Proposed Rule2023-12800
Elective Payment of Advanced Manufacturing Investment Credit
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 21, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations concerning the elective payment election of the advanced manufacturing investment credit under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. The proposed regulations describe rules for the elective payment election, including special rules applicable to partnerships and S corporations, repayment of excessive payments, and basis reduction and recapture. In addition, the proposed regulations provide rules related to an IRS pre-filing registration process that taxpayers wanting to make the elective payment election would be required to follow. These proposed regulations affect taxpayers eligible to make the elective payment election of the advanced manufacturing investment tax credit in a taxable year. This document also provides notice of a public hearing on the proposed regulations.
Full Text
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<title>Federal Register, Volume 88 Issue 118 (Wednesday, June 21, 2023)</title>
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[Federal Register Volume 88, Number 118 (Wednesday, June 21, 2023)]
[Proposed Rules]
[Pages 40123-40133]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-12800]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-105595-23]
RIN 1545-BQ75
Elective Payment of Advanced Manufacturing Investment Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations concerning the
elective payment election of the advanced manufacturing investment
credit under the Creating Helpful Incentives to Produce Semiconductors
(CHIPS) Act of 2022. The proposed regulations describe rules for the
elective payment election, including special rules applicable to
partnerships and S corporations, repayment of excessive payments, and
basis reduction and recapture. In addition, the proposed regulations
provide rules related to an IRS pre-filing registration process that
taxpayers wanting to make the elective payment election would be
required to follow. These proposed regulations affect taxpayers
eligible to make the elective payment election of the advanced
manufacturing investment tax credit in a taxable year. This document
also provides notice of a public hearing on the proposed regulations.
DATES: Written or electronic comments must be received by August 14,
2023. The public hearing on these proposed regulations is scheduled to
be held on August 24, 2023, at 10 a.m. ET. Requests to speak and
outlines of topics to be discussed at the public hearing must be
received by August 14, 2023. If no outlines are received by August 14,
2023, the public hearing will be cancelled. Requests to attend the
public hearing must be received by 5 p.m. ET on August 22, 2023. The
public hearing will be made accessible to people with disabilities.
Requests for special assistance during the hearing must be received by
August 21, 2023.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and
REG-105595-23) by following the online instructions for submitting
comments. Once submitted to the Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comments submitted electronically and comments submitted on paper to
its public docket. Send hard copy submissions to: CC:PA:LPD:PR (REG-
105595-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning this proposed regulation,
Lani M. Sinfield at (202) 317-5871 (not a toll-free number); concerning
submissions of comments and or the public hearing, Vivian Hayes at
(202) 317-6901 (not a toll-free number) or by email to
<a href="/cdn-cgi/l/email-protection#136366717f7a707b7672617a7d7460537a61603d747c65"><span class="__cf_email__" data-cfemail="25555047494c464d4044574c4b4256654c57560b424a53">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Background
Section 48D was added to the Internal Revenue Code (Code) on August
9, 2022, by section 107(a) of the CHIPS Act of 2022 (CHIPS Act), which
was enacted as Division A of the CHIPS and Science Act of 2022, Public
Law 117-167, 136 Stat. 1366, 1393. Section 48D established the advanced
manufacturing investment credit (section 48D credit) and section 48D(d)
allows taxpayers (other than partnerships and S corporations) to elect
to treat the amount of the section 48D credit determined under section
48D(a) as a payment against their Federal income tax liabilities.
Section 48D(d) also provides special rules relating to elective
payments to partnerships and S corporations and directs the Secretary
of the Treasury or her delegate (Secretary) to provide rules for making
elections under section 48D and to require information or registration
necessary for purposes of preventing duplication, fraud, improper
payments, or excessive payments under section 48D. Section 48D applies
to qualified 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 of such qualified property
after August 9, 2022 (the date of enactment of the CHIPS Act). See
section 107(f)(1) of the CHIPS Act.
On March 23, 2023, the Treasury Department and the IRS published in
the Federal Register (88 FR 17451) a notice of proposed rulemaking
(REG-120653-22), which contains proposed regulations to implement the
general provisions relating to the section 48D credit (March 2023
proposed regulations). The March 2023 proposed regulations included
proposed definitions of various statutory terms, including ``eligible
taxpayer,'' ``qualified property,'' ``advanced manufacturing
facility,'' and ``semiconductor.'' The March 2023 proposed regulations
also proposed rules under section 48D regarding the beginning of
construction requirement; proposed rules requiring pre-filing
registration with the IRS in advance of filing an elective payment
election; and proposed rules implementing the ``applicable
transaction'' credit recapture rules under section 50(a)(3) of the
Code. In addition, the March 2023 proposed regulations requested
comments on potential issues with respect to the elective payment
election provisions under section 48D(d) that may require guidance.
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) to implement the statutory provisions of
section 48D(d) and revise the rules in proposed Sec. 1.48D-6 of the
March 2023 proposed regulations.
In the Rules and Regulations section of this issue of the Federal
Register, the Treasury Department and the IRS are issuing temporary
regulations under Sec. 1.48D-6T that implement the pre-filing
registration process described in proposed Sec. 1.48D-6 of the
proposed regulations. The temporary regulations require taxpayers that
want to elect the elective payment of the section 48D credit to
register with the IRS through an IRS electronic portal in advance of
the taxpayer filing the return on which the election under section 48D
is made.
[[Page 40124]]
I. Overview of Elective Payment Election Under Section 48D
Section 48D(d)(1) allows a taxpayer to elect to treat the section
48D credit determined for the taxpayer for a taxable year as a payment
against the tax imposed by subtitle A of the Code (that is, treated as
a payment of Federal income tax) equal to the amount of the credit
rather than a credit against the taxpayer's Federal income tax
liability for that taxable year (elective payment election).
II. Section 48D Rules for Partnerships and S Corporations
Section 48D(d)(2)(A) provides special rules for partnerships (as
defined in section 761(a)) and for S corporations (as defined in
section 1361(a)(1) of the Code). Section 48D(d)(2)(A)(i) provides that,
in the case of any credit determined with respect to any property held
directly by a partnership or S corporation, any election under section
48D(d)(1) is to be made by such partnership or S corporation and must
be made in such manner as the Secretary may provide. If such
partnership or S corporation makes an election under section 48D(d)(1),
(1) the Secretary will make a payment to such partnership or S
corporation equal to the amount of such credit, (2) section 48D(d)(3)
is applied with respect to the credit before determining any partner's
distributive share, or S corporation shareholder's pro rata share, of
such credit, (3) any credit amount with respect to which the election
in section 48D(d)(1) is made is treated as tax exempt income for
purposes of sections 705 and 1366 of the Code, and (4) a partner's
distributive share of such tax exempt income is based on such partner's
distributive share of the otherwise applicable credit for each taxable
year.
III. Special Rules
Section 48D(d)(2)(B) requires the elective payment election to be
made no later than the due date (including extensions of time) of the
tax return for the taxable year for which the election is made. The
elective payment election is irrevocable once made and applies with
respect to any credit for the taxable year for which the election is
made.
Section 48D(d)(2)(E) provides that, as a condition of, and prior
to, any amount between treated as a payment by or to the taxpayer, the
Secretary may require such information or registration as the Secretary
deems necessary or appropriate for purposes of preventing duplication,
fraud, improper payments, or excessive payments.
Section 48D(d)(2)(F) provides rules relating to excessive payments.
In the case of any amount treated as a payment which is made by the
taxpayer under section 48D(d)(1), or the amount of the payment made
pursuant to section 48D(d)(2)(A), that the Secretary determines
constitutes an excessive payment, the tax imposed on such taxpayer by
chapter 1 of the Code, for the taxable year in which such determination
is made must be increased by an amount equal to the sum of (1) the
amount of any payment treated as made by or to the taxpayer which the
Secretary determines constitutes an excessive payment, (2) plus 20
percent of such excessive payment. The increase equal to 20 percent of
the excessive payment does not apply if the taxpayer demonstrates to
the satisfaction of the Secretary that the excessive payment resulted
from reasonable cause.
Section 48D(d)(2)(F)(iii) defines ``excessive payment'' as, with
respect to property for which an elective payment election is made for
any taxable year, an amount equal to the excess of (I) the amount
treated as a payment made by the taxpayer under section 48D(d)(1) or
the amount of the payment made pursuant to section 48D(d)(2)(A)(i) over
(II) the amount of the credit which, without application of section
48D(d), would be otherwise allowable under section 48D(a) (determined
without regard to section 38(c)) with respect to such property for such
taxable year.
Section 48D(d)(3) provides a denial of double benefit rule. It
states that, in the case of a taxpayer making an elective payment
election with respect to the credit determined under section 48D(a),
such credit is reduced to zero and is deemed to have been allowed to
the taxpayer for such taxable year for any other purposes under the
Code.
Section 48D(d)(5) provides basis reduction and recapture rules. It
states that rules similar to the rules of section 50(a) and (c) of the
Code apply with respect to amounts treated as a payment made by a
taxpayer under section 48D(d)(1) and any payment made pursuant to
section 48D(d)(2)(A).
Section 48D(d)(6) authorizes the Secretary to issue regulations or
other guidance determined to be necessary or appropriate to carry out
the elective payment election provisions of section 48D(d), including
(A) regulations or other guidance providing rules for determining a
partner's distributive share of the tax exempt income described in
section 48D(d)(2)(A)(i) and (B) guidance to ensure that the amount
treated as a payment under section 48D(d)(1) or payment made under
section 48D(d)(2)(A)(i) is commensurate with the amount of the section
48D credit that generally would be otherwise allowable (determined
without regard to section 38(c) of the Code).
Explanation of Provisions
I. Rules for Making Elective Payment Elections
A. In General
These proposed regulations revise Sec. 1.48D-6(a)(1) and (2) of
the March 2023 proposed regulations to clarify that an elective payment
election may only be made on an original return of tax filed not later
than the due date (including extensions of time) for the return for the
taxable year for which the section 48D credit is determined and in the
manner as provided in guidance, and must include any required completed
source credit form(s) with respect to the qualified property, a
completed Form 3800, General Business Credit, and any additional
information, including supporting calculations, required in
instructions to the relevant forms. An original return would include a
superseding return filed on or before the due date (including
extensions). No elective payment election would be permitted to be made
or revised on an amended return or by filing an administrative
adjustment request under section 6227 of the Code. There also would be
no relief available under Sec. Sec. 301.9100-1 through 301.9100-3 of
the Procedure and Administration Regulations (26 CFR part 301) for an
elective payment election that is not timely filed.
These proposed regulations would further provide that a taxpayer
makes the elective payment election with respect to any section 48D
credit determined with respect to such taxpayer in accordance with
section 48D(d)(1), and the taxpayer must include a statement with the
election attesting under penalties of perjury that the taxpayer
claiming to be an eligible taxpayer is not a foreign entity of concern
and has not made an applicable transaction during the taxable year that
the qualified property is placed in service, and will not claim a
double benefit (within the meaning of section 48D(d)(3) and Sec. 1.48-
6(d)(2)(ii)(B), (C), and (e)) with respect to any elective payment
election made by the taxpayer.
II. Denial of Double Benefit
These proposed regulations revise Sec. 1.48D-6(a)(4) of the March
2023 proposed regulations by explaining the application of the section
48D(d)(3) denial of a double benefit rule and addressing the
methodology for
[[Page 40125]]
determining the amount of an elective payment, reducing the section 48D
credit amount to zero, and treating the section 48D credit as a credit
allowed for the taxable year for all other purposes of the Code with
respect to taxpayers other than partnerships or S corporations. The
proposed application of the denial of a double benefit rule is
redesignated as proposed Sec. 1.48D-6(e). The methodology with respect
to a payment made to a partnership or S corporation is provided in
proposed Sec. 1.48D-6(d)(2)(ii)(B), as described in part III of this
Explanation of Provisions.
A taxpayer (other than a partnership or S corporation) making an
elective payment election applies section 48D(d)(3) by taking the
following steps. First, the taxpayer would compute the amount of the
tax liability (if any) for the taxable year, without regard to general
business credits (GBCs), that is payable on the due date of the tax
return (without regard to extensions), and the amount of the Federal
income tax liability that may be offset by GBCs pursuant to the
limitation based on the amount of tax under section 38 (Step 1).
Second, the taxpayer would compute the allowed amount of the GBCs
carryforwards carried to the taxable year plus the amount of current
year GBCs (including the section 48D credit) allowed for the taxable
year under section 38 (that is, in accordance with all the rules in
section 38, including the ordering rules provided in section 38(d)).
Since the election would be required to be made on an original return
filed before the due date (including extensions of time) for the
taxable year for which the section 48D credit is determined, any GBC
carryback would not be considered when determining the elective payment
amount for the taxable year (Step 2). Third, the taxpayer would apply
the GBCs allowed for the taxable year as computed in Step 2, including
those attributable to the section 48D credit as GBCs, against the tax
liability computed in Step 1. Fourth, the taxpayer would identify the
amount of any excess or unused current year GBC, as defined under
section 39, attributable to current year section 48D credit(s) for
which the taxpayer is making an elective payment election. The amount
of such unused section 48D credits would be treated as a payment
against the tax imposed by subtitle A for the taxable year with respect
to which such credits are determined (rather than having them available
for carryback or carryover) (net elective payment amount) (Step 4).
Fifth, the taxpayer would reduce the section 48D credit(s) for which an
elective payment election is made by the amount (if any) allowed as a
general business credit under section 38 for the taxable year, as
provided in Step 3, and by the net elective payment amount (if any)
that is treated as a payment against tax, as provided in Step 4, which
results in the section 48D credit(s) being reduced to zero.
The proposed regulations would provide, consistent with section
48D(d)(3), that the full amount of the section 48D credits for which an
elective payment election is made is deemed to have been allowed for
all other purposes of the Code, including, but not limited to, the
basis reduction and recapture rules imposed by section 50 and the
calculation of any underpayment of estimated taxes under sections 6654
and 6655 of the Code.
The Treasury Department and the IRS request comments on whether
future guidance should expand or clarify the methodology that a
taxpayer follows to compute the amount of its elective payment.
Comments are also requested on additional Code sections under which it
may be necessary to consider the section 48D credit to have been deemed
to have been allowed for the taxable year in which an elective payment
election is made.
III. Partnership and S Corporations
A. Overview
Section 48D(d)(2)(A)(i) provides that, in the case of any credit
determined with respect to any property held directly by a partnership
or S corporation, any election under section 48D(d)(1) is to be made by
such partnership or S corporation and must be made in such manner as
the Secretary may provide. If such partnership or S corporation makes
an election under section 48D(d)(1), the special rules of section
48D(d)(2)(A)(i)(I) through (IV) apply. In that regard, proposed Sec.
1.48D-6(d)(2)(ii) would provide that (1) the IRS will make a payment to
such partnership or S corporation equal to the amount of such credit;
(2) before determining any partner's distributive share, or
shareholder's pro rata share, of such credit, such credit is reduced to
zero and is, for any other purposes under the Code, deemed to have been
allowed solely to such entity (and not allocated by such entity, or
otherwise allowed, to any partner or shareholder) for such taxable
year; (3) any amount with respect to which the election under section
48D(d)(1) is made is treated as tax exempt income for purposes of
sections 705 and 1366; and (4) a partner's distributive share of such
tax exempt income is equal to such partner's distributive share of its
otherwise allocable basis in the qualified property as determined under
Sec. 1.48D-2(h)(2)(i) for such year. The tax exempt income is taken
into account by the partnership or S corporation at the same time as
the underlying credit would have been taken into account by the
partnership or S corporation absent an elective payment election. Such
tax exempt income resulting from such election is treated as received
or accrued, including for purposes of sections 705 and 1366 of the
Code, as of the date the qualified property is placed in service with
respect to the partnership or S corporation. The proposed regulations
provide an example illustrating this rule. Because it is the section
48D credits, and not the tax exempt income, that arise from the conduct
of the trade or business, the proposed regulations would treat the tax
exempt income resulting from an elective payment election by a
partnership or an S corporation as arising from an investment activity
and not from the conduct of a trade or business within the meaning of
section 469(c)(1)(A). As such, the tax exempt income would not be
treated as passive income to any partners or shareholders who do not
materially participate within the meaning of section 469(c)(1)(B).
In response to stakeholder comments, the Treasury Department and
the IRS clarify here that there are no restrictions imposed under
section 48D or the section 48D regulations on how a partnership or S
corporation that receives a payment from the IRS pursuant to an
elective payment election may use the cash payment in its operations
(including when it makes distributions to its distributions to its
partners or shareholders).
Section 48D(d)(6)(B) requires that the Secretary issue regulations
or other guidance to ensure that the amount of a payment under section
48(D)(2)(A)(i)(I) to a partnership or S corporation is commensurate
with the amount of the credit that would otherwise be allowable
(without regard to section 38(c)). Therefore, proposed Sec. 1.48D-
6(d)(6) would provide that, in determining the section 48D credit
amount that will result in a payment to a partnership or S corporation,
the partnership or S corporation must compute the amount of the section
48D credit allowable (without regard to section 38(c)) as if an
elective payment election were not made. Because a partnership or S
corporation is not subject to section 469 (that is, section 469 applies
at the partner or shareholder
[[Page 40126]]
level), the amount of the credit determined with respect to any
qualified property owned by a partnership or S corporation is not
subject to limitation by section 469.
However, section 49 generally impacts the amount of a credit
determined with respect to a qualified property. Proposed Sec. 1.48D-
6(d)(6)(ii) provides rules for the application of section 49 to a
partnership or S corporation. The proposed regulations would provide
that any amount of section 48D credit determined with respect to the
qualified property held directly by a partnership or S corporation must
be determined by the partnership or S corporation taking into account
the section 49 at-risk rules at the partner or shareholder level as of
the close of the taxable year in which the qualified property is placed
in service. Thus, if the credit base of the qualified property is
limited to a partner or shareholder by section 49, then the amount of
the section 48D credit determined by the partnership or S corporation
is also limited. The proposed regulations would provide that a
partnership or S corporation that makes an elective payment election
must request from each of its partners or shareholders, respectively,
that is subject to section 49, the amount of such partner's or
shareholder's nonqualified nonrecourse financing with respect to the
qualified property as of the close of the taxable year in which the
property is placed in service. Additionally, the partnership or S
corporation would attach to its tax return for the taxable year in
which the property is placed in service, the amount of each partner's
or shareholder's section 49 limitation with respect to the qualified
property. The Treasury Department and the IRS request comments as to
whether (1) any information or reporting requirements are needed for
partnerships and S corporations to apply these rules when determining
the amount of the section 48D credit for which an elective payment
election can be made by a partnership or S corporation or (2) any
additional clarifications are needed regarding how the at-risk rules
apply to the determination of the section 48D credit by a taxpayer.
B. BBA Partnership
Many partnerships are subject to the centralized partnership audit
regime found in subchapter C of chapter 63 of the Code as amended by
the Bipartisan Budget Act of 2015 (BBA).\1\ In connection with the
implementation of section 48D, the Treasury Department and the IRS
identified several areas of the BBA regulations that require updates to
administer section 48D in the case of a partnership subject to the BBA
(BBA partnership). Section 6221 of the Code provides that any
adjustment to a partnership-related item with respect to a BBA
partnership, and any tax attributable thereto, is assessed and
collected at the partnership-level except to the extent provided under
the BBA. The BBA outlines centralized audit procedures which generally
must be followed before the IRS can adjust a partnership-related item
(as defined in Sec. 301.6241-1). Accordingly, the notice of proposed
rulemaking (REG-101607-23) found in the Proposed Rules of this issue of
the Federal Register, which primarily relates to proposed rules under
section 6417, would add a new paragraph (j) to Sec. 301.6241-7 to
provide that an election by a BBA partnership under section 48D(d) can
be adjusted outside of the BBA audit rules. Proposed Sec. 1.48D-
6(d)(7) would cross-reference to proposed Sec. 301.6241-7(j) for rules
applicable to payments made to BBA partnerships.
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\1\ See section 1101 of the BBA, Public Law 114-74, 129 Stat.
584, 625-638 (2015), as amended by section 411 of the Protecting
Americans from Tax Hikes Act of 2015, Public Law 114-113, 129 Stat.
2242, 3121 (2015), and sections 201 through 207 of the Tax Technical
Corrections Act of 2018, Public Law 115-141, 132 Stat. 348, 1171-
1183 (2018).
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IV. Pre-Filing Registration Requirements and Additional Information
Proposed Sec. 1.48D-6(b)(1) would provide the mandatory pre-filing
registration process that, except as provided in guidance, a taxpayer
must complete as a condition of, and prior to, any amount being treated
as a payment against the tax imposed under Sec. 1.48D-6(a)(1), or an
amount paid to a partnership or S corporation pursuant to Sec. 1.48D-
6(d)(2)(ii)(A). A taxpayer would be required to use the pre-filing
registration process to register each qualified investment in an
advanced manufacturing facility. A taxpayer that does not obtain a
registration number or report the registration number on its annual tax
return with respect to an advanced manufacturing facility would be
ineligible to receive any elective payment amount with respect to the
amount of any section 48D credit determined with respect to that
advanced manufacturing facility. However, completion of the pre-filing
registration requirements and receipt of a registration number would
not, by itself, mean that the taxpayer would be eligible to receive a
payment with respect to the section 48D credits determined with respect
to the advanced manufacturing facility.
The pre-filing registration requirements are proposed to be that a
taxpayer:
(1) must complete the registration process electronically through
the IRS electronic portal and in accordance with the instructions
provided therein, unless otherwise provided in guidance;
(2) must satisfy the registration requirements and receive a
registration number prior to making a section 48D(d)(1) elective
payment election on the taxpayer's tax return for the taxable year at
issue;
(3) is required to obtain a registration number for each qualified
investment in an advanced manufacturing facility with respect to which
a section 48D credit will be determined and for which the taxpayer
wishes to make a section 48D(d)(1) elective payment election; and
(4) provide the specific information required to be provided as
part of the pre-filing registration process. The provision of such
information, which includes information about the taxpayer and about
the qualified investment in an advanced manufacturing facility that
would allow the IRS to prevent duplication, fraud, improper payments,
or excessive payments under section 48D. For example, verifying
information about the taxpayer would allow the IRS to mitigate the risk
of fraud or improper payments to entities that are not eligible
taxpayers. Information about the taxpayer's taxable year would allow
the IRS to ensure that an elective payment election is timely made on
the entity's annual tax return. Information about the advanced
manufacturing facility, including its address and coordinates
(longitude and latitude), supporting documentation, beginning of
construction date, and placed in service date would allow the IRS to
mitigate the risk of duplication, fraud, and improper payments for
properties that are not advanced manufacturing facilities.
Proposed Sec. 1.48D-6(b)(7)(i) provides that, after a taxpayer
completes pre-filing registration with respect to each qualified
investment in an advanced manufacturing facility with respect to which
the taxpayer intends to elect a section 48D(d) elective payment
election for the taxable year, the IRS will review the information
provided and will issue a separate registration number for each
qualified investment for which the taxpayer provided sufficient
verifiable information.
Proposed Sec. 1.48D-6(b)(7)(ii) would provide that a registration
number is valid only for the taxable year for which it is obtained.
Proposed Sec. 1.48D-6(c)(7)(iii) would provide that, if an
[[Page 40127]]
elective payment election will be made with respect to qualified
investment in an advanced manufacturing facility for a taxable year for
which a registration number under this section has been obtained for a
prior taxable year, the taxpayer must renew the registration each
subsequent year in accordance with applicable guidance, including
attesting that all the facts previously provided are still correct or
updating any facts that are relevant in calculating the amount of the
section 48D credit. Proposed Sec. 1.48D-6(b)(7)(iv) would provide
that, if facts change with respect to the qualified investment in an
advanced manufacturing facility for which a registration number has
been previously obtained, the taxpayer must amend the registration to
reflect these new facts. The regulations would provide, for example,
that if the facility previously registered for an elective payment
election undergoes a change of ownership (incident to a corporate
reorganization or an asset sale) such that the new owner has a
different employer identification number (EIN) than the owner who
obtained the original registration, the original owner would be
required to amend the original registration to disassociate its EIN
from the advanced manufacturing facility and the new owner must submit
an original registration (or if the new owner previously registered
other advanced manufacturing facilities, must amend its original
registration) to associate the new owner's EIN with the previously
registered advanced manufacturing facility.
Lastly, proposed Sec. 1.48D-6(b)(7)(v) would provide that the
taxpayer would be required to include the registration number of the
advanced manufacturing facility on the taxpayer's annual return for the
taxable year for an election under proposed Sec. 1.48D-6(a)(1). The
IRS will treat an elective payment election as ineffective with respect
to any section 48D credit determined with respect to the advanced
manufacturing facility for which the taxpayer does not include a valid
registration number on the annual tax return.
The corresponding temporary regulations under Sec. 1.48D-6T(b)
published in the Rules and Regulations section of this edition of the
Federal Register, which are identical to those that would apply under
proposed Sec. 1.48D-6(b), apply to taxable years ending on or after
June 21, 2023 and expire on June 12, 2026.
V. Special Rules
These proposed regulations amend the proposed rules relating to
excessive payment and basis reduction and recapture under REG-120653-22
by adding examples of excessive payment, clarifying the basis reduction
and recapture notice requirement and renumbering the affected
paragraphs as Sec. 1.48D-6(f) and (g), respectively.
A. Excessive Payment
Proposed Sec. 1.48D-6(f)(4) provides an example of excessive
payment, including the year in which the tax is imposed and the
calculation of the additional 20 percent tax. The Treasury Department
and the IRS request comments on whether additional guidance on
excessive payments is needed.
B. Basis Reduction and Recapture
Proposed Sec. 1.48D-6(g)(1) would provide that rules similar to
the rules of section 50(a) and (c) apply for purposes of section 48D.
Proposed Sec. 1.48D-6(g)(2)(i) provides that the adjusted basis of
property generally must be reduced by the amount of the section 48D
credit determined with respect to property for which the taxpayer has
made an election under section 48D(d)(1). Proposed Sec. 1.48D-
6(g)(2)(ii) would provide a similar basis reduction rule for
partnerships or S corporations making an election under section
48D(d)(1). Proposed Sec. 1.48D-6(g)(2)(iii) would clarify the
application of the basis adjustment rule under section 50(c)(5) to take
into account adjustments made under proposed Sec. 1.48D-6(e)(2)(ii)
for partners and S corporation shareholders of such partnerships or S
corporations.
Proposed Sec. 1.48D-6(g)(3) would clarify that any reporting of
recapture is made on the taxpayer's annual return in the manner
prescribed by the IRS in any guidance. In addition, the excessive
payment rules operate separately from the recapture rules. The
excessive payment rules apply where the credit amount reported on the
original credit source form by the taxpayer was excessive. Recapture of
a tax credit occurs when the original tax credit reported would have
been correct without the occurrence of a subsequent recapture event.
Thus, recapture events under section 50(a) do not result in an
excessive payment.
Proposed Applicability Dates
Proposed Sec. 1.48D-6 is proposed to apply to taxable years ending
on or after the date the Treasury decision adopting these regulations
as final regulations is published in the Federal Register. Taxpayers
may rely on these proposed regulations for elective payments of section
48D credit amounts after December 31, 2022, in taxable years ending
before the date the Treasury decision adopting these regulations as
final regulations is published in the Federal Register, provided the
taxpayers follow the proposed regulations in their entirety and in a
consistent manner with respect to all elections made under section
48D(d).
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. An 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.
The collections of information in these proposed regulations
contain reporting and recordkeeping requirements. The recordkeeping
requirements mentioned within these proposed regulations are considered
general tax records under Sec. 1.6001-1(e). These records are required
for the IRS to validate that taxpayers have met the regulatory
requirements and are entitled to make an elective payment election. For
PRA purposes, general tax records are already approved by OMB under
1545-0074 for individuals and 1545-0123 for business entities.
These proposed regulations also mention reporting requirements
related to making elections as detailed in Sec. 1.48D-6. These
elections will be made by eligible taxpayers as part of filing a return
(such as the appropriate Form 1040, Form 1120, Form 1120-S, or Form
1065), including filling out the relevant source credit form and
completing the Form 3800. These forms are approved under 1545-0074 for
individuals and 1545-0123 for business entities.
These proposed regulations also describe recapture procedures as
detailed in proposed Sec. 1.48D-6 that are required by section
48D(d)(5). The reporting of a recapture event will still be required to
be reported using Form 4255, Recapture of Investment Credit. This form
is approved under 1545-0074 for individuals and 1545-0123 for business
entities. These proposed regulations are not changing or creating new
collection requirements for recapture not already approved by OMB.
These proposed regulations mention the reporting requirements to
complete
[[Page 40128]]
pre-filing registration with the IRS to be able to make an elective
payment election in proposed Sec. 1.48D-6. For further information
concerning the registration and where to submit comments on the
collection of information and the accuracy of the estimated burden, and
suggestions for reducing this burden, please refer to the preamble to
the corresponding temporary regulations (T.D. 9975) published in the
Rules and Regulations section of this issue of the Federal Register.
For burden estimates associated with the pre-filing registration
requirement as detailed in proposed Sec. 1.48D-6, see the preamble to
the corresponding temporary regulations. These proposed regulations are
not changing or creating new collection requirements beyond the
requirements that are being reviewed and approved by OMB under the
temporary regulations.
II. Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter
6), it is hereby certified that these proposed regulations will not
have a significant economic impact on a substantial number of small
entities. Although these temporary regulations may affect small
entities, data are not readily available about the number of small
entities affected. The economic impact of these proposed regulations is
not likely to be significant. Section 1.48D-6T(b) implements the
statutory authority granted by section 48D(d)(2)(E) that authorizes the
IRS to require such information or registration as the Secretary deems
necessary for purposes of preventing duplication, fraud, improper
payments, or excessive payments. These proposed regulations will assist
small entities wanting to make the elective payment election under
section 48D(d). Notwithstanding this certification, the Treasury
Department and the IRS welcome comments on the impact of these
temporary regulations on small entities.
III. Section 7805(f)
Pursuant to section 7805(f), these proposed regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandate Reform Act of 1995 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 in 1995 dollars (updated annually for
inflation). These proposed regulations do 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.
V. 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. These proposed regulations do not
have federalism implications and do not impose substantial, direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
VII. 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.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to comments that are
submitted timely to the IRS as prescribed in this preamble under the
ADDRESSES section. The Treasury Department and the IRS request comments
on all aspects of the proposed regulations. All comments will be made
available at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn.
Announcement 2023-16, 2023-20 I.R.B. 854 (May 15, 2023), provides
that public hearings will be conducted in person, although the IRS will
continue to provide a telephonic option for individuals who wish to
attend or testify at a hearing by telephone. Any telephonic hearing
will be made accessible to people with disabilities.
A public hearing has been scheduled for August 24, 2023, beginning
at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC, unless no outlines are received
by August 14, 2023. Due to building security procedures, visitors must
enter at the Constitution Avenue entrance. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to comment by telephone at the hearing must submit written or
electronic comments and an outline of the topics to be discussed as
well as the time to be devoted to each topic by August 14, 2023, as
prescribed in the preamble under the ADDRESSES section. If no outline
of the topics to be discussed at the hearing is received by August 14,
2023, the public hearing will be cancelled. If the public hearing is
cancelled, a notice of cancellation of the public hearing will be
published in the Federal Register.
A period of ten minutes will be allocated to each person for making
comments. After the deadline for receiving outlines has passed, the IRS
will prepare an agenda containing the schedule of speakers. Copies of
the agenda will be made available: (1) at the hearing, (2) at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, search IRS and REG-105595-23, or (3) by emailing a
request to <a href="/cdn-cgi/l/email-protection#2b5b5e49474248434e4a5942454c586b425958054c445d"><span class="__cf_email__" data-cfemail="4a3a3f28262329222f2b3823242d390a233839642d253c">[email protected]</span></a>. Please put ``REG-105595-23 Agenda
Request'' in the subject line of the email.
Individuals who want to testify in person at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#4e3e3b2c22272d262b2f3c2720293d0e273c3d60292138"><span class="__cf_email__" data-cfemail="82f2f7e0eeebe1eae7e3f0ebece5f1c2ebf0f1ace5edf4">[email protected]</span></a> to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-105595-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-105595-23.
Individuals who want to testify by telephone at the public hearing
must send an email to <a href="/cdn-cgi/l/email-protection#48383d2a24212b202d293a21262f3b08213a3b662f273e"><span class="__cf_email__" data-cfemail="1f6f6a7d73767c777a7e6d7671786c5f766d6c31787069">[email protected]</span></a> to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-105595-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-105595-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to <a href="/cdn-cgi/l/email-protection#87f7f2e5ebeee4efe2e6f5eee9e0f4c7eef5f4a9e0e8f1"><span class="__cf_email__" data-cfemail="473732252b2e242f2226352e292034072e353469202831">[email protected]</span></a> to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-105595-23 and the language
ATTEND
[[Page 40129]]
In Person. For example, the subject line may say: Request to ATTEND
Hearing In Person for REG-105595-23. Requests to attend the public
hearing must be received by 5 p.m. EST on August 22, 2023.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to <a href="/cdn-cgi/l/email-protection#f4848196989d979c9195869d9a9387b49d8687da939b82"><span class="__cf_email__" data-cfemail="225257404e4b414a4743504b4c4551624b50510c454d54">[email protected]</span></a> to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number REG-
105595-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-105595-23. Requests to attend the public hearing must be received
by 5 p.m. EST on August 22, 2023.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
<a href="/cdn-cgi/l/email-protection#f4848196989d979c9195869d9a9387b49d8687da939b82"><span class="__cf_email__" data-cfemail="15656077797c767d7074677c7b7266557c67663b727a63">[email protected]</span></a> (preferred) or by telephone at (202) 317-6901
(not a toll-free number) at least August 21, 2023.
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 <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal author of this proposed regulation is Lani M.
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.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph. 1. The authority citation for part 1 is amended by adding an
entry for Sec. 1.48D-6 in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.48D-6 also issued under 26 U.S.C. 48D(d)(6).
* * * * *
0
Par. 2. Section 1.48D-6, as proposed to be added by 88 FR 17451, March
23, 2023, is revised to read as follows:
Sec. 1.48D-6 Elective payment election.
(a) Elective payment election--(1) In general. A taxpayer, after
successfully completing the pre-filing registration requirements under
paragraph (b) of this section, may make an elective payment election
with respect to any section 48D credit determined with respect to such
taxpayer in accordance with section 48D(d)(1) of the Internal Revenue
Code (Code) and this section. A taxpayer, other than a partnership or S
corporation, that makes an elective payment election in the manner
provided in paragraph (c) of this section will be treated as making a
payment against the Federal income taxes imposed by subtitle A of the
Code (subtitle A) for the taxable year with respect to which a section
48D credit is determined equal to the amount of the section 48D credit
with respect to any qualified property otherwise allowable to the
taxpayer (determined without regard to section 38(c) of the Code). The
payment described in section 48D(d)(1) and this paragraph (a)(1) will
be treated as made on the later of the due date (determined without
regard to extensions) of the return of tax imposed by subtitle A for
the taxable year or the date on which such return is filed.
(2) Partnerships and S corporations. See paragraph (d) of this
section for special rules regarding elective payment elections under
section 48D(d) applicable to partnerships and S corporations.
(3) Irrevocable. Any election under section 48D(d)(1) and this
section, once made, will be irrevocable and, except as otherwise
provided, will apply with respect to any amount of section 48D credit
for the taxable year for which the election is made.
(b) Pre-filing registration required--(1) In general. Pre-filing
registration by any taxpayer (including a partnership or an S
corporation) in accordance with this paragraph (b) is a condition that
must be successfully completed prior to making an elective payment
election under section 48D(d)(1) and this section with respect to
qualified property placed in service by the taxpayer as part of an
advanced manufacturing facility of an eligible taxpayer. An elective
payment election will not be effective with respect to the section 48D
credit determined with respect to any such qualified property placed in
service by any taxpayer unless the taxpayer received a valid
registration number for the taxpayer's qualified investment in the
advanced manufacturing facility of an eligible taxpayer in accordance
with this paragraph (b) and provided the registration number for each
qualified investment in each advanced manufacturing facility on its
Form 3800, General Business Credit, attached to the tax return in
accordance with guidance. For purposes of this section, the term
guidance means guidance published in the Federal Register or Internal
Revenue Bulletin, as well as administrative guidance such as forms,
instructions, publications, or other guidance on the <a href="http://IRS.gov">IRS.gov</a> website.
See Sec. Sec. 601.601 and 601.602 of this chapter. However, completion
of the pre-filing registration requirements and receipt of a
registration number does not, by itself, mean the taxpayer is eligible
to receive a payment with respect to any section 48D credit determined
with respect to the qualified property.
(2) Manner of registration. Unless otherwise provided in guidance,
a taxpayer must complete the pre-filing registration process
electronically through the IRS electronic portal and in accordance with
the instructions provided therein.
(3) Members of a consolidated group. A member of a consolidated
group is required to complete pre-filing registration as a condition
of, and prior to, making an elective payment election. See Sec.
1.1502-77 (providing rules regarding the status of the common parent as
agent for its members).
(4) Timing of pre-filing registration. A taxpayer must satisfy the
pre-filing registration requirements of this paragraph (b) and receive
a registration number under paragraph (b)(6) of this section prior to
making any elective payment election under this section on the
taxpayer's tax return for the taxable year at issue.
(5) Each qualified investment in an advanced manufacturing facility
must have its own registration number. A taxpayer must obtain a
registration number for each qualified investment in an advanced
manufacturing facility of an eligible taxpayer with respect to which an
elective payment election is made.
(6) Information required to complete the pre-filing registration
process. Unless modified in future guidance, a taxpayer must provide
the following information to the IRS to complete the pre-filing
registration process:
(i) The taxpayer's general information, including its name,
address, taxpayer identification number, and type of legal entity;
[[Page 40130]]
(ii) Any additional information required by the IRS electronic
portal;
(iii) The taxpayer's taxable year, as determined under section 441
of the Code;
(iv) The type of annual return(s) normally filed by the taxpayer
with the IRS;
(v) A list of each qualified investment in an advanced
manufacturing facility that the taxpayer intends to use to determine a
section 48D credit for which the taxpayer intends to make an elective
payment election;
(vi) For each qualified investment in an advanced manufacturing
facility listed in paragraph (b)(6)(v) of this section, any further
information required by the IRS electronic portal, such as:
(A) The type of qualified investment in the advanced manufacturing
facility;
(B) Physical location (that is, address and coordinates (longitude
and latitude) of the advanced manufacturing facility);
(C) Any supporting documentation relating to the construction,
reconstruction or acquisition of the advanced manufacturing facility
(such as, State and local government permits to operate the advanced
manufacturing facility, certifications, and evidence of ownership that
ties to the land deed, lease, or other documented right to use and
access any land upon which the advanced manufacturing facility is
constructed or housed);
(D) The beginning of construction date and the placed in service
date of any qualified property that is part of the advanced
manufacturing facility;
(E) The source of funds the taxpayer used to acquire the qualified
property with respect to which the qualified investment was made; and
(F) Any other information that the taxpayer or entity believes will
help the IRS evaluate the registration request;
(vii) The name of a contact person for the taxpayer. The contact
person is the person whom the IRS may contact if there is an issue with
the registration. The contact person must either:
(A) Possess legal authority to bind the taxpayer; or
(B) Must provide a properly executed power of attorney on Form
2848, Power of Attorney and Declaration of Representative;
(viii) A penalties of perjury statement, effective for all
information submitted as a complete application, and signed by a person
with personal knowledge of the relevant facts that is authorized to
bind the registrant; and
(ix) Any other information the IRS deems necessary for purposes of
preventing duplication, fraud, improper payments, or excessive payments
under this section that is provided in guidance.
(7) Registration number--(i) In general. The IRS will review the
information provided and will issue a separate registration number for
each qualified investment in an advanced manufacturing facility of an
eligible taxpayer for which the taxpayer making the registration
provided sufficient verifiable information.
(ii) Registration number is only valid for one year. A registration
number is valid only with respect to the taxpayer that obtained the
registration number under this section and only for the taxable year
for which it is obtained.
(iii) Renewing registration numbers. If an elective payment
election will be made with respect to any section 48D credit determined
with respect to a qualified investment in an advanced manufacturing
facility for a taxable year after a registration number under this
section has been obtained, the taxpayer must renew the registration for
that subsequent year in accordance with applicable guidance, including
attesting that all the facts previously provided are still correct or
updating any facts.
(iv) Amendment of previously submitted registration information if
a change occurs before the registration number is used. As provided in
instructions to the pre-filing registration portal, if specified
changes occur with respect to a qualified investment in an advanced
manufacturing facility for which a registration number has been
previously obtained, a taxpayer must amend the registration (or may
need to submit a new registration) to reflect these new facts. For
example, if an eligible taxpayer that is the owner of an advanced
manufacturing facility previously registered for an elective payment
election for a section 48D credit determined with respect to that
advanced manufacturing facility and the advanced manufacturing facility
undergoes a change of ownership (incident to a corporate reorganization
or an asset sale) such that the new owner has a different employer
identification number (EIN) than the owner who obtained the original
registration, the original owner of the advanced manufacturing facility
must amend the original registration to disassociate its EIN from the
advanced manufacturing facility and the new owner must submit
separately an original registration (or if the new owner previously
registered other qualified investments or advanced manufacturing
facilities, must amend its original registration) to associate the new
owner's EIN with the previously registered advanced manufacturing
facility.
(v) Registration number is required to be reported on the return
for the taxable year of the elective payment election. The taxpayer
must include the registration number of the qualified investment in the
advanced manufacturing facility on the taxpayer's return as provided in
this paragraph (b) for the taxable year. The IRS will treat an elective
payment election as ineffective with respect to a section 48D credit
determined with respect to a qualified investment in an advanced
manufacturing facility for which the taxpayer does not include a valid
registration number on the annual return.
(c) Time and manner of election--(1) In general. Any elective
payment election under section 48D(d)(1) and this section with respect
to any section 48D credit determined with respect to a taxpayer's
qualified investment must--
(i) Be made on the taxpayer's original return of tax (including a
superseding return) filed not later than the due date (including
extensions of time) for the taxable year for which the section 48D
credit is determined and the election is made in the manner prescribed
by the IRS in guidance;
(ii) Include any required completed source credit form(s), a
completed Form 3800, and any additional information required in
instructions, including supporting calculations;
(iii) Provide on the completed Form 3800 a valid registration
number for the qualified investment that is placed in service as part
of an advanced manufacturing facility of an eligible taxpayer;
(iv) Include a statement attesting under the penalties of perjury
that--
(A) The taxpayer claiming to be an eligible taxpayer is not a
foreign entity of concern within the meaning of Sec. 1.48D-2(f)(2) and
has not made an applicable transaction as defined in Sec. 1.50-2(b)(3)
during the taxable year that the qualified property is placed in
service; and
(B) The taxpayer will not claim a double benefit (within the
meaning of section 48D(d)(3) and paragraphs (d)(2)(ii)(B) and (C) and
(e) of this section) with respect to any elective payment election made
by the taxpayer; and
(v) Be made not later than the due date (including extensions of
time) for the taxable year for which the election is made, but in no
event earlier than May 8, 2023.
(2) Limitations. No elective payment election may be made or
revised on an amended return or by filing an
[[Page 40131]]
administrative adjustment request under section 6227 of the Code. There
is no relief available under Sec. Sec. 301.9100-1 through 301.9100-3
of this chapter for an elective payment election that is not timely
filed in accordance with paragraph (c)(1) of this section.
(d) Special rules for partnerships and S corporations--(1) In
general. If a partnership or S corporation directly holds any property
for which an advanced manufacturing investment credit is determined,
any election under this section must be made by the partnership or S
corporation. No election under section 48D(d) and this section by any
partner or shareholder is allowed.
(2) Election--(i) Time and manner of election. An elective payment
election by a partnership or S corporation is made at the same time and
in the same manner, and subject to the pre-filing registration and
other requirements for the election to be effective, as provided in
paragraphs (b) and (c) of this section.
(ii) Effect of election. If a partnership or S corporation makes an
elective payment election with respect to a section 48D credit, the
following rules will apply:
(A) The Internal Revenue Service will make a payment to such
partnership or S corporation equal to the amount of such credit,
determined in accordance with paragraph (d)(6) of this section (unless
the partnership or S corporation owes a Federal tax liability, in which
case the payment may be reduced by such tax liability);
(B) Before determining any partner's distributive share, or S
corporation shareholder's pro rata share, of such credit, such credit
is reduced to zero and is, for any other purposes under the Code,
deemed to have been allowed solely to such entity (and not allocated or
otherwise allowed to its partners or shareholders) for such taxable
year; and
(C) Any partner's or S corporation shareholder's share of any
qualified investment in an advanced manufacturing facility for which an
elective payment election has been made for the taxable year, is
reduced to zero for such taxable year.
(iii) Coordination with sections 705 and 1366. Any amount with
respect to which the election is made is treated as tax exempt income
for purposes of sections 705 and 1366 of the Code.
(iv) Partner's distributive share. A partner's distributive share
of such tax exempt income is equal to such partner's distributive share
of its otherwise allocable basis in qualified property under Sec.
1.48D-2(h)(2)(i) for such taxable year.
(v) S corporation shareholder's pro-rata share. An S corporation
shareholder's pro rata share (as determined under section 1377(a) of
the Code) of such tax exempt income is taken into account by the S
corporation shareholder in the taxable year (as determined under
sections 444 and 1378(b) of the Code) in which the section 48D credit
is determined and is based on the shareholder's otherwise apportioned
basis in qualified property under Sec. 1.48D-2(h)(2)(ii) for the
taxable year.
(vi) Timing of tax exempt income. Such tax exempt income resulting
from such election is treated as received or accrued, including for
purposes of sections 705 and 1366 of the Code, as of the date the
qualified property is placed in service with respect to the partnership
or S corporation.
(3) Disregarded entity ownership. In the case of a qualified
property held directly by an entity disregarded as separate from a
partnership or S corporation for Federal income tax purposes, such
qualified property will be treated as held directly by the partnership
or S corporation for purposes of making an elective payment election.
(4) Electing partnerships in tiered structures. If a partnership
(upper-tier partnership) is a direct or indirect partner of a
partnership that makes an elective payment election and directly or
indirectly receives an allocation of tax exempt income resulting from
the elective payment election made by the partnership, the upper-tier
partnership must determine its partners' distributive shares of such
tax exempt income in proportion to each partner's distributive share of
its otherwise allocable basis in qualified property under Sec. 1.48D-
2(h)(2)(i) for such taxable year.
(5) Character of tax exempt income. Tax exempt income resulting
from an elective payment election by an S corporation or a partnership
is treated as arising from an investment activity and not from the
conduct of a trade or business within the meaning of section
469(c)(1)(A). As such, the tax exempt income is not treated as passive
income to any partners or shareholders who do not materially
participate within the meaning of section 469(c)(1)(B).
(6) Determination of amount of the section 48D credit--(i) In
general. In determining the amount of the section 48D credit that will
result in a payment under paragraph (d)(2)(ii)(A) of this section, the
partnership or S corporation must compute the amount of the credit
allowable (without regard to section 38(c)) as if an elective payment
election were not made. Because a partnership or S corporation is not
subject to section 469 (that is, section 469 applies at the partner or
shareholder level), the amount of the credit determined by a
partnership or S corporation is not subject to limitation by section
469. Because the section 48D credit is an investment credit under
section 46, sections 49 and 50 apply to limit the amount of the credit.
(ii) Application of section 49 at-risk rules to determination of
section 48D credit for partnerships and S corporations. Any amount of
section 48D credit determined with respect to qualified property held
directly by a partnership or S corporation must be determined by the
partnership or S corporation taking into account the section 49 at-risk
rules at the partner or shareholder level as of the close of the
taxable year in which the qualified property is placed in service.
Thus, if the credit base of a qualified property is limited to a
partner or S corporation shareholder by section 49, then the amount of
the section 48D credit determined by the partnership or S corporation
is also limited. A partnership or S corporation that directly holds
qualified property must request from each of its partners or
shareholders, respectively, that is subject to section 49, the amount
of such partner's or shareholder's nonqualified nonrecourse financing
with respect to the qualified property as of the close of the taxable
year in which the property is placed in service. Additionally, the
partnership or S corporation must attach to its tax return for the
taxable year in which the qualified property is placed in service, the
amount of each partner's or shareholder's section 49 limitation with
respect to any qualified property. Changes to at-risk amounts under
section 49 for partners or S corporation shareholders after the close
of the taxable year in which the qualified property is placed in
service do not impact the section 48D credit determined by the
partnership or S corporation, but do impact the partner(s) or S
corporation shareholder(s) as provided in paragraph (d)(6)(iii) of this
section.
(iii) Changes in at-risk amounts under section 49 at partner or
shareholder level. A partner or shareholder in a partnership or S
corporation, respectively, must apply the rules under section 49 at the
partner or shareholder level if there is a change in nonqualified
nonrecourse financing with respect to the partner or shareholder after
the close of the taxable year in which the qualified property is placed
in service and the section 48D credit is
[[Page 40132]]
determined. If there is an increase in nonqualified nonrecourse
financing to a partner, any adjustment under the rules of section 49(b)
is calculated based on the partner's share of the basis (or cost) of
the qualified property to which the section 48D credit was determined
in accordance with Sec. 1.48D-2(h)(2)(i). If there is an increase in
nonqualified nonrecourse financing to a shareholder, any adjustment
under the rules of section 49(b) is calculated based on the
shareholder's pro rata share of the basis (or cost) of the qualified
property to which the section 48D was determined in accordance with
Sec. 1.48D-2(h)(2)(ii). If there is a decrease in nonqualified
nonrecourse financing, any increase in the credit base is taken into
account by the partner or shareholder as provided under section 49, and
any resulting credit is not eligible for an elective payment election
under section 48D(d).
(7) Partnerships subject to subchapter C of chapter 63 of the Code.
See Sec. 301.6241-7(j) of this chapter for rules applicable to
payments made to partnerships subject to subchapter C of chapter 63 of
the Code for a partnership taxable year.
(8) Example. The following example illustrates the rules of this
paragraph (d).
(i) Example. P is a calendar-year partnership consisting of
partners A and B, each 50% owners. P constructs Facility A, an advanced
manufacturing facility, at V. P completes the pre-filing registration
with respect to Facility A at V for 2024 in accordance with paragraph
(b) of this section. In 2024, P places in service qualified property
which is part of Facility A at V. P timely files its 2024 Form 1065 and
properly makes the elective payment election in accordance with
paragraph (c) of this section. On its Form 1065, P properly determines
that the amount of section 48D credit with respect to the qualified
property placed in service at Facility A for 2024 is $100,000. The IRS
processes P's return and makes a $100,000 payment to P. Before
determining A's and B's distributive shares, P reduces the section 48D
credit to zero. However, for other purposes of the Code, the $100,000
section 48D credit is deemed to have been allowed to P for 2024. The
$100,000 is treated as tax exempt income for purposes of section 705,
and A's and B's distributive shares of such tax exempt income is based
on each partner's otherwise allocable basis in qualified property under
Sec. 1.48D-2(h)(2)(i) for the 2024 taxable year ($50,000 each). A's
and B's basis in their partnership interests and capital accounts will
be appropriately adjusted to take into account basis adjustments made
to the qualified property under section 50(c)(5) and Sec. 1.704-
1(b)(2)(iv)(j). See paragraph (g)(2) of this section. The tax exempt
income received or accrued by P as a result of the elective payment
election is treated as received or accrued, including for purposes of
section 705, as of date P placed in service the qualified property in
2024.
(ii) [Reserved]
(e) Denial of double benefit--(1) In general. In the case of a
taxpayer making an election under section 48D(d) and this section with
respect to any section 48D credit determined under section 48D(a) and
Sec. 1.48D-1, such credit is reduced to zero and is, for any other
purposes under the Code, deemed to have been allowed to the taxpayer
for such taxable year. Paragraphs (e)(2) and (3) of this section
explain the application of the section 48D(d)(3) denial of a double
benefit rule to a taxpayer (other than a partnership or S corporation).
The application of section 48D(d)(3) to a partnership or S corporation
is provided in paragraphs (d)(2)(ii)(B) and (C) of this section.
(2) Application of the denial of double benefit rule. A taxpayer
(other than a partnership or S corporation) making an elective payment
election applies section 48D(d)(3) by taking the following steps:
(i) Compute the amount of the Federal income tax liability (if any)
for the taxable year, without regard to the general business credit
under section 38 (GBC), that is payable on the due date of the tax
return (without regard to extensions), and the amount of the Federal
income tax liability that may be offset by GBCs pursuant to the
limitation based on the amount of tax under section 38.
(ii) Compute the amount of the GBCs carryforwards carried to the
taxable year plus the amount of the current year GBCs (including the
current section 48D credit) allowed for the taxable year under section
38. Because the election must made on an original return of tax for the
taxable year for which the section 48D credit is determined, any
business credit carrybacks are not considered when determining the
elective payment amount for the taxable year.
(iii) Apply the GBCs allowed for the taxable year as computed under
paragraph (e)(2)(ii) of this section, including those attributable to
the section 48D credit as GBC, against the tax liability computed in
paragraph (e)(2)(i) of this section.
(iv) Identify the amount of any excess or unused current year GBC,
as defined under section 39, attributable to current year section 48D
credit for which the taxpayer is making an elective payment election.
Treat the amount of such unused section 48D credit as a payment against
the tax imposed by subtitle A for the taxable year with respect to
which such credit is determined (rather than having them available for
carryback or carryover) (net elective payment amount).
(v) Reduce the section 48D credit for which an elective payment
election is made by the amount (if any) allowed as a general business
credit under section 38 for the taxable year, as provided in paragraph
(e)(2)(iii) of this section, and by the net elective payment amount (if
any) that is treated as a payment against tax, as provided in paragraph
(e)(2)(iv) of this section, which results in the section 48D credit
being reduced to zero.
(3) Use of the section 48D credit for other purposes. The full
amount of the section 48D credit for which an elective payment election
is made is deemed to have been allowed for all other purposes of the
Code, including, but not limited to, the basis reduction and recapture
rules imposed by section 50, and the calculation of any underpayment of
estimated taxes under sections 6654 and 6655 of the Code.
(4) Examples. The following examples illustrate the rules of this
paragraph (e).
(i) Example 1. Z Corp is a calendar-year C corporation. Z Corp
places in service qualified property which is part of an advanced
manufacturing facility in June of 2024. Z Corp completes the pre-filing
registration in accordance with this section and receives a
registration number for the qualified property. Z Corp timely files its
2024 Form 1120 on April 15, 2025, properly making the elective payment
election with respect to the section 48D credit in accordance with this
section. On its return, Z Corp properly determines that it has $500,000
of tax imposed by subtitle A of the Code (see paragraph (e)(2)(i) of
this section). For simplicity, assume the maximum amount of GBCs that
can be claimed for the taxable year is $375,000. Z Corp properly
determines that the amount of the section 48D credit determined with
respect to the qualified property (its GBC for the taxable year) is
$100,000 (see paragraph (e)(2)(ii) of this section. Under paragraph
(e)(2)(iii) of this section, the section 48D credit reduces Z Corp's
tax liability to $400,000. Z Corp pays its $400,000 tax liability on
April 15, 2025. Because there is no unused section 48D credit,
paragraph (e)(2)(iv) of this section does not apply. Under paragraph
(e)(2)(v) of this section, the $100,000 of section 48D credit is
reduced by the $100,000 of section 48D
[[Page 40133]]
credit claimed as GBCs for the taxable year, which results in the
section 48D credit being reduced to zero. However, the $100,000 of
section 48D credit is deemed to have been allowed to Z Corp for 2024
for all other purposes of the Code under paragraph (e) of this section.
(ii) Example 2. Assume the same facts as in paragraph (e)(4)(i) of
this section (Example 1), except that Z Corp has $80,000 of tax imposed
by subtitle A (paragraph (e)(2)(i) of this section). Z Corp's GBC
credit is still $100,000 (paragraph (e)(2)(ii) of this section). For
simplicity, assume the maximum amount of GBCs that can be claimed for
the taxable year under section 38(c) is $60,000. Z Corp uses $60,000 of
its section 48D credit against its tax liability under paragraph
(e)(2)(iii) of this section. Z Corp's net elective payment amount is
$40,000 determined under paragraph (e)(2)(iv) of this section. Z Corp
reduces the elective payment amount by the $60,000 claimed against tax
in paragraph (e)(2)(iii) of this section and by the $40,000 net
elective payment amount determined in paragraph (e)(2)(iv) of this
section, resulting in the applicable credit being reduced to zero
(paragraph (e)(2)(v) of this section). When the IRS processes Z Corp's
2024 Form 1120, the net elective payment amount results in a $40,000
refund to Z Corp. However, for other purposes of the Code, the $100,000
section 48D credit is deemed to have been allowed to Z Corp for 2024
(paragraph (e) of this section). Even though Z Corp did not owe tax
after applying the net elective payment amount against its net tax
liability, Z Corp may be subject to the section 6655 penalty for
failure to pay estimated income tax. The net elective payment is not an
estimated tax installment, rather it is treated as a payment made at
the filing of the return.
(f) Excessive payment--(1) In general. Except as provided in
paragraph (f)(2) of this section, in the case of any amount treated as
a payment which is made by the taxpayer under section 48D(d)(1) and
paragraph (a) of this section, or any payment made pursuant to section
48D(d)(2)(A)(i)(II) and paragraph (d) of this section, with respect to
any property, which amount the Commissioner determines constitutes an
excessive payment as defined in paragraph (f)(3) of this section, the
tax imposed on such taxpayer by chapter 1 of the Code for the taxable
year in which such determination is made is increased by an amount
equal to the sum of--
(i) The amount of such excessive payment; plus
(ii) An amount equal to 20 percent of such excessive payment.
(2) Reasonable cause. Paragraph (f)(1)(ii) of this section will not
apply if the taxpayer demonstrates to the satisfaction of the
Commissioner that the excessive payment resulted from reasonable cause.
(3) Excessive payment defined. For purposes of section 48D(d) and
this paragraph (f), the term excessive payment means, with respect to
any property for which an election is made under section 48D(d) and
this section for any taxable year, an amount equal to the excess of--
(i) The amount treated as a payment which is made by the taxpayer
pursuant to section 48D(d)(1) and paragraph (a) of this section, or any
payment made by the Commissioner pursuant to section 48D(d)(2)(A)(I)(i)
and paragraph (d) of this section, with respect to such property for
such taxable year; over
(ii) The amount of the section 48D credit which, without
application of section 48D(d) and this section, would be otherwise
allowable (determined without regard to section 38(c)) under section
48D(a) and the section 48D regulations with respect to such property
for such taxable year.
(4) Examples. The following example illustrates the principles of
this paragraph (f).
(i) Example. A Corp is a calendar-year C corporation. A Corp places
in service qualified property which is part of Facility A, an advanced
manufacturing facility in 2023. A Corp properly completes the pre-
filing registration in accordance with paragraph (b) of this section
and receives a registration number for the advanced manufacturing
facility. A Corp timely files its 2023 Form 1120, properly providing
the registration number for Facility A and otherwise complying with
paragraph (c) of this section. On its return, Corp A calculates that
the amount of the section 48D credit with respect to the qualified
property is $100,000 and that the net elective payment amount is
$100,000. Corp A receives a refund in the amount of $100,000. In 2025,
the IRS determines that the amount of the section 48D credit properly
allowable to Corp A in 2023 with respect to Facility A (as determined
pursuant to Sec. 1.48D-1(b) and without regard to the limitation based
on tax in section 38(c)) was $60,000. Corp A is not able to show
reasonable cause for the difference. The excessive payment amount is
$40,000 ($100,000 treated as a payment-$60,000 allowable amount). In
2025, the tax imposed under chapter 1 on Corp A is increased in the
amount of $48,000 ($40,000 + (20% * $40,000 = $8,000).
(ii) [Reserved]
(g) Basis reduction and recapture--(1) In general. The rules in
section 50(a) and (c) of the Code apply with respect to elective
payments under paragraphs (a) and (d) of this section.
(2) Basis adjustment--(i) In general. If a section 48D credit is
determined with respect to property for which a taxpayer makes an
election under section 48D(d)(1), then the adjusted basis of the
property shall be reduced by the amount of the section 48D credit
determined for which the taxpayer made an election under section
48D(d)(1).
(ii) Basis adjustment by partnership or S corporation. If an
advanced manufacturing investment credit is determined with respect to
property for which a partnership or S corporation makes an election
under section 48D(d)(1), then the adjusted basis of the property shall
be reduced by the amount of the advanced manufacturing investment
credit determined with respect to the property held by the partnership
or S corporation, for which the IRS made a payment to the partnership
or S corporation pursuant to section 48D(d)(2)(A)(i)(I).
(iii) Basis adjustment of partners and S corporation shareholders.
The adjusted basis of a partner's interest in a partnership, and stock
in an S corporation, shall be appropriately adjusted pursuant to
section 50(c)(5) to take into account adjustments made under paragraph
(g)(2)(ii) of this section in the basis of property held by the
partnership or S corporation, as the case may be.
(3) Recapture reporting. Any reporting of recapture is made on the
taxpayer's annual return in the manner prescribed by the IRS in any
guidance.
(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 [DATE OF PUBLICATION OF FINAL RULE].
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-12800 Filed 6-14-23; 11:15 am]
BILLING CODE 4830-01-P
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</html>Indexed from Federal Register on June 21, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.