On February 12, 2026, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) issued Notice 2026-15 (Notice) to guide clean energy projects’ eligibility to receive federal clean energy tax credits based on their level of involvement with Foreign Entities of Concern (FEOC). The Notice clarifies restrictions introduced in the One, Big, Beautiful Bill Act (OBBBA), which expanded the restrictions on clean energy tax credits originally enacted under the Inflation Reduction Act for companies with links to Prohibited Foreign Entities (PFE). Per the Notice, the IRS and Treasury intend to issue proposed regulations that define a PFE and specify the amount of assistance a project must receive from a PFE to be disqualified from receiving tax credits.
Background: OBBBA Impacts to the 45Y, 48E, and 45X Tax Credits
The OBBBA limited the applicability of Internal Revenue Code provisions 45Y, 48E (providing production and investment tax credits for electric generating and energy storage facilities that produce zero greenhouse gas emissions and for related investments at such facilities, respectively), and 45X (providing a production tax credit for eligible project components). Under the OBBBA, projects, facilities, and components are prohibited from claiming the 45Y and 48E credits if they receive “material assistance” from PFEs, which is defined to include Specified Foreign Entities (SFEs), entities on U.S. sanctions or control lists, and Foreign-Influenced Entities (FIEs), entities majority-owned or controlled by SFEs. “Material assistance” from a PFE exists if a project, facility, or component has a material assistance cost ratio (MACR) below a specified threshold percentage outlined in the tax code (Ratio = (PFE – sourced product cost/Total manufactured product cost)).
For a more detailed discussion of the history of the 45Y and 48E tax credits, see our previous discussion here.
Key Clarifications to Tax Credit Eligibility
1. FEOC Restrictions
The Notice does not contemplate major changes to determining whether a project is “effectively controlled” by a PFE. It reiterates that an entity qualifies as an FIE if an SFE exercises effective control over that facility as a result of any qualifying contract, agreement, or other arrangement. The Notice provides only one example of a situation in which “effective control” is satisfied: when a taxpayer makes a payment to an SFE under any intellectual property licensing agreement with respect to a project, facility, or component, and the agreement was entered into or modified on or after July 4, 2025.
Per the Notice, the agencies’ forthcoming proposed rules will include provisions designed to prevent entities from “evading, circumventing, or abusing” the application of PFE restrictions, as well as what constitutes “effective control.”
2. Calculating Material Assistance Cost Ratio
Whether a project has received “material assistance” from a PFE depends on how much of the facility’s manufactured products come from a PFE. The Notice provides detailed, step-by-step guidance to calculate MACR for qualifying facilities and energy storage under sections 45Y, 48E, and 45X. Both approaches require the taxpayer to determine how much of its “direct costs” (e.g., acquisition costs, direct material costs, labor costs) are attributable to specific manufactured products, manufactured product components, and constituent elements, materials, or sourced from PFEs (PFE Direct Costs). To calculate the MACR, subtract the sum of all PFE Direct Costs (PFE Total Direct Costs) from the sum of all Direct Costs (Total Direct Costs) and then divide that result by Total Direct Costs.
3. Alternative Method for Determining Eligibility: Interim Safe Harbors
The Notice provides three interim safe harbors that taxpayers can use to claim eligibility instead of calculating MACR with actual costs: (1) Identification Safe Harbor, (2) Cost Percentage Safe Harbor, and (3) Certification Safe Harbor. Under the first two approaches, taxpayers may rely on tables provided in prior IRS notices to identify specific products and components and their assigned cost percentages. With the Certification Safe Harbor, taxpayers can rely on supplier certifications of the total direct costs attributable to PFEs.
Next Steps
Taxpayers can rely on this guidance until 60 days after publication of the proposed regulations to determine 45Y and 48E eligibility for projects that began construction after December 31, 2025 and to determine the applicability of 45X for eligible components sold in taxable years beginning after July 4, 2025.
Comments were due March 30, 2026. Stakeholders should carefully review the Notice and be on the lookout for the proposed regulations the agencies anticipate issuing.
