On Tuesday, March 5th the IRS issued final treasury regulations for companies that would like to receive a direct payment for a manufacturing tax credit included in the CHIPS Act that was signed into law by President Biden in August of 2022 instead of claiming the credit as a deduction against their tax bills. These final treasury regulations come after the IRS released proposed treasury regulations back in June of 2023 on the direct pay option, laying out how companies that manufacture both semiconductors and semiconductor-fabrication equipment can elect the payment. It also clarified the treatment of pass-through entities under the CHIPS Act. The below synopsis are some of the primary highlights:
• The CHIPS Act includes a 25% advanced manufacturing investment tax credit and almost $53 billion in funding for semiconductor research and manufacturing.
• The law also has a direct pay option, where companies that qualify can elect to get direct payments from the government for their semiconductor projects in lieu of claiming the credit.
• The proposed treasury regulations opened the door for pass-throughs like private equity funds and joint ventures to start semiconductor manufacturing projects.
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