The IRS just told the clean energy industry exactly how it plans to police foreign content in your projects. On February 12, 2026, Treasury and the IRS released Notice 2026-15, a 95-page roadmap for applying the “prohibited foreign entity” restrictions that the One Big Beautiful Bill Act put into law last July. If you’re claiming credits under Section 45Y, 48E, or 45X, this guidance affects you right now.

Here’s what’s happening. The One Big Beautiful Bill Act (signed July 4, 2025) added a layer of supply chain restrictions to the clean energy tax credits originally created by the Inflation Reduction Act. The core idea: if your project or your manufactured components rely too heavily on equipment, parts, or materials from companies tied to China, Russia, North Korea, or Iran, you lose your tax credit. The law calls these companies “prohibited foreign entities,” or PFEs, and the new IRS guidance finally explains how to figure out whether you’re on the right side of the line.

The material assistance cost ratio is the number that matters

The centerpiece of Notice 2026-15 is the material assistance cost ratio, or MACR. Think of it as a compliance score for your project’s supply chain.  The formula compares the total direct costs of a project or manufactured component against the portion of those costs that trace back to PFE sources. If your non-PFE percentage falls below the required threshold, the IRS treats your project as having received “material assistance” from a prohibited foreign entity, and the credit is gone. 

The thresholds are specific and they ratchet up over time. For qualified facilities like solar and wind projects, at least 40% of manufactured product costs must come from non-PFE sources for projects beginning construction in 2026. That number climbs to 45% in 2027, 50% in 2028, 55% in 2029, and 60% from 2030 onward. Energy storage projects face steeper requirements: 55% non-PFE in 2026, rising to 75% by 2030. 

Manufacturers claiming Section 45X credits see even more aggressive thresholds. Solar component producers need 50% non-PFE content in 2026, scaling to 85% after 2029. Wind component manufacturers face a particularly tight window at 85% in 2026 and 90% in 2027, with the credit itself expiring for wind components sold after December 31, 2027.

Who counts as a “prohibited foreign entity”

The law creates two categories. The first, “specified foreign entities,” includes companies owned more than 50% by governments, nationals, or organizations based in China, Russia, North Korea, or Iran. It also sweeps in entities on several government watchlists, including the Uyghur Forced Labor Prevention Act list, Chinese Military Companies list, and OFAC restricted parties. 

The second category, “foreign-influenced entities,” captures U.S. or allied companies that have too much PFE involvement. The triggers include a single PFE owning 25% or more of the entity, multiple PFEs owning 40% or more in aggregate, PFEs holding 15% or more of the entity’s debt, or a PFE having the contractual right to appoint senior officers. Notably, any intellectual property licensing agreement entered into or modified with a specified foreign entity after July 4, 2025 can trigger “effective control” status and disqualify the taxpayer entirely.

Three safe harbors offer a compliance path forward

The guidance establishes three interim safe harbors:

  • The Identification Safe Harbor lets taxpayers identify manufactured products using tables already published under earlier domestic content guidance.
  • The Cost Percentage Safe Harbor allows taxpayers to use assigned cost percentages from those same tables instead of tracing actual costs through every layer of the supply chain. 
  • The Certification Safe Harbor permits reliance on supplier certifications, signed under penalty of perjury, affirming that components were not produced by a PFE. These certifications must be retained for at least six years.

These safe harbors are temporary. Treasury must publish formal safe harbor tables by December 31, 2026, and taxpayers can rely on the interim rules until 60 days after those final tables or proposed regulations are published.

What energy companies should be doing right now

The practical reality is that these rules took effect January 1, 2026 for calendar year taxpayers, and the compliance infrastructure is still catching up. If you are developing a solar, wind, or storage project, or manufacturing eligible components in the U.S., you need to be mapping your supply chain against PFE definitions today. That means getting certifications from your direct suppliers, understanding whether any upstream materials trace back to covered nations, and calculating your MACR under the interim safe harbor framework. 

The window for compliance planning is not wide, and with thresholds tightening every year through 2030, the sourcing decisions you make in the next few months will determine your credit eligibility for years to come. Need help navigating compliance? Get in touch with our team.