IRS Guidance on Prohibited Foreign Entity (PFE) Requirements for Certain Tax Credits

The One Big Beautiful Bill Act (OBBBA) added prohibited foreign entity (PFE) requirements to certain tax credits including 45X, 45Y, and 48E. These requirements state that credits cannot be taken if material assistance is provided by a PFE for calendar years starting in 2026. These rules set thresholds for the total cost of manufactured products obtained from a PFE that can be used in construction.

This limitation affects Clean Energy projects, including solar, wind, and energy storage, as well as certain manufacturing credits. Taxpayers need to be aware of these rules at the beginning of construction to ensure they meet the requirements, or they may not be eligible for the tax credits.

On February 12th, the IRS released Notice 2026-15, which provides guidance on the material assistance cost ratio (MACR) used to determine whether a taxpayer meets the material assistance rules established. This notice also states that the IRS intends to release future guidance, including safe harbor tables.

In a related release, IR-2026-23, the IRS states that the guidelines under Notice 2026-15 can be relied upon by taxpayers to calculate the MACR until:

• 60 days after the publication of safe harbor tables for Section 45Y or 48E, for which construction begins after 12/31/2025.
• The date in which tables are published for Section 45X components sold in tax years beginning after 7/4/25.

While this long-awaited guidance is welcome to many taxpayers, the future guidance, including safe harbor tables, will be needed to ensure future compliance. McGuire Sponsel will continue to monitor these Notices related to the OBBBA and advise our clients of future developments.