IRS Gives Guidance on Energy Tax Credits, Prohibited Foreign Entities

Why It Matters

The guidance determines eligibility for billions of federal clean‑energy incentives and tightens scrutiny of foreign involvement, reshaping project financing and supply‑chain decisions.

Key Takeaways

• OBBBA adds foreign‑entity restrictions to clean‑energy credits
• IRS defines prohibited foreign entity and assistance cost ratio
• Safe‑harbor tables available 60 days post‑publication
• Applies to projects after Dec 31 2025, components after July 4 2025
• 45‑day comment period opens for industry feedback

Pulse Analysis

The One Big Beautiful Bill Act represents a sweeping effort to align U.S. climate policy with national security concerns, targeting foreign influence in critical clean‑energy infrastructure. By restricting tax credits when a prohibited foreign entity provides material assistance, the legislation seeks to safeguard domestic supply chains while preserving the fiscal incentives that have driven rapid deployment of renewable generation and storage. This balance reflects a broader policy trend: encouraging green investment while limiting strategic dependencies on overseas actors.

Notice 2026‑15 translates the OBBBA’s high‑level language into actionable rules. It introduces a material‑assistance cost‑ratio metric that taxpayers must calculate to determine eligibility for Sections 45Y (clean electricity), 48E (energy storage) and 45X (advanced manufacturing). Interim safe‑harbor tables, usable for 60 days after publication, give developers a clear benchmark while the Treasury finalizes detailed regulations. The notice also clarifies the timing thresholds—projects commencing after Dec 31 2025 and components sold after July 4 2025—providing a narrow window for compliance planning.

For the clean‑energy industry, the guidance signals a shift toward heightened due diligence on foreign partnerships. Investors and project sponsors must now assess ownership structures, financing sources, and supply‑chain relationships to avoid disqualification from lucrative credits that can offset up to 30% of capital costs. The 45‑day comment period offers stakeholders a chance to shape the final rules, potentially influencing safe‑harbor thresholds and definition scopes. As the Treasury’s final regulations roll out, firms that proactively align their financing and procurement strategies with the new criteria will be better positioned to capture federal incentives and mitigate compliance risk.

IRS gives guidance on energy tax credits, prohibited foreign entities

By Michael Cohn

February 12, 2026, 5:01 p.m. EST

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Steve Hockstein/Bloomberg

The Internal Revenue Service and the Treasury Department plan to propose regulations on a provision of the One Big Beautiful Bill Act restricting certain energy‑related tax credits when so‑called “prohibited foreign entities” (PFEs) have provided any material assistance.

In Notice 2026‑15, the IRS and the Treasury provided guidance ahead of the proposed regulations in determining whether electricity‑producing qualified facilities, energy‑storage technologies, or eligible components are receiving material assistance from a prohibited foreign entity and would therefore be ineligible for those energy tax credits.

The OBBBA added new restrictions to clean‑electricity credits under Sections 45Y and 48E of the Tax Code, and to the advanced‑manufacturing production credit under Section 45X, to determine eligibility for credits when there is material assistance from a PFE.

Notice 2026‑15 says the Treasury and the IRS intend to propose regulations with respect to:

• the definition of a PFE, and

• the calculation of the material‑assistance cost ratio that taxpayers must use to determine whether there was material assistance from a PFE.

The notice also spells out how to use interim safe harbors authorized by the OBBBA and includes examples of calculations that can be performed under those safe harbors.

The notice further states that the Treasury and IRS will propose additional regulations and guidance on the definition of a PFE and the material‑assistance rules, including new safe‑harbor tables authorized in the OBBBA.

A taxpayer can rely on the rules provided in the notice to calculate the material‑assistance cost ratio for:

• any Section 45Y or 48E qualified facility or energy‑storage technology whose construction begins after Dec. 31, 2025, up to 60 days after the publication of the forthcoming safe‑harbor tables; and

• any Section 45X eligible component sold in taxable years beginning after July 4, 2025 (the date of the OBBBA’s enactment), until the safe‑harbor tables are published.

The notice also asks for comments 45 days from the date of publication, seeking feedback on definitional, anti‑circumvention, and other issues for future guidance.

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Michael Cohn – Editor‑in‑Chief, AccountingToday.com