New IRS Guidance on Prohibited Foreign Entity Restrictions: What Tax Credit Buyers Need to Know

On February 12, the IRS released Notice 2026-15, its first substantive guidance on the Prohibited Foreign Entity (PFE) material assistance rules enacted under the One Big Beautiful Bill Act. The Notice establishes the Material Assistance Cost Ratio (MACR) framework that determines whether clean energy tax credits under §§ 45X, 45Y, and 48E remain available when a project's supply chain touches foreign entities of concern.

For credit buyers, the practical significance is that Treasury has provided three distinct safe harbor pathways — including standardized cost-percentage tables and a supplier certification framework — that create a workable compliance structure for credits tied to domestically manufactured inverters, solar modules, and battery modules.

Crucially, the guidance also reveals that safe harbor selection is itself a strategic decision: the same eligible component can pass or fail MACR depending on which methodology is applied. For buyers, this means due diligence must now include a clear understanding of which safe harbor the seller used, why they chose it, and how it impacts risk allocation.

The guidance is intentionally interim. Treasury has deferred major questions — including ownership attribution mechanics, constructive ownership thresholds, the scope of the “bona fide IP” exception, binding contract interpretation, and comprehensive anti-circumvention rules — to future proposed regulations that the market does not expect soon.

The Notice also establishes a two-tier compliance landscape:

• Certain listed technologies get full safe harbor access like solar, onshore wind, and battery energy storage.

• Nuclear, geothermal, fuel cells, other clean power technologies, and certain upstream components such as PV cells and critical minerals face more burdensome actual-cost tracking or supplier-certification pathways.

For credit buyers, this means that pricing must reflect both the compliance methodology the seller has chosen, and the residual regulatory risk on deferred questions — especially given the six-year IRS assessment window for MACR errors and the reduced 1% substantial understatement threshold that now applies.

Credits supported by clean safe harbor documentation from domestic producers will be well positioned; credits outside that envelope will require more careful structuring and diligence.

Key Takeaway for Tax Credit Buyers:

Notice 2026-15 gives buyers a workable framework for evaluating PFE compliance, but it also elevates the importance of diligence and documentation. Credits backed by safe harbor–compliant domestic producers will emerge as the premium tier of the market, while credits requiring actual-cost tracking or supplier certification will carry higher residual risk. Buyers should incorporate safe-harbor selection, documentation quality, and regulatory uncertainty into pricing and deal structure.

Schneider Electric’s Tax Credit Advisory Team is actively modeling MACR compliance across all three safe harbor pathways and helping buy-side clients evaluate credit quality in light of the new guidance. With MACR thresholds ratcheting upward annually and comprehensive regulations still forthcoming, disciplined diligence on PFE compliance is now a threshold issue in credit acquisition. We invite credit buyers and corporate tax teams to contact us for an assessment of current market opportunities and a walkthrough of how Notice 2026-15 affects acquisition strategy.

Contributor:

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Trey Parker, Associate Principal, Tax Credit Advisory Services

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