Form 4255 Form 4255 Recapture of Investment Credit

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Form

4255

(Rev. December 2012)
Department of the Treasury
Internal Revenue Service
Name(s) as shown on return

Recapture of Investment Credit
▶

OMB No. 1545-0166

▶ Attach to your income tax return.
Information about Form 4225 and its instructions is at www.irs.gov/form4255.

Attachment
Sequence No.

172

Identifying number

DRAFT AS OF
August 8, 2012
DO NOT FILE

Properties

Type of property—State whether rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, qualifying advanced energy project,
or qualifying therapeutic discovery project property. (See the Instructions for Form 3468 for the year the investment credit property was placed in service
for definitions.) If rehabilitation property, also show type of building. If energy property, show type.

A

B

C
D

Original Investment Credit

1
2
3
4
5
6

Computation Steps:
(see Specific Instructions)
Original rate of credit
. . . . . . . .
Cost or other basis . . . . . . . . .
Original credit (see instructions) . . . . .
Date property was placed in service
. . .
Date property ceased to be qualified
investment credit property . . . . . . .
Number of full years between the date on line
4 and the date on line 5 . . . . . . . .

A

Properties

B

C

D

1
2
3
4
5
6

Recapture Tax
7 Recapture percentage (see instructions) . .
7
8 Tentative recapture tax. Multiply line 3 by
the percentage on line 7 . . . . . . .
8
9 Add all the amounts on line 8 . . . . . . . . . . . . . . . . . . . . . . .
10 Enter the tentative recapture tax from property for which there was an increase in nonqualified
nonrecourse financing. Attach a separate statement (see instructions) . . . . . . . . . .
11 Add lines 9 and 10 . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 Unused credits (see instructions) . . . . . . . . . . . . . . . . . . . . . . .
13 Subtract line 12 from line 11. See section 45K(b)(4) if you claim the nonconventional source fuel
credit. Electing large partnerships, see instructions . . . . . . . . . . . . . . . . .
14 Recapture of qualifying therapeutic discovery project grant. Attach statement (see instructions) . .
15 Total increase in tax. Add lines 13 and 14. Enter here and on the appropriate line of your tax return .

For Paperwork Reduction Act Notice, see instructions.

Cat. No. 41488C

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10
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Form 4255 (Rev. 12-2012)

Form 4255 (Rev. 12-2012)

General Instructions
Section references are to the Internal
Revenue Code unless otherwise noted.
Future developments. For the latest
information about developments related to
Form 4255 and its instructions, such as
legislation enacted after this form and
instructions were published, go to
www.irs.gov/form4255.

Page

• In the case of a project under the Phase II
qualifying advanced coal project program,
failure during the applicable recovery period
(as defined in section 168(c)) to attain and
maintain the separation and sequestration
requirements in section 48A(e)(1)(G). For more
information, see Notice 2009-24, 2009-16
I.R.B. 817; as modified by Notice 2011-24,
2011-14 I.R.B. 603.
Exceptions to recapture. Recapture of the
investment credit does not apply to the
following.
• A transfer because of the death of the
taxpayer.
• A transfer between spouses or incident to
divorce under section 1041. However, a later
disposition by the transferee is subject to
recapture to the same extent as if the
transferor had disposed of the property at the
later date.
• A transfer of an interest in an electing large
partnership.
• A transaction to which section 381(a)
applies (relating to certain acquisitions of the
assets of one corporation by another
corporation).

2

Basis Adjustment on
Recapture
For property subject to investment credit or
qualifying therapeutic discovery project grant
recapture, increase the property’s basis as
follows.
• For rehabilitation credit property, qualifying
advanced coal project property, qualifying
gasification project property, qualifying
advanced energy project property, or
depreciable qualifying therapeutic discovery
project property, increase the basis by 100%
of the amount, attributable to each such
property, of the recapture tax, adjustments to
carrybacks and carryforwards under section
39, or adjustments to disallowed passive
activity credits.
• For energy property, increase the basis by
50% of the amount, attributable to each such
property, of the recapture tax, adjustments to
carrybacks and carryforwards under section
39, or adjustments to disallowed passive
activity credits. If the reason for recapture is
due to receipt of a payment under section
1603 of the American Recovery and
Reinvestment Act of 2009, the basis of the
energy property is reduced by 50% of the
payment received.
If you are a partner or S corporation
shareholder, the adjusted basis of your
interest in the partnership or stock in the S
corporation is adjusted to take into account
the adjustment made to the basis of property
held by the partnership or S corporation.
For more information, see section 50(c) and
Regulations section 1.469-3(f).

DRAFT AS OF
August 8, 2012
DO NOT FILE

Purpose of Form

Use Form 4255 to figure the increase in tax
for the recapture of investment credit claimed
and for the recapture of a qualifying
therapeutic discovery project grant.

Credit Recapture
Requirements and Special
Rules

Generally, you must refigure the investment
credit and may have to recapture all or part of
it if any of the following apply.
• You disposed of investment credit property
before the end of 5 full years after the
property was placed in service (recapture
period).
• You changed the use of the property before
the end of the recapture period so that it no
longer qualifies as investment credit property.
• The business use of the property
decreased before the end of the recapture
period so that it no longer qualifies (in whole
or in part) as investment credit property.
• Any building to which section 47(d) applies
will no longer be a qualified rehabilitated
building when placed in service.
• Any property to which section 48(b) applies
will no longer qualify as investment credit
property when placed in service.
• Before the end of the recapture period,
your proportionate interest was reduced by
more than one-third in a partnership (other
than an electing large partnership), S
corporation, estate, or trust that allocated the
cost or other basis of property to you for
which you claimed a credit.
• You received a payment under section 1603
of the American Recovery and Reinvestment
Tax Act of 2009 for investment credit property
for which you figured a credit for any prior
year.
• A net increase in the amount of nonqualified
nonrecourse financing occurred for any
property to which section 49(a)(1) applied. For
more details, see the instructions for line 10.
• You returned leased property (on which you
claimed a credit) to the lessor before the end
of the recapture period.
• In the case of a project under the Phase II
gasification program, failure at any time
during the applicable recovery period (as
defined in section 168(c)) to attain and
maintain the separation and sequestration
requirements in section 48B(d)(1)(B). For more
information, see Notice 2009-23, 2009-16
I.R.B. 802; as modified by Notice 2011-24,
2011-14 I.R.B. 603.

• A mere change in the form of conducting a
trade or business if:
1. The property is retained as investment
credit property in that trade or business, and
2. The taxpayer retains a substantial
interest in that trade or business.

A mere change in the form of conducting a
trade or business includes a corporation that
elects to be an S corporation and a
corporation whose S election is revoked or
terminated.
For more details on the recapture rules,
see section 50(a).
Caution. See section 46(g)(4) (as in effect on
November 4, 1990) to figure the recapture tax
if you made a withdrawal from a capital
construction fund set up under the Merchant
Marine Act of 1936 to pay the principal of any
debt incurred in connection with a vessel on
which you claimed investment credit.

Recapture of Qualifying
Therapeutic Discovery
Project Grant
You may have to recapture all or part of a
qualifying therapeutic discovery project grant
paid under section 9023 of the ACA. If you
received a qualifying therapeutic discovery
project grant and the amount of the grant is
more than the amount of the allowable grant,
you must include the difference as an
increase in tax as if the investment to which
the excess portion of the grant relates had
ceased to be a qualified investment
immediately after the grant was made. The
increase in tax for any recapture of a
qualifying therapeutic discovery project grant
is imposed on the person to whom the grant
was made. In the case of pass-through
entities (including partnerships, S
corporations, estates, and trusts), the tax is
determined at the entity level and allocated to
the entity owners as a credit recapture.

Specific Instructions
Note. Do not figure the recapture tax on lines 1
through 9 if there is an increase in nonqualified
nonrecourse financing related to certain at-risk
property. Figure the tentative recapture tax for
these properties on separate statement and
enter the recapture tax on line 10. Include any
unused credit for these properties on line 12.
Partnerships, S corporations, estates, and
trusts. For a partnership, S corporation,
estate, or trust that allocated any or all of the
investment credit to its partners,
shareholders, or beneficiaries, provide the
information they need to refigure the credit.
See Regulations sections 1.47-4(a) and (c),
1.47-5, and 1.47-6. See the instructions for
Form 1065-B for information on recapture of
the investment credit by electing large
partnerships.
For a partnership, S corporation, estate, or
trust that must recapture any part of a
qualifying therapeutic discovery project grant,
figure the increase in tax at the entity level. Do
not complete lines 1 through 13 to figure this
increase in tax. Figure the increase in tax on a
separate statement and enter the result on
line 14. See the instructions for line 14.
Partners, shareholders, and beneficiaries.
If your Schedule K-1 shows recapture of
investment credit claimed in an earlier year,
you will need your copy of the original Form
3468 to complete lines 1 through 6 of this
Form 4255.

Form 4255 (Rev. 12-2012)

Page

Lines A through D. Describe the property for
which you must refigure the credit.
Complete lines 1 through 8 for each
property on which you are refiguring the
credit. Use a separate column for each item. If
you need more columns, use additional Forms
4255 or other statements that include all the
information shown on Form 4255. Enter the
total from all the separate statements on
line 9.
Line 1. Enter the rate you used to figure the
original credit from the Form 3468 that you
filed.
Line 2. Enter the cost or other basis that you
used to figure the original credit. If there has
been a net increase in nonqualified
nonrecourse financing with respect to the
property that you have disposed of or that has
otherwise ceased to be investment credit
property, enter the cost or other basis you
used to figure the original credit reduced by
the amount of that net increase. If there has
been a net decrease in nonqualified
nonrecourse financing with respect to the
property, enter the cost or other basis you
used to figure the original credit plus the
amount of that net decrease. For more
details, see section 49(b).
Line 3. Enter the amount of the credit
determined under section 46. If the credit
determined for the property for which you
must refigure the credit was limited (for
example, by the kilowatt limit in section 48(c)
(1)(B)), do not enter on line 3 more than the
amount of the applicable limit.
Line 4. Enter the date (month/day/year) on
which the property was placed in service,
using the first day of the month in which the
property is placed in service. For example, if
the property was placed in service on
February 20, 2010, enter 02/01/2010 on line 4.
See Regulations section 1.47-1(c) for more
information.
Line 5. Generally, this will be the date you
disposed of the property. For more details,
see Regulations section 1.47-1(c).
Line 6. Do not enter partial years. If the
property was held less than 12 months, enter
zero. In case of failure to attain or maintain the
separation and sequestration requirements
applicable to a Phase II gasification program
or a Phase II advanced coal program, enter
zero. If a payment was received under section
1603 of the American Recovery and
Reinvestment Act of 2009, enter "0". For more
information, see Notice 2009-23, 2009-16
I.R.B. 802, and Notice 2009-24, 2009-16
I.R.B. 817; as modified by Notice 2011-24,
2011-14 I.R.B. 603.
Line 7. Enter the recapture percentage from
the following table. Enter 100 if a payment
under section 1603 was received.

Line 9. If you have used more than one Form
4255, or separate statements to list
additional items on which you figured an
increase in tax, write to the left of the entry
space “Tax from attached” and the total tax
from the separate statements. Include the
amount in the total for line 9.
Line 10. For certain taxpayers, the basis or
cost of property is limited to the amount the
taxpayer is at risk for the property at the end
of the tax year. The basis or cost must be
reduced by the amount of any “nonqualified
nonrecourse financing” related to the property
at the end of the tax year. If there is an
increase in nonqualified nonrecourse
financing, recapture may be required. See
section 49(b) for details. For each property for
which there is a net increase in nonqualified
nonrecourse financing, figure the tentative
recapture tax by multiplying the net increase
by the percentage originally used to figure the
credit. Enter the total tentative recapture tax
for all such properties on line 10.

from property B and used none to offset tax.
On February 1, 2011, property A ceased to be
investment credit property and Ian must
refigure the credit from property A. His
recapture percentage is 80%. He enters
$80,000 on lines 9 and 11. The unused credit
for property B ($75,000) cannot be entered on
line 12 because that credit was earned in
2011 and cannot be carried back two years to
2009, the original credit year for property A.
Unused investment credits can be carried
back only one year (5 years for ESBC's) and
any remaining unused credit must be carried
forward. Ian's total increase in tax (line 13) for
2011 is $80,000.
Caution. Disallowed passive activity credits
(as defined in section 469(d)(2)) can be used
on line 12 only to the extent that credits from
passive activities are included on line 11.
Unused credits other than “specified
credits” (as defined in section 38(c)(4)(B)) and
ESBCs can be used on line 12 only to the
extent that credits other than specified credits
and ESBCs are included on line 11.
Note. Be sure to adjust your current unused
credit to reflect any unused portion of the
original credit that was entered on line 12 of
this form.
Special rule for electing large
partnerships. Electing large partnerships
must enter zero on line 12. These
partnerships are required to determine the
amount of investment credit recapture as if
the credit subject to recapture had been fully
used to reduce tax.
Line 13. Special rule for electing large
partnerships. Subtract the current year
credit, if any, shown on Form 3468, from the
amount on line 11. Enter the result (but not
less than zero) on line 13.
Line 14. Recapture of qualifying
therapeutic discovery project grant. Enter
the amount of any qualifying therapeutic
discovery project grant required to be
recaptured under section 9023(e) of the ACA.
Do not complete lines 1 through 13 to figure
this increase in tax. Attach a statement
showing how you figured the increase in tax.
Do not adjust the increase in tax for any
unused investment credit. Partnerships, S
corporations, estates, and trusts, determine
the increase in tax at the entity level. This
amount will be allocated to the entity owners
as a credit recapture.
Line 15. Enter the line 15 amount on the
appropriate line of your tax return (for
example, 2012 Form 1120, Schedule J, line
10, or 2012 Form 1120S, line 22c).
Partnerships (other than electing large
partnerships), enter the amount from line 15
on Form 1065, Schedule K, line 20c using
Code H. See the Instructions for Form 1065
for more information on how to allocate this
amount to the partners. S corporations, enter
the amount from line 15 on Form 1120S,
Schedule K, line 17d using code G. See the
Instructions for Form 1120S for more
information. Estates and Trusts, enter the
amount from line 15 on Form 1041, Schedule
G, line 5. See the Instructions for Form 1041
for more information.

DRAFT AS OF
August 8, 2012
DO NOT FILE

IF the number of full
years on line 6 of
Form 4255 is . . .

0
1
2
3
4
5 or more

THEN the recapture
percentage is . . .

100
80
60
40
20
0

Line 12. Generally, enter the amount of
unused credits from line 3 plus the amount of
any other general business credit carrybacks
and carryforwards that would have been
allowed instead of the refigured credit. If you
did not use all the credit you originally
figured, either in the year you figured it or in a
carryback or carryforward year, you do not
have to recapture the amount of the credit
you did not use. In refiguring the credit for
the original credit year, be sure to include
any carryforwards from previous years, plus
any carrybacks arising within the first tax
year (5 years for eligible small business
credits (ESBCs) as defined in section 38(c)(5)
(B)) after the original credit year that are now
allowed because the recapture and
recomputation of the original credit made
available some additional tax liability in that
year. See Regulations section 1.47-1(d) and
Rev. Rul. 72-221, 1972-1 C.B. 15, for details.

Figure the unused portion on a separate
statement and enter it on this line. Do not
enter more than the recapture tax on line 11.
Example 1. In 2009, Maayan earned a
rehabilitation credit of $100,000 from property
A. Maayan used all of the credit to offset
$100,000 of tax in 2009. In 2010, Maayan
earned a rehabilitation credit of $75,000 from
property B and used none of the credit to
offset tax. In 2011, property A ceased to be
investment credit property and Maayan must
refigure the credit from property A. Her
recapture percentage is 60%. She enters
$60,000 on lines 9 and 11. Because unused
investment credits can be carried back one
year (5 years for ESBC's), Maayan could have
carried the rehabilitation credit from property
B back to the original credit year for property
A, 2009, and she may include $60,000 of the
$75,000 carryforward from property B on line
12. Maayan's total increase in tax (line 13) for
2011 is $0.
Example 2. In 2009, Ian earned a
rehabilitation credit of $100,000 from
property A. Ian used $1,000 of the credit to
offset tax in 2009 and used $99,000 as
acarryforward to offset tax in 2010. In 2011,
Ian earned a rehabilitation credit of $75,000

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Form 4255 (Rev. 12-2012)

Paperwork Reduction Act Notice. We ask
for the information on this form to carry out
the Internal Revenue laws of the United
States. You are required to give us the
information. We need it to ensure that you are
complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB control
number. Books or records relating to a form
or its instructions must be retained as long

Page

as their contents may become material in the
administration of any Internal Revenue law.
Generally, tax returns and return information
are confidential, as required by section 6103.
The time needed to complete and file this
form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is
approved under the OMB control number
1545-0074 and is included in the estimates
shown in the instructions for their individual
income tax return. The estimated burden for

4

all other taxpayers who file this form is shown
below.
Recordkeeping

.

.

.

.

. 4 hr., 4 min.

Learning about the
law or the form .

.

.

.

4 hr., 6 min.

Preparing and sending
the form to the IRS . .

.

6 hr., 45 min.

DRAFT AS OF
August 8, 2012
DO NOT FILE

If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler, we
would be happy to hear from you. See the
instructions for the tax return with which this
form is filed.