Tax insight

New foreign entity guidance lays the groundwork for upcoming proposed rules

Insight
5 minute read
February 13, 2026

What happened?

Treasury and the IRS on February 12 released Notice 2026-15, providing interim guidance on the material assistance cost ratio (MACR) and prohibited foreign entity restrictions enacted as part of the OBBBA. These restrictions deny eligibility for certain energy tax credits if a qualified facility, energy storage technology, or eligible component includes “material assistance” from a prohibited foreign entity (generally, if the applicable MACR is below the relevant threshold). The notice addresses a range of issues, including (1) calculation of the MACR for qualified facilities and energy storage technology under Sections 45Y and 48E and for eligible components under Section 45X, and (2) application of the foreign-influenced entity rules under Section 7701(a)(51). The notice provides several interim safe harbors to determine the MACR of a qualified facility, energy storage technology, or eligible component, as well as reliance rules and substantiation mechanics for taxpayers using the interim safe harbors.

PwC will publish a detailed insight about this guidance in the coming days.

Why is it relevant?

The OBBBA introduced sweeping restrictions tied to prohibited foreign entities – both specified foreign entities and foreign-influenced entities – and expanded disqualification risk via a material assistance test that reaches deep into supply chains, IP licensing, financing, and services. The interim guidance in Notice 2026-15 builds on prior guidance, primarily domestic content guidance in Notices 2023-38, 2024-41, and 2025-8, to provide rules that would require taxpayers to identify, track, cost, and characterize amounts included in the basis of otherwise credit eligible property to determine whether too much of the underlying costs come from prohibited foreign entities. The notice indicates that Treasury and the IRS intend to create a more comprehensive system of cost tracing, certification, and substantiation around energy tax credits.

Actions to consider

Taxpayers should carefully review the new interim rules and consider their impact on 2026 tax year planning and compliance. Key actions include:

Perform a prohibited foreign entity exposure assessment across suppliers and counterparties;
Evaluate whether safe harbor methods are advantageous;
Update procurement processes;
Establish certification processes;
Model MACR outcomes for projects beginning construction in 2026 and beyond;
Consider foreign-influenced entity updates to evaluate prohibited foreign entity status;
Plan for substantiation/return reporting if using a Section 4 safe harbor (including preparing the required statement identifying the safe harbor/table used and how it was applied, to be attached to the applicable credit form for the first year the credit is claimed);
Monitor for forthcoming regulations, which are expected to expand on provisions consistent with this notice; and
Consider providing feedback about provisions of Notice 2026-15 through informal channels or by submitting comments by March 30, 2026.