Notice 2026-15: Guidance to Apply Interim Safe Harbors for Purposes of Determining a Taxpayer’s Material Assistance From a Prohibited Foreign Entity; Other Prohibited Foreign Entity Guidance

KEY TAKEAWAYS

• Notice 2026-15 provides the first actionable compliance framework for the PFE material assistance rules affecting Sections 45X, 45Y, and 48E credits.

• Three interim safe harbors allow taxpayers to rely on existing domestic content tables and supplier certifications to calculate the material assistance cost ratio.

• These safe harbor methodologies can produce different pass/fail results depending on which approach is selected. Method choice is a substantive tax planning decision.

• IP licensing agreements entered into or modified after July 4, 2025, with a specified foreign entity confirmed to disqualify the project.

Overview

On February 12, 2026, the Treasury Department and IRS released Notice 2026-15, https://www.irs.gov/pub/irs-drop/n-26-15.pdf, providing long-awaited interim guidance on the prohibited foreign entity (PFE) restrictions enacted by the One, Big, Beautiful Bill Act (OBBBA) in July 2025. The notice establishes rules for calculating the material assistance cost ratio (MACR). MACR is the quantitative test determining whether a qualified facility, energy storage technology, or eligible component includes too much PFE-sourced content to qualify for energy tax credits under Sections 45Y, 48E, and 45X.

Since the OBBBA’s passage, the absence of implementing guidance has been a significant source of uncertainty in the clean energy tax credit and associated transfer markets, constraining capital deployment and complicating deal execution. Notice 2026-15 begins to resolve that uncertainty by offering defined safe harbor pathways, reliance standards, and benchmarking for complex questions regarding “effective control.” Comprehensive proposed regulations are expected, but no target dates have been announced.

The PFE restrictions apply to the technology-neutral credits (Sections 45Y and 48E) and the advanced manufacturing production credit (Section 45X). They do not apply to legacy credits under Sections 45 and 48, which remain available for projects that began construction by the end of 2024. Separate PFE entity-level and credit transfer restrictions (but not the MACR material assistance rules) also apply to Sections 45Q, 45U, and 45Z.

The MACR Test

The MACR measures the share of a project’s costs that are not traceable to a prohibited foreign entity. A project or component is deemed to have received “material assistance” from a PFE if its MACR falls below an applicable threshold. 

The formula is: MACR = (Total Direct Costs – PFE Direct Costs) ÷ Total Direct Costs. 

The result must meet or exceed a minimum percentage that varies by credit, technology, and year.

Failure of the MACR test means the tax credit is entirely disallowed—not merely reduced.

In plain terms, the MACR measures the share of a project’s costs that are not traceable to a prohibited foreign entity. Therefore, a higher percentage is better, and 100% means the project has no PFE content at all.

For Sections 45Y/48E, the MACR is calculated separately for each qualified facility or energy storage technology, with the threshold keyed to the year construction begins. For Section 45X, the MACR is calculated for each eligible component sold, keyed to the year of sale. A critical distinction: The 45Y/48E MACR includes both direct material and direct labor costs. The §45X MACR includes direct material costs only.

MACR Threshold Percentages

The higher thresholds for energy storage (55% vs. 40% in 2026) and battery/critical mineral components (60% vs. 50%) reflect heightened concern about supply chain dependence on Chinese manufacturers in those sectors. 

The Default: Actual Direct Cost Method

Notice 2026-15 establishes the actual direct cost method as the baseline approach for computing the MACR. Under this method, taxpayers track the actual dollar costs of each manufactured product (MP), manufactured product component (MPC) based on domestic content Notice 2023-38 definitions, or constituent material incorporated into a facility or eligible component; determine which items were mined, produced, or manufactured by a PFE; and compute the MACR using real cost data rather than table-based proxies.

For Sections 45Y and 48E, Direct Costs include both direct material costs and direct labor costs under Section 1.263A-1(e)(2)(i)(A) and (B), excluding the costs of incorporating MPs into the facility (e.g., installation labor at the project site).

For Section 45X, the cost base is narrower: direct material costs only (generally including freight-in and tariffs) with no labor component. The 45X method also includes a “reseller look-through” requiring taxpayers to trace past distributors to the entity that actually manufactured the constituent material.

The actual cost method has three important advantages. First, it is universally available, meaning it works for any technology type, including nuclear, geothermal, fuel cells, and the many Section 45X eligible components locked out of the table-based safe harbors. Second, it may produce a more favorable MACR when actual non-PFE costs are proportionally higher than the safe harbor tables assume. Third, it is required in certain cases — incremental production facilities cannot use the Cost Percentage Safe Harbor, and most Section 45X eligible components (cells, wafers, critical minerals, wind blades, nacelles) are not listed in the tables. The tradeoff is a heavier compliance burden: granular cost tracking at the MP/MPC level with PFE status documentation for each item.

Three Interim Safe Harbors (Alternatives to Actual Costs)

As alternatives to the actual cost method, Notice 2026-15 provides three interim safe harbors to simplify MACR compliance. These can be combined depending on the taxpayer’s circumstances and data availability.

Identification Safe Harbor

Taxpayers may use the existing 2023–2025 domestic content safe harbor tables (Notices 2023-38, 2024-41, and 2025-08) to identify the MPs, MPCs, and constituent materials relevant to their MACR calculation. The identified list is treated as exclusive and exhaustive—items not in the tables are disregarded entirely. This dramatically limits the supply-chain tracing burden: Upstream inputs like polysilicon, ingots, and wafers do not need to be traced. Structural steel and iron are also excluded. However, this pathway is available only for facility types and eligible components that appear as “Applicable Projects” in the tables. Nuclear, fuel cells, and geothermal facilities, among others, currently have no table and cannot use this approach.

Cost Percentage Safe Harbor

Rather than tracking actual costs, taxpayers may use the assigned cost percentages from the domestic content tables. The five-step process: (1) Identify listed MPs/MPCs using the Identification Safe Harbor; (2) Determine which are PFE Produced; (3) Sum the assigned cost percentages for all identified items; (4) Sum the percentages for PFE items; (5) Compute the MACR as the ratio of non-PFE to total percentages. This eliminates the need to trace actual dollar costs through the supply chain.

Certification Safe Harbor

Taxpayers may rely on supplier certifications attesting to PFE status or providing cost breakdowns. Three certification pathways are available: (1) A general attestation that the property was not produced by a PFE; (2) Cost-based certification for Section 45X eligible components; and (3) Cost-based certification for Sections 45Y/48E facilities and ESTs. All certifications must include the supplier’s EIN, be signed under penalties of perjury, and be retained for at least six years by both parties.

Importantly, the reliance standard is not limited to actual knowledge. Both the taxpayer and the certifying supplier are held to a "knows or has reason to know" standard, meaning neither party can turn a blind eye to red flags in the supply chain. If publicly available information, trade press, ownership records, or other circumstances would put a reasonable person on notice that a supplier may be a PFE, simply collecting a clean certification does not provide protection.

PFE Status, IP, and Effective Control

“Effective control” exists when a PFE holds enforceable contractual rights that allow it to influence key aspects of a facility’s production, operations, or sourcing—even in the absence of equity ownership. The OBBBA disallows eligibility for energy tax credits on any project over which a Specified Foreign Entity (SFE) has effective control by contract. Congress enumerated 13 contract clauses that constitute effective control. Notice 2026-15 confirms a critical reading: clause (GG), which treats any IP licensing agreement entered into or modified on or after July 4, 2025, with an SFE as per se effective control, and operates independently from clauses (AA) through (FF). This is a bright-line rule with no exceptions.

The practical consequence is severe: A developer that licenses manufacturing technology from a Chinese-owned entity under a new or amended agreement is automatically disqualified, even if the agreement does not contain any of the other 12 problematic provisions. Industry participants have been scrubbing existing SFE contracts of effective control clauses, and several Chinese-linked manufacturers have divested US facilities entirely (e.g., Trina Solar to T1 Energy, JA Solar to Corning). Companies operating under licensed Chinese IP face the most acute exposure.

Notice 2026-15 clarifies that the test focuses on legal rights, not whether those rights are exercised. Authority over production timing or output, operational decision-making, supplier selection, access to data or personnel, or embedded long-term service and royalty arrangements all may create Foreign Influenced Entity (FIE) status if they provide meaningful leverage over the project or component. Separately, the statute and Notice confirm that debt can independently create foreign influence: If SFEs hold 15% or more of an entity’s total debt at original issuance, the entity may be treated as an FIE regardless of equity ownership or contractual control rights. Capital structure is therefore a standalone trigger.

In practical terms, the guidance makes clear that licensing, financing, and commercial agreements are central risk areas. Retained royalty streams beyond 10 years, sourcing veto rights, limits on independent manufacturing, contractual operational control, or qualifying SFE debt exposure can convert an otherwise domestic entity into one treated as foreign-influenced.

Notice 2026-15 also tightens the reliance standard. Taxpayers may rely on supplier certifications and representations only if they do not know, and have no reason to know, that PFE involvement exists. “Reason to know” includes red flags in ownership disclosures, financing documents, debt arrangements, public records, or inconsistencies in sourcing and cost data. In effect, the regulations impose an affirmative diligence obligation before a taxpayer may rely on supplier representations, and that diligence underpins the MACR calculations used to determine credit eligibility.

PFE/MACR and Domestic Content: Two Overlapping Regimes

The MACR and domestic content bonus credit now use the same underlying safe harbor tables for different purposes. Taxpayers are expected to define applicable project components per Notice 2023-38, at a level of detail that is substantially similar to the level of detail provided in the 2023–2025 Safe Harbor Tables, with respect to MPs and MPCs. The MACR determines baseline credit eligibility, and failure disqualifies the project from any credit. In contrast, for the domestic content bonus credit, failure only reduces the credit (or never allows for the bonus credit in the first instance). For example, a component manufactured in the US (domestic content eligible) by a PFE-owned entity (MACR fail) would lose the entire credit, not just the bonus if the total MACR ratio for the project falls below the enumerated cost ratios. Developers should build a single integrated tracking system covering both analyses using the shared MP/MPC framework. Note that steel/iron treatment differs: It is excluded from the MACR but subject to a separate 100% US manufacturing requirement for domestic content.

Beginning of Construction: A Critical Timing Lever

Because the MACR thresholds for Sections 45Y and 48E key off the calendar year in which construction begins, the timing of construction commencement is one of the most significant planning levers available. A project that begins construction in 2026 faces a 40% threshold (qualified facilities) or 55% (ESTs); waiting until 2030 raises these to 60% and 75%, respectively.

Notice 2026-15 confirms the statutory provision that the beginning of construction for PFE/MACR purposes is determined under Notices 2013-29 and 2018-59 as in effect on January 1, 2025. This is the long-standing framework that offers two paths:

• Physical Work Test: Physical work of a significant nature begins at the project site or at a factory on non-inventory project components.
• Five Percent Safe Harbor: The taxpayer pays or incurs at least 5% of the total cost of the facility.

Both paths require a demonstration that continuous efforts to advance the project toward completion once construction has begun take place.

Projects that began construction in 2025 or earlier are not subject to the MACR material assistance rules at all. (The rules apply only to construction beginning after December 31, 2025.) For projects on the cusp, documenting a 2025 construction start is therefore dispositive. For projects that will begin construction in 2026, the lower thresholds provide meaningfully more headroom—a 40% minimum MACR for qualified facilities vs. 60% by 2030, and 55% for ESTs vs. 75%.

For energy storage projects in particular, the 20-percentage-point difference between 2026 (55%) and 2030 (75%) makes construction timing a first-order strategic decision. Developers should evaluate whether physical work or the 5% safe harbor can be achieved before year-end 2026 to lock in the most favorable thresholds.

Diligence Is Required to Confirm BOC Status

Given the binary consequences of the MACR threshold year (a project that began construction in 2025 avoids the rules entirely, while one that started in 2026 faces the lowest thresholds, and delays beyond that ratchet progressively tighter), independent diligence on beginning of construction status is essential. Tax equity investors, credit transfer purchasers, and lenders should not accept a developer’s BOC assertion at face value. This is not a new diligence item in principle, but the PFE regime gives it substantially higher risk.

Common Foot Faults in PFE Diligence

Based on the framework established in Notice 2026-15 and emerging market practice, the following are common pitfalls that developers, manufacturers, investors, and credit purchasers should watch for in PFE diligence:

1. Assuming the Safe Harbor Tables Cover Everything

The Identification Safe Harbor only works for facility types and eligible components that appear in the 2023–2025 tables. Nuclear, fuel cells, geothermal, and most Section 45X eligible components (cells, wafers, polysilicon, electrode active materials, wind blades, nacelles, towers, critical minerals) are not listed eligible components and cannot use the table-based safe harbors. Only eight finished-product types qualify for the 45X cost percentage pathway. Manufacturers of non-listed components must use actual costs or the Certification Safe Harbor.

2. Conflating PFE Status With Country of Manufacture

PFE status depends on ownership, debt, and control thresholds of the entity, not merely where the product is manufactured. A factory in the US owned by a PFE produces PFE equipment. Conversely, a non-PFE factory in a covered nation may produce non-PFE equipment (though this is unlikely). Do not use country-of-origin as a proxy for PFE status. Separate PFE analysis is required for each supplier.

3. Relying on Representations Without Prior Diligence

Reliance on supplier attestations or certifications alone is insufficient. Notice 2026-15 permits certification-based reliance only where the taxpayer does not know, and has no reason to know, that PFE involvement exists. Public ownership disclosures, financing arrangements, licensing terms, or inconsistencies in cost and sourcing data can create a “reason-to-know” obligation to investigate further.

4. Overlooking the Reseller Look-Through (Section 45X)

For Section 45X eligible components, PFE status is generally determined at the direct supplier level. However, if the direct supplier is merely a reseller or distributor, the taxpayer must look through to the entity that actually mined, produced, or manufactured the constituent material. Relying on a non-PFE distributor’s certification without confirming the upstream manufacturer’s status is a diligence gap.

5. Missing the QIP Separate MACR Requirement

Qualified interconnection property (network upgrades) requires a separate MACR calculation. This is easy to overlook because QIP costs are often simply folded into the Section 48E tax basis. Obtaining the necessary cost and sourcing data from the utility performing the upgrades may be difficult, and failure on the QIP MACR excludes those costs from the qualified investment. Evaluate early whether pursuing the separate QIP MACR is worthwhile.

6. Ignoring the 80/20 Proration Trap

For facilities qualifying under the 80/20 Rule (used property ≤ 20% of total value), only new property costs are included in the MACR. However, when using the Cost Percentage Safe Harbor, the full Assigned Cost Percentages are used without proration for partially replaced property. If a facility replaces five of nine wind blades, the full blade cost percentage applies. This counterintuitive rule can inflate (or deflate) the PFE percentage for partial replacement scenarios.

7. Failing to Compare All Available Methods

The actual cost method, Cost Percentage Safe Harbor, and Certification Safe Harbor can yield materially different MACRs on the same project. In the Notice’s examples, one safe harbor method passed while the other failed on identical facts. Not modeling all three approaches before committing to a methodology can leave credits on the table, or worse, result in an avoidable disallowance. The choice should be made at the project level, not as a blanket policy.

8. Incomplete Certification Collection

Certifications must include the supplier’s EIN (not just a name), be signed under penalties of perjury, and be retained for six years. A certification missing any of these elements is invalid. Certifications must also be attached to the tax return (Forms 7211, 3468, or 7207) for the first year the credit is claimed. Collecting certifications after the filing deadline creates compliance risk.

9. Neglecting the 45X Binding Contract Cutoff Difference

The binding written contract exception for Section 45X uses January 1, 2027 (not January 1, 2030) as the sell-by date for constituent elements used in products. Manufacturers that assume the longer 2030 runway applies to their 45X credits will miss this earlier deadline.

10. Underestimating the 6-Year Assessment Window

MACR-related deficiencies are subject to a six-year assessment period (vs. standard three years) and a 1% substantial understatement threshold (vs. 10%). This means the IRS has double the time to audit, and the penalty threshold is 10 times more sensitive. Deal indemnities, tax credit insurance, and representations and warranties in credit transfer agreements should be calibrated to this extended risk window. Lenders and tax equity investors are already beginning to treat the MACR audit file as a standard diligence deliverable.

Enhanced Penalties

What Remains Open

Notice 2026-15 is interim guidance, not proposed regulations. The comment deadline ends March 30, 2026.

Significant open items include:

1. PFE definitional mechanics: No operational rules for constructive ownership, subsidiary tracing, debt analysis, or public-company ownership testing beyond statutory thresholds.
2. Non-tabulated technologies: Nuclear, fuel cells, geothermal, and most 45X components have no streamlined safe harbor. Treasury must issue, per statutory requirement, new safe harbor tables by December 31, 2026.
3. Recapture and anti-circumvention: Post-placed-in-service changes in PFE status, temporary lapses of foreign ownership, and stockpiling prevention, while acknowledged, remain unaddressed.

Recommended Actions

1. Audit supply chains now. Map every supplier against PFE definitions, focusing on items listed in the safe harbor tables for your technology type.
2. Model MACR using actual costs and the safe harbor methods. The actual cost approach, Cost Percentage Safe Harbor, and Certification Safe Harbor can yield materially different results, and in some cases opposite pass/fail outcomes. Identify the most favorable methodology at the project level.
3. Establish certification infrastructure. Standardize templates with EIN, penalties-of-perjury language, and six-year retention commitments. Collect certifications before the filing deadline.
4. Review all IP licensing agreements. Any agreement with an SFE entered into or modified after July 4, 2025, creates automatic effective control.
5. Document construction commencement carefully. Use the Notice 2013-29/Notice 2018-59 framework (not Notice 2025-42).
6. Update deal structures. Indemnities, tax credit insurance, and R&Ws should address the six-year assessment window, 1% penalty threshold, and MACR-specific risks.
7. Require MACR deliverables in financing documents. Lenders and tax equity investors should require a MACR analysis with methodology disclosed as a closing condition. Loan and partnership agreements should include MACR representations, supplier change-of-status notification covenants, and consent rights over mid-construction component sourcing changes.

8. Scope MACR sensitivity in insurance submissions. Insurers will underwrite not only whether a project passes the MACR threshold, but by how much. A project clearing 40% with a 42% MACR is a fundamentally different risk profile than one at 55%. Sponsors should model downside scenarios, including if a key supplier is reclassified as a PFE mid-construction or if a cost overrun shifts component weightings, and present that analysis proactively. A thin margin with no stress testing may either delay binding or widen premiums.
    

   Key Dates

Alvarez & Marsal’s cross-functional tax and trade team advises developers, manufacturers, and investors across the full life cycle of clean energy tax compliance. We conduct PFE screening and effective control analysis (including ownership, debt, licensing, and contractual review), perform project- and component-level MACR modeling, and assess eligibility under evolving safe harbor guidance. We also support prevailing wage and apprenticeship (PWA) compliance, domestic content adder analysis, ITC/PTC structuring decisions, and audit-ready documentation buildouts. 

Our approach integrates technical interpretation, cost accounting, manufacturing origin analysis, and supply chain diligence to ensure credits are defensible under OBBBA and related IRS guidance. 

For more information reach out to our team using the contact information below: 

Kyle Seipert – Managing Director, Global Transaction Tax

kseipert@alvarezandmarsal.com

Steven Schmoll – Senior Director, National Tax Office

sschmoll@alvarezandmarsal.com 

Louis Conde – Senior Director, Trade and Customs

lconde@alvarezandmarsal.com

Chase Duncan – Senior Associate, Trade and Customs

cduncan@alvarezandmarsal.com