Meeting the MACR: IRS’s Interim Guidance Addresses OBBBA’s Material Assistance FEOC Limitation

Though offering helpful guidance on applying the new “foreign entity of concern”-related material assistance limitation for clean technology deployment and manufacturing tax credits, Notice 2026-15 (the Notice), released on February 12, 2026, is limited in scope and leaves uncertainty even in the areas it addresses.

KEY TAKEAWAYS

• The Notice is limited in scope. It does not address many “foreign entity of concern”-related debt and equity ownership, effective control, and material assistance rules enacted by the One Big Beautiful Bill Act (OBBBA) that the industry has been awaiting. Future guidance on these issues is expected throughout 2026 and beyond.
• The Notice provides default rules (the General Rules) on how to calculate an applicable “material assistance cost ratio” (MACR). The Notice also provides three elective “safe harbors” (collectively, the Safe Harbors) to calculate a MACR:
  • The identification safe harbor (ID Safe Harbor)
  • The cost percentage safe harbor (Cost % Safe Harbor)
  • The certification safe harbor (Cert Safe Harbor)
• In light of ambiguity in the General Rules, it is expected that the Safe Harbors will be used whenever possible. Accordingly, the Notice offers limited practical relief to technologies ineligible to apply the ID Safe Harbor and Cost % Safe Harbor (which include most Section 45X eligible components (ECs)).
• The Notice does not answer many critical questions embedded in the text of the OBBBA regarding calculation of an applicable MACR, and in some cases raises new ambiguities (such as whether and how the Cert Safe Harbor interacts with the Cost % Safe Harbor).
• The ID Safe Harbor and the Cost % Safe Harbor are generally available only to technologies addressed in preexisting domestic content guidance for deployment investment tax credits and production tax credits (the 2023–2025 Safe Harbor Tables). However, the Notice also uses this prior guidance to permit use of the ID Safe Harbor and the Cost % Safe Harbor for a subset of Section 45X ECs: inverters, solar modules, and battery modules.
• Akin to the domestic content guidance, the Notice confirms that, when applying the Safe Harbors, the 2023–2025 Safe Harbor Tables constitute the “exclusive and exhaustive” list of components or materials subject to MACR calculations (though uncertainties remain).
• The Notice generally reiterates the OBBBA’s requirements for a valid supplier material assistance certification as the Cert Safe Harbor, but without clarifying the critical ambiguities in the text of the OBBBA.
• The Notice makes clear that any IP license arrangement with a “prohibited foreign entity” (PFE) entered into or modified after July 4, 2025 can result in a violation of the “effective control” restriction independently of the other IP license arrangement provisions included in the OBBBA. The market had hoped the IRS and Treasury would confirm that the July 4, 2025 reference was meant to provide a grandfathering rule in respect of the other “effective control” IP licensing tests.

BACKGROUND

The OBBBA introduced several new restrictions on the technology-neutral clean electricity production and investment tax credits under Sections 45Y[1] and 48E (Tech Neutral Credits), the advanced manufacturing tax credit under Section 45X (Manufacturing Credits), and others.

These new rules include a prohibition against taxpayers receiving “material assistance” from PFEs in respect of projects and eligible components (MA Prohibition).

The MA Prohibition requires that the MACR meet or exceed an applicable “threshold percentage.” For Tech Neutral Credits, the relevant MACR is determined with respect to the qualified facility (QF) or energy storage technology (EST). For Manufacturing Credits, the MACR is determined with respect to the eligible components (ECs). The threshold percentage depends on the type of credit and technology and increases over time. For example, electrical generation facilities claiming Tech Neutral Credits that begin construction in 2026 must have a MACR of at least 40%. Solar energy components claiming the Manufacturing Credit that is sold during the 2026 calendar year must have a MACR of at least 50%.

The MACR generally equals the total direct costs of manufactured products or materials for a product that are not mined, produced, or manufactured by a PFE, divided by the total direct costs of manufactured products or materials incorporated into the product.

The Act also introduced extensive PFE restrictions relating to the capitalization of taxpayers claiming Tech Neutral Credits or Manufacturing Credits, as well as prohibitions against “effective control” by PFEs.

THE NOTICE

The Notice predominantly addresses the MA Prohibition and associated “interim safe harbor” rules provided in the OBBBA.

The General Rules

The Notice sets forth detailed technical rules to calculate the MACR. The steps to calculate a MACR are as follows.

(1) Identify the units of measurement.

For Tech Neutral Credits, these are the “manufactured products” (MPs) and “manufactured product components” (MPCs) incorporated into a QF or EST. For Manufacturing Credits, these are the “Constituent Materials” incorporated into, or consumed in the production of, an EC.

(2) Track the MPs, MPCs, or Constituent Materials (as applicable)

(3) Determine Total Direct Costs (“A”)

(4) Determine PFE-sourced/produced Direct Costs (“B”)

(5) Calculate the MACR by applying the formula (A-B)/A.

The default General Rules to calculate the MACR will be difficult to apply for taxpayers unable to utilize the Safe Harbors given the Notice’s limitations. For example, the General Rules do not specifically address how to calculate direct costs attributable to PFE-produced MPCs. Additionally, identifying MPs, MPC and (in particular) Constituent Materials outside of the Safe Harbors carries significant uncertainties.

Nevertheless, the Notice provides certain important definitional parameters and rules, which are relevant to both the General Rules and the application of the Safe Harbors, including:

• The Notice defines MPs and MPCs by reference to prior domestic content guidance, but defines Constituent Materials as simply “the constituent elements, materials, or subcomponents” of an EC. This standard is expected to be difficult to apply outside of the Safe Harbors.
• MACR is generally determined and tracked on a QF-by-QF, EST-by-EST, and EC-by-EC basis. The Notice provides certain exceptions to individualized tracking:
  • PFE vs. non-PFE costs may be averaged for ECs (Manufacturing Credits) and for ESTs (Tech Neutral Credits) under 1 mw, in each case over continuous periods under one year.
  • Manufactured components comprising less than 10% of a QF’s or EST’s direct costs may be assigned in any manner preferred between QFs or ESTs placed in service by a taxpayer within the same taxable year.
• PFE sourcing generally depends, for accrual method taxpayers, on the relevant producer’s PFE status when the taxpayer receives a finished item. The Act provides—and the Notice reinforces—that a producer’s PFE status is determined at the end of the producer’s taxable year. But the Notice offers no relief or practical guidance on the application of this end-of-year PFE determination rule to products supplied mid-year.
• For products that combine PFE- and non-PFE-production, only the portion of the cost attributable to PFE production is considered PFE-sourced.
• Steel and iron components are generally disregarded in MACR calculations.
• For any “new” project claiming Tech Neutral Credits as part of a repowering of an old project (i.e., under the so-called 80/20 rule), used materials are generally disregarded in MACR calculations.
• Qualified interconnection property (QIP) otherwise eligible for Tech Neutral Credits must be separately tested for material assistance and therefore satisfy its own MACR calculation. QIP is not eligible to apply to the ID Safe Harbor or the Cost % Safe Harbor. Failure of QIP to satisfy the MACR test disallows Tech Neutral Credits for the QIP, but does not impact ITC eligibility of the associated QF or EST.

The Safe Harbors

The Notice provides three Safe Harbors that taxpayers may apply to calculate an applicable MACR:

1. The ID Safe Harbor, which may be used to identify the applicable MPs, MPCs and Constituent Materials that must be tested for MACR (relevant to Step 1 above).
2. The Cost % Safe Harbor, which provides assigned cost percentages in lieu of the need to determine direct costs (relevant to Step 3 above).
3. The Cert Safe Harbor, which may be used either (a) to identify the PFE status of a supplier of MPs, MPCs, and Constituent Materials, or (b) in lieu of determining direct costs under the General Rules (relevant to Steps 3 and 4 above).

The Safe Harbors are interconnected. The ID Safe Harbor must be utilized to access the Cost % Safe Harbor. The ID Safe Harbor may also be used in conjunction with the Cert Safe Harbor. Finally, while several provisions of the Notice suggest that the Cert Safe Harbor may be used in conjunction with the Cost % Safe Harbor, the Notice does not state this explicitly and provides no illustrative example of that scenario.

ID Safe Harbor

The ID Safe Harbor allows taxpayers to utilize the 2023–2025 Safe Harbor Tables in order to identify MPs, MPCs, and Constituent Materials.

Cost % Safe Harbor

In lieu of measuring actual direct costs associated with a QF, EST, or EC, the Cost % Safe Harbor allows taxpayers to rely on the “assigned cost percentages” listed in the 2023–2025 Safe Harbor Tables.

Only technologies covered by the 2023–2025 Safe Harbor Tables that provide assigned costs percentages are eligible to use the ID Safe Harbor and the Cost % Safe Harbor—ground-mount and rooftop solar facilities, land-based wind facilities, and battery energy storage systems.[2] Additionally, the Notice applies the 2023–2025 Safe Harbor Tables to permit the use of the ID Safe Harbor and the Cost % Safe Harbor for a limited list of ECs—specified types of inverters, solar modules, and battery modules using battery cells. For these ECs, the items listed as corresponding MPCs in the 2023–2025 Safe Harbor Tables serve as the Constituent Materials.

Importantly, the ID Safe Harbor makes clear that taxpayers using the ID Safe Harbor must use the 2023–2025 Safe Harbor Tables as the exclusive list of MPs, MPCs, and Constituent Materials. Consistent with this approach, if an MP, MPC, or Constituent Material is utilized but unlisted, or listed but unutilized, such item is generally[3] disregarded in the applicable MACR calculation.

Cert Safe Harbor

The Cert Safe Harbor is available (a) to determine whether a MP, MPC, or Constituent Material is PFE-sourced or -produced, and/or (b) to determine direct costs for purposes of the MACR calculations in lieu of the procedures of the General Rules.

The explanation of the Cert Safe Harbor in the Notice adheres closely to the text of the OBBBA and does not resolve the OBBBA’s textual ambiguities. A key unresolved question is the extent to which, absent a certification of direct costs, a supplier must certify to PFE involvement further up the supply chain than MPCs or Constituent Materials.

Additionally, the Notice does not clarify how the Cert Safe Harbor may be used solely to determine whether a MP, MPC, or Constituent Material is PFE-sourced or -produced. Lastly, the Notice does not explicitly provide whether (or how) the Cert Safe Harbor may be applied in conjunction with the Cost % Safe Harbor.

RELIANCE

The Notice provides that taxpayers may rely on the rules in the Notice to calculate the MACR for:

• Any QF or EST, the construction of which begins after December 31, 2025, until 60 days after the publication of forthcoming safe harbor tables.
• Any ECs sold in tax years beginning after July 4, 2025, until the date that the forthcoming safe harbor tables are published.

NEXT STEPS

The IRS has requested general comments with respect to PFE and material assistance issues, as well as specific comments with respect to calculating Total Direct Costs, anti-circumvention rules, and substantiation and documentation requirements. Comments are generally required to be submitted by March 30, 2026.