Today, the US Department of the Treasury and the Internal Revenue Service (IRS) released Notice 2026-15, providing interim guidance on the prohibited foreign entity (PFE) provisions enacted in the One Big Beautiful Bill (OBBB) last July. The notice establishes temporary safe harbors and reliance rules for determining whether a project, facility, or eligible component includes “material assistance” from a PFE and previews how Treasury and the IRS expect to approach other concepts, including “effective control,” in forthcoming proposed regulations.
This is the first substantive regulatory action implementing the PFE regime since the OBBB’s enactment. While the notice is not a formal proposed regulation, it addresses several of the most pressing compliance questions facing clean energy developers, manufacturers, and tax credit buyers, particularly around supply-chain tracing, cost allocation, and supplier certifications. Treasury and the IRS make clear that more comprehensive regulations and additional safe harbor tables are forthcoming.
The PFE rules — which replaced and significantly expanded the prior Foreign Entity of Concern (FEOC) framework within the Inflation Reduction Act (IRA) — impose restrictions on who can claim and, critically, who can purchase transferable tax credits under the §45Y clean electricity production credit and §48E clean electricity investment credit, the §45X advanced manufacturing production credit, and related provisions.
Since the OBBB’s passage, the absence of implementing guidance has been one of the largest sources of uncertainty in the transferable tax credit market. Crux’s survey of developers and manufacturers found that, while the industry has been proactively preparing for compliance, unresolved questions around supply-chain depth, ownership testing, effective control, and certification standards have constrained capital deployment and complicated deal execution.
Notice 2026-15 begins to resolve some of that uncertainty by offering defined safe-harbor pathways and reliance standards. At the same time, it leaves some open questions — including elements of the PFE definitional framework and long-term recapture rules — for future rulemaking. Treasury and the IRS are requesting public comments on this notice, with submissions due by March 30, 2026 (45 days from publication).
For a refresher on the PFE framework as enacted in the OBBB, see Crux's FEOC cheat sheet.
OBBB provides that a qualified facility, energy storage technology or eligible component that includes “material assistance from a prohibited foreign entity” is not eligible for a credit under §45Y / §48E (for a qualified facility or energy storage technology) or §45X (for an eligible component). Material assistance is defined as a material assistance cost ratio (MACR) that is less than the applicable threshold percentage.
Notice 2026-15 largely answers the “how far up the chain?” question by offering high-level general rules and an interim safe-harbor approach to calculating the MACR for a project or manufactured component. The safe harbor allows taxpayers to trace to the level of detail of the items listed in the IRS’s domestic content safe harbor tables with additional averaging rules to account for the business realities of procurement and tracing. These rules are in contrast to an impractical framework of tracing subcomponents or raw materials to each individual facility-eligible component.
Specifically, under the identification safe harbor, taxpayers may treat the manufactured products (MPs) and manufactured product components (MPCs) (for §45Y/§48E) or constituent materials (for §45X) identified in the 2023–2025 safe harbor tables as the “exclusive and exhaustive” list for safe-harbor purposes; items not listed are disregarded and not factored into the MACR. However, not all projects are listed as an “applicable project” under those safe harbor tables. Technology types with no specified safe harbor tables, such as nuclear, fuel cells, or geothermal facilities, cannot use this pathway. Additionally, facilities that add new production to existing facilities under the “incremental production rule” cannot use this pathway.
For a qualified facility or energy storage technology listed in the safe harbor tables, the safe harbor lets the taxpayer identify the relevant MPs and MPCs by table reference and disregard any MPs/MPCs present in the project that are not listed in the applicable table. This is material compliance relief that obviates the need for deeper upstream tracing, and the tables outline a discrete list of components to be considered. Structural steel and iron are not included in the total costs for the purpose of calculating MACRs.
For a qualified facility or energy storage technology not listed in the safe harbor tables, a taxpayer must identify the relevant MPs and MPCs consistent with the definition of “manufactured products (including components)” in §45Y and the guidance issued under in Notice 2023-38, and at a level of detail that is substantially similar to the level of detail provided in the 2023-2025 Safe Harbor Tables. In identifying MPs and MPCs, a taxpayer may rely on the definitions provided in Notice 2023-38.
The notice clarifies that qualified interconnection property requires a separate clean electricity MACR calculation from the qualified facility itself. Critically, if the interconnection property fails PFE compliance (MACR below threshold), the taxpayer can still claim §48E credits for the qualified facility but cannot include the interconnection property expenditures in the qualified investment. However, if the facility itself fails PFE compliance, no credit is available even if the interconnection property passes.
The notice clarifies the relevant costs for §45X are those that a taxpayer paid or incurred for constituent materials, which are materials that become an integral part or are consumed in the production of the eligible component. This indicates that taxpayers must generally evaluate only the costs from their direct suppliers or own production of constituent materials.
For §45X-eligible components produced under contract manufacturing arrangements, the notice clarifies that direct material costs are those paid or incurred by the party performing actual production activities. If that party didn't incur all direct material costs, costs incurred by the taxpayer claiming the §45X credit are also included. This provides clarity for manufacturers using tolling or contract manufacturing structures common in battery and solar supply chains.
The notice goes even further in simplifying compliance for some manufacturers: manufacturers using the cost-percentage safe harbor for a listed eligible component only need to evaluate the specific MPCs that appear in the safe harbor table that corresponds to that MPC. The notice treats this list as "exclusive and exhaustive," meaning any constituent material not on the table is ignored for safe-harbor purposes — it does not count as PFE-sourced or non-PFE-sourced. In practical terms, that means manufacturers can focus diligence on whether each listed constituent material is PFE-sourced, rather than proving the upstream sourcing of every subcomponent. However, there are a very limited number of listed eligible components: central inverters, commercial inverters, distributed wind inverters, microinverters, residential inverters, utility inverters, solar modules, and battery modules using battery cells.
Example: The manufacturer of rooftop solar modules could rely on the components listed in the safe harbor table to calculate the MACR for its modules
The notice provides flexibility in how taxpayers track components:
For facilities qualifying under the 80/20 rule (where used components represent no more than 20% of total value), only the direct costs of new MPs and MPCs are considered when calculating the clean electricity MACR.
Notice 2026-15 explicitly repurposes the existing 2023–2025 safe harbor tables (i.e., the tables in Notice 2025-08, Notice 2024-41, and Notice 2023-38) as an interim safe harbor for PFE “material assistance” compliance — both for identifying relevant components and for assigning cost percentages used in the MACR calculation (the cost percentage safe harbor).
Key clarifications for market participants:
Notice 2026-15 provides an optional certification safe harbor, including what a valid certification must contain.
The notice tracks the three statutory provisions laid out within the material assistance safe harbor certification framework and makes explicit that a certification from the direct supplier can be structured as an attestation that includes one of:
This is important because it confirms the market’s reading that (AA) is not the only workable route — (BB) and (CC) are alternative certification forms that do not, on their face, require the supplier to represent knowledge of the entire upstream chain in the same way.
Certifications must include the supplier's employer identification number (EIN) or foreign equivalent identification number, be signed under penalties of perjury, be retained by the supplier and taxpayer for at least six years, and be provided to Treasury upon request.
The notice provides a reliance rule: a taxpayer may rely on a certification unless the taxpayer knows or has reason to know it is inaccurate; if the taxpayer knows (or has reason to know) the property is PFE-produced/sourced, the taxpayer must treat all associated direct costs as PFE-produced/sourced.
Instead of using the cost percentage safe harbor, taxpayers may use the certification safe harbor with the identification safe harbor to calculate MACR, dividing the amount of total costs attributed to PFEs by suppliers by the total cost.
The PFE framework imposes significant penalties on suppliers that provide inaccurate certifications. When they know or reasonably should have known a certification was inaccurate, suppliers face penalties equal to the greater of (1) 10% of the resulting tax underpayment, or (2) $5,000. The penalty applies only if the inaccuracy results in credit disallowance and tax understatement exceeding the lesser of 5% of tax owed or $100,000. Suppliers can avoid penalties if they establish the inaccuracy was due to reasonable cause and not willful neglect.
Notice 2026-15 is primarily focused on material assistance safe harbors, and it explicitly flags that Treasury/IRS intends to issue more comprehensive proposed regulations and other guidance on PFE definitions and “material assistance.” Instead, the notice restates key statutory elements of the definitional framework.
What remains open in this notice: This notice does not provide additional operational rules regarding constructive ownership mechanics, subsidiaries, debt, or specialized public-company ownership tracing beyond restating statutory thresholds. Treasury and the IRS instead point to forthcoming proposed regulations for more comprehensive definitional guidance.
Notice 2026-15 previews initial “effective control” rules around contractual rights. Pending further guidance, the notice restates the statutory definition, which includes that “effective control” is generally the unrestricted contractual right of a counterparty to determine key operational levers (e.g., quantity/timing of production, amount/timing of electricity-production or storage activities). The notice highlights that this definition would include licensing agreements for the provision of intellectual property with respect to a qualified facility that was entered into or modified on or after July 4, 2025. This is an important clarification that licensing agreements entered into after this date qualify as effective control even if they do not also meet one of the other prohibited provisions (e.g., includes limits on intellectual property usage).
The notice states the Treasury and the IRS intend to propose regulations to prevent entities from evading, circumventing, or abusing the application of restrictions with respect to PFEs and material assistance. These regulations could include rules to prevent evasion, circumvention, or abuse through transfers or alterations of rights, property, or both, including transfers or alterations resulting in lapses of restricted foreign ownership or control that are temporary in nature.
Notice 2026-15 provides meaningful guidance on recordkeeping:
Notice 2026-15 is an interim notice, not formal proposed regulations. Treasury and the IRS indicate they intend to issue forthcoming proposed regulations and additional guidance on PFEs and material assistance.
Crux will continue to provide updates and analysis as the PFE rules are finalized. For more information on how these rules affect your tax credit transactions, get in touch with us.
This post is for informational purposes only and should not be construed as tax, legal, or accounting advice. Crux does not provide tax or legal advice. You should consult with your own tax, legal, and accounting advisors before engaging in any transaction or strategy discussed herein.
