The IRS has recently issued temporary and proposed regulations outlining mandatory information and registration requirements for taxpayers seeking to make an elective payment election for the advanced manufacturing investment credit established by the CHIPS Act of 2022. The elective payment functions as a credit offsetting tax liability, equivalent to the credit’s amount. Partnerships or S corporations have the option to opt for an elective payment election, receiving a payment in lieu of claiming the credit. The proposed regulations encompass specific guidelines for partnerships and S corporations, addressing excessive payment reimbursements, basis reduction, and recapture provisions.
In this article, we will explore the key aspects of the credit, including eligibility, pre-filing registration requirements, special rules for partnerships and S corporations, and the process for making an elective payment election.
Advanced Manufacturing Investment Credit Background
The advanced manufacturing investment credit is aimed at encouraging investment in advanced manufacturing facilities that produce semiconductors and semiconductor manufacturing equipment in the United States. It applies to qualified property placed in service after December 31, 2022, and before January 1, 2027. Eligible taxpayers can choose to receive the credit as an elective payment. The advanced manufacturing investment credit is only available to taxpayers that meet certain eligibility requirements. The credit amount for any tax year is equal to 25% of the eligible taxpayer’s qualified investment in an advanced manufacturing facility.
Pre-filing Registration Requirements
Outlined by the temporary regulations issued by the IRS – to be eligible for the elective payment, taxpayers must complete a pre-filing registration process as a prerequisite. This process is mandatory and must be fulfilled before any amount can be treated as a payment against the tax liability or paid to a partnership or S corporation. Failure to obtain a registration number and report it on the annual tax return will render the taxpayer ineligible to receive any elective payment amount related to the advanced manufacturing investment credits.
To meet the pre-filing registration requirements, taxpayers must follow these steps:
Taxpayers must complete the registration process electronically through the IRS electronic portal, adhering to the provided instructions, unless alternative guidance is provided.
The registration requirements must be satisfied, and a registration number must be obtained before making an elective payment election on the taxpayer’s tax return for the relevant tax year.
A separate registration number is required for each qualified investment in an advanced manufacturing facility, for which the taxpayer intends to make an elective payment election.
Taxpayers must provide all specific information as requested during the pre-filing registration process.
Partnerships and S Corporations
For partnerships and S corporations, the process for making an election differs slightly. In such cases, the election is made by the partnership or S corporation itself. The proposed regulations outline the following special rules:
- Payment to Partnership or S Corporation: If the partnership or S corporation makes an election, the IRS will make a payment to the entity equal to the amount of the credit.
- Credit Allocation: Before determining any partner’s distributive share or shareholder’s pro rata share of the credit, the credit amount is reduced to zero. For all other purposes under the Code, the credit is deemed to have been allowed solely to the partnership or S corporation for the tax year.
- Tax-Exempt Income Treatment: Any amount with respect to which the election is made is treated as tax-exempt income for the partnership or S corporation.
- Partner’s Distributive Share: A partner’s distributive share of such tax-exempt income is equal to the partner’s distributive share of its otherwise allocable basis in the qualified property, as determined for that year.
Elective Payment Election
Taxpayers who wish to make an elective payment election for the advanced manufacturing investment credit must do so by the due date (including extensions) for the return for the credit year. The federal tax payment is considered made on the due date (without extension) for the taxpayer’s return for the credit year or, if later, the date the return is filed.
If you have any questions or need further clarification about the requirements for the elective payment election for the advanced manufacturing investment credit, please don’t hesitate to contact our office. We are here to assist and provide guidance on this matter.