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The IRS released the final regulations this week for companies that want to utilize an advanced manufacturing tax credit available under the CHIPS Act, the federal law that aims to catalyze investments in domestic semiconductor capacity. 

This move affects the semiconductor and semiconductor-fabrication equipment manufacturing sectors by offering a direct “elective payment” that treats the credit as a payment against federal tax liabilities, instead of a traditional nonrefundable tax credit.  

The CHIPS manufacturing credit then effectively becomes refundable. After it offsets any federal tax liabilities, the elective payment is treated as an overpayment on the return and it is refunded to the business. 

The final regulations include special rules for partnerships and S corporations, excessive payment penalties, basis reduction and recapture, the denial of double benefit, and the pre-filing registration process. These regulations take effect 60 days after their official publication in the Federal Register on March 11. 

The issuance of the final regulations is an important step in the implementation of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act of 2022. 

The CHIPS Act is designed to boost U.S. competitiveness, innovation and national security by bolstering the domestic semiconductor industry. The law directs $280 billion in spending over the next 10 years, with the majority – $200 billion – for scientific R&D and commercialization. 

 The law also provides $52.7 billion for semiconductor manufacturing, R&D, and workforce development; $24 billion worth of tax credits for chip production; and $3 billion for programs aimed at leading-edge technology and wireless supply chains.