Sec. 1.50-2 Recapture of the advanced manufacturing investment credit in the case of certain expansions.
(a) Recapture in connection with certain expansions--
(1) In general. Except as provided in section 50(a)(3)(B) of the Code and paragraph (a)(2) of this section, if an applicable taxpayer engages in an applicable transaction before the close of the applicable period, then the tax under chapter 1 for the taxable year in which such transaction occurs is increased by 100 percent of the applicable transaction recapture amount. Any taxpayer, including an applicable taxpayer, that engages in an applicable transaction during a taxable year does not meet the definition of an eligible taxpayer under section 48D(c) and the section 48D regulations and is ineligible for the section 48D credit for that taxable year. See paragraph (b) of this section for definitions of terms used in section 50(a)(3) and this section.
(2) Exception. Section 50(a)(3)(A) and paragraph (a)(1) of this section do not apply if the applicable taxpayer demonstrates to the satisfaction of the Commissioner that the applicable transaction has been ceased or abandoned within 45 days of a determination and notice by the Commissioner. A taxpayer that ceases or abandons a particular applicable transaction for a taxable year may still be treated as engaging in a different applicable transaction for a taxable year. A taxpayer may not circumvent the application of section 50(a)(3) and this section by engaging in a series of applicable transactions, multiple applicable transactions, or other similar arrangements.
(3) Carrybacks and carryover adjusted. In the case of any cessation described in section 50(a)(1) or (2), or any applicable transaction to which section 50(a)(3) and paragraph (a)(1) of this section apply, any carryback or carryover under section 39 of the Code is appropriately adjusted by reason of such cessation or applicable transaction.
(b) Definitions. The following definitions apply for purposes of section 50(a)(3) and this section.
(1) Applicable period. The term applicable period means the 10-year period beginning on the date that an applicable taxpayer placed in service property that is eligible for the section 48D credit.
(2) Applicable taxpayer--
(i) In general. Except as provided in paragraph (b)(2)(ii) of this section, the term applicable taxpayer means any taxpayer who was allowed a section 48D credit or made an election under section 48D(d)(1) with respect to such credit, for any taxable year prior to the taxable year in which such taxpayer entered into an applicable transaction.
(ii) Special rules for partnerships and S corporations and their partners and shareholders. In the case of qualified property placed in service by a partnership or an S corporation for which a section 48D credit was determined, the term applicable taxpayer also means--
(A) The partnership and the partners of such partnership (directly or indirectly through one or more tiered partnerships) who were allowed a section 48D credit for such property, or S corporation and the shareholder(s) of such S corporation who were allowed a section 48D credit for such property, for any taxable year prior to the taxable year in which such partnership or S corporation entered into an applicable transaction;
(B) Any partner in a partnership (directly or indirectly through one or more tiered partnerships) or any shareholder in an S corporation with respect to the partner’s or S corporation shareholder’s share of any section 48D credit allowed for such property for any taxable year prior to when such partner or S corporation shareholder entered into an applicable transaction;
(C) Any partnership or S corporation that made an election under section 48D(d)(2) with respect to a credit determined under section 48D(a)(1) for any taxable year prior to the taxable year in which such partnership or S corporation entered into an applicable transaction; and
(D) Any partner in a partnership (directly or indirectly through one or more tiered partnerships) or shareholder in an S corporation with respect to the partner’s or S corporation shareholder’s share of any tax-exempt income from the partnership or S corporation that made an election under section 48D(d)(2) for any taxable year prior to when such partner or shareholder entered into an applicable transaction.
(iii) Examples. The following examples illustrate the rules of this paragraph (b)(2).
(A) Example 1: Applicable taxpayer: In general. On July 1, 2026, X Corp, a calendar-year C corporation, entered into an applicable transaction. In 2025, X Corp had placed in service qualified property that is part of an advanced manufacturing facility and was allowed a section 48D credit for its 2025 taxable year. X Corp is an applicable taxpayer when it entered into the applicable transaction.
(B) Example 2: Applicable taxpayer: In general. The facts are the same as in paragraph (b)(2)(iii)(A) of this section (Example 1), except that X timely filed its 2025 tax return properly making an election under section 48D(d)(1) with respect to the section 48D credit. X Corp is an applicable taxpayer when it entered into the applicable transaction.
(C) Example 3: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. A, B, C, and D, all calendar-year C corporations, are partners in the ABCD partnership. Partners A, B, C, and D share partnership profits equally. On May 1, 2027, the ABCD partnership engages in an applicable transaction. On November 1, 2025, the ABCD partnership had placed in service qualified property with a basis of $1 million. Each partner’s share of the basis of the qualified property, as determined in §1.46-3(f)(2), is $250,000 ($1m x 0.25) and each partner’s qualified investment is $250,000. A, B, C, and D each filed its 2025 tax return claiming a section 48D credit. The ABCD partnership and A, B, C, and D each are an applicable taxpayer when ABCD partnership enters into the applicable transaction.
(D) Example 4: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(C) of this section (Example 3), except that on May 1, 2027, A, and not ABCD partnership, engages in an applicable transaction. A is an applicable taxpayer with respect to A’s share of the section 48D credit when A enters into the applicable transaction. Neither the ABCD partnership nor partners B, C, nor D are an applicable taxpayer with respect to the applicable transaction entered into by A.
(E) Example 5: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(C) of this section (Example 3), except that A, B, C and D do not claim a section 48D credit on their timely filed 2025 tax returns. Instead, the ABCD partnership makes an election pursuant to section 48D(d)(2) with respect to the section 48D credit determined under section 48D(a)(1). The ABCD partnership is an applicable taxpayer with respect to the elective payment to the ABCD partnership pursuant to section 48D(d)(2)(A)(i)(I).
(F) Example 6: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders. The facts are the same as in paragraph (b)(2)(iii)(E) of this section (Example 5), except that the ABCD partnership did not engage in an applicable transaction. On May 1, 2027, A engages in an applicable transaction. A is an applicable taxpayer with respect to its share of tax- exempt income allocated to A pursuant to section 48D(d)(2)(A)(i)(II) and (IV). Neither the ABCD partnership nor partners B, C, or D are an applicable taxpayer with respect to the applicable transaction entered into by A.
(iv) Affiliated groups. For purposes of this paragraph (b)(2), all members of an affiliated group under section 1504(a) of the Code, determined without regard to section 1504(b)(3), are treated as one taxpayer.
(3) Applicable transaction. Except as provided in section 50(a)(6)(D)(ii) and paragraph (c)(1) of this section, the term applicable transaction means, with respect to any applicable taxpayer, any significant transaction involving the material expansion of semiconductor manufacturing capacity of such applicable taxpayer in any foreign country of concern.
(4) Applicable transaction recapture amount. The term applicable transaction recapture amount means, with respect to an applicable taxpayer, the aggregate decrease in the credits allowed under section 38 of the Code for all prior taxable years that would have resulted solely from reducing to zero any credit determined under section 46 of the Code that is attributable to the advanced manufacturing investment credit under section 48D(a), with respect to property that has been placed in service during the applicable period.
(5) Existing facility. The term existing facility means any facility built, equipped, and operating prior to a taxpayer placing in service qualified property as defined in section 48D(b)(2) and §1.48D-3. Existing facilities are defined by their semiconductor manufacturing capacity at the time the qualified property is placed in service; facilities that undergo significant renovations, as defined in paragraph (b)(9) of this section, will no longer qualify as existing facilities within the meaning of this paragraph (b)(5).
(6) Foreign country of concern. The term foreign country of concern has the same meaning as provided in 15 CFR 231.102.
(7) Material expansion. The term material expansion means –
(i) With respect to an existing facility, the increase of the semiconductor manufacturing capacity of that facility by more than five percent during the applicable period due to the addition of a cleanroom, production line or other physical space, or a series of such additions; or
(ii) Any construction of a new facility for semiconductor manufacturing.
(8) Semiconductor manufacturing capacity. The term semiconductor manufacturing capacity means, consistent with 15 CFR 231.117, the productive capacity of a semiconductor facility. In the case of a semiconductor wafer production facility that includes the processes of growing single-crystal ingots and boules, wafer slicing, wafer bonding, etching and polishing, cleaning, epitaxial deposition, and metrology, semiconductor manufacturing capacity is measured in wafer starts per month. In the case of a semiconductor fabrication facility, semiconductor manufacturing capacity is measured in wafer starts per year. In the case of a packaging facility, semiconductor manufacturing capacity is measured in packages per year.
(9) Significant renovations. The term significant renovations means building new cleanroom space or adding a production line or other physical space to an existing facility that, in the aggregate during the applicable period, increases semiconductor manufacturing capacity by 10 percent or more of the capacity.
(10) Significant transaction–
(i) In general. As determined in coordination with the Secretary of Commerce and the Secretary of Defense and except as provided in paragraph (b)(10)(ii) of this section, the term significant transaction means any of the following:
(A) An investment, whether proposed, pending, or completed, including any capital expenditure, loan, or gift;
(B) The formation of a subsidiary, whether classified as a corporation or partnership for Federal tax purposes;
(C) A merger, acquisition, or takeover, including—
(1) The acquisition of a new or additional ownership interest in an entity;
(2) The acquisition of a material portion of the assets of an entity; or
(3) A consolidation;
(D) The formation of a joint venture; or
(E) A long-term lease or concession arrangement under which a lessee (or equivalent) makes substantially all business decisions concerning the operation of a leased entity (or equivalent), as if it were the owner.
(F) A transaction that involves the expansion of manufacturing capacity for legacy semiconductors (other than with respect to an existing facility or equipment of an applicable taxpayer for manufacturing legacy semiconductors) if less than 85 percent of the output of the semiconductor manufacturing facility (for example, wafers, semiconductor devices, or packages) by value, is incorporated into final products (that is, not an intermediate product that is used as factory inputs for producing other goods) that are used or consumed in the market of a foreign country of concern; or
(G) A transaction during the applicable period in which an applicable taxpayer knowingly (within the meaning of 15 CFR 231.106) engages in any joint research, as defined in 15 CFR 231.105, or technology licensing effort with a foreign entity of concern that relates to a technology or product that raises national security concerns.
(ii) Required agreement. If a taxpayer enters into a required agreement with the Secretary of Commerce pursuant to 15 U.S.C. 4652(a)(6)(C) and 15 CFR 231.112, then the term significant transaction for purposes of section 48D and the section 48D regulations has the meaning provided in the required agreement. Defined terms in the required agreement control only for purposes of determining the meaning of the term significant transaction. Thus, the effect of a significant transaction is determined under section 50(a)(3) and (6) during the applicable term defined under paragraph (b)(1) of this section.
(11) Technology licensing. The term technology licensing has the same meaning as provided in 15 CFR 231.120.
(12) Technology or product that raises national security concerns. The term technology or product that raises national security concerns has the same meaning as provided in 15 CFR 231.121.
(c) Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors—
(1) In general. The term applicable transaction, as defined in section 50(a)(6)(D) and paragraph (b)(3) of this section, does not include a transaction that primarily involves the expansion of manufacturing capacity for legacy semiconductors, but only to the extent not described in paragraph (b)(10)(i)(F) of this section.
(2) Legacy semiconductor. The term legacy semiconductor has the same meaning as provided in 15 CFR 231.107.
(d) Example: Applicable transaction credit claimed. On January 15, 2025, X Corp, a C corporation that is a calendar-year taxpayer, placed in service Property A, qualified property with a basis of $1 million. X Corp’s qualified investment, as determined in §1.46-3(c), for the taxable year is $1 million. X Corp’s advanced manufacturing investment credit for the taxable year is $250,000 ($1 million x 0.25) and, assume that X Corp’s income tax liability is $400,000. X Corp does not determine any other credits in 2025. X claims an advanced manufacturing investment credit of $250,000 for its 2025 taxable year. On December 15, 2026, X Corp engages in an applicable transaction, as defined in section 50(a)(6)(D) and paragraph (b)(3) of this section and did not cease or abandon the transaction within 45 days of a determination and notice by the Commissioner. X Corp has not determined or claimed any general business credits since its 2025 taxable year. The aggregate decrease in credits allowed under section 38 for all prior years resulting from reducing to zero any credit determined under section 46 that is attributable to the advanced manufacturing investment credit is $250,000 ($250,000 (credit allowed) - $0 (credit that would have been allowed)). X Corp’s tax under chapter 1 is increased by $250,000 (1.0 x $250,000) for the 2026 taxable year. Pursuant to section 48D(c), for the 2026 taxable year, X Corp is not an eligible taxpayer and is ineligible to claim or carryforward the advanced manufacturing investment credit.
(e) 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 October 23, 2024.
[Added by T.D. 10009, 89 FR 84732-84763, Oct. 23, 2024.]
