Department and the IRS, in coordination 

with the Department of Commerce and 

the Department of Defense, have 

incorporated in the final regulations 

definitional concepts, as determined by 

the Secretary of Commerce in the 

Commerce Final Rule in 15 CFR part 

231, necessary to align the final 

regulations related to applicable 

transactions that result in the recapture 

of the section 48D credit with the 

provisions of the Commerce Final Rule. 

II. Comments on and Changes to 

Proposed § 1.48D–1 

Commenters requested that the final 

regulations address whether the 

taxpayer in proposed § 1.48D–1(c)(2) 

actually claims a rehabilitation credit. 

Proposed § 1.48D–1(c)(2) includes an 

example (proposed example) in which a 

taxpayer incurred capital expenditures 

to reconstruct a building. The proposed 

example indicates that all of the 

expenditures are ‘‘qualified investment’’ 

for purposes of the section 48D credit 

and a portion of those expenditures are 

also qualified rehabilitation 

expenditures (QREs) (as defined in 

section 47(c)(2) and § 1.48–12(c)) for 

purposes of the rehabilitation credit. 

The proposed example concludes that 

the amount of the taxpayer’s qualified 

investment does not include the portion 

of the basis of the property that is 

attributable to any QREs. 

Section 48D(b)(4) and proposed 

§ 1.48D–1(c)(1) provide that qualified 

investment with respect to any 

advanced manufacturing facility for any 

taxable year does not include the 

portion of the basis of the property that 

is attributable to QREs. The Treasury 

Department and the IRS have 

determined that it would be 

inconsistent with section 48D(b)(4) to 

exclude from qualified basis the portion 

of the basis that is attributable to QREs 

only when a taxpayer actually claims a 

rehabilitation credit. Accordingly, the 

final regulations modify the proposed 

example to clarify that qualified 

investment does not include the basis of 

the property that is attributable to QREs 

even if the taxpayer does not determine 

a rehabilitation credit. 

Commenters requested that the final 

regulations clarify whether the section 

48D credit has an impact on any other 

credits established by the Code. The 

Treasury Department and the IRS note 

that section 48D(b)(4) provides a special 

rule for coordination with the 

rehabilitation credit but does not 

provide any special rules to coordinate 

section 48D with other credits 

established by the Code. Additionally, 

the Code includes numerous tax credits. 

Addressing the impact of the section 

48D credit on every other credit 

established by the Code (if any) would 

require a careful examination of 

numerous provisions apart from those 

found in section 48D and the section 

48D regulations. For these reasons, 

addressing whether the section 48D 

credit has an impact on other credits 

established by the Code is not necessary 

for purposes of the final regulations. 

III. Comments on and Changes to 

Proposed § 1.48D–2 

A. Basis 

Commenters requested clarification 

on the proper method for determining 

the portion of basis attributable to the 

construction, reconstruction, or erection 

after the date of enactment (August 9, 

2022) for property the construction of 

which began prior to the effective date 

(January 1, 2023) of section 107 of the 

CHIPS Act. The commenters requested 

that the final regulations provide some 

flexibility to address the difficulties 

associated with tracking and allocating 

costs around a date occurring in the 

middle of the month (August 9, 2022). 

The commenters also requested that the 

final regulations allow for the use of any 

reasonable method and specifically 

provide that rules similar to the cost 

allocation rules in §§ 1.48–2(b)(2), 1.48– 

11(b)(5)(i), and 1.48–12(c)(1) are 

applicable. One commenter requested 

that the final regulations clarify that 

basis can be determined on the 

principles of section 461 of the Code. 

The commenter argued that this would 

clarify, for example, that in cases where 

a taxpayer has made a payment for 

construction services prior to August 10, 

2022, such payment will be included in 

the basis of qualified property because 

the amount is incurred only when the 

service is performed. 

For the avoidance of doubt, no 

provision of Federal law, including the 

CHIPS Act or the Code, permits 

determining any amount of a section 

48D credit with respect to any basis in 

property attributable to construction, 

reconstruction, or erection that occurred 

before August 10, 2022 (the first day 

after the August 9, 2022, date of 

enactment of the CHIPS Act). However, 

a rule to address the proper method for 

allocating basis attributable to the 

period beginning on the day after the 

date of enactment (August 10, 2022) and 

ending on the day immediately before 

the effective date of section 48D 

(December 31, 2022) is consistent with 

the purpose and structure of the statute. 

Accordingly, the final regulations clarify 

that for property the construction of 

which began before January 1, 2023, the 

portion of basis of such property 

attributable to construction, 

reconstruction, or erection after August 

9, 2022, the date of enactment of the 

CHIPS Act, (if any) must be allocated 

using any reasonable method, including 

by applying the principles of section 

461. The final regulations further clarify 

that rules similar to the rules in §§ 1.48– 

2(b)(2), 1.48–11(b)(5)(i), and 1.48– 

12(c)(1) apply. 


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Commenters requested that the final 

regulations provide methods for 

allocating basis for dual-use property or 

property comprised of eligible and noneligible components by square footage, 

cost, or allow the taxpayer to utilize any 

reasonable method for allocating cost 

among properties and time periods. Two 

commenters requested that the final 

regulations provide a percentage-based 

safe harbor rule that allows 100 percent 

of the basis to qualify if, for example, 80 

or 90 percent of the basis is allocable to 

qualified basis. Commenters also 

requested that the Treasury Department 

and the IRS consider whether rules are 

needed to allocate basis in qualified 

property in the case of vertically 

integrated companies that manufacture, 

for example, ingots, wafers, and 

semiconductors. Section 48D does not 

address methods of allocating basis. 

Section 48D is an investment credit 

under section 46, and, thus, the 

investment credit rules for allocating the 

basis of qualified property apply. 

Further, the Code includes provisions 

that control for such purposes (see, for 

example, section 1012). For these 

reasons, the inclusion of special rules 

for allocating basis in qualified property 

as requested by the commenters is not 

necessary for purposes of the final 

regulations. 

One commenter requested that the 

final regulations revise the definition of 

‘‘basis’’ in proposed § 1.48D–2(c) to 

allow capitalized costs incurred after 

the placed in service date of qualified 

property to qualify for the section 48D 

credit. Another commenter requested 

that the final regulations state that the 

basis of an item of qualified property or 

properties placed in service during the 

taxable year is the basis on which the 

credit is claimed for each year and 

provide examples illustrating this rule 

in the context of multi-unit or multiphase manufacturing projects. The 

Treasury Department and the IRS agree 

that a revision is needed and have 

removed from the final regulations the 

proposed requirement that basis is 

determined immediately before the 

qualified property is placed in service. 

The final regulations clarify that with 

respect to any qualified property, the 

term ‘‘basis’’ has the same meaning as 

provided in § 1.46–3(c). Thus, if, for the 

first taxable year in which property is 

placed in service by the taxpayer, the 

property meets the definition of 

qualified property but the basis of the 

property does not reflect its full cost for 

the reason that the total amount to be 

paid or incurred by the taxpayer for the 

property is indeterminate, a credit will 

be allowed to the taxpayer for such first 

taxable year with respect to so much of 

the cost as is reflected in the basis of the 

property as of the close of such taxable 

year, and a credit will be allowed to the 

taxpayer for any subsequent taxable year 

with respect to any additional cost paid 

or incurred during such subsequent 

taxable year and reflected in the basis of 

the property as of the close of such 

subsequent taxable year. The basis of 

property determined can include capital 

expenditures, as defined in section 263 

of the Code and §§ 1.263(a)–1 through 

1.263(f)–1, with respect to the property. 

Additionally, § 1.48D–2(h) clarifies that 

the term ‘‘placed in service’’ has the 

same meaning as provided in § 1.46– 

3(d). Because the revision made to the 

final regulations clarifies that the term 

‘‘basis’’ has the same meaning as 

provided in § 1.46–3(c), it is not 

necessary to provide specific examples 

of this rule as applied to qualified 

property placed in service during a 

taxable year. 

B. Foreign Entity of Concern and Owned 

By, Controlled By, or Subject to the 

Jurisdiction or Direction of 

Proposed § 1.48D–2 defined the terms 

‘‘foreign entity of concern’’ and ‘‘owned 

by, controlled by, or subject to the 

jurisdiction or direction of’’ to have the 

same meaning as those terms in the 

Commerce Proposed Rule. The 

Commerce Final Rule does not include 

a definition of ‘‘owned by, controlled 

by, or subject to the jurisdiction or 

direction of,’’ but includes a revised 

definition of ‘‘foreign entity of concern.’’ 

The Department of Commerce removed 

the definition of ‘‘owned by, controlled 

by, or subject to the jurisdiction or 

direction of’’ from the Commerce Final 

Rule to provide greater specificity and 

incorporated the definition of ‘‘owned 

by, controlled by, or subject to the 

jurisdiction of’’ into the definition of 

‘‘foreign entity of concern’’ to clarify 

that the scope of the terms are limited 

to defining foreign entities of concern. 

To address the concern that foreign 

entities of concern could circumvent the 

restrictions of the rules by establishing 

entities for which multiple foreign 

entities of concern each have ownership 

below the 25 percent threshold, the 

Commerce Final Rule clarifies that, 

where at least 25 percent of the person’s 

outstanding voting interest is held 

directly or indirectly by any 

combination of persons who would 

otherwise be foreign entities of concern 

themselves, that person is a foreign 

entity of concern. 

As stated in the Background section of 

this preamble, consistent with the 

statutory authority provided under 

sections 50(a)(3) and (a)(6)(D)(i) and 

7805(a), the Treasury Department and 

the IRS, in coordination with the 

Department of Commerce and the 

Department of Defense, have 

incorporated in the final regulations 

definitional concepts as determined by 

the Secretary of Commerce, and 

contained in the Commerce Final Rule, 

necessary for the determination of 

applicable transactions under section 

50(a)(3) and (a)(6)(D). Section 48D(c)(1) 

defines the term ‘‘eligible taxpayer,’’ in 

part, as any taxpayer that is not a foreign 

entity of concern (as defined in section 

9901(6) of the William M. (Mac) 

Thornberry National Defense 

Authorization Act for Fiscal Year 2021 

(amending 15 U.S.C. 4651)). Section 

50(a)(6)(D)(i) provides rules for when an 

advanced manufacturing investment 

credit allowable under section 48D is 

subject to recapture and defines a 

foreign entity of concern in the same 

manner as in section 48D(c)(1). Because 

section 48D(c)(1) provides rules for 

when a taxpayer is eligible to claim the 

advanced manufacturing investment 

credit, and section 50(a)(6)(D)(i) 

provides rules for when a taxpayer is no 

longer eligible for the credit, the statute 

requires the definition of ‘‘foreign entity 

of concern’’ in both sections to be 

synonymous. For these reasons, 

removing the term ‘‘owned by, 

controlled by, or subject to the 

jurisdiction or direction of’’ from the 

final regulations and defining the term 

‘‘foreign entity of concern’’ in the final 

regulations as having the same meaning 

as that term as defined in the Commerce 

Final Rule is consistent with the 

language and purpose of the statute. The 

final regulations are revised 

accordingly. 

C. Qualified Investment, Special Rules 

for Partnerships 

Commenters requested a modification 

to § 1.46–3(f) to permit a partner’s share 

of the basis of qualified property to be 

determined independent of the ratio in 

which the partners divide the general 

profits of the partnership as required 

under § 1.46–3(f). One of the 

commenters noted that section 48D is 

silent as to how a taxpayer’s basis in 

qualified property should be allocated 

in the context of passthrough entities. 

Section 48D is among the investment 

credits listed under section 46. See 

section 46(6). The investment credit 

under section 46 is a business credit 

under section 38(b)(1). Thus, property 

with respect to which a section 48D 

credit is determined is section 38 

property. 

Section 1.704–1(b)(4)(ii), which 

requires allocations with respect to the 

investment credit provided by section 


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38(b)(1) to be made in accordance with 

the partners’ interests in the 

partnership, provides that allocations of 

cost or qualified investment made in 

accordance with § 1.46–3(f) are deemed 

to be made in accordance with the 

partners’ interests in the partnership. 

Pursuant to § 1.46–3(f)(1), in the case of 

a partnership that owns section 38 

property, a partner in a partnership is 

treated as the taxpayer with respect to 

the partner’s share of the basis of 

partnership section 38 property. Section 

1.46–3(f)(2)(i) provides that a partner’s 

share of basis is determined in 

accordance with the ratio in which the 

partners share general profits. Pursuant 

to § 1.46–3(f)(2)(ii), if all related items of 

income, gain, loss, and deduction with 

respect to any item of partnership 

section 38 property are specially 

allocated in the same manner as if such 

special allocation is recognized under 

section 704(a) and (b) and § 1.704–1(b), 

then each partner’s share of the basis of 

such item of section 38 property is 

determined by reference to such special 

allocation effective for the date on 

which the property is placed in service, 

rather than in accordance with the ratio 

in which the partners share general 

profits. Thus, § 1.46–3(f), as currently in 

effect already permits special 

allocations of a partner’s share of the 

basis of an item of section 38 property 

independent of the ratio in which the 

partners divide the general profits of the 

partnership if all requirements under 

§ 1.46–3(f)(2)(ii) are met. Also, 

modifying the regulations under § 1.46– 

3(f) to allow for allocations beyond what 

is already permitted under § 1.46–3(f), 

including § 1.46–3(f)(2)(ii), would have 

broad implications beyond the 

application of section 48D, and for that 

reason, such modifications would not be 

appropriate to include in the final 

regulations. For the foregoing reasons, 

the final regulations do not incorporate 

the commenters’ recommendations 

regarding § 1.46–3(f). 

D. Qualified Progress Expenditures 

Election 

One commenter requested that the 

final regulations clarify whether an 

election for qualified progress 

expenditure can be made for expenses 

paid or incurred after August 9, 2022, 

through December 31, 2022. The 

Treasury Department and the IRS have 

determined that no further clarification 

is necessary concerning the availability 

of a progress expenditures election. 

Section 48D(b)(5) applies rules similar 

to the progress expenditures rules of 

section 46(c)(4) and (d) as in effect on 

the day before the date of enactment of 

the Revenue Reconciliation Act of 1990. 

Section 107(f)(1) of the CHIPS Act 

provides that the section 48D credit can 

be claimed for property placed in 

service after December 31, 2022, and for 

any property the construction of which 

began prior to January 1, 2023, only to 

the extent of the basis thereof 

attributable to the construction, 

reconstruction or erection after the date 

of enactment (August 9, 2022). 

Consistent with the statute, § 1.48D– 

2(j)(3)(i) of the final regulations provides 

that the taxpayer may elect, as provided 

in § 1.46–5, which provides the rules 

governing qualified progress 

expenditures, to increase the qualified 

investment with respect to an advanced 

manufacturing facility of an eligible 

taxpayer for the taxable year by any 

qualified progress expenditures made 

after August 9, 2022. Accordingly, an 

election for qualified progress 

expenditures can be made for expenses 

paid or incurred after August 9, 2022, 

and on or before December 31, 2022. In 

addition, the final regulations under 

§ 1.48D–2(j)(3)(ii) clarify that, if progress 

expenditure property is being 

constructed by or for a partnership or S 

corporation, the rules of § 1.46–5(o)(1) 

and (p) do not prohibit a partnership or 

S corporation from making a qualified 

progress expenditure election under 

§ 1.46–5 if such partnership or S 

corporation intends to make an elective 

payment election under section 48D(d) 

and § 1.48D–6 with respect to a section 

48D credit determined with respect to 

such qualified property. 

One commenter requested that the 

final regulations or other guidance 

provide guidance on the definitions of 

‘‘self-constructed’’ versus ‘‘non-selfconstructed property’’ and ‘‘integrated 

unit’’ for purposes of determining the 

construction period under § 1.46–5. 

Pursuant to § 1.46–5(d), whether a 

property, including qualified property 

under section 48D(b)(2) and the section 

48D regulations, is progress expenditure 

property is determined based on the 

facts known at the close of the first 

taxable year in which construction 

begins, or if later, at the close of the first 

taxable year to which a progress 

expenditures election is made. Whether 

property is ‘‘self-constructed’’ versus 

‘‘non-self-constructed property’’ or an 

‘‘integrated unit’’ pursuant to § 1.46– 

5(k), (l) and (e)(3), respectively, is also 

a factual determination. Additional 

guidance on the definitions of ‘‘selfconstructed’’ versus ‘‘non-selfconstructed property’’ and ‘‘integrated 

unit,’’ would inject significant 

complexity into the final regulations 

and likely cause additional uncertainty 

regarding the scope of those terms. Such 

guidance would have implications for 

any investment tax credit, including, for 

example, the rehabilitation credit under 

section 47 and the energy credit under 

section 48, for which a taxpayer can 

made a qualified progress expenditures 

election. For these reasons, such 

guidance is not appropriate to be 

included in the final regulations. 

Accordingly, the final regulations do not 

address the modifications requested by 

the commenter. 

One commenter requested that the 

final regulations provide that the 

percentage of completion limitation for 

non-self-constructed property under 

§ 1.46–5(j)(6) does not apply or that it be 

amended to allow for a greater 

percentage (up to 66 percent) of 

completion for semiconductor tooling 

equipment. The commenter argued that 

some tooling equipment manufacturers 

require a payment of as much as 90 

percent of the total contract price in the 

first year the order is placed. Section 

1.46–5(j)(6)(i) provides: (1) payments 

made in any taxable year may be 

considered qualified progress 

expenditures for non-self-constructed 

property only to the extent they are 

attributable to progress made in 

construction (percentage of completion 

limitation); (2) progress will generally 

be measured in terms of the 

manufacturer’s incurred cost as a 

fraction of the anticipated cost (as 

adjusted from year to year); and (3) 

progress is presumed to occur not more 

rapidly than ratably over the normal 

construction period but the taxpayer 

may rebut the presumption by clear and 

convincing evidence of a greater 

percentage of completion. Section 1.46– 

5(j)(6)(i) provides sufficient flexibility 

for taxpayers that intend to claim a 

section 48D credit for qualified progress 

expenditures. The commenter requested 

a modification to the percentage of 

completion limitation for non-selfconstructed property under § 1.46– 

5(j)(6) for semiconductor tooling 

equipment only; however, such 

modification would require a careful 

examination of any implications for all 

other investment tax credits for which a 

taxpayer can make a qualified progress 

expenditures election, including, for 

example, the rehabilitation credit under 

section 47 and the energy credit under 

section 48. For these reasons, the final 

regulations do not adopt the 

commenter’s recommendations. 

E. Definitions of Semiconductor and 

Semiconductor Manufacturing 

1. In General 

Commenters requested that the final 

regulations expand the definition of 


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‘‘semiconductor’’ and ‘‘semiconductor 

manufacturing’’ to encompass 

additional products, substances, and 

processes. The commenters requested 

that, among other materials and 

substances, wafers, diamond wafer 

substrates, ingots, boules, high-purity 

silicon, silicon carbide, polysilicon, 

semiconductive substances, III–V 

compounds, ceramics, lithographic 

materials, specialty adhesives and 

cleaners, metals and dielectrics, and 

quantum electronics be included in the 

definition of ‘‘semiconductor.’’ 

Commenters also requested that the 

final regulations modify the definition 

of ‘‘semiconductor manufacturing’’ if 

the definition of ‘‘semiconductor’’ is 

expanded to include additional 

products and substances. 

Consistent with the statutory 

authority provided under sections 

50(a)(3) and (a)(6)(D)(i) and 7805(a), the 

Treasury Department and the IRS, in 

coordination with the Department of 

Commerce and the Department of 

Defense, have incorporated in the final 

regulations definitional concepts that 

are consistent with the Commerce Final 

Rule and necessary for the 

determination of both eligibility for the 

section 48D credit and applicable 

transactions under section 50(a)(3) and 

(a)(6)(D). 

Accordingly, the final regulations 

provide that a taxpayer may claim a 

section 48D credit for qualified property 

placed in service as part of an advanced 

manufacturing facility the primary 

purpose of which is semiconductor 

manufacturing. The final regulations 

define ‘‘semiconductor manufacturing’’ 

as semiconductor wafer production, 

semiconductor fabrication, and 

semiconductor packaging. 

The remainder of this section III.E of 

this Summary of Comments and 

Explanation of Revisions discusses the 

definitions adopted in the final 

regulations of the terms 

‘‘semiconductors,’’ ‘‘semiconductor 

manufacturing,’’ ‘‘semiconductor wafer 

production,’’ ‘‘semiconductor 

fabrication,’’ and ‘‘semiconductor 

packaging.’’ 

2. Semiconductors 

The term ‘‘semiconductor’’ is among 

those definitional concepts necessary 

for the determination of whether a 

transaction is a significant transaction 

involving the material expansion of 

semiconductor manufacturing capacity 

in a foreign county of concern 

(emphasis added). Because the term 

‘‘semiconductor’’ is also a definitional 

concept necessary for the determination 

of when a taxpayer is eligible to claim 

the advanced manufacturing investment 

credit, the statute requires the definition 

of ‘‘semiconductor’’ for purposes of 

sections 48D and 50(a)(6)(D)(i) to be 

synonymous. Moreover, failing to define 

the term ‘‘semiconductor’’ for purposes 

of the section 48D regulations would 

contravene the statutory directive under 

section 50(a)(6)(D)(i) to define what is a 

‘‘significant transaction’’ for the 

expansion of semiconductor 

manufacturing capacity other than with 

regard to certain ‘‘legacy 

semiconductors.’’ In addition, section 

9901(9) of the William M. (Mac) 

Thornberry National Defense 

Authorization Act, as redesignated by 

section 103(a)(2) of the CHIPS Act, for 

Fiscal Year 2021 (15 U.S.C. 4651), 

provides that the term ‘‘semiconductor’’ 

has the same meaning given that term 

by the Secretary of Commerce. For these 

reasons, the Treasury Department and 

the IRS decline to expand the definition 

of ‘‘semiconductor’’ to include 

additional products and substances 

beyond what is provided in the 

Commerce Final Rule, as suggested by 

the commenters. 

Consistent with the definition of 

‘‘semiconductor’’ in the Commerce 

Final Rule (15 CFR 231.115), and 

pursuant to the statutory authority 

provided under sections 50(a)(3) and 

(a)(6)(D)(i) and 7805(a), the final 

regulations provide that a 

semiconductor is an integrated 

electronic device or system most 

commonly manufactured using 

materials such as, but not limited to, 

silicon, silicon carbide, or III–V 

compounds, and processes such as, but 

not limited to, lithography, deposition, 

and etching. Such devices and systems 

include, but are not limited to, analog 

and digital electronics, power 

electronics, and photonics, for memory, 

processing, sensing, actuation, and 

communications applications. 

3. Definition of Semiconductor 

Manufacturing 

One commenter requested that the 

final regulations expand the definition 

of ‘‘semiconductor manufacturing’’ to 

cover a broader space (aerospace) 

semiconductor manufacturing process. 

As noted in section IV.E of this 

Summary of Comments and Explanation 

of Revisions, section 48D is silent on the 

topic of semiconductor manufacturing 

in space or whether semiconductor 

manufacturing can occur in space. 

Whether semiconductor manufacturing 

can occur in space would require a 

careful examination of all relevant facts 

and circumstances, any applicable Code 

provisions and Federal income tax 

principles apart from those found in 

section 48D and the section 48D 

regulations. As such, changing the 

definition of semiconductor 

manufacturing to include an aerospace 

semiconductor manufacturing process, 

as requested by the commenter, is 

beyond the scope of section 48D and the 

section 48D regulations. Accordingly, 

the final regulations do not adopt rules 

to address semiconductor 

manufacturing in space. 

4. Semiconductor Wafer Production 

As previously discussed, commenters 

requested that the final regulations 

modify the definition of ‘‘semiconductor 

manufacturing’’ (and synonymously, the 

term ‘‘manufacturing of 

semiconductors’’) if the definition of 

‘‘semiconductor’’ is expanded to 

include additional products and 

substances. Although the final 

regulations do not expand the definition 

of ‘‘semiconductor’’ beyond what is 

provided in the Commerce Final Rule, 

the final regulations clarify the 

definition of ‘‘semiconductor 

manufacturing’’ by specifying that it 

includes ‘‘semiconductor wafer 

production’’ but not further upstream 

production processes, pursuant to the 

statutory authority provided under 

sections 50(a)(3) and (a)(6)(D)(i) and 

7805(a). The clarification that 

‘‘semiconductor manufacturing’’ 

includes ‘‘semiconductor wafer 

production’’ is consistent with the 

definition of ‘‘semiconductor 

manufacturing’’ in the Commerce Final 

Rule (15 CFR 231.116) issued pursuant 

to section 103(b) of the CHIPS Act (15 

U.S.C. 4652), which provides that, for 

purposes of the Expansion Clawback 

(described later), the term 

‘‘semiconductor manufacturing’’ has the 

same meaning given that term by the 

Secretary of Commerce, in consultation 

with the Secretary of Defense and the 

Director of National Intelligence. 

However, the production of additional 

products and substances requested by 

commenters to be included in 

‘‘semiconductor manufacturing’’ would 

not be appropriate as those are materials 

that are consumed or substantially 

transformed during the semiconductor 

manufacturing processes, and not 

included in the definition of 

‘‘semiconductor manufacturing’’ in the 

Commerce Final Rule. For these 

reasons, the final regulations clarify that 

the definition of the term 

‘‘manufacturing of semiconductors’’ 

(and synonymously ‘‘semiconductor 

manufacturing’’) includes 

semiconductor wafer production but 

excludes the production of precursor 

materials such as polysilicon from the 

scope of the definition. 


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The final regulations define the term 

‘‘semiconductor wafer production’’ to 

include ‘‘the processes of growing 

single-crystal ingots and boules, wafer 

slicing, etching and polishing, bonding, 

cleaning, epitaxial deposition, and 

metrology’’ (emphasis added). The 

Commerce Final Rule defines the term 

‘‘semiconductor wafer production’’ to 

include the processes of wafer slicing, 

polishing, cleaning, epitaxial 

deposition, and metrology. The final 

regulations differ from the Commerce 

Final Rule by including ‘‘growing 

single-crystal ingots and boules,’’ 

‘‘etching,’’ and ‘‘bonding’’ in the 

definition of ‘‘semiconductor wafer 

production’’ because the purposes of the 

relevant provisions in the Commerce 

Final Rule and those in the section 48D 

regulations differ. 

The CHIPS Act established the section 

48D credit for the purpose of 

incentivizing the manufacturing of 

semiconductors and semiconductor 

manufacturing equipment within the 

United States and amended section 

50(a) to provide for recapture of the 

section 48D credit if an applicable 

taxpayer engages in an applicable 

transaction. Thus, the section 48D 

regulations include definitions and 

rules that apply for determining who is 

an eligible taxpayer, what qualifies as 

qualified property or an advanced 

manufacturing facility, and whether the 

beginning of construction requirement 

is met. 

However, the purposes of relevant 

definitions and rules in the section 48D 

regulations differ from the purpose of 

the Commerce Final Rule, which relates 

to implementing the CHIPS Act’s 

‘‘Expansion Clawback.’’ As a matter of 

United States national security interests, 

a funding recipient is required by 

statute to enter into an agreement with 

the Department of Commerce restricting 

engagement by the funding recipient or 

its affiliates in any significant 

transaction involving the material 

expansion of semiconductor 

manufacturing capacity in foreign 

countries of concern. Failure by a 

funding recipient (or its affiliate) to 

comply with the restriction on 

semiconductor manufacturing capacity 

expansion in foreign countries of 

concern may cause the Expansion 

Clawback to apply, resulting in recovery 

of the full amount of Federal financial 

assistance provided to the funding 

recipient. 

The differences between the meaning 

of ‘‘semiconductor wafer production’’ in 

the Commerce Final Rule and in the 

final regulations reflects the difference 

between the purposes of the two rules 

as intended by Congress. The Expansion 

Clawback prohibits funding recipients 

from knowingly engaging in a 

significant transaction, and the section 

48D credit incentivizes taxpayers to 

engage in the manufacturing of 

semiconductors and semiconductor 

manufacturing equipment in the United 

States, provided the applicable taxpayer 

does not also engage in an applicable 

transaction. For these reasons, the 

Treasury Department and the IRS, after 

consultation with the Department of 

Commerce and the Department of 

Defense pursuant to the statutory 

authority provided under sections 

50(a)(3) and (a)(6)(D)(i) and 7805(a), 

have determined that a clarification is 

necessary to confirm that for purposes 

of the section 48D credit, 

‘‘semiconductor wafer production’’ 

includes growing single-crystal ingots 

and boules, wafer slicing, etching and 

polishing, bonding, cleaning, epitaxial 

deposition, and metrology. The 

Treasury Department and the IRS note 

that the term ‘‘semiconductor wafer 

production’’ in the final regulations also 

includes growing single-crystal ingots 

and boules, wafer slicing, etching and 

polishing, bonding, cleaning, epitaxial 

deposition, and metrology as applied to 

the production of solar wafers. The 

Treasury Department and the IRS note 

this after coordination with the 

Department of Commerce and the 

Department of Defense due to specific 

supply chain and national security 

considerations regarding the production 

of solar wafers not present in the case 

of other related products. 

5. Semiconductor Fabrication 

The final regulations provide that the 

term ‘‘semiconductor fabrication’’ 

includes ‘‘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’’ (emphasis 

added). The Commerce Final Rule 

defines the term ‘‘semiconductor 

fabrication’’ to include the process of 

forming devices such as transistors, poly 

capacitors, non-metal resistors, and 

diodes on a wafer of semiconductor 

material. The final regulations differ 

from the Commerce final rule by 

including ‘‘interconnects between such 

devices.’’ 

The difference between the definition 

of ‘‘semiconductor fabrication’’ in the 

Commerce Final Rule and the final 

regulations with respect to 

‘‘interconnects between such devices’’ 

reflects the difference between the 

purpose of the section 48D regulations 

and the Expansion Clawback. As 

explained in section III.E.4 of this 

Summary of Comments and Explanation 

of Revisions, the Expansion Clawback 

prohibits funding recipients from 

knowingly engaging in a significant 

transaction, whereas the section 48D 

credit incentivizes taxpayers to engage 

in the manufacturing of semiconductors 

and semiconductor manufacturing 

equipment in the United States, 

provided the applicable taxpayer does 

not also engage in an applicable 

transaction. For these reasons, the 

Treasury Department and the IRS, in 

coordination with the Department of 

Commerce and the Department of 

Defense, and pursuant to the statutory 

authority provided under sections 

50(a)(3) and (a)(6)(D)(i) and 7805(a), 

have determined that a clarification is 

necessary to confirm that for purposes 

of the section 48D credit, 

‘‘semiconductor fabrication’’ includes 

the process of forming interconnects 

between such devices. 

6. Semiconductor Packaging 

Several commenters requested that 

the definition of ‘‘semiconductor 

manufacturing’’ be revised to include 

assembly and testing within all stages of 

packaging. Commenters also requested 

that the final regulations provide 

definitions of the terms ‘‘assembly’’ and 

‘‘testing.’’ As previously noted, 

consistent with the statutory authority 

provided under sections 50(a)(3) and 

(a)(6)(D)(i) and 7805(a), the Treasury 

Department and the IRS, in coordination 

with the Department of Commerce and 

the Department of Defense, have 

incorporated in the final regulations 

definitional concepts as determined by 

the Secretary of Commerce, and 

contained in the Commerce Final Rule 

necessary for the determination of 

applicable transactions under section 

50(a)(3) and (a)(6)(D). The preamble to 

the Commerce Proposed Rule clarifies 

that ‘‘semiconductor manufacturing’’ 

includes both front-end fabrication as 

well as back-end manufacturing 

including assembly, testing, and 

packaging of semiconductors. 

Accordingly, revising the definition of 

‘‘semiconductor manufacturing’’ to 

include ‘‘assembly’’ and ‘‘testing’’ and 

providing definitions of ‘‘assembly’’ and 

‘‘testing’’ is consistent with the purpose 

of the section 48D credit to incentivize 

the manufacture of semiconductors 

within the United States. Accordingly, 

§ 1.48D–2(n) of the final regulations 

provides that semiconductor packaging 

includes assembly and testing. Section 

1.48D–2(n)(4) and (5) of the final 

regulations provide definitions of 

‘‘assembly’’ and ‘‘testing,’’ respectively. 

One commenter requested that the 

final regulations clarify that the term 


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‘‘semiconductor packaging’’ include the 

manufacturing of IC-substrates. As 

stated in the Background section of this 

preamble, consistent with the statutory 

authority provided under sections 

50(a)(3) and (a)(6)(D)(i) and 7805, the 

Treasury Department and the IRS, in 

coordination with the Department of 

Commerce and the Department of 

Defense, have incorporated in the final 

regulations definitional concepts as 

determined by the Secretary of 

Commerce, and contained in the 

Commerce Final Rule necessary for the 

determination of applicable transactions 

under section 50(a)(3) and (a)(6)(D). 

Consistent with the Commerce Final 

Rule, the final regulations define the 

term ‘‘semiconductor packaging’’ as the 

process of enclosing a semiconductor in 

a protective container (package) and 

providing external connectivity for the 

assembled integrated circuit. The 

manufacturing of a substrate used 

during the semiconductor packaging 

process is not part of ‘‘semiconductor 

packaging’’ as defined under the final 

regulations. For the foregoing reason, 

the final regulations do not adopt the 

commenter’s recommendation. 

F. Definitions of Semiconductor 

Manufacturing Equipment, Subsystems, 

and Manufacturing Semiconductor 

Manufacturing Equipment 

Commenters requested that the final 

regulations modify the definition of 

‘‘semiconductor manufacturing 

equipment’’ to include direct and 

indirect materials integral to the 

semiconductor manufacturing 

equipment, such as, electronic grade 

isopropyl alcohol, precision bearings, 

industrial gases including high purity 

and general purpose nitrogen, chemicals 

such as fluoropolymers peroxides and 

fluorogases, lens and mirrors, and 

components. Commenters requested 

that the final regulations define the term 

‘‘subsystem’’ as highly engineered and 

specialty equipment that is either sold 

directly to, or primarily produced for, a 

semiconductor fabricator or a thirdparty equipment manufacturer. 

Among other requirements, section 

48D(b)(2) and § 1.48D–3(c) (referencing 

§ 1.48–1(c) and (d)) require that property 

be tangible depreciable property, for 

example, production machinery, to meet 

the definition of qualified property. 

Gases, chemicals, and materials, such as 

IC-substrates and diamond wafer 

substrates, and semiconductive 

substances, that are consumed, utilized, 

or substantially transformed in a similar 

manner during the manufacturing 

process does not meet the threshold 

requirement of section 48D(b)(2) and 

§ 1.48D–3(c) because they are not 

tangible depreciable property for 

purposes of the section 48D credit. 

For the foregoing reason, the Treasury 

Department and the IRS decline to 

adopt the commenters’ requests to 

modify the definition of ‘‘semiconductor 

manufacturing equipment’’ to include 

such materials. The final regulations 

clarify that ‘‘semiconductor 

manufacturing equipment’’ means the 

highly engineered specialized 

equipment used in the manufacturing of 

semiconductors as defined in § 1.48D– 

2(g) and the subsystems that enable, or 

are incorporated into, the manufacturing 

equipment. This definition will 

eliminate uncertainty in determining 

whether property is semiconductor 

manufacturing equipment, as opposed 

to consumable materials, chemicals, or 

gases, that do not meet the definition of 

semiconductor manufacturing 

equipment. 

The Treasury Department and the IRS 

decline to adopt the commenters’ 

recommendations to define the term 

‘‘subsystem’’ as highly engineered and 

specialty equipment that is either sold 

directly to, or is primarily produced for, 

a semiconductor fabricator or a thirdparty equipment manufacturer. 

Providing such a definition would inject 

significant complexity into the final 

regulations. Consistent with the 

definition of semiconductor 

manufacturing equipment in the 

proposed regulations, § 1.48D–2(o) 

provides that the term ‘‘semiconductor 

manufacturing equipment’’ includes the 

subsystems that enable, or are 

incorporated into, the manufacturing 

equipment. Additionally, property that 

may be considered a subsystem must 

also meet the requirements of section 

48D and the section 48D regulations. 

Commenters also requested that the 

list of examples of ‘‘semiconductor 

manufacturing equipment’’ be expanded 

to include any property that is 

considered property integral to the 

operation of an advanced manufacturing 

facility under proposed § 1.48D–3(f)(1). 

The Treasury Department and the IRS 

have determined that such a rule is 

inconsistent with the purpose and 

structure of the statute, which clearly 

contemplates that not all property 

integral to the operation of an advanced 

manufacturing facility be treated as 

semiconductor manufacturing 

equipment. Although certain property, 

such as a gas handling system, may be 

property integral to the operation of an 

advanced manufacturing facility under 

section 48D(b)(2)(A)(iv) and proposed 

§ 1.48D–3(f), that property does not, by 

application of the standard in section 

48D(b)(2)(A)(iv) and proposed § 1.48D– 

3(f), meet the definition of 

semiconductor manufacturing 

equipment under § 1.48D–2(o) of the 

final regulations. 

Commenters requested that the final 

regulations clarify that the list of 

examples of semiconductor 

manufacturing equipment is nonexclusive and provide an illustrative list 

of subsystems to include, items such as 

specialty glass lenses, photomasks, 

lenses and mirrors like those made of 

calcium fluoride or high-purity fused 

silica, lens assemblies for wafer defect 

inspection following wafer printing, 

light sources or other major components 

of photolithography systems, and 

advanced ceramic products. The 

Treasury Department and the IRS have 

determined that such clarifications are 

appropriate for defining ‘‘semiconductor 

manufacturing equipment.’’ 

Accordingly, the final regulations clarify 

that the list of examples of 

semiconductor manufacturing 

equipment and subsystems is nonexclusive and includes additional 

examples of property that may qualify 

as semiconductor manufacturing 

equipment and subsystems. The 

Treasury Department and the IRS again 

note that property that may be 

considered a subsystem must also meet 

the requirements of section 48D and the 

section 48D regulations. 

Commenters further requested that 

the final regulations clarify that a 

component, part or subsystem may be 

considered semiconductor 

manufacturing equipment on a case-bycase basis, and provide factors that are 

persuasive, including industry 

definitions, CHIPS Act funding, 

complexity of part, or other United 

States Government Agency 

categorizations that define it as 

semiconductor equipment. As stated in 

the Background section of this 

preamble, consistent with the authority 

granted by sections 50(a)(3) and 

(a)(6)(D)(i) and 7805(a), the Treasury 

Department and the IRS, in coordination 

with the Department of Commerce and 

the Department of Defense, have 

incorporated in the final regulations 

definitional concepts as determined by 

the Secretary of Commerce, and 

contained in the Commerce Final Rule 

necessary for the determination of 

applicable transactions under section 

50(a)(3) and (a)(6)(D). For this reason, 

the Treasury Department and the IRS 

have determined that incorporating 

definitions from other United States 

Government agencies that define 

semiconductor equipment for other 

purposes would not be appropriate. The 

Treasury Department and the IRS have 

further determined that including a 

case-by-case facts and circumstances 


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rule as suggested by the commenters 

would inject significant complexity into 

the final regulations and likely cause 

additional uncertainty regarding the 

scope of the term ‘‘semiconductor 

manufacturing equipment’’ due to its 

inherently factual nature. As a result, 

the final regulations do not incorporate 

the commenters’ recommendations. 

The Treasury Department and the IRS 

note that proposed § 1.48D–2(n) would 

define ‘‘manufacturing semiconductor 

manufacturing equipment’’ as the 

physical production of semiconductor 

manufacturing equipment in a 

manufacturing facility. As further 

described in section V.A. of this 

Summary of Comments and Explanation 

of Revisions, the final regulations 

modify the proposed definition of 

‘‘advanced manufacturing facility’’ by 

removing the requirement that such a 

facility manufacture ‘‘finished’’ 

semiconductor manufacturing 

equipment. Consistent with the 

modification, the final regulations 

define the term ‘‘manufacturing of 

semiconductor manufacturing 

equipment’’ to require that that such 

semiconductor manufacturing 

equipment be used by an advanced 

manufacturing facility engaged in the 

manufacturing of semiconductors as 

defined in § 1.48D–2(g) of the final 

regulations. 

IV. Comments on and Changes to 

Proposed § 1.48D–3 

A. Part of an Advanced Manufacturing 

Facility 

Commenters requested clarification 

that a taxpayer’s ownership of an 

advanced manufacturing facility is not a 

prerequisite for claiming the section 

48D credit when a taxpayer places in 

service qualified property that is colocated on an advanced manufacturing 

facility and otherwise meets the 

requirements of section 48D and the 

final regulations. One commenter 

requested that the final regulations 

provide that property that is physically 

located or co-located on an advanced 

manufacturing facility and integral to 

the operation of the advanced 

manufacturing facility be considered 

part of the advanced manufacturing 

facility. The Treasury Department and 

the IRS agree that neither section 

48D(b)(1) and (2), nor any other 

provision under section 48D, require a 

taxpayer to own the advanced 

manufacturing facility as a prerequisite 

to determining a section 48D credit. 

Section 48D(b)(1) and (2) mandate that, 

among other requirements, property be 

placed in service as part of, and, integral 

to the operation of an advanced 

manufacturing facility to be ‘‘qualified 

property’’ for purposes of the section 

48D credit. Therefore, the final 

regulations include a definition of ‘‘part 

of an advanced manufacturing facility’’ 

to clarify that property is part of the 

advanced manufacturing facility if the 

property is physically located or colocated either (1) at the advanced 

manufacturing facility, or (2) on a 

contiguous piece of land to the 

advanced manufacturing facility. The 

final regulations clarify that parcels or 

tracts of land are considered contiguous 

if they possess common boundaries and 

would be contiguous but for the 

interposition of a road, street, railroad, 

public utility, stream or similar 

property. Generally, property that is not 

physically located or co-located at the 

advanced manufacturing facility or on a 

piece of land contiguous to the 

advanced manufacturing facility is not 

part of an advanced manufacturing 

facility. 

The Treasury Department and the IRS 

are aware that certain properties, for 

example, a water or wastewater 

treatment plant, may not be physically 

located or co-located at an advanced 

manufacturing facility or on a 

contiguous piece of land to the 

advanced manufacturing facility, but 

could be integral to the operation of the 

advanced manufacturing facility. For 

this reason, a rule allowing such 

properties in certain situations to be 

considered part of an advanced 

manufacturing facility is appropriate for 

purposes of the section 48D credit. 

Accordingly, the final regulations 

provide that property that is not located 

or co-located at an advanced 

manufacturing facility or on a 

contiguous piece of land to the 

advanced manufacturing facility may be 

considered part of an advanced 

manufacturing facility if the property is 

(1) owned by the same taxpayer as the 

entire advanced manufacturing facility, 

(2) connected to the advanced 

manufacturing facility (for example, via 

pipeline), and (3) the sole purpose, 

function, and output of the property is 

dedicated to the operation of the 

advanced manufacturing facility. 

However, such property must also meet 

the requirements of section 48D and the 

section 48D regulations. The final 

regulations include two examples to 

illustrate the application of section 

48D(b) and § 1.48D–3(f). 

B. Buildings and Offices 

Commenters requested that the final 

regulations expand the definition of 

‘‘qualified property’’ to include an 

existing building that is purchased but 

not reconditioned or re-built by the 

taxpayer. It would be inconsistent with 

the statute to allow a building that is 

purchased but not reconstructed by the 

taxpayer to be ‘‘qualified property’’ for 

purposes of the section 48D credit. 

Section 48D(b)(2)(A)(iii)(I) provides that 

the term ‘‘qualified property’’ means 

property that is, among meeting other 

requirements, ‘‘constructed, 

reconstructed, or erected by the 

taxpayer.’’ Therefore, the final 

regulations retain the rule set forth in 

proposed § 1.48D–3(b)(1). 

Commenters requested that the final 

regulations remove ‘‘offices’’ from the 

exception to the definition of tangible 

depreciable property in § 1.48D–3(c)(2) 

in order to allow certain office space 

within an advanced manufacturing 

facility to meet the definition of tangible 

depreciable property in § 1.48D–3(c)(1). 

It would be inconsistent with the statute 

to omit ‘‘offices’’ from the exception to 

the definition of tangible depreciable 

property, but further clarification is 

necessary concerning the meaning of the 

term ‘‘office’’. Section 48D(b)(2)(B)(ii) 

excludes from the definition of 

‘‘qualified property’’ ‘‘a building or 

portion of a building used for offices, 

administrative services, or other 

functions unrelated to manufacturing.’’ 

Accordingly, the final regulations clarify 

that the term ‘‘tangible depreciable 

property’’ does not include a building 

and its structural components used for 

offices. But, in response to the 

comments received, the final regulations 

also provide a list of certain buildings 

or portions of a building within an 

advanced manufacturing facility that are 

considered related to manufacturing and 

not considered offices. However, 

whether a particular building or portion 

of a building is used as an office, for 

administrative services, or is unrelated 

to manufacturing is a factual 

determination. 

C. Certain Leasing Transactions and 

Original Use 

A commenter requested that the final 

regulations clarify that a lessor election 

under § 1.48–4 to treat the lessee as 

having acquired investment credit 

property is permitted with respect to the 

section 48D credit. The commenter also 

requested that the final regulations 

address whether a lessor or lessee that 

purchases a previously leased advanced 

manufacturing facility and subsequently 

reconditions or rebuilds the facility is 

eligible to claim a section 48D credit. 

The Treasury Department and the IRS 

agree with the commenter that a lessor 

election under § 1.48–4 to treat the 

lessee as having acquired investment 

credit property is permitted by 

operation of the statute. Section 48D is 


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an investment credit under section 46. 

Section 50(d)(5) provides that, for 

purposes of computing the investment 

credit, rules similar to the rules of 

former section 48(d) (relating to certain 

leased property) (as in effect on the day 

before the date of the enactment of the 

Revenue Reconciliation Act of 1990 

(Pub. L. 101–508, 104 Stat. 1388 

(November 5, 1990)) apply. Section 

1.48–4 provides the regulatory 

requirements for the time and manner 

for making an election to treat the lessee 

as having purchased the property for 

purpose of the credit allowed and the 

regulatory requirements, including for 

original use, that must be met and are 

applicable for purposes of the election. 

The Treasury Department and the IRS 

decline to address specific examples of 

leasing transactions in the final 

regulations and note that the investment 

credit recapture provisions under 

section 50(a) and regulations, including 

§§ 1.47–1 through 1.47–3 apply for 

purposes of the section 48D credit. 

Commenters also requested that the 

definition of ‘‘original use’’ in proposed 

§ 1.48D–3(e) be modified in the final 

regulations to include acquired property 

that is reconditioned or rebuilt by a 

different taxpayer. Section 

48D(b)(2)(A)(iii)(I) and (II) provide that 

‘‘qualified property’’ includes property 

that is constructed, reconstructed, or 

erected by the taxpayer, or acquired by 

the taxpayer if the ‘‘original use’’ of 

such property begins with the taxpayer. 

Thus, the taxpayer must reconstruct or 

rebuild a property to meet the ‘‘original 

use’’ requirement under section 

48D(b)(2)(A)(iii). Accordingly, the 

Treasury Department and the IRS 

decline to adopt this recommendation. 

D. Property Integral to the Operation of 

an Advanced Manufacturing Facility 

One commenter requested that the 

sentence in proposed § 1.48D–3(f)(1) 

that states, ‘‘Materials, supplies, and 

other inventoriable items of property 

that are transformed into a finished 

semiconductor or into a finished unit of 

semiconductor manufacturing 

equipment are not considered property 

integral to the operation of 

manufacturing semiconductors or 

semiconductor manufacturing 

equipment’’ be modified to provide that 

such materials are integral to the 

operation of an advanced manufacturing 

facility. The Treasury Department and 

the IRS decline to adopt this 

recommendation. As noted in section 

III.I. of this Summary of Comments and 

Explanation of Revisions, among other 

requirements, section 48D(b)(2) and 

§ 1.48D–3(c) (referencing § 1.48–1(c) and 

(d)) require that property be tangible 

depreciable property, for example, 

production machinery, to meet the 

definition of qualified property. Gases, 

chemicals, and materials, such as 

diamond wafer substrates, and other 

semiconductive substances, that are 

consumed, utilized, or substantially 

transformed during the manufacturing 

process, or any other inventoriable 

items of property do not meet the 

threshold requirement of section 

48D(b)(2) and § 1.48D–3(c) to be 

‘‘qualified property’’ because they are 

not tangible depreciable property for 

purposes of the section 48D credit. 

Thus, such property would not be 

property ‘‘integral to the operation of an 

advanced manufacturing facility’’ under 

the statute. 

Another commenter requested that 

the final regulations clarify that the term 

‘‘transformed’’ in proposed § 1.48D– 

3(f)(1) does not refer to the normal 

degradation of components of 

semiconductor manufacturing 

equipment. However, a clarification is 

appropriate for establishing whether 

property is integral to the operation of 

an advanced manufacturing facility. 

Accordingly, § 1.48D–3(g)(1) of the final 

regulations clarifies that the term 

‘‘transformed’’ does not include the 

normal degradation of components of 

semiconductor manufacturing 

equipment. 

The final regulations include a special 

rule for purposes of establishing 

whether property is integral to the 

operation of a vertically integrated 

manufacturing facility. As discussed in 

section III.E. of this Summary of 

Comments and Explanation of 

Revisions, the final regulations clarify 

that the term ‘‘semiconductor 

manufacturing’’ includes semiconductor 

packaging, semiconductor fabrication, 

and semiconductor wafer production 

but excludes manufacturing processes 

related to precursor materials such as 

polysilicon. Consistent with this 

modification, the final regulations 

provide that, if an advanced 

manufacturing facility that is engaged in 

the manufacturing of semiconductors 

within the meaning of § 1.48D–2 also 

conducts vertically integrated activities 

(for example, producing raw materials 

and manufacturing ingots, wafers, and 

semiconductors), then property integral 

to the operation of such an advanced 

manufacturing facility includes only the 

property used in the manufacturing of 

semiconductors within the meaning of 

§ 1.48D–2. 

Commenters requested that examples 

of property that would normally be 

integral to operation of an advanced 

manufacturing facility in proposed 

§ 1.48D–3(f)(1) be modified to reflect 

any modifications to the definitions of 

‘‘semiconductor’’ and ‘‘semiconductor 

manufacturing equipment’’ in the final 

regulations. Commenters also requested 

that the final regulations include 

additions to the list of specific property 

under § 1.48D–3(f)(1) to provide 

certainty to taxpayers. The commenters 

requested that the list include, property 

such as electricity distribution 

equipment, industrial automation and 

control equipment, communications 

devices, lighting products, water 

management, conservation, water 

treatment equipment, materials, and 

technologies, and tooling equipment. 

The Treasury Department and the IRS 

have determined that adding to the list 

of specified property that would 

‘‘normally be integral to the operation of 

an advanced manufacturing facility’’ 

consistent with the modification to the 

definitions of ‘‘semiconductor 

manufacturing’’ and ‘‘semiconductor 

manufacturing equipment’’ under 

§ 1.48D–2(n) and (o) of the final 

regulations is appropriate for 

determining whether property is 

‘‘integral to the operation of an 

advanced manufacturing facility.’’ 

Accordingly, § 1.48D–3(g)(3) of the final 

regulations includes additional 

examples of such property. 

One commenter requested that 

proposed § 1.48D–3(f)(2) be modified to 

treat research facilities that do not 

manufacture any type of semiconductor 

or semiconductor manufacturing 

equipment to qualify as integral to the 

operation of an advanced manufacturing 

facility. The commenter further stated 

that the restriction in § 1.48D–3(f)(2) of 

the March 2023 proposed regulations 

exceeds the statutory exclusions in 

section 48D(b)(2)(B)(ii) for a building or 

portion of a building used for offices, 

administrative services, or other 

functions unrelated to manufacturing. 

The statute is silent concerning the 

treatment of research facilities, but does 

require, pursuant to section 

48D(b)(2)(A)(iv), that property be 

integral to the operation of an 

‘‘advanced manufacturing facility’’ to 

meet the definition of ‘‘qualified 

property.’’ As previously noted in the 

Background section of this preamble, 

the March 2023 proposed regulations 

primarily applied long-established 

credit mechanics and procedures 

common to all investment tax credits 

previously set forth in regulations and 

subregulatory guidance. Those longestablished mechanics and procedures, 

including those set forth in § 1.48–1 

generally require that a research facility 

be used ‘‘in connection’’ with the 

qualifying activity to be considered used 


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as integral part of the activity. Section 

48D(b)(3) defines an ‘‘advanced 

manufacturing facility’’ as a ‘‘facility for 

which the primary purpose is the 

manufacturing of semiconductors or 

semiconductor manufacturing 

equipment.’’ Under both the March 

2023 proposed regulations and the final 

regulations, facilities built for pre-pilot 

production lines and the manufacture of 

prototypes would be qualified property 

integral to the operation of an advanced 

manufacturing facility. Based on the 

foregoing, a research facility that does 

not manufacture semiconductors or 

semiconductor manufacturing 

equipment is not used ‘‘in connection’’ 

with the manufacturing of 

semiconductors or semiconductor 

manufacturing equipment. For these 

reasons, the final regulations do not 

adopt the commenter’s 

recommendation. 

E. Semiconductor Manufacturing in 

Space 

One commenter requested that the 

final regulations clarify that section 48D 

directly contemplates semiconductor 

manufacturing work in space and 

explicitly confirm that qualifying 

advanced manufacturing activity can 

occur in space, and on a low-earth 

orbiter, in particular. More specifically, 

the commenter requested that the final 

regulations: (1) provide an exception to 

the definition of buildings and 

structural components unrelated to 

manufacturing for functions that are 

critical for human habitation in space; 

and (2) expand the examples of property 

integral to the operations of an 

advanced manufacturing facility to 

include space delivery vehicles, as all of 

the examples currently describe either 

the facility itself or related 

infrastructure for land-based 

manufacturing (for example, docks, 

railroad tracks, and bridges). 

Section 48D does not expressly 

address semiconductor manufacturing 

in space, or whether a ‘‘qualifying 

advanced manufacturing activity’’ can 

occur in space, and on a low-earth 

orbiter, in particular. Section 48D is 

among the investment credits under 

section 46. Section 50(b)(1)(A) makes 

ineligible for the investment credit 

property that is used predominantly 

outside the United States. However, 

section 50(b)(1)(B) provides an 

exception for property described in 

section 168(g)(4). Section 168(g)(4)(L) 

includes an exception for any satellite 

(not described in section 168(g)(4)(H), 

which applies to communication 

satellites) or other spacecraft (or any 

interest therein) held by a United States 

person if such satellite or other 

spacecraft was launched from within 

the United States. Whether a low-earth 

orbiter or property placed in service on 

a low-earth orbiter is described in 

section 168(g)(4)(L) would require a 

careful examination of all relevant facts 

and circumstances, any applicable Code 

sections and Federal income tax 

principles apart from those found in 

section 48D and the section 48D 

regulations. Whether ‘‘buildings’’ or 

structural components that are critical 

for human habitation in space are 

included among the exception for a 

building or portion of a building used 

for offices administrative services, or 

other functions unrelated to 

manufacturing pursuant to section 

48D(b)(2)(B)(ii), also would require a 

careful examination of all relevant facts 

and circumstances, any applicable Code 

sections, and Federal income tax 

principles apart from those found in 

section 48D and the section 48D 

regulations. Similarly, whether property 

integral to the operation of an advanced 

manufacturing facility can include 

space delivery vehicles requires a 

careful examination of all relevant facts 

and circumstances. For these reasons, 

the issues addressed by the commenter 

are beyond the scope of the final 

regulations. Accordingly, the final 

regulations do not adopt rules to 

address semiconductor manufacturing 

in space. 

V. Comments on and Changes to 

Proposed § 1.48D–4 

A. Definition of Advanced 

Manufacturing Facility 

Section 1.48D–4(b) of the March 2023 

proposed regulations would have 

provided that the term ‘‘advanced 

manufacturing facility’’ means a facility 

of an eligible taxpayer for which the 

primary purpose is the manufacturing of 

finished semiconductors or the 

manufacturing of finished 

semiconductor manufacturing 

equipment. Commenters requested that 

the final regulations omit the term 

‘‘finished’’ from the definition of 

‘‘advanced manufacturing facility,’’ or, 

define the term ‘‘finished’’ if it is 

retained in the final regulations. 

Commenters also requested that 

conforming changes be made to the 

definition of ‘‘advanced manufacturing 

facility’’ if the definitions of 

‘‘semiconductor,’’ ‘‘semiconductor 

manufacturing equipment,’’ or 

‘‘subsystems’’ are modified by the final 

regulations. 

The Treasury Department and the IRS 

agree with the commenters that the term 

‘‘finished’’ should be removed from the 

definition of ‘‘advanced manufacturing 

facility’’ in the final regulations to 

reflect industry practice and the 

modifications to the definitions of 

‘‘semiconductor manufacturing’’ and 

‘‘semiconductor manufacturing 

equipment’’ under § 1.48D–2(n) and (o) 

of the final regulations. Accordingly, the 

definition of ‘‘advanced manufacturing 

facility’’ is revised in the final 

regulations by removing the term 

‘‘finished.’’ Consistent with the revision 

to the definition of ‘‘advanced 

manufacturing facility,’’ the term 

‘‘finished’’ is also removed from 

§ 1.48D–4(b) and (c)(1) of the final 

regulations, for purposes of determining 

whether the primary purpose of a 

facility is the manufacturing of 

semiconductors or semiconductor 

manufacturing equipment. 

Commenters requested that the 

definition of an advanced 

manufacturing facility be modified to 

ensure that industrial gas and other 

equipment qualifies when co-located on 

an advanced manufacturing facility, 

and, similarly, clarify what constitutes 

an advanced manufacturing facility 

when multiple taxpayers place in 

service qualified property at the same 

facility. Commenters also requested that 

the final regulations define the term 

‘‘facility’’ as a reasonably identifiable 

space, an amenity, a piece of equipment, 

or an assembly line that can be 

distinguished from an entire campus or 

building where multiple activities are 

performed and would allow for 

bifurcation of manufacturing campuses 

or within buildings where certain 

facilities may be leveraging the section 

48D credit while other facilities may be 

leveraging a different tax incentive. One 

commenter requested that the final 

regulations define an advanced 

manufacturing facility consistent with 

the definition of qualified property 

integral to the operation of an advanced 

manufacturing facility in proposed 

§ 1.48D–3(f). Another commenter 

requested that the final regulations 

provide that the definition of an 

advanced manufacturing facility include 

design facilities that are related to the 

semiconductor manufacturing process. 

The Treasury Department and the IRS 

decline to adopt these recommendations 

by further modifying the definition of an 

‘‘advanced manufacturing facility’’ or 

defining ‘‘facility’’ in the final 

regulations. Section 48D(b)(3) and 

§ 1.48D–4(b) of the final regulations 

define an advanced manufacturing 

facility as a facility for which the 

primary purpose is the manufacturing of 

semiconductors or the manufacturing of 

semiconductor manufacturing 

equipment within the meaning of 

§ 1.48D–2. Section 1.48D–2 defines the 


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terms semiconductor, semiconductor 

manufacturing, semiconductor 

manufacturing equipment, 

manufacturing of semiconductors, and 

manufacturing of semiconductor 

manufacturing equipment. Taken 

together, the statutory and regulatory 

provisions define what constitutes an 

advanced manufacturing facility for 

purposes of the section 48D credit. For 

these reasons, the final regulations do 

not include a separate definition of 

‘‘facility’’ as requested by the 

commenters. The treatment of colocated property is addressed in section 

IV.A of this Summary of Comments and 

Explanation of Revisions. 

B. Primary Purpose 

Commenters requested that the final 

regulations include a minimum 

threshold that would satisfy the 

‘‘primary purpose’’ requirement. In 

proposed § 1.48D–4(c)(3)(i) (Example 1), 

a taxpayer manufactures semiconductor 

manufacturing equipment that 

represents approximately 75 percent of 

the potential output of the taxpayer’s 

facility by cost to produce such 

equipment. Section 1.48D–4(c)(3)(i) 

(Example 1) shows that the taxpayer 

satisfied the primary purpose test in 

proposed § 1.48D–4(c). Proposed 

§ 1.48D–4(c)(3)(ii) (Example 2) reaches 

the same conclusion when the taxpayer 

manufactures certain microscopes for a 

semiconductor manufacturing facility 

and such equipment represents 

approximately 75 percent of the 

potential output (by cost) of the 

taxpayer’s facility. Commenters 

requested that the final regulations state 

the minimum threshold that would 

satisfy the primary purpose test as more 

than 50 percent. One commenter 

requested that the final regulations 

specify the types of cost that should be 

considered in the output test and if 

research costs in connection with 

manufacturing semiconductor or 

semiconductor equipment should be 

considered in the numerator of output 

test. The commenter further requested 

that the regulations should clarify that 

the output capacity in the quantitative 

test should be measured at full life cycle 

instead of the year placed in service 

when the credit is determined. The 

commenter also requested that the 

threshold requirement rule be provided 

in the regulatory text. Another 

commenter requested that the final 

regulations include an example of a 

facility that does not meet the ‘‘primary 

purpose’’ requirement, especially for 

facilities that do not meet the 75 percent 

threshold. 

The Treasury Department and the IRS 

have determined that the final 

regulations should include a minimum 

threshold that would satisfy the 

‘‘primary purpose’’ requirement. 

Accordingly, § 1.48D–4(c)(1) of the final 

regulations provides that a minimum 

threshold of more than 50 percent by 

cost of production, revenue received in 

an arm’s length transaction, or units 

produced satisfies the ‘‘primary 

purpose’’ requirement. Section 1.48D– 

4(c)(3) of the final regulations include 

examples illustrating the application of 

this rule, including examples involving 

semiconductor wafer production and a 

vertically integrated manufacturer. 

However, property placed in service in 

a taxable year must still meet the 

definition of qualified property under 

section 48D(b)(2) and § 1.48D–3 for its 

basis to be included as part of the 

qualified investment in the advanced 

manufacturing facility eligible for the 

section 48D credit. Specifying the types 

of cost that should be considered in the 

output test and the time period for the 

measurement would require a careful 

examination of all relevant facts and 

circumstances, any applicable Code 

sections and Federal income tax 

principles apart from those found in 

section 48D and the section 48D 

regulations. For these reasons, 

specifying the types of costs that should 

be considered and the time period for 

measurement is not appropriate for 

purposes of the final regulations. 

One commenter requested that the 

words ‘‘grows’’ and ‘‘grow wafers’’ in 

proposed § 1.48D–4(c)(2) be removed in 

the final regulations if the definition of 

‘‘semiconductor’’ is revised in the final 

regulations to include polysilicon, 

boules, wafers, and similar materials 

with electronic properties manufactured 

specifically for the purpose of 

semiconductor manufacturing. Another 

commenter requested that the final 

regulations clarify that ‘‘primary 

purpose’’ can include intermediate 

manufacturing steps or production of 

components for finished 

semiconductors. One commenter 

requested that the final regulations 

provide that, in the case of a vertically 

integrated company that manufactures 

semiconductors, property used in the 

crystal and boule growth be treated as 

property integral to the operation of an 

advanced manufacturing facility. 

The Treasury Department and the IRS 

agree, in part, with commenters and the 

final regulations adopt, in part, the 

commenter’s request for a modification 

to proposed § 1.48D–4(c)(2) by removing 

‘‘grows’’ and ‘‘grows wafers’’ from the 

final regulations, and providing that 

primary purpose can include certain 

intermediate manufacturing steps to 

conform with the definition of 

‘‘semiconductor manufacturing’’ in 

§ 1.48D–2(n) of the final regulations. As 

previously described in section III.E. of 

this Summary of Comments and 

Explanation of Revisions, 

semiconductor wafer production 

includes the processes of growing 

single-crystal ingots and boules, as well 

as wafer slicing, bonding, etching and 

polishing, cleaning, epitaxial 

deposition, and metrology. Including 

property used in steps prior to growing 

single-crystal ingots and boules in the 

case of a vertically integrated 

semiconductor manufacturer is not 

consistent with the purpose and 

structure of the statute because the 

primary purpose of such property is not 

the manufacturing of semiconductors 

(as defined in § 1.48D–2(g) of the final 

regulations) or the manufacturing of 

semiconductor manufacturing 

equipment (as defined in § 1.48D–2(h) 

of the final regulations). Accordingly, 

the final regulations do not include such 

a rule for such vertically integrated 

businesses. 

The final regulations provide 

examples to illustrate whether a facility 

has a primary purpose of manufacturing 

of semiconductors or manufacturing of 

semiconductor manufacturing 

equipment. The examples address 

whether the facility meets the primary 

purpose test in the taxable year the 

property is placed in service. Because 

the section 48D is an investment tax 

credit, and pursuant to § 1.46–3(d)(4), 

the investment credit is allowed in the 

taxable year the property is placed in 

service. In addition, the investment tax 

credit recapture rules under section 

50(a) apply to the section 48D credit. If 

the property for which the section 48D 

credit is claimed ceases to be 

investment credit property (as defined 

in section 50(a)(6)(A)) with respect to 

the taxpayer before the close of the 5- 

year recapture period, then all or a 

portion of the section 48D credit is 

recaptured. If a taxpayer fails to meet 

the primary purpose test during any of 

the years during the 5-year recapture 

period, then the facility is no longer an 

advanced manufacturing facility, as 

defined in section 48D(b)(3) and the 

final regulations. The property the 

taxpayer placed in service to claim the 

section 48D credit is no longer qualified 

property under section 48D(b)(2)(A)(iv), 

because such property is no longer 

integral to the operation of an advanced 

manufacturing facility. Thus, the 

property has ceased to be investment 

credit property with respect to the 

taxpayer and, pursuant to section 

50(a)(1)(A) and (B), all or a portion of 


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the section 48D credit claimed is 

recaptured. 

VI. Comments on and Changes to 

Proposed § 1.48D–5 

A. Definition of Single Advanced 

Manufacturing Facility Project 

Commenters requested that the final 

regulations expand the list of items of 

property that may be treated as a single 

item for purposes of the beginning of 

construction rules to include ‘‘tooling 

equipment’’ and ‘‘semiconductor 

manufacturing equipment.’’ The list in 

proposed § 1.48D–5(a)(3) is nonexclusive. However, the Treasury 

Department and the IRS have 

determined that a clarification is 

appropriate to clarify that ‘‘tooling 

equipment’’ and ‘‘semiconductor 

manufacturing equipment’’ can be 

treated as a single item for purposes of 

the beginning of construction. 

Accordingly, § 1.48D–5(a)(3)(i) of the 

final regulations is revised to include 

‘‘tooling equipment’’ and 

‘‘semiconductor manufacturing 

equipment.’’ 

Commenters requested that the final 

regulations establish a safe harbor for 

satisfying the single advanced 

manufacturing facility project 

determination if a taxpayer meets at 

least four of the factors listed under 

proposed § 1.48D–5(a)(3)(i). As noted in 

the Background section of this 

preamble, the final regulations primarily 

apply credit mechanics and procedures 

common to all investment credits. It is 

therefore appropriate for purposes of 

section 48D to provide a single project 

test similar to the test provided in other 

recent guidance applicable to 

investment credits. Accordingly, 

§ 1.48D–5(a)(3)(i) of the final regulations 

provides that multiple properties or 

facilities will be treated as a single 

project if, at any point during 

construction of the multiple properties 

or facilities, they are owned by a single 

taxpayer (subject to the related taxpayer 

rule discussed later in this section of 

this Summary of Comments and 

Explanation of Revisions), and any two 

or more of the factors listed in § 1.48D– 

5(a)(3)(i) are met. Under § 1.48D– 

5(a)(3)(ii) of the final regulations, related 

taxpayers would be treated as one 

taxpayer in determining whether 

multiple facilities or properties are 

treated as a single project. Related 

taxpayers would be defined as members 

of a group of trades or businesses that 

are under common control (as defined 

in § 1.52–1(b)). 

Commenters also requested that the 

final regulations modify proposed 

§ 1.48D–5(a)(3)(i)(F) by changing ‘‘single 

master construction contract’’ to a 

‘‘single master construction plan,’’ and 

add a new factor based on whether the 

properties or facilities achieve 

efficiencies and economies of scale 

through shared semiconductor 

manufacturing resources. However, 

planning and designing are generally 

regarded as preliminary activities that 

would not satisfy the Physical Work 

Test, and treating multiple items of 

qualified property as a single item based 

on a ‘‘construction plan’’ as opposed to 

a ‘‘construction contract’’ would not 

inform whether construction has begun 

for purposes of section 48D. Including a 

factor based on whether the properties 

or facilities achieve efficiencies and 

economies of scale through shared 

semiconductor manufacturing resources 

would inject significant complexity into 

the final regulations and likely cause 

additional uncertainty regarding the 

scope of the term ‘‘single advanced 

manufacturing facility project’’ due to 

its inherently factual nature. 

Accordingly, the final regulations do not 

incorporate the commenters’ 

recommendations. 

One commenter requested that the 

final regulations clarify the 

disaggregation of a single advanced 

manufacturing facility project under 

proposed § 1.48D–5(a)(3)(iv). The 

commenter requested that the final 

regulations clarify that the relevant facts 

and circumstances to satisfy the 

continuity requirement for 

disaggregated separate items of property 

or facilities should be the facts and 

circumstances from the time that the 

continuity safe harbor period ends until 

the property is placed in service. The 

Treasury Department and the IRS 

decline to adopt the recommendation 

because it would be inconsistent with 

the continuity requirement. Those 

disaggregated separate items of property 

or facilities were not placed in service 

prior to the continuity safe harbor 

deadline and therefore, the taxpayer is 

not deemed to satisfy the continuity 

requirement with respect to those items 

from the beginning of construction date 

through the end of the continuity safe 

harbor period. Accordingly, the final 

regulations do not incorporate the 

commenter’s recommendation. 

The commenter also requested that 

the final regulations address the time 

period for which the remaining 

disaggregated separate items of property 

or facilities may satisfy the continuity 

requirement under a facts and 

circumstances determination, pursuant 

to proposed § 1.48D–5(a)(3)(iv). The 

commenter recommended that the 

period start when physical work of a 

significant nature begins with respect to 

the disaggregated separate item of 

property rather than when construction 

began based on the single advanced 

manufacturing facility project. The 

commenter recommended that, 

alternatively, a continuous construction 

or continuous effort for any one item of 

property within the single advanced 

manufacturing facility project be 

attributed to all properties within the 

project to satisfy the continuity 

requirement. The Treasury Department 

and the IRS have determined that the 

relevant facts and circumstances 

determination in proposed § 1.48D– 

5(a)(3)(iv) is appropriate for determining 

whether a disaggregated separate item of 

property satisfies the continuity 

requirement. Accordingly, the final 

regulations do not incorporate the 

commenter’s recommendation. 

B. Beginning of Construction, In General 

A commenter requested that the final 

regulation clarify whether a taxpayer 

applies the same test for all construction 

in progress at one contiguous location to 

determine whether construction began 

before December 31, 2026. Proposed 

§ 1.48D–5(b)(1) provides that a taxpayer 

may establish that construction of an 

item of property (defined as a single 

advanced manufacturing facility project 

under proposed § 1.48D–5(a)(3), or an 

item of qualified property under 

proposed § 1.48D–3(b)) of a taxpayer 

begins under either the Physical Work 

Test or the Five Percent Safe Harbor. 

Thus, whether a taxpayer applies the 

same test for all construction in progress 

at one contiguous location depends on 

the unit of property being measured. For 

this reason, the Treasury Department 

and the IRS have determined that a 

clarification is not necessary. 

C. Physical Work Test 

Commenters requested that the final 

regulations include examples of on-site 

and off-site physical work of a 

significant nature specific to the 

semiconductor industry. One 

commenter recommended, at a 

minimum, including on-site activities 

such as excavation for the foundation of 

a facility, pouring concrete into a 

foundation of a facility, and installing 

underground utilities, and including offsite activities such as the acquisition of 

key systems, manufacture of 

components, mounting equipment, and 

constructing support structures such as 

steel trusses. The Treasury Department 

and the IRS have determined that 

including certain examples of on-site 

and off-site work to provide additional 

certainty to taxpayers is appropriate for 

determining whether physical work of a 

significant nature has occurred. 


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Accordingly, § 1.48D–5(c)(2) of the final 

regulations includes a non-exclusive list 

of examples of on-site and off-site 

activities, consistent with IRS guidance 

pertaining to beginning of construction. 

D. Five Percent Safe Harbor 

One commenter requested that a 

payment made by the taxpayer for 

property that is manufactured, 

constructed, or produced for the 

taxpayer by another person under a 

binding written contract but is not yet 

provided to the taxpayer and is not yet 

incurred by the other person is 

considered paid or incurred with 

respect to the taxpayer for purposes of 

the Five Percent Safe Harbor. As noted, 

the section 48D regulations primarily 

apply long-established credit mechanics 

and procedures common to all 

investment credits, including 

application of the principles of section 

461. Therefore, the final regulations 

retain the rule set forth in proposed 

§ 1.48D–5(d)(2). 

E. Continuity Requirement 

Commenters requested that the final 

regulations provide examples of the 

facts and circumstances that would 

support the conclusion that the taxpayer 

satisfied the continuity requirement. 

The Treasury Department and the IRS 

have determined that including an 

example of facts and circumstances that 

would support a particular factor being 

met under the continuity facts and 

circumstances test is appropriate for 

clarifying the continuity requirement in 

this context. Accordingly, the final 

regulations clarify that a taxpayer has 

met the factor of paying or incurring 

additional amounts included in the total 

cost of the property for a taxable year in 

which it pays or incurs (within the 

meaning of § 1.461–1(a)(1) and (2)) five 

percent or more of the total cost of the 

property each calendar year after the 

calendar year during which 

construction of the property began for 

purposes of section 48D and the section 

48D regulations. 

One commenter requested that the 

final regulations include ‘‘industry 

downturns’’ in the non-exclusive list of 

construction disruptions under 

proposed § 1.48D–5(e)(4)(iii). The 

commenter explained that the 

semiconductor industry is highly 

cyclical in nature and semiconductor 

companies typically reduce capital 

expenditures and delay on-going 

construction of new semiconductor 

facilities during industry downturns. 

The commenter recommended defining 

‘‘industry downturn’’ as a 20 percent 

reduction to publicly traded stock value 

during the preceding 12-month period. 

The commenter also requested that the 

final regulations include a provision 

that Treasury may exercise its authority 

to identify per se construction 

disruptions in future guidance. The 

Treasury Department and the IRS 

decline to adopt these 

recommendations, but will consider 

whether future guidance, specific to any 

market and construction disruptions, is 

necessary, as needed. 

A commenter requested that the final 

regulations modify the continuity safe 

harbor in proposed § 1.48D–5(e)(6) by 

creating a bright-line rule that all 

property placed in service before 

December 31, 2036, will be deemed to 

satisfy the continuity safe harbor. The 

commenter argued that the structure of 

a continuity safe harbor that measures 

from the beginning of construction, in 

the context of semiconductor 

manufacturing, creates an incentive to 

intentionally delay the beginning of 

construction date to as late in 2026 as 

possible to more closely align the time 

that construction begins to the 

beginning of the tolling of the 10-year 

safe harbor period. Section 48D(e) 

provides that a section 48D credit may 

not be claimed for property the 

construction of which begins after 

December 31, 2026. The March 2023 

proposed regulations provide that a 

taxpayer can establish that construction 

of property has begun by meeting either 

the Physical Work Test or the Five 

Percent Safe Harbor. Under either test, 

a taxpayer must meet the Continuity 

Requirement by demonstrating 

continuous construction or continuous 

efforts based on the relevant facts and 

circumstances. In lieu of demonstrating 

continuous construction or continuous 

efforts, however, the taxpayer is deemed 

to satisfy the continuity requirement, 

under the continuity safe harbor, by 

placing the property in service within 

ten calendar years after the date that the 

Physical Work Test or the Five Percent 

Safe Harbor is first satisfied. Taxpayers 

are not obligated to satisfy the 

continuity safe harbor to meet the 

continuity requirement. For these 

reasons, the Treasury Department and 

the IRS decline to adopt the 

commenter’s recommendation in the 

final regulations. 

A commenter requested that the final 

regulations include a monetary safe 

harbor in which a taxpayer is deemed to 

satisfy the continuous construction test 

or continuous efforts test in the case an 

advanced manufacturing facility project 

if the taxpayer pays or incurs a certain 

dollar amount of the total cost of the 

property during each taxable year before 

the property is placed in service. Paying 

or incurring costs towards completion of 

a project is one of many factors that may 

indicate the continuity requirement is 

met. As such, the Treasury Department 

and the IRS decline to include an 

additional safe harbor in the final 

regulations that is solely dependent on 

the dollar amount of monetary spend in 

a given taxable year. However, as 

previously described, the final 

regulations clarify that a taxpayer has 

met the factor of paying or incurring 

additional amounts included in the total 

cost of the property for a taxable year in 

which it pays or incurs (within the 

meaning of § 1.461–1(a)(1) and (2)) five 

percent or more of the total cost of the 

property each calendar year after the 

calendar year during which 

construction of the property began. 

VII. Comments on and Changes to 

Proposed § 1.50–2 

A. Applicable Transaction 

One commenter requested 

clarification of whether the term 

‘‘applicable transaction’’ includes the 

expansion of manufacturing 

semiconductor manufacturing 

equipment in a foreign country of 

concern. Section 50(a)(6)(D) provides 

that ‘‘applicable transaction’’ means a 

‘‘significant transaction’’ involving the 

material expansion of ‘‘semiconductor 

manufacturing capacity’’ in a foreign 

country of concern. Section 50(a)(6)(D) 

does not refer to manufacturing 

semiconductor manufacturing 

equipment. For that reason, the term 

‘‘applicable transaction’’ does not 

include the expansion of manufacturing 

semiconductor manufacturing 

equipment in a foreign country of 

concern. Section 50(a)(6)(E), however, 

defines the term ‘‘applicable taxpayer’’ 

as any taxpayer who has been allowed 

a section 48D credit for any prior 

taxable year. Thus, a taxpayer that was 

allowed a section 48D credit for 

manufacturing semiconductor 

manufacturing equipment as defined in 

§ 1.48D–2(g) of the final regulations is 

an ‘‘applicable taxpayer’’ for purposes of 

section 50(a)(3) and (a)(6)(D) and would 

be subject to recapture under those 

provisions if the taxpayer engaged in an 

‘‘applicable transaction’’ involving the 

material expansion of semiconductor 

manufacturing in a foreign country of 

concern. 

Commenters suggested that the final 

regulations provide that a transaction 

does not trigger recapture under section 

50(a)(3) if such transaction does not 

trigger a clawback under an entity’s 

required agreement with the Department 

of Commerce. Consistent with section 

50(a)(6)(D), if a taxpayer enters into a 

required agreement with the Secretary 


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of Commerce, the final regulations 

define the term ‘‘significant transaction’’ 

to have the same meaning as provided 

in the required agreement for purposes 

of section 48D and the section 48D 

regulations. 

B. Definition of Applicable Taxpayer 

Several commenters requested that 

the final regulations treat only partners 

that actually claim a section 48D credit 

as an ‘‘applicable taxpayer,’’ as opposed 

to all partners in the partnership as 

required under proposed § 1.50– 

2(b)(2)(i)(C). Two of the commenters 

argued that activities undertaken 

outside the partnership by one partner 

should not trigger recapture of the 

section 48D credit claimed by another 

partner in the partnership. The Treasury 

Department and the IRS have 

determined that certain modifications 

are appropriate for defining ‘‘applicable 

taxpayer’’ in the context of qualified 

property owned by a partnership or S 

corporation. Accordingly, the final 

regulations retain the general definition 

of ‘‘applicable taxpayer’’ from proposed 

§ 1.50–2(b)(2)(i)(A) and include special 

rules for partnerships and S 

corporations. 

The final regulations clarify that in 

the case of property placed in service by 

a partnership, the term ‘‘applicable 

taxpayer’’ means any direct or indirect 

partner in a partnership: (1) who was 

allowed a section 48D credit for such 

property for any taxable year prior to 

when such partnership entered into an 

applicable transaction and includes 

such partnership; (2) with respect to the 

partner’s share of any section 48D credit 

allowed for such property prior to when 

such partner entered into an applicable 

transaction; or (3) with respect to the 

partner’s share of any tax-exempt 

income from a partnership that made an 

election under section 48D(d)(2) for any 

taxable year prior to when such partner 

entered into an applicable transaction. 

Consistent with proposed § 1.50– 

2(b)(2)(i)(B), the final regulations 

provide that the term ‘‘applicable 

taxpayer’’ means a partnership that 

made an election under section 

48D(d)(2) for any taxable year prior to 

the taxable year in which the 

partnership entered into an applicable 

transaction. The final regulations 

include similar rules for S corporations 

and shareholders. The final regulations 

also include additional examples to 

clarify the application of the rules 

regarding the term ‘‘applicable 

taxpayer.’’ 

C. Significant Transactions in General 

and Certain Required Agreements Under 

Section 103(b) of the CHIPS Act 

Section 50(a)(6)(D) requires that the 

meaning of the term ‘‘significant 

transaction’’ be determined by the 

Secretary in coordination with the 

Secretary of Commerce and the 

Secretary of Defense. Accordingly, the 

March 2023 proposed regulations 

defined the term ‘‘significant 

transaction’’ to align and harmonize the 

scope of applicable transactions under 

section 50(a)(3) with the scope of 

prohibited material expansion 

transactions within the meaning of 

proposed 15 CFR 231.121 (relating to 

the Prohibition on Certain Expansion 

Transactions) and included the 

definition of ‘‘significant transaction’’ in 

proposed 15 CFR 231.101 as contained 

in the Commerce Proposed Rule. 

However, unlike the Commerce 

Proposed Rule, the Commerce Final 

Rule does not include a definition of 

‘‘significant transaction.’’ Rather, 

pursuant to section 103(b) of the CHIPS 

Act, what constitutes a ‘‘significant 

transaction’’ is to be defined in the 

required agreement entered into 

between a funding recipient and the 

Secretary of Commerce. Accordingly, 

the Treasury Department and the IRS (in 

coordination with the Secretary of 

Commerce and the Secretary of Defense) 

have determined that, consistent with 

section 50(a)(6)(D), the term ‘‘significant 

transaction’’ means either a ‘‘significant 

transaction’’ as that term is generally 

defined in § 1.50–2(b)(10)(i) of the final 

regulations, or, with respect to a 

taxpayer that has entered into a required 

agreement with the Secretary of 

Commerce, as the term ‘‘significant 

transaction’’ is defined in § 1.50– 

2(b)(10)(ii) of the final regulations, in 

the required agreement with the 

Department of Commerce. Consistent 

with the definition of ‘‘significant 

transaction’’ in § 1.50–2(b)(10)(ii) of the 

final regulations, the defined terms in 

the required agreement with the 

Department of Commerce control for 

purposes of determining the meaning of 

the term ‘‘significant transaction.’’ 

One commenter requested that the 

section 50(a)(3) and (a)(6)(D) recapture 

provisions and the Department of 

Commerce’s award clawback rules 

should align the set of restrictions on 

transactions in foreign countries of 

concern to avoid disrupting ordinary 

business activities at existing legacy 

facilities, especially given the length of 

time of the advanced manufacturing 

investment credit recapture period. The 

Treasury Department and the IRS note 

that the final regulations harmonize the 

restrictions to the extent provided under 

the statute. 

D. Definition of Significant Transaction 

Several commenters requested 

modifications to the definition of 

‘‘significant transaction’’ in the March 

2023 proposed regulations. Some 

commenters requested the final 

regulations increase the $100,000 

threshold for determining whether a 

transaction is a ‘‘significant 

transaction.’’ Commenters also 

requested that the final regulations 

explicitly state that transactions with a 

principal purpose of funding ordinary 

course operations (for example, payroll, 

rent and utilities, marketing and 

advertising, and similar items) are not 

considered significant. 

In response to comments, the 

Treasury Department and the IRS are 

removing the monetary threshold for 

‘‘significant transaction’’, and, instead, 

the revised definition focuses on the 

type of transaction that could result in 

material expansion. This approach is 

consistent with the intent of the 

recapture rule in section 50(a)(3). 

Accordingly, the definition of 

‘‘significant transaction’’ has been 

modified to include (1) an investment, 

whether proposed, pending, or 

completed, including any capital 

expenditure, loan, or gift; (2) the 

formation of a subsidiary, whether 

classified as a corporation or 

partnership for Federal tax purposes; (3) 

a merger, acquisition, or takeover, 

including (a) the acquisition of a new or 

additional ownership interest in an 

entity, (b) the acquisition of a material 

portion of the assets of an entity, or (c) 

a consolidation; (4) the formation of a 

joint venture; or (5) a long-term lease or 

concession arrangement under which a 

lessee (or equivalent) makes 

substantially all business decisions 

concerning the operation of a leased 

entity (or equivalent), as if it were the 

owner. This definition, coupled with 

the revision to the definition of material 

expansion, would clarify that 

transactions with a principal purpose of 

funding ordinary course operations are 

not significant transactions. 

One commenter requested that the 

final regulations eliminate the 85 

percent rule under proposed § 1.50– 

2(b)(10)(iii) from the definition of 

‘‘significant transaction’’ or replace it 

with a simpler metric based on the ratio 

of units an entity manufactures in a 

foreign country of concern to the units 

shipped into a foreign county of 

concern. Another commenter requested 

that the Treasury Department and the 

IRS coordinate with the Department of 

Commerce to finalize a single uniform 


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standard to identify what is a ‘‘final 

product’’ for purposes of proposed 

§ 1.50–2(b)(10)(iii). The proposed 

definition of ‘‘significant transaction’’ 

was intended to align and harmonize 

with the scope of certain prohibited 

expansion transactions under the 

Commerce Proposed Rule, pursuant to 

the Secretary’s authority under section 

50(a)(6)(D)(i) to determine whether 

transactions are significant transactions. 

Accordingly, to maintain this alignment, 

the final regulations retain the 85 

percent threshold in its consideration of 

whether certain production of legacy 

semiconductors ‘‘predominately serves 

the market’’ in a foreign country of 

concern. Because the meaning of the 

term ‘‘predominately serves the market’’ 

is intended to be consistent with the 

Commerce Final Rule, the Treasury 

Department and the IRS decline to 

interpret ‘‘serves the market’’ to refer to 

the location to which the 

semiconductors are first shipped. 

Two commenters requested that the 

prohibition on technology licensing and 

joint research be removed from the 

definition of significant transaction, 

noting that the CHIPS Act does not refer 

to ‘‘technology licensing.’’ Several 

commenters suggested that the 

definition of ‘‘technology licensing’’ in 

proposed § 1.50–2(b)(11) is overly broad 

and could include general business 

operations, nondisclosure agreements, 

the discussion of products or 

technology, patents, trade secrets, knowhow, intraparty transfer agreements, or 

arrangements operating under current 

export control authorization. The 

commenters requested that the final 

regulations narrow the definition to 

focus on the actual licensing of the 

technology or products that are subject 

to restrictions rather than just the 

discussion of products or technology. 

One commenter suggested that 

taxpayers and their affiliate will be 

required to review and possibly 

terminate pre-existing agreements based 

on the proposed definition. 

Removing the prohibition on joint 

research or technology licensing 

agreements with a foreign entity of 

concern would allow a taxpayer to 

circumvent section 50(a)(3) and (a)(6)(D) 

through the use of joint research or 

technology licensing transactions. 

However, the Treasury Department and 

the IRS agree with the commenter’s 

suggestions concerning the scope of the 

term ‘‘technology licensing’’ in the 

March 2023 proposed regulations given 

that the definition of ‘‘technology 

licensing’’ in the Commerce Final Rule 

was modified, consistent with these 

comments. Accordingly, the final 

regulations provide that the terms ‘‘joint 

research’’ and ‘‘technology licensing’’ 

have the same meaning as provided in 

15 CFR 231.105 and 231.120, 

respectively. 

One commenter stated that the 

affiliated group rule under proposed 

§ 1.50–2(b)(10)(v) (establishing a 50 

percent ownership test) is inconsistent 

with the reference in 15 U.S.C. 

4652(a)(6)(C)(iii) to section 1504(a) of 

the Code. The Treasury Department and 

the IRS agree that the affiliated group 

rule is inconsistent with the reference in 

15 U.S.C. 4652(a)(6)(C)(iii) to section 

1504(a) and for that reason, the affiliate 

group rule has been removed from the 

final regulations. 

E. Existing Facility 

Commenters requested that the 

definition of an ‘‘existing facility’’ in 

proposed § 1.50–2(b)(5) be revised in the 

final regulations to clarify whether the 

term includes a facility undergoing 

production ramp-up and thus, on the 

date on which qualified property was 

placed in service, was not operating at 

full production level for which it was 

designed. One commenter requested 

that the final regulations clarify that 

upgrades and productivity 

improvements made to a facility during 

the ordinary course of business 

operations is not considered a 

significant renovation and the date for 

measuring semiconductor 

manufacturing capacity is the placed in 

service date as intended by the statute. 

The Treasury Department and the IRS 

have determined that only facilities 

built, equipped, and operating prior to 

a taxpayer placing in service qualified 

property as defined in section 48D(b)(2) 

and § 1.48D–3 are considered to be 

existing facilities. A facility that 

undergoes significant renovations as 

defined in § 1.50–2(b)(9) of the final 

regulations would no longer qualify as 

an existing facility. The final regulations 

do not require the existing facility to be 

operating at the semiconductor 

manufacturing capacity for which it was 

designed, as required by the March 2023 

proposed regulations. As noted in 

section VII.G of this Summary of 

Comments and Explanation of 

Revisions, the final regulations modify 

the definition of a ‘‘significant 

renovation’’ to mean building new 

cleanroom space or adding a production 

line or other physical space to an 

existing facility, such that upgrades and 

productivity improvements made to a 

facility during the ordinary course of 

business operations would not be 

considered a significant renovation. 

F. Material Expansion 

Commenters requested that the 

definition of ‘‘material expansion’’ in 

proposed § 1.50–2(b)(7) be modified in 

the final regulations to allow for an 

increase of semiconductor 

manufacturing capacity greater than 5 

percent. One commenter requested that 

the 5 percent increase in capacity be 

measured on an average basis over the 

course of a year. Commenters also 

requested that the final regulations 

provide a finite list specifying business 

activities, products and processes that 

constitute a material expansion of 

semiconductor manufacturing. The 

Treasury Department and the IRS have 

determined that raising the five percent 

threshold for allowable material 

expansions or measuring the five 

percent increase capacity on average 

over the course of a year would 

undermine the objective of the recapture 

rule under section 50(a)(3). The 

Treasury Department and the IRS have 

further determined that specifying 

business activities, products and 

process that constitute a material 

expansion of semiconductor 

manufacturing is consistent with the 

statute. Accordingly, the final 

regulations retain the five percent 

threshold and clarify that the increase in 

capacity is due to the addition of a 

cleanroom, production line or other 

physical space, or series of such 

additions during the applicable period. 

The final regulations clarify that the 

term ‘‘material expansion’’ includes any 

construction of a new facility for 

semiconductor manufacturing. 

G. Significant Renovations and 

Semiconductor Manufacturing Capacity 

Several commenters requested that 

the scope of the definition of 

‘‘significant renovation’’ in proposed 

§ 1.50–2(b)(9) be modified to encompass 

only new cleanroom construction, 

production space, increase in the square 

footage of an existing facility by a 

specified percentage, or actual output of 

the facility. The commenters argued that 

the March 2023 proposed regulations 

unnecessarily narrowed the scope of the 

exemption for legacy semiconductors as 

enacted, noting that the CHIPS Act does 

not include the term ‘‘significant 

renovation.’’ Some commenters also 

requested that the ten percent ceiling for 

increasing semiconductor 

manufacturing capacity be increased to 

fifteen percent. The commenters further 

requested that the final regulations 

clarify that an operating facility that has 

not yet reached its full capacity will be 

considered an ‘‘existing facility.’’ The 

Treasury Department and the IRS have 


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considered the commenters’ suggestions 

and have determined that the 

‘‘significant renovation’’ and ten percent 

threshold provisions are necessary to 

prevent a taxpayer from circumventing 

the recapture provisions of section 

50(a)(3)(A) by engaging in a ‘‘significant 

renovation’’ of an ‘‘existing facility.’’ 

However, the Treasury Department and 

the IRS agree with the commenters that 

clarification is needed concerning what 

is the scope of a ‘‘significant 

renovation.’’ Accordingly, the final 

regulations retain the rules for a 

‘‘significant renovation’’ of an existing 

facility but clarify that a ‘‘significant 

renovation’’ means building new 

cleanroom space or adding a production 

line or other physical space to an 

existing facility that, in the aggregate 

during the applicable period, increases 

semiconductor manufacturing capacity 

by 10 percent or more. 

One commenter requested that the 

final regulations clarify that, with 

respect to a specific facility, a taxpayer’s 

semiconductor manufacturing capacity 

is measured by taking into account both 

(i) the taxpayer’s own semiconductor 

manufacturing capacity in that facility, 

and (ii) any semiconductor 

manufacturing capacity of another party 

to the extent the other party’s operations 

are carried on for the benefit of the 

taxpayer. The commenter noted that 

semiconductor fabrication companies 

commonly outsource assembly and test 

work to third parties referred to as 

outsourced semiconductor assembly 

and test providers, or ‘‘OSATs.’’ The 

commenter further noted that 

semiconductor manufacturer may lease 

a portion of a facility in a foreign 

country of concern to an OSAT that 

performs assembly and test work for the 

benefit of the taxpayer within the same 

facility. One commenter, included as an 

attachment to its comments on the 

March 2023 proposed regulations, a 

letter that the commenter sent to the 

Department of Commerce concerning 

the Commerce Proposed Rule. The 

commenter requested that the 

Commerce Final Rule provide that 

semiconductor manufacturing capacity 

be measured in wafer starts per year, as 

opposed to wafer starts per month. 

Consistent with the Commerce Final 

Rule in 15 CFR 231.117, the final 

regulations provide that semiconductor 

manufacturing capacity is appropriately 

measured in wafer starts per month not 

including OSAT production. Section 

1.50–2(b)(8) of the final regulations 

include a rule for determining 

‘‘semiconductor manufacturing 

capacity’’ in the case of semiconductor 

wafer production. The final regulations 

clarify that wafer production is 

measured in starts per month and in the 

case of a semiconductor wafer 

production facility that includes the 

processes of growing single-crystal 

ingots and boules, wafer slicing, etching 

and polishing, cleaning, epitaxial 

deposition, and metrology, 

manufacturing capacity is measured in 

wafer starts per month. 

H. Technology or Product That Raises 

National Security Concerns 

One commenter requested that the 

final regulations exclude from the 

definition of semiconductors critical to 

national security, any semiconductors 

that reduce carbon emissions because 

they enhance rather than reduce U.S. 

national security (specifically SiC power 

semiconductors). The Treasury 

Department and the IRS appreciate that 

the performance advantages offered by 

compound semiconductors over silicon 

semiconductors, such as wider bandgap, 

lower operating voltages, and higher 

electron mobility, are vital to many 

military applications. Moreover, the 

governments of some foreign countries 

of concern have identified compound 

semiconductors as a strategic emerging 

industry. They have set ambitious goals 

for acquisition and development of 

compound semiconductor technology 

and strive to become global leaders in 

the industry. However, while exports of 

certain semiconductors are not subject 

to national security or regional stability 

export controls, joint research, or 

technology licensing involving these 

products with foreign entities of 

concern can nevertheless pose a 

significant risk to national security. 

Taxpayers that claim a section 48D 

credit should not further that risk. For 

these reasons, the Treasury Department 

and the IRS decline to adopt the 

commenter’s request. 

I. Exception From the Definition of 

Applicable Transaction for the 

Manufacturing of Legacy 

Semiconductors 

Several commenters requested that 

the final regulations specifically include 

assembly test manufacturing (ATM) that 

uses non-3D packaging in the definition 

of legacy semiconductor. The 

commenters argued that given that ATM 

is generally a back-end operation, with 

billions of pre-existing investments, it is 

appropriate for these operations to be 

viewed under the definition of legacy 

unless they specifically perform 3D 

integration. The Treasury Department 

and the IRS agree with the commenters’ 

suggestion. Accordingly, the final 

regulations, consistent with 15 CFR 

231.107, clarify that only 

semiconductors utilizing advanced 3D 

integration packaging such as by 

directly attaching one or more die or 

wafer, through silicon vias (TSV) or 

through mold vias (TMV), or other 

advanced methods are not considered to 

be legacy semiconductors. 

Commenters requested that the final 

regulations conform the example of 

memory semiconductor under proposed 

§ 1.50–2(c)(2)(ii) to current export 

controls. Section 50(a)(6)(D)(ii) provides 

that the exception for legacy 

semiconductors applies as defined in 

section 9902(a)(6) of the William M. 

(Mac) Thornberry National Defense 

Authorization Act for Fiscal Year 2021, 

as amended by section 103 of the CHIPS 

Act. The example of a memory 

semiconductor in proposed § 1.50– 

2(c)(2)(ii) is consisted with the statutory 

definition of a legacy semiconductor. 

Accordingly, the Treasury Department 

and the IRS decline to revise the 

example of a memory semiconductor in 

the final regulations. 

Commenters requested that what is 

considered a leading or ‘‘legacy’’ 

semiconductor should be adjusted over 

the course of a 10-year period and 

should be connected to authorization 

permitted under export control 

licensing. Proposed § 1.50–2(c)(2)(iii) 

includes among the definition of a 

‘‘legacy semiconductor’’ a 

semiconductor identified by the 

Secretary of Commerce in a public 

notice issued under 15 U.S.C. 

4652(a)(6)(A)(ii). The Secretary of 

Commerce is required, pursuant to 15 

U.S.C. 4652(a)(6)(A)(ii), to update the 

definition of ‘‘legacy semiconductor’’ on 

a regular basis and at least every two 

years. Thus, the definition of what is 

considered a leading or legacy 

semiconductor will be adjusted over the 

course of a 10-year period, as the 

Secretary of Commerce deems 

appropriate as reflected in § 1.50–2(c)(2) 

of the final regulation. 

One commenter requested that the 

final regulations provide that the 

exclusion of any technology from the 

definition of ‘‘legacy semiconductor’’ in 

the future pursuant to 15 U.S.C. 

4652(a)(6)(A)(ii) be applied only 

prospectively and not to any 

transactions previously entered into. 

Section 50(a)(6)(D)(ii) provides that the 

exception for legacy semiconductors 

applies as defined in section 9902(a)(6) 

of the William M. (Mac) Thornberry 

National Defense Authorization Act for 

Fiscal Year 2021, as amended by section 

103 of the CHIPS Act. Section 103(b) of 

the CHIPS Act added 15 U.S.C. 

4652(a)(6)(A)(ii) and requires the 

Secretary of Commerce, after public 

notice and an opportunity for comment 

and if applicable and necessary, to issue 


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a public notice identifying any 

additional semiconductor technology 

included in the meaning of the term 

‘‘legacy semiconductor’’ on a regular 

basis, and at least every two years. The 

commenter’s recommendation to apply 

only prospectively any technology 

excluded from the definition of ‘‘legacy 

semiconductor’’ by the Secretary of 

Commerce pursuant to 15 U.S.C. 

4652(a)(6)(A)(ii) is beyond the 

application of sections 48D and 50 and 

the section 48D regulations. For that 

reason, the Treasury Department and 

the IRS decline to adopt the 

commenter’s recommendation. One 

commenter requested that the final 

regulations modify the definition of 

legacy semiconductors that is of 28 

nanometer generation or older under 

proposed § 1.50–2(c)(2)(i) by deleting 

the reference to gate length and 

including technologies using the planar 

transistor architecture that should be 

considered the same as 28 nanometer 

generation technology. The Treasury 

Department and the IRS decline to 

adopt the commenter’s 

recommendation. The proposed 

definition of legacy semiconductor with 

respect to 28 nanometer generation 

technology is consistent with the CHIPS 

Act and accurately captures the 

definition of legacy semiconductors. 

The proposed definition also prevents a 

company from using or creating a 

derivation of their existing 28 

nanometer technology for use in a 

foreign country of concern that is 

inconsistent with the kind of material 

expansion of semiconductor 

manufacturing the CHIPS Act seeks to 

constrain. 

Several commenters requested that 

the final regulations narrow the 

exception under proposed § 1.50– 

2(c)(3)(iii) to ‘‘advanced’’ 3D packaging 

techniques, so that TSV and TMV are 

excluded from the definition of legacy 

semiconductor. In coordination with the 

Department of Commerce and the 

Department of Defense, the Treasury 

Department and the IRS have 

incorporated this recommendation in 

the final regulations. The Commerce 

Final Rule clarifies the meaning of the 

term ‘‘legacy semiconductor’’ with 

respect to a semiconductor wafer 

facility, a semiconductor fabrication 

facility, and a semiconductor packaging 

facility. Again, in coordination with the 

Department of Commerce and the 

Department of Defense, the Treasury 

Department and the IRS have 

incorporated this clarification in the 

final regulations. 

The March 2023 proposed regulations 

provided a definition of ‘‘legacy 

semiconductor’’ that was identical to 

the definition in Commerce Proposed 

Rule. Consistent with section 

50(a)(6)(D)(ii) of the Code and section 

9902(a)(6) of the William M. (Mac) 

Thornberry National Defense 

Authorization Act for Fiscal Year 2021, 

as amended by section 103 of the CHIPS 

Act, the final regulations define the term 

‘‘legacy semiconductor’’ as having the 

same meaning as that term is defined in 

the Commerce Final Rule, 15 CFR 

231.107. 

J. Standards for Determining the 

Satisfaction of the Commissioner 

Commenters requested that the final 

regulations include standards for 

establishing what is considered to be to 

‘‘the satisfaction of the Secretary’’ or 

‘‘the satisfaction of the Commissioner’’ 

for purposes of section 50(a)(3)(B) and 

proposed § 1.50–2(a)(2), respectively. 

Commenters suggested that the final 

regulations address how a taxpayer may 

demonstrate cessation or abandonment 

of a project, and further suggested that 

those actions could include proof of 

cancelled contracts, the withdrawal or 

cancellation of work permits, a board 

resolution that expressly cancels the 

applicable transaction, or the issuance 

of a public statement that expressly 

cancels the applicable transaction. 

Commenters also suggested that final 

regulations include a non-exhaustive 

list of documents that can be used to 

establish cessation or abandonment of a 

project. The Treasury Department and 

the IRS have determined that the rules 

suggested by the commenters, as well as 

similar provisions, would likely cause 

additional uncertainty regarding the 

scope of the term ‘‘to the satisfaction of 

the Commissioner’’ due to its inherently 

factual nature. As a result, the final 

regulations do not incorporate the 

commenters recommendations. 

K. Records Retention 

The Treasury Department and the IRS 

requested comments on the ability of 

applicable taxpayers to comply with 

potential record keeping requirements 

in addition to those required by current 

law and on what specific procedures 

should be considered to ensure that the 

IRS has sufficient information to 

determine whether an applicable 

taxpayer engages in an applicable 

transaction within the meaning of 

section 50(a)(3) and proposed § 1.50–2. 

Several commenters suggested that any 

record retention should be limited to 

records obtained in the ordinary course 

of business. Another commenter 

suggested the IRS could include a form 

or attachment to annual tax returns with 

basic questions for the IRS to ascertain 

whether an applicable taxpayer may 

have engaged in an applicable 

transaction during the taxable year. 

Section 50(a)(3)(C) provides that the 

Secretary shall issue regulations or other 

guidance as the Secretary determines 

necessary or appropriate to carry out the 

purposes of section 50(a)(3), including 

regulations or other guidance which 

provides for requirements for 

recordkeeping or information reporting 

for purposes of administering the 

requirements of section 50(a)(3). The 

Treasury Department and the IRS have 

determined that records retained in a 

taxpayer’s ordinary course of business, 

and as required under current 

applicable periods of limitations under 

section 6501 of the Code on assessment 

and collection of tax under chapter 1 

with respect to the applicable taxpayer’s 

return filed for the taxable year that 

includes the close of the 10-year period 

beginning on the date such taxpayer 

placed in service investment credit 

property that is eligible for the section 

48D credit, are sufficient. Accordingly, 

the final regulations do not incorporate 

any additional record keeping 

requirements. 

Some commenters requested that the 

final regulations provide for more of an 

alignment of the section 48D credit 

requirements and the Department of 

Commerce grant regulatory 

requirements including standardizing 

the same 10-year recapture or clawback 

period and streamline reporting and 

recordkeeping requirements. The 

commenters also requested that 

responsibility for administering the 

various overlapping rules and taxpayer 

notification requirements be delegated 

to a single agency or an interagency 

body. Section 50(a)(3) provides for 

recapture of the section 48D credit if 

there is an applicable transaction by an 

applicable taxpayer before the close of 

the ten-year period beginning on the 

date such property placed in service. 

Pursuant to 15 U.S.C. 4652(a)(6)(C)(i), 

the Commerce Final Rule, 15 CFR 

231.202, provides that the 10-year 

period for the Expansion Clawback 

begins on the date of the award of 

Federal financial assistance under 15 

U.S.C. 4652. The preamble to the 

Commerce Final Rule clarifies that the 

applicable term for the technology 

clawback (15 CFR 231.203) is defined in 

the relevant award documents. Pursuant 

to the relevant statutes, the recapture 

period for a section 48D credit begins on 

the date the qualified property is placed 

in service, and the Expansion Clawback 

and technology clawback periods begin 

on the date of the award of financial 

assistance and as defined in the award 

documents, respectively. For this 


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reason, aligning the recapture period 

with the clawback period would be 

inconsistent with section 50(a)(3)(A). 

Section 50(a)(6)(D)(i) requires that the 

Secretary (in coordination with the 

Secretary of Commerce and the 

Secretary of Defense) define the term 

‘‘significant transaction’’ for purposes of 

section 50. Consistent with the statutory 

directive in section 50(a)(6)(D)(i), 

§ 1.50–2(b)(10) of the final regulations 

defines the term ‘‘significant 

transaction’’ as determined by the 

Treasury Department and the IRS in 

coordination with the Department of 

Commerce and the Department of 

Defense. Treasury regulations that 

otherwise would align or streamline the 

reporting and recordkeeping 

requirements or delegate the 

administrative functions to a single 

agency or interagency body are beyond 

the scope of the statute. 

L. Private Letter Rulings 

Commenters requested that the IRS 

grant private letter rulings or other 

determinations on the beginning of 

construction, effective date, costs, and 

or other matters relevant to section 48D. 

Consistent with guidance published in 

the Internal Revenue Bulletin, the IRS 

ordinarily will not issue private letter 

rulings to a taxpayer regarding the 

beginning of construction requirement 

under section 48D with respect to 

property placed in service after these 

final regulations are published in the 

Federal Register. In addition, the IRS 

may decline to issue a letter ruling or a 

determination letter when appropriate 

in the interest of sound tax 

administration, including due to 

resource constraints, or on other 

grounds whenever warranted by the 

facts or circumstances of a particular 

case. 

Applicability Date 

The final regulations set forth in 

§§ 1.48D–1 through 1.48D–5, and 1.50– 

2 apply to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 

Special Analyses 

I. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(44 U.S.C. 3501–3520) (PRA) generally 

requires that a Federal agency obtain the 

approval of the Office of Management 

and Budget (OMB) before collecting 

information from the public, whether 

such collection of information is 

mandatory, voluntary, or required to 

obtain or retain a benefit. A Federal 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless the 

collection of information displays a 

valid control number. 

This regulation mentions elections 

that are made in accordance with 

section 48D(d)(1) and (d)(2) of the Code 

and § 1.46–5 of the Treasury 

Regulations. These elections are made 

with Form 3468, Investment Credit, 

which are already approved by the OMB 

under 1545–0074 for individual/sole 

proprietor filers, 1545–0123 for business 

filers, and 1545–0155 for trust and 

estate filers. This regulation is not 

changing those election requirements; 

and is not telling taxpayers to make 

these elections but explaining their 

treatment for the credit if they have 

made these elections. 

This regulation also describes 

recapture of the advanced 

manufacturing investment credit in the 

case of certain expansions, as detailed 

in § 1.50–2(a). The reporting of the 

recapture event will still be required to 

be reported using Form 4255, Recapture 

of Investment Credit. This form is 

approved under OMB control numbers 

1545–0074 for individuals/sole 

proprietors, 1545–0123 for business 

entities, and 1545–0166 for trust and 

estate filers. The final regulation is not 

changing or creating new collection 

requirements not already approved by 

OMB on Form 4255. 

This regulation includes 

recordkeeping requirements outlined in 

§ 1.50–2 for recording transactions, 

investments, facilities information, and 

agreements with the Department of 

Commerce. The IRS expects that these 

records are usual and customary 

business records; however, the 

taxpayers will need to keep these 

records as long as they are admissible by 

the statute, typically for 10 years. 

Therefore, the IRS is considering these 

to be general tax records under 

§ 1.6001–1. These records are required 

for the IRS to validate that the taxpayers 

have met the regulatory requirements; 

and are required as proof that the 

taxpayer has not engaged in an 

applicable transaction or that the 

taxpayer has ceased or abandoned the 

applicable transaction within 45 days of 

a determination and notice by the 

Commissioner, pursuant to section 

50(a)(3). For PRA purposes, general tax 

records are already approved by OMB 

under 1545–0074 for individual/sole 

proprietor filers, 1545–0123 for business 

filers, and 1545–0092 for trust and 

estate filers. 

II. Regulatory Flexibility Act 

The Treasury Department and the IRS 

determined the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

Although the rules affect small entities, 

data are not readily available about the 

number of taxpayers affected. Section 

48D affects the semiconductor 

manufacturing industry, and 

specifically, individuals and entities 

that make qualified investments in 

facilities engaged in the manufacturing 

of semiconductors and semiconductor 

manufacturing equipment. The 

economic impact of these regulations is 

not likely to be significant, because the 

regulations substantially incorporate 

statutory changes by the CHIPS Act in 

establishing section 48D and amending 

section 50(a). The regulations will also 

make it easier for taxpayers to comply 

with section 48D and the changes to 

section 50(a). Pursuant to the RFA (5 

U.S.C. chapter 6), the Secretary hereby 

certifies that these regulations will not 

have a significant economic impact on 

a substantial number of small entities. 

Pursuant to section 7805(f), the notice 

of proposed rulemaking has been 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business. The 

Chief Counsel for the Office of 

Advocacy of the SBA did not provide 

any comments on the March 2023 

proposed regulations. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million (updated annually for 

inflation). This rule does not include 

any Federal mandate that may result in 

expenditures by State, local, or Tribal 

governments, or by the private sector in 

excess of that threshold. 

IV. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. This rule does not have 

federalism implications and does not 

impose substantial direct compliance 

costs on State and local governments or 

preempt State law within the meaning 

of the Executive order. 


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V. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

VI. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs has 

designated this rule as a major rule as 

defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Guidance cited in this preamble is 

published in the Internal Revenue 

Bulletin and is available from the 

Superintendent of Documents, U.S. 

Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal author of these final 

regulations is Lani Sinfield, Office of the 

Associate Chief Counsel (Passthroughs 

and Special Industries), IRS. However, 

other personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Amendments to the Regulations 

Accordingly, the 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding an 

entry, in numerical order, for § 1.50–2 to 

read in part as follows: 

Authority: 26 U.S.C. 7805 * * * 

* * * * * 

Section 1.50–2 also issued under 26 U.S.C. 

50(a)(3)(C), and 50(a)(6). 

* * * * * 

■ Par. 2. Section 1.48D–0 is revised to 

read as follows: 

§ 1.48D–0 Table of contents. 

This section lists the table of contents 

for §§ 1.48D–1 through 1.48D–6. 

§ 1.48D–1 Advanced manufacturing 

investment credit determined. 

(a) Overview. 

(b) Determination of credit. 

(c) Coordination with section 47. 

(1) In general. 

(2) Example. 

(d) Applicability date. 

§ 1.48D–2 Definitions. 

(a) In general. 

(b) Applicable transaction. 

(c) Basis. 

(1) In general. 

(2) Transition rule. 

(d) Beginning of construction. 

(e) Eligible taxpayer. 

(f) Foreign entities. 

(1) Foreign entity. 

(2) Foreign entity of concern. 

(g) Manufacturing of semiconductors. 

(h) Manufacturing of semiconductor 

manufacturing equipment. 

(i) Placed in service. 

(j) Qualified investment. 

(1) In general. 

(2) Special rules for certain passthrough 

entities. 

(i) Partnership. 

(ii) S corporation. 

(iii) Estate or trust. 

(3) Qualified progress expenditures 

election. 

(i) In general. 

(ii) Special rules for certain passthrough 

entities. 

(4) Examples. 

(i) Example 1. 

(ii) Example 2. 

(k) Section 48D credit. 

(l) Section 48D regulations. 

(m) Semiconductor. 

(n) Semiconductor manufacturing. 

(1) Semiconductor wafer production. 

(2) Semiconductor fabrication. 

(3) Semiconductor packaging. 

(4) Assembly. 

(5) Testing. 

(6) Advanced packaging. 

(o) Semiconductor manufacturing 

equipment. 

(p) Statutory references. 

(1) Chapter 1. 

(2) Code. 

(3) Subtitle A. 

(q) Applicability date. 

§ 1.48D–3 Qualified property. 

(a) In general. 

(b) Qualified property. 

(c) Tangible depreciable property. 

(1) In general. 

(2) Exception. 

(3) Buildings or portions of a building not 

excluded by section 48D(b)(2)(B)(ii). 

(d) Constructed, reconstructed, or erected 

by the taxpayer. 

(e) Original use. 

(1) In general. 

(2) Treatment of inventory. 

(f) Part of an advanced manufacturing 

facility. 

(1) In general. 

(2) Property that is not located or colocated at an advanced manufacturing facility 

or on a contiguous piece of land to the 

advanced manufacturing facility. 

(g) Integral to the operation of an advanced 

manufacturing facility. 

(1) In general. 

(2) Vertically integrated manufacturers. 

(3) Specific examples of integral property. 

(4) Research or storage facilities. 

(5) Examples. 

(i) Example 1. 

(ii) Example 2. 

(h) Applicability date. 

§ 1.48D–4 Advanced manufacturing facility 

of an eligible taxpayer. 

(a) In general. 

(b) Advanced manufacturing facility. 

(c) Primary purpose. 

(1) In general. 

(2) No primary purpose. 

(3) Examples. 

(i) Example 1: Primary purpose; in general 

(ii) Example 2: Primary purpose; 

semiconductor wafer production. 

(iii) Example 3: Primary purpose; vertically 

integrated manufacturer. 

(iv) Example 4: No primary purpose; 

vertically integrated manufacturer. 

(d) Applicability date. 

§ 1.48D–5 Beginning of construction. 

(a) Termination of credit. 

(1) In general. 

(2) Property. 

(3) Single advanced manufacturing facility 

project. 

(i) In general. 

(ii) Related taxpayers. 

(A) Definition. 

(B) Related taxpayer rule. 

(iii) Example. 

(iv) Timing of single advanced 

manufacturing facility project determination. 

(v) Disaggregation. 

(vi) Example. 

(b) Beginning of construction. 

(1) In general. 

(2) Continuity requirement. 

(c) Physical work test. 

(1) In general. 

(2) Physical work of significant nature. 

(i) In general. 

(ii) Exceptions. 

(d) Five percent safe harbor. 

(1) In general. 

(2) Costs. 

(3) Cost overruns. 

(i) Single advanced manufacturing facility 

project. 

(ii) Example. 

(iii) Single property. 

(iv) Example. 

(e) Continuity requirement. 

(1) In general. 

(2) Continuous construction. 

(3) Continuous efforts. 

(4) Excusable disruptions to continuous 

construction and continuous efforts tests. 

(i) In general. 

(ii) Effect of excusable disruptions on 

continuity safe harbor. 

(iii) Non-exclusive list of construction 

disruptions. 

(5) Timing of excusable disruption 

determination. 

(6) Continuity safe harbor. 

(i) In general. 

(ii) Example. 

(f) Applicability date. 

§ 1.48D–6 Elective payment election. 

(a) Elective payment election. 

(1) In general. 

(2) Partnerships and S corporations. 

(3) Irrevocable. 

(b) Pre-filing registration required. 


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(1) In general. 

(2) Manner of registration. 

(3) Members of a consolidated group. 

(4) Timing of pre-filing registration. 

(5) Each qualified investment in an 

advanced manufacturing facility must have 

its own registration number. 

(6) Information required to complete the 

pre-filing registration process. 

(7) Registration number. 

(i) In general. 

(ii) Registration number is only valid for 

one year. 

(iii) Renewing registration numbers. 

(iv) Amendment of previously submitted 

registration information if a change occurs 

before the registration number is used. 

(v) Registration number is required to be 

reported on the return for the taxable year of 

the elective payment election. 

(c) Time and manner of election. 

(1) In general. 

(2) Limitations. 

(d) Special rules for partnerships and S 

corporations. 

(1) In general. 

(2) Election. 

(i) Time and manner of election. 

(ii) Effect of election. 

(iii) Coordination with sections 705 and 

1366. 

(iv) Partner’s distributive share. 

(A) In general. 

(B) Interim rule. 

(C) Partnership requirements. 

(v) S corporation shareholder’s pro-rata 

share. 

(vi) Timing of tax exempt income. 

(3) Disregarded entity ownership. 

(4) Electing partnerships in tiered 

structures. 

(i) In general. 

(ii) Electing partnerships in tiered 

structures; interim rule. 

(5) Character of tax exempt income. 

(6) Determination of amount of the section 

48D credit. 

(i) In general. 

(ii) Application of section 49 at-risk rules 

to determination of section 48D credit for 

partnerships and S corporations. 

(iii) Changes in at-risk amounts under 

section 49 at partner or shareholder level. 

(7) Partnerships subject to subchapter C of 

chapter 63 of the Code. 

(8) Example. 

(e) Denial of double benefit. 

(1) In general. 

(2) Application of the denial of double 

benefit rule. 

(3) Use of the section 48D credit for other 

purposes. 

(4) Examples. 

(i) Example 1. 

(ii) Example 2. 

(iii) Example 3. 

(iv) Example 4. 

(f) Excessive payment. 

(1) In general. 

(2) Reasonable cause. 

(3) Excessive payment defined. 

(4) Example. 

(g) Basis reduction and recapture. 

(1) In general. 

(2) Basis adjustment. 

(i) In general. 

(ii) Basis adjustment by partnership or S 

corporation. 

(iii) Basis adjustment of partners and S 

corporation shareholders. 

(3) Recapture reporting. 

(h) Applicability dates. 

(1) In general. 

(2) Prior taxable years. 

■ Par. 3. Sections 1.48D–1 through 

1.48D–5 are added to read as follows: 

Sec. 

* * * * * 

1.48D–1 Advanced manufacturing 

investment credit determined. 

1.48D–2 Definitions. 

1.48D–3 Qualified property. 

1.48D–4 Advanced manufacturing facility 

of an eligible taxpayer. 

1.48D–5 Beginning of construction. 

* * * * * 

§ 1.48D–1 Advanced manufacturing 

investment credit determined. 

(a) Overview. For purposes of section 

46 of the Code, the amount of the 

advanced manufacturing investment 

credit under section 48D of the Code 

determined for any taxable year is the 

amount determined under section 48D 

and this section and §§ 1.48D–2 through 

1.48D–6 and 1.50–2 (the section 48D 

regulations) (subject to any applicable 

provisions of the Code that may limit 

the amount determined under section 

48D), for such taxable year with respect 

to any advanced manufacturing facility 

of an eligible taxpayer. Paragraph (b) of 

this section provides the general rules 

for determining the amount of a 

taxpayer’s section 48D credit for a 

taxable year. Paragraph (c) of this 

section provides rules coordinating the 

section 48D credit with the rules of 

section 47 of the Code (relating to the 

rehabilitation credit). Section 1.48D–2 

provides definitions that apply for 

purposes of section 48D and the section 

48D regulations. Section 1.48D–3 

provides rules relating to the definition 

of qualified property for purposes of the 

section 48D credit. Section 1.48D–4 

provides rules relating to the definition 

of an advanced manufacturing facility of 

an eligible taxpayer for purposes of the 

section 48D credit. Section 1.48D–5 

provides rules regarding the beginning 

of construction of property for purposes 

of the section 48D credit. Section 

1.48D–6 provides rules related to the 

elective payment election of the section 

48D credit. See § 1.50–2 for additional 

rules under section 50(a)(3) and (6) of 

the Code relating to applicable 

transactions that result in the recapture 

of section 48D credits. 

(b) Determination of credit. Subject to 

any applicable sections of the Code that 

may limit the credit determined under 

section 48D, the section 48D credit for 

any taxable year of an eligible taxpayer 

with respect to any advanced 

manufacturing facility is an amount 

equal to 25 percent of the taxpayer’s 

qualified investment for the taxable year 

with respect to that advanced 

manufacturing facility. A section 48D 

credit is available only with respect to 

qualified property that a taxpayer places 

in service after December 31, 2022, and, 

for any qualified property the 

construction of which began prior to 

January 1, 2023, only to the extent of the 

basis of that property attributable to the 

construction, reconstruction, or erection 

of that property occurring after August 

9, 2022. Under section 48D(e), no 

section 48D credit is allowed to a 

taxpayer for placing qualified property 

in service in any taxable year if the 

beginning of construction of that 

qualified property as determined under 

§ 1.48D–5 begins after December 31, 

2026 (the date specified in section 

48D(e)). 

(c) Coordination with section 47—(1) 

In general. The qualified investment 

with respect to any advanced 

manufacturing facility of an eligible 

taxpayer for any taxable year does not 

include that portion of the basis of any 

property that is attributable to qualified 

rehabilitation expenditures, as defined 

in section 47(c)(2) and § 1.48–12(c), 

with respect to a qualified rehabilitated 

building, as defined in section 47(c)(1) 

and § 1.48–12(b). 

(2) Example: Coordination with 

section 47. X Corp, a calendar-year C 

corporation, owns Building A, a 

certified historic structure. X Corp’s 

adjusted basis in Building A is 

$100,000. Between August 1, 2024, and 

October 31, 2024, X Corp incurs $1 

million to reconstruct, within the 

meaning of section 48D(b)(2)(A)(iii)(I) 

and § 1.48–12(b)(2)(iv), Building A. X 

Corp places the reconstructed Building 

A, a qualified rehabilitated building, in 

service on November 15, 2024. Of the $1 

million of capitalized expenditures 

incurred to reconstruct Building A (all 

of which would meet the definition of 

qualified investment), $250,000 also 

meets the definition of qualified 

rehabilitation expenditures (QREs). As 

such, X Corp’s qualified investment in 

Building A is $750,000 ($1 

million¥$250,000). X Corp’s qualified 

investment in Building A remains 

$750,000 even if X Corp does not 

determine a rehabilitation credit with 

respect to the $250,000 of QREs. 

(d) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 


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§ 1.48D–2 Definitions. 

(a) In general. The definitions in 

paragraphs (b) through (o) of this section 

apply for purposes of sections 48D and 

50 of the Code and § 1.48D–1, this 

section and §§ 1.48D–3 through 1.48D– 

6 and 1.50–2 (the section 48D 

regulations). 

(b) Applicable transaction. The term 

applicable transaction has the meaning 

provided in section 50(a)(6) and § 1.50– 

2. 

(c) Basis—(1) In general. With respect 

to any qualified property, the term basis 

has the same meaning as provided in 

§ 1.46–3(c). Thus, the basis of the 

qualified property generally is 

determined in accordance with the 

general rules of subtitle A for 

determining the basis of property (see 

subtitle A, subchapter O, part II of the 

Code). As such, the basis of qualified 

property would generally be the cost of 

that qualified property (see section 1012 

of the Code) unreduced by any 

adjustments to basis and would include 

all items properly included by the 

taxpayer in the depreciable basis of the 

qualified property. 

(2) Transition rule. For property the 

construction of which began prior to 

January 1, 2023, and is placed in service 

after December 31, 2022, the portion of 

the basis of such property attributable to 

construction, reconstruction, or erection 

after August 9, 2022, must be allocated 

using any reasonable method, including 

by applying the principles of section 

461 of the Code. Rules similar to the 

rules in §§ 1.48–2(b)(2), 1.48–11(b)(5)(i), 

and 1.48–12(c)(1) are applicable. 

(d) Beginning of construction. The 

term beginning of construction has the 

meaning provided in § 1.48D–5. 

(e) Eligible taxpayer. The term eligible 

taxpayer means any taxpayer that— 

(1) Is not a foreign entity of concern; 

and 

(2) Has not made an applicable 

transaction during the taxable year. 

(f) Foreign entities—(1) Foreign entity. 

The term foreign entity has the same 

meaning as provided in 15 CFR 231.103. 

(2) Foreign entity of concern. The term 

foreign entity of concern has the same 

meaning as provided in 15 CFR 231.104. 

(g) Manufacturing of semiconductors. 

The term manufacturing of 

semiconductors and the term 

semiconductor manufacturing are 

synonymous. 

(h) Manufacturing of semiconductor 

manufacturing equipment. The term 

manufacturing of semiconductor 

manufacturing equipment means the 

physical production (in a manufacturing 

facility) of semiconductor 

manufacturing equipment, which is 

used by an advanced manufacturing 

facility engaged in the manufacturing of 

semiconductors as defined in paragraph 

(g) of this section. 

(i) Placed in service. The term placed 

in service has the same meaning as 

provided in § 1.46–3(d). 

(j) Qualified investment—(1) In 

general. Except as provided in 

paragraph (j)(2) and (3) of this section, 

the term qualified investment with 

respect to an advanced manufacturing 

facility means, for any taxable year, the 

basis of any qualified property that is 

part of an advanced manufacturing 

facility and placed in service by the 

taxpayer during the taxable year. 

(2) Special rules for certain 

passthrough entities. In the case of any 

qualified property that is part of an 

advanced manufacturing facility of an 

eligible taxpayer and placed in service 

by an entity described in paragraphs 

(j)(2)(i) through (iii) of this section 

during a taxable year, the rules of this 

paragraph (j)(2) apply to determine the 

qualified investment for the taxable year 

with respect to the advanced 

manufacturing facility. 

(i) Partnership. In the case of a 

partnership that places in service 

qualified property that is part of an 

advanced manufacturing facility of an 

eligible taxpayer, each partner in the 

partnership must take into account 

separately the partner’s share of the 

basis of the qualified property placed in 

service by the partnership during the 

taxable year as provided in § 1.46–3(f). 

(ii) S corporation. The basis of 

qualified property that is part of an 

advanced manufacturing facility of an 

eligible taxpayer and placed in service 

during the taxable year by an S 

corporation (as defined in section 

1361(a) of the Code) must be 

apportioned pro rata among the S 

corporation’s shareholders on the last 

day of the S corporation’s taxable year 

as provided in section 1366. 

(iii) Estate or trust. The basis of 

qualified property that is part of an 

advanced manufacturing facility of an 

eligible taxpayer and placed in service 

during the taxable year by an estate or 

trust must be apportioned among the 

estate or trust and its beneficiaries on 

the basis of the income of the estate or 

trust allocable to each for that taxable 

year. 

(3) Qualified progress expenditures 

election—(i) In general. A taxpayer may 

elect, as provided in § 1.46–5, to 

increase the qualified investment with 

respect to any advanced manufacturing 

facility of an eligible taxpayer for the 

taxable year, by any qualified progress 

expenditures made after August 9, 2022. 

(ii) Special rules for certain 

passthrough entities. Notwithstanding 

the provisions of § 1.46–5, relating to 

elections of progress expenditure 

property being constructed by or for a 

partnership or S corporation, the rules 

of § 1.46–5(o)(1) and (p) do not apply to 

prohibit a partnership or S corporation 

from making a progress expenditure 

election under § 1.46–5 with respect to 

qualified property if the partnership or 

S corporation intends to make an 

elective payment election under section 

48D(d) and § 1.48D–6 with respect to a 

section 48D credit determined with 

respect to such qualified property. 

(4) Examples. The provisions of this 

paragraph (j) are illustrated by the 

following examples. 

(i) Example 1: Advanced manufacturing 

investment credit: qualified investment in 

general. On November 1, 2024, X, a calendaryear C corporation, places in service 

qualified property with a basis of $200,000, 

and on December 1, 2024, X places in service 

qualified property with a basis of $300,000. 

X’s qualified investment for the taxable year 

is $500,000 ($200,000 + $300,000). 

(ii) Example 2: Advanced manufacturing 

investment credit: qualified investment for 

partnerships. A, B, C, and D, all calendaryear C corporations, are partners in the ABCD 

partnership. Partners A, B, C, and D share 

partnership profits equally. On November 1, 

2024, the ABCD partnership placed in service 

qualified property with a basis of $1 million. 

Each partner’s share of the basis of the 

qualified property, as determined in § 1.46– 

3(f)(2), is $250,000 ($1m × 0.25) and each 

partner’s qualified investment is $250,000. 

(k) Section 48D credit. The term 

section 48D credit means the advanced 

manufacturing investment credit 

determined under section 48D and the 

section 48D regulations. 

(l) Section 48D regulations. The term 

section 48D regulations means 

§§ 1.48D–1 through 1.48D–6 and 1.50–2. 

(m) Semiconductor. The term 

semiconductor means, consistent with 

15 CFR 231.115, an integrated electronic 

device or system most commonly 

manufactured using materials such as, 

but not limited to, silicon, silicon 

carbide, or III–V compounds, and 

processes such as, but not limited to, 

lithography, deposition, and etching. 

Such devices and systems include, but 

are not limited to, analog and digital 

electronics, power electronics, and 

photonics, for memory, processing, 

sensing, actuation, and communications 

applications. 

(n) Semiconductor manufacturing. 

The term semiconductor manufacturing 

and the term manufacturing of 

semiconductors are synonymous and 

mean, consistent with 15 CFR 231.116, 

semiconductor wafer production, 

semiconductor fabrication, or 

semiconductor packaging. The 

following terms have the following 


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meanings in connection with 

semiconductor wafer production, 

semiconductor fabrication, and 

semiconductor packaging for purposes 

of section 48D and the section 48D 

regulations: 

(1) Semiconductor wafer production 

includes the processes of growing 

single-crystal ingots and boules, wafer 

slicing, etching and polishing, bonding, 

cleaning, epitaxial deposition, and 

metrology. 

(2) Semiconductor fabrication 

includes the process of forming devices 

such as transistors, poly capacitors, nonmetal resistors, and diodes, as well as 

interconnects between such devices, on 

a wafer of semiconductor material. 

(3) Semiconductor packaging means 

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. 

(4) Assembly includes, but is not 

limited to, wafer-dicing, die-bonding, 

wire bonding, solder bumping, and 

encapsulation. 

(5) Testing includes, but is not limited 

to, probing, screening, and burn-in 

work. 

(6) Advanced packaging means a 

subset of packaging technologies that 

uses novel techniques and materials to 

increase the performance, power, 

modularity, and/or durability of an 

integrated circuit. Advanced packaging 

technologies include flip-chip, 2D, 2.5D, 

and 3D stacking, fan-out and fan-in, and 

embedded die/system-in-package (SiP). 

(o) Semiconductor manufacturing 

equipment. The term semiconductor 

manufacturing equipment means the 

highly engineered and specialized 

equipment used in the manufacturing of 

semiconductors as defined in paragraph 

(g) of this section and the subsystems 

that enable or are incorporated into the 

manufacturing equipment. Specific 

examples of semiconductor 

manufacturing equipment and 

subsystems that enable semiconductor 

manufacturing equipment include but 

are not limited to: 

(1) Deposition equipment, including, 

Chemical Vapor Deposition (CVD), 

Physical Vapor Deposition (PVD), 

Electrodeposition, and Atomic Layer 

Deposition (ALD); 

(2) Etching equipment (wet etch, dry 

etch); 

(3) Equipment for epitaxial growth of 

transistor features; 

(4) Chemical-mechanical polishing 

equipment to planarize layers through 

the semiconductor fabrication process; 

(5) Lithography equipment (steppers 

and scanners of various light 

wavelengths, such as deep UV, extreme 

ultraviolet (EUV), photoresist coating, 

and developer tracks); 

(6) Equipment for producing ingots 

and boules, wafer growth equipment, 

wafer slicing equipment, wafer dicing 

equipment, and wire bonders; 

(7) Inspection and measuring 

equipment, including scanning electron 

microscopes, atomic force microscopes, 

optical inspection systems, wafer probes 

and optical scatterometer, EDS (Energy 

Dispersive Spectroscopy); 

(8) Certain metrology and inspection 

systems to measure critical dimensions 

of the integrated circuit features 

throughout the fabrication process, 

detection and measurement of defects 

on the wafers during the fabrication 

process; 

(9) Ion implantation and diffusion/ 

oxidation furnaces; 

(10) Specialty glass components 

including EUV mirrors and optical 

pathways, lenses and mirrors used in 

inspection equipment and other 

fabrication processes, and lens 

assemblies for wafer defect inspection; 

(11) Electrostatic chucks; 

(12) High performance pumps; 

(13) High purity quartz devices; 

(14) Ultra-high vacuum chamber 

components; and 

(15) Photomasks and light sources 

used in photolithography. 

(p) Statutory references—(1) Chapter 

1. The term chapter 1 means chapter 1 

of the Code. 

(2) Code. The term Code means the 

Internal Revenue Code. 

(3) Subtitle A. The term subtitle A 

means subtitle A of the Code. 

(q) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 

§ 1.48D–3 Qualified property. 

(a) In general. This section provides 

definitions and rules relating to 

qualified property for purposes of 

section 48D of the Code and the section 

48D regulations. 

(b) Qualified property. The term 

qualified property means tangible 

depreciable property that is part of, and 

integral to, the operation of an advanced 

manufacturing facility and that is 

either— 

(1) Constructed, reconstructed, or 

erected by the taxpayer; or 

(2) Acquired by the taxpayer if the 

original use of such property 

commences with the taxpayer. 

(c) Tangible depreciable property—(1) 

In general. The term tangible 

depreciable property means tangible 

personal property (as defined in § 1.48– 

1(c)), other tangible property (as defined 

in § 1.48–1(d)), and building and 

structural components (as defined in 

§ 1.48–1(e), except as provided in 

paragraphs (c)(2) and (3) of this section) 

with respect to which depreciation (or 

amortization in lieu of depreciation) is 

allowable. The law of a State or local 

jurisdiction is not controlling for 

purposes of determining whether 

property is tangible property for 

purposes of section 48D or the section 

48D regulations. 

(2) Exception. Pursuant to section 

48D(b)(2)(B)(ii), except as provided in 

paragraph (c)(3) of this section, the term 

tangible depreciable property does not 

include a building and its structural 

components, or a portion thereof, used 

for— 

(i) Offices; 

(ii) Administrative services such as 

human resources or personnel services, 

payroll services, legal and accounting 

services, and procurement services; 

(iii) Sales or distribution functions; 

(iv) Security services (not including 

cybersecurity operations); or 

(v) Any other functions unrelated to 

manufacturing of semiconductors or 

semiconductor manufacturing 

equipment. 

(3) Buildings or portions of a building 

not excluded by section 48D(b)(2)(B)(ii). 

Buildings or portions of a building not 

treated as offices and that are 

considered related to manufacturing of 

semiconductors or semiconductor 

manufacturing equipment include 

buildings or portions of a building used 

for: 

(i) Gowning to enter to and from a 

cleanroom environment; 

(ii) Monitoring operations and remote 

access of equipment; 

(iii) Functions performed by unit 

process engineers including developing, 

monitoring, updating and overseeing 

individual process recipes running on 

every tool in the facility to manufacture, 

measure and test wafers including 

access to relevant data, data analysis, 

modifications and updates to the 

process recipes on the tools; 

(iv) Functions performed by 

equipment engineers including 

overseeing tools to ensure proper 

operation by accessing data about the 

tool health and performance remotely 

adjusting the tool at workstations, and 

issuing work orders to the equipment 

and maintenance technicians from the 

workstations; 

(v) Functions performed by test 

engineers including monitoring the 

electrical test data being collected from 


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the wafers at certain points in their 

processing; 

(vi) Functions performed by yield and 

defect engineers including reviewing 

inspection data collected from wafers; 

(vii) Functions performed by 

metrology engineers including 

reviewing physical measurement data 

collected from the wafers; 

(viii) Functions performed by 

integration engineers that are 

responsible for the technology node and 

the end-to-end wafer process; 

(ix) Functions performed by facilities 

engineers including monitoring and 

controlling facilities systems; and 

(x) Functions related to central 

utilities buildings, material handling 

and ultrapure water generation 

facilities, and computing (data center). 

(d) Constructed, reconstructed, or 

erected by the taxpayer. Property is 

considered constructed, reconstructed, 

or erected by the taxpayer if the work 

is done for the benefit of the taxpayer 

in accordance with the taxpayer’s 

specifications. 

(e) Original use—(1) In general. 

Except as provided in paragraph (e)(2) 

of this section, the term original use 

means with respect to any property the 

first use to which the property is put by 

any taxpayer in connection with a trade 

or business or for the production of 

income. Additional capital expenditures 

paid or incurred by a taxpayer to 

recondition or rebuild property acquired 

or owned by the taxpayer satisfy the 

original use requirement to the extent of 

the expenditures paid or incurred by a 

taxpayer. However, a taxpayer’s cost to 

acquire property reconditioned or 

rebuilt by another taxpayer does not 

satisfy the original use requirement. 

Whether property is reconditioned or 

rebuilt property will be determined 

based on the facts and circumstances. 

(2) Treatment of inventory. For 

purposes of paragraph (e)(1) of this 

section, if a taxpayer initially acquires 

new property and holds the property 

primarily for sale to customers in the 

ordinary course of the taxpayer’s trade 

or business and subsequently withdraws 

the property from inventory and uses 

the property primarily in the taxpayer’s 

trade or business or primarily for the 

taxpayer’s production of income, the 

taxpayer is considered the original user 

of the property. If a person initially 

acquires new property and holds the 

property primarily for sale to customers 

in the ordinary course of the person’s 

business and a taxpayer subsequently 

acquires the property from the person 

for use primarily in the taxpayer’s trade 

or business or primarily for the 

taxpayer’s production of income, the 

taxpayer is considered the original user 

of the property. For purposes of this 

paragraph (e), the original use of the 

property by the taxpayer commences on 

the date on which the taxpayer first uses 

the property primarily in the taxpayer’s 

trade or business or primarily for the 

taxpayer’s production of income. 

(f) Part of an advanced manufacturing 

facility—(1) In general. To qualify for 

the section 48D credit, property must be 

part of the advanced manufacturing 

facility, as provided in this paragraph 

(f). Property is part of an advanced 

manufacturing facility if the property is 

physically located or co-located either at 

the advanced manufacturing facility, or 

on a contiguous piece of land to the 

advanced manufacturing facility. 

Parcels or tracts of land will be 

considered contiguous if they possess 

common boundaries, and would be 

contiguous but for the interposition of a 

road, street, railroad, public utility, 

stream or similar property. 

(2) Property that is not located or colocated at an advanced manufacturing 

facility or on a contiguous piece of land 

to the advanced manufacturing facility. 

Property that is not located or co-located 

at an advanced manufacturing facility or 

on a contiguous piece of land to the 

advanced manufacturing facility may be 

considered part of the advanced 

manufacturing facility if the property is 

owned by the same taxpayer as the 

entire advanced manufacturing facility, 

connected to the advanced 

manufacturing facility (e.g., via 

pipeline) and the sole purpose, 

function, and output of the property is 

dedicated to the operation of the 

advanced manufacturing facility. 

(g) Integral to the operation of an 

advanced manufacturing facility—(1) In 

general. To qualify for the section 48D 

credit, property must be integral to the 

operation of manufacturing of 

semiconductors or manufacturing of 

semiconductor manufacturing 

equipment, both as provided in § 1.48D– 

2. Property is integral to the operation 

of manufacturing of semiconductors or 

manufacturing of semiconductor 

manufacturing equipment if such 

property is used directly in the 

manufacturing operation, is essential to 

the completeness of the manufacturing 

operation, and is not transformed in any 

material way as a result of the 

manufacturing operation. Materials, 

supplies, and other inventoriable items 

of property that are transformed during 

the manufacturing of semiconductors or 

into a unit of semiconductor 

manufacturing equipment are not 

considered property integral to the 

operation of an advanced manufacturing 

facility. For this purpose, the term 

transform does not include the normal 

degradation of components of 

semiconductor manufacturing 

equipment. In addition, property such 

as pavements, parking areas, inherently 

permanent advertising displays, or 

inherently permanent outdoor lighting 

facilities, although used in the operation 

of a business, ordinarily are not integral 

to the operation of an advanced 

manufacturing facility. Thus, for 

example, all property used by the 

taxpayer to acquire or transport 

materials or supplies to the point where 

the actual manufacturing activity 

commences (such as docks, railroad 

tracks, and bridges), or all property 

(other than materials or supplies) used 

by the taxpayer during the 

manufacturing of semiconductors or 

during the manufacturing of 

semiconductor manufacturing 

equipment within the meaning of 

§ 1.48D–2, would be considered 

property integral to the operation of an 

advanced manufacturing facility of an 

eligible taxpayer. Property is considered 

integral to the operation of an advanced 

manufacturing facility of an eligible 

taxpayer if so used either by the owner 

of the property or by a lessee of the 

property. 

(2) Vertically integrated 

manufacturers. If an advanced 

manufacturing facility that is engaged in 

the manufacturing of semiconductors 

within the meaning of § 1.48D–2 also 

conducts vertically integrated activities 

(for example, producing raw materials 

and manufacturing, ingots, wafers, and 

semiconductors), then property integral 

to the operation of such an advanced 

manufacturing facility includes only the 

property used in the manufacturing of 

semiconductors within the meaning of 

§ 1.48D–2. 

(3) Specific examples of integral 

property. Specific examples of property 

that normally would be integral to the 

operation of the advanced 

manufacturing facility of an eligible 

taxpayer are: 

(i) Equipment and tools used in the 

processes of Chemical Vapor Deposition 

(CVD), and Physical Vapor Deposition 

(PVD), Atomic Layer deposition (ALD), 

oxidation, annealing, and epitaxy. Such 

equipment includes Deposition and 

thin-film growth equipment, etching 

equipment, and lithography equipment 

(including Extreme Ultraviolet 

Lithography (EUV)); 

(ii) Wet process tools, analytical tools, 

E-Beam operation tools (to repair 

masks), mask manufacturing equipment, 

chemical mechanical polishing 

equipment, reticle handlers, and 

stockers; 

(iii) Inspection and metrology 

equipment, including scanning electron 


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microscopes, atomic force microscopes, 

ion milling tools, optical inspection 

systems, wafer probes and optical 

scatterometer; 

(iv) Clean room facilities, including 

locker and gowning rooms, specialized 

lighting systems, automated material 

systems for wafer handling, specialized 

recirculating air handlers, to maintain 

the cleanroom free from particles, 

control temperature and humidity 

levels, and specialized ceilings 

comprised of HEPA filters; 

(v) Cleanroom equipment (including 

jogs, hand tools, calibration equipment, 

and temperature pollution monitoring 

tools) and specialty cleaning equipment; 

(vi) Electrical power facilities, cooling 

facilities, chemical supply systems, and 

wastewater and wastewater treatment 

systems, including water management, 

water conservation, and water treatment 

equipment, materials and technologies; 

(vii) Electricity distribution 

equipment including connectors, 

capacitors, meters and sockets, 

switchgear, surge arresters and 

transformers; 

(viii) Sub-fab levels containing 

pumps, transformers, abatement 

systems, ultrapure water systems, 

uninterruptible power supply, and 

boilers, pipes, storage systems, wafer 

routing systems and databases, backup 

systems, quality assurance equipment, 

and computer data centers; 

(ix) Utility level equipment including 

chillers, systems to handle nitrogen, 

argon, and other gases, compressor 

systems, and pipes; 

(x) Industrial automation and control 

equipment (including, but not limited 

to, programmable logic controllers, 

process controllers, distributed control 

systems, human machine interface and 

motor controls and accessories); 

(xi) Industrial automation 

communications devices, networks, and 

software for industrial automation 

control products and systems including 

automated material handling systems 

(AMHS) and advance wafer routing 

software systems and databases; 

(xii) Tooling equipment; 

(xiii) Back-end manufacturing 

equipment related to assembly, testing, 

and packaging; 

(xiv) Photolithography tools; 

(xv) Photomasks, reticles, pellicle, 

steppers, scanners, and photoresist 

related equipment; 

(xvi) Emulation tools; 

(xvii) Rapid thermal processing tools 

(annealing tubs and vacuum ovens), 

melting laser annealing (MLA) 

equipment, wafer bonding equipment, 

physical removal processing tools 

(flycutter DieSaw and backgrind), and 

edge seal dispense; 

(xviii) Site infrastructure including 

but limited to energy, water, natural gas, 

backup power generators, transformers, 

stormwater management and fire 

protection; 

(xix) Equipment and installation 

(wipe-film evaporators); 

(xx) Chemical and gas delivery 

systems (piping, storage, and waste 

systems including hazardous waste); 

(xxi) Bulk chemical purification 

systems (Liquid N2, Ar, H2, etc.); 

(xxii) HVAC air conditioning and air 

handling systems, critical cooling water 

systems and heating systems; 

(xxiii) Wafer stockers with 

temperature and air quality control; 

(xxiv) Temperature control systems; 

(xxv) Security and monitoring system 

and devices; 

(xxvi) Failure analysis labs and 

equipment; 

(xxvii) Quality assurance equipment 

including incoming goods, in-process 

inspection, and finished-good 

inspection; 

(xxviii) Transportation, trolleys and 

carts that are used to transport wafers or 

overhead conveyer systems to move the 

carts; 

(xxxix) Lighting products; 

(xxx) Industrial gas generation and/or 

handling systems, such as air separation 

units, including any associated backup 

and storage equipment; 

(xxxi) Input shaping tooling; 

(xxxii) Crystal formation and coating 

equipment; 

(xxxiii) Mechanical equipment; and 

(xxxiv) Polishing equipment. 

(4) Research or storage facilities. If 

property, including a building and its 

structural components, constitutes a 

research or storage facility and is used 

in connection with the manufacturing of 

semiconductors or manufacturing of 

semiconductor manufacturing 

equipment, the property may qualify as 

integral to the operation of the advanced 

manufacturing facility under section 

48D(b)(2)(A)(iv). Specific examples of 

research facilities include research 

facilities that manufacture 

semiconductors in connection with 

research, such as pre-pilot production 

lines and prototypes, including 

semiconductor packaging. Specific 

examples of storage facilities are 

mineral or chemical storage equipment, 

gas storage tanks, including high 

pressure cylinders or specially designed 

tanks and drums, wastewater storage, 

and inventory and finished goods 

warehouses. A research facility that 

does not manufacture any type of 

semiconductor, as provided in § 1.48D– 

2(m), or semiconductor manufacturing 

equipment, as provided in § 1.48D–2(o), 

does not qualify. 

(5) Examples. The following examples 

illustrate the rules of this paragraph (g): 

(i) Example 1. X Corp, a calendar-year C 

corporation, is a manufacturer of air 

separation units that are designed to supply 

on demand nitrogen to an advanced 

manufacturing facility. In January 2025, X 

Corp places in service an air separation unit 

that is co-located at an advanced 

manufacturing facility on a contiguous piece 

of land to the advanced manufacturing 

facility. The air separation unit produces 

nitrogen on demand, and the nitrogen is used 

directly in the manufacturing of 

semiconductors. The air separation unit is 

part of the advanced manufacturing facility 

within the meaning of paragraph (f) of this 

section because the air separation unit is 

located on a contiguous piece of land to the 

advanced manufacturing facility. The air 

separation unit is property integral to the 

operation of an advanced manufacturing 

facility under this paragraph (g) because it is 

used directly in, and is essential to, the 

completeness of the semiconductor 

manufacturing operation, and is not 

transformed in any material way as a result 

of the semiconductor manufacturing 

operation. 

(ii) Example 2. Y Corp, a calendar-year C 

corporation, is a manufacturer of specialty 

chemicals that are used in the manufacturing 

of semiconductors. In 2025, Y Corp places in 

service equipment at its facility that 

manufactures the specialty chemicals. The 

equipment is located five miles from the 

advanced manufacturing facility, but is not 

part of the advanced manufacturing facility 

within the meaning of paragraph (f) of this 

section because it is not located or co-located 

at the advanced manufacturing facility, or on 

a contiguous piece of land to the advanced 

manufacturing facility, and it is not 

connected to the advanced manufacturing 

facility. Also in 2025, Y Corp places in 

service chemical storage tanks that are part 

of the advanced manufacturing facility 

within the meaning of paragraph (f) of this 

section because the property is located on a 

contiguous piece of land to the advanced 

manufacturing facility. The chemical storage 

tanks are property integral to the operation of 

the advanced manufacturing facility pursuant 

to paragraph (g) of this section. 

(h) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 

§ 1.48D–4 Advanced manufacturing facility 

of an eligible taxpayer. 

(a) In general. This section provides 

definitions and rules relating to 

advanced manufacturing facilities of 

eligible taxpayers for purposes of 

section 48D of the Code and the section 

48D regulations. 

(b) Advanced manufacturing facility. 

For purposes of section 48D(b)(3) and 

this section, the term advanced 

manufacturing facility means a facility 

of an eligible taxpayer for which the 


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primary purpose, as determined under 

paragraph (c)(1) of this section, is the 

manufacturing of semiconductors or the 

manufacturing of semiconductor 

manufacturing equipment within the 

meaning of § 1.48D–2. 

(c) Primary purpose—(1) In general. 

The determination of the primary 

purpose of a facility will be made based 

on all the facts and circumstances 

surrounding the construction, 

reconstruction, or erection of the 

advanced manufacturing facility of an 

eligible taxpayer. Facts that may 

indicate a facility has a primary purpose 

of manufacturing of semiconductors or 

manufacturing of semiconductor 

manufacturing equipment include plans 

or other documents for the facility that 

demonstrate that the facility is designed 

for the manufacturing of 

semiconductors or manufacturing of 

semiconductor manufacturing 

equipment within the meaning of 

§ 1.48D–2. Facts may also include the 

possession of permits or licenses needed 

for the manufacturing of 

semiconductors or manufacturing of 

semiconductor manufacturing 

equipment; and executed contracts to a 

customer to supply such 

semiconductors or executed contracts to 

an advanced manufacturing facility as 

defined in paragraph (b) of this section 

to supply such semiconductor 

manufacturing equipment in place 

either before or within 6 months after 

the facility is placed in service. A 

facility has the primary purpose of 

manufacturing of semiconductors or 

manufacturing of semiconductor 

manufacturing equipment if more than 

50 percent of its potential output, as 

measured by cost to produce, revenue 

received in an arm’s length transaction, 

or units produced, constitutes 

manufacturing of semiconductors or 

manufacturing of semiconductor 

manufacturing equipment within the 

meaning of § 1.48D–2. However, 

property placed in service in a taxable 

year must still meet the definition of 

qualified property under section 

48D(b)(2) and § 1.48D–3 for its basis to 

be included as part of the qualified 

investment in the advanced 

manufacturing facility eligible for the 

section 48D credit. For example, 

property that is not integral to the 

operation of an advanced manufacturing 

facility as provided in § 1.48D–3(g) may 

not be included as a qualified 

investment in an advanced 

manufacturing facility. 

(2) No primary purpose. A facility for 

which the primary purpose is the 

manufacturing, producing, growing, or 

extracting of materials or chemicals that 

are supplied to an advanced 

manufacturing facility is not a facility 

for which the primary purpose is the 

manufacturing of semiconductors or 

manufacturing of semiconductor 

manufacturing equipment. Thus, for 

example, facilities that exclusively 

produce semiconductor-grade 

polysilicon, or produce gases, or that 

manufacture components or parts, to 

supply to an advanced manufacturing 

facility engaged in the manufacturing of 

semiconductors or manufacturing of 

semiconductor manufacturing 

equipment are not facilities for which 

the primary purpose is the 

manufacturing of semiconductors or the 

manufacturing of semiconductor 

manufacturing equipment. 

(3) Examples. The following examples 

illustrate the rules of this paragraph (c): 

(i) Example 1: Primary purpose; in general. 

In January 2025, X Corp, a calendar-year C 

corporation, begins construction of a facility 

that will manufacture semiconductor 

manufacturing equipment that could be used 

in a facility that will engage in 

semiconductor fabrication (semiconductor 

fabrication facility). A portion of the 

equipment produced, however, could be 

used for manufacturing operations of a 

facility that is not engaged in semiconductor 

manufacturing. X Corp enters into a contract 

with Y Corp, which is building a 

semiconductor fabrication facility to be 

placed in service in July 2026, to supply Y 

Corp with equipment that is integral to 

semiconductor fabrication. Such equipment 

represents more than 50 percent of the 

potential output of X Corp’s facility (by cost 

to produce such equipment) of X Corp’s 

facility for the first year of operations. X 

Corp’s facility will be considered as having 

a primary purpose of manufacturing of 

semiconductor manufacturing equipment for 

the first year of its operations. 

(ii) Example 2: Primary purpose; 

semiconductor wafer production. X Corp, a 

calendar-year C corporation, is engaged in 

the production of solar wafers (that is, X Corp 

is engaged in semiconductor wafer 

production). In January 2025, X Corp receives 

the necessary permits to begin construction 

of a facility designed for semiconductor 

wafer production within the meaning of 

§ 1.48D–2. X Corp enters into a contract to 

supply such wafers to an unrelated person. 

Such contract represents more than 50 

percent of X Corp’s potential output (by 

revenue received) for the tax year that the 

facility is placed in service. Because the 

contract to sell wafers represents more than 

50 percent of X Corp’s potential output (by 

revenue received), X Corp’s facility will be 

considered as having a primary purpose of 

semiconductor wafer production within the 

meaning of paragraph (c)(1) of this section. 

(iii) Example 3: Primary purpose; vertically 

integrated manufacturer. Z Corp, a C 

corporation, is a vertically integrated 

manufacturer. In January 2025, Z Corp begins 

construction of a facility that will produce 

raw materials and other consumables for use 

in the manufacturing of semiconductors and 

such facility will also engage in 

semiconductor wafer production and 

semiconductor fabrication. Z Corp enters into 

separate sales contracts to sell units 

produced from the semiconductor fabrication 

with a variety of unrelated companies that 

are engaged in semiconductor packaging. Z 

Corp also enters into a sales contract with A 

Corp to sell raw materials that it produces at 

the facility to A Corp. Z Corp’s production 

of units from its semiconductor fabrication 

sold to companies engaged in semiconductor 

packaging represents more than 50 percent of 

the potential output (by cost) of Z Corp’s 

facility for the first year of operations; 

therefore, Z Corp’s facility will be considered 

as having a primary purpose of 

manufacturing of semiconductors. 

(iv) Example 4: No primary purpose; 

vertically integrated manufacturer. Assume 

the same facts as in paragraph (c)(3)(iii) of 

this section (Example 3), except that Z Corp’s 

production of such raw materials represents 

more than 50 percent of the potential output 

of Z Corp’s facility for the first year of 

operations. Z Corp’s facility will not be 

considered as having a primary purpose of 

manufacturing of semiconductors. 

(d) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or 

October 23, 2024. 

§ 1.48D–5 Beginning of construction. 

(a) Termination of credit—(1) In 

general. The credit allowed under 

section 48D of the Code and the section 

48D regulations does not apply to 

property that is part of an advanced 

manufacturing facility of an eligible 

taxpayer if the beginning of construction 

of the property, as defined in paragraph 

(a)(2) of this section, begins after 

December 31, 2026 (the date specified in 

section 48D(e)). 

(2) Property. For purposes of 

determining beginning of construction 

of property under this section, the unit 

of property is— 

(i) A single advanced manufacturing 

facility project as described in 

paragraph (a)(3) of this section; or 

(ii) An item of qualified property (as 

defined in § 1.48D–3(b)). 

(3) Single advanced manufacturing 

facility project—(i) In general. Solely for 

purposes of determining whether 

construction of a qualified property has 

begun for purposes of section 48D and 

the section 48D regulations, multiple 

items of qualified property or advanced 

manufacturing facilities that are 

operated as part of a single advanced 

manufacturing facility project (along 

with any items of property, such as 

clean rooms, chemical delivery systems, 

chemical storage facilities, temperature 

control systems, robotic handling 

systems, semiconductor manufacturing 

equipment, and tooling equipment 

(such as for deposition and etching) that 


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are integral to the operation of the single 

advanced manufacturing facility project) 

will be treated as a single item of 

qualified property. Multiple qualified 

properties or advanced manufacturing 

facilities will be treated as operated as 

part of a single advanced manufacturing 

facility project, if at any point during 

construction of the multiple qualified 

properties or advanced manufacturing 

facilities, they are owned by a single 

taxpayer (subject to the related taxpayer 

rule provided in paragraph (a)(3)(ii) of 

this section) and any two or more of the 

following factors are present— 

(A) The properties or facilities are 

owned by a single legal entity; 

(B) The properties or facilities are 

constructed on contiguous pieces of 

land; 

(C) The properties or facilities are 

described in a common supply contract 

or other type of relevant contract; 

(D) The properties or facilities share a 

common electricity and/or water 

supply; 

(E) The properties or facilities are 

described in one or more common 

environmental or other regulatory 

permits; 

(F) The properties or facilities were 

constructed pursuant to a single master 

construction contract; or 

(G) The construction of the properties 

or facilities was financed pursuant to 

the same loan agreement or other 

financing arrangement. 

(ii) Related taxpayers—(A) Definition. 

For purposes of this section, the term 

related taxpayers means members of a 

group of trades or businesses that are 

under common control (as defined in 

§ 1.52–1(b)). 

(B) Related taxpayer rule. For 

purposes of this section, related 

taxpayers are treated as one taxpayer in 

determining whether multiple qualified 

properties or advanced manufacturing 

facilities will be treated as operated as 

part of a single advanced manufacturing 

facility project. 

(iii) Example. A single taxpayer is 

developing Project C, a project that will 

consist of 3 advanced manufacturing 

facilities constructed on the same 

campus. Project C will share a common 

electricity supply, and semiconductors 

manufactured by Project C will be sold 

to Buyer through a single supply 

contract. In 2023, for 1 of the 3 

advanced manufacturing facilities, the 

taxpayer installs deposition equipment. 

Thereafter, the taxpayer completes the 

construction of all 3 advanced 

manufacturing facilities pursuant to a 

continuous program of construction. For 

purposes of the section 48D credit, 

Project C is a single advanced 

manufacturing facility project that will 

be treated as a single property, and the 

taxpayer performed physical work of a 

significant nature that constitutes the 

beginning of construction of Project C in 

2023. 

(iv) Timing of single advanced 

manufacturing facility project 

determination. Whether multiple 

properties or advanced manufacturing 

facilities are operated as part of a single 

advanced manufacturing facility project 

and are treated as a single item of 

property for purposes of the beginning 

of construction requirement of section 

48D and the section 48D regulations is 

determined in the taxable year during 

which the last of the multiple properties 

or facilities is placed in service. 

(v) Disaggregation. Multiple 

properties or advanced manufacturing 

facilities that are operated as part of a 

single advanced manufacturing facility 

project and treated as a single item of 

qualified property under this paragraph 

(a)(3) for purposes of determining 

whether construction of a qualified 

property or advanced manufacturing 

facility has begun may be disaggregated 

and treated as separate items of 

qualified property for purposes of 

determining whether a separate 

advanced manufacturing facility or item 

of qualified property satisfies the 

continuity safe harbor (as defined in 

paragraph (e) of this section). Those 

disaggregated separate advanced 

manufacturing facilities or items of 

qualified property that are placed in 

service prior to the continuity safe 

harbor deadline will be eligible for the 

continuity safe harbor. The remaining 

disaggregated separate items of property 

or facilities may satisfy the continuity 

requirement under a facts and 

circumstances determination. 

(vi) Example. A single taxpayer is 

developing Project D, a project that will 

consist of 4 separate properties. Project 

D will use the same water supply and 

each property within Project D will be 

constructed pursuant to a single master 

construction contract. Under the single 

project rule provided in this paragraph 

(a)(3), Project D is a single project that 

will be treated as a single property. In 

2024, for 3 of the 4 separate properties, 

the taxpayer installs property integral to 

the operation of the advanced 

manufacturing facility. Accordingly, the 

taxpayer has performed physical work 

of a significant nature that constitutes 

the beginning of construction of Project 

D for purposes of section 48D(e). 

Thereafter, on the last day of the 10-year 

continuity safe harbor period, the 

taxpayer places in service only 3 of the 

4 separate properties within Project D. 

The taxpayer disaggregates Project D 

under paragraph (a)(3)(v) of this section 

and accordingly, only 3 of the 4 separate 

properties satisfy the continuity safe 

harbor. For the remaining 1 separate 

property, the taxpayer may demonstrate 

that it satisfies the continuity 

requirement provided in paragraph (e) 

of this section based on the facts and 

circumstances, to enable the taxpayer to 

claim the section 48D credit. 

(b) Beginning of construction—(1) In 

general. For purposes of section 48D, 

the section 48D regulations, and section 

107(f)(1) of the CHIPS Act of 2022, 

Public Law 117–167, div. A, 136 Stat. 

1366, 1399 (August 9, 2022), a taxpayer 

may establish that construction of an 

item of property (as defined in 

paragraph (a)(2) of this section) of the 

taxpayer begins under either: 

(i) The physical work test of 

paragraph (c) of this section; or 

(ii) The five percent safe harbor of 

paragraph (d) of this section. 

(2) Continuity requirement. See 

paragraph (e) of this section for the 

continuity requirement applicable for 

purposes of the physical work test and 

the five percent safe harbor, which must 

be demonstrated either by maintaining 

continuous construction (as defined in 

paragraph (e)(2) of this section) or 

continuous efforts (as defined in 

paragraph (e)(3) of this section). 

(c) Physical work test—(1) In general. 

Under the physical work test, 

construction of an item of property 

begins when physical work of a 

significant nature begins, provided 

thereafter that the taxpayer maintains 

continuous construction or continuous 

efforts. This test focuses on nature of the 

work performed, not the amount of the 

costs. Assuming the work performed is 

of a significant nature, there is no fixed 

minimum amount of work, monetary or 

percentage threshold required to satisfy 

the physical work test. 

(2) Physical work of significant 

nature—(i) In general. Work performed 

by the taxpayer and work performed for 

the taxpayer by other persons under a 

binding written contract that is entered 

into prior to the manufacture, 

construction, or production of the 

property for use by the taxpayer in the 

taxpayer’s trade or business of 

manufacturing semiconductors or 

semiconductor manufacturing 

equipment is taken into account in 

determining whether physical work of a 

significant nature has begun. Both onsite and off-site work (performed either 

by the taxpayer or by another person 

under a binding written contract) may 

be taken into account for purposes of 

demonstrating that physical work of a 

significant nature has begun. A written 

contract is binding only if it is 

enforceable under local law against the 


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taxpayer or a predecessor and does not 

limit damages to a specified amount (for 

example, by use of a liquidated damages 

provision). For this purpose, a 

contractual provision that limits 

damages to an amount equal to at least 

five percent of the total contract price 

will not be treated as limiting damages 

to a specified amount. For additional 

guidance regarding the definition of a 

binding written contract, see § 1.168(k)– 

1(b)(4)(ii)(A) through (D). Specific 

examples of on-site physical work of a 

significant nature include the 

excavation for the foundation and the 

pouring of the concrete pads of the 

foundation. Specific examples of off-site 

physical work of a significant nature 

include the manufacture of 

semiconductor manufacturing 

equipment but only if the 

manufacturer’s work is done pursuant to 

a binding written contract and the 

semiconductor manufacturing 

equipment is not held in the 

manufacturer’s inventory. 

(ii) Exceptions. Physical work of 

significant nature does not include 

preliminary activities, including but not 

limited to planning or designing, 

securing financing, exploring, 

researching, obtaining permits, 

licensing, conducting surveys, 

environmental and engineering studies, 

or clearing a site, even if the cost of 

those preliminary activities is properly 

included in the depreciable basis of the 

property. Physical work of a significant 

nature also does not include work 

(performed either by the taxpayer or by 

another person under a binding written 

contract) to produce property that is 

either in existing inventory or is 

normally held in inventory by a vendor. 

(d) Five percent safe harbor—(1) In 

general. Construction of a property will 

be considered as having begun if: 

(i) A taxpayer pays or incurs (within 

the meaning of § 1.461–1(a)(1) and (2)) 

five percent or more of the total cost of 

the property; and 

(ii) Thereafter, the taxpayer maintains 

continuous construction or continuous 

efforts. 

(2) Costs. All costs properly included 

in the basis of the property are taken 

into account to determine whether the 

five percent safe harbor has been met. 

For property that is manufactured, 

constructed, or produced for the 

taxpayer by another person under a 

binding written contract with the 

taxpayer, costs incurred with respect to 

the property by the other person before 

the property is provided to the taxpayer 

are deemed incurred by the taxpayer 

when the costs are incurred by the other 

person under the principles of section 

461 of the Code. 

(3) Cost overruns—(i) Single advanced 

manufacturing facility project. If the 

total cost of a property that is a single 

advanced manufacturing facility project 

comprised of multiple properties (as 

described in paragraph (a)(3) of this 

section) exceeds its anticipated total 

cost such that the amount the taxpayer 

actually paid or incurred with respect to 

the single advanced manufacturing 

facility project to establish the 

beginning of its construction under 

paragraph (b)(1)(ii) of this section is less 

than five percent of the total cost at the 

time it is placed in service, the five 

percent safe harbor is not fully satisfied. 

However, the five percent safe harbor 

will be satisfied with respect to some, 

but not all, of the separate properties or 

facilities (as described in paragraph 

(a)(3) of this section) comprising the 

single advanced manufacturing facility 

project, as long as the total aggregate 

cost of those properties is not more than 

twenty times greater than the amount 

the taxpayer paid or incurred. 

(ii) Example. In 2023, taxpayer incurs 

$300,000 in costs to construct Project A, 

comprised of six advanced 

manufacturing facilities that will be 

operated as a single project. Taxpayer 

anticipates that each advanced 

manufacturing facility will cost 

$1,000,000 for a total cost for Project A 

of $6,000,000. Thereafter, the taxpayer 

makes continuous efforts to advance 

towards completion of Project A. The 

taxpayer timely places Project A in 

service in 2025. In 2025, the actual total 

cost of Project A amounts to $7,500,000, 

with each advanced manufacturing 

facility costing $1,250,000. Although the 

taxpayer did not pay or incur five 

percent of the actual total cost of Project 

A in 2023, the taxpayer will be treated 

as satisfying the Five Percent Safe 

Harbor in 2023 with respect to four of 

the advanced manufacturing facilities, 

as their actual total cost of $5,000,000 is 

not more than twenty times greater than 

the $300,000 in costs incurred by the 

taxpayer. The taxpayer will not be 

treated as satisfying the five percent safe 

harbor in 2023 with respect to two of 

the properties. Thus, the taxpayer may 

claim the section 48D credit based on 

$5,000,000, the cost of four of the 

properties. 

(iii) Single property. If the total cost of 

a single property, which is not part of 

a single advanced manufacturing facility 

project comprised of multiple properties 

or facilities (as described in paragraph 

(a)(3) of this section) and cannot be 

separated into multiple properties or 

facilities, exceeds its anticipated total 

cost so that the amount a taxpayer 

actually paid or incurred with respect to 

the single property as of an earlier year 

is less than five percent of the total cost 

of the single property at the time it is 

placed in service, then the taxpayer will 

not satisfy the five percent safe harbor 

with respect to any portion of the single 

property in such earlier year. 

(iv) Example. In 2023, a taxpayer 

incurs $250,000 in costs to construct 

Project B, a single property. The 

taxpayer anticipates that the total cost of 

Project B will be $5,000,000. Thereafter, 

the taxpayer makes continuous efforts to 

advance towards completion of Project 

B. The taxpayer places Project B in 

service in a later year. At that time, its 

actual total cost amounts to $6,000,000. 

Because Project B is a single property 

that is not a single project comprised of 

multiple properties, the taxpayer will 

not satisfy the five percent safe harbor 

as of 2023. However, if the construction 

of Project B satisfies the requirements of 

the physical work test by also beginning 

physical work of a significant nature in 

2024, the taxpayer may be able to 

demonstrate that construction began in 

2024. 

(e) Continuity requirement—(1) In 

general. For purposes of the physical 

work test and five percent safe harbor, 

taxpayers must satisfy the continuity 

requirement by demonstrating either 

continuous construction or continuous 

efforts regardless of whether the 

physical work test or the five percent 

safe harbor was used to establish the 

beginning of construction. Whether a 

taxpayer meets the continuity 

requirement under either test is 

determined by the relevant facts and 

circumstances. The Commissioner will 

closely scrutinize a property and may 

determine that the beginning of 

construction is not satisfied with respect 

to a property if a taxpayer does not meet 

the continuity requirement. 

(2) Continuous construction. The term 

continuous construction means a 

continuous program of construction that 

involves continuing physical work of a 

significant nature. Whether a taxpayer 

maintains a continuous program of 

construction to satisfy the continuity 

requirement will be determined based 

on all the relevant facts and 

circumstances. 

(3) Continuous efforts. The term 

continuous efforts means continuous 

efforts to advance towards completion 

of a property to satisfy the continuity 

requirement. Whether a taxpayer makes 

continuous efforts to advance towards 

completion of a property will be 

determined by the relevant facts and 

circumstances. Facts and circumstances 

indicating continuous efforts to advance 

towards completion of a property may 

include: 


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(i) Paying or incurring additional 

amounts included in the total cost of the 

property. A taxpayer is considered to 

meet this factor for a taxable year in 

which it pays or incurs (within the 

meaning of § 1.461–1(a)(1) and (2)) five 

percent or more of the total cost of the 

property each calendar year after the 

calendar year during which 

construction of the property began for 

purposes of section 48D and the section 

48D regulations; 

(ii) Entering into binding written 

contracts for the manufacture, 

construction, or production of the 

property or for future work to construct 

the property; 

(iii) Obtaining necessary permits; and 

(iv) Performing physical work of a 

significant nature. 

(4) Excusable disruptions to 

continuous construction and continuous 

efforts tests—(i) In general. Certain 

disruptions in a taxpayer’s continuous 

construction or continuous efforts to 

advance towards completion of a 

property that are beyond the taxpayer’s 

control will not be considered as 

indicating that a taxpayer has failed to 

satisfy the continuity requirement. 

(ii) Effect of excusable disruptions on 

continuity safe harbor. The excusable 

disruptions provided in this paragraph 

(e)(4) will not extend the continuity safe 

harbor deadline that is provided in 

paragraph (e)(6) of this section. 

(iii) Non-exclusive list of construction 

disruptions. This paragraph (e)(4)(iii) 

provides a non-exclusive list of 

construction disruptions that will not be 

considered as indicating that a taxpayer 

has failed to satisfy the continuity 

requirement: 

(A) Delays due to severe weather 

conditions. 

(B) Delays due to natural disasters. 

(C) Delays in obtaining permits or 

licenses from Federal, Indian Tribal, 

State, territorial, or local governments. 

Such delays include delays in obtaining 

air emissions, water discharge, or 

hazardous waste management permits 

or chemical handling licenses from the 

Environmental Protection Agency (EPA) 

or another environmental protection 

authority. Such delays also include 

delays as a result of the review process 

under State, Tribal, local, or Federal 

environmental laws, for example, a 

review under the National 

Environmental Policy Act, as well as 

delays in obtaining construction 

permits. 

(D) Delays at the written request of a 

Federal, State, local, or Indian Tribal 

government regarding matters of public 

health, public safety, security, or similar 

concerns, including hazardous chemical 

transport. 

(E) Delays related to electrical or 

water supply, such as those relating to 

the completion of construction on a 

distribution line or water supply line 

that may be associated with a project’s 

electrical and water needs, whether 

constructed by the eligible taxpayer that 

is the owner of the advanced 

manufacturing facility, a governmental 

entity, or another person. 

(F) Delays in the manufacture of 

custom components or equipment. 

(G) Delays due to the inability to 

obtain specialized equipment of limited 

availability. 

(H) Delays due to supply shortages. 

(I) Delays due to the presence of 

endangered species. 

(J) Financing delays. 

(K) Delays due to specialized labor 

shortages or labor stoppages. 

(5) Timing of excusable disruption 

determination. In the case of a single 

advanced manufacturing facility project 

comprised of a single property, whether 

an excusable disruption has occurred 

for purposes of the beginning of 

construction requirement of section 48D 

and the section 48D regulations must be 

determined in the taxable year during 

which the property is placed in service. 

In the case of a single advanced 

manufacturing facility project 

comprised of multiple properties or 

facilities, whether an excusable 

disruption has occurred for purposes of 

the beginning of construction 

requirement of section 48D and the 

section 48D regulations must be 

determined in the taxable year during 

which the last of multiple properties or 

facilities is placed in service. 

(6) Continuity safe harbor—(i) In 

general. A taxpayer will be deemed to 

satisfy the continuity requirement 

provided the property is placed in 

service no more than 10 calendar years 

after the calendar year during which 

construction of the property began for 

purposes of section 48D and the section 

48D regulations. 

(ii) Example. If construction begins on 

a property on January 15, 2023, and the 

property is placed in service by 

December 31, 2033, the property will be 

considered to satisfy the continuity safe 

harbor. If the property is not placed in 

service before January 1, 2034, whether 

the continuity requirement was satisfied 

will be determined based on all the 

relevant facts and circumstances. 

(f) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 

■ Par. 4. Section 1.50–0 is added to read 

as follows: 

§ 1.50–0 Table of contents. 

This section lists the table of contents 

for §§ 1.50–1 and 1.50–2. 

§ 1.50–1 Lessee’s income inclusion 

following election of lessor of investment 

credit property to treat lessee as acquirer. 

(a) In general. 

(b) Coordination with basis adjustment 

rules. 

(1) Basis adjustment. 

(2) Amount of credit included ratably in 

gross income. 

(i) In general. 

(ii) Special rule for the energy credit. 

(3) Special rule for partnerships and S 

corporations. 

(i) In general. 

(ii) Definition of ultimate credit claimant. 

(c) Coordination with the recapture rules. 

(1) In general. 

(2) Income inclusion exceeds unrecaptured 

credit. 

(3) Special rule for the energy credit. 

(4) Timing of income inclusion or 

reduction following recapture. 

(d) Election to accelerate income inclusion 

outside of the recapture period. 

(1) In general. 

(2) Exceptions. 

(3) Manner and time for making election. 

(e) Examples. 

(1) Example 1. 

(2) Example 2. 

(3) Example 3. 

(4) Example 4. 

(5) Example 5. 

(6) Example 6. 

(f) Applicability date. 

§ 1.50–2 Recapture of the advanced 

manufacturing investment credit in the 

case of certain expansions. 

(a) Recapture in connection with certain 

expansions. 

(1) In general. 

(2) Exception. 

(3) Carrybacks and carryover adjusted. 

(b) Definitions. 

(1) Applicable period. 

(2) Applicable taxpayer. 

(i) In general. 

(ii) Special rules for partnerships and S 

corporations and their partners and 

shareholders. 

(iii) Examples. 

(A) Example 1: Applicable taxpayer: In 

general. 

(B) Example 2: Applicable taxpayer: In 

general. 

(C) Example 3: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. 

(D) Example 4: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. 

(E) Example 5: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. 

(F) Example 6: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. 

(iv) Affiliated groups. 

(3) Applicable transaction. 


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Federal Register / Vol. 89, No. 205 / Wednesday, October 23, 2024 / Rules and Regulations 84761 

(4) Applicable transaction recapture 

amount. 

(5) Existing facility. 

(6) Foreign country of concern. 

(7) Material expansion. 

(8) Semiconductor manufacturing capacity. 

(9) Significant renovations. 

(10) Significant transaction. 

(i) In general. 

(ii) Required agreement. 

(11) Technology licensing. 

(12) Technology or product that raises 

national security concerns. 

(c) Exception from the definition of 

applicable transaction for the manufacturing 

of legacy semiconductors. 

(1) In general. 

(2) Legacy semiconductor. 

(d) Example: Applicable transaction credit 

claimed. 

(e) Applicability date. 

■ Par. 5. Section 1.50–2 is added to read 

as follows: 

§ 1.50–2 Recapture of the advanced 

manufacturing investment credit in the case 

of certain expansions. 

(a) Recapture in connection with 

certain expansions—(1) In general. 

Except as provided in section 50(a)(3)(B) 

of the Code and paragraph (a)(2) of this 

section, if an applicable taxpayer 

engages in an applicable transaction 

before the close of the applicable period, 

then the tax under chapter 1 for the 

taxable year in which such transaction 

occurs is increased by 100 percent of the 

applicable transaction recapture 

amount. Any taxpayer, including an 

applicable taxpayer, that engages in an 

applicable transaction during a taxable 

year does not meet the definition of an 

eligible taxpayer under section 48D(c) 

and the section 48D regulations and is 

ineligible for the section 48D credit for 

that taxable year. See paragraph (b) of 

this section for definitions of terms used 

in section 50(a)(3) and this section. 

(2) Exception. Section 50(a)(3)(A) and 

paragraph (a)(1) of this section do not 

apply if the applicable taxpayer 

demonstrates to the satisfaction of the 

Commissioner that the applicable 

transaction has been ceased or 

abandoned within 45 days of a 

determination and notice by the 

Commissioner. A taxpayer that ceases or 

abandons a particular applicable 

transaction for a taxable year may still 

be treated as engaging in a different 

applicable transaction for a taxable year. 

A taxpayer may not circumvent the 

application of section 50(a)(3) and this 

section by engaging in a series of 

applicable transactions, multiple 

applicable transactions, or other similar 

arrangements. 

(3) Carrybacks and carryover 

adjusted. In the case of any cessation 

described in section 50(a)(1) or (2), or 

any applicable transaction to which 

section 50(a)(3) and paragraph (a)(1) of 

this section apply, any carryback or 

carryover under section 39 of the Code 

is appropriately adjusted by reason of 

such cessation or applicable transaction. 

(b) Definitions. The following 

definitions apply for purposes of section 

50(a)(3) and this section. 

(1) Applicable period. The term 

applicable period means the 10-year 

period beginning on the date that an 

applicable taxpayer placed in service 

property that is eligible for the section 

48D credit. 

(2) Applicable taxpayer—(i) In 

general. Except as provided in 

paragraph (b)(2)(ii) of this section, the 

term applicable taxpayer means any 

taxpayer who was allowed a section 48D 

credit or made an election under section 

48D(d)(1) with respect to such credit, for 

any taxable year prior to the taxable year 

in which such taxpayer entered into an 

applicable transaction. 

(ii) Special rules for partnerships and 

S corporations and their partners and 

shareholders. In the case of qualified 

property placed in service by a 

partnership or an S corporation for 

which a section 48D credit was 

determined, the term applicable 

taxpayer also means— 

(A) The partnership and the partners 

of such partnership (directly or 

indirectly through one or more tiered 

partnerships) who were allowed a 

section 48D credit for such property, or 

S corporation and the shareholder(s) of 

such S corporation who were allowed a 

section 48D credit for such property, for 

any taxable year prior to the taxable year 

in which such partnership or S 

corporation entered into an applicable 

transaction; 

(B) Any partner in a partnership 

(directly or indirectly through one or 

more tiered partnerships) or any 

shareholder in an S corporation with 

respect to the partner’s or S corporation 

shareholder’s share of any section 48D 

credit allowed for such property for any 

taxable year prior to when such partner 

or S corporation shareholder entered 

into an applicable transaction; 

(C) Any partnership or S corporation 

that made an election under section 

48D(d)(2) with respect to a credit 

determined under section 48D(a)(1) for 

any taxable year prior to the taxable year 

in which such partnership or S 

corporation entered into an applicable 

transaction; and 

(D) Any partner in a partnership 

(directly or indirectly through one or 

more tiered partnerships) or shareholder 

in an S corporation with respect to the 

partner’s or S corporation shareholder’s 

share of any tax-exempt income from 

the partnership or S corporation that 

made an election under section 

48D(d)(2) for any taxable year prior to 

when such partner or shareholder 

entered into an applicable transaction. 

(iii) Examples. The following 

examples illustrate the rules of this 

paragraph (b)(2). 

(A) Example 1: Applicable taxpayer: In 

general. On July 1, 2026, X Corp, a calendaryear C corporation, entered into an 

applicable transaction. In 2025, X Corp had 

placed in service qualified property that is 

part of an advanced manufacturing facility 

and was allowed a section 48D credit for its 

2025 taxable year. X Corp is an applicable 

taxpayer when it entered into the applicable 

transaction. 

(B) Example 2: Applicable taxpayer: In 

general. The facts are the same as in 

paragraph (b)(2)(iii)(A) of this section 

(Example 1), except that X timely filed its 

2025 tax return properly making an election 

under section 48D(d)(1) with respect to the 

section 48D credit. X Corp is an applicable 

taxpayer when it entered into the applicable 

transaction. 

(C) Example 3: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. A, B, C, and D, all calendaryear C corporations, are partners in the ABCD 

partnership. Partners A, B, C, and D share 

partnership profits equally. On May 1, 2027, 

the ABCD partnership engages in an 

applicable transaction. On November 1, 2025, 

the ABCD partnership had placed in service 

qualified property with a basis of $1 million. 

Each partner’s share of the basis of the 

qualified property, as determined in § 1.46– 

3(f)(2), is $250,000 ($1m x 0.25) and each 

partner’s qualified investment is $250,000. A, 

B, C, and D each filed its 2025 tax return 

claiming a section 48D credit. The ABCD 

partnership and A, B, C, and D each are an 

applicable taxpayer when ABCD partnership 

enters into the applicable transaction. 

(D) Example 4: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. The facts are the same as in 

paragraph (b)(2)(iii)(C) of this section 

(Example 3), except that on May 1, 2027, A, 

and not ABCD partnership, engages in an 

applicable transaction. A is an applicable 

taxpayer with respect to A’s share of the 

section 48D credit when A enters into the 

applicable transaction. Neither the ABCD 

partnership nor partners B, C, nor D are an 

applicable taxpayer with respect to the 

applicable transaction entered into by A. 

(E) Example 5: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. The facts are the same as in 

paragraph (b)(2)(iii)(C) of this section 

(Example 3), except that A, B, C and D do 

not claim a section 48D credit on their timely 

filed 2025 tax returns. Instead, the ABCD 

partnership makes an election pursuant to 

section 48D(d)(2) with respect to the section 

48D credit determined under section 

48D(a)(1). The ABCD partnership is an 

applicable taxpayer with respect to the 

elective payment to the ABCD partnership 

pursuant to section 48D(d)(2)(A)(i)(I). 


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(F) Example 6: Applicable taxpayer: 

Special rules for partnerships and S 

corporations and their partners and 

shareholders. The facts are the same as in 

paragraph (b)(2)(iii)(E) of this section 

(Example 5), except that the ABCD 

partnership did not engage in an applicable 

transaction. On May 1, 2027, A engages in an 

applicable transaction. A is an applicable 

taxpayer with respect to its share of taxexempt income allocated to A pursuant to 

section 48D(d)(2)(A)(i)(II) and (IV). Neither 

the ABCD partnership nor partners B, C, or 

D are an applicable taxpayer with respect to 

the applicable transaction entered into by A. 

(iv) Affiliated groups. For purposes of 

this paragraph (b)(2), all members of an 

affiliated group under section 1504(a) of 

the Code, determined without regard to 

section 1504(b)(3), are treated as one 

taxpayer. 

(3) Applicable transaction. Except as 

provided in section 50(a)(6)(D)(ii) and 

paragraph (c)(1) of this section, the term 

applicable transaction means, with 

respect to any applicable taxpayer, any 

significant transaction involving the 

material expansion of semiconductor 

manufacturing capacity of such 

applicable taxpayer in any foreign 

country of concern. 

(4) Applicable transaction recapture 

amount. The term applicable 

transaction recapture amount means, 

with respect to an applicable taxpayer, 

the aggregate decrease in the credits 

allowed under section 38 of the Code for 

all prior taxable years that would have 

resulted solely from reducing to zero 

any credit determined under section 46 

of the Code that is attributable to the 

advanced manufacturing investment 

credit under section 48D(a), with 

respect to property that has been placed 

in service during the applicable period. 

(5) Existing facility. The term existing 

facility means any facility built, 

equipped, and operating prior to a 

taxpayer placing in service qualified 

property as defined in section 48D(b)(2) 

and § 1.48D–3. Existing facilities are 

defined by their semiconductor 

manufacturing capacity at the time the 

qualified property is placed in service; 

facilities that undergo significant 

renovations, as defined in paragraph 

(b)(9) of this section, will no longer 

qualify as existing facilities within the 

meaning of this paragraph (b)(5). 

(6) Foreign country of concern. The 

term foreign country of concern has the 

same meaning as provided in 15 CFR 

231.102. 

(7) Material expansion. The term 

material expansion means— 

(i) With respect to an existing facility, 

the increase of the semiconductor 

manufacturing capacity of that facility 

by more than five percent during the 

applicable period due to the addition of 

a cleanroom, production line or other 

physical space, or a series of such 

additions; or 

(ii) Any construction of a new facility 

for semiconductor manufacturing. 

(8) Semiconductor manufacturing 

capacity. The term semiconductor 

manufacturing capacity means, 

consistent with 15 CFR 231.117, the 

productive capacity of a semiconductor 

facility. In the case of a semiconductor 

wafer production facility that includes 

the processes of growing single-crystal 

ingots and boules, wafer slicing, wafer 

bonding, etching and polishing, 

cleaning, epitaxial deposition, and 

metrology, semiconductor 

manufacturing capacity is measured in 

wafer starts per month. In the case of a 

semiconductor fabrication facility, 

semiconductor manufacturing capacity 

is measured in wafer starts per year. In 

the case of a packaging facility, 

semiconductor manufacturing capacity 

is measured in packages per year. 

(9) Significant renovations. The term 

significant renovations means building 

new cleanroom space or adding a 

production line or other physical space 

to an existing facility that, in the 

aggregate during the applicable period, 

increases semiconductor manufacturing 

capacity by 10 percent or more of the 

capacity. 

(10) Significant transaction—(i) In 

general. As determined in coordination 

with the Secretary of Commerce and the 

Secretary of Defense and except as 

provided in paragraph (b)(10)(ii) of this 

section, the term significant transaction 

means any of the following: 

(A) An investment, whether proposed, 

pending, or completed, including any 

capital expenditure, loan, or gift; 

(B) The formation of a subsidiary, 

whether classified as a corporation or 

partnership for Federal tax purposes; 

(C) A merger, acquisition, or takeover, 

including— 

(1) The acquisition of a new or 

additional ownership interest in an 

entity; 

(2) The acquisition of a material 

portion of the assets of an entity; or 

(3) A consolidation; 

(D) The formation of a joint venture; 

or 

(E) A long-term lease or concession 

arrangement under which a lessee (or 

equivalent) makes substantially all 

business decisions concerning the 

operation of a leased entity (or 

equivalent), as if it were the owner. 

(F) A transaction that involves the 

expansion of manufacturing capacity for 

legacy semiconductors (other than with 

respect to an existing facility or 

equipment of an applicable taxpayer for 

manufacturing legacy semiconductors) 

if less than 85 percent of the output of 

the semiconductor manufacturing 

facility (for example, wafers, 

semiconductor devices, or packages) by 

value, is incorporated into final 

products (that is, not an intermediate 

product that is used as factory inputs for 

producing other goods) that are used or 

consumed in the market of a foreign 

country of concern; or 

(G) A transaction during the 

applicable period in which an 

applicable taxpayer knowingly (within 

the meaning of 15 CFR 231.106) engages 

in any joint research, as defined in 15 

CFR 231.105, or technology licensing 

effort with a foreign entity of concern 

that relates to a technology or product 

that raises national security concerns. 

(ii) Required agreement. If a taxpayer 

enters into a required agreement with 

the Secretary of Commerce pursuant to 

15 U.S.C. 4652(a)(6)(C) and 15 CFR 

231.112, then the term significant 

transaction for purposes of section 48D 

and the section 48D regulations has the 

meaning provided in the required 

agreement. Defined terms in the 

required agreement control only for 

purposes of determining the meaning of 

the term significant transaction. Thus, 

the effect of a significant transaction is 

determined under section 50(a)(3) and 

(6) during the applicable term defined 

under paragraph (b)(1) of this section. 

(11) Technology licensing. The term 

technology licensing has the same 

meaning as provided in 15 CFR 231.120. 

(12) Technology or product that raises 

national security concerns. The term 

technology or product that raises 

national security concerns has the same 

meaning as provided in 15 CFR 231.121. 

(c) Exception from the definition of 

applicable transaction for the 

manufacturing of legacy 

semiconductors—(1) In general. The 

term applicable transaction, as defined 

in section 50(a)(6)(D) and paragraph 

(b)(3) of this section, does not include 

a transaction that primarily involves the 

expansion of manufacturing capacity for 

legacy semiconductors, but only to the 

extent not described in paragraph 

(b)(10)(i)(F) of this section. 

(2) Legacy semiconductor. The term 

legacy semiconductor has the same 

meaning as provided in 15 CFR 231.107. 

(d) Example: Applicable transaction 

credit claimed. On January 15, 2025, X 

Corp, a C corporation that is a calendaryear taxpayer, placed in service 

Property A, qualified property with a 

basis of $1 million. X Corp’s qualified 

investment, as determined in § 1.46– 

3(c), for the taxable year is $1 million. 

X Corp’s advanced manufacturing 

investment credit for the taxable year is 

$250,000 ($1 million × 0.25) and, 


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assume that X Corp’s income tax 

liability is $400,000. X Corp does not 

determine any other credits in 2025. X 

claims an advanced manufacturing 

investment credit of $250,000 for its 

2025 taxable year. On December 15, 

2026, X Corp engages in an applicable 

transaction, as defined in section 

50(a)(6)(D) and paragraph (b)(3) of this 

section and did not cease or abandon 

the transaction within 45 days of a 

determination and notice by the 

Commissioner. X Corp has not 

determined or claimed any general 

business credits since its 2025 taxable 

year. The aggregate decrease in credits 

allowed under section 38 for all prior 

years resulting from reducing to zero 

any credit determined under section 46 

that is attributable to the advanced 

manufacturing investment credit is 

$250,000 ($250,000 (credit allowed)¥$0 

(credit that would have been allowed)). 

X Corp’s tax under chapter 1 is 

increased by $250,000 (1.0 × $250,000) 

for the 2026 taxable year. Pursuant to 

section 48D(c), for the 2026 taxable year, 

X Corp is not an eligible taxpayer and 

is ineligible to claim or carryforward the 

advanced manufacturing investment 

credit. 

(e) Applicability date. This section 

applies to property that is placed in 

service after December 31, 2022, and 

during a taxable year ending on or after 

October 23, 2024. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: October 8, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–23857 Filed 10–22–24; 8:45 am] 

BILLING CODE 4830–01–P 


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