---
kind: "range"
citation: "26 C.F.R. §§ 1.48D-3–1.48D-6"
title: "26"
from: "1.48D-3"
to: "1.48D-6"
count: 4
url: "https://uscodex.org/cfr/26/1.48D-3..1.48D-6"
---

# §1.48D-3. Qualified property.

- (a) **In general.** This section provides definitions and rules relating to qualified property for purposes of section 48D of the Code and the [section 48D](/cfr/26/48D.md) regulations.
- (b) **Qualified property.** The term qualified property means tangible depreciable property that is part of, and integral to, the operation of an advanced manufacturing facility and that is either—
  - (1) Constructed, reconstructed, or erected by the taxpayer; or
  - (2) **Acquired by the taxpayer if the original use of such property commences with the taxpayer.**
- (c) **Tangible depreciable property—**
  - (1) **In general.** The term tangible depreciable property means tangible personal property (as defined in [§ 1.48-1(c)](/cfr/26/1.48-1.md?p=c)), other tangible property (as defined in [§ 1.48-1(d)](/cfr/26/1.48-1.md?p=d)), and building and structural components (as defined in [§ 1.48-1(e)](/cfr/26/1.48-1.md?p=e), except as provided in paragraphs [(c)(2)](#c-2) and [(3)](#c-3) of this section) with respect to which depreciation (or amortization in lieu of depreciation) is allowable. The law of a State or local jurisdiction is not controlling for purposes of determining whether property is tangible property for purposes of [section 48D](/cfr/26/48D.md) or the [section 48D](/cfr/26/48D.md) regulations.
  - (2) **Exception.** Pursuant to [section 48D(b)(2)(B)(ii)](/cfr/26/48D.md?p=b-2-B-ii), except as provided in [paragraph (c)(3)](#c-3) of this section, the term tangible depreciable property does not include a building and its structural components, or a portion thereof, used for—
    - (i) Offices;
    - (ii) Administrative services such as human resources or personnel services, payroll services, legal and accounting services, and procurement services;
    - (iii) Sales or distribution functions;
    - (iv) Security services (not including cybersecurity operations); or
    - (v) Any other functions unrelated to manufacturing of semiconductors or semiconductor manufacturing equipment.
  - (3) **Buildings or portions of a building not excluded by section 48D(b)(2)(B)(ii).** Buildings or portions of a building not treated as offices and that are considered related to manufacturing of semiconductors or semiconductor manufacturing equipment include buildings or portions of a building used for:
    - (i) Gowning to enter to and from a cleanroom environment;
    - (ii) Monitoring operations and remote access of equipment;
    - (iii) Functions performed by unit process engineers including developing, monitoring, updating and overseeing individual process recipes running on every tool in the facility to manufacture, measure and test wafers including access to relevant data, data analysis, modifications and updates to the process recipes on the tools;
    - (iv) Functions performed by equipment engineers including overseeing tools to ensure proper operation by accessing data about the tool health and performance remotely adjusting the tool at workstations, and issuing work orders to the equipment and maintenance technicians from the workstations;
    - (v) Functions performed by test engineers including monitoring the electrical test data being collected from the wafers at certain points in their processing;
    - (vi) Functions performed by yield and defect engineers including reviewing inspection data collected from wafers;
    - (vii) Functions performed by metrology engineers including reviewing physical measurement data collected from the wafers;
    - (viii) Functions performed by integration engineers that are responsible for the technology node and the end-to-end wafer process;
    - (ix) Functions performed by facilities engineers including monitoring and controlling facilities systems; and
    - (x) Functions related to central utilities buildings, material handling and ultrapure water generation facilities, and computing (data center).
- (d) **Constructed, reconstructed, or erected by the taxpayer.** Property is considered constructed, reconstructed, or erected by the taxpayer if the work is done for the benefit of the taxpayer in accordance with the taxpayer's specifications.
- (e) **Original use—**
  - (1) **In general.** Except as provided in [paragraph (e)(2)](#e-2) of this section, the term original use means with respect to any property the first use to which the property is put by any taxpayer in connection with a trade or business or for the production of income. Additional capital expenditures paid or incurred by a taxpayer to recondition or rebuild property acquired or owned by the taxpayer satisfy the original use requirement to the extent of the expenditures paid or incurred by a taxpayer. However, a taxpayer's cost to acquire property reconditioned or rebuilt by another taxpayer does not satisfy the original use requirement. Whether property is reconditioned or rebuilt property will be determined based on the facts and circumstances.
  - (2) **Treatment of inventory.** For purposes of [paragraph (e)(1)](#e-1) of this section, if a taxpayer initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the taxpayer's trade or business and subsequently withdraws the property from inventory and uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. If a person initially acquires new property and holds the property primarily for sale to customers in the ordinary course of the person's business and a taxpayer subsequently acquires the property from the person for use primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income, the taxpayer is considered the original user of the property. For purposes of this [paragraph (e)](#e), the original use of the property by the taxpayer commences on the date on which the taxpayer first uses the property primarily in the taxpayer's trade or business or primarily for the taxpayer's production of income.
- (f) **Part of an advanced manufacturing facility—**
  - (1) **In general.** To qualify for the [section 48D](/cfr/26/48D.md) credit, property must be part of the advanced manufacturing facility, as provided in this [paragraph (f)](#f). Property is part of an advanced manufacturing facility if the property is physically located or co-located either at the advanced manufacturing facility, or on a contiguous piece of land to the advanced manufacturing facility. Parcels or tracts of land will be considered contiguous if they possess common boundaries, and would be contiguous but for the interposition of a road, street, railroad, public utility, stream or similar property.
  - (2) **Property that is not located or co-located at an advanced manufacturing facility or on a contiguous piece of land to the advanced manufacturing facility.** Property that is not located or co-located at an advanced manufacturing facility or on a contiguous piece of land to the advanced manufacturing facility may be considered part of the advanced manufacturing facility if the property is owned by the same taxpayer as the entire advanced manufacturing facility, connected to the advanced manufacturing facility (e.g., via pipeline) and the sole purpose, function, and output of the property is dedicated to the operation of the advanced manufacturing facility.
- (g) **Integral to the operation of an advanced manufacturing facility—**
  - (1) **In general.** To qualify for the [section 48D](/cfr/26/48D.md) credit, property must be integral to the operation of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment, both as provided in [§ 1.48D-2](/cfr/26/1.48D-2.md). Property is integral to the operation of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment if such property is used directly in the manufacturing operation, is essential to the completeness of the manufacturing operation, and is not transformed in any material way as a result of the manufacturing operation. Materials, supplies, and other inventoriable items of property that are transformed during the manufacturing of semiconductors or into a unit of semiconductor manufacturing equipment are not considered property integral to the operation of an advanced manufacturing facility. For this purpose, the term transform does not include the normal degradation of components of semiconductor manufacturing equipment. In addition, property such as pavements, parking areas, inherently permanent advertising displays, or inherently permanent outdoor lighting facilities, although used in the operation of a business, ordinarily are not integral to the operation of an advanced manufacturing facility. Thus, for example, all property used by the taxpayer to acquire or transport materials or supplies to the point where the actual manufacturing activity commences (such as docks, railroad tracks, and bridges), or all property (other than materials or supplies) used by the taxpayer during the manufacturing of semiconductors or during the manufacturing of semiconductor manufacturing equipment within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md), would be considered property integral to the operation of an advanced manufacturing facility of an eligible taxpayer. Property is considered integral to the operation of an advanced manufacturing facility of an eligible taxpayer if so used either by the owner of the property or by a lessee of the property.
  - (2) **Vertically integrated manufacturers.** If an advanced manufacturing facility that is engaged in the manufacturing of semiconductors within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md) also conducts vertically integrated activities (for example, producing raw materials and manufacturing, ingots, wafers, and semiconductors), then property integral to the operation of such an advanced manufacturing facility includes only the property used in the manufacturing of semiconductors within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md).
  - (3) **Specific examples of integral property.** Specific examples of property that normally would be integral to the operation of the advanced manufacturing facility of an eligible taxpayer are:
    - (i) Equipment and tools used in the processes of Chemical Vapor Deposition (CVD), and Physical Vapor Deposition (PVD), Atomic Layer deposition (ALD), oxidation, annealing, and epitaxy. Such equipment includes Deposition and thin-film growth equipment, etching equipment, and lithography equipment (including Extreme Ultraviolet Lithography (EUV));
    - (ii) Wet process tools, analytical tools, E-Beam operation tools (to repair masks), mask manufacturing equipment, chemical mechanical polishing equipment, reticle handlers, and stockers;
    - (iii) Inspection and metrology equipment, including scanning electron microscopes, atomic force microscopes, ion milling tools, optical inspection systems, wafer probes and optical scatterometer;
    - (iv) Clean room facilities, including locker and gowning rooms, specialized lighting systems, automated material systems for wafer handling, specialized recirculating air handlers, to maintain the cleanroom free from particles, control temperature and humidity levels, and specialized ceilings comprised of HEPA filters;
    - (v) Cleanroom equipment (including jogs, hand tools, calibration equipment, and temperature pollution monitoring tools) and specialty cleaning equipment;
    - (vi) Electrical power facilities, cooling facilities, chemical supply systems, and wastewater and wastewater treatment systems, including water management, water conservation, and water treatment equipment, materials and technologies;
    - (vii) Electricity distribution equipment including connectors, capacitors, meters and sockets, switchgear, surge arresters and transformers;
    - (viii) Sub-fab levels containing pumps, transformers, abatement systems, ultrapure water systems, uninterruptible power supply, and boilers, pipes, storage systems, wafer routing systems and databases, backup systems, quality assurance equipment, and computer data centers;
    - (ix) Utility level equipment including chillers, systems to handle nitrogen, argon, and other gases, compressor systems, and pipes;
    - (x) Industrial automation and control equipment (including, but not limited to, programmable logic controllers, process controllers, distributed control systems, human machine interface and motor controls and accessories);
    - (xi) Industrial automation communications devices, networks, and software for industrial automation control products and systems including automated material handling systems (AMHS) and advance wafer routing software systems and databases;
    - (xii) Tooling equipment;
    - (xiii) Back-end manufacturing equipment related to assembly, testing, and packaging;
    - (xiv) Photolithography tools;
    - (xv) Photomasks, reticles, pellicle, steppers, scanners, and photoresist related equipment;
    - (xvi) Emulation tools;
    - (xvii) Rapid thermal processing tools (annealing tubs and vacuum ovens), melting laser annealing (MLA) equipment, wafer bonding equipment, physical removal processing tools (flycutter DieSaw and backgrind), and edge seal dispense;
    - (xviii) Site infrastructure including but limited to energy, water, natural gas, backup power generators, transformers, stormwater management and fire protection;
    - (xix) Equipment and installation (wipe-film evaporators);
    - (xx) Chemical and gas delivery systems (piping, storage, and waste systems including hazardous waste);
- (xxi) Bulk chemical purification systems (Liquid N2, Ar, H2, etc.);
- (xxii) HVAC air conditioning and air handling systems, critical cooling water systems and heating systems;
- (xxiii) Wafer stockers with temperature and air quality control;
- (xxiv) Temperature control systems;
- (xxv) Security and monitoring system and devices;
- (xxvi) Failure analysis labs and equipment;
- (xxvii) Quality assurance equipment including incoming goods, in-process inspection, and finished-good inspection;
- (xxviii) Transportation, trolleys and carts that are used to transport wafers or overhead conveyer systems to move the carts;
- (xxxix) Lighting products;
- (xxx) Industrial gas generation and/or handling systems, such as air separation units, including any associated backup and storage equipment;
- (xxxi) Input shaping tooling;
- (xxxii) Crystal formation and coating equipment;
- (xxxiii) Mechanical equipment; and
- (xxxiv) **Polishing equipment.**
  - (4) **Research or storage facilities.** If property, including a building and its structural components, constitutes a research or storage facility and is used in connection with the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment, the property may qualify as integral to the operation of the advanced manufacturing facility under [section 48D(b)(2)(A)(iv)](/cfr/26/48D.md?p=b-2-A-iv). Specific examples of research facilities include research facilities that manufacture semiconductors in connection with research, such as pre-pilot production lines and prototypes, including semiconductor packaging. Specific examples of storage facilities are mineral or chemical storage equipment, gas storage tanks, including high pressure cylinders or specially designed tanks and drums, wastewater storage, and inventory and finished goods warehouses. A research facility that does not manufacture any type of semiconductor, as provided in [§ 1.48D-2(m)](/cfr/26/1.48D-2.md?p=m), or semiconductor manufacturing equipment, as provided in [§ 1.48D-2(o)](/cfr/26/1.48D-2.md?p=o), does not qualify.
  - (5) **Examples.** The following examples illustrate the rules of this [paragraph (g)](#g):
- (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 October 23, 2024.

# §1.48D-4. Advanced manufacturing facility of an eligible taxpayer.

- (a) **In general.** This section provides definitions and rules relating to advanced manufacturing facilities of eligible taxpayers for purposes of section 48D of the Code and the [section 48D](/cfr/26/48D.md) regulations.
- (b) **Advanced manufacturing facility.** For purposes of [section 48D(b)(3)](/cfr/26/48D.md?p=b-3) and this section, the term advanced manufacturing facility means a facility of an eligible taxpayer for which the primary purpose, as determined under [paragraph (c)(1)](#c-1) of this section, is the manufacturing of semiconductors or the manufacturing of semiconductor manufacturing equipment within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md).
- (c) **Primary purpose—**
  - (1) **In general.** The determination of the primary purpose of a facility will be made based on all the facts and circumstances surrounding the construction, reconstruction, or erection of the advanced manufacturing facility of an eligible taxpayer. Facts that may indicate a facility has a primary purpose of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment include plans or other documents for the facility that demonstrate that the facility is designed for the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md). Facts may also include the possession of permits or licenses needed for the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment; and executed contracts to a customer to supply such semiconductors or executed contracts to an advanced manufacturing facility as defined in [paragraph (b)](#b) of this section to supply such semiconductor manufacturing equipment in place either before or within 6 months after the facility is placed in service. A facility has the primary purpose of manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment if more than 50 percent of its potential output, as measured by cost to produce, revenue received in an arm's length transaction, or units produced, constitutes manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment within the meaning of [§ 1.48D-2](/cfr/26/1.48D-2.md). However, property placed in service in a taxable year must still meet the definition of qualified property under [section 48D(b)(2)](/cfr/26/48D.md?p=b-2) and [§ 1.48D-3](/cfr/26/1.48D-3.md) for its basis to be included as part of the qualified investment in the advanced manufacturing facility eligible for the [section 48D](/cfr/26/48D.md) credit. For example, property that is not integral to the operation of an advanced manufacturing facility as provided in [§ 1.48D-3(g)](/cfr/26/1.48D-3.md?p=g) may not be included as a qualified investment in an advanced manufacturing facility.
  - (2) **No primary purpose.** A facility for which the primary purpose is the manufacturing, producing, growing, or extracting of materials or chemicals that are supplied to an advanced manufacturing facility is not a facility for which the primary purpose is the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment. Thus, for example, facilities that exclusively produce semiconductor-grade polysilicon, or produce gases, or that manufacture components or parts, to supply to an advanced manufacturing facility engaged in the manufacturing of semiconductors or manufacturing of semiconductor manufacturing equipment are not facilities for which the primary purpose is the manufacturing of semiconductors or the manufacturing of semiconductor manufacturing equipment.
  - (3) **Examples.** The following examples illustrate the rules of this [paragraph (c)](#c):
- (d) **Applicability date.** This section applies to property that is placed in service after December 31, 2022, and during a taxable year ending on or October 23, 2024.

# §1.48D-5. Beginning of construction.

- (a) **Termination of credit—**
  - (1) **In general.** The credit allowed under section 48D of the Code and the [section 48D](/cfr/26/48D.md) regulations does not apply to property that is part of an advanced manufacturing facility of an eligible taxpayer if the beginning of construction of the property, as defined in [paragraph (a)(2)](#a-2) of this section, begins after December 31, 2026 (the date specified in [section 48D(e)](/cfr/26/48D.md?p=e)).
  - (2) **Property.** For purposes of determining beginning of construction of property under this section, the unit of property is—
    - (i) A single advanced manufacturing facility project as described in [paragraph (a)(3)](#a-3) of this section; or
    - (ii) An item of qualified property (as defined in [§ 1.48D-3(b)](/cfr/26/1.48D-3.md?p=b)).
  - (3) **Single advanced manufacturing facility project—**
    - (i) **In general.** Solely for purposes of determining whether construction of a qualified property has begun for purposes of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations, multiple items of qualified property or advanced manufacturing facilities that are operated as part of a single advanced manufacturing facility project (along with any items of property, such as clean rooms, chemical delivery systems, chemical storage facilities, temperature control systems, robotic handling systems, semiconductor manufacturing equipment, and tooling equipment (such as for deposition and etching) that are integral to the operation of the single advanced manufacturing facility project) will be treated as a single item of qualified property. Multiple qualified properties or advanced manufacturing facilities will be treated as operated as part of a single advanced manufacturing facility project, if at any point during construction of the multiple qualified properties or advanced manufacturing facilities, they are owned by a single taxpayer (subject to the related taxpayer rule provided in [paragraph (a)(3)(ii)](#a-3-ii) of this section) and any two or more of the following factors are present—
      - (A) The properties or facilities are owned by a single legal entity;
      - (B) The properties or facilities are constructed on contiguous pieces of land;
      - (C) The properties or facilities are described in a common supply contract or other type of relevant contract;
      - (D) The properties or facilities share a common electricity and/or water supply;
      - (E) The properties or facilities are described in one or more common environmental or other regulatory permits;
      - (F) The properties or facilities were constructed pursuant to a single master construction contract; or
      - (G) The construction of the properties or facilities was financed pursuant to the same loan agreement or other financing arrangement.
    - (ii) **Related taxpayers—**
      - (A) **Definition.** For purposes of this section, the term related taxpayers means members of a group of trades or businesses that are under common control (as defined in [§ 1.52-1(b)](/cfr/26/1.52-1.md?p=b)).
      - (B) **Related taxpayer rule.** For purposes of this section, related taxpayers are treated as one taxpayer in determining whether multiple qualified properties or advanced manufacturing facilities will be treated as operated as part of a single advanced manufacturing facility project.
    - (iii) **Example.** A single taxpayer is developing Project C, a project that will consist of 3 advanced manufacturing facilities constructed on the same campus. Project C will share a common electricity supply, and semiconductors manufactured by Project C will be sold to Buyer through a single supply contract. In 2023, for 1 of the 3 advanced manufacturing facilities, the taxpayer installs deposition equipment. Thereafter, the taxpayer completes the construction of all 3 advanced manufacturing facilities pursuant to a continuous program of construction. For purposes of the [section 48D](/cfr/26/48D.md) credit, Project C is a single advanced manufacturing facility project that will be treated as a single property, and the taxpayer performed physical work of a significant nature that constitutes the beginning of construction of Project C in 2023.
    - (iv) **Timing of single advanced manufacturing facility project determination.** Whether multiple properties or advanced manufacturing facilities are operated as part of a single advanced manufacturing facility project and are treated as a single item of property for purposes of the beginning of construction requirement of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations is determined in the taxable year during which the last of the multiple properties or facilities is placed in service.
    - (v) **Disaggregation.** Multiple properties or advanced manufacturing facilities that are operated as part of a single advanced manufacturing facility project and treated as a single item of qualified property under this [paragraph (a)(3)](#a-3) for purposes of determining whether construction of a qualified property or advanced manufacturing facility has begun may be disaggregated and treated as separate items of qualified property for purposes of determining whether a separate advanced manufacturing facility or item of qualified property satisfies the continuity safe harbor (as defined in [paragraph (e)](#e) of this section). Those disaggregated separate advanced manufacturing facilities or items of qualified property that are placed in service prior to the continuity safe harbor deadline will be eligible for the continuity safe harbor. The remaining disaggregated separate items of property or facilities may satisfy the continuity requirement under a facts and circumstances determination.
    - (vi) **Example.** A single taxpayer is developing Project D, a project that will consist of 4 separate properties. Project D will use the same water supply and each property within Project D will be constructed pursuant to a single master construction contract. Under the single project rule provided in this [paragraph (a)(3)](#a-3), Project D is a single project that will be treated as a single property. In 2024, for 3 of the 4 separate properties, the taxpayer installs property integral to the operation of the advanced manufacturing facility. Accordingly, the taxpayer has performed physical work of a significant nature that constitutes the beginning of construction of Project D for purposes of [section 48D(e)](/cfr/26/48D.md?p=e). Thereafter, on the last day of the 10-year continuity safe harbor period, the taxpayer places in service only 3 of the 4 separate properties within Project D. The taxpayer disaggregates Project D under [paragraph (a)(3)(v)](#a-3-v) of this section and accordingly, only 3 of the 4 separate properties satisfy the continuity safe harbor. For the remaining 1 separate property, the taxpayer may demonstrate that it satisfies the continuity requirement provided in [paragraph (e)](#e) of this section based on the facts and circumstances, to enable the taxpayer to claim the [section 48D](/cfr/26/48D.md) credit.
- (b) **Beginning of construction—**
  - (1) **In general.** For purposes of [section 48D](/cfr/26/48D.md), the [section 48D](/cfr/26/48D.md) regulations, and section 107(f)(1) of the CHIPS Act of 2022, Public Law 117-167, div. A, 136 Stat. 1366, 1399 (August 9, 2022), a taxpayer may establish that construction of an item of property (as defined in [paragraph (a)(2)](#a-2) of this section) of the taxpayer begins under either:
    - (i) The physical work test of [paragraph (c)](#c) of this section; or
    - (ii) **The five percent safe harbor of paragraph (d) of this section.**
  - (2) **Continuity requirement. See—** [paragraph (e)](#e) of this section for the continuity requirement applicable for purposes of the physical work test and the five percent safe harbor, which must be demonstrated either by maintaining continuous construction (as defined in [paragraph (e)(2)](#e-2) of this section) or continuous efforts (as defined in [paragraph (e)(3)](#e-3) of this section).
- (c) **Physical work test—**
  - (1) **In general.** Under the physical work test, construction of an item of property begins when physical work of a significant nature begins, provided thereafter that the taxpayer maintains continuous construction or continuous efforts. This test focuses on the nature of the work performed, not the amount of the costs. Assuming the work performed is of a significant nature, there is no fixed minimum amount of work, monetary or percentage threshold required to satisfy the physical work test.
  - (2) **Physical work of significant nature—**
    - (i) **In general.** Work performed by the taxpayer and work performed for the taxpayer by other persons under a binding written contract that is entered into prior to the manufacture, construction, or production of the property for use by the taxpayer in the taxpayer's trade or business of manufacturing semiconductors or semiconductor manufacturing equipment is taken into account in determining whether physical work of a significant nature has begun. Both on-site and off-site work (performed either by the taxpayer or by another person under a binding written contract) may be taken into account for purposes of demonstrating that physical work of a significant nature has begun. A written contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding written contract, see § [1.168(k)-1(b)(4)(ii)(A)](/cfr/26/1.168..1.md) through [(D)](/cfr/26/1.168.md?p=D). Specific examples of on-site physical work of a significant nature include the excavation for the foundation and the pouring of the concrete pads of the foundation. Specific examples of off-site physical work of a significant nature include the manufacture of semiconductor manufacturing equipment but only if the manufacturer's work is done pursuant to a binding written contract and the semiconductor manufacturing equipment is not held in the manufacturer's inventory.
    - (ii) **Exceptions.** Physical work of significant nature does not include preliminary activities, including but not limited to planning or designing, securing financing, exploring, researching, obtaining permits, licensing, conducting surveys, environmental and engineering studies, or clearing a site, even if the cost of those preliminary activities is properly included in the depreciable basis of the property. Physical work of a significant nature also does not include work (performed either by the taxpayer or by another person under a binding written contract) to produce property that is either in existing inventory or is normally held in inventory by a vendor.
- (d) **Five percent safe harbor—**
  - (1) **In general.** Construction of a property will be considered as having begun if:
    - (i) A taxpayer pays or incurs (within the meaning of § [1.461-1(a)(1)](/cfr/26/1.461-1.md?p=a-1) and [(2)](/cfr/26/1.461-1.md?p=a-2)) five percent or more of the total cost of the property; and
    - (ii) **Thereafter, the taxpayer maintains continuous construction or continuous efforts.**
  - (2) **Costs.** All costs properly included in the basis of the property are taken into account to determine whether the five percent safe harbor has been met. For property that is manufactured, constructed, or produced for the taxpayer by another person under a binding written contract with the taxpayer, costs incurred with respect to the property by the other person before the property is provided to the taxpayer are deemed incurred by the taxpayer when the costs are incurred by the other person under the principles of [section 461](/cfr/26/461.md) of the Code.
  - (3) **Cost overruns—**
    - (i) **Single advanced manufacturing facility project.** If the total cost of a property that is a single advanced manufacturing facility project comprised of multiple properties (as described in [paragraph (a)(3)](#a-3) of this section) exceeds its anticipated total cost such that the amount the taxpayer actually paid or incurred with respect to the single advanced manufacturing facility project to establish the beginning of its construction under [paragraph (b)(1)(ii)](#b-1-ii) of this section is less than five percent of the total cost at the time it is placed in service, the five percent safe harbor is not fully satisfied. However, the five percent safe harbor will be satisfied with respect to some, but not all, of the separate properties or facilities (as described in [paragraph (a)(3)](#a-3) of this section) comprising the single advanced manufacturing facility project, as long as the total aggregate cost of those properties is not more than twenty times greater than the amount the taxpayer paid or incurred.
    - (ii) **Example.** In 2023, taxpayer incurs $300,000 in costs to construct Project A, comprised of six advanced manufacturing facilities that will be operated as a single project. Taxpayer anticipates that each advanced manufacturing facility will cost $1,000,000 for a total cost for Project A of $6,000,000. Thereafter, the taxpayer makes continuous efforts to advance towards completion of Project A. The taxpayer timely places Project A in service in 2025. In 2025, the actual total cost of Project A amounts to $7,500,000, with each advanced manufacturing facility costing $1,250,000. Although the taxpayer did not pay or incur five percent of the actual total cost of Project A in 2023, the taxpayer will be treated as satisfying the Five Percent Safe Harbor in 2023 with respect to four of the advanced manufacturing facilities, as their actual total cost of $5,000,000 is not more than twenty times greater than the $300,000 in costs incurred by the taxpayer. The taxpayer will not be treated as satisfying the five percent safe harbor in 2023 with respect to two of the properties. Thus, the taxpayer may claim the [section 48D](/cfr/26/48D.md) credit based on $5,000,000, the cost of four of the properties.
    - (iii) **Single property.** If the total cost of a single property, which is not part of a single advanced manufacturing facility project comprised of multiple properties or facilities (as described in [paragraph (a)(3)](#a-3) of this section) and cannot be separated into multiple properties or facilities, exceeds its anticipated total cost so that the amount a taxpayer actually paid or incurred with respect to the single property as of an earlier year is less than five percent of the total cost of the single property at the time it is placed in service, then the taxpayer will not satisfy the five percent safe harbor with respect to any portion of the single property in such earlier year.
    - (iv) **Example.** In 2023, a taxpayer incurs $250,000 in costs to construct Project B, a single property. The taxpayer anticipates that the total cost of Project B will be $5,000,000. Thereafter, the taxpayer makes continuous efforts to advance towards completion of Project B. The taxpayer places Project B in service in a later year. At that time, its actual total cost amounts to $6,000,000. Because Project B is a single property that is not a single project comprised of multiple properties, the taxpayer will not satisfy the five percent safe harbor as of 2023. However, if the construction of Project B satisfies the requirements of the physical work test by also beginning physical work of a significant nature in 2024, the taxpayer may be able to demonstrate that construction began in 2024.
- (e) **Continuity requirement—**
  - (1) **In general.** For purposes of the physical work test and five percent safe harbor, taxpayers must satisfy the continuity requirement by demonstrating either continuous construction or continuous efforts regardless of whether the physical work test or the five percent safe harbor was used to establish the beginning of construction. Whether a taxpayer meets the continuity requirement under either test is determined by the relevant facts and circumstances. The Commissioner will closely scrutinize a property and may determine that the beginning of construction is not satisfied with respect to a property if a taxpayer does not meet the continuity requirement.
  - (2) **Continuous construction.** The term continuous construction means a continuous program of construction that involves continuing physical work of a significant nature. Whether a taxpayer maintains a continuous program of construction to satisfy the continuity requirement will be determined based on all the relevant facts and circumstances.
  - (3) **Continuous efforts.** The term continuous efforts means continuous efforts to advance towards completion of a property to satisfy the continuity requirement. Whether a taxpayer makes continuous efforts to advance towards completion of a property will be determined by the relevant facts and circumstances. Facts and circumstances indicating continuous efforts to advance towards completion of a property may include:
    - (i) **Paying or incurring additional amounts included in the total cost of the property.** A taxpayer is considered to meet this factor for a taxable year in which it pays or incurs (within the meaning of § [1.461-1(a)(1)](/cfr/26/1.461-1.md?p=a-1) and [(2)](/cfr/26/1.461-1.md?p=a-2)) five percent or more of the total cost of the property each calendar year after the calendar year during which construction of the property began for purposes of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations;
    - (ii) Entering into binding written contracts for the manufacture, construction, or production of the property or for future work to construct the property;
    - (iii) Obtaining necessary permits; and
    - (iv) **Performing physical work of a significant nature.**
  - (4) **Excusable disruptions to continuous construction and continuous efforts tests—**
    - (i) **In general.** Certain disruptions in a taxpayer's continuous construction or continuous efforts to advance towards completion of a property that are beyond the taxpayer's control will not be considered as indicating that a taxpayer has failed to satisfy the continuity requirement.
    - (ii) **Effect of excusable disruptions on continuity safe harbor.** The excusable disruptions provided in this [paragraph (e)(4)](#e-4) will not extend the continuity safe harbor deadline that is provided in [paragraph (e)(6)](#e-6) of this section.
    - (iii) **Non-exclusive list of construction disruptions.** This [paragraph (e)(4)(iii)](#e-4-iii) provides a non-exclusive list of construction disruptions that will not be considered as indicating that a taxpayer has failed to satisfy the continuity requirement:
      - (A) **Delays due to severe weather conditions.**
      - (B) **Delays due to natural disasters.**
      - (C) Delays in obtaining permits or licenses from Federal, Indian Tribal, State, territorial, or local governments. Such delays include delays in obtaining air emissions, water discharge, or hazardous waste management permits or chemical handling licenses from the Environmental Protection Agency (EPA) or another environmental protection authority. Such delays also include delays as a result of the review process under State, Tribal, local, or Federal environmental laws, for example, a review under the National Environmental Policy Act, as well as delays in obtaining construction permits.
      - (D) Delays at the written request of a Federal, State, local, or Indian Tribal government regarding matters of public health, public safety, security, or similar concerns, including hazardous chemical transport.
      - (E) Delays related to electrical or water supply, such as those relating to the completion of construction on a distribution line or water supply line that may be associated with a project's electrical and water needs, whether constructed by the eligible taxpayer that is the owner of the advanced manufacturing facility, a governmental entity, or another person.
      - (F) **Delays in the manufacture of custom components or equipment.**
      - (G) **Delays due to the inability to obtain specialized equipment of limited availability.**
      - (H) **Delays due to supply shortages.**
      - (I) **Delays due to the presence of endangered species.**
      - (J) **Financing delays.**
      - (K) **Delays due to specialized labor shortages or labor stoppages.**
  - (5) **Timing of excusable disruption determination.** In the case of a single advanced manufacturing facility project comprised of a single property, whether an excusable disruption has occurred for purposes of the beginning of construction requirement of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations must be determined in the taxable year during which the property is placed in service. In the case of a single advanced manufacturing facility project comprised of multiple properties or facilities, whether an excusable disruption has occurred for purposes of the beginning of construction requirement of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations must be determined in the taxable year during which the last of multiple properties or facilities is placed in service.
  - (6) **Continuity safe harbor—**
    - (i) **In general.** A taxpayer will be deemed to satisfy the continuity requirement provided the property is placed in service no more than 10 calendar years after the calendar year during which construction of the property began for purposes of [section 48D](/cfr/26/48D.md) and the [section 48D](/cfr/26/48D.md) regulations.
    - (ii) **Example.** If construction begins on a property on January 15, 2023, and the property is placed in service by December 31, 2033, the property will be considered to satisfy the continuity safe harbor. If the property is not placed in service before January 1, 2034, whether the continuity requirement was satisfied will be determined based on all the relevant facts and circumstances.
- (f) **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.

# §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)](#b) of this section, may make an elective payment election with respect to any [section 48D](/cfr/26/48D.md) 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)](#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](/cfr/26/48D.md) credit is determined equal to the amount of the [section 48D](/cfr/26/48D.md) 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)](/cfr/26/48D.md?p=d-1), and this [paragraph (a)(1)](#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)](#d) of this section for special rules regarding elective payment elections under [section 48D(d)](/cfr/26/48D.md?p=d) applicable to partnerships and S corporations.
  - (3) **Irrevocable.** Any election under [section 48D(d)(1)](/cfr/26/48D.md?p=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](/cfr/26/48D.md) 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)](#b) is a condition that must be successfully completed prior to making an elective payment election under [section 48D(d)(1)](/cfr/26/48D.md?p=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](/cfr/26/48D.md) 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)](#b) and provided the registration number for each qualified investment in each advanced manufacturing facility on its Form 3800, General Business Credit (or its successor), and on any required completed source form(s) with respect to the qualified investment, 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 §§ [601.601](/cfr/26/601.601.md) and [601.602](/cfr/26/601.602.md) 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](/cfr/26/48D.md) 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 [§ 1.1502-77](/cfr/26/1.1502-77.md) (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)](#b) and receive a registration number under [paragraph (b)(7)](#b-7) 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;
    - (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](/cfr/26/48D.md) 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)](#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) 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, or the date of the last progress expenditure made during the taxable year;
      - (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](/cfr/26/48D.md) 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 qualified investments in the advanced manufacturing facility or the 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)](#b) for the taxable year. The IRS will treat an elective payment election as ineffective with respect to a [section 48D](/cfr/26/48D.md) credit determined with respect to a qualified investment in an advanced manufacturing facility for which the taxpayer does not include a valid registration number that was assigned to that particular taxpayer during the pre-registration process on the annual return.
- (c) **Time and manner of election—**
  - (1) **In general.** Any elective payment election under [section 48D(d)(1)](/cfr/26/48D.md?p=d-1) and this section with respect to any [section 48D](/cfr/26/48D.md) 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](/cfr/26/48D.md) 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 and on any required source credit form(s) 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 regulations under [section 48D](/cfr/26/48D.md) and has not made an applicable transaction as defined under regulations under [section 50](/cfr/26/50.md) during the taxable year that the qualified property is placed in service; andThe taxpayer claiming to be an eligible taxpayer is not a foreign entity of concern within the meaning of regulations under [section 48D](/cfr/26/48D.md) and has not made an applicable transaction as defined under regulations under [section 50](/cfr/26/50.md) 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)](/cfr/26/48D.md?p=d-3) and paragraphs [(d)(2)(ii)(B)](#d-2-ii-B) and [(C)](#d-2-ii-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 for the first time on an amended return, withdrawn on an amended return, or made or withdrawn by filing an administrative adjustment request under section 6227 of the Code, although a numerical error with respect to a properly claimed elective payment election may be corrected on an amended return or by filing an administrative adjustment request under [section 6227](/cfr/26/6227.md) if necessary. There is no relief available under [§ 301.9100-1](/cfr/26/301.9100-1.md) or [§ 301.9100-3](/cfr/26/301.9100-3.md) of this chapter for an elective payment election that is not timely filed; however, relief under [§ 301.9100-2(b)](/cfr/26/301.9100-2.md?p=b) may apply.
- (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)](/cfr/26/48D.md?p=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)](#b) and [(c)](#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](/cfr/26/48D.md) 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)](#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](/cfr/26/705.md) and [1366](/cfr/26/1366.md) of the Code.
    - (iv) **Partner's distributive share—**
      - (A) **In general.** Except as provided in paragraphs [(d)(2)(iv)(B)](#d-2-iv-B) and [(C)](#d-2-iv-C) of this section, 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 regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership for such taxable year.
      - (B) **Interim rule.** If a partnership meets the requirements of [paragraph (d)(2)(iv)(C)](#d-2-iv-C) of this section, a partner's distributive share of the tax exempt income resulting from a [section 48D(d)](/cfr/26/48D.md?p=d) elective payment election made by the partnership with respect to property held directly by the partnership, may be determined in accordance with the basic principles for partnership income allocations as described in [§ 1.704-1(b)(1)(i)](/cfr/26/1.704-1.md?p=b-1-i) instead of in accordance with the partner's distributive share of the otherwise applicable [section 48D](/cfr/26/48D.md) credits as determined under §§ [1.704-1(b)(4)(ii)](/cfr/26/1.704-1.md?p=b-4-ii) and [1.46-3(f)](/cfr/26/1.46-3.md?p=f).
      - (C) **Partnership requirements.** A partnership meets the requirements of this [paragraph (d)(2)(iv)(C)](#d-2-iv-C) if its partnership agreement is a written binding contract that was entered into after December 31, 2021, and before June 22, 2023, and it was formed for the purpose of owning and operating an advanced manufacturing facility or qualified property.
    - (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](/cfr/26/48D.md) credit is determined and is based on the shareholder's otherwise apportioned basis in qualified property under regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating an S corporation shareholder's pro-rata share of basis in qualified property placed in service by the S corporation 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—**
    - (i) **In general.** If a partnership (upper-tier partnership) is a direct or indirect partner of a partnership that makes an elective payment election (lower-tier partnership) and directly or indirectly receives an allocation of tax exempt income resulting from the elective payment election made by the lower-tier 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 regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by a partnership for such taxable year.
    - (ii) **Electing partnerships in tiered structures; interim rule.** If a lower-tier partnership determined its partners' distributive shares of the tax exempt income described in [paragraph (d)(2)(iii)](#d-2-iii) of this section using the interim rule described in [paragraph (d)(2)(iv)(B)](#d-2-iv-B) of this section, an upper-tier partnership that is a direct or indirect partner in such lower-tier partnership may determine its partners' distributive shares of the tax exempt income in accordance with the basic principles for partnership income allocations as described in [§ 1.704-1(b)(1)(i)](/cfr/26/1.704-1.md?p=b-1-i).
  - (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)](/cfr/26/469.md?p=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)](/cfr/26/469.md?p=c-1-B).
  - (6) **Determination of amount of the section 48D credit—**
    - (i) **In general.** In determining the amount of the [section 48D](/cfr/26/48D.md) credit that will result in a payment under [paragraph (d)(2)(ii)(A)](#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)](/cfr/26/38.md?p=c)) as if an elective payment election were not made. Because a partnership or S corporation is not subject to sections [38(b)](/cfr/26/38.md?p=b) and [(c)](/cfr/26/38.md?p=c) and [469](/cfr/26/469.md) (that is, those sections apply at the partner or shareholder level), the amount of the credit determined by a partnership or S corporation is not subject to limitation by those sections. Because the [section 48D](/cfr/26/48D.md) credit is an investment credit under [section 46](/cfr/26/46.md), sections [49](/cfr/26/49.md) and [50](/cfr/26/50.md) 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](/cfr/26/48D.md) 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](/cfr/26/49.md) 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](/cfr/26/49.md), then the amount of the [section 48D](/cfr/26/48D.md) 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](/cfr/26/49.md), 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](/cfr/26/49.md) limitation with respect to any qualified property. Changes to at-risk amounts under [section 49](/cfr/26/49.md) 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](/cfr/26/48D.md) 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)](#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](/cfr/26/49.md) 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](/cfr/26/48D.md) credit is determined. If there is an increase in nonqualified nonrecourse financing to a partner, any adjustment under the rules of [section 49(b)](/cfr/26/49.md?p=b) is calculated based on the partner's share of the basis (or cost) of the qualified property to which the [section 48D](/cfr/26/48D.md) credit was determined in accordance with regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership. If there is an increase in nonqualified nonrecourse financing to a shareholder, any adjustment under the rules of [section 49(b)](/cfr/26/49.md?p=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](/cfr/26/48D.md) credit was determined in accordance with regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating an S corporation shareholder's pro-rata share of basis in qualified property placed in service by the S corporation. 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](/cfr/26/49.md), and any resulting credit is not eligible for an elective payment election under [section 48D(d)](/cfr/26/48D.md?p=d).
  - (7) **Partnerships subject to subchapter C of chapter 63 of the Code.** See [§ 301.6241-7(j)](/cfr/26/301.6241-7.md?p=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.** P is a calendar-year partnership consisting of partners A and B, each 50 percent 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)](#b) of this section. In 2024, P places in service qualified property that 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)](#c) of this section. On its Form 1065, P properly determines that the amount of [section 48D](/cfr/26/48D.md) 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](/cfr/26/48D.md) credit to zero. However, for other purposes of the Code, the $100,000 [section 48D](/cfr/26/48D.md) credit is deemed to have been allowed to P for 2024. P does not qualify for the interim rule described in [paragraph (d)(2)(iv)(B)](#d-2-iv-B) of this section. The $100,000 is treated as tax exempt income for purposes of [section 705](/cfr/26/705.md), 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 regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of allocating a partner's share of its basis in qualified property placed in service by the partnership 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)](/cfr/26/50.md?p=c-5) and [§ 1.704-1(b)(2)(iv)(j)](/cfr/26/1.704-1.md?p=b-2-iv-j). See [paragraph (g)(2)](#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](/cfr/26/705.md), as of date P placed in service the qualified property in 2024.
- (e) **Denial of double benefit—**
  - (1) **In general.** In the case of a taxpayer making an election under [section 48D(d)](/cfr/26/48D.md?p=d) and this section with respect to any [section 48D](/cfr/26/48D.md) credit determined under [section 48D(a)](/cfr/26/48D.md?p=a) and regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of determining the [section 48D](/cfr/26/48D.md) credit, 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)](#e-2) and [(3)](#e-3) of this section explain the application of the [section 48D(d)(3)](/cfr/26/48D.md?p=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)](/cfr/26/48D.md?p=d-3) to a partnership or S corporation is provided in paragraphs [(d)(2)(ii)(B)](#d-2-ii-B) and [(C)](#d-2-ii-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)](/cfr/26/48D.md?p=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 of the Code (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](/cfr/26/38.md).
    - (ii) Compute the allowed amount of the GBC carryforwards carried to the taxable year under [section 38(a)(1)](/cfr/26/38.md?p=a-1) plus the amount of the current year GBCs (including the current [section 48D](/cfr/26/48D.md) credit) for the taxable year under section [38(a)(2)](/cfr/26/38.md?p=a-2) and [(b)](/cfr/26/38.md?p=a-b). Because the election is made on an original return for the taxable year for which the [section 48D](/cfr/26/48D.md) credit is determined, any business credit carrybacks are not considered when determining the elective payment amount for the taxable year.
    - (iii) Calculate the net elective payment amount for the [section 48D](/cfr/26/48D.md) credit, which equals the lesser of the [section 48D](/cfr/26/48D.md) credit for which an elective payment election is made or the excess (if any, otherwise the excess is zero) of the total GBC credits described in [paragraph (e)(2)(ii)](#e-2-ii) of this section over the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on amount of tax under [section 38](/cfr/26/38.md) computed in [paragraph (e)(2)(i)](#e-2-i) of this section. Treat the net elective payment amount of the [section 48D](/cfr/26/48D.md) credit for which an elective payment election is made as a payment against the tax imposed by subtitle A for the taxable year with respect to which such credit is determined.
    - (iv) Excluding the net elective payment amount determined under [paragraph (e)(2)(iii)](#e-2-iii) of this section, but including any portion of the [section 48D](/cfr/26/48D.md) credit that is not part of the net elective payment amount, compute the allowed amount of GBC carryforwards carried to the taxable year plus the amount of current year GBCs allowed for the taxable year under [section 38](/cfr/26/38.md) (including, for clarity purposes, the ordering rules in [section 38(d)](/cfr/26/38.md?p=d)). Apply these GBCs against the tax liability computed in [paragraph (e)(2)(i)](#e-2-i) of this section.
    - (v) Reduce the [section 48D](/cfr/26/48D.md) credit for which an elective payment election is made by the net elective payment amount, as provided in [paragraph (e)(2)(iii)](#e-2-iii) of this section, and by the amount (if any) allowed as a GBC under [section 38](/cfr/26/38.md) for the taxable year, as provided in [paragraph (e)(2)(iv)](#e-2-iv) of this section, which results in the [section 48D](/cfr/26/48D.md) credit being reduced to zero.
  - (3) **Use of the section 48D credit for other purposes.** The full amount of the [section 48D](/cfr/26/48D.md) 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](/cfr/26/50.md) and the calculation of tax, calculation of the amount of any underpayment of estimated tax under sections 6654 and 6655 of the Code, and the addition to tax for the failure to pay under section 6651(a)(2) of the Code (if any).
  - (4) **Examples.** The following examples illustrate the rules of this [paragraph (e)](#e).
    - (i) **Example 1.** Z Corp is a calendar-year C corporation. Z Corp places in service qualified property that 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 (with extension) its 2024 Form 1120 on October 15, 2025, properly making the elective payment election with respect to the [section 48D](/cfr/26/48D.md) credit earned with respect to the qualified property 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)](#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](/cfr/26/48D.md) credit determined with respect to the qualified property (its GBC for the taxable year) is $100,000 (see [paragraph (e)(2)(ii)](#e-2-ii) of this section). Under [paragraph (e)(2)(iii)](#e-2-iii) of this section, the net elective payment amount is $0, so the [section 48D](/cfr/26/48D.md) credit is considered a credit that reduces Z Corp's tax liability to $400,000 under [paragraph (e)(2)(iv)](#e-2-iv) of this section. Z Corp pays its $400,000 tax liability on October 15, 2025. Under [paragraph (e)(2)(v)](#e-2-v) of this section, the $100,000 of [section 48D](/cfr/26/48D.md) credit is reduced by the $100,000 of [section 48D](/cfr/26/48D.md) credit claimed as GBCs for the taxable year, which results in the [section 48D](/cfr/26/48D.md) credit being reduced to zero. However, the $100,000 of the current year [section 48D](/cfr/26/48D.md) credit is deemed to have been allowed to Z Corp for 2024 for all other purposes of the Code ([paragraph (e)(3)](#e-3) of this section). Because Z Corp paid its tax liability after the original due date for the filing of its Form 1120, Z Corp will owe a failure to pay penalty under [section 6651(a)(2)](/cfr/26/6651.md?p=a-2) and interest. Z Corp may also owe a penalty for failure to pay estimated income tax under [section 6655](/cfr/26/6655.md).
    - (ii) **Example 2.** Assume the same facts as in [paragraph (e)(4)(i)](#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)](#e-2-i) of this section) and calculates its limitation of GBC under [section 38(c)](/cfr/26/38.md?p=c) (simplified) is $60,000 ([paragraph (e)(2)(i)](#e-2-i) of this section), and Z Corp timely files its Form 1120 on April 15 instead of October 15. Under [paragraph (e)(2)(iii)](#e-2-iii) of this section, the net elective payment amount is $40,000 (lesser of $100,000 [section 48D](/cfr/26/48D.md) credit or $100,000 of total GBC credits described in [paragraph (e)(2)(ii)](#e-2-ii) of this section minus $60,000 of [section 38(c)](/cfr/26/38.md?p=c) limitation). Under [paragraph (e)(2)(iv)](#e-2-iv) of this section, Z Corp uses $60,000 of its $100,000 of [section 48D](/cfr/26/48D.md) credit against its tax liability. Z Corp reduces the [section 48D](/cfr/26/48D.md) credit by the $40,000 net elective payment amount determined in [paragraph (e)(2)(iii)](#e-2-iii) of this section and by the $60,000 [section 48D](/cfr/26/48D.md) credit claimed against tax in [paragraph (e)(2)(iv)](#e-2-iv) of this section, resulting in the credit being reduced to zero ([paragraph (e)(2)(v)](#e-2-v) of this section). When the IRS processes Z Corp's 2024 Form 1120, the net elective payment amount results in a $20,000 refund to Z Corp (after applying $20,000 of the $40,000 net elective payment amount to cover Z Corp's tax shown on the return). However, for other purposes of the Code, the $100,000 [section 48D](/cfr/26/48D.md) credit is deemed to have been allowed to Z Corp for 2024 ([paragraph (e)(3)](#e-3) 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](/cfr/26/6655.md) 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.
    - (iii) **Example 3.** X Corp is a calendar-year C corporation. X Corp places in service qualified property that is part of an advanced manufacturing facility in June of 2025. X Corp completes the pre-filing registration in accordance with this section and receives a registration number for the qualified property. In 2026, X Corp timely files its 2025 return (without extension), calculating its federal income tax before GBCs of $125,000 and that its limitation of GBC under [section 38(c)](/cfr/26/38.md?p=c) (simplified) is $100,000 ([paragraph (e)(2)(i)](#e-2-i) of this section). X Corp attaches Form 3468 to claim a current [section 48D](/cfr/26/48D.md) credit of $50,000. X Corp also attaches Form 5884 to claim a current work opportunity tax credit (WOTC) of $50,000. X Corp also has business credit carryforwards of $25,000, which together with the 48D credit and WOTC results in a total of $125,000 of GBC for the taxable year ([paragraph (e)(2)(ii)](#e-2-ii) of this section). Under [paragraph (e)(2)(iii)](#e-2-iii) of this section, the net elective payment amount is $25,000. Under [paragraph (e)(2)(iv)](#e-2-iv) of this section, including using the ordering rules in [section 38(d)](/cfr/26/38.md?p=d), X Corp is allowed $25,000 of the carryforwards, $25,000 of [section 48D](/cfr/26/48D.md) credit (as its [section 46](/cfr/26/46.md) investment credit) plus $50,000 of WOTC against net income tax, as defined under [section 38(c)(1)(B)](/cfr/26/38.md?p=c-1-B). The $25,000 of unused [section 48D](/cfr/26/48D.md) credit is the net elective payment amount that results in a $25,000 payment against tax by X Corp ([paragraph (e)(2)(iii)](#e-2-iii) of this section). On its return, X Corp shows net tax liability of $25,000 ($125,000−$100,000 allowed GBC) and the net elective payment of $25,000 which X Corp applied to net tax liability, resulting in zero tax owed on the return. Under [paragraph (e)(2)(v)](#e-2-v) of this section, X Corp's [section 48D](/cfr/26/48D.md) credit is reduced by the $25,000 of the net elective payment amount, as well as by the $25,000 of [section 48D](/cfr/26/48D.md) credit claimed as a GBC for the taxable year, resulting in the $50,000 of [section 48D](/cfr/26/48D.md) credit being reduced to zero. However, for all other purposes of the Code, the $50,000 of [section 48D](/cfr/26/48D.md) credit is deemed to have been allowed to X Corp for 2025 ([paragraph (e)(3)](#e-3) of this section). Even though X Corp did not owe tax after applying the net elective payment amount against its net tax liability, X Corp may be subject to the [section 6655](/cfr/26/6655.md) 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.
    - (iv) **Example 4.** Assume the same facts as in [paragraph (e)(4)(iii)](#e-4-iii) of this section (Example 3), except X Corp filed the return on a timely filed extension after the due date of the return (without extensions). Even though X Corp did not owe tax after applying the net elective payment amount against its net tax liability, X Corp may be subject to the [section 6651(a)(2)](/cfr/26/6651.md?p=a-2) penalty for failure to pay tax.
- (f) **Excessive payment—**
  - (1) **In general.** Except as provided in [paragraph (f)(2)](#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)](/cfr/26/48D.md?p=d-1) and [paragraph (a)](#a) of this section, or any payment made pursuant to [section 48D(d)(2)(A)(i)(I)](/cfr/26/48D.md?p=d-2-A-i-I) and [paragraph (d)](#d) of this section, with respect to any property, which amount the Commissioner determines constitutes an excessive payment as defined in [paragraph (f)(3)](#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)](#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)](/cfr/26/48D.md?p=d) and this [paragraph (f)](#f), the term excessive payment means, with respect to any property for which an election is made under [section 48D(d)](/cfr/26/48D.md?p=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)(2)(A)(i)(I)](/cfr/26/48D.md?p=d-2-A-i-I) and [paragraph (d)](#d) of this section, or any payment made by the Commissioner pursuant to [section 48D(d)(2)(A)(i)(l)](/cfr/26/48D.md?p=d-2-A-i-l) and [paragraph (d)](#d) of this section, with respect to such property for such taxable year; over
    - (ii) The amount of the [section 48D](/cfr/26/48D.md) credit which, without application of [section 48D(d)](/cfr/26/48D.md?p=d) and this section, would be otherwise allowable (determined without regard to [section 38(c)](/cfr/26/38.md?p=c)) under [section 48D(a)](/cfr/26/48D.md?p=a) and the [section 48D](/cfr/26/48D.md) regulations with respect to such property for such taxable year.
  - (4) **Example.** A Corp is a calendar-year C corporation. A Corp places in service qualified property that is part of Facility A, an advanced manufacturing facility in 2023. A Corp properly completes the pre-filing registration in accordance with [paragraph (b)](#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 on Form 3800 and the relevant source credit form and otherwise complying with [paragraph (c)](#c) of this section. On its return, A Corp calculates that the amount of the [section 48D](/cfr/26/48D.md) credit with respect to the qualified property is $100,000 and that the net elective payment amount is $100,000. A Corp receives a refund in the amount of $100,000. In 2025, the IRS determines that the amount of the [section 48D](/cfr/26/48D.md) credit properly allowable to A Corp in 2023 with respect to Facility A (as determined under regulations under [section 48D](/cfr/26/48D.md) that apply for purposes of determining the amount of the [section 48D](/cfr/26/48D.md) credit and without regard to the limitation based on tax in [section 38(c)](/cfr/26/38.md?p=c)) was $60,000. A Corp 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 A Corp is increased in the amount of $48,000 ($40,000 + (20% * $40,000 = $8,000)).
- (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)](#a) and [(d)](#d) of this section.
  - (2) **Basis adjustment—**
    - (i) **In general.** If a [section 48D](/cfr/26/48D.md) credit is determined with respect to property for which a taxpayer makes an election under [section 48D(d)(1)](/cfr/26/48D.md?p=d-1), then the adjusted basis of the property must be reduced by the amount of the [section 48D](/cfr/26/48D.md) credit determined for which the taxpayer made an election under [section 48D(d)(1)](/cfr/26/48D.md?p=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)](/cfr/26/48D.md?p=d-1), then the adjusted basis of the property must 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)](/cfr/26/48D.md?p=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, must be appropriately adjusted pursuant to [section 50(c)(5)](/cfr/26/50.md?p=c-5) to take into account adjustments made under [paragraph (g)(2)(ii)](#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 dates—**
  - (1) **In general.** Except as provided in [paragraph (h)(2)](#h-2) of this section, this section applies to taxable years ending on or after March 11, 2024.
  - (2) **Prior taxable years.** For taxable years ending before March 11, 2024 taxpayers may choose to apply the rules of this section to property that is placed in service after December 31, 2022, provided the taxpayers apply the rules in their entirety and in a consistent manner.