Recently released IRS Notice 2026-15 provides interim guidance for determining a taxpayer’s material assistance from a PFE (material assistance rules), explains the MACR calculations, and provides some safe harbors for PFE compliance.
Overview
The enactment of the OBBBA added additional restrictions on a section 45Y or section 48E qualified facility, a section 48E EST, and section 45X eligible component. None of these items will now meet the statutory definition if the qualified facility, EST or eligible component includes material assistance from a PFE.
Broadly, a PFE includes the following:
- A specified foreign entity, which is the government of, an agency of, an individual of, or an entity organized under the laws of or having its principal place of business in Russia, China, Iran or North Korea, or
- A foreign-influence entity, which is an entity controlled by a specified foreign entity.
The material assistance rules are based on a ratio of the total costs of all manufactured products that make up the qualifying property compared to the costs of manufactured products that a taxpayer sources from a PFE.
The Notice introduces the IRS’ interim framework for applying the material assistance rules to sections 45Y, 48E and 45X. It outlines how taxpayers should determine if a facility or eligible component received material assistance from a PFE by calculating its MACR, explains broadly how forthcoming regulations are expected to operate, and establishes temporary safe harbors for identifying components, allocating costs and relying on supplier certifications. The Notice describes how a taxpayer may substantiate its reliance on the Notice and includes an extensive glossary of terms used in the document. The IRS also requests comments on the PFE rules and material assistance rules.
Material assistance from a PFE
a.Clean Electricity
Taxpayers must compute a separate Clean Electricity MACR for each qualified facility or EST for any year they seek a section 45Y or section 48E credit, using a cost-based test that removes PFE-attributable amounts from total direct costs. If a MACR falls below the applicable threshold, it means the qualified facility/EST violates material assistance rules and is ineligible to claim a section 45Y or section 48E credit.
To calculate the Clean Electricity MACR, the Notice requires taxpayers to:
- Identify the types of manufactured products (MPs) and manufactured product components (MPCs) included in the qualified facility or EST.
- Track the relevant characteristics of each MP and MPC.
- Determine the direct costs attributable to the identified sum of the direct materials and direct labor for produced items or acquisition costs for purchased items (acquisition costs only apply to sections 45Y and 48E) (Total Direct Costs).
- Determine direct costs attributable to each of the identified MPs and MPCs (included in an MP) that were mined, manufactured or produced by a PFE (Total PFE Direct Costs).
Therefore, the Clean Electricity MACR = (Total Direct Costs – PFE Total Direct Costs) / Total Direct Costs.
The Notice provides that a taxpayer may assign MPs or MPCs of the same type to qualified facilities/EST placed in service during the same taxable year without tracking them unit by unit. This de minimis assignment is available for MPs/MPCs of the same type whose aggregate Direct Costs are less than 10% of Total Direct Costs for a facility/EST.
Special cases
Small EST averaging: For multiple ESTs of the same type each with less than one megawatt (alternating current) and placed in service in the same year, a taxpayer may compute Average Costs and PFE Production Percentages over specified periods, then apply those to each unit. A specified period of time must be at least one calendar day, the first specified period must begin on the same day as the taxpayer’s taxable year; if shorter than a taxable year, it must be contiguous, every day of the taxable year must be covered by a specified period, and the specified period cannot be longer than the taxpayer’s taxable year. The Notice does not describe if a new specified period may be triggered by an identifiable event, but examples suggest that there must be some sort of triggering event.
- 80/20 rule: For retrofits qualifying as “originally placed in service” under the 80/20 rule, only new property is considered in the Clean Electricity MACR.
- Steel/iron: Unless steel/iron items are identified as MPs/MPCs under section 7701(a)(52) or section 3.02 of Notice 2023-38 (Domestic Content Guidance), they are excluded from the Clean Electricity MACR computation.
- Qualified interconnection property: A separate Clean Electricity MACR is computed if interconnection costs are part of the section 48E qualified investment; a failure on the interconnection MACR alone does not bar the facility’s section 48E credit (but those interconnection costs drop out of the qualified investment).
b.Eligible Components
For each Eligible Component sold in a taxable year, taxpayers must compute an Eligible Component MACR that removes PFE-sourced material costs from Total Direct Material Costs. Any Eligible Components with a MACR below the applicable threshold are not eligible for a credit under section 45X.
To calculate the Eligible Component MACR, the Notice requires taxpayers to:
- Identify Constituent Materials used to produce the eligible component.
- Track the relevant characteristics of each MP and MPC.
- Determine the taxpayer’s direct material costs attributable to the identified MPs (including MPCs) (Total Direct Material Costs).
- Determine PFE Direct Material Costs by isolating material costs from PFE-sourced suppliers, with special rules if the direct supplier is a reseller (PFE Total Direct Material Costs).
Therefore, the Eligible Component MACR = (Total Direct Material Costs – PFE Total Direct Material Costs) / Total Direct Material Costs.
Taxpayers may average costs and PFE shares for a given type of Constituent Material over specified periods within the year for the same type of Eligible Component. A specified period of time for the Eligible Component MACR must be at least one calendar day, the first specified period must begin on the same day as the taxpayer’s taxable year; if shorter than a taxable year, it must be contiguous, every day must be covered by a specified period, and the specified period cannot be longer than the taxpayer’s taxable year.
Interim safe harbors
This Notice creates three interim safe harbors that taxpayers may use to simplify the process of determining whether a qualified facility, EST or eligible component meets the material assistance rules.
The three safe harbor options are:
- Identification Safe Harbor - Allows taxpayers to identify MPs, MPCs or section 45X Constituent Materials using pre-existing component lists in the 2023-25 Domestic Content Safe Harbor tables (Notices 2023-38, 2024-41, 2025-08).
- Cost Percentage Safe Harbor – Allows taxpayers to replace actual cost tracing with Assigned Cost Percentages from the Domestic Content Safe Harbor Tables. This applies both to Clean Electricity MACR and Eligible Component MACR, but only where the Identification Safe Harbor is also used.
- Certification Safe Harbor – The Certification Safe Harbor allows taxpayers to rely on supplier certifications regarding cost and PFE status of purchased MPs, MPCs or Constituent Materials.
Taxpayers may utilize more than one of these safe harbors simultaneously. For example, a taxpayer may use the Identification Safe Harbor to identify MPs and MPCs and the Certification Safe Harbor to show compliance with the MACR. Alternatively, a taxpayer may use the Identification Safe Harbor and Cost Percentage Safe Harbor to show compliance with the MACR.
A taxpayer that utilizes any of these safe harbors must attach a statement identifying the specific safe harbor and the application of the safe harbor to the relevant tax form for claiming the tax credit.
Certain PFE restrictions
This Notice also provides additional guidance on how the PFE restrictions will be applied in forthcoming regulations, focusing primarily on the treatment of foreign-influenced entities and the government’s intended anti-abuse framework. The Notice also clarifies that the statutory effective control provisions in section 7701(a)(51)(D) operate on an independent basis, meaning that any one of the contractual rights listed in subclauses (AA) through (GG) is sufficient for a specified foreign entity (or related entity) to be treated as exercising effective control over the taxpayer, thereby converting the taxpayer into a PFE.
Washington National Tax observations
The Notice provides some helpful clarity for taxpayers and investors concerned about meeting the new material assistance rules. The safe harbors utilize some concepts familiar from the domestic content credit adder. However, some important issues remain.
Most notably, the Notice sheds very little light on PFEs, a new concept. The guidance briefly touches on the application of the foreign-influenced entity rules related to effective control, but the guidance mostly repeats the statute without adding any further clarification. Taxpayers and investors are eager to better understand the boundaries of the contractual agreements that can result in there being effective control.
Additionally, the Notice seemingly does not describe how the material assistance rules apply to eligible components that Notice 2023-38 described as structural steel or iron. That would include land-based and offshore wind towers and solar racking that meets the section 45X definition of torque tubes or structural fasteners.
RSM US would expect taxpayers’ comments to request additional guidance on the PFE rules and material assistance rules.
