In a show of bipartisanship, Congress passed the Creating Helpful Incentives to Produce Semiconductors Act (CHIPS Act) on July 27, 2022, which was signed into law by President Biden on August 9, 2022. The CHIPS Act provides significant funding over five years for loans and loan guarantees to support investment in semiconductor manufacturing, and a new investment tax credit equal to 25% of the qualified investment in the taxable year with respect to certain advanced manufacturing facilities.

For a breakdown of the CHIPS Act highlights, read more below.


The CHIPS Act provides funding over 5 years to the Secretary of Commerce to build, expand, or modernize domestic facilities and equipment for semiconductor fabrication, assembly, testing, advanced packaging, or research and development. For this purpose, the CHIPS Act allocates $24 billion in 2022, $7 billion in 2023, $6.3 billion in 2024, $6.1 billion in 2025, and $6.6 billion in 2026. The funds are for implementing the programs authorized by the 2021 National Defense Authorization Act, of which $2 billion is explicitly provided to solely focus on legacy chip production to advance economic and national security interests, as the legislation recognizes legacy chips as essential to auto manufacturers, the military, and other critical industries.

Of the funding provided from 2022 to 2026, up to $6 billion may be used to provide direct loans and loan guarantees to support investment in semiconductor manufacturing. Loans and loan guarantees are available to entities that have “a reasonable prospect of repaying the principal and interest on the loan.” The loan, when combined with other amounts available to the loan recipient, must be sufficient to cover the cost of the project. The Secretary of Commerce may also impose additional requirements on loan or loan guarantee recipients.

Advanced Manufacturing Investment Credit

The CHIPS Act adds new Section 48D, which provides a tax credit equal to 25% of the tax basis of qualified property placed in service by a taxpayer during the taxable year which is part of an advanced manufacturing facility.

Qualified property is:

(1) any tangible, depreciable property,

(2) which is either constructed, reconstructed, or erected by the taxpayer or acquired by the taxpayer if the original use of such property commences with the taxpayer, and

(3) which is integral to the operation of the advanced manufacturing facility.

Buildings and structural components are also considered qualified property except for any building used for offices, administrative services, or other functions unrelated to manufacturing.

An advanced manufacturing facility must have the primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment. Similar to other investment tax credits, the Section 48D credit is subject to the rules of Section 50, which require a taxpayer to repay all or a portion of the credit if the investment credit property is disposed of, or ceases to qualify as investment credit property and require a reduction in depreciable basis for the tax credit.

The Section 48D credit is eligible for direct pay, in lieu of the tax credit. Under direct pay, the taxpayer is treated as making a payment against the tax imposed by subtitle A (for the taxable year with respect to which such credit was determined) equal to the amount of such credit.

The credit is provided for property which is placed in service after December 31, 2022, and for which construction begins before January 1, 2027.

Eversheds Sutherland Observation: The Section 48D tax credit is structured similarly to the Section 48 investment tax credit (ITC), which provides an incentive for investment in renewable energy projects. Although the bill does not provide rules for satisfaction of the beginning of construction requirement, the IRS guidance may be modeled on the beginning of construction rules for the section 48 ITC, which are provided in IRS Revenue Procedure 2018-59, as amended.

Eversheds Sutherland Observation: Direct pay allows for taxpayers who may not have sufficient tax liability to take advantage of the tax credit without utilizing a tax equity structure. However, any cash payment may be subject to review before payment, which could delay the timeline for receipt of cash payment and potentially increase controversies between taxpayers and the IRS.

Eversheds Sutherland Observation: Notably, the slimmed down version of the CHIPS Act does not include a provision reviving research and development (R&D) expensing. Although this provision was included in a prior version of the CHIPS Act, the final version of the law does not modify section 174 to permit current expensing for R&D deductions. Beginning this year, taxpayers are required to amortize qualifying R&D expenses under section 174 over a 5-year period. Previously, qualifying R&D expenses could be deducted currently. Efforts to extend current expensing of R&D costs so far have been unsuccessful, although it is possible that this will be included in a separate “extenders” bill later this year.