Recent Updates to Foreign Entity of Concern (FEOC) Compliance Based on IRS Notice 2026-15

On February 12, the Treasury Department and IRS released Notice 2026-15 — the first substantive guidance on how "prohibited foreign entity" (PFE) restrictions will actually work under the One Big Beautiful Bill Act. Whether you're a developer claiming credits under §45Y, §48E, or §45X, a tax equity investor underwriting a deal, an insurance company backing a project, or an advisor navigating compliance for clients — this notice directly affects your work.

The notice is 95 pages long. Most of it is calculation mechanics. I'll break down what actually matters — whether you're a developer, investor, tax advisor, or consultant working on these deals.

What Changed — and Why It Matters Now

The OBBBA, passed in July 2025, dramatically reshaped the clean energy tax credit landscape. EV credits (§30D) were eliminated entirely. The credits that survived — technology-neutral production and investment credits (§45Y, §48E) and advanced manufacturing credits (§45X) — now carry mandatory FEOC restrictions that didn't exist before. Notice 2026-15 provides the first operational guidance on how to calculate compliance, though it notably leaves major questions unanswered.

As Crux noted in their analysis, this notice has been one of the most anticipated pieces of guidance in the transferable tax credit market. Their survey found that unresolved FEOC questions have already constrained capital deployment and complicated deal execution across the industry — from developers to credit buyers.

Here's the key framing: Notice 2026-15 is primarily a "material assistance" notice. It tells you how to calculate costs. It does not fully resolve how to determine whether a supplier actually qualifies as a PFE in the first place — which is arguably the harder question.

The Three-Gate Compliance Framework

FEOC compliance isn't a single test. It's a series of gates. Fail any one and you lose everything.

Figure 1 — Each gate is binary. Fail any one and the full credit is lost.

Gate 1: Entity Screening — Is the Taxpayer a PFE?

Before anything else, the entity claiming the credit must not itself be a Prohibited Foreign Entity. A PFE is either a Specified Foreign Entity (SFE) or a Foreign-Influenced Entity (FIE):

Figure 2 — Covered nations: China, Russia, Iran, North Korea. Either classification = PFE = blocked.

For most U.S.-based developers, Gate 1 is straightforward. But as Norton Rose Fulbright pointed out, not all cases will be easy — particularly multinational manufacturers with complex ownership structures and Chinese licensing arrangements. The notice still lacks detailed guidance on how to trace constructive ownership through multi-layered corporate structures.

Gate 2: Supplier Certifications — Proving Your Supply Chain Is Clean

Gate 2 applies the same SFE/FIE tests to every Tier 1 supplier in your BOM. The mechanism for proving compliance is signed supplier certifications. Notice 2026-15 spells out exactly what each certification must contain — and getting it wrong creates direct liability, not just weak compliance.

Certification Checklist

Each supplier certification must include all of the following:

• ☐Supplier EIN — Employer Identification Number (or foreign equivalent)
• ☐Perjury statement — Signed under penalties of perjury
• ☐PFE attestation — Product was not produced by a PFE
• ☐Upstream attestation — Supplier does not know or have reason to know any prior-tier supplier is a PFE
• ☐Cost data (§45X only) — Total direct material costs not sourced from PFEs
• ☐6-year retention — Certification must be retained from date of signing

Figure 3 — A certification missing any element may not satisfy the requirement.

The Liability Question

Here's the part that matters most for investors and advisors conducting due diligence: §6695B creates direct certification liability for the taxpayer claiming credits, not just the supplier providing the certification. Suppliers sign under penalties of perjury, yes. But if the developer had "reason to know" that a certification was false — for instance, if a simple sanctions list check would have flagged the supplier — the liability doesn't stay with the supplier.

As Baker Botts highlighted, the notice even flags that claiming beginning of construction before January 1, 2026 may face increased IRS scrutiny as a potential "anti-circumvention" measure — signaling that Treasury is watching for workarounds.

Gate 3: The MACR Calculation — Two Paths to Compliance

Once you've cleared entity screening and collected supplier certifications, the final gate is calculating your Material Assistance Cost Ratio — the ratio that determines whether your project has too much PFE involvement:

The notice provides two distinct paths for arriving at this number. They require very different levels of effort and data.

Path 1: Direct Cost Method (General Rules)

This is the default approach. You calculate the actual direct costs of every manufactured product and component in your project, determine which ones come from PFEs, and compute the ratio directly. In theory it's precise. In practice, it requires detailed cost data from every supplier in your chain — which is exactly the data most developers struggle to obtain. The notice provides rules for cost allocation, grouping, timing, and de minimis thresholds under this method.

Path 2: Safe Harbor Tables (Elective)

This is where most developers will focus. Instead of tracking actual costs, you can elect to use Safe Harbor Tables — standardized tables that assign cost percentages to specific manufactured products and components. Using these tables serves two purposes:

Identification — the tables define which manufactured products and components (MPs/MPCs) you need to track. This answers the "how far up the supply chain do I need to go" question, scoping what's in and out of your calculation.

Cost Percentage — instead of measuring actual direct costs, you use the assigned percentage from the table. This eliminates the need for exact cost data from every supplier.

Notice 2026-15 directs taxpayers to use the Safe Harbor Tables originally published under the domestic content rules (IRS Notices 2023-38, 2024-41, and 2025-08). Here's what a portion of the ground-mount solar table looks like:

Figure 4 — Sample from Safe Harbor Table for ground-mount PV (IRS Notice 2024-41). Actual tables include full component breakdowns.

Important limitation: Safe Harbor Tables currently only cover technologies with existing tables — ground-mount and rooftop solar, land-based wind, and BESS. If your technology isn't listed, you're back to the Direct Cost Method. Treasury is expected to publish updated tables by December 31, 2026.

Figure 5 — The earlier you begin construction, the lower the threshold — but the clock is ticking.

What's Still Missing

Notice 2026-15 answers the "how to calculate" question. But as Foley Hoag's analysis and Morgan Lewis's review both emphasized, the notice is silent on several critical operational questions:

Figure 6 — The notice resolves calculation mechanics but leaves entity determination largely open.

The IRS has said more comprehensive proposed regulations are coming, but hasn't announced target dates. Two dates that are confirmed: the public comment deadline is March 30, 2026, and the construction deadline for legacy credits is July 4, 2026 — after which licensing contracts with SFEs trigger automatic FIE classification. Meanwhile, projects are being financed right now.

What a Real Compliance Solution Needs to Look Like

Given the complexity — multi-tier supply chain screening, entity ownership verification through corporate registries, MACR calculations with escalating thresholds, certification tracking with 6-year retention, and the liability implications for both developers and investors — this isn't something you handle with a spreadsheet and a few Google searches.

An effective FEOC compliance workflow needs to do three things well:

First, entity-level screening — checking every supplier against sanctions lists (OFAC SDN, Chinese Military Companies) and verifying ownership structures through SEC filings, corporate registries, and securities disclosures. This is where most of the nuance lives, and where the notice is still silent on operational details.

Second, automated MACR calculations — taking your actual BOM, mapping components to Safe Harbor Tables, identifying PFE-sourced costs, and producing the ratio. This needs to be technology-specific and year-specific given the escalating thresholds.

Third, certification management — tracking supplier certifications against the IRS-required elements (EIN, perjury clause, PFE attestation, upstream attestation, cost data for §45X), flagging incomplete certs, monitoring the 6-year retention window, and cross-referencing against screening results. If a supplier certifies "not a PFE" but your screening says otherwise, you need to catch that before your tax equity investor does — or before the IRS does on audit.