IRS Releases Initial FEOC Guidance

The U.S. Treasury and the Internal Revenue Service (IRS) have released initial guidance for foreign entities of concern (FEOC) restrictions that were established by the One Big Beautiful Bill Act (OBBB) last summer and took effect in the new year.

The notice, released Thursday, provides interim guidance on how to calculate material assistance, or the use of components manufactured by a so-called prohibited foreign entity (PFE), while previewing how the agencies intend to approach ownership and effective control questions in forthcoming guidance.

“The Treasury Department and the IRS intend to issue more comprehensive proposed regulations and other guidance with respect to the definitions of a PFE and material assistance from a PFE,” the notice reads.

As set out in the OBBB, taxpayers hoping to retain eligibility for 45X, 45Y or 48E must stay above an established material assistance cost ratio (MACR).

Until permanent tables are published, taxpayers may rely on existing domestic content safe harbor tables to determine the relevant components and cost percentages and calculate their “Clean Electricity MACR” for 45Y and 48E and their “Eligible Component MACR” for 45X, per the notice. The guidance also includes detailed rules for use of an optional “Certification Safe Harbor,” which require extensive documentation and strict record retention.

The IRS has requested feedback on this week’s notice by March 30.

Reporting by Colt Shaw, cshaw@opisnet.com; Editing by Michael Schneider, mschneider@opisnet.com