Initial Guidance Issued on the OBBBA Material Assistance Restrictions for Energy Tax Credits
The U.S. Department of the Treasury and the Internal Revenue Service ("IRS") have issued initial interim guidance on the material assistance restrictions introduced by the foreign entity of concern ("FEOC") rules under the One Big Beautiful Bill Act of 2025 ("OBBBA").
On February 12, 2026, the Treasury and the IRS issued Notice 2026-15 (the "Notice"), providing the first piece of guidance on the new FEOC material assistance restrictions. These restrictions disallow certain energy-related tax credits if a taxpayer receives "material assistance" from a Prohibited Foreign Entity ("PFE"). By statute, a taxpayer will be found to have received "material assistance" if it fails to achieve a certain ratio of non-PFE costs to PFE costs (the material assistance cost ratio or "MACR").
The Notice provides guidance on the application of the material assistance restrictions and details three safe harbors taxpayers may rely on when calculating their MACR:
- Identification Safe Harbor: Taxpayers may use this safe harbor to identify the manufactured products and components that count towards the MACR calculation.
- Cost Percentage Safe Harbor: The Notice provides guidance on how taxpayers may use the safe harbor tables from previously issued IRS notices related to the domestic content bonus credit (e.g., Notices 2025-08, 2024-41, and 2023-38) to determine their MACR.
- Certification Safe Harbor: Taxpayers may generally rely on direct supplier certifications to confirm there has been no material assistance from a PFE with respect to acquired components or constituent elements, reducing the need for burdensome supply chain diligence.
The Notice also details methods for calculating a MACR, including aggregation approaches to lessen the compliance burden, and provides insight into the application of the material assistance restrictions to more complex situations, including taxpayers seeking a credit for interconnection property and those relying on the 80/20 rule.
While the Notice provides welcome guidance on calculation of a MACR, it does not shed light on some of the more ambiguous FEOC rules that have been driving taxpayer uncertainty, such as which debt is taken into account for purposes of certain tests that look to the amount of a taxpayer's debt held by PFEs, and the scope of the effective control test which relates to contractual arrangements between taxpayers and PFEs.
Taxpayers may rely upon the Notice with regards to projects that began construction after December 31, 2025, and eligible components sold in taxable years beginning after July 4, 2025. The Notice also indicates proposed regulations are forthcoming, including guidance on PFE ownership restrictions, but provides no clear timeline.
