Foreign-entity (FEOC) rules
Prohibited foreign entities and material assistance
The 2025 law added two kinds of foreign-entity test: one about who the taxpayer or buyer is, and one about where a project's components come from. Both now drive deal prices.
Verified · page reviewed 11 Oct 2026
Two different questions
- Who are you, and who is your buyer? Some credits are denied to taxpayers that are specified foreign entities or foreign-influenced entities, and some credits cannot be transferred to a specified foreign entity.
- What is in the project? For §45Y, §48E and §45X, a project or component that includes too much material assistance from a prohibited foreign entity gets no credit.
In the first half of 2026, foreign-entity exposure became the strongest predictor of deal price, according to market data summarized by Cenet Capital[1].
The definitions
A prohibited foreign entity is a specified foreign entity or a foreign-influenced entity[2]. A specified foreign entity includes, among others, foreign entities of concern as defined in the 2021 National Defense Authorization Act; a foreign-influenced entity is, broadly, one over which a specified foreign entity has certain ownership, appointment or debt-based influence[2]. For the first tax year beginning after 4 July 2025, status is tested at the start of the year; afterwards, at the end[2].
Transfers to specified foreign entities
For tax years beginning after 4 July 2025, credits under §§45Q, 45U, 45X, 45Y, 45Z and 48E cannot be transferred to a specified foreign entity[3]. The bar does not name §30C, §45, §45V, §48 or §48C.
Material assistance
A qualified facility or energy storage project has material assistance from a prohibited foreign entity when its material assistance cost ratio (MACR, broadly the share of manufactured-product cost that does not come from prohibited foreign entities) is below a threshold that rises each year[2]:
| Construction begins | Qualified facility | Energy storage |
|---|---|---|
| 2026 | 40% | 55% |
| 2027 | 45% | 60% |
| 2028 | 50% | 65% |
| 2029 | 55% | 70% |
| After 2029 | 60% | 75% |
The test applies to §45Y and §48E facilities and storage whose construction begins after 31 December 2025[4][5]. For §45X, it applies to components in tax years beginning after 4 July 2025[6], with thresholds by component and year of sale; for example 50% for solar components and inverters sold in 2026, 60% for battery components, and 85% for wind components[2].
Notice 2026-15 sets out interim safe harbors for calculating the MACR, including reliance on supplier certifications unless the taxpayer knows or has reason to know a certification is inaccurate, and previews proposed regulations[7].
What a seller should have ready
- a statement of the seller’s own status (not a specified foreign entity or foreign-influenced entity);
- for §45Y, §48E or §45X, the MACR calculation with the supplier certifications behind it;
- for construction that began before 2026, the begin-construction evidence that takes the project outside the material-assistance test.
Buyers will also confirm their own status, because the transfer itself is barred if the buyer is a specified foreign entity.
Sources
- Tax credit price calculator: what is your credit worth in cash? (7 Oct 2026)
- 26 U.S.C. § 7701(a)(51)–(52) — Prohibited foreign entity; material assistance
- 26 U.S.C. § 6418 — Transfer of certain credits
- 26 U.S.C. § 45Y — Clean electricity production credit
- 26 U.S.C. § 48E — Clean electricity investment credit
- 26 U.S.C. § 45X — Advanced manufacturing production credit
- Notice 2026-15 — Interim safe harbors for material assistance from a prohibited foreign entity