The Treasury Department and the IRS provided interim guidance on Feb. 12 for determining whether electricity-producing qualified facilities, energy storage technologies, or eligible components are receiving material assistance from a prohibited foreign entity and would be ineligible for certain energy tax credits.
According to global energy law firm Bracewell, the One Big Beautiful Bill Act introduced comprehensive foreign entity of concern rules that forbid taxpayers considered “prohibited foreign entities” from claiming clean energy tax credits.
The FEOC rules apply to the following clean energy tax credits:
- Section 45Q: Carbon oxide sequestration credit
- Section 45U: Zero-emission nuclear power production credit
- Section 45X: Advanced manufacturing production credit
- Section 45Y: Clean electricity production credit
- Section 45Z: Clean fuel production credit
- Section 48E: Clean electricity investment credit
The FEOC rules are designed to prevent entities subject to certain foreign ownership, control, or influence—primarily from China, Russia, Iran, or North Korea—from benefiting from these tax credits, the law firm said. The rules also include restrictions based on material assistance from such entities for sections 45X, 45Y and 48E, which took effect on Jan. 1, 2026.
Notice 2026-15, issued on Thursday, focuses on the sections 45X, 45Y, and 48E credits.
It provides that the Treasury Department and the IRS intend to propose regulations with respect to the definition of a PFE and the calculation of the material assistance cost ratio that taxpayers must use to determine whether there was material assistance from a PFE.
The guidance also details how to use interim safe harbors authorized by the OBBBA and provides example calculations under those safe harbors.
In addition, the notice states that the Treasury Department and the IRS intend to propose regulations and other further guidance with respect to the definition of a PFE and the material assistance rules, including new safe harbor tables as authorized in the OBBBA.
The guidance explains that a taxpayer can rely on the rules provided in Notice 2026-15 to calculate the material assistance cost ratio for:
- Any Section 45Y or 48E qualified facility or energy storage technology the construction of which begins after Dec. 31, 2025, until 60 days after the publication of the forthcoming safe harbor tables.
- Any Section 45X eligible components sold in taxable years beginning after July 4, 2025, the date of the OBBBA’s enactment, until the date that the forthcoming safe harbor tables are published.
Finally, the notice requests comments 45 days from the date of publication regarding definitional, anti-circumvention, and other issues for future guidance.
Photo credit: pabradyphoto/iStock
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
