Yesterday, the IRS released Notice 2026-15, the first interim guidance addressing Foreign Entity of Concern (FEOC) restrictions for claiming 48E, 45Y, and 45X credits. These provisions, introduced in last summer’s One Big Beautiful Bill (OBBB), are intended to prevent taxpayers from claiming tax credits on projects owned by or receiving material assistance from specified foreign entities. However, the statutory language left significant room for interpretation and although the restrictions apply to projects that begin construction on or after January 1, 2026, the absence of guidance has left the industry uncertain about how to comply in practice.

While this long-awaited guidance is not complete, with key questions remaining open on several fronts, it provides meaningful clarity on the project-level material assistance test. It lays out a better-defined safe harbor framework, with relatively few surprises, suggesting that forthcoming guidance may take a similarly practical approach.

Here, we break down our initial thoughts on the guidance and what’s still to come, focusing on clean energy projects qualifying for 48E and 45Y credits.

Domestic Content Tables on Double Duty

Last year, the IRS released safe harbor tables for domestic content, setting out standardized percentages for component costs of specific technologies. This allowed developers to answer yes or no on domestic sourcing for major equipment categories and come to a straightforward answer on qualification, in an industry where subcomponent costs may be opaque.

Now, the IRS has announced that these same tables can be repurposed to calculate the material assistance cost ratio (MACR) central to complying with FEOC provisions on a project level. As a refresher, the MACR is the percentage of project costs that are not related to components sourced from PFEs (prohibited foreign entities). The guidance set minimum MACRs for different credits and technologies that would scale up in time. Given the calculations are very similar to domestic content, the safe harbor tables have been repurposed for these regulations– at least in the interim, until updated tables are released.

48E and 45Y projects starting in construction in 2026 need to source at least 40% of costs from sources that are not PFEs, with this percentage stepping up over time:

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For calculating these percentages, developers can now rely on the safe harbor tables included in Notice 2024-41. Concentro also published an interactive tool last year to calculate the domestic content in case helpful for developers to explore the potential PFE content of their projects.

The above method of safe harboring for FEOC compliance is deemed to be the Cost Percentage safe harbor. Developers can also compute the direct costs of materials to qualify, with items limited to those laid out in the safe harbor tables, in what’s called the Identification safe harbor. 

Critically, items excluded from these tables, even if included in the project, are not considered for purposes of calculations under either method. This provision will materially simplify the calculations for projects that can rely on the tables.

The domestic content safe harbor tables can be relied upon until 60 days after the new, forthcoming FEOC safe harbor tables are published for 48E and 45Y. For clarity, these rules apply to projects that begin construction after up to 60 days from the publication of the new safe harbor tables, allowing projects to begin construction with clear guidance to rely upon, and without forward-looking risk of changes. For 45X, reliance on these interim tables ends the day that the new safe harbor tables are published.

Key Exceptions

As mentioned above, only items included in the safe harbor tables are used for the calculations under these two new safe harbor methods. 

Steel and iron generally are not included in the clean electricity MACR calculations, which will help narrow the scope down to the major equipment components.

Add-ons to existing facilities, or what the notice deems “incremental production”, will not be able to use the Cost Percentage or Identification safe harboring methods, and instead will have to calculate direct costs under the general MACR framework. 

One other consideration: for 48E projects, qualified interconnection property (QIP) requires a separate MACR calculation if included in the ITC base. If the QIP fails that test on a standalone basis, the facility still can qualify overall, but the QIP costs will be excluded from the basis.

Lastly, it is worth noting that technologies that are not regarded within the 2023–2025 domestic content tables will not be able to rely on this method, including geothermal, nuclear, and fuel cells, among others.  

Temporary Certification Reliance

The notice also introduces a certification safe harbor, which allows taxpayers to rely on certifications from suppliers regarding PFE exposure. The supplier can either certify the total direct costs for non-PFE property, or simply that the manufactured component was not PFE-produced or -sourced overall.

The certifications need to include the supplier’s EIN (or foreign equivalent) and be signed under penalties of perjury. They should be attached to the relevant credit forms submitted to the IRS for the first year claimed, and have a 6-year retention period. There are direct supplier penalties if the supplier themselves knew or reasonably should have known their statements were inaccurate and they contributed to a credit disallowance, with the greater of 10% of the underpayment attributable to the false certification or $5,000.

Most importantly, the guidance is meant to allow taxpayers to rely on certificates that meet the requirements, unless you have reason to believe they are not truthful. As such, from a MACRs compliance perspective, you’d be safe harbored and deemed compliant and protected from a disallowance. Note that the IRS may be very inquisitive in such cases, which will mean that taxpayers need to ensure their certifications are extremely tight and without any fissures that could allow the IRS to invalidate such certificates.

Tracking and Averaging

Notice 2026-15 doesn’t just introduce table-based safe harbors—it also sets out practical “tracking” rules that determine whether relevant manufactured products and components are treated as PFE-produced or PFE-sourced when calculating MACR. The Notice generally assumes components are tracked to the specific facility or storage unit, but it offers two meaningful simplifications.

First, it includes a de minimis assignment approach that lets you avoid item-by-item tracking for smaller buckets of costs, as long as the total direct costs assigned to a given facility or storage unit are less than 10% of that project’s total direct costs, and the assignment is done consistently within the same placed-in-service tax year for like items.

Second, it allows averaging in limited cases, including for 45X manufacturers and for storage projects under 1 MW, so costs can be averaged across equivalent output over a defined period instead of being traced at the individual component level.

Takeaways

In general, we expect this guidance to be useful for developers in the short term and to allow for the scope to be narrowed to major components, with some sources of ambiguity eliminated.

Importantly, the question of how far up the supply chain developers need to look has largely been answered. One key worry was that all subcomponents and raw materials would need to be certified compliant, rather than just looking at major equipment categories. Now, it's clear that the PFE rules are focused on component-level manufacturing rather than tracing through the supply chain entirely.

Continued compliance will be a focus: Notice 2026-15 also highlights that deficiencies attributable to MACR errors are subject to a six-year assessment period, meaning the IRS can assess additional tax for a MACR-related mistake for up to six years after the return is filed. Practically, that longer window extends diligence, indemnity, and risk-tail considerations for both developers and credit buyers.

What’s Missing

Several of the most ambiguous FEOC topics are still awaiting guidance, starting with the definition of prohibited foreign entities. Notice 2026-15 is explicit that this is interim guidance, and that Treasury and the IRS intend to issue more comprehensive proposed regulation and other guidance on both the definition of a PFE and the material assistance rules.

The Notice largely restates the statutory framework added to the Code, including the split between specified foreign entities and foreign-influenced entities. It does provide an interim meaning of “effective control,” describing it as an unrestricted contractual right to determine key operational decisions like production timing and volume, who buys the output, access to the site, and how operations and maintenance are performed. It also flags intellectual property licensing concepts. But this is still high level, and the practical questions around ownership attribution, affiliates, and debt structures are left for future regulations.

The Notice also signals a strong focus on non-circumvention. It points to statutory authority to prevent taxpayers from structuring around these rules, including rules intended to stop stockpiling to take advantage of transition exceptions and to prevent claims that construction has begun when the facts indicate otherwise. It also previews future regulations aimed at preventing evasion of the prohibited foreign entity restrictions through temporary changes in ownership or control created by transfers or changes in rights.

The Concentro team will continue to monitor proposed regulations and guidance as they’re released. Please feel free to contact the team if you have questions on FEOC restrictions and how they affect your projects.