IRS and US Treasury release interim guidance regarding eligibility to claim tax credits in case of material assistance from prohibited foreign entities
It defines how to calculate the Material Assistance Cost Ratio (MACR), which determines eligibility for clean energy tax credits
Projects starting after December 31, 2025, with material assistance from prohibited foreign entities will not qualify for 45Y or 48E credits
Clean energy components receiving restricted foreign assistance after July 4, 2025, risk losing eligibility for the 45X credit
Treasury plans further guidance; industry experts believe it is time to strengthen supply chain checks and documentation to avoid credit loss or clawbacks
The US Department of the Treasury and the Internal Revenue Service (IRS) recently released initial guidance on the much-awaited Foreign Entity of Concern (FEOC), providing some clarity on eligibility for clean energy tax credits under the One Big Beautiful Bill Act (OBBBA).
Notice 2025-15 of the IRS offers interim guidance regarding calculating the material assistance cost ratio (MACR) to claim credits under Section 45X Advanced Manufacturing Production Credit, Section 45Y Clean Electricity Production Credit, and Section 48E Clean Electricity Investment Credit when using “material assistance” from a prohibited foreign entity (PFE).
The IRS explains that, referred to in percentage, MACR determines a clean energy facility or component’s total manufacturing cost that came from non-PFE sources. If MACR falls below the required threshold, projects or components will not qualify for tax credits under Sections 45Y, 48E, or 45X.
Under the guidance, the IRS says a clean energy facility that entered construction after December 31, 2025, and received “material assistance” from a PFE, will not be eligible for Section 45Y.
Similarly, a power generation facility or an energy storage project that entered construction after December 31, 2025, with material assistance from a PFE will not qualify for Section 48E credits.
After July 4, 2025, when the OBBBA came into effect, clean energy components (read for solar, wind, inverter, battery, or critical mineral) that received significant material assistance from certain restricted foreign entities will also no longer qualify for the 45X manufacturing tax credit. There is, however, a limited exception for products sold before January 1, 2027, if they are covered by certain existing binding contracts.
The Treasury and the IRS are now seeking public comments on the interim guidance within 45 days of the publication (February 12, 2026) to formulate future guidance.
The administration also plans to propose regulations and further guidance with regard to the definition of PFE and material assistance rules, including new safe harbor tables under the OBBBA. It will also propose regulations to prevent entities from evading, circumventing, or abusing the application of the PFE restrictions.
While the industry has welcomed some clarity on the subject from the administration, detailed guidance is still awaited, including on identifying a PFE. Analysts at ROTH highlight that investors and insurance companies will await clearer rules before supporting renewable energy transactions. They stated, “Our sense is that the cost of insurance supporting renewables deals may be up 20-30% y/y due in part to the uncertainty around FEOC and PFE definitions.”
Rhone Resch, the former President and CEO of Solar Energy Industries Association (SEIA) and now heading Advanced Energy Advisors, admitted that there is direction now with this initial guidance, but it is “still a bit foggy”.
Resch summarized that tax credit eligibility is now directly tied to supply chain decisions, which means inverter and BESS manufacturers must now ensure compliance with the ruling to gain a competitive advantage instead of waiting for final regulations. Non-PFE or non-FEOC inverter and storage manufacturers can reduce project risk by clearly documenting ownership and control, offering standardized certification packages, and supporting developers with safe harbor calculations.
Even developers need to take note and run a “material assistance modeling” now for any projects targeting a construction launch in 2026. They must consider non-FEOC inverters and BESS suppliers to simplify diligence and reduce MACR exposure. Industry must also conduct ownership and control diligence on major OEMs and obtain supplier certifications in writing, highlighted Resch in a LinkedIn post.
Clean Energy Associates (CEA) also cautions that the industry must not wait around for the final guidance to take steps to safeguard investments. “Supplier attestations alone aren’t enough. If you can’t prove compliance, tax credits can be clawed back up to 10 (!) years later,” it states. “Developers must implement more robust supply chain audits now before any more projects are commissioned.”
