The US Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released Notice 2026-15 (Notice), providing long-awaited guidance on certain foreign entity of concern (FEOC) rules enacted under the One, Big, Beautiful Bill Act (OBBBA) and applicable to clean energy tax credits. The Notice provides methodologies for determining whether a project, facility or component has received material assistance from a prohibited foreign entity (PFE), introduces safe harbors to simplify compliance and clarifies the application of certain effective control rules for intellectual property (IP) licensing agreements.
An overview of the FEOC rules can be found in our Q&A discussion.
Material Assistance Cost Ratio
The OBBBA amended Sections 45Y (clean electricity production credit), 48E (clean electricity investment credit) and 45X (advanced manufacturing production credit) of the Internal Revenue Code of 1986, as amended (Code), to render a project, facility or component ineligible for the respective credit if it receives material assistance from a PFE. A project, facility or component is deemed to have received material assistance from a PFE if its material assistance cost ratio (MACR) is below a specified threshold percentage, which generally increases annually over the next several years.
The Notice outlines the rules for calculating the MACR, which taxpayers must use if they do not rely upon the safe harbors established in the Notice.
- Clean Electricity MACR (Code Sections 45Y and 48E): To calculate the MACR for a qualified facility or energy storage technology, a taxpayer must (i) identify all manufactured products (MPs) and manufactured product components (MPCs) incorporated into the project or facility; (ii) track the direct costs of each MP and MPC; and (iii) determine which of those costs are attributable to items mined, produced or manufactured by a PFE (PFE Direct Costs). The MACR is then calculated as the quotient of (A) total direct costs minus PFE Direct Costs, divided by (B) total direct costs.
- Eligible Component MACR (Code Section 45X): The calculation of the MACR for eligible components is similar but focuses on the inputs for manufactured components (Constituent Materials). A taxpayer must identify all Constituent Materials, track their direct material costs and determine the portion of those costs attributable to materials sourced from a PFE.
The Notice provides that direct costs for a self-produced MP include direct material and direct labor costs. For an acquired MP, the direct cost is its acquisition cost. De minimis rules apply for purposes of determining up to 10 percent of total direct costs. Taxpayers must calculate a separate MACR for qualified interconnection property.
MACR Safe Harbors
The Notice establishes three safe harbors that taxpayers may use to simplify the MACR calculation.
- Identification Safe Harbor: A taxpayer may elect to use the safe harbor tables from the domestic content bonus credit guidance provided in Notices 2023-38, 2024-41 and 2025-08 (the Safe Harbor Tables) to establish the exclusive and exhaustive list of MPs, MPCs and Constituent Materials. If an item is not listed in the Safe Harbor Tables, it is disregarded for the MACR calculation.
- Cost Percentage Safe Harbor: In lieu of tracking actual costs, taxpayers using the identification safe harbor may use the assigned cost percentages provided in the Safe Harbor Tables and follow a five-step process to determine the MACR:
- Step 1: Identify all applicable MPs, MPCs and Constituent Materials using the identification safe harbor.
- Step 2: Track whether each identified item was produced by a PFE.
- Step 3: Determine the total percentage as the sum of the assigned cost percentages for all identified items.
- Step 4: Determine the total PFE percentage as the sum of the assigned cost percentages for all identified items that were produced by a PFE.
- Step 5: Calculate the MACR as the quotient of (A) total percentage minus total PFE percentage, divided by (B) total percentage.
- Certification Safe Harbor: Taxpayers may rely on certifications from their direct suppliers to determine whether an item was produced by a PFE or to establish the costs attributable to non-PFE content. To be valid, a certification must be provided by the direct supplier, signed under penalties of perjury and attached to the taxpayer’s tax return. A taxpayer may not rely on a certification if it knows or has reason to know it is inaccurate.
These safe harbors cannot be used for qualified interconnection property. Used property in a facility qualifying under the so-called “80/20 rule” and steel or iron products identified in the Safe Harbor Tables are disregarded in calculating the MACR. Taxpayers must attach a statement to their tax returns identifying the specific safe harbors they are applying.
IP Licensing Agreements
The Notice provides an important clarification on the interpretation of the definition of “foreign-influenced entity.” It states that Treasury and the IRS intend to issue proposed regulations providing that if a taxpayer makes a payment to a specified foreign entity under any IP licensing agreement with respect to a project, facility or component, and the agreement was entered into or modified on or after July 4, 2025, then the specified foreign entity will be treated as exercising effective control over the project, facility or component, and the taxpayer will be considered a foreign-influenced entity. If considered a foreign-influenced entity, the applicable project, facility or component will not qualify for the Code Section 45Y, 48E or 45X credit. This broad interpretation is consistent with the statutory language in the OBBBA and creates a trap for the unwary.
Applicability Dates
Under the OBBBA, (i) the material assistance rules generally apply to projects and facilities beginning construction after December 31, 2025 (Code Section 45Y and 48E credits) and components sold in taxable years beginning after July 4, 2025 (Code Section 45X credit); and (ii) the effective control rules generally apply to taxable years beginning after July 4, 2025 (Code Section 45Y, 48E and 45X credits).
Taxpayers may rely on the Notice until 60 days after forthcoming proposed regulations and guidance are published. Treasury and the IRS have requested that any comments to the Notice be submitted by March 30, 2026.
