What's Happening?
The Internal Revenue Service (IRS) and the Treasury Department have announced plans to propose regulations that would restrict certain energy-related tax credits when 'prohibited foreign entities' provide material assistance. This guidance, outlined in Notice 2026-15, aims to determine the eligibility of electricity-producing facilities, energy storage technologies, or eligible components for these tax credits. The One Big Beautiful Bill Act (OBBBA) introduced new restrictions to clean electricity credits under Sections 45Y and 48E of the Tax Code, and the advanced manufacturing production credit under Section 45X. The IRS and Treasury intend to define what constitutes a prohibited foreign entity (PFE) and how to calculate the material assistance cost
ratio, which taxpayers must use to assess whether there was material assistance from a PFE.
Why It's Important?
This development is significant as it impacts the eligibility for energy tax credits, which are crucial for promoting clean energy initiatives in the U.S. By restricting credits when foreign entities are involved, the IRS aims to ensure that domestic energy projects are not unduly influenced by foreign interests. This move could affect U.S. companies involved in clean energy production and storage, potentially altering investment strategies and partnerships. The guidance also reflects broader efforts to safeguard national interests in the energy sector, ensuring that tax incentives support domestic economic growth and energy independence.
What's Next?
The IRS and Treasury are expected to propose detailed regulations and further guidance on the definition of PFEs and material assistance rules. Stakeholders in the energy sector may need to adjust their operations and partnerships to comply with these new regulations. The IRS has invited comments on the proposed guidance, which could influence the final regulations. Companies involved in energy production and storage will need to monitor these developments closely to ensure compliance and optimize their eligibility for tax credits.
