What are the FEOC requirements for 45X tax credits?

Section 45X (Advanced Manufacturing) has the most comprehensive FEOC restrictions. Three core requirements apply: (A) Ownership Prohibition: cannot claim 45X if classified as a PFE, effective for tax years after July 4, 2025. (B) Material Assistance Restrictions: manufacturers cannot receive assistance from PFEs, with component-specific MACR thresholds that escalate annually (e.g., Battery: 60% in 2026, 65% in 2027, 70% in 2028, 80% in 2029, 85% in 2030+). (C) Effective Control Prohibition: no credit for components produced through effective control by an SFE.

How do I determine if a supplier is a Foreign Entity of Concern?

Use a two-step analysis. Step 1: Determine if the supplier is a Specified Foreign Entity (SFE): entities that are governments of China, Russia, North Korea, or Iran, incorporated in covered nations, owned/controlled by covered governments (>50%), or on U.S. restricted lists (OFAC SDN, Commerce Entity List, UFLPA). Step 2: Determine if the supplier is a Foreign-Influenced Entity (FIE): triggered if an SFE can appoint board members, a single SFE owns ≥25% of stock/voting rights, multiple SFEs collectively own ≥40%, SFEs hold ≥15% of outstanding debt, or entity allocates >10% of non-goods payments to a single SFE.

What is the Material Assistance Cost Ratio (MACR)?

MACR measures how much of your project comes from PFE sources. For Qualified Facilities (45Y/48E): MACR = (Total Direct Costs - PFE Costs) ÷ Total Direct Costs. For Eligible Components (45X): MACR = (Total Direct Material Costs - PFE Material Costs) ÷ Total Direct Material Costs. Example for Battery Manufacturing (2026): threshold is 60%. If total costs are $1M and PFE costs are $350K, MACR = 65%, which is compliant. The IRS must issue safe harbor tables by December 31, 2026.

What documentation do I need for FEOC compliance?

Supplier certifications must include the supplier's EIN or foreign government ID number, be signed under penalties of perjury, and state that property was not produced by a PFE. Certifications must be retained by both supplier and taxpayer for ≥6 years. Documentation needed includes: shareholder agreements and board appointment rights for ownership/FIE status; supply chain audit trails and cost allocation worksheets for MACR; technology licensing agreements for effective control analysis; and physical work test documentation for beginning of construction.

How do the new PFE rules differ from FEOC rules?

They are the same framework with different terminology. FEOC (Foreign Entity of Concern) is the umbrella term referring to the overall regulatory framework. PFE (Prohibited Foreign Entity) is the specific legal status that triggers credit disqualification, defined in OBBBA Section 7701(a)(51). PFE has two categories: Specified Foreign Entity (SFE) for direct connections to covered nations, and Foreign-Influenced Entity (FIE) for indirect connections through SFE ties. The IRA 2022 had limited FEOC rules only for EV battery supply chains; OBBBA 2025 expanded the PFE framework to virtually all clean energy credits.

Legal Advisory

§6695B and the New Attestation Liability

Why blind trust in supplier statements is no longer an adequate defense.

The biggest shift under Notice 2026-15 is Gate 2: Supplier Certifications. Proving your supply chain is clean now takes specific, legally binding attestations from every Tier 1 supplier in your Bill of Materials (BOM).

The Certification Checklist

To satisfy compliance, each supplier certification must include all of the following elements:

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Supplier EINEmployer Identification Number, or analogous identification number issued by a foreign government (§7701(a)(52)(D)(iii)(IV)(aa))
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Perjury StatementSigned under penalties of perjury by an authorized representative of the supplier (§7701(a)(52)(D)(iii)(IV)(bb))
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Record RetentionRetained by both the supplier and the taxpayer for not less than six years, and provided to the IRS upon request (§7701(a)(52)(D)(iii)(IV)(cc))
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PFE Attestation + Chain AttestationStates (1) the property was not produced or manufactured by a PFE, and (2) the supplier does not know, or have reason to know, that any prior supplier in the chain of production is a PFE (§7701(a)(52)(D)(iii)(IV)(dd)(AA))
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Cost DataFor §45X: total direct material costs of components not produced by a PFE. For §45Y/§48E: total direct costs attributable to manufactured products not produced by a PFE (§7701(a)(52)(D)(iii)(IV)(dd)(BB)–(CC))

Introducing §6695B Penalty Liability

§6695B imposes a penalty on any supplier who provides a certification knowing, or having reason to know, it is inaccurate. The penalty equals the greater of 10% of the underpayment attributable to the inaccuracy or $5,000, whichever is greater. A reasonable cause defense is available, but only if the supplier can show the inaccuracy was not due to willful neglect. (§6695B(a)–(c))

Verdex treats every supplier upload as a claim to check, not a document to file. We test what a supplier certifies against what public data actually shows. If a supplier swears they're clean but the data says otherwise, that contradiction is exactly where your §6695B exposure lives.

Your defense against these penalties rests on a "reasonable cause" standard. To build a defensible §6695B reasonable-cause dossier, you have to show you didn't just accept a PDF at face value, but actually screened the supplier's corporate network.

Independent screening that produces a durable, timestamped record of every check, with the raw sources behind it, is the best protection you have.