Treasury Department and IRS Release Prohibited Foreign Entity Guidance
The U.S. Department of the Treasury and IRS on February 12, 2026, released Notice 2026-15, which provides initial guidance regarding Prohibited Foreign Entities (PFEs), defined under Section 7701(a)(51) and Section 7701(a)(52) of the Internal Revenue Code (Code), as enacted by the One Big Beautiful Bill Act (OBBB). These rules are often referred to as the Foreign Entity of Concern, or FEOC, rules. The notice includes interim safe harbor guidance under Code Sections 45X, 45Y and 48E for gauging the material assistance cost ratio for a qualified facility, energy storage technology or eligible component for purposes of determining whether there was material assistance from a PFE. It also addresses certain PFE restrictions that the Treasury Department and IRS intend to include in the forthcoming proposed regulations.
Under the PFE rules, certain tax credits – including the Clean Electricity Investment Credit under Section 48E, Clean Electricity Production Credit under Section 45Y, Advanced Manufacturing Tax Credit under Section 45X, Zero-Emission Nuclear Power Production Credit under Section 45U, Clean Fuel Production Credit under Section 45Z and Credit for Carbon Oxide Sequestration under Section 45Q – are disallowed for any entity that is determined to be a PFE under the meaning of Section 7701(a)(51).
PFEs include specified foreign entities and foreign-influenced entities. Generally, the PFE rules look to restrict the availability of these credits to taxpayers that are owned or influenced by PFEs (i.e., those with connections to China, North Korea, Russia and Iran). Additionally, for purposes of claiming the Clean Electricity Investment Credit, Clean Electricity Production Credit and Advanced Manufacturing Tax Credit, taxpayers must ensure compliance with rules that prohibit qualified facilities, qualified interconnection property and eligible components from including "material assistance" from PFEs as defined under Section 7701(a)(52). (See the Holland & Knight Energy Tax Resource Library entry on PFE Rules.)
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