The IRS has released Notice 2026-15, providing an extensive interim framework for applying the new statutory restrictions on clean-energy tax credits when a project or manufactured component includes “material assistance from a prohibited foreign entity” (a “PFE”). These restrictions were enacted by the One, Big, Beautiful Bill Act of 2025 (the “OBBBA”) and now apply to the §45Y Clean Electricity Production Credit, the §48E Clean Electricity Investment Credit, and the §45X Advanced Manufacturing Production Credit. The Notice remains in effect until proposed regulations and formal Material Assistance Cost Ratio (“MACR”) safe harbor tables are issued.
- IRS Notice 2026-15 establishes interim rules for clean-energy tax credits, specifically addressing projects or components that involve “material assistance from a prohibited foreign entity” (PFE).
- These PFE restrictions impact three primary tax credits: the §45Y Clean Electricity Production Credit, the §48E Clean Electricity Investment Credit, and the §45X Advanced Manufacturing Production Credit.
- A PFE is defined as certain foreign entities or entities with specified levels of foreign ownership, debt, or control. This includes entities on national-security lists, Chinese military companies, or those with effective control rights, such as appointing officers or directing operations.
- Eligibility for the affected tax credits depends on passing the Material Assistance Cost Ratio (MACR) test, which calculates the proportion of a project’s direct costs (materials and labor) that originate from PFEs.
- If the MACR is below the statutory threshold for the relevant year of construction or sale, the facility or component is not eligible for the tax credit.
- The Notice provides clear definitions for key terms, including total direct costs, PFE direct costs, manufactured products and components, and eligible components.
- It is important for stakeholders to monitor their supply chains and costs, ensuring they use eligible materials and components from non-PFE sources in order to meet the MACR requirements.
- These interim rules will remain in place until the IRS issues final regulations and updated safe harbor tables.
The Notice relies on detailed definitions enacted in §7701(a)(51) and §7701(a)(52). Under §7701(a)(51), a PFE includes both “specified foreign entities” and “foreign-influenced entities.” A specified foreign entity includes, among others, entities defined as foreign entities of concern under the 2021 NDAA, Chinese military companies, certain entities placed on national-security lists,[1] and foreign-controlled entities. A foreign-influenced entity is one in which specified foreign entities collectively or individually meet defined ownership or debt thresholds (≥25% and ≥40% of ownership, or ≥15% of debt), have direct authority to appoint officers, or possess contractual rights that constitute “effective control.” These control rights include the ability to determine production quantity or timing, dictate purchasers or users of output, designate required sources of components, restrict access to operational data, maintain or operate equipment on an exclusive basis, or retain IP-related rights such as royalties beyond 10 years or mandatory service agreements longer than 2 years. The Notice incorporates public-company rules for determining beneficial ownership and ties timing to the supplier’s tax year that includes the date when the taxpayer paid or incurred the relevant costs (or calendar year if no tax year exists).
Material assistance from a PFE is tested using the statutory Material Assistance Cost Ratio (MACR) under §7701(a)(52). The Notice applies two MACR tests. The Clean Electricity MACR is used for §45Y qualified facilities and §48E qualified facilities and energy storage technologies (ESTs). It is calculated as:
(Total Direct Costs – PFE Direct Costs) / Total Direct Costs
A facility fails eligibility if the MACR is less than the annual statutory threshold for the year construction begins. The Eligible Component MACR applies to §45X eligible components. It is calculated as:
(Total Direct Material Costs – PFE Direct Material Costs) / Total Direct Material Costs
Failure occurs if the result is below the threshold for the calendar year of sale. The Notice provides definitions used in computing these ratios. “Total Direct Costs” are the taxpayer’s direct material and direct labor costs under §1.263A-1(e)(2) and §1.471-3. “PFE Direct Costs” and “PFE Direct Material Costs” include costs of any manufactured product (a “MP”), manufactured product component (a “MPC”), or constituent material that was mined, produced, or manufactured by a PFE. “PFE Produced” refers to an MP or MPC produced by a PFE; “PFE Sourced” refers to a constituent material supplied by a PFE. An “eligible component” is defined in §45X(c)(1) and may include components Treasury identifies in future guidance. “Energy storage technology” is defined by reference to §48E(c)(2) and §48(c)(6).
How the MACR Test Works: Examples from Notice 2026-15
Example — Energy Storage Technologies (“EST”) under §48E.
A taxpayer places into service 50 identical EST units (each <1 MW) in 2026. Under §7701(a)(52)(B)(ii), an EST beginning construction in 2026 fails if its MACR is <55%. The taxpayer produces 25 units in the first 6 months (Period 1) and 25 units in the second 6 months (Period 2).
In Period 1, each unit includes 3 heat exchangers; 75 heat exchangers total are used, 65 of which are PFE-produced (≈86.7%). Average heat exchanger cost is ((25 × $24) + (50 × $30)) / 75 = $28. Per unit: 3 × $28 = $84. Other direct costs per unit: $16. Total direct costs per unit: $100. PFE share: 86.7% × $84 = $72.83.
Clean Electricity MACR: (100 – 72.83) / 100 = 27.2%. Result: 27.2% < 55%. Accordingly, Period 1 units fail. In Period 2, again 75 heat exchangers are used; 25 are PFE-produced (≈33.3%). Average heat exchanger cost is ((25 × $24) + (50 × $35)) / 75 = $31.33. Per unit: 3 × $31.33 ≈ $93.99. Other direct costs per unit: $6.01. Total direct costs per unit: $100. PFE share: 33.3% × $93.99 ≈ $31.30. Clean Electricity MACR: (100 – 31.30) / 100 = 68.7%. Result: 68.7% ≥ 55%. Accordingly, Period 2 units pass.
Example — §45X Solar Photovoltaic Modules.
A taxpayer produces 200 PV modules in 2026. Under §7701(a)(52)(C)(i)(I)(aa), solar energy components sold in 2026 must have MACRs ≥50%. In Period 1 (first 39 weeks), 160 units are produced. PV cells used: 23,040, of which 21,020 are PFE-sourced (≈91.2%). Average cell cost: ((21,020 × 0.50) + (2,020 × 1.50)) / 23,040 = $0.59. PV cell cost per unit (144 cells): 144 × $0.59 = $84.96. Other direct material costs per unit: $60. Total direct material costs: $144.96. PFE direct material costs: 91.2% × $84.96 = $77.48.
Eligible Component MACR: (144.96 – 77.48) / 144.96 = 46.5%. Result: 46.5% < 50% → fails.
In Period 2 (final 13 weeks), 40 units are produced. PV cells used: 5,760, of which 2,620 are PFE-sourced (≈45.5%). Average cell cost: $1.05. PV cell cost per unit: 144 × $1.05 = $151.20. Other direct material costs: $60. Total direct material costs: $211.20. PFE share: 45.5% × $151.20 = $68.80.
Eligible Component MACR: (211.20 – 68.80) / 211.20 = 67.4%. Result: 67.4% ≥ 50% → passes.
Safe Harbors.
To aid taxpayers before final regulations are issued, the Notice introduces three interim safe harbors:
- The Identification Safe Harbor allows identification of MPs, MPCs, and constituent materials using the 2023–2025 Domestic Content Safe Harbor Tables, but only for listed facility types and components.
- The Cost Percentage Safe Harbor allows use of Assigned Cost Percentages instead of actual cost tracking, but only if the Identification Safe Harbor applies; it is not available for facilities subject to the Incremental Production Rule and has special rules where the 80/20 Rule applies.
- The Certification Safe Harbor allows reliance on supplier certifications regarding PFE status and PFE-free cost portions; certifications must include supplier identification, be signed under penalties of perjury, be retained for 6 years, and be provided to the IRS on request.
Special Rules: 80/20, Interconnection Property, and Steel/Iron.
For repowered facilities qualifying under the 80/20 Rule. The 80/20 Rule provides that a repowered facility can qualify as a “new” facility if the fair market value of the used (existing) components does not exceed 20% of the total value of the facility after repowering. Only new property counts toward the MACR; used property is disregarded. Where new and used items of the same type coexist, the full assigned cost percentage applies to the new property. Interconnection property is analyzed separately, and failure of the interconnection MACR merely removes it from qualified investment but does not disqualify the underlying facility if the facility’s own MACR passes. Steel and iron are excluded from MACR unless specifically defined as manufactured products or components.
Penalties for Non-Compliance.
The Notice outlines a strict enforcement regime. For disallowances due to overstating MACR, §6662(m) reduces the substantial understatement threshold from 10% to 1%, with the standard 20% penalty applying to the underpayment portion. Under §6501(o), the IRS has 6 years to assess deficiencies attributable to erroneous MACR computations. New §6695B imposes supplier penalties for false or inaccurate certifications equal to the greater of 10% of the underpayment attributable to the error or $5,000, absent reasonable cause. Under §6417, excessive direct payments resulting from MACR misstatements are subject to recapture.
Substantiation Requirements.
Taxpayers must maintain records required under §6001 and attach a statement identifying any safe harbor relied upon, the specific table used, and the manner of application. The statement must accompany Form 7211, Form 3468, or Form 7207 in the first year the taxpayer claims the credit. Supplier certifications must be retained for 6 years.
Reliance Period.
Taxpayers may rely on this Notice for projects beginning construction after 12/31/2025 and for §45X components sold in tax years beginning after 7/4/2025, up until 60 days after issuance of proposed regulations or MACR safe-harbor tables, as applicable.
Request for Comments.
The IRS has requested comments on this Notice. Comments will be considered by the IRS in drafting future published guidance, and must be submitted by March 30, 2026.
[1] Specifically, China, Russia and North Korea.
