Elective Payment of Advanced Manufacturing Investment Credit, 40123-40133 [2023-12800]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[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 [www.gpo.gov]
[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 https://www.regulations.gov (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 
[email protected] (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 www.regulations.gov 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 https://www.regulations.gov, search IRS and REG-105595-23, or (3) by emailing a 
request to [email protected]. 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 [email protected] 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 [email protected] 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 [email protected] 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 [email protected] 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 
[email protected] (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 https://www.irs.gov.

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 IRS.gov 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