The Treasury Department and the Internal Revenue Service (IRS) have issued guidance for developers and manufacturers of energy projects to determine whether the components they use receive material assistance from a prohibited foreign entity (PFE) and are therefore ineligible for certain tax credits. This is the Foreign Entity of Concern (FEOC) clause contained in the One Big Beautiful Bill Act (OBBBA).
OBBBA has added new restrictions to the Investment Tax Credit (48E) and the Production Tax Credit (45Y) available for solar and storage projects. The advanced manufacturing credit (45X) for domestic manufacturers was also changed to limit the use of components from countries or entities determined to be FEOC/PFE – mainly China.
Notice 2026-2015 from the Treasury Department and the IRS provides Material Assistance Cost Ratio (MACR) calculations that taxpayers will use to determine whether there was material assistance from a PFE. The notice also describes the safe harbors authorized by the OBBBA and their calculations.
As for how far down the supply chain to go in these calculations (for example, whether to start with polysilicon and also include the wafer and cell in a panel’s MACR), the clean energy finance company says. said Crux that the manufactured products and components identified in safe harbor tables released in 2023-2025 are the only ones affected. Any item not listed in the previous tables will be disregarded and not included in the MACR.
For this, solar panels should start at the cell and include associated components such as the frame, front glass, back plate and junction box. An inverter includes the printed circuit boards, the thermal management system and the housing. Roof racks include the mounting hardware and rails. Trackers include the torque tubes, mounting hardware, drive system and rails. A battery module includes the cells and packaging.
The MACR calculations are explained with examples in the 95-page notice of the Ministry of Finance and the tax authorities. What is not fully explained is how to determine if a component comes from a PFE.
In one FEOC explainer published last yearNorton Rose Fulbright Partners said: “Most banned foreign entities should be easy to identify. Not all will be.”
A company manufacturing in China can easily be identified as a PFE, but because many solar companies are multinational, it becomes more difficult. It has previously been described that a PFE is 25% owned by a single Chinese shareholder or that 15% of the total debt is held by Chinese lenders. Companies that produce under Chinese licenses – a non-Chinese company that produces panels with legitimately licensed Chinese patents – can also be considered PFE. It is still unclear how American developers will be able to determine these situations.
Some of the more obvious PFE issues within domestic solar production have already been resolved. Trina Solar sold its solar panel assembly plant in Dallas to T1 Energy; JA Solar sold its Phoenix solar panel factory to Corning; and Canadian Solar established a new US division that will own the solar panel and battery businesses relevant to the US market. The Chinese parent company of Boviet Solar is looking for a buyer to ensure that the popular American panel brand keeps its factories in North Carolina running.
Still, the latest guidance from the Treasury Department and the IRS provides a starting point for the industry, said Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition.
“Today’s communication provides some clarity for domestic solar manufacturers looking to make investment decisions in the United States and strengthen the security of U.S. energy supply chains. The additional clarity will help advance the urgent task of shielding U.S. energy supply chains from Chinese influence,” he said. “We look forward to continuing to work with the Treasury Department and the IRS on a rigorous implementation of OBBBA to strengthen U.S. manufacturing and ensure that Chinese companies do not gain access to U.S. taxpayer dollars, consistent with Congress’s intentions.”
The Treasury Department and the IRS said they “intend to propose regulations and other further guidance regarding the definition of a PFE and material assistance rules, including new safe harbor tables,” so more details should be forthcoming. The government is accepting public comments on the issue until March 30, 2026.
