The One Big Beautiful Bill (OBBB) introduced the prohibited foreign entity (PFE) provisions, significantly expanding the Inflation Reduction Act's (IRA) prior foreign entity of concern (FEOC) framework. Notice 2026-15, published February 12, 2026, elaborated on the PFE provisions, which have rapidly become one of the most consequential compliance requirements in the clean energy tax credit market. With that initial regulatory clarity, practitioners across supply chain advisory, deal structuring, and transaction law are working diligently to operationalize rules that remain, in key respects, unsettled.
Crux Director of Research Katie Bays sat down with four leading PFE practitioners — Praveen Ayyagari (KPMG), Josh Morris (Novogradac), Elizabeth Crouse (Holland & Knight), and Gary Blitz (Aon) — to get a practitioner-level read on where the market stands on PFE compliance as guidance evolves. Their perspectives reveal common themes — the centrality of pragmatic, red flag–driven diligence, the limits of supplier certification as a compliance backstop, and the tools the market has developed to manage risks that formal guidance has not yet resolved — as well as important differences across deal structures and tax credit types.
Together, these interviews offer an on-the-ground map of where the PFE compliance market stands today and what participants should expect next.
Praveen Ayyagari, Managing Director, KPMG Tax
Praveen Ayyagari is a Managing Director in KPMG's tax practice specializing in clean energy tax incentives and federal tax policy. He brings a rare firsthand perspective to the PFE rules — having helped draft the IRA's clean energy incentives as Tax Counsel on the House Ways & Means Committee, then managed regulatory guidance for those same provisions as an Attorney-Advisor at the U.S. Department of the Treasury (Treasury), where he worked directly with IRS Chief Counsel and senior Treasury leadership on implementation. At KPMG, he advises energy sector clients on tax credit qualification, PFE and domestic content compliance, and evolving legislative developments.
Katie Bays spoke with him about what Notice 2026-15 signals about Treasury's broader implementation strategy, how the "reason to know" standard will operate in practice across its multiple statutory layers, and a provision that has not yet received enough market attention — the recapture rules in §48E that will begin to apply to projects placed in service starting in 2028.
BAYS: Based on the initial guidance in Notice 2026-15, what does Treasury's approach tell us about how they intend to implement the PFE rules more broadly — and are there signals in that notice about where future guidance is headed?
AYYAGARI: The OBBB placed a large number of restrictions across several clean energy credits — the PTC, ITC, §45X, and others — and it is a very large piece of statutory text to unwind. When Treasury looked at what was most pressing, they focused on the beginning-of-construction (BOC) date: projects starting construction this year need to meet the material assistance cost ratio (MACR) restrictions, so they moved quickly. The result is a MACR-focused notice. The notice is half interim guidance and half a notice of intent to issue proposed regulations — signaling that new safe harbor tables will be published by year-end on the MACR calculation, while also flagging intent to provide more comprehensive guidance on the PFE definitions and material assistance more broadly. From my vantage point, Treasury was already working on that broader package before the MACR notice was released. I am hopeful they can get proposed guidance out in a timely manner.
BAYS: Does the priority guidance plan signal anything about timing on the broader PFE rules?
AYYAGARI: The priority guidance plan is usually a good indicator of what Treasury actually intends to accomplish. The most recent iteration was a slimmed-down version, which suggests it reflects a realistic list. PFE restrictions are on it, and those items are typically written broadly enough to encompass several pieces of guidance. So, yes, I read that as inclusive of the ownership and effective control tests, not just the MACR rules.
BAYS: The "reason to know" standard appears in several places in the statute. What does it mean in practice, and how would an IRS examiner assess whether a taxpayer did enough?
AYYAGARI: The "know or have reason to know" language shows up in at least three distinct places:
1. As one of the optional certification statements a supplier can make.
2. As the basis for a supplier penalty if they certify inaccurately.
3. As the standard a taxpayer must satisfy when relying on a certification they receive.
Multiple layers are operating simultaneously. The closest analogue in existing tax law is probably the withholding regime, which uses the concept of a reasonably prudent person — and I think those concepts are available to draw from here. A supplier meeting the certification safe harbor needs to check their internal records and, to a limited extent, look for any obvious public information that says something to the contrary. That is the floor.
BAYS: If a taxpayer relied in good faith on a certification that later turns out to be inaccurate, does the safe harbor protect them?
AYYAGARI: Up until the point where the taxpayer knows the certification is inaccurate, reasonable reliance — no obvious indication of inaccuracy, nothing in internal records that says otherwise—should hold. The safe harbor is a taxpayer-friendly tool, but the "reason to know" layer means it is not unconditional. The protection exists, but it is tied to the ongoing reasonableness of the reliance — it is not a one-time, check-the-box exercise.
BAYS: Are there analogues in prior tax law that will inform how examiners approach these rules?
AYYAGARI: The PFE concepts trace back to the CHIPS Act, which included FEOC rules tied to the semiconductor manufacturing investment tax credit, and then the IRA extended similar restrictions to batteries and critical minerals. The drafters of the OBBB PFE rules were certainly looking at those provisions — many concepts were incorporated directly into the statutory text. That said, the OBBB statute is highly prescriptive in ways that differ from those prior regimes, so you can draw on them for conceptual guidance, but you cannot simply import their conclusions.
BAYS: What should people be asking you that they are not?
AYYAGARI: These rules are genuinely hard to navigate outside the safe harbor tables — taxpayers are being asked to go through supply chains, analyze bills of materials, and track direct material costs for each constituent material in a §45X context, which can run into the thousands. That undertaking is still underappreciated. But what I have not seen enough discussion of is the recapture provision within §48E. The statutory language is broad and the provision looks onerous — it applies to taxpayers who have been allowed a credit for tax years beginning 2 years after the date of enactment of the OBBB. The market has not fully grappled with the scope or what mitigation looks like. The best approach is to start raising awareness, and ensure clients can get out in front of it as early as possible.
BAYS: Is guidance expected on that recapture provision?
AYYAGARI: I hope it makes its way into proposed regulations regarding the PFE restrictions and MACR provisions. The language needs clarification, and the stakes are high enough that taxpayers deserve to know what they are working with before those credits start being placed in service.
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Josh Morris, Partner, Novogradac
Josh Morris is a Partner at Novogradac & Company LLP whose practice spans the full lifecycle of renewable energy and energy transition projects — from structuring and financing through compliance — for developers, investors, lenders, and manufacturers across the clean energy supply chain. He brings specialized expertise in ITC and PTC monetization, partnership tax, and HLBV accounting, with a growing focus on FEOC and domestic content planning as those rules continue to evolve.
Morris has been at the center of the market's effort to develop workable FEOC diligence processes, from certification corroboration to MACR calculation methodologies under the identification safe harbor. Katie Bays spoke with him about how the reason-to-know standard is playing out in practice, investor versus developer diligence dynamics, and who bears recapture risk when supplier certifications prove fraudulent.
BAYS: Notice 2026-15 says a taxpayer can rely on a certification unless they know or have reason to know it is inaccurate. Is getting a signed certification enough, or does it require corroboration?
MORRIS: A signed certification is an important starting point — and often necessary if you are relying on the certification safe harbor — but it is not the end of the analysis. The standard is asking whether it was reasonable to rely on that certification — that is a process question, not a document question. You do not need to be perfect, but you need to have built a reasonable process and not had a reason to know something was off.
In practice, we are seeing people layer in corroboration: a supplier questionnaire, some high-level sourcing documentation and supply chain map explanation, and a basic sanity check against market knowledge. If all you have is a signed PDF and nothing else, that is a very hard position to defend under audit.
BAYS: Show your work, but do not overbuild it?
MORRIS: Exactly. You got the cert, you read it. What questions came up? How did you resolve them? That is the story you need to tell.
BAYS: How does the type of capital partner — tax equity, tax credit buyer, lender — drive the depth of FEOC diligence?
MORRIS: It generally skews toward more rigor when somebody is buying the tax credits or being allocated them in a partnership. Banks and tier-one investors are very conservative — it is usually that party pushing the developer to do more. Tax equity involvement pushes the material assistance due diligence further along than having a lender alone. Geography matters too: a publicly traded US company with no obvious PFE exposure warrants less scrutiny than a manufacturer whose delivery documentation points toward a covered-nation or other PFE exposure. Follow the money.
BAYS: The certification safe harbor shifts significant liability to suppliers under penalties of perjury. Have you seen deals stall because a manufacturer will not sign?
MORRIS: Supplier pushback is happening and we should not be surprised — you are asking them to sign under penalties of perjury, retain records for six years, and stand behind parts of their supply chain they may not fully control. Plenty are leaning in to stay competitive. Where I see hesitancy is around upstream disclosure. A module manufacturer might provide a cert, but ask them to identify the cell manufacturer and that is often where things stall. There is a whole daisy chain: manufacturers need to collect certs from their own upstream suppliers and defend those to the project. Most understand they have to share, but they are often still doing their own homework, and there is real negotiation happening around indemnification.
BAYS: The identification safe harbor treats the domestic content tables as the exclusive list of components for the MACR calculation. How does that structure your analysis?
MORRIS: When the guidance came out, people were relieved — the 2025-08 table defines the population of manufactured product components (MPCs), so you are not chasing every piece. We always start there. In many solar fact patterns, you focus first on the higher-value items, such as the cell; if you can substantiate non-PFE treatment for those items, you may be much of the way toward the applicable threshold. Add a few more items from the module and inverter, and you can often get there without touching every component. If the safe harbor route does not clear the threshold, the direct cost approach is an alternative — but it is generally a last resort given the classification uncertainty.
BAYS: If a developer gets a fraudulent certification and the tax credits are later recaptured, who bears that risk?
MORRIS: Who bears the risk is exactly the unresolved issue. My view is that a taxpayer should be able to rely on a valid supplier certification unless it knew or had reason to know the certification was inaccurate. But if a certification is later shown to be false despite a clean diligence file, the guidance does not yet clearly answer whether the result is credit-level recapture or disallowance, supplier penalties, or both. That is the uncertainty the market needs resolved. Until then, parties will need to address it through diligence, representations, indemnities, and credit support.
BAYS: Reviewing every counterparty contract is impractical. What does a minimum viable diligence package look like for a tax credit buyer today?
MORRIS: The goal is a reasonable narrative supported by a core set of documents — ownership structure, governance rights, veto and consent rights, and key commercial agreements. You are not reviewing every contract, but you are showing you focused on where control could actually sit. You are not trying to prove a negative with certainty — you are demonstrating a thoughtful process. The market is expecting additional guidance on effective control in future rulemaking. In the meantime, take a risk-based approach and build a file that shows you took it seriously.
Elizabeth Crouse, Partner, Holland & Knight
Elizabeth Crouse is a Partner in Holland & Knight's Portland office who has spent more than a decade advising investors, developers, and operators across the renewable energy, hydrogen, and carbon capture industries on federal tax matters. Her practice spans ITC and PTC structuring, §45Q carbon capture credits, and tax equity and project finance transactions — with more than 11 gigawatts of negotiated deals.
Since the passage of OBBB, Crouse has been deeply involved in PFE-driven restructurings and transfer transactions, providing compliance guidance across multiple tax credit types. Katie Bays spoke with her about the practical realities of PFE compliance in live deals — operationalizing a multi-factor test with incomplete guidance, where effective control and IP licensing are creating friction, and what contractual tools the market has developed to manage residual risk.
BAYS: The notice restates the statutory definition of effective control but does not necessarily operationalize it. How are you handling it in representations (reps), diligence scope, and risk allocation?
CROUSE: You have to develop a streamlined approach. In terms of reps, we are recommending broad-based legal reps — not getting into the nitty gritty. On diligence scope, more is more at this point.
On a §45X deal, effective control shows up in two distinct ways. First, you have to cover it for your counterparty because of the payments rule — affecting whether your counterparty is entitled to the tax credits they are selling you. But §45X also requires worrying about material assistance rules, which is much harder to diligence. A simple manufacturer with a limited bill of materials is manageable; a large commodity mill with international supply chains and equipment licenses is genuinely difficult.
On §48E and §45Y, the analysis is more straightforward because the material assistance rules do not yet apply. In other words, practitioners only need to evaluate the project owner’s classification, rather than the more demanding two-layer analysis required for §45X. Our general approach is a smell test — confirm that publicly available documents and at least some internal documentation do not show red flags. We are not just taking a counterparty's word for it, but we are realistic that we will never have all the documents.
BAYS: A red flag approach rather than overturning every stone?
CROUSE: Maybe an orange flag approach? You have to get to the point where you are comfortable enough to sign on the dotted line. That varies from person to person.
BAYS: The notice flags that licensing agreements entered into or modified after July 4, 2025 can constitute effective control. How frequently is IP licensing showing up as an issue?
CROUSE: On §48E and §45Y it is not coming up often — outside of supervisory control and data acquisition (SCADA) systems or data collection software. A lot of those licenses are for firmware, that is, software that is embedded in a piece of equipment. We are more comfortable with that type of license because there are some income tax arguments that they are not a license at all. On §45X, it is a current issue. In manufacturing for advanced materials — panels, inverters — equipment is largely robotic, and an IP license tied to a robot's operation could result in effective control. Where it gets complicated is material assistance: the effective control rules speak to control over a manufacturing plant in the context of §45X, but how that applies to material assistance is unanswered in the notice.
BAYS: What about a shrink-wrap software license?
CROUSE: I don’t see shrinkwrap licenses — i.e., licenses for off-the-shelf software — as typically creating effective control. I’m optimistic that the guidance will reflect a
practical view there.
BAYS: What does a complete, financeable FEOC compliance package look like for a §48E transfer deal?
CROUSE: Because §48E does not currently require worrying about material assistance, it is possible to get to a financeable position most of the time. We have been writing opinions on FEOC status for months — we do not release opinions that are not well-reasoned, and we do independent work to make sure they are worth the paper they are written on. We have financed on these opinions across §48E and §45X deals. Insurance is not really covering FEOC risk yet, but I am optimistic we will start seeing coverage soon, particularly for counterparty classification with larger publicly traded sponsors.
BAYS: Debt arrangements are a potential foreign-influenced entity (FIE) trigger. How are you approaching lender classification in deals with covered-nation debt exposure?
CROUSE: In standard project financings it is not coming up often. Where it matters is in the restructuring context, and there has been a tremendous amount of FEOC-driven restructuring recently. When standing up a new affiliate, it is tempting to say a loan from a former PRC-affiliated entity is fine, but it is not. Debt is not defined in the statute, but we have income tax precedents to work from. You can analyze and avoid the issue if you go in with eyes open and aware of the anti-abuse considerations.
BAYS: Given the binary nature of the PFE test, what contractual mechanisms are buyers and sellers agreeing to for residual FEOC risk?
CROUSE: The ordinary playbook does not quite work because we cannot get insurance. What we are seeing is strict legal reps around FEOC compliance and a strict indemnity with or without a cap. Beyond that, the movement is on pricing adjustments rather than hold backs or escrows. Where those may emerge is in slightly uncertain fact patterns where a buyer wants to wait for guidance before releasing the full purchase price. The legal reps still backstop recovery if tax credits get recaptured, which means sellers need to be credit-worthy or have a parent guarantee behind them.
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Gary Blitz, Global CEO, Aon Transaction Solutions
Gary Blitz leads Aon's Tax Insurance practice, which specializes in placement of tax insurance programs for M&A transactions, tax credit investments, and corporate tax risk management. He has spent more than three decades at the intersection of tax law and transactional insurance, and has been a central figure in the development of both Representations and Warranties Insurance and Tax Insurance as market products.
Katie Bays spoke with him about the threshold requirements underwriters need to write PFE coverage, the chicken-and-egg dynamic stalling the insurance market, and how deal parties can manage risk in the interim.
BAYS: From an underwriting standpoint, what are the key obstacles to writing a policy that addresses PFE risk today?
BLITZ: PFE is a major threshold issue for tax insurance underwriters at this time — this is because it is not one that creates a partial loss, rather a project will be in or out and could be a total loss. What underwriters want to see, first and foremost, is the work product from the developer's counsel and advisors: a respected firm laying out the facts, analyzing the law, and concluding the project qualifies. And frankly, we have not seen that work product of sufficient strength and provided to us to share with underwriters in conjunction with a proposed policy. We have heard about advisors willing to write it, but have yet to see anyone actually doing so. That is the chicken-and-egg problem we are in right now. The other piece of the puzzle is change-in- law risk, which is thought about differently. Some underwriters simply will not write a policy before guidance is finalized. A qualification question is project-specific — you look at the facts and form a view. If the underwriter is incorrect, the issue pertains to the one project. Change-in-law risk, however, aggregates: if guidance comes out adversely, it could affect every policy written, resulting in one very large loss over one event. That is a fundamentally different underwriting challenge.
I should also add that I am confident that over time guidance will come out and FEOC will become just another technical point that counsel will become comfortable building into project structures and opining on, and tax insurance underwriters will become comfortable underwriting insurance based on that work product.
BAYS: It was reported that Aon was involved in structuring a policy that did cover some aspects of PFE exposure. What made that possible?
BLITZ: I cannot speak to a specific client’s situation, but for such a policy to be underwritten, the insurers would look first to the advice provided by our client’s advisors. This would provide them with a roadmap to assess the opinion. A policy covering material assistance would be underwritten based on such work product, which the advisors involved could reasonably handicap whether the project would qualify under the expected rules. Based on a very strong work product, the underwriters got the comfort they needed. This is the current situation with material assistance since guidance came out back in February. The question everyone is now asking is: “What about effective control and foreign influence?” The answer is the same — some insurers will simply not entertain it until guidance comes out, others will on the back of strong work product, which we have not yet seen. It’s a classic chicken-and-egg scenario.
BAYS: What would you need to see in that work product to get comfortable writing coverage?
BLITZ: We would want to see a should-level conclusion in an opinion or memo — or at minimum a very strong more-likely-than-not. This will provide the underwriters with an analysis to efficiently diligence. It needs to do two things: lay out the facts in detail — the project, who is involved, the supply chain, the equipment, where it comes from, how it has been manufactured — and then apply the law to those facts and conclude the project qualifies. What we are seeing right now is that many developers and investors are holding off making that investment because most affected projects will not be placed in service until 2027 or 2028. The pressure is not yet acute — but that is also in part why the market has not moved.
BAYS: Does the guidance comport with underwriting expectations?
BLITZ: On the MACR issue, there were not huge surprises — it was largely consistent with where people expected it to land. The bigger disappointment is that it did not address the foreign influence and effective control questions, which many in the industry consider more fundamental. A lot of the industry would have preferred that guidance on those aspects of FEOC had come out first. The effective control guidance was helpful, but there are still potential question marks.
BAYS: In the absence of comprehensive PFE insurance, what alternative tools should deal parties be using?
BLITZ: I would not write off insurance entirely — for very clean situations where advisors can form a strong view from the legislation, legislative history, and guidance to date, there may be insurable situations right now. That is worth testing. Beyond that, I would recommend building contractual mechanisms that allow the project to restructure or comply if guidance comes out differently than expected. That does two things: it reduces the leap an insurer has to make to get comfortable, and it makes each project somewhat unique — meaning adverse guidance will not affect every project the same way. The more you can differentiate your project's exposure, the better positioned you are for both insurance purposes and managing the underlying risk.
As Treasury develops additional guidance and market practice evolves, the PFE compliance landscape will continue to shift. Subscribe to our newsletter to stay up to date on the latest policy and market analysis from Crux.
This blog post was prepared based on interviews conducted in the second quarter of 2026. Responses have been lightly edited for clarity and length. The views expressed by interviewees reflect their professional perspectives and do not constitute legal, tax, or investment advice. PFE provisions and regulatory guidance are subject to ongoing development; readers should consult qualified counsel for advice specific to their transactions.
