The Dept. of the Treasury and the Internal Revenue Service (IRS) have issued guidance for energy project developers and manufacturers determining whether the components they use are receiving material assistance from a prohibited foreign entity (PFE) and therefore ineligible for certain tax credits. This is the foreign entity of concern (FEOC) clause included in the One Big Beautiful Bill Act (OBBBA).
OBBBA added new restrictions to the investment tax credit (48E) and production tax credit (45Y) available to solar and storage projects. The advanced manufacturing production credit (45X) for domestic manufacturers was also amended to limit the use of components from countries or entities determined to be FEOC/PFE — mainly China.
Notice 2026-15 from the Treasury Department and IRS provides calculations for the material assistance cost ratio (MACR) that taxpayers will use to determine whether there was material assistance from a PFE. The notice also details the safe harbors authorized by the OBBBA and their calculations.
As for how far up the supply chain one must go in these calculations (for example, whether to start at polysilicon and also factor the wafer and cell into a panel’s MACR), clean energy finance company Crux stated 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 those previous tables are disregarded and not factored into the MACR.
This would require solar panels to start at the cell and include associated components like the frame, front glass, backsheet and junction box. An inverter includes the circuit boards, thermal management system and enclosure. Roof racking includes the fasteners and rails. Trackers include the torque tubes, fasteners, drive system and rails. A battery module includes the cells and packaging.
The MACR calculations are explained with examples in the 95-page notice from the Treasury Department and IRS. What isn’t fully explained is how to determine if a component is from a PFE.
In a FEOC explainer published last year, Norton Rose Fulbright partners said, “Most prohibited foreign entities should be easy to identify. Not all will be.”
A company manufacturing in China can easily be identified as a PFE, but with many solar companies being multinational, it gets more difficult. A PFE has previously been described as having 25% ownership by a single Chinese shareholder or having 15% of its total debt held by Chinese lenders. Companies manufacturing with Chinese licensing — a non-Chinese company producing panels with lawfully licensed Chinese patents — could also be considered PFE. How American developers will be able to determine these situations is still unclear.
Some of the more obvious PFE concerns within domestic solar manufacturing have already been working themselves out. Trina Solar sold its Dallas solar panel assembly facility to T1 Energy; JA Solar sold its Phoenix solar panel plant to Corning; and Canadian Solar established a new U.S. division to own its solar panel and battery operations relevant to the American market. The Chinese parent company of Boviet Solar is looking for a buyer to ensure the popular U.S. panel brand keeps its North Carolina factories in business.
Still, the latest guidance from the Treasury Department and IRS provides a starting point for the industry, said Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition.
“Today’s notice provides some clarity for domestic solar manufacturers looking to make investment decisions in the United States and strengthen the security of American energy supply chains. The additional clarity will help advance the urgent task of de-risking America’s energy supply chains from Chinese influence,” he said. “We look forward to continuing to work with treasury and the IRS on rigorous implementation of OBBBA to strengthen American manufacturing and ensure Chinese-owned or controlled companies are barred from accessing U.S. taxpayer dollars, consistent with congressional intent.”
The Treasury Department and IRS said they “intend to propose regulations and other further guidance with respect to the definition of a PFE and the material assistance rules, including new safe harbor tables,” — so more details should be coming. The government is accepting public comments on the matter through March 30, 2026.
