Executive Summary
The One, Big, Beautiful Bill Act, which is commonly known as OBBBA and was enacted on July 4, 2025, introduced significant restrictions on clean energy tax credits under Internal Revenue Code Sections 45X, 45Y, and 48E to limit involvement from Prohibited Foreign Entities, or PFEs. IRS Notice 2026-15 provides interim guidance on these restrictions. The notice defines PFEs, outlines the concept of “material assistance” through the Material Assistance Cost Ratio, or MACR, and offers safe harbors for compliance.
The notice highlights several key aspects. PFEs encompass specified foreign entities tied to national security concerns and foreign-influenced entities based on ownership, debt, or contractual control. Material assistance is determined via MACR thresholds that start at 40 percent for qualified facilities or 55 percent for energy storage technologies in 2026, escalating to 55 percent by 2030, and 50 percent for Section 45X in 2026, escalating to 60 percent beginning in 2029. If the MACR falls below the threshold, the credit is disqualified entirely. Safe harbors are elective and leverage the 2023–2025 Safe Harbor Tables as reflected in Notice 2025-08. The restrictions affect facilities and energy storage technologies with construction beginning after 2025 and Section 45X components sold in taxable years after July 4, 2025. Penalties for false certifications include the greater of 10 percent of the underpayment or $5,000 under new Section 6695B.
Walker Blue recommends robust compliance strategies, such as supplier certifications and MACR tracking, to maximize credit eligibility. Our experts can assist with audits, planning, and optimization.
Introduction
The clean energy sector has benefited from transformative incentives through the Inflation Reduction Act of 2022, or IRA. These incentives include production and investment credits under IRC Sections 45X for the Advanced Manufacturing Production Credit, 45Y for the Clean Electricity Production Credit, and 48E for the Clean Electricity Investment Credit. However, OBBBA amended these provisions to introduce safeguards against foreign influence, particularly from entities that pose national security risks.
Enacted as Public Law 119-21, OBBBA defines PFEs under Section 7701(a)(51) and “material assistance from a PFE” under Section 7701(a)(52). If thresholds are breached, credits are disqualified. IRS Notice 2026-15, released in early 2026, offers interim rules, safe harbors, and definitions pending proposed regulations. This white paper analyzes the notice’s key elements, compares it to domestic content rules, and provides actionable insights for developers, manufacturers, and investors.
Overview of Affected Tax Credits and OBBBA Amendments
Section 45Y: Clean Electricity Production Credit
Section 45Y provides a credit for electricity produced at qualified facilities with zero or negative greenhouse gas emissions rates that are placed in service after 2024. OBBBA added Section 45Y(b)(1)(E), which makes facilities with construction beginning after 2025 ineligible if the MACR falls below the threshold. The notice integrates the 80/20 Rule, under which retrofitted facilities qualify if new property constitutes at least 80 percent of the value, and only new costs factor into the MACR.
Section 48E: Clean Electricity Investment Credit
Section 48E offers an investment credit for qualified facilities and energy storage technologies placed in service after 2024. OBBBA added Sections 48E(b)(6) and (c)(3), which make construction after 2025 ineligible if the MACR falls below the threshold. Qualified interconnection property for facilities with a capacity of 5 megawatts or less requires a separate MACR. If the MACR is low, it affects only the interconnection portion, not the facility itself. The 80/20 Rule applies in a similar manner.
Section 45X: Advanced Manufacturing Production Credit
Section 45X provides a credit for producing eligible components, such as solar and wind parts, inverters, batteries, and critical minerals, that are sold to unrelated parties. OBBBA added Section 45X(c)(1)(C), which makes components sold in taxable years after July 4, 2025, ineligible if the MACR falls below the threshold. The notice includes a binding contract rule for grandfathering, as applied by substituting “used in a product sold before January 1, 2027” for “used in a product sold before January 1, 2030.”
OBBBA also added penalties under Section 6695B, which imposes the greater of 10 percent of the underpayment or $5,000 for false certifications, extends audits under Section 6501, and applies accuracy-related penalties under Section 6662.
Definition of Prohibited Foreign Entity (PFE)
Under Section 7701(a)(51), a PFE is either a specified foreign entity or a foreign-influenced entity.
Specified Foreign Entity
A specified foreign entity includes foreign entities of concern as defined in the 2021 National Defense Authorization Act, or NDAA, Section 9901(8), which covers entities tied to countries like China, Russia, Iran, and North Korea. It also includes Chinese military companies under 2021 NDAA Section 1260H. Additionally, it covers entities on national security lists from Public Law 117-78 and 2024 NDAA Section 154(b). Foreign-controlled entities are included as well, encompassing government agencies and instrumentalities of covered nations, determined through a facts-and-circumstances test similar to Revenue Ruling 57-128.
Foreign-Influenced Entity
A foreign-influenced entity falls into one of two categories. In the first category, during the taxable year, a specified foreign entity appoints officers, owns at least 25 percent or in aggregate at least 40 percent, or holds at least 15 percent of the debt. In the second category, during the prior taxable year, payments grant “effective control” over facilities, energy storage technologies, or component production, such as dictating output, restricting access, or exclusive maintenance. The interim definition covers unrestricted contractual rights, including data access. Effective control also applies to intellectual property licensing agreements. The notice clarifies that effective control excludes typical government functions but emphasizes the national security focus.
Material Assistance from a PFE and MACR Calculation
Material assistance exists if the MACR falls below the applicable threshold, which fully disqualifies the credit without any partial allowance.
Thresholds
For qualified facilities under Sections 45Y and 48E, the MACR threshold is 40 percent in 2026, 45 percent in 2027, 50 percent in 2028 and 2029, and 55 percent in 2030 and later. For energy storage technologies under Section 48E, the MACR threshold is 55 percent in 2026 and escalates thereafter. For eligible components under Section 45X, the threshold is 50 percent in 2026, 55 percent in 2027 and 2028, and 60 percent in 2029 and later.
Clean Electricity MACR (Facilities/ESTs)
The MACR is calculated as the total direct costs of manufactured products and components minus PFE direct costs, divided by total direct costs. To compute it, identify manufactured products and components using domestic content definitions, track costs and PFE status with averaging allowed for small energy storage technologies under 1 megawatt, determine direct costs for materials and labor while excluding indirect costs and steel or iron, and identify PFE-produced items. Used property is excluded under the 80/20 Rule, and shared ownership is prorated. Aggregation for energy storage technologies under 1 megawatt eases tracking but does not provide an exemption.
Eligible Component MACR (§45X)
The calculation is similar but focuses on direct material costs of constituent materials. Subcomponents are excluded unless specified, and averaging applies to production batches. Labor and overhead are excluded, with the emphasis on supply chain sourcing.
Interim Safe Harbors
Under Section 7701(a)(52)(D)(iii)(II), safe harbors leverage the 2023–2025 Safe Harbor Tables as reflected in Notice 2025-08 for technologies like solar, wind, and battery energy storage systems.
Identification Safe Harbor
This safe harbor uses exclusive lists of manufactured products, components, or constituent materials, and disregards unlisted items. It applies only to listed projects and components, and integrates the 80/20 Rule.
Cost Percentage Safe Harbor
This safe harbor assigns percentages, such as 38 percent for solar cells in a module. Percentages are aggregated for total and PFE amounts, with the MACR calculated as total percentage minus PFE percentage, divided by total percentage. Adjustments are made for unutilized or shared items.
Certification Safe Harbor
This safe harbor relies on supplier certifications that are signed under penalties of perjury for costs and PFE status. Good-faith reliance is permitted, but certifications are inaccurate if knowingly false.
Substantiation requires retaining records consistent with Section 6001 and Treasury Regulation Section 1.6001-1, and attaching a statement to Forms 7211, 3468, or 7207 identifying the safe harbor used. Taxpayers can rely on the safe harbors until 60 days after publication of forthcoming proposed regulations or safe harbor tables, which are due no later than December 31, 2026.
Comparison to Domestic Content Safe Harbor (Notice 2025-08)
PFE rules mirror the domestic content bonuses, which provide a 10 percent adder, but invert the goal by rewarding U.S. content versus penalizing PFE involvement. Both use the same tables and percentages, focus on manufactured products and components, have escalating thresholds, offer elective safe harbors, and integrate the 80/20 Rule. However, PFE disqualification is all-or-nothing compared to the bonus eligibility. PFE rules are narrower, targeting specific PFEs rather than all foreign sources, and include control and ownership elements. They also provide separate treatment for interconnection property and unique penalties. The overlap simplifies dual compliance.
Other PFE Restrictions and Penalties
Beginning of construction uses IRA rules, including physical work or the 5 percent safe harbor, and ignores PFE for the start date. Penalties include the greater of 10 percent of the underpayment or $5,000 per false certification under Section 6695B, which has a 6-year assessment period, 20 percent for substantial understatement under Section 6662, and extended audits under Section 6501. Substantiation involves detailed records and OMB-approved forms.
The notice requests comments on definitions, thresholds, and safe harbors.
Implications for the Clean Energy Industry
These restrictions aim to bolster U.S. supply chain security but may increase costs and complexity, especially for critical minerals and solar or wind components that rely on global sourcing. Small-scale energy storage technologies benefit from aggregation, but no broad exemptions exist. Challenges include tracing PFE influence in complex chains and meeting higher thresholds over time, which pressures diversification. Potential credit loss may arise from inadvertent breaches. Opportunities include growth in domestic manufacturing and eased transitions through the binding contract rule.
Conclusion and Recommendations
IRS Notice 2026-15 provides essential clarity on OBBBA’s PFE rules, emphasizing compliance to access IRA incentives. Taxpayers should conduct supply chain audits, use safe harbors for efficiency, secure certifications early, and monitor proposed regulations.
Walker Blue, a leader in clean energy consulting, offers tailored services including MACR modeling, PFE screenings, and credit optimization. Contact us at www.walker-blue.com for a consultation.
References
- IRS Notice 2026-15.
- OBBBA (Public Law 119-21).
- Prior Notices: 2023-38, 2024-41, 2025-08.
- IRC §§45X, 45Y, 48E, 7701(a)(51)-(52).
Appendix: Glossary (Excerpted from Notice 2026-15 Section 6)
The Material Assistance Cost Ratio, or MACR, measures non-PFE content. A Prohibited Foreign Entity, or PFE, is a restricted foreign actor. Manufactured Products, or MPs, and Manufactured Product Components, or MPCs, are key items in calculations. The 2023-2025 Safe Harbor Tables are tables from Notices 2023-38 and subsequent updates for classifications and percentages.
