Announcement 2023-16 — Internal Revenue Bulletin 2023-27

I.R.B. 854 (May 15, 2023), provides that public hearings will be conducted in person, although the IRS will continue to provide a telephonic option for individuals

who wish to attend or testify at a hearing by telephone. Any telephonic hearing will be made accessible to people with disabilities.

A public hearing has been scheduled for August 23, 2023, beginning at 10:00 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC, unless no outlines are received by August 14, 2023. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts.

The rules of 26 CFR 601.601(a) (3) apply to the hearing. Persons who wish to comment by telephone at the hearing must submit written or electronic comments and an outline of the topics to be discussed as well as the time to be devoted to each topic by August 14, 2023, as prescribed in the preamble under the ADDRESSES section.

A period of ten minutes will be allocated to each person for making comments. After the deadline for receiving outlines has passed, the IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available at https://www.regulations.gov, search IRS and REG-101610-23. Copies of the agenda will also be available by emailing a request to publichearings@irs. gov . Please put “REG-101610-23 Agenda Request” in the subject line of the email.

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list . The subject line of the email must contain the regulation number REG101610-23 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-101610-23.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs. gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-101610-23 and the language TESTIFY Telephonically. For

example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-101610-23.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichear- ings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-101610-23 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing In Person for REG-101610-23. Requests to attend the public hearing must be received by 5:00 p.m. EST on August 21, 2023. Individuals who want to attend the public hearing by telephone without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG101610-23 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-10161023. Requests to attend the public hearing must be received by 5:00 p.m. EST on August 21, 2023.

Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs.gov (preferred) or by telephone at (202) 3176901 (not a toll-free number) at least August 18, 2023.

Statement of Availability of IRS Documents

IRS notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov .

Drafting Information

The principal authors of these proposed regulations are James Holmes and Jeremy Milton, Office of the Associate

Bulletin No. 2023–27 1179 July 3, 2023

Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order for §§ 1.6418-0 through 1.6418-5 to read in part as follows: Authority: 26 U.S.C. 7805 * * * Sections 1.6418-0 through 1.6418-5 also issued under 26 U.S.C. 6418(g)(1) and (h).

Par. 2. Section 1.706-4 is amended as follows:

Redesignate paragraphs (e)(2)(ix) through (xi) as paragraphs (e)(2)(x) through (xii).
Add new paragraph (e)(2)(ix).
Revise the heading of paragraph (g).
Redesignate the text of paragraph (g) as paragraph (g)(1).
Add paragraph (g)(2). The addition and revisions read as follows:

§1.706-4 Determination of distributive share when a partner’s interest varies.

(e) * * * (2) * * * (ix) Any specified credit portion transferred pursuant to section 6418 and §§1.6418-1 through 1.6418-5;

(g) Applicability date . * * * (2) Paragraph (e)(2)(ix) of this section applies to taxable years ending on or after date of publication of final rule.

Par. 3. Sections 1.6418-0 through 1.6418-5 are added to read as follows: Sec.

1.6418-0 Table of contents. 1.6418-1 Transfer of eligible credits. 1.6418-2 Rules for making transfer elections. 1.6418-3 Additional rules for partnerships and S corporations. 1.6418-4 Additional information and registration. 1.6418-5 Special rules.

§1.6418-0 Table of contents.

This section lists the captions contained in §§1.6418-1 through 1.6418-5.

§1.6418-1 Transfer of eligible credits.

(a) Transfer of eligible credits. (b) Eligible taxpayer. (c) Eligible credit. (d) Eligible credit property. (e) Guidance. (f) Paid in cash. (g) Section 6418 regulations. (h) Specified credit portion. (i) Statutory references. (j) Transfer election. (k) Transferee partnership. (l) Transferee S corporation. (m) Transferee taxpayer. (n) Transferor partnership. (o) Transferor S corporation. (p) Transferred specified credit portion. (q) U.S. territory. (r) Applicability date.

§1.6418-2 Rules for making transfer elections.

§1.6418-3 Additional rules for partnerships and S corporations.

(a) Rules applicable to both partnerships and S corporations.

(b) Rules applicable to partnerships. (c) Rules applicable to S corporations. (d) Transfer election by a partnership or S corporation.

(e) Examples. (f) Applicability date.

§1.6418-4 Additional information and registration.

(a) Pre-filing registration and election. (b) Pre-filing registration requirements. (c) Registration number. (d) Applicability date.

§1.6418-5 Special rules.

(a) Transfer election. (b) Manner and due date of making a transfer election.

(d) Determining the eligible credit. (e) Treatment of payments made in connection with a transfer election.

(f) Transferee taxpayer’s treatment of eligible credit.

(g) Applicability date.

(a) Excessive credit transfer tax imposed.

(b) Excessive credit transfer defined. (c) Basis reduction under section 50(c). (d) Notification and impact of recapture under section 50(a) or 49(b).

(e) Notification and impact of recapture under section 45Q(f)(4).

(f) Impact of an ineffective transfer election by an eligible taxpayer.

(g) Carryback and carryforward. (h) Applicability date.

§1.6418-1 Transfer of eligible credits.

(a) Transfer of eligible credits . An eligible taxpayer may make a transfer election under §1.6418-2(a) to transfer any specified portion of an eligible credit determined with respect to any eligible credit property of such eligible taxpayer for any taxable year to a transferee taxpayer in accordance with section 6418 of the Code and the section 6418 regulations (defined in paragraph (g) of this section). Paragraphs (b) through (q) of this section provide definitions. See §1.6418-2 for rules and procedures under which all transfer elections must be made, limitations to making transfer elections, the treatment of payments made in connection with transfer elections, and the treatment of eligible credits transferred to transferee taxpayers.

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See §1.6418-3 for special rules pertaining to transfer elections made by partnerships or S corporations. See §1.6418-4 for pre-filing registration requirements and other information required to make any transfer election effective. See §1.6418-5 for special rules related to the imposition of tax on excessive credit transfers, basis reductions, required notifications and impacts of the recapture of transferred credits, and rules regarding carrybacks and carryforwards.

(b) Eligible taxpayer . The term eligible taxpayer means any taxpayer (as defined in section 7701(a)(14) of the Code), other than one described in section 6417(d)(1) (A) and §1.6417-1(b).

(c) Eligible credit —(1) In general . The term eligible credit is a credit described in paragraph (c)(2) of this section determined for a taxable year with respect to a single eligible credit property of an eligible taxpayer but does not include any business credit carryforward or business credit carryback determined under section 39 of the Code. (2) Separately determined credit amounts. The amount of any credit described in this paragraph (c)(2) is the entire amount of the credit separately determined with respect to each single eligible credit property of the eligible taxpayer and includes any bonus credit amounts described in paragraph (c)(3) of this section determined with respect to that single eligible credit property. The eligible credits described in this paragraph (c)(2) are:

(i) Alternative fuel vehicle refueling property . So much of the credit for alternative fuel vehicle refueling property allowed under section 30C of the Code that, pursuant to section 30C(d)(1), is treated as a credit listed in section 38(b) of the Code (section 30C credit).

(ii) Renewable electricity production . The renewable electricity production credit determined under section 45(a) of the Code (section 45 credit).

(iii) Carbon oxide sequestration . The credit for carbon oxide sequestration determined under section 45Q(a) of the Code (section 45Q credit).

(iv) Zero-emission nuclear power production . The zero-emission nuclear

power production credit determined under section 45U(a) of the Code (section 45U credit).

(v) Clean hydrogen production . The clean hydrogen production credit determined under section 45V(a) of the Code (section 45V credit).

(vi) Advanced manufacturing produc- tion . The advanced manufacturing production credit determined under section 45X(a) of the Code (section 45X credit). (vii) Clean electricity production . The clean electricity production credit determined under section 45Y(a) of the Code (section 45Y credit).

(viii) Clean fuel production . The clean fuel production credit determined under section 45Z(a) of the Code (section 45Z credit).

(ix) Energy . The energy credit determined under section 48 of the Code (section 48 credit).

(x) Qualifying advance energy project . The qualifying advanced energy project credit determined under section 48C of the Code (section 48C credit).

(xi) Clean electricity . The clean electricity investment credit determined under section 48E of the Code (section 48E credit).

(3) Bonus credit amounts . The bonus credit amounts described in this paragraph (c)(3) are:

(i) In the case of a section 30C credit, the increased credit amounts for which the requirements under section 30C(g)(2)(A) and (3) are satisfied.

(ii) In the case of a section 45 credit, the increased credit amounts for which the requirements under section 45(b)(7)(A) (8), (9), and (11) are satisfied.

(iii) In the case of a section 45Q credit, the increased credit amounts for which the requirements under section 45Q(h)(3) and (4) are satisfied.

(iv) In the case of a section 45U credit, the increased credit amount for which the requirements under section 45U(d)(2) are satisfied.

(v) In the case of a section 45V credit, the increased credit amounts for which the requirements under section 45V(e)(3) and (4) are satisfied.

(vi) In the case of a section 45Y credit, the increased credit amounts for which

the requirements under section 45Y(g)(7), (9), (10), and (11) are satisfied.

(vii) In the case of a section 45Z credit, the increased credit amounts for which the requirements under section 45Z(f)(6) and (7) are satisfied.

(viii) In the case of a section 48 credit, the increased credit amounts for which the requirements under section 48(a)(10), (11), (12), (14), and (e) are satisfied.

(ix) In the case of a section 48C credit, the increased credit amounts for which the requirements under section 48C(e)(5) and (6) are satisfied.

(x) In the case of a section 48E credit, the increased credit amounts for which the requirements under section 48E(a)(3)(A), (B), (d)(3), (d)(4), and (h) are satisfied.

(d) Eligible credit property . The term eligible credit property means each of the units of property of an eligible taxpayer described in paragraphs (d)(1) through (11) of this section with respect to which the amount of an eligible credit is determined:

(1) In the case of a section 30C credit, a qualified alternative fuel vehicle refueling property described in section 30C(c).

(2) In the case of a section 45 credit, a qualified facility described in section 45(d).

(3) In the case of a section 45Q credit, a single process train of carbon capture equipment described in §1.45Q-2(c)(3).

(4) In the case of a section 45U credit, a qualified nuclear power facility described in section 45U(b)(1).

(5) In the case of a section 45V credit, a qualified clean hydrogen production facil- ity described in section 45V(c)(3).

(6) In the case of a section 45X credit, a facility that produces eligible components, as described in guidance under sections 48C and 45X. (7) In the case of a section 45Y credit, a qualified facility described in section 45Y(b)(1). (8) In the case of a section 45Z credit, a qualified facility described in section 45Z(d)(4). (9)(i) In general . In the case of a section 48 credit and except as provided in paragraph (d)(9)(ii) of this section, an energy property described in section 48.

(ii) Pre-filing registration and elec- tions . At the option of an eligible taxpayer,

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and to the extent consistently applied for purposes of the pre-filing registration requirements of §1.6418-4 and the election requirements of §§1.6418-2 through 1.6418-3, an energy project as described in section 48(a)(9)(A)(ii) and defined in guidance.

(10) In the case of a section 48C credit, an eligible property described in section 48C(c)(2). (11) In the case of a section 48E credit, a qualified facility as defined in section 48E(b)(3) or, in the case of a section 48E credit relating to a qualified investment with respect to energy storage technology, an energy storage technology described in section 48E(c)(2).

(e) Guidance. 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 and 601.602 of this chapter.

(f) Paid in cash . The term paid in cash means a payment in United States dollars that—

(1) Is made by cash, check, cashier’s check, money order, wire transfer, automated clearing house (ACH) transfer, or other bank transfer of immediately available funds;

(2) Is made within the period beginning on the first day of the eligible taxpayer’s taxable year during which a specified credit portion is determined and ending on the due date for completing a transfer election statement (as provided in §1.6418-2(b)(5)(iii)); and

(3) May include a transferee taxpayer’s contractual commitment to purchase eligible credits with United States dollars in advance of the date a specified credit portion is transferred to such transferee taxpayer if all payments of United States dollars are made in a manner described in paragraph (f)(1) of this section during the time period described in paragraph (f)(2) of this section.

(g) Section 6418 regulations . The term section 6418 regulations means this section and §§1.6418-2 through 1.6418-5.

(h) Specified credit portion . The term specified credit portion means a proportionate share (including all) of an eligible credit determined with respect to a single eligible credit property of the eligible taxpayer that is specified in a transfer

election. A specified credit portion of an eligible credit must reflect a proportionate share of each bonus credit amount that is taken into account in calculating the entire amount of eligible credit determined with respect to a single eligible credit property.

(i) Statutory references —(1) Chapter 1 . The term chapter 1 means chapter 1 of the Code.

(2) Code. The term Code means the Internal Revenue Code .

(3) Subchapter K . The term subchapter K means subchapter K of chapter 1.

(4) Subtitle A. The term subtitle A means subtitle A of the Code.

(j) Transfer election . The term transfer election means an election under section 6418(a) of the Code to transfer to a transferee taxpayer a specified portion of an eligible credit determined with respect to an eligible credit property in accordance with the section 6418 regulations.

(k) Transferee partnership . The term transferee partnership means a partnership for Federal income tax purposes that is a transferee taxpayer.

(l) Transferee S corporation . The term transferee S corporation means an S corporation within the meaning of section 1361(a) that is a transferee taxpayer. (m) Transferee taxpayer . The term trans- feree taxpayer means any taxpayer that is not related (within the meaning of section 267(b) or 707(b)(1) of the Code) to the eligible taxpayer making the transfer election to which an eligible taxpayer transfers a specified credit portion of an eligible credit.

(n) Transferor partnership . The term transferor partnership means a partnership for Federal income tax purposes that is an eligible taxpayer that makes a transfer election.

(o) Transferor S corporation . The term transferor S corporation means an S corporation within the meaning of section 1361(a) that is an eligible taxpayer that makes a transfer election.

(p) Transferred specified credit por- tion . The term transferred specified credit portion means the specified credit portion that is transferred from an eligible taxpayer to a transferee taxpayer pursuant to a transfer election.

(q) U.S. territory . The term U.S. terri- tory means the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands,

American Samoa, and the Commonwealth of the Northern Mariana Islands.

(r) Applicability date . This section applies to taxable years ending on or after date of publication of final rule.

§1.6418-2 Rules for making transfer elections.

(a) Transfer election —(1) In general . An eligible taxpayer can make a transfer election as provided in this section. If a valid transfer election is made by an eligible taxpayer for any taxable year, the transferee taxpayer specified in such election (and not the eligible taxpayer) is treated as the taxpayer for purposes of the Code with respect to the specified credit portion. This paragraph (a) provides rules on the number of transfers permitted, rules for determining the eligible taxpayer in certain ownership situations, and rules describing circumstances where no transfer election is allowed. Paragraph (b) of this section provides specific rules regarding the scope, manner, and timing of a transfer election. Paragraph (c) of this section provides rules regarding limitations applicable to transfer elections. Paragraph (d) of this section provides rules regarding an eligible taxpayer’s determination of an eligible credit. Paragraph (e) of this section provides the treatment of payments in connection with a transfer election. Paragraph (f) of this section provides rules regarding a transferee taxpayer’s treatment of an eligible credit following a transfer.

(2) Multiple transfer elections permit- ted . An eligible taxpayer may make multiple transfer elections to transfer one or more specified credit portion(s) to multiple transferee taxpayers, provided that the aggregate amount of specified credit portions transferred with respect to any single eligible credit property does not exceed the amount of the eligible credit determined with respect to the eligible credit property.

(3) Transfer election in certain owner- ship situations —(i) Disregarded entities . If an eligible taxpayer is the sole owner (directly or indirectly) of an entity that is disregarded as separate from such eligible taxpayer for Federal income tax purposes and such entity directly holds an eligible

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credit property, the eligible taxpayer may make a transfer election in the manner provided in this section with respect to any eligible credit determined with respect to such eligible credit property.

(ii) Undivided ownership interests . If an eligible taxpayer is a co-owner of an eligible credit property through an arrangement properly treated as a tenancy-in-common for Federal income tax purposes, or through an organization that has made a valid election under section 761(a) of the Code, then the eligible taxpayer’s undivided ownership share of the eligible credit property will be treated for purposes of section 6418 as a separate eligible credit property owned by such eligible taxpayer, and the eligible taxpayer may make a transfer election in the manner provided in this section for any eligible credit(s) determined with respect to such eligible credit property.

(iii) Members of a consolidated group . A member of a consolidated group is required to make a transfer election in the manner provided in this section to transfer any eligible credit determined with respect to the member. —

(iv) Partnerships and S corporations. A partnership or S corporation that determines an eligible credit with respect to any eligible credit property held directly by such partnership or S corporation may make a transfer election in the manner provided in §1.6418-3(d) with respect to eligible credits determined with respect to such eligible credit property.

(4) Circumstances where no transfer election can be made —(i) Prohibition on election or transfer with respect to prog- ress expenditures . No transfer election can be made with respect to any amount of an eligible credit that is allowed for progress expenditures pursuant to rules similar to the rules of section 46(c)(4) and (d) (as in effect on the day before the enactment of the Revenue Reconciliation Act of 1990).

(ii) No election allowed when non- cash consideration . No transfer election is allowed when an eligible taxpayer receives any consideration other than cash (as defined in §1.6418-1(f)) in connection with the transfer of a specified credit portion.

(iii) No election allowed when eligi- ble credits not determined with respect to taxpayer . No transfer election is allowed

for eligible credits that are not determined with respect to an eligible taxpayer as described in paragraph (d) of this section. For example, a section 45Q credit allowable to an eligible taxpayer because of an election made under section 45Q(f)(3) (B), or a section 48 credit allowable to an eligible taxpayer because of an election made under section 50(d)(5) and §1.484, although described in §1.6418-1(c)(2), is not an eligible credit that can be transferred by the taxpayer because such credit is not determined with respect to the eligible taxpayer.

(b) Manner and due date of making a transfer election —(1) In general. An eligible taxpayer must make a transfer election to transfer a specified credit portion of an eligible credit on the basis of a single eligible credit property. For example, an eligible taxpayer that determines eligible credits with respect to two eligible credit properties would need to make a separate transfer election with respect to any specified credit portion of the eligible credit determined with respect to each eligible credit property. Any transfer election must be consistent with the eligible taxpayer’s pre-filing registration under §1.6418-4.

(2) Specific rules for certain eligi- ble credits . In the case of any section 45 credit, section 45Q credit, section 45V credit, or section 45Y credit that is an eligible credit, the rules in paragraphs (b)(2) (i) and (ii) of this section apply.

(i) Separate eligible credit property . A transfer election must be made separately with respect to each eligible credit property described in §1.6418-1(d)(2), (3), (5), and (7), as applicable, for which an eligible credit is determined.

(ii) Time period . A transfer election must be made for each taxable year an eligible taxpayer elects to transfer specified credit portions with respect to such an eligible credit property during the 10-year period beginning on the date such eligible credit property was originally placed in service (or, in the case of a section 45Q credit, for each taxable year during the 12-year period beginning on the date the single process train of carbon capture equipment was originally placed in service).

(3) Manner of making a valid transfer election . A transfer election is made by

an eligible taxpayer on the basis of each specified credit portion with respect to a single eligible credit property that is transferred to a transferee taxpayer. To make a valid transfer election, an eligible taxpayer as part of filing a return (or a return for a short year within the meaning of section 443 of the Code (short year return)), must include the following—

(i) A properly completed relevant source credit form for the eligible credit (such as Form 7207, Advanced Manufacturing Production Credit, if making a transfer election for a section 45X credit) for the taxable year that the eligible credit was determined;

(ii) A properly completed Form 3800, General Business Credit (or its successor), including reductions necessary because of the transferred eligible credit as required by the form and instructions and the registration number received during the required pre-filing registration (as described in §1.6418-4) related to the eligible credit property with respect to which a transferred eligible credit was determined;

(iii) A schedule attached to the Form 3800 (or its successor) showing the amount of eligible credit transferred for each eligible credit property (such as for a section 45X election, the relevant lines that include the eligible credit property reported on Form 7207), except as otherwise provided in guidance;

(iv) A transfer election statement as described in paragraph (b)(5) of this section; and

(v) Any other information related to the election specified in guidance.

(4) Due date and original return requirement of a transfer election . A transfer election by an eligible taxpayer with respect to a specified portion of an eligible credit must be made on an original return not later than the due date (including extensions of time) for the original return of the eligible taxpayer for the taxable year for which the eligible credit is determined. No transfer election may be made or revised on an amended return or by filing an administrative adjustment request under section 6227 of the Code. There is no late-election relief available under §§ 301.9100-1 through 301.9100-3 of this chapter for a transfer election that is not timely filed.

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(5) Transfer election statement —(i) In general . A transfer election statement is a written document that describes the transfer of a specified credit portion between an eligible taxpayer and transferee taxpayer. An eligible taxpayer and transferee taxpayer must each attach a transfer election statement to their respective return as required under paragraphs (b)(3)(iv) and (f)(4)(ii) of this section, unless otherwise provided in guidance. An eligible taxpayer and transferee taxpayer can use any document (such as a purchase and sale agreement) that meets the conditions in paragraph (b)(5)(ii) of this section but must label the document a “Transfer Election Statement” when attaching to a return. The information required in paragraph (b)(5)(ii) of this section does not otherwise limit any other information that the eligible taxpayer and transferee taxpayer may agree to provide in connection with the transfer of any specified credit portion. The statement must be signed under penalties of perjury by an individual with authority to legally bind the eligible taxpayer. The statement must also include the written consent of an individual with authority to legally bind the transferee taxpayer.

(ii) Information required in transfer election statement . A transfer election statement must, at a minimum, include each of the following:

(A) Name, address, and taxpayer identification number of the transferee taxpayer and the eligible taxpayer. If the transferee taxpayer or eligible taxpayer is a member of a consolidated group (as defined in §1.1502-1), then only include information for the group member that is the transferee taxpayer or eligible taxpayer (if different from the return filer).

(B) A statement that provides the necessary information and amounts to allow the transferee taxpayer to take into account the specified credit portion with respect to the eligible credit property, including—

( 1 ) A description of the eligible credit (for example, advanced manufacturing production credit for a section 45X transfer election), the total amount of the credit determined with respect to the eligible credit property, and the amount of the specified credit portion;

( 2 ) The taxable year of the eligible taxpayer and the first taxable year in which

the specified credit portion will be taken into account by the transferee taxpayer;

( 3 ) The amount(s) of the cash consideration and date(s) on which paid by the transferee taxpayer; and

( 4 ) The registration number related to the eligible credit property.

(C) Attestation that the eligible taxpayer (or any member of its consolidated group) is not related to the transferee taxpayer (or any member of its consolidated group) within the meaning of section 267(b) or 707(b)(1)). (D) A statement or representation from the eligible taxpayer that it has or will comply with all requirements of section 6418, the section 6418 regulations, and the provisions of the Code applicable to the eligible credit, including, for example, any requirements for bonus credit amounts described in §1.6418-1(c)(3) (if applicable).

(E) A statement or representation from the eligible taxpayer and the transferee taxpayer acknowledging the notification of recapture requirements under section 6418(g)(3) and the section 6418 regulations (if applicable).

(F) A statement or representation from the eligible taxpayer that the eligible taxpayer has provided the required minimum documentation (as described in paragraph (b)(5)(iv) of this section) to the transferee taxpayer.

(iii) Timing of transfer election state- ment . A transfer election statement can be completed at any time after the eligible taxpayer and transferee taxpayer have sufficient information to meet the requirements of paragraph (b)(5)(ii) of this section, but the transfer election statement cannot be completed for any year after the earlier of:

(A) The filing of the eligible taxpayer’s return for the taxable year for which the specified credit portion is determined with respect to the eligible taxpayer; or

(B) The filing of the return of the transferee taxpayer for the year in which the specified credit portion is taken into account.

(iv) Required minimum documenta- tion . Required minimum documentation is the minimum documentation that the eligible taxpayer is required to provide to a transferee taxpayer. This documentation consists of—

(A) Information that validates the existence of the eligible credit property,

which could include evidence prepared by a third party (such as a county board or other governmental entity, a utility, or an insurance provider);

(B) If applicable, documentation substantiating that the eligible taxpayer has satisfied the requirements to include any bonus credit amounts (as defined in §1.6418-1(c)(3)) in the eligible credit that was part of the transferred specified credit portion; and

(C) Evidence of the eligible taxpayer’s qualifying costs in the case of a transfer of an eligible credit that is part of the investment credit or the amount of qualifying production activities and sales amounts, as relevant, in the case of a transfer of an eligible credit that is a production credit.

(v) Transferee recordkeeping require- ment . Consistent with §1.6001-1(e), the transferee taxpayer must retain the required minimum documentation provided by the eligible taxpayer as long as the contents thereof may become material in the administration of any internal revenue law.

(c) Limitations after a transfer elec- tion is made —(1) Irrevocable . A transfer election with respect to a specified credit portion is irrevocable.

(2) No additional transfers . A specified credit portion may only be transferred pursuant to a transfer election once. A transferee taxpayer may not make a transfer election of any specified credit portion transferred to the transferee taxpayer.

(d) Determining the eligible credit —(1) In general . An eligible taxpayer may only transfer eligible credits determined with respect to the eligible taxpayer (paragraph (a)(4) of this section disallows transfer elections in other situations). For an eligible credit to be determined with respect to an eligible taxpayer, the eligible taxpayer must own the underlying eligible credit property or, if ownership is not required, otherwise conduct the activities giving rise to the underlying eligible credit. All rules that relate to the determination of the eligible credit, such as the rules in sections 49 and 50(b) of the Code, apply to the eligible taxpayer and therefore can limit the amount of eligible credit determined with respect to an eligible credit property that can be transferred. Rules relating to the amount of an eligible credit that is allowed

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eligible credit, and the average transfer price of the eligible credit between unrelated parties is $80 paid in cash for $100 of the eligible credit. Taxpayer A is engaged in a transaction where it is undercharging for services to Customer B to avoid recognizing $20 of gross income. This transaction is subject to recharacterization under the anti-abuse rule in paragraph (e)(4) of this section, and Taxpayer A will be treated as transferring $100 of the eligible credit for $80, and have $20 of gross income from the services provided to Customer B.

(iii) Example 2 . Taxpayer C, an eligible taxpayer, generates $100 of an eligible credit with respect to an eligible credit property in the course of its trade or business. Taxpayer C also sells property to customers. Taxpayer C offers Customer D, a transferee taxpayer that can deduct the purchase of property, the opportunity to receive the $100 of eligible credit for $20 while purchasing Taxpayer C’s property for $80. Taxpayer C normally charges $20 for the same property without the transfer of the eligible credit, and the average transfer price of the eligible credit between unrelated parties is $80 paid in cash for $100 of the eligible credit. Taxpayer C is willing to accept the higher price for the property because Taxpayer C has a net operating loss carryover to offset any taxable income from the transaction. This transaction is subject to recharacterization under the anti-abuse rule under paragraph (e)(4) of this section, and Taxpayer C will be treated as selling the property for $20 and transferring $100 of the eligible credit for $80, and Customer D will have a $20 deduction related to the purchase of the property instead of $80.

(f) Transferee taxpayer’s treatment of eligible credit —(1) Taxable year in which credit taken into account . In the case of any specified credit portion transferred to a transferee taxpayer pursuant to a transfer election under this section, the transferee taxpayer takes the specified credit portion into account in the transferee taxpayer’s first taxable year ending with or ending after the taxable year of the eligible taxpayer with respect to which the eligible credit was determined. Thus, to the extent the taxable years of an eligible taxpayer and a transferee taxpayer end on the same date, the transferee taxpayer will take the specified credit portion into account in that taxable year. To the extent the taxable years of an eligible taxpayer and a transferee taxpayer end on different dates, the transferee taxpayer will take the specified credit portion into account in the transferee taxpayer’s first taxable year that ends after the taxable year of the eligible taxpayer.

(2) No gross income for a transferee taxpayer when claiming a transferred specified credit portion . A transferee taxpayer does not have gross income when claiming a transferred specified credit

to be claimed by an eligible taxpayer, such as the rules in section 38(c) or 469 of the Code, do not limit the eligible credit determined, but do apply to a transferee taxpayer as described in paragraph (f)(3) of this section.

(2) Application of section 49 at-risk rules to determination of eligible cred- its for partnerships and S corporations . Any amount of eligible credit determined with respect to investment credit property held directly by a transferor partnership or transferor S corporation that is eligible credit property (eligible investment credit property) must be determined by the partnership or S corporation taking into account the section 49 at-risk rules at the partner or shareholder level as of the close of the taxable year in which the eligible investment credit property is placed in service. Thus, if the credit base of an eligible investment credit property is limited to a partner or S corporation shareholder by section 49, then the amount of the eligible credit determined by the transferor partnership or transferor S corporation is also limited. A transferor partnership or transferor S corporation that transfers any specified credit portion with respect to an eligible investment credit property must request from each of its partners or shareholders, respectively, that is subject to section 49, the amount of such partner’s or shareholder’s nonqualified nonrecourse financing with respect to the eligible investment credit property as of the close of the taxable year in which the property is placed in service. Additionally, the transferor partnership or transferor S corporation must attach to its tax return for the taxable year in which the eligible investment credit property is placed in service, the amount of each partner’s or shareholder’s section 49 limitation with respect to any specified credit portion transferred with respect to the eligible investment credit property. Changes to at-risk amounts under section 49 for partners or S corporation shareholders after the close of the taxable year in which the eligible investment credit property is placed in service do not impact the eligible credit determined by the transferor partnership or transferor S corporation, but do impact the partner(s) or S corporation shareholder(s) as described in §1.6418-3(a)(6)(ii).

(e) Treatment of payments made in connection with a transfer election —(1) In general . An amount paid by a transferee taxpayer to an eligible taxpayer is in connection with a transfer election with respect to a specified credit portion only if it is paid in cash (as defined in §1.64181(f)), directly relates to the specified credit portion, and is not described in §1.64185(a)(3) (describing payments related to an excessive credit transfer).

(2) Not includible in gross income . Any amount paid to an eligible taxpayer that is described in paragraph (e)(1) of this section is not includible in the gross income of the eligible taxpayer.

(3) Not deductible . No deduction is allowed under any provision of the Code with respect to any amount paid by a transferee taxpayer that is described in paragraph (e)(1) of this section.

(4) Anti-abuse rule —(i) In general . A transfer election of any specified credit portion, and therefore the transfer of that specified credit portion to a transferee taxpayer, may be disallowed, or the Federal income tax consequences of any transaction(s) effecting such a transfer may be recharacterized, in circumstances where the parties to the transaction have engaged in the transaction or a series of transactions with the principal purpose of avoiding any Federal tax liability beyond the intent of section 6418. An amount of cash paid by a transferee taxpayer will not be considered as paid in connection with the transfer of a specified credit portion under paragraph (e)(1) of this section if a principal purpose of a transaction or series of transactions is to allow an eligible taxpayer to avoid gross income. Conversely, an amount of cash paid by a transferee taxpayer will be considered paid in connection with the transfer of a specified credit portion under paragraph (e)(1) of this section if a principal purpose of a transaction or series of transactions is to increase a Federal income tax deduction of a transferee taxpayer.

(ii) Example 1 . Taxpayer A, an eligible taxpayer, generates $100 of an eligible credit with respect to an eligible credit property in the course of its trade or business. Taxpayer A also provides services to customers. Taxpayer A offers Customer B, a transferee taxpayer that cannot deduct the cost of the services, the opportunity to be transferred $100 of eligible credit for $100 while receiving Taxpayer A’s services for free. Taxpayer A normally charges $20 for the same services without the purchase of the

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portion even if the amount of cash paid to the eligible taxpayer was less than the amount of the transferred specified credit portion, assuming all other requirements of section 6418 are met. For example, a transferee taxpayer who paid $9X for $10X of a specified credit portion that the transferee taxpayer then claims on its return does not result in the $1X difference being included in the gross income of the transferee taxpayer.

(3) Transferee treated as the eligible taxpayer— (i) In general . A transferee taxpayer (and not the eligible taxpayer) is treated as the taxpayer for purposes of the Code with respect to the transferred specified credit portion. An eligible taxpayer must apply the rules necessary to determine the amount of an eligible credit prior to making the transfer election for a specified credit portion, and therefore a transferee taxpayer does not re-apply rules that relate to a determination of an eligible credit, such as the rules in section 49 or 50(b). However, a transferee taxpayer must apply rules that relate to computing the amount of the specified credit portion that is allowed to be claimed in the taxable year by the transferee taxpayer, such as the rules in section 38 or 469, as applicable.

(ii) Application of section 469 . A specified credit portion transferred to a transferee taxpayer is treated as determined in connection with the conduct of a trade or business and, if applicable, such transferred specified credit portion is subject to the rules in section 469. In applying section 469, a transferee taxpayer is not considered to own an interest in the eligible taxpayer’s trade or business at the time the work was done (as required for material participation under §1.469-5(f)(1)) and cannot change the characterization of the transferee taxpayer’s participation (or lack thereof) in the eligible taxpayer’s trade or business by using any of the grouping rules under §1.469-4(c).

(4) Transferee taxpayer requirements to take into account a transferred speci- fied credit portion . In order for a transferee taxpayer to take into account in a taxable year (as described in paragraph (f)(1) of this section) a specified credit portion that was transferred by an eligible taxpayer, as part of filing a return (or short year return), an amended return, or a request for an administrative adjustment under section

6227 of the Code, the transferee taxpayer must include the following—

(i) A properly completed Form 3800, General Business Credit (or its successor), to take into account the transferred specified credit portion as a current general business credit, and including all registration number(s) related to the transferred specified credit portion;

(ii) The transfer election statement described in paragraph (b)(5) of this section attached to the return; and

(iii) Any other information related to the transfer election specified in guidance.

(g) Applicability date . This section applies to taxable years ending on or after date of publication of final rule.

§1.6418-3 Additional rules for partnerships and S corporations.

(a) Rules applicable to both part- nerships and S corporations —(1) Partnerships and S corporations as eli- gible taxpayers and transferee taxpay- ers . Under section 6418, a partnership or an S corporation may qualify as a transferor partnership or a transferor S corporation and may elect to make a transfer election to transfer a specified credit portion to a transferee taxpayer. A partnership or S corporation may also qualify as a transferee partnership or a transferee S corporation. This section provides rules applicable to transferor partnerships and transferor S corporations and transferee partnerships and transferee S corporations. Paragraph (b) of this section provides rules applicable solely to partnerships. Paragraph (c) of this section provides rules applicable solely to S corporations. Paragraph (d) of this section provides guidelines for the manner and due date for which a partnership or S corporation makes an election under section 6418(a). Paragraph (e) of this section contains examples illustrating the operation of the provisions of this section. Except as provided in this section, the general rules under section 6418 and the section 6418 regulations apply to partnerships and S corporations.

(2) Treatment of cash received for a specified credit portion . In the case of any specified credit portion determined with respect to any eligible credit property held directly by a partnership or S corporation,

if such partnership or S corporation makes a transfer election with respect to such specified credit portion—

(i) Any amount of cash payment received as consideration for the transferred specified credit portion will be treated as tax exempt income for purposes of sections 705 and 1366 of the Code; and

(ii) A partner’s distributive share of such tax exempt income will be as described in paragraphs (b)(1) and (2) of this section.

(3) No partner or shareholder level transfers . In the case of an eligible credit property held directly by a partnership or S corporation, no transfer election by any partner or S corporation shareholder is allowed under §1.6418-2 or this section with respect to any specified credit portion determined with respect to such eligible credit property.

(4) Disregarded entity ownership . In the case of an eligible credit property held directly by an entity disregarded as separate from a partnership or S corporation for Federal income tax purposes, such eligible credit property will be treated as held directly by the partnership or S corporation for purposes of making a transfer election.

(5) Treatment of tax exempt income . Tax exempt income resulting from the receipt of consideration for the transfer of a specified credit portion by a transferor partnership or transferor S corporation is treated as arising from an investment activity and not from the conduct of a trade or business within the meaning of section 469(c)(1)(A). As such, any tax exempt income is not treated as passive income to any direct or indirect partners or shareholders who do not materially participate within the meaning of section 469(c)(1)(B). (6) Certain recapture events not requir- ing notice —(i) Indirect dispositions under section 50 —(A) Treatment of transferor partnership or transferor S corporation and transferee taxpayer . For purposes of section 6418(g)(3)(B) only, the disposition of a partner’s interest under §1.47-6(a)(2) or an S corporation shareholder’s interest under §1.47-4(a)(2) in an eligible taxpayer that is treated as a transferor partnership or transferor S corporation is disregarded. As such, provided the investment credit property that is eligible credit property

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owned by the transferor partnership or transferor S corporation is not disposed of, and continues to be investment credit property with respect to such transferor partnership or transferor S corporation, a transferor partnership or transferor S corporation should not provide notice to a transferee taxpayer of an interest disposition by the partner or shareholder because the disposition does not result in recapture under section 6418(g)(3)(B) to which the transferee taxpayer is liable, and thus, the transferee taxpayer does not have to calculate a recapture amount.

(B) Treatment of partner or share- holder . A partner or S corporation shareholder that has disposed of an interest in a transferor partnership or transferor S corporation is subject to the rules relating to such disposition under §1.47-6(a)(2) or §1.47-4(a)(2), respectively. Any recapture to a disposing partner is calculated based on the partner’s share of the basis (or cost) of the section 38 property to which the specified credit portion was determined in accordance with §1.46-3(f). Any recapture to a disposing shareholder is calculated based on the shareholder’s pro rata share of the basis (or cost) of the section 38 property to which the specified credit portion was determined in accordance with §1.48-5.

(ii) Changes in at-risk amounts under section 49 —(A) Treatment of transferor partnership or transferor S corporation and transferee taxpayer . For purposes of section 6418 only, a change in the nonqualified nonrecourse financing (as defined in section 49(a)(1)(D)) amount of any partner or shareholder of a transferor partnership or transferor S corporation, respectively, after the close of the taxable year in which the investment credit property is placed in service and the specified credit portion is determined, is disregarded. A transferor partnership or transferor S corporation should not provide notice to a transferee taxpayer of the change because the change does not cause recapture under section 6418(g)(3)(B) to which the transferee taxpayer is liable, and thus, the transferee taxpayer does not have to calculate a recapture amount.

(B) Treatment of partner or share- holder . A partner or shareholder in a transferor partnership or transferor S corporation, respectively, must apply the

rules under section 49 at the partner or shareholder level if there is a change in nonqualified nonrecourse financing with respect to the partner or shareholder after the close of the taxable year in which the investment credit property is placed in service and the specified credit portion is determined. If there is an increase in nonqualified nonrecourse financing to a partner, any adjustment under the rules of section 49(b) is calculated based on the partner’s share of the basis (or cost) of the section 38 property to which the specified credit portion was determined in accordance with §1.46-3(f). If there is an increase in nonqualified nonrecourse financing to a shareholder, any adjustment under the rules of section 49(b) is calculated based on the shareholder’s pro rata share of the basis (or cost) of the section 38 property to which the specified credit portion was determined in accordance with §1.48-5. If there is a decrease in nonqualified nonrecourse financing, any increase in the credit base is taken into account by the partner or shareholder as provided under section 49, and any resulting credit is not eligible for transfer under section 6418.

(b) Rules applicable to partnerships (1) Allocations of tax exempt income amounts generally . A transferor partnership must generally determine a partner’s distributive share of any tax exempt income resulting from the receipt of consideration for the transfer based on such partner’s proportionate distributive share of the eligible credit that would otherwise have been allocated to such partner absent the transfer of the specified credit portion (otherwise eligible credit). A partner’s distributive share of an otherwise eligible credit is determined under §§1.46-3(f) and 1.704-1(b)(4)(ii). Tax exempt income resulting from the receipt of consideration for the transfer of a specified credit portion by a transferor partnership is treated as received or accrued, including for purposes of section 705 of the Code, as of the date the specified credit portion is determined with respect to the transferor partnership (such as, for investment credit property, the date the property is placed in service).

(2) Special rule for allocations of tax exempt income amounts and eligible cred- its for an election to transfer less than all

eligible credits determined with respect to an eligible credit property . In the event a transferor partnership elects to transfer one or more specified credit portions of less than all eligible credits determined with respect to an eligible credit property held directly by the partnership, the partnership may allocate any tax exempt income resulting from the receipt of consideration for the specified credit portion(s) in accordance with the rules in this paragraph (b)(2).

(i) First, the partnership must determine each partner’s distributive share of the otherwise eligible credits with respect to such eligible credit property in accordance with paragraph (b)(1) of this section (partner’s eligible credit amount).

(ii) Thereafter, the transferor partnership may determine, in any manner described in the partnership agreement, or as the partners may agree, the portion of each partner’s eligible credit amount to be transferred, and the portion of each partner’s eligible credit amount to be retained and allocated to such partner. The partnership may allocate to each partner its agreed upon share of eligible credits, tax exempt income resulting from the receipt of consideration for the specified credit portion(s), or both, as the case may be, provided that—

(A) The amount of eligible credits allocated to each partner may not exceed such partner’s eligible credit amount; and

(B) Each partner is allocated its proportionate share of tax exempt income resulting from the transfer(s).

(iii) Each partner’s proportionate share of tax exempt income resulting from the transfer(s) is equal to the total amount of tax exempt income resulting from the transfer(s) of the specified credit portion(s) by the partnership multiplied by a fraction—

(A) The numerator of which is such partner’s eligible credit amount minus the amount of eligible credits actually allocated to such partner with respect to the eligible credit property for the taxable year; and

(B) The denominator of which is the specified credit portion(s) transferred by the partnership with respect to the eligible credit property for the taxable year.

(3) Transferor partnerships in tiered structures . If a partnership (upper-tier

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partnership) is a direct or indirect partner of a transferor partnership and directly or indirectly receives—

(i) An allocation of an eligible credit, the upper-tier partnership is not an eligible taxpayer under section 6418 with respect to any eligible credit allocated by a transferor partnership; or

(ii) An allocation of tax exempt income resulting from the receipt of consideration for the transfer of a specified credit portion by a transferor partnership, the upper-tier partnership must determine its partners’ distributive shares of such tax exempt income in proportion to the partners’ distributive shares of the otherwise eligible credit as provided in paragraph (b)(1) of this section.

(4) Partnership as a transferee tax- payer —(i) Eligibility under section 6418 . A partnership may qualify as a transferee partnership to the extent it is not related (within the meaning of section 267(b) or 707(b)(1)) to an eligible taxpayer. A transferee partnership is subject to the no additional transfer rule in §1.6418-2(c) (2), however, an allocation of a transferred specified credit portion to a direct or indirect partner of a transferee partnership under section 704(b) is not a transfer for purposes of section 6418.

(ii) Treatment of a cash payment for a transferred specified credit portion . A cash payment by a transferee partnership as consideration for a transferred specified credit portion is treated as an expenditure described in section 705(a)(2)(B).

(iii) Allocations of transferred spec- ified credit portions . A transferee partnership must determine each partner’s distributive share of any transferred specified credit portion based on such partner’s distributive share of the nondeductible expenses for the taxable year used to fund the purchase of such transferred specified credit portion. Each partner’s distributive share of the nondeductible expenses used to fund the purchase of any transferred specified credit portion is determined by the partnership agreement, or, if the partnership agreement does not provide for the allocation of nondeductible expenses paid pursuant to section 6418, then the allocation of the specified credit portion is based on the transferee partnership’s general allocation of nondeductible expenses.

(iv) Transferred specified credit por- tion treated as an extraordinary item . A transferred specified credit portion is treated as an extraordinary item and must be allocated among the partners of a transferee partnership as of the time the transfer of the specified credit portion to the transferee partnership is treated as occurring in accordance with this paragraph (b) (4)(iv) and §1.706-4(e)(1) and (e)(2)(ix). If the transferee partnership and eligible taxpayer have the same taxable years, the transfer of a specified credit portion to a transferee partnership is treated as occurring on the first date that the transferee partnership makes a cash payment to the eligible taxpayer as consideration for the specified credit portion. If the transferee partnership and eligible taxpayer have different taxable years, the transfer of a specified credit portion to a transferee partnership is treated as occurring on the later of–

(A) The first date of the taxable year that the transferee partnership takes the specified credit portion into account under section 6418(d); or

(B) The first date that the transferee partnership makes a cash payment to the eligible taxpayer for the specified credit portion.

(v) Transferee partnerships in tiered structures . If an upper-tier partnership is a direct or indirect partner of a transferee partnership and directly or indirectly receives an allocation of a transferred specified credit portion, the upper-tier partnership is not an eligible taxpayer under section 6418 with respect to the transferred specified credit portion. The upper-tier partnership must determine each partner’s distributive share of the transferred specified credit portion in accordance with paragraphs (b)(4)(iii) and (iv) of this section and must report the credits to its partners in accordance with guidance.

(c) Rules applicable to S corpora- tions —(1) Pro rata shares of tax exempt income amounts . Each shareholder of a transferor S corporation must take into account such shareholder’s pro rata share (as determined under section 1377(a) of the Code) of any tax exempt income resulting from the receipt of consideration for the transfer. Tax exempt income resulting from the receipt of consideration for

the transfer of a specified credit portion by a transferor S corporation is treated as received or accrued, including for purposes of section 1366, as of the date the specified credit portion is determined with respect to the transferor S corporation (such as, for investment credit property, the date the property is placed in service).

(2) S corporation as a transferee tax- payer —(i) Eligibility under section 6418 . An S corporation may qualify as a transferee taxpayer to the extent it is not related (within the meaning of section 267(b) or 707(b)(1)) to an eligible taxpayer (transferee S corporation). A transferee S corporation is subject to the no additional transfer rule in §1.6418-2(c)(2), however, an allocation of a transferred specified credit portion to a direct or indirect shareholder of a transferee S corporation is not a transfer for purposes of section 6418.

(ii) Treatment of a cash payment for a transferred specified credit portion . A cash payment by a transferee S corporation as consideration for a transferred specified credit portion is treated as an expenditure described in section 1367(a)(2)(D) of the Code.

(iii) Pro rata shares of transferred spec- ified credit portions . Each shareholder of a transferee S corporation must take into account such shareholder’s pro rata share (as determined under section 1377(a)) of any transferred specified credit portion. If the transferee S corporation and eligible taxpayer have the same taxable years, the transfer of a specified credit portion is treated as occurring to a transferee S corporation during the transferee S corporation’s permitted year (as defined under sections 444 and 1378(b)) that the transferee S corporation first makes a cash payment as consideration to the eligible taxpayer for the specified credit portion. If the transferee S corporation and eligible taxpayer have different taxable years, then the transfer of a specified credit portion is treated as occurring to a transferee S corporation during the transferee S corporation’s first permitted year (as defined under sections 444 and 1378(b)) ending with or after, the taxable year of the eligible taxpayer to which the transferred specified credit portion was determined.

(d) Transfer election by a partner- ship or S corporation —(1) In general . A partnership or S corporation may make

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a transfer election to transfer a specified credit portion under section 6418 if it files an election in accordance with the rules set forth in this paragraph (d). A transfer election is made on the basis of an eligible credit property and only applies to the specified credit portion identified in the transfer election by such partnership or S corporation in the taxable year for which the election is made.

(2) Manner and due date of making a transfer election . A transfer election for a specified credit portion must be made in the manner provided in §1.6418-2(b) (1) through (3). All documents required in §1.6418-2(b)(1) through (3) must be attached to the partnership or S corporation return for the taxable year during which the transferred specific credit portion was determined. For the transfer election to be valid, the return must be filed not later than the time prescribed by §§1.6031(a)-1(e) and 1.6037-1(b) (including extensions of time) for filing the return for such taxable year. No transfer election may be made or revised on an amended return or by filing an administrative adjustment request under section 6227 of the Code. There is no late-election relief available under §§ 301.9100-1 through 301.9100-3 of this chapter for a transfer election that is not timely filed.

(3) Irrevocable election . A transfer election by a partnership or S corporation is irrevocable.

(e) Examples . The examples in this paragraph (e) illustrate the application of paragraphs (a)(6), (b), and (c) of this section.

(1) Example 1 . Transfer of all eligible credits by a transferor partnership —(i) Facts . A and B each contributed $150X of cash to AB partnership for the purpose of investing in energy property. The partnership agreement provides that A and B share equally in all items of income, gain, loss, deduction, and credit of AB partnership. AB partnership invests $300X in an energy property in accordance with section 48 and places the energy property in service on date X in year 1. As of the end of year 1, AB partnership has $90X of eligible credits under section 48 with respect to the energy property. Before AB partnership files its tax return for year 1, AB partnership transfers the $90X of eligible credits to an unrelated transferee taxpayer, Transferee Taxpayer X for $80X and executes a transfer election statement with Transferee Taxpayer X.

(ii) Analysis . Under §1.6418-3(b)(1), AB partnership allocates the tax exempt income resulting from the transfer of the specified credit portion proportionately among the partners based on each partner’s distributive share of the otherwise eligible

section 48 credit as determined under §§1.46-3(f) and 1.704-1(b)(4)(ii). Under §1.46-3(f)(2), each partner’s share of the basis of the energy property is determined in accordance with the ratio in which the partners divide the general profits (or taxable income) of the partnership. Under the AB partnership agreement, A and B share partnership profits equally. Thus, each partner’s share of the basis of the energy property under §1.46-3(f) and distributive share of the otherwise eligible credits under §1.7041(b)(4)(ii) is 50 percent. The transfer made pursuant to section 6418(a) causes AB partnership’s eligible credits under section 48 with respect to the energy property to be reduced to zero, and the consideration of $80X received by AB partnership for the transferred specified credit portion is treated as tax exempt income. Because the tax exempt income is allocated in the same proportion as the otherwise eligible credit would have been allocated, A and B will each be allocated $40X of tax exempt income. Each of partner A’s and partner B’s basis in its partnership interest and capital account will be increased by $40X. Also in year 1, the basis in the energy property held by AB partnership and with respect to which the credit is calculated is reduced under section 50(c)(3) by 50 percent of the amount of the credit so determined, or $45. A’s and B’s basis in their partnership interests and capital accounts will be appropriately adjusted to take into account adjustments made to the energy property under section 50(c)(5) and §1.7041(b)(2)(iv)( j ). The tax exempt income received or accrued by AB partnership as a result of the transferred specified credit portion is treated as received or accrued, including for purposes of section 705, as of date X in year 1, which is the date the transferred specified credit portion was determined with respect to AB partnership.

(2) Example 2. Recapture to a transferor part- nership —(i) Facts . Assume the same facts as in paragraph (e)(1)(i) of this section ( Example 1 ), except in year 3, within the recapture period related to the energy property, A reduces its proportionate interest in the general profits of the partnership by 50 percent causing a recapture event to A under §1.476(a)(2). The energy property is not disposed of by AB partnership and continues to be energy property with respect to AB partnership.

(ii) Analysis . AB partnership should not provide notice of recapture to Transferee Taxpayer X as a result of the recapture event under §1.47-6(a)(2) with respect to A. Transferee Taxpayer X is not liable for any recapture amount. A, however, is subject to recapture as provided in §1.47-6(a)(2) and based on its share of the basis (or cost) of the energy property to which the eligible credits were determined under §1.46-3(f)(2).

(3) Example 3. Transfer of a portion of eligible credits by a transferor partnership —(i) Facts . C and D each contributed cash to CD partnership for the purpose of investing in a qualified wind facility. The partnership agreement provides that until a flip point, C is allocated 99 percent of all items of income, gain, loss, deduction and credit of CD partnership and D is allocated the remaining 1 percent of such items. After the flip point, C is allocated 5 percent of all items of income, gain, loss, deduction and credit of CD Partnership and D is allocated 95 percent of such items. CD partnership invests in a qualified wind

facility and places the facility in service in year 1. CD partnership generates $100X of credit under section 45(a) for year 1. Before the due date for CD partnership’s year 1 tax return (with extension), C and D agree that D’s share of the eligible credit will be transferred, and C will be allocated its share of eligible credit. CD partnership transfers $1X of the eligible credit to an unrelated transferee taxpayer for $1X. The flip point has not been reached by the end of year 1.

(ii) Analysis . Under paragraph (b)(2) of this section, CD partnership must first determine each partner’s eligible credit amount, which is equal to such partner’s distributive share of the otherwise eligible section 45(a) credit as determined under §1.7041(b)(4)(ii). Under §1.704-1(b)(4)(ii), for an eligible credit that is not an investment tax credit, allocations of credit are deemed to be in accordance with the partner’s interest in the partnership if the credit is allocated in the same proportion as the partners’ distributive share of the receipts that give rise to the credit. The CD partnership agreement provides that until the flip point, C is allocated 99 percent of all items of income, gain, loss, deduction and credit of CD partnership and D is allocated the remaining 1 percent of such items. Assuming all requirements of the safe harbor provided for in Revenue Procedure 2007-65, 2007-2 CB 967 are met, CD partnership’s allocations of the otherwise eligible credits would be respected as in accordance with section 704(b). Thus, partner C’s and partner D’s distributive share of the otherwise eligible credit is 99 percent and 1 percent, respectively. C and D have agreed to sell D’s eligible credit amount of $1X for full value and to allocate to C its eligible credit amount of $99X. The transfer made pursuant to section 6418(a) causes CD partnership’s eligible credits under section 45(a) with respect to the wind facility to be reduced to $99X, and the consideration of $1X received by CD partnership is treated as tax exempt income. D is allocated $1X of tax exempt income from the transfer of the eligible credits, and C is allocated $99X of eligible credits under section 45(a) with respect to the wind facility. Neither C nor D is allocated more eligible credits than its eligible credit amount. Additionally, D is allocated an amount of tax exempt income equal to $1X x (1 – 0)/1 and C is allocated none of the tax exempt income. The allocations of eligible credits and tax exempt income are permissible allocations under paragraph (b)(2) of this section.

(4) Example 4. Upper-tier partnership of a trans- feror partnership —(i) Facts . E, F, and G each contributed $100X of cash to EFG partnership for the purpose of investing in an energy property. E, F, and G are partnerships for Federal income tax purposes. The partnership agreement provides that E, F and G share equally in all items of income, gain, loss, and deduction of EFG partnership. EFG partnership invests $300X in an energy property in accordance with section 48 and places the energy property in service in year 1. As of the end of year 1, EFG partnership has $90X of eligible credits under section 48 with respect to the energy property. Before the due date for EFG partnership’s year 1 tax return (with extension), E, F and G agree that E’s share of the eligible credits will be transferred, and F and G will each be allocated their shares of eligible credits (or basis). EFG partnership transfers $30X of the

Bulletin No. 2023–27 1189 July 3, 2023

eligible credits to an unrelated transferee taxpayer for $25X. Assuming the allocations to E, F and G of the eligible credits and tax exempt income resulting from the receipt of cash for the transferred specified credit portion are permissible allocations under paragraph (b)(2) of this section, E is allocated $25X of tax exempt income from the transfer of the eligible credits and F and G are each allocated $30X of basis with respect to the energy property.

(ii) Analysis . E must allocate the $25X of tax exempt income to its partners as if it had retained its share of the eligible credits. Under §1.46-3(f)(2), each partner’s share of the basis of the section 48 energy property is determined in accordance with the ratio in which the partners divide the general profits (or taxable income) of the partnership. The E partnership agreement provides for equal allocations of income, gain, deduction, and loss to its partners, and thus, E partnership must allocate the otherwise eligible credits in the same manner. Therefore, E partnership must allocate the $25X of tax exempt income equally among its partners. In accordance with paragraph (b)(3)(i) of this section, F and G do not qualify as an eligible taxpayer for purposes of section 6418 and thus, are not permitted to make a transfer election for any portion of the $30X of eligible credit allocated to them by EFG partnership. Under §1.46-3(f)(2), each partner’s share of the basis of the section 48 energy property is determined in accordance with the ratio in which the partners divide the general profits (or taxable income) of the partnership. The F and G partnership agreements provide for equal allocations of income, gain, deduction, and loss to its partners, and F and G must allocate the basis from the energy property to their partners in the same manner.

(5) Example 5. Transferee partnership —(i) Facts . Y and Z each contributed $50X of cash to YZ partnership for the purpose of purchasing eligible section 45 credits under section 6418. The partnership agreement provides that all items of income, gain, loss, deduction, and credit are shared equally among Y and Z. The partnership agreement also provides that any nondeductible expenses used to fund the purchase of any transferred specified credit portion will be shared equally among Y and Z. On date X in year 1, YZ partnership qualifies as a transferee taxpayer and makes a cash payment of $80X to an eligible taxpayer for $100X of a transferred specified credit portion. The eligible credits will be determined with respect to the eligible taxpayer as of the end of year 1. Both YZ partnership and the eligible taxpayer are calendar year taxpayers.

(ii) Analysis . The cash payment of $80X made by YZ partnership for the transferred specified credit portion is treated as a nondeductible expenditure under section 705(a)(2)(B). Under paragraph (b)(4) (iii) of this section, YZ partnership must determine each partner’s distributive share of the transferred specified credit portion based on such partner’s distributive share of the nondeductible expenses for the taxable year used to fund the purchase of such transferred specified credit portion. The YZ partnership agreement provides that nondeductible expenses used to fund the purchase of any transferred specified credit portion will be shared equally among Y and Z and thus, the transferred specified credit portion is also shared equally among Y and Z. The transferred

specified credit portion is treated as an extraordinary item under §1.706-4(e)(2)(ix) that is deemed to occur on date X in year 1. As of date X in year 1, each of Y and Z are allocated $40X of a section 705(a)(2) (B) expenditure with respect to the cash payment for the transferred specified credit portion and $50X of transferred section 45 credits.

(6) Example 6. Upper-tier partnership of a trans- feree partnership —(i) Facts . Assume the same facts as in paragraph (e)(5)(i) of this section ( Example 5 ), except Y is a partnership for Federal tax purposes, and Z is a corporation for Federal tax purposes.

(ii) Analysis . In accordance with paragraph (b)(4) (v) of this section, Y does not qualify as an eligible taxpayer for purposes of section 6418 for that portion of the transferred specified credit portion allocated to it by YZ partnership. Under paragraph (b)(4)(iii) of this section, Y must determine each partner’s distributive share of the transferred specified credit portion based on such partner’s distributive share of the nondeductible expenses for the taxable year used to fund the purchase of such transferred specified credit portion. The Y partnership agreement provides that all items of income, gain, loss, deduction, and credit are shared equally. The partnership agreement also provides that any nondeductible expenses used to fund the purchase of any specified credit portion are shared equally. Thus, the transferred specified credit portion must be shared equally among the partners of Y.

(7) Example 7. Transferor S corporation —(i) Facts . V and W each contributed $150X of cash to an S corporation for the purpose of investing in energy property. The S corporation invests $300X in an energy property in accordance with section 48 and places the energy property in service on date X in year 1. As of the end of year 1, the S corporation has $90X of eligible credits under section 48 with respect to the energy property. Before the due date for S corporation’s year 1 tax return (with extension), S corporation transfers the $90X of eligible credits to an unrelated transferee taxpayer for $80X.

(ii) Analysis . The transfer made pursuant to section 6418(a) causes the S corporation’s eligible credits under section 48 with respect to the energy property to be reduced to zero, and the consideration of $80X received by the S corporation for the transferred specified credit portion is treated as tax exempt income. Under paragraph (c)(1) of this section, each of V and W must take into account its pro rata share (as determined under section 1377(a)) of any tax exempt income resulting from the receipt of consideration for the transfer of the eligible credit, or $40X. Under section 1367(a)(1)(A), each of the shareholder’s basis in its stock will be increased by $40X. Also in year 1, the basis in the energy property with respect to which the credit is calculated is reduced under section 50(c)(3) by 50 percent of the amount of the credit so determined, or $45. The tax exempt income received or accrued by S corporation as a result of the transfer of the specified credit portion is treated as received or accrued, including for purposes of section 1366, as of date X in year 1, which is the date the transferred specified credit portion was determined with respect to the transferor S corporation.

(8) Example 8. Transferee S corporation —(i) Facts . J and K each contributed $50X of cash to S

corporation for the purpose of purchasing eligible section 48 credits under section 6418. At the beginning of year 2, S corporation qualifies as a transferee taxpayer and makes a cash payment of $80X to an eligible taxpayer for $100X of a transferred specified credit portion. The transferred specified credit portion was determined with respect to the eligible taxpayer for energy property placed in service in year

Both S corporation and the eligible taxpayer are calendar year taxpayers.

(ii) Analysis . The cash payment of $80X made by the S corporation for the transferred specified credit portion is treated as an expenditure described in section 1367(a)(2)(D). Each of J and K must take into account its pro rata share (as determined under section 1377(a)) of the transferred specified credit portion. The transferred specified credit portion is deemed to arise for purposes of sections 1366 and 1377 during year 2 of the S corporation. For year 2, each of J and K take into account $40X of a section 1367(a)(2)(D) expenditure with respect to the cash payment for the transferred specified credit portion and $50X of transferred section 48 credits.

(f) Applicability date . This section applies to taxable years ending on or after date of publication of final rule.

§1.6418-4 Additional information and registration.

(a) Pre-filing registration and election . As a condition of, and prior to, any specified credit portion being transferred by an eligible taxpayer to a transferee taxpayer pursuant to an election under §1.6418-2, or a specified credit portion being transferred by a partnership or S corporation pursuant to §1.6418-3, the eligible taxpayer is required to satisfy the pre-filing registration requirements in paragraph (b) of this section. An eligible taxpayer that does not obtain a registration number under paragraph (c)(1) of this section, and report the registration number on its return pursuant to paragraph (c)(5) of this section, is ineligible to make a transfer election for a specified credit portion under §1.6418-2 or §1.6418-3, with respect to the eligible credit determined with respect to the specific eligible credit property for which the eligible taxpayer has failed to obtain and report a registration number. However, completion of the pre-filing registration requirements and receipt of a registration number does not, by itself, mean the eligible taxpayer is eligible to transfer any specified credit portion determined with respect to the eligible credit property.

(b) Pre-filing registration require- ments —(1) Manner of pre-filing

July 3, 2023 1190 Bulletin No. 2023–27

registration . Unless otherwise provided in guidance, eligible taxpayers must complete the pre-filing registration process electronically through an IRS electronic portal and in accordance with the instructions provided therein.

(2) Pre-filing registration and election for members of a consolidated group . A member of a consolidated group is required to complete pre-filing registration to transfer any eligible credit determined with respect to the member. —

(3) Timing of pre-filing registration . An eligible taxpayer must satisfy the pre-filing registration requirements of this paragraph (b) and receive a registration number under paragraph (c) of this section prior to making a transfer election under §1.6418-2 or §1.6418-3 for a specified credit portion on the taxpayer’s return for the taxable year at issue.

(4) Each eligible credit property must have its own registration number . An eligible taxpayer must obtain a registration number for each eligible credit property with respect to which a transfer election of a specified credit portion is made.

(5) Information required to complete the pre-filing registration process . Unless modified in future guidance, an eligible taxpayer is required to provide the following information to the IRS to complete the pre-filing registration process:

(i) The eligible 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, such as information establishing that the entity is an eligible taxpayer;

(iii) The taxpayer’s taxable year, as determined under section 441;

(iv) The type of annual tax return(s) normally filed by the eligible taxpayer, or that the eligible taxpayer does not normally file an annual tax return with the IRS;

(v) The type of eligible credit(s) for which the eligible taxpayer intends to make a transfer election;

(vi) Each eligible credit property that the eligible taxpayer intends to use to determine a specified credit portion for which the eligible taxpayer intends to make a transfer election;

(vii) For each eligible credit property listed in paragraph (b)(5)(vi) of this

section, any further information required by the IRS electronic portal, such as—

(A) The type of eligible credit property; (B) Physical location (that is, address and coordinates (longitude and latitude) of the eligible credit property);

(C) Any supporting documentation relating to the construction or acquisition of the eligible credit property (such as State, Indian Tribal, or local government permits to operate the eligible credit property, certifications, evidence of ownership that ties to a land deed, lease, or other documented right to use and access any land or facility upon which the eligible credit property is constructed or housed, and U.S. Coast Guard registration numbers for offshore wind vessels);

(D) The beginning of construction date, and the placed in service date of the eligible credit property; and

(E) Any other information that the eligible taxpayer believes will help the IRS evaluate the registration request;

(viii) The name of a contact person for the eligible 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 eligible taxpayer; or

(B) Must provide a properly executed power of attorney on Form 2848, Power of Attorney and Declaration of Representative ;

(ix) 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

(x) 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.

(c) Registration number —(1) In gen- eral . The IRS will review the registration information provided and will issue a separate registration number for each eligible credit property for which the eligible taxpayer provided sufficient verifiable information.

(2) Registration number is only valid for one taxable year . A registration number is valid to an eligible taxpayer only for the taxable year in which the credit is determined for the eligible credit property

for which the registration is completed, and for a transferee taxpayer’s taxable year in which the eligible credit is taken into account under §1.6418-2(f).

(3) Renewing registration numbers . If an election to transfer an eligible credit will be made with respect to an eligible credit property for a taxable year after a registration number under this section has been obtained, the eligible taxpayer must renew the registration for that subsequent taxable year in accordance with applicable guidance, including attesting that all the facts previously provided are still correct or updating any facts.

(4) Amendment of previously submit- ted 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 one or more applicable credit properties for which a registration number has been previously obtained, but not yet used, an eligible taxpayer must amend the registration (or may need to submit a new registration) to reflect these new facts. For example, if the owner of a facility previously registered for a transfer election under §1.6418-2 or §1.6418-3 for eligible credits determined with respect to that facility and the 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 facility must amend the original registration to disassociate its EIN from the eligible credit property and the new owner must submit separately an original registration (or if the new owner previously registered other credit properties, must amend its original registration) to associate the new owner’s EIN with the previously registered eligible credit property.

(5) Reporting of registration number by an eligible taxpayer and a transferee taxpayer —(i) Eligible taxpayer reporting . As part of making a valid transfer election under §1.6418-2 or §1.6418-3, an eligible taxpayer must include the registration number of the eligible credit property on the eligible taxpayer’s return (as provided in §1.6418-2(b) or §1.6418-3(d)) for the taxable year the specified credit portion

Bulletin No. 2023–27 1191 July 3, 2023

was determined. The IRS will treat an election as ineffective if the eligible taxpayer does not include a valid registration number on the return.

(ii) Transferee taxpayer reporting . A transferee taxpayer must report the registration number received (as part of the transfer election statement as described in §1.6418-2(b) or otherwise) from a transferor taxpayer on the Form 3800, General Business Credit, as part of the return for the taxable year that the transferee taxpayer takes the transferred specified credit portion into account. The specified credit portion will be disallowed to the transferee taxpayer if the transferee taxpayer does not include the registration number on the return.

(d) Applicability date . This section applies to taxable years ending on or after date of publication of final rule.

§1.6418-5 Special rules.

(a) Excessive credit transfer tax imposed —(1) In general . If any specified credit portion that is transferred to a transferee taxpayer pursuant to an election in §1.6418-2(a) or §1.6418-3 is determined to be an excessive credit transfer (as defined in paragraph (b) of this section), the tax imposed on the transferee taxpayer by chapter 1 (regardless of whether such entity would otherwise be subject to chapter 1 tax) for the taxable year in which such determination is made will be increased by an amount equal to the sum of—

(i) The amount of such excessive credit transfer; and

(ii) An amount equal to 20 percent of such excessive credit transfer.

(2) Taxable year of the determination . The taxable year of the determination for purposes of paragraph (a)(1) of this section is the taxable year that includes the determination and not the taxable year when the eligible credit was originally determined by the eligible taxpayer, unless those are the same taxable years.

(3) Payments related to excessive credit transfer . Any payments made by a transferee taxpayer to an eligible taxpayer that directly relate to the excessive credit transfer (as defined in paragraph (b) of this section) are not subject to section 6418(b) (2) or §1.6418-2(e).

(4) Reasonable cause . Paragraph (a) (1)(ii) of this section does not apply if the transferee taxpayer demonstrates to the satisfaction of the IRS that the excessive credit transfer resulted from reasonable cause. Determination of reasonable cause will be made based on the relevant facts and circumstances. Generally, the most important factor is the extent of the transferee taxpayer’s efforts to determine that the amount of specified credit portion transferred by the eligible taxpayer to the transferee taxpayer is not more than the amount of the eligible credit determined with respect to the eligible credit property for the taxable year in which the eligible credit was determined and has not been transferred to any other taxpayer. Circumstances that may indicate reasonable cause can include, but are not limited to, review of the eligible taxpayer’s records with respect to the determination of the eligible credit (including documentation evidencing eligibility for bonus credit amounts), reasonable reliance on third party expert reports, reasonable reliance on representations from the eligible taxpayer that the total specified credit portion transferred (including portions transferred to other transferee taxpayers when an eligible taxpayer makes multiple transfer elections with respect to a single credit property) does not exceed the total eligible credit determined with respect to the eligible credit property for the taxable year, and review of audited financial statements provided to the Securities and Exchange Commission (and underlying information), if applicable.

(5) Recapture events . A recapture event under section 45Q(f)(4) or 50(a) is not an excessive credit transfer.

(b) Excessive credit transfer defined (1) In general . The term excessive credit transfer means, with respect to an eligible credit property for which a transfer election is made under §1.6418-2 or §1.6418-3 for any taxable year, an amount equal to the excess of—

(i) The amount of the transferred specified credit portion claimed by the transferee taxpayer with respect to such eligible credit property for such taxable year; over

(ii) The amount of the eligible credit that, without the application of section

6418, would be otherwise allowable under the Code with respect to such eligible credit property for such taxable year.

(2) Multiple transferees treated as one . All transferee taxpayers are considered as one transferee for calculating whether there was an excessive credit transfer and the amount of the excess credit transfer. If there was an excessive credit transfer, then the amount of excessive credit transferred to a specific transferee taxpayer is equal to the total excessive credit transferred multiplied by the transferee taxpayer’s portion of the total specified credit portions transferred to all transferees. The rule in this paragraph (b)(2) is applied on an eligible credit property basis, as applicable.

(3) Examples . The following examples illustrate the rules of this paragraph (b):

(i) Example I – No excessive credit transfer . Taxpayer A claims $50 of an eligible credit and transfers $50 of an eligible credit to Transferee Taxpayer B related to a single facility that was expected to generate $100 of such eligible credit. In a later year it is determined that the facility only generated $50 of such eligible credit. There is no excessive credit transfer in this case because the amount of the eligible credit claimed by Transferee Taxpayer B of $50 is equal to the amount of the credit that would be otherwise allowable with respect to such facility for the taxable year the transfer occurred. Taxpayer A is disallowed the $50 of the eligible credit claimed.

(ii) Example II – Excessive credit transfer . Same facts as in paragraph (b)(3)(i) of this section ( Example I ) except that Taxpayer A transfers $80 of the $100 of eligible credit to Transferee Taxpayer B. Taxpayer A claims $20 of the eligible credit and Transferee Taxpayer B claims $80 of the eligible credit. In this situation, there is a $30 excessive credit transfer because the amount of the credit claimed by Transferee Taxpayer B ($80) exceeds the amount of credit otherwise allowable with respect to the facility ($50) by $30. Therefore, Transferee Taxpayer B’s tax is increased in the later year by $36, which is equal to the amount of the excessive credit transfer plus 20 percent of the excessive credit transfer as provided in paragraph (a) of this section and section 6418(g)(2)(A). If Transferee Taxpayer B can show reasonable cause as provided in paragraph (a)(4) of this section and section 6418(g)(2)(B), then Transferee Taxpayer B will only have a tax increase of $30. Taxpayer A is disallowed the $20 of the eligible credit claimed, and pursuant to paragraph (a)(3) of this section the payments made to Taxpayer A from Transferee Taxpayer B that directly relate to the excessive credit transfer are not subject to section 6418(b)(2) or §1.6418-2(e).

(iii) Example III - Excessive credit with multi- ple transferees . Same facts as in paragraph (b)(3) (i) of this section ( Example I ) except that Taxpayer A transfers $45 of the eligible credit to Transferee Taxpayer B and $35 of the eligible credit to

July 3, 2023 1192 Bulletin No. 2023–27

(ii) Impact on eligible taxpayer . The eligible taxpayer must increase the basis of the investment credit property (immediately before the event resulting in such recapture) by an amount equal to the recapture amount provided to the eligible taxpayer by the transferee taxpayer under paragraph (d)(2)(ii) of this section and in accordance with section 50.

(e) Notification and impact of recap- ture under section 45Q(f)(4) —(1) In gen- eral . In the case of any election under §1.6418-2 or §1.6418-3 with respect to any specified credit portion described in §1.6418-1(c)(2)(iii), if, during any taxable year, there is recapture of any section 45Q credit allowable with respect to any qualified carbon oxide that ceases to be captured, disposed of, or used as a tertiary injectant in a manner consistent with section 45Q, before the close of the recapture period (as described in §1.45Q-5(f)), such eligible taxpayer and the transferee taxpayer must follow the notification process in paragraph (e)(2) of this section with recapture impacting the transferee taxpayer as described in paragraph (e)(3) of this section.

(2) Notification requirements . The notification requirements for the eligible taxpayer are the same as for an eligible taxpayer that must report a recapture event as described in paragraph (d)(2)(i) of this section, except that the recapture amount that must be computed is defined in §1.45Q-5(e).

(3) Impact of recapture . The transferee taxpayer is responsible for any amount of tax increase under section 45Q(f)(4) and §1.45Q-5 upon the occurrence of a recapture event.

(f) Impact of an ineffective transfer election by an eligible taxpayer . An ineffective transfer election means that no transfer of an eligible credit has occurred for purposes of section 6418, including section 6418(b). Section 6418 does not apply to the transaction and the tax consequences are determined under any other relevant provisions of the Code. For example, an ineffective election results if an eligible taxpayer tries to elect to transfer a specified credit portion, but the eligible taxpayer did not register and receive a registration number with respect to the eligible credit property

Transferee Taxpayer C. Taxpayer A claims $20 of the eligible credit, Transferee Taxpayer B claims $45 of the eligible credit, and Transferee Taxpayer C claims $35 of the eligible credit. In this situation, because there are multiple transferees, all transferees are treated as one transferee for determining the excessive credit transfer amount under paragraph (b)(2) of this section. There is a total excessive credit transfer of $30 because the amount of the credit claimed by the transferees in total ($80) exceeds the amount of credit otherwise allowable with respect to the facility ($50) by $30. The excessive credit transfer to Taxpayer B is equal to ($45/$80 * $30) = $16.88, and the excessive credit transfer to Taxpayer C is equal to ($35/$80 * $30) = $13.12. Therefore, Transferee Taxpayer B and Transferee Taxpayer C are subject to the provisions in paragraph (a) of this section. Transferee Taxpayer B’s and Transferee Taxpayer C’s tax is increased in the later year by the respective excessive credit transfer amount and 20 percent of the excessive credit transfer amount ($20.26 for Transferee Taxpayer B and $15.74 for Transferee Taxpayer C) as provided in paragraph (a) of this section and section 6418(g)(2)(A). If Transferee Taxpayer B or Transferee Taxpayer C can show reasonable cause as provided in paragraph (a)(4) of this section and section 6418(g)(2)(B), then the tax increase will only be $16.88 or $13.12, respectively. Taxpayer A is disallowed the $20 of eligible credit claimed and pursuant to paragraph (a)(3) of this section the payments made to Taxpayer A that directly relate to the excessive credit transfer are not subject to section 6418(b)(2) or §1.6418-2(e).

(c) Basis reduction under section 50(c) . In the case of any transfer election under §1.6418-2 or §1.6418-3 with respect to any specified credit portion described in §1.6418-1(c)(2)(ix) through (xi), section 50(c) will apply to the applicable investment credit property (as defined in section 50(a)(6)(A)) as if such credit was allowed to the eligible taxpayer.

(d) Notification and impact of recap- ture under section 50(a) or 49(b) —(1) In general . In the case of any election under §1.6418-2 or §1.6418-3 with respect to any specified credit portion described in §1.6418-1(c)(2)(ix) through (xi), if, during any taxable year, the applicable investment credit property (as defined in section 50(a)(6)(A)) is disposed of, or otherwise ceases to be investment credit property with respect to the eligible taxpayer, before the close of the recapture period (as described in section 50(a)(1) (A)), other than as described in §1.64183(a)(6), or has a reduction in credit base causing recapture under section 49, other than as described in §1.6418-3(a)(6), such eligible taxpayer and the transferee taxpayer must follow the notification process in paragraph (d)(2) of this section, with

recapture impacting the transferee taxpayer and eligible taxpayer as described in paragraph (d)(3) of this section.

(2) Notification requirements —(i) Eligible taxpayer . The eligible taxpayer must provide notice of the occurrence of recapture to the transferee taxpayer. This notice must provide all information necessary for a transferee taxpayer to correctly compute the recapture amount (as defined under section 50(c)(2)), and the notification must occur in sufficient time to allow the transferee taxpayer to compute the recapture amount by the due date of the transferee taxpayer’s return (without extensions) for the taxable year in which the recapture event occurs. The eligible taxpayer and transferee taxpayer can contract with respect to the form of the notice and any specific time periods that must be met, so long as the terms of the contractual arrangement do not conflict with the requirements of this paragraph (d)(2)(i). Any additional information that is required or other specific time periods that must be met may be prescribed by the IRS in guidance issued with respect to this notification requirement.

(ii) Transferee taxpayer . The transferee taxpayer must provide notice of the recapture amount (as defined in section 50(c)(2)), if any, to the eligible taxpayer. This must occur in sufficient time to allow the eligible taxpayer to calculate any basis adjustment with respect to the investment credit property by the due date of the eligible taxpayer’s return (without extensions) for the taxable year in which the recapture event occurs. The eligible taxpayer and transferee taxpayer can contract with respect to the form of the notice and any specific time periods that must be met, so long as the terms of the contractual arrangement do not conflict with the requirements of this paragraph (d)(2)(ii). Any additional information that is required or other specific time periods that must be met may be provided in guidance prescribed by the IRS issued with respect to this notification requirement.

(3) Impact of recapture —(i) Impact of recapture on transferee . The transferee taxpayer is responsible for any amount of tax increase under section 50(a) upon the occurrence of a recapture event.

Bulletin No. 2023–27 1193 July 3, 2023

(or otherwise satisfy the requirements for making a transfer election under the section 6418 regulations) with respect to which the specified credit portion was determined.

(g) Carryback and carryforward . A transferee taxpayer can apply the rules in section 39(a)(4) (regarding a 3-year carryback period for unused current year business credits) to a specified credit portion to the extent the specified credit portion is described in section 6417(b) (list of applicable credits, taking into account any placed in service requirements in section 6417(b)(2), (3), and (5)). (h) Applicability date . This section applies to taxable years ending on or after date of publication of final rule.

Douglas W. O’Donnell, Deputy Commissioner for Services

and Enforcement.

(Filed by the Office of the Federal Register June 14, 2023, 11:15 a.m., and published in the issue of the Federal Register for June 21, 2023, ** FR *****)

Notice of Proposed Rulemaking

Elective Payment of Advanced Manufacturing Investment Credit

REG-105595-23

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations concerning the elective payment election of the advanced manufacturing investment credit under the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. The proposed regulations describe rules for the elective payment election, including special rules applicable to partnerships and S corporations, repayment of excessive payments, and basis

reduction and recapture. In addition, the proposed regulations provide rules related to an IRS pre-filing registration process that taxpayers wanting to make the elective payment election would be required to follow. These proposed regulations affect taxpayers eligible to make the elective payment election of the advanced manufacturing investment tax credit in a taxable year. This document also provides notice of a public hearing on the proposed regulations.

DATES: Written or electronic comments must be received by August 14, 2023. The public hearing on these proposed regulations is scheduled to be held on August 24, 2023, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by August 14, 2023. If no outlines are received by August 14, 2023, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. ET on August 22, 2023. The public hearing will be made accessible to people with disabilities. Requests for special assistance during the hearing must be received by August 21, 2023.

ADDRESSES: Commenters are strongly encouraged to submit public comments electronically. Submit electronic submissions via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-105595-23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comments submitted electronically and comments submitted on paper to its public docket. Send hard copy submissions to: CC:PA:LPD:PR (REG-10559523), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning this proposed regulation, Lani M. Sinfield at (202) 3175871 (not a toll-free number); concerning submissions of comments and or the public hearing, Vivian Hayes at (202) 317-6901

(not a toll-free number) or by email to publichearings@irs.gov (preferred).

SUPPLEMENTARY INFORMATION:

Background

Section 48D was added to the Internal Revenue Code (Code) on August 9, 2022, by section 107(a) of the CHIPS Act of 2022 (CHIPS Act), which was enacted as Division A of the CHIPS and Science Act of 2022, Public Law 117167, 136 Stat. 1366, 1393. Section 48D established the advanced manufacturing investment credit (section 48D credit) and section 48D(d) allows taxpayers (other than partnerships and S corporations) to elect to treat the amount of the section 48D credit determined under section 48D(a) as a payment against their Federal income tax liabilities. Section 48D(d) also provides special rules relating to elective payments to partnerships and S corporations and directs the Secretary of the Treasury or her delegate (Secretary) to provide rules for making elections under section 48D and to require information or registration necessary for purposes of preventing duplication, fraud, improper payments, or excessive payments under section 48D. Section 48D applies to qualified property placed in service after December 31, 2022, and, for any property the construction of which began prior to January 1, 2023, only to the extent of the basis thereof attributable to the construction, reconstruction, or erection of such qualified property after August 9, 2022 (the date of enactment of the CHIPS Act). See section 107(f)(1) of the CHIPS Act.

On March 23, 2023, the Treasury Department and the IRS published in the Federal Register (88 FR 17451) a notice of proposed rulemaking (REG-12065322), which contains proposed regulations to implement the general provisions relating to the section 48D credit (March 2023 proposed regulations). The March 2023 proposed regulations included proposed definitions of various statutory terms, including “eligible taxpayer,” “qualified property,” “advanced manufacturing facility,” and “semiconductor.” The March 2023 proposed regulations also proposed rules under section 48D regarding the

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beginning of construction requirement; proposed rules requiring pre-filing registration with the IRS in advance of filing an elective payment election; and proposed rules implementing the “applicable transaction” credit recapture rules under section 50(a)(3) of the Code. In addition, the March 2023 proposed regulations requested comments on potential issues with respect to the elective payment election provisions under section 48D(d) that may require guidance. This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) to implement the statutory provisions of section 48D(d) and revise the rules in proposed § 1.48D-6 of the March 2023 proposed regulations.

In the Rules and Regulations section of this issue of the Federal Register, the Treasury Department and the IRS are issuing temporary regulations under § 1.48D-6T that implement the pre-filing registration process described in proposed § 1.48D-6 of the proposed regulations. The temporary regulations require taxpayers that want to elect the elective payment of the section 48D credit to register with the IRS through an IRS electronic portal in advance of the taxpayer filing the return on which the election under section 48D is made.

I. Overview of elective payment election under section 48D

Section 48D(d)(1) allows a taxpayer to elect to treat the section 48D credit determined for the taxpayer for a taxable year as a payment against the tax imposed by subtitle A of the Code (that is, treated as a payment of Federal income tax) equal to the amount of the credit rather than a credit against the taxpayer’s Federal income tax liability for that taxable year (elective payment election).

II. Section 48D rules for partnerships and S corporations

Section 48D(d)(2)(A) provides special rules for partnerships (as defined in section 761(a)) and for S corporations (as defined in section 1361(a)(1) of the Code). Section 48D(d)(2)(A)(i) provides that, in the case of any credit determined with respect to any property held directly

by a partnership or S corporation, any election under section 48D(d)(1) is to be made by such partnership or S corporation and must be made in such manner as the Secretary may provide. If such partnership or S corporation makes an election under section 48D(d)(1), (1) the Secretary will make a payment to such partnership or S corporation equal to the amount of such credit, (2) section 48D(d) (3) is applied with respect to the credit before determining any partner’s distributive share, or S corporation shareholder’s pro rata share, of such credit, (3) any credit amount with respect to which the election in section 48D(d)(1) is made is treated as tax exempt income for purposes of sections 705 and 1366 of the Code, and (4) a partner’s distributive share of such tax exempt income is based on such partner’s distributive share of the otherwise applicable credit for each taxable year.

III. Special rules

Section 48D(d)(2)(B) requires the elective payment election to be made no later than the due date (including extensions of time) of the tax return for the taxable year for which the election is made. The elective payment election is irrevocable once made and applies with respect to any credit for the taxable year for which the election is made.

Section 48D(d)(2)(E) provides that, as a condition of, and prior to, any amount between treated as a payment by or to the taxpayer, the Secretary may require such information or registration as the Secretary deems necessary or appropriate for purposes of preventing duplication, fraud, improper payments, or excessive payments.

Section 48D(d)(2)(F) provides rules relating to excessive payments. In the case of any amount treated as a payment which is made by the taxpayer under section 48D(d)(1), or the amount of the payment made pursuant to section 48D(d)(2)(A), that the Secretary determines constitutes an excessive payment, the tax imposed on such taxpayer by chapter 1 of the Code, for the taxable year in which such determination is made must be increased by an amount equal to the sum of (1) the amount of any payment treated as made by or to

the taxpayer which the Secretary determines constitutes an excessive payment, (2) plus 20 percent of such excessive payment. The increase equal to 20 percent of the excessive payment does not apply if the taxpayer demonstrates to the satisfaction of the Secretary that the excessive payment resulted from reasonable cause.

Section 48D(d)(2)(F)(iii) defines “excessive payment” as, with respect to property for which an elective payment election is made for any taxable year, an amount equal to the excess of (I) the amount treated as a payment made by the taxpayer under section 48D(d)(1) or the amount of the payment made pursuant to section 48D(d)(2)(A)(i) over (II) the amount of the credit which, without application of section 48D(d), would be otherwise allowable under section 48D(a) (determined without regard to section 38(c)) with respect to such property for such taxable year.

Section 48D(d)(3) provides a denial of double benefit rule. It states that, in the case of a taxpayer making an elective payment election with respect to the credit determined under section 48D(a), such credit is reduced to zero and is deemed to have been allowed to the taxpayer for such taxable year for any other purposes under the Code.

Section 48D(d)(5) provides basis reduction and recapture rules. It states that rules similar to the rules of section 50(a) and (c) of the Code apply with respect to amounts treated as a payment made by a taxpayer under section 48D(d)(1) and any payment made pursuant to section 48D(d) (2)(A).

Section 48D(d)(6) authorizes the Secretary to issue regulations or other guidance determined to be necessary or appropriate to carry out the elective payment election provisions of section 48D(d), including (A) regulations or other guidance providing rules for determining a partner’s distributive share of the tax exempt income described in section 48D(d)(2)(A)(i) and (B) guidance to ensure that the amount treated as a payment under section 48D(d)(1) or payment made under section 48D(d)(2)(A)(i) is commensurate with the amount of the section 48D credit that generally would be otherwise allowable (determined without regard to section 38(c) of the Code).

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Explanation of Provisions

I. Rules for Making Elective Payment Elections

A. In general

These proposed regulations revise §1.48D-6(a)(1) and (2) of the March 2023 proposed regulations to clarify that an elective payment election may only be made on an original return of tax filed not later than the due date (including extensions of time) for the return for the taxable year for which the section 48D credit is determined and in the manner as provided in guidance, and must include any required completed source credit form(s) with respect to the qualified property, a completed Form 3800, General Business Credit, and any additional information, including supporting calculations, required in instructions to the relevant forms. An original return would include a superseding return filed on or before the due date (including extensions). No elective payment election would be permitted to be made or revised on an amended return or by filing an administrative adjustment request under section 6227 of the Code. There also would be no relief available under §§ 301.9100-1 through 301.9100-3 of the Procedure and Administration Regulations (26 CFR part 301) for an elective payment election that is not timely filed.

These proposed regulations would further provide that a taxpayer makes the elective payment election with respect to any section 48D credit determined with respect to such taxpayer in accordance with section 48D(d)(1), and the taxpayer must include a statement with the election attesting under penalties of perjury that the taxpayer claiming to be an eligible taxpayer is not a foreign entity of concern and has not made an applicable transaction during the taxable year that the qualified property is placed in service, and will not claim a double benefit (within the meaning of section 48D(d)(3) and § 1.48-6(d)(2)(ii)(B) and (C) and (e)) with respect to any elective payment election made by the taxpayer.

II. Denial of Double Benefit

These proposed regulations revise §1.48D-6(a)(4) of the March 2023

proposed regulations by explaining the application of the section 48D(d)(3) denial of a double benefit rule and addressing the methodology for determining the amount of an elective payment, reducing the section 48D credit amount to zero, and treating the section 48D credit as a credit allowed for the taxable year for all other purposes of the Code with respect to taxpayers other than partnerships or S corporations. The proposed application of the denial of a double benefit rule is redesignated as proposed §1.48D-6(e). The methodology with respect to a payment made to a partnership or S corporation is provided in proposed §1.48D-6(d)(2)(ii)(B), as described in part III of this Explanation of Provisions.

A taxpayer (other than a partnership or S corporation) making an elective payment election applies section 48D(d) (3) by taking the following steps. First, the taxpayer would compute the amount of the tax liability (if any) for the taxable year, without regard to general business credits (GBCs), that is payable on the due date of the tax return (without regard to extensions), and the amount of the Federal income tax liability that may be offset by GBCs pursuant to the limitation based on the amount of tax under section 38 (Step 1). Second, the taxpayer would compute the allowed amount of the GBCs carryforwards carried to the taxable year plus the amount of current year GBCs (including the section 48D credit) allowed for the taxable year under section 38 (that is, in accordance with all the rules in section 38, including the ordering rules provided in section 38(d)). Since the election would be required to be made on an original return filed before the due date (including extensions of time) for the taxable year for which the section 48D credit is determined, any GBC carryback would not be considered when determining the elective payment amount for the taxable year (Step 2). Third, the taxpayer would apply the GBCs allowed for the taxable year as computed in Step 2, including those attributable to the section 48D credit as GBCs, against the tax liability computed in Step

Fourth, the taxpayer would identify the amount of any excess or unused current year GBC, as defined under section 39, attributable to current year section 48D credit(s) for which the taxpayer is making

an elective payment election. The amount of such unused section 48D credits would be treated as a payment against the tax imposed by subtitle A for the taxable year with respect to which such credits are determined (rather than having them available for carryback or carryover) (net elective payment amount) (Step 4). Fifth, the taxpayer would reduce the section 48D credit(s) for which an elective payment election is made by the amount (if any) allowed as a general business credit under section 38 for the taxable year, as provided in Step 3, and by the net elective payment amount (if any) that is treated as a payment against tax, as provided in Step 4, which results in the section 48D credit(s) being reduced to zero.

The proposed regulations would provide, consistent with section 48D(d)(3), that the full amount of the section 48D credits for which an elective payment election is made is deemed to have been allowed for all other purposes of the Code, including, but not limited to, the basis reduction and recapture rules imposed by section 50 and the calculation of any underpayment of estimated taxes under sections 6654 and 6655 of the Code.

The Treasury Department and the IRS request comments on whether future guidance should expand or clarify the methodology that a taxpayer follows to compute the amount of its elective payment. Comments are also requested on additional Code sections under which it may be necessary to consider the section 48D credit to have been deemed to have been allowed for the taxable year in which an elective payment election is made.

III. Partnership and S Corporations

A. Overview

Section 48D(d)(2)(A)(i) provides that, in the case of any credit determined with respect to any property held directly by a partnership or S corporation, any election under section 48D(d) (1) is to be made by such partnership or S corporation and must be made in such manner as the Secretary may provide. If such partnership or S corporation makes an election under section 48D(d)(1), the special rules of section 48D(d)(2)(A)(i) (I) through (IV) apply. In that regard,

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proposed §1.48D-6(d)(2)(ii) would provide that (1) the IRS will make a payment to such partnership or S corporation equal to the amount of such credit; (2) before determining any partner’s distributive share, or shareholder’s pro rata share, of such credit, such credit is reduced to zero and is, for any other purposes under the Code, deemed to have been allowed solely to such entity (and not allocated by such entity, or otherwise allowed, to any partner or shareholder) for such taxable year; (3) any amount with respect to which the election under section 48D(d)(1) is made is treated as tax exempt income for purposes of sections 705 and 1366; and (4) a partner’s distributive share of such tax exempt income is equal to such partner’s distributive share of its otherwise allocable basis in the qualified property as determined under § 1.48D-2(h)(2)(i) for such year. The tax exempt income is taken into account by the partnership or S corporation at the same time as the underlying credit would have been taken into account by the partnership or S corporation absent an elective payment election. Such tax exempt income resulting from such election is treated as received or accrued, including for purposes of sections 705 and 1366 of the Code, as of the date the qualified property is placed in service with respect to the partnership or S corporation. The proposed regulations provide an example illustrating this rule. Because it is the section 48D credits, and not the tax exempt income, that arise from the conduct of the trade or business, the proposed regulations would treat the tax exempt income resulting from an elective payment election by a partnership or an S corporation as arising from an investment activity and not from the conduct of a trade or business within the meaning of section 469(c)(1)(A). As such, the tax exempt income would not be treated as passive income to any partners or shareholders who do not materially participate within the meaning of section 469(c)(1)(B).

In response to stakeholder comments, the Treasury Department and the IRS clarify here that there are no restrictions imposed under section 48D or the section 48D regulations on how a partnership or S corporation that receives a payment

from the IRS pursuant to an elective payment election may use the cash payment in its operations (including when it makes distributions to its distributions to its partners or shareholders).

Section 48D(d)(6)(B) requires that the Secretary issue regulations or other guidance to ensure that the amount of a payment under section 48(D)(2)(A)(i)(I) to a partnership or S corporation is commensurate with the amount of the credit that would otherwise be allowable (without regard to section 38(c)). Therefore, proposed §1.48D-6(d)(6) would provide that, in determining the section 48D credit amount that will result in a payment to a partnership or S corporation, the partnership or S corporation must compute the amount of the section 48D credit allowable (without regard to section 38(c)) as if an elective payment election were not made. Because a partnership or S corporation is not subject to section 469 (that is, section 469 applies at the partner or shareholder level), the amount of the credit determined with respect to any qualified property owned by a partnership or S corporation is not subject to limitation by section 469.

However, section 49 generally impacts the amount of a credit determined with respect to a qualified property. Proposed §1.48D-6(d)(6)(ii) provides rules for the application of section 49 to a partnership or S corporation. The proposed regulations would provide that any amount of section 48D credit determined with respect to the qualified property held directly by a partnership or S corporation must be determined by the partnership or S corporation taking into account the section 49 at-risk rules at the partner or shareholder level as of the close of the taxable year in which the qualified property is placed in service. Thus, if the credit base of the qualified property is limited to a partner or shareholder by section 49, then the amount of the section 48D credit determined by the partnership or S corporation is also limited. The proposed regulations would provide that a partnership or S corporation that makes an elective payment election must request from each of its partners or shareholders, respectively, that is subject to section 49, the amount of such partner’s or shareholder’s nonqualified nonrecourse

financing with respect to the qualified property as of the close of the taxable year in which the property is placed in service. Additionally, the partnership or S corporation would attach to its tax return for the taxable year in which the property is placed in service, the amount of each partner’s or shareholder’s section 49 limitation with respect to the qualified property. The Treasury Department and the IRS request comments as to whether (1) any information or reporting requirements are needed for partnerships and S corporations to apply these rules when determining the amount of the section 48D credit for which an elective payment election can be made by a partnership or S corporation or (2) any additional clarifications are needed regarding how the at-risk rules apply to the determination of the section 48D credit by a taxpayer.

B. BBA Partnership

Many partnerships are subject to the centralized partnership audit regime found in subchapter C of chapter 63 of the Code as amended by the Bipartisan Budget Act of 2015 (BBA). ² In connection with the implementation of section 48D, the Treasury Department and the IRS identified several areas of the BBA regulations that require updates to administer section 48D in the case of a partnership subject to the BBA (BBA partnership). Section 6221 of the Code provides that any adjustment to a partnership-related item with respect to a BBA partnership, and any tax attributable thereto, is assessed and collected at the partnership-level except to the extent provided under the BBA. The BBA outlines centralized audit procedures which generally must be followed before the IRS can adjust a partnership-related item (as defined in § 301.6241-1). Accordingly, the notice of proposed rulemaking (REG101607-23) found in the Proposed Rules of this issue of the Federal Register, which primarily relates to proposed rules under section 6417, would add a new paragraph (j) to § 301.6241-7 to provide that an election by a BBA partnership under section 48D(d) can be adjusted outside of the BBA audit rules. Proposed §1.48D6(d)(7) would cross-reference to proposed § 301.6241-7(j) for rules applicable to payments made to BBA partnerships.

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IV. Pre-filing Registration Requirements and Additional Information

Proposed §1.48D-6(b)(1) would provide the mandatory pre-filing registration process that, except as provided in guidance, a taxpayer must complete as a condition of, and prior to, any amount being treated as a payment against the tax imposed under §1.48D-6(a)(1), or an amount paid to a partnership or S corporation pursuant to §1.48D-6(d)(2)(ii) (A). A taxpayer would be required to use the pre-filing registration process to register each qualified investment in an advanced manufacturing facility. A taxpayer that does not obtain a registration number or report the registration number on its annual tax return with respect to an advanced manufacturing facility would be ineligible to receive any elective payment amount with respect to the amount of any section 48D credit determined with respect to that advanced manufacturing facility. However, completion of the pre-filing registration requirements and receipt of a registration number would not, by itself, mean that the taxpayer would be eligible to receive a payment with respect to the section 48D credits determined with respect to the advanced manufacturing facility.

The pre-filing registration requirements are proposed to be that a taxpayer:

(1) must complete the registration process electronically through the IRS electronic portal and in accordance with the instructions provided therein, unless otherwise provided in guidance;

(2) must satisfy the registration requirements and receive a registration number prior to making a section 48D(d)(1) elective payment election on the taxpayer’s tax return for the taxable year at issue;

(3) is required to obtain a registration number for each qualified investment in an advanced manufacturing facility with respect to which a section 48D credit will be determined and for which the taxpayer wishes to make a section 48D(d)(1) elective payment election; and

(4) provide the specific information required to be provided as part of the pre-filing registration process. The

provision of such information, which includes information about the taxpayer and about the qualified investment in an advanced manufacturing facility that would allow the IRS to prevent duplication, fraud, improper payments, or excessive payments under section 48D. For example, verifying information about the taxpayer would allow the IRS to mitigate the risk of fraud or improper payments to entities that are not eligible taxpayers. Information about the taxpayer’s taxable year would allow the IRS to ensure that an elective payment election is timely made on the entity’s annual tax return. Information about the advanced manufacturing facility, including its address and coordinates (longitude and latitude), supporting documentation, beginning of construction date, and placed in service date would allow the IRS to mitigate the risk of duplication, fraud, and improper payments for properties that are not advanced manufacturing facilities.

Proposed §1.48D-6(b)(7)(i) provides that, after a taxpayer completes pre-filing registration with respect to each qualified investment in an advanced manufacturing facility with respect to which the taxpayer intends to elect a section 48D(d) elective payment election for the taxable year, the IRS will review the information provided and will issue a separate registration number for each qualified investment for which the taxpayer provided sufficient verifiable information.

Proposed §1.48D-6(b)(7)(ii) would provide that a registration number is valid only for the taxable year for which it is obtained. Proposed §1.48D-6(c)(7)(iii) would provide that, if an elective payment election will be made with respect to qualified investment in an advanced manufacturing facility for a taxable year for which a registration number under this section has been obtained for a prior taxable year, the taxpayer must renew the registration each subsequent year in accordance with applicable guidance, including attesting that all the facts previously provided are still correct or updating any facts that are relevant in calculating the amount of the section

48D credit. Proposed §1.48D-6(b)(7) (iv) would provide that, if facts change with respect to the qualified investment in an advanced manufacturing facility for which a registration number has been previously obtained, the taxpayer must amend the registration to reflect these new facts. The regulations would provide, for example, that if the facility previously registered for an elective payment election undergoes a change of ownership (incident to a corporate reorganization or an asset sale) such that the new owner has a different employer identification number (EIN) than the owner who obtained the original registration, the original owner would be required to amend the original registration to disassociate its EIN from the advanced manufacturing facility and the new owner must submit an original registration (or if the new owner previously registered other advanced manufacturing facilities, must amend its original registration) to associate the new owner’s EIN with the previously registered advanced manufacturing facility.

Lastly, proposed §1.48D-6(b)(7)(v) would provide that the taxpayer would be required to include the registration number of the advanced manufacturing facility on the taxpayer’s annual return for the taxable year for an election under proposed §1.48D-6(a)(1). The IRS will treat an elective payment election as ineffective with respect to any section 48D credit determined with respect to the advanced manufacturing facility for which the taxpayer does not include a valid registration number on the annual tax return.

The corresponding temporary regulations under § 1.48D-6T(b) published in the Rules and Regulations section of this edition of the Federal Register, which are identical to those that would apply under proposed § 1.48D-6(b) , apply to taxable years ending on or after June 21, 2023, and expire on June 12, 2026.

V. Special Rules

These proposed regulations amend the proposed rules relating to excessive

1 See section 1101 of the BBA, Public Law 114-74, 129 Stat. 584, 625-638 (2015), as amended by section 411 of the Protecting Americans from Tax Hikes Act of 2015, Public Law 114-113, 129 Stat. 2242, 3121 (2015), and sections 201 through 207 of the Tax Technical Corrections Act of 2018, Public Law 115-141, 132 Stat. 348, 1171-1183 (2018).

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filling out the relevant source credit form and completing the Form 3800. These forms are approved under 1545-0074 for individuals and 1545-0123 for business entities.

These proposed regulations also describe recapture procedures as detailed in proposed § 1.48D-6 that are required by section 48D(d)(5). The reporting of a recapture event will still be required to be reported using Form 4255, Recapture of Investment Credit. This form is approved under 1545-0074 for individuals and 1545-0123 for business entities. These proposed regulations are not changing or creating new collection requirements for recapture not already approved by OMB.

These proposed regulations mention the reporting requirements to complete pre-filing registration with the IRS to be able to make an elective payment election in proposed § 1.48D-6. For further information concerning the registration and where to submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing this burden, please refer to the preamble to the corresponding temporary regulations (T.D. 9975) published in the Rules and Regulations section of this issue of the Federal Register . For burden estimates associated with the pre-filing registration requirement as detailed in proposed § 1.48D-6, see the preamble to the corresponding temporary regulations. These proposed regulations are not changing or creating new collection requirements beyond the requirements that are being reviewed and approved by OMB under the temporary regulations.

II. Regulatory Flexibility Act

In accordance with the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. Although these temporary regulations may affect small entities, data are not readily available about the number of small entities affected. The economic impact of these proposed regulations is not likely to be significant. Section 1.48D-6T(b) implements

payment and basis reduction and recapture under REG-120653-22 by adding examples of excessive payment, clarifying the basis reduction and recapture notice requirement and renumbering the affected paragraphs as §1.48D-6(f) and (g), respectively.

A. Excessive payment

Proposed §1.48D-6(f)(4) provides an example of excessive payment, including the year in which the tax is imposed and the calculation of the additional 20 percent tax. The Treasury Department and the IRS request comments on whether additional guidance on excessive payments is needed.

B. Basis reduction and recapture

Proposed §1.48D-6(g)(1) would provide that rules similar to the rules of section 50(a) and (c) apply for purposes of section 48D. Proposed §1.48D-6(g)(2)(i) provides that the adjusted basis of property generally must be reduced by the amount of the section 48D credit determined with respect to property for which the taxpayer has made an election under section 48D(d)(1). Proposed §1.48D6(g)(2)(ii) would provide a similar basis reduction rule for partnerships or S corporations making an election under section 48D(d)(1). Proposed §1.48D-6(g)(2)(iii) would clarify the application of the basis adjustment rule under section 50(c)(5) to take into account adjustments made under proposed §1.48D-6(e)(2)(ii) for partners and S corporation shareholders of such partnerships or S corporations.

Proposed §1.48D-6(g)(3) would clarify that any reporting of recapture is made on the taxpayer’s annual return in the manner prescribed by the IRS in any guidance. In addition, the excessive payment rules operate separately from the recapture rules. The excessive payment rules apply where the credit amount reported on the original credit source form by the taxpayer was excessive. Recapture of a tax credit occurs when the original tax credit reported would have been correct without the occurrence of a subsequent recapture event. Thus, recapture events under section 50(a) do not result in an excessive payment.

Proposed Applicability Dates

Proposed § 1.48D-6 is proposed to apply to taxable years ending on or after the date the Treasury decision adopting these regulations as final regulations is published in the Federal Register . Taxpayers may rely on these proposed regulations for elective payments of section 48D credit amounts after December 31, 2022, in taxable years ending before the date the Treasury decision adopting these regulations as final regulations is published in the Federal Register, provided the taxpayers follow the proposed regulations in their entirety and in a consistent manner with respect to all elections made under section 48D(d).

Special Analyses

I. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (“PRA”) generally requires that a federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collections of information in these proposed regulations contain reporting and recordkeeping requirements. The recordkeeping requirements mentioned within these proposed regulations are considered general tax records under § 1.6001-1(e). These records are required for the IRS to validate that taxpayers have met the regulatory requirements and are entitled to make an elective payment election. For PRA purposes, general tax records are already approved by OMB under 15450074 for individuals and 1545-0123 for business entities.

These proposed regulations also mention reporting requirements related to making elections as detailed in § 1.48D-6. These elections will be made by eligible taxpayers as part of filing a return (such as the appropriate Form 1040, Form 1120, Form 1120-S, or Form 1065), including

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the statutory authority granted by section 48D(d)(2)(E) that authorizes the IRS to require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, improper payments, or excessive payments. These proposed regulations will assist small entities wanting to make the elective payment election under section 48D(d). Notwithstanding this certification, the Treasury Department and the IRS welcome comments on the impact of these temporary regulations on small entities.

III. Section 7805(f)

Pursuant to section 7805(f), these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

IV. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandate Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars (updated annually for inflation). These proposed regulations do not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

V. Executive Order 13132: Federalism

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial, direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

VII. Regulatory Planning and Review

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

Comments and Public Hearing

Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES section. The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments will be made available at www.regulations.gov or upon request. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn.