§50 — Other special rules

Statute Text — 26 U.S.C. §50

Treasury Regulations

• Treas. Reg. §1.50-0Table of contents Show full text ▾ Collapse ▴

  This section lists the table of contents for §§ 1.50-1 and 1.50-2.

  (a) In general.

  (b) Coordination with basis adjustment rules.

  (1) Basis adjustment.

  (2) Amount of credit included ratably in gross income.

  (i) In general.

  (ii) Special rule for the energy credit.

  (3) Special rule for partnerships and S corporations.

  (i) In general.

  (ii) Definition of ultimate credit claimant.

  (c) Coordination with the recapture rules.

  (1) In general.

  (2) Income inclusion exceeds unrecaptured credit.

  (3) Special rule for the energy credit.

  (4) Timing of income inclusion or reduction following recapture.

  (d) Election to accelerate income inclusion outside of the recapture period.

  (1) In general.

  (2) Exceptions.

  (3) Manner and time for making election.

  (e) Examples.

  (1) Example 1.

  (2) Example 2.

  (3) Example 3.

  (4) Example 4.

  (5) Example 5.

  (6) Example 6.

  (f) Applicability date.

  (a) Recapture in connection with certain expansions.

  (1) In general.

  (2) Exception.

  (3) Carrybacks and carryover adjusted.

  (b) Definitions.

  (1) Applicable period.

  (2) Applicable taxpayer.

  (i) In general.

  (ii) Special rules for partnerships and S corporations and their partners and shareholders.

  (iii) Examples.

  (A) Example 1: Applicable taxpayer: In general.

  (B) Example 2: Applicable taxpayer: In general.

  (C) Example 3: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.

  (D) Example 4: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.

  (E) Example 5: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.

  (F) Example 6: Applicable taxpayer: Special rules for partnerships and S corporations and their partners and shareholders.

  (iv) Affiliated groups.

  (3) Applicable transaction.

  (4) Applicable transaction recapture amount.

  (5) Existing facility.

  (6) Foreign country of concern.

  (7) Material expansion.

  (8) Semiconductor manufacturing capacity.

  (9) Significant renovations.

  (10) Significant transaction.

  (i) In general.

  (ii) Required agreement.

  (11) Technology licensing.

  (12) Technology or product that raises national security concerns.

  (c) Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors.

  (1) In general.

  (2) Legacy semiconductor.

  (d) Example: Applicable transaction credit claimed.

  (e) Applicability date.

• Treas. Reg. §1.50-0(a)Recapture in connection with certain expansions. Show full text ▾ Collapse ▴

  Recapture in connection with certain expansions.

  (1) In general.

  (2) Exception.

  (3) Carrybacks and carryover adjusted.

• Treas. Reg. §1.50-0(b)Definitions. Show full text ▾ Collapse ▴

  Definitions.

  (1) Applicable period.

  (2) Applicable taxpayer.

• Treas. Reg. §1.50-0(c)Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors. Show full text ▾ Collapse ▴

  Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors.

  (1) In general.

  (2) Legacy semiconductor.

• Treas. Reg. §1.50-0(d)Example: Applicable transaction credit claimed. Show full text ▾ Collapse ▴

  Example: Applicable transaction credit claimed.

• Treas. Reg. §1.50-0(e)Applicability date. Show full text ▾ Collapse ▴

  Applicability date.

• Treas. Reg. §1.50-0(f)Applicability date. Show full text ▾ Collapse ▴

  Applicability date.

• Treas. Reg. §1.50-0(i)In general. Show full text ▾ Collapse ▴

  In general.

  (ii) Required agreement.

  (11) Technology licensing.

  (12) Technology or product that raises national security concerns.

• Treas. Reg. §1.50-1Lessee's income inclusion following election of lessor of investment credit property to treat lessee as acquirer Show full text ▾ Collapse ▴

  (a) In general. Section 50(d)(5) provides that, for purposes of computing the investment credit, rules similar to the rules of former section 48(d) (relating to certain leased property) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990 (Pub. L. 101-508, 104 Stat. 1388 (November 5, 1990))) apply. This section provides rules similar to the rules of former section 48(d)(5) that the Secretary has determined shall apply for purposes of determining the inclusion in gross income required when a lessor elects to treat a lessee as having acquired investment credit property.

  (b) Coordination with basis adjustment rules. In the case of any property with respect to which an election is made under § 1.48-4 by a lessor of investment credit property to treat the lessee as having acquired the property—

  (1) Basis adjustment. Section 50(c) does not apply with respect to such property.

  (2) Amount of credit included ratably in gross income—(i) In general. A lessee of the property must include ratably in gross income, over the shortest recovery period which could be applicable under section 168 with respect to that property, an amount equal to the amount of the credit determined under section 46 with respect to that property. The ratable income inclusion under this paragraph begins on the date the investment credit property is placed in service and continues on each one year anniversary date thereafter until the end of the applicable recovery period. The lessee will include in gross income the amount of its credit determined under section 46 regardless of limitations on the amount of the credit allowed under section 38(c) based on the amount of the lessee's income tax.

  (ii) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraph (b)(2)(i) of this section applies only to the extent of 50 percent of the amount of the credit determined under section 46.

  (3) Special rule for partnerships and S corporations—(i) In general. For purposes of paragraph (b)(2) of this section, if the lessee of the property is a partnership (other than an electing large partnership) or an S corporation, the gross income includible under such paragraph is not an item of partnership income to which the rules of subchapter K of Chapter 1, subtitle A of the Code apply or an item of S corporation income to which the rules of subchapter S of Chapter 1, subtitle A of the Code apply. Any partner or S corporation shareholder that is an ultimate credit claimant (as defined in paragraph (b)(3)(ii) of this section) is treated as a lessee that must include in gross income the amounts required under paragraph (b)(2) of this section in proportion to the credit determined under section 46 with respect to such partner or S corporation shareholder.

  (ii) Definition of ultimate credit claimant. For purposes of this section, the term ultimate credit claimant means any partner or S corporation shareholder that files (or that would file) Form 3468, “Investment Credit,” with such partner's or S corporation shareholder's income tax return to claim an investment credit determined under section 46 with respect to such partner or S corporation shareholder.

  (c) Coordination with the recapture rules—(1) In general. If section 50(a) requires an increase in the lessee's or the ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee or the ultimate credit claimant is required to include in gross income an amount equal to the excess, if any, of the amount of the credit that is not recaptured over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property. Such amount is in addition to the amounts the lessee or the ultimate credit claimant previously included in gross income under paragraph (b)(2) of this section.

  (2) Income inclusion exceeds unrecaptured credit. If section 50(a) requires an increase in the lessee's or ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee's or the ultimate credit claimant's gross income shall be reduced by an amount equal to the excess, if any, of the total increases in gross income previously included under paragraph (b)(2) of this section over the amount of the credit that is not recaptured.

  (3) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraphs (c)(1) and (2) of this section apply by substituting the phrase “50 percent of the amount of the credit that is not recaptured” for the phrase “the amount of the credit that is not recaptured.”

  (4) Timing of income inclusion or reduction following recapture. Any adjustment required by paragraphs (c)(1) and (2) of this section is taken into account in the taxable year in which the property is disposed of or otherwise ceases to be investment credit property.

  (d) Election to accelerate income inclusion outside of the recapture period—(1) In general. If after the recapture period described in section 50(a), but prior to the expiration of the recovery period described in paragraph (b)(2) of this section, there is a lease termination, the lessee otherwise disposes of the lease, or a partner or S corporation shareholder that is an ultimate credit claimant disposes of its entire interest, either direct or indirect, in a lessee partnership (other than an electing large partnership) or S corporation, the lessee, or, in the case of a partnership or S corporation, the ultimate credit claimant may irrevocably elect to take into account the remaining amount required to be included in gross income under this section in the taxable year of the disposition or termination.

  (2) Exceptions. The election provided under paragraph (d)(1) of this section is not available to—

  (i) Lessees or ultimate credit claimants required by paragraph (c) of this section to account for the remaining amount required to be included in gross income after accounting for recapture in the taxable year in which the property was disposed of or otherwise ceased to be investment credit property under section 50(a); or

  (ii) Former partners or S corporation shareholders that own no interest, either direct or indirect, in a lessee partnership or S corporation at the time of a lease termination or disposition.

  (3) Manner and time for making election. The election under paragraph (d)(1) of this section is made by including the remaining amount required to be included under this section in gross income in the taxable year of the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation. The election must be made on or before the due date (including any extension of time) of the lessee's income tax return, or, in the case of a partnership or S corporation, the ultimate credit claimant's income tax return for the taxable year in which the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation occurs.

  (e) Examples. The provisions of this section may be illustrated by the following examples:

  (1) Example 1. X, a calendar year C corporation, leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat X as having acquired the property. X's investment credit determined under section 46 for 2016 with respect to such property is $9,750. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat X as having acquired the property, Y does not reduce its basis in the property under section 50(c). Instead, X, the lessee of the property, must include ratably in gross income over 39 years an amount equal to the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 39 years beginning with 2016 is $250 ($9,750/39 year recovery period).

  (2) Example 2. The facts are the same as in Example 1 in paragraph (e)(1) of this section, except that instead of nonresidential real property, X leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. X's investment credit determined under section 46 for 2016 with respect to the property is $9,750. The shortest recovery period that could be available to the property under section 168 is 5 years. X, the lessee of the property, must include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 5 years beginning with 2016 is $975 ($4,875/5 year recovery period).

  (3) Example 3. A and B, calendar year taxpayers, form a partnership, the AB partnership, that leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat the AB partnership as having acquired the property. A's investment credit determined under section 46 for 2016 is $3,900 and B's investment credit determined under section 46 for 2016 is $7,800 with respect to the property. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat the AB partnership as having acquired the property, Y does not reduce its basis in the building under section 50(c). Instead, A and B, the ultimate credit claimants, must include the amount of the credit determined with respect to A and B under section 46 ratably in gross income over 39 years, the shortest recovery period available with respect to such property. Therefore, A and B must include ratably in gross income over 39 years under paragraph (b)(2) of this section an amount equal to $3,900 and $7,800, respectively. Under paragraph (b)(2) of this section, A's increase in gross income for each of the 39 years beginning with 2016 is $100 ($3,900/39 year recovery period) and B's is $200 ($7,800/39 year recovery period). Because the gross income A and B are required to include under paragraph (b)(2) of this section is not an item of partnership income, the rules under subchapter K applicable to items of partnership income do not apply with respect to such income. In particular, A and B are not entitled to an increase in the outside basis of their partnership interests under section 705(a) and are not entitled to an increase in their capital accounts under section 704(b).

  (4) Example 4. The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on January 1, 2019, the lease between AB partnership and Y terminates (Y retains ownership of the property), which is a recapture event under section 50(a). A's and B's income tax for 2019 is increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively, assuming that the aggregate decrease in the credits allowed under section 38 was the full amount of the investment credits determined as to A and B under section 46). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). The amounts that A and B previously included in gross income under paragraph (b)(2) of this section are $300 ($100 for each of 2016, 2017, and 2018) and $600 ($200 for each of 2016, 2017, and 2018), respectively. A and B are required under paragraph (c)(1) of this section to include in gross income an amount equal to the excess of the credit that is not recaptured ($1,560 and $3,120, respectively) over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property ($300 and $600, respectively). Therefore, A and B must include in gross income $1,260 and $2,520, respectively, in the taxable year of the lease termination (2019) in addition to the recapture amounts described above.

  (5) Example 5. (i) The facts are the same as in Example 4 in paragraph (e)(4) of this section, except that instead of nonresidential real property, the AB partnership leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. Because the shortest recovery period that could be available to the property under section 168 is 5 years, A and B are required under paragraph (b)(2)(ii) of this section to include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property (50% of $3,900/5, or $390, per year for A, and 50% of $7,800/5, or $780, per year for B).

  (ii) The January 1, 2019 lease termination requires A's and B's income tax for 2019 to be increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). Under paragraph (b)(2)(ii) of this section, the amounts A and B previously included in gross income are $1,170 ($390 for each of 2016, 2017, and 2018) and $2,340 ($780 for each of 2016, 2017, and 2018), respectively. A and B are entitled to a reduction in gross income under paragraph (c)(2) of this section equal to the excess of the total increases in gross income made under paragraph (b)(2)(ii) of this section ($1,170 and $2,340, respectively) over 50% of the amount of the credit that is not recaptured ($780 and $1,560, respectively). Therefore, A and B are entitled to a reduction in gross income in the amount of $390 and $780, respectively, in the taxable year of the lease termination (2019).

  (6) Example 6. (i) The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on December 1, 2021, A sells its entire interest to C, and on January 1, 2022, the lease between AB partnership and Y terminates. At the time of the lease termination, B is still a partner in the AB partnership. There is no recapture event under section 50(a) because both the lease termination and the disposition of A's interest in the partnership occurred outside of the recapture period.

  (ii) At the time that A sold its interest in the AB partnership to C, A had previously included $500 ($100 for each of 2016-2020) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, A must continue to include the remaining $3,400 (including $100 in 2021) in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, A may irrevocably elect to include the remaining $3,400 in gross income in the taxable year that A sold its entire interest in the AB partnership to C (2021). Pursuant to paragraph (d)(2) of this section, A cannot make this election in the taxable year of the lease termination (2022).

  (iii) At the time of the lease termination, B had previously included $1,200 ($200 for each of 2016-2021) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, B must continue to include the remaining $6,600 required in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, B may irrevocably elect to include the remaining $6,600 in gross income in the taxable year of the lease termination (2022).

  (f) Applicability date. This section applies to property placed in service on or after September 19, 2016.

• Treas. Reg. §1.50-1(a)In general. Show full text ▾ Collapse ▴

  In general. Section 50(d)(5) provides that, for purposes of computing the investment credit, rules similar to the rules of former section 48(d) (relating to certain leased property) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990 (Pub. L. 101-508, 104 Stat. 1388 (November 5, 1990))) apply. This section provides rules similar to the rules of former section 48(d)(5) that the Secretary has determined shall apply for purposes of determining the inclusion in gross income required when a lessor elects to treat a lessee as having acquired investment credit property.

• Treas. Reg. §1.50-1(b)Coordination with basis adjustment rules. Show full text ▾ Collapse ▴

  Coordination with basis adjustment rules. In the case of any property with respect to which an election is made under § 1.48-4 by a lessor of investment credit property to treat the lessee as having acquired the property—

  (1) Basis adjustment. Section 50(c) does not apply with respect to such property.

  (2) Amount of credit included ratably in gross income—(i) In general. A lessee of the property must include ratably in gross income, over the shortest recovery period which could be applicable under section 168 with respect to that property, an amount equal to the amount of the credit determined under section 46 with respect to that property. The ratable income inclusion under this paragraph begins on the date the investment credit property is placed in service and continues on each one year anniversary date thereafter until the end of the applicable recovery period. The lessee will include in gross income the amount of its credit determined under section 46 regardless of limitations on the amount of the credit allowed under section 38(c) based on the amount of the lessee's income tax.

  (ii) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraph (b)(2)(i) of this section applies only to the extent of 50 percent of the amount of the credit determined under section 46.

  (3) Special rule for partnerships and S corporations—(i) In general. For purposes of paragraph (b)(2) of this section, if the lessee of the property is a partnership (other than an electing large partnership) or an S corporation, the gross income includible under such paragraph is not an item of partnership income to which the rules of subchapter K of Chapter 1, subtitle A of the Code apply or an item of S corporation income to which the rules of subchapter S of Chapter 1, subtitle A of the Code apply. Any partner or S corporation shareholder that is an ultimate credit claimant (as defined in paragraph (b)(3)(ii) of this section) is treated as a lessee that must include in gross income the amounts required under paragraph (b)(2) of this section in proportion to the credit determined under section 46 with respect to such partner or S corporation shareholder.

  (ii) Definition of ultimate credit claimant. For purposes of this section, the term ultimate credit claimant means any partner or S corporation shareholder that files (or that would file) Form 3468, “Investment Credit,” with such partner's or S corporation shareholder's income tax return to claim an investment credit determined under section 46 with respect to such partner or S corporation shareholder.

• Treas. Reg. §1.50-1(c)Coordination with the recapture rules—(1) In general. Show full text ▾ Collapse ▴

  Coordination with the recapture rules—(1) In general. If section 50(a) requires an increase in the lessee's or the ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee or the ultimate credit claimant is required to include in gross income an amount equal to the excess, if any, of the amount of the credit that is not recaptured over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property. Such amount is in addition to the amounts the lessee or the ultimate credit claimant previously included in gross income under paragraph (b)(2) of this section.

  (2) Income inclusion exceeds unrecaptured credit. If section 50(a) requires an increase in the lessee's or ultimate credit claimant's tax or a reduction in the carryback or carryover of an unused credit (or both) as a result of an early disposition (including a lease termination), etc., of leased property for which an election had been made under § 1.48-4, the lessee's or the ultimate credit claimant's gross income shall be reduced by an amount equal to the excess, if any, of the total increases in gross income previously included under paragraph (b)(2) of this section over the amount of the credit that is not recaptured.

  (3) Special rule for the energy credit. In the case of any energy credit determined under section 48(a), paragraphs (c)(1) and (2) of this section apply by substituting the phrase “50 percent of the amount of the credit that is not recaptured” for the phrase “the amount of the credit that is not recaptured.”

  (4) Timing of income inclusion or reduction following recapture. Any adjustment required by paragraphs (c)(1) and (2) of this section is taken into account in the taxable year in which the property is disposed of or otherwise ceases to be investment credit property.

• Treas. Reg. §1.50-1(d)Election to accelerate income inclusion outside of the recapture period—(1) In general. Show full text ▾ Collapse ▴

  Election to accelerate income inclusion outside of the recapture period—(1) In general. If after the recapture period described in section 50(a), but prior to the expiration of the recovery period described in paragraph (b)(2) of this section, there is a lease termination, the lessee otherwise disposes of the lease, or a partner or S corporation shareholder that is an ultimate credit claimant disposes of its entire interest, either direct or indirect, in a lessee partnership (other than an electing large partnership) or S corporation, the lessee, or, in the case of a partnership or S corporation, the ultimate credit claimant may irrevocably elect to take into account the remaining amount required to be included in gross income under this section in the taxable year of the disposition or termination.

  (2) Exceptions. The election provided under paragraph (d)(1) of this section is not available to—

• Treas. Reg. §1.50-1(e)Examples. Show full text ▾ Collapse ▴

  Examples. The provisions of this section may be illustrated by the following examples:

  (1) Example 1. X, a calendar year C corporation, leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat X as having acquired the property. X's investment credit determined under section 46 for 2016 with respect to such property is $9,750. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat X as having acquired the property, Y does not reduce its basis in the property under section 50(c). Instead, X, the lessee of the property, must include ratably in gross income over 39 years an amount equal to the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 39 years beginning with 2016 is $250 ($9,750/39 year recovery period).

  (2) Example 2. The facts are the same as in Example 1 in paragraph (e)(1) of this section, except that instead of nonresidential real property, X leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. X's investment credit determined under section 46 for 2016 with respect to the property is $9,750. The shortest recovery period that could be available to the property under section 168 is 5 years. X, the lessee of the property, must include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property. Under paragraph (b)(2) of this section, X's increase in gross income for each of the 5 years beginning with 2016 is $975 ($4,875/5 year recovery period).

  (3) Example 3. A and B, calendar year taxpayers, form a partnership, the AB partnership, that leases nonresidential real property from Y. The property is placed in service on October 1, 2016. Y elects under § 1.48-4 to treat the AB partnership as having acquired the property. A's investment credit determined under section 46 for 2016 is $3,900 and B's investment credit determined under section 46 for 2016 is $7,800 with respect to the property. The shortest recovery period that could be available to the property under section 168 is 39 years. Because Y has elected to treat the AB partnership as having acquired the property, Y does not reduce its basis in the building under section 50(c). Instead, A and B, the ultimate credit claimants, must include the amount of the credit determined with respect to A and B under section 46 ratably in gross income over 39 years, the shortest recovery period available with respect to such property. Therefore, A and B must include ratably in gross income over 39 years under paragraph (b)(2) of this section an amount equal to $3,900 and $7,800, respectively. Under paragraph (b)(2) of this section, A's increase in gross income for each of the 39 years beginning with 2016 is $100 ($3,900/39 year recovery period) and B's is $200 ($7,800/39 year recovery period). Because the gross income A and B are required to include under paragraph (b)(2) of this section is not an item of partnership income, the rules under subchapter K applicable to items of partnership income do not apply with respect to such income. In particular, A and B are not entitled to an increase in the outside basis of their partnership interests under section 705(a) and are not entitled to an increase in their capital accounts under section 704(b).

  (4) Example 4. The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on January 1, 2019, the lease between AB partnership and Y terminates (Y retains ownership of the property), which is a recapture event under section 50(a). A's and B's income tax for 2019 is increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively, assuming that the aggregate decrease in the credits allowed under section 38 was the full amount of the investment credits determined as to A and B under section 46). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). The amounts that A and B previously included in gross income under paragraph (b)(2) of this section are $300 ($100 for each of 2016, 2017, and 2018) and $600 ($200 for each of 2016, 2017, and 2018), respectively. A and B are required under paragraph (c)(1) of this section to include in gross income an amount equal to the excess of the credit that is not recaptured ($1,560 and $3,120, respectively) over the total increases in gross income previously made under paragraph (b)(2) of this section with respect to the property ($300 and $600, respectively). Therefore, A and B must include in gross income $1,260 and $2,520, respectively, in the taxable year of the lease termination (2019) in addition to the recapture amounts described above.

  (5) Example 5. (i) The facts are the same as in Example 4 in paragraph (e)(4) of this section, except that instead of nonresidential real property, the AB partnership leases from Y solar energy equipment for which an energy credit under section 48 is determined under section 46. Because the shortest recovery period that could be available to the property under section 168 is 5 years, A and B are required under paragraph (b)(2)(ii) of this section to include ratably in gross income over 5 years an amount equal to 50% of the credit determined under section 46 with respect to such property (50% of $3,900/5, or $390, per year for A, and 50% of $7,800/5, or $780, per year for B).

  (ii) The January 1, 2019 lease termination requires A's and B's income tax for 2019 to be increased under section 50(a) by $2,340 and $4,680, respectively (60% of $3,900 and $7,800, respectively). Therefore, the amount of the unrecaptured credit as to A and B is $1,560 and $3,120, respectively (40% of $3,900 and $7,800, respectively). Under paragraph (b)(2)(ii) of this section, the amounts A and B previously included in gross income are $1,170 ($390 for each of 2016, 2017, and 2018) and $2,340 ($780 for each of 2016, 2017, and 2018), respectively. A and B are entitled to a reduction in gross income under paragraph (c)(2) of this section equal to the excess of the total increases in gross income made under paragraph (b)(2)(ii) of this section ($1,170 and $2,340, respectively) over 50% of the amount of the credit that is not recaptured ($780 and $1,560, respectively). Therefore, A and B are entitled to a reduction in gross income in the amount of $390 and $780, respectively, in the taxable year of the lease termination (2019).

  (6) Example 6. (i) The facts are the same as in Example 3 in paragraph (e)(3) of this section, except that on December 1, 2021, A sells its entire interest to C, and on January 1, 2022, the lease between AB partnership and Y terminates. At the time of the lease termination, B is still a partner in the AB partnership. There is no recapture event under section 50(a) because both the lease termination and the disposition of A's interest in the partnership occurred outside of the recapture period.

  (ii) At the time that A sold its interest in the AB partnership to C, A had previously included $500 ($100 for each of 2016-2020) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, A must continue to include the remaining $3,400 (including $100 in 2021) in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, A may irrevocably elect to include the remaining $3,400 in gross income in the taxable year that A sold its entire interest in the AB partnership to C (2021). Pursuant to paragraph (d)(2) of this section, A cannot make this election in the taxable year of the lease termination (2022).

  (iii) At the time of the lease termination, B had previously included $1,200 ($200 for each of 2016-2021) in gross income under paragraph (b)(2) of this section. Under paragraph (b)(2) of this section, B must continue to include the remaining $6,600 required in gross income ratably over the remaining portion of the applicable recovery period of 39 years. Alternatively, under paragraph (d)(1) of this section, B may irrevocably elect to include the remaining $6,600 in gross income in the taxable year of the lease termination (2022).

• Treas. Reg. §1.50-1(f)Applicability date. Show full text ▾ Collapse ▴

  Applicability date. This section applies to property placed in service on or after September 19, 2016.

• Treas. Reg. §1.50-1(i)§1.50-1(i) Show full text ▾ Collapse ▴

  Lessees or ultimate credit claimants required by paragraph (c) of this section to account for the remaining amount required to be included in gross income after accounting for recapture in the taxable year in which the property was disposed of or otherwise ceased to be investment credit property under section 50(a); or

  (ii) Former partners or S corporation shareholders that own no interest, either direct or indirect, in a lessee partnership or S corporation at the time of a lease termination or disposition.

  (3) Manner and time for making election. The election under paragraph (d)(1) of this section is made by including the remaining amount required to be included under this section in gross income in the taxable year of the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation. The election must be made on or before the due date (including any extension of time) of the lessee's income tax return, or, in the case of a partnership or S corporation, the ultimate credit claimant's income tax return for the taxable year in which the lease termination or disposition or the disposition of the ultimate credit claimant's entire interest, either direct or indirect, in a partnership or S corporation occurs.

• Treas. Reg. §1.50-2Recapture of the advanced manufacturing investment credit in the case of certain expansions Show full text ▾ Collapse ▴

  (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 × 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 × $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.

• Treas. Reg. §1.50-2(a)Recapture in connection with certain expansions—(1) In general. Show full text ▾ Collapse ▴

  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.

• Treas. Reg. §1.50-2(b)Definitions. Show full text ▾ Collapse ▴

  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—

• Treas. Reg. §1.50-2(c)Exception from the definition of applicable transaction for the manufacturing of legacy semiconductors—(1) In general. Show full text ▾ Collapse ▴

  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.

• Treas. Reg. §1.50-2(d)Example: Applicable transaction credit claimed. Show full text ▾ Collapse ▴

  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 × 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 × $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.

• Treas. Reg. §1.50-2(e)Applicability date. Show full text ▾ Collapse ▴

  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.

• Treas. Reg. §1.50-2(i)§1.50-2(i) Show full text ▾ Collapse ▴

  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.