On February 12, 2026, the Treasury Department (the “Treasury”) and the Internal Revenue Service (the “Service”) released IRS Notice 2026-15 (the “MA Notice”) – a 95 page notice providing guidance on the “material assistance” rules enacted as part of the One Big Beautiful Bill Act (“OBBBA”)1, but not much else.
Background
OBBBA introduced a host of new restrictions on tax credits otherwise available under Internal Revenue Code sections 45Y, 48E, 45X, 45Z, 45U, and 45Q relating to “prohibited foreign entities” (“PFEs”, i.e., certain “FEOCs” and entities and individuals deemed owned or controlled by China, Russia, Iran, or North Korea).2 These restrictions created a new framework for qualification of these credits in situations in which a PFE is involved – including restrictions on direct and indirect ownership, issuance of debt, actual and deemed control, and “material assistance.”
Given their breadth and novelty, these rules have resulted in considerable taxpayer uncertainty and repeated calls for Treasury and the IRS to clarify with regulations and other guidance their application.
The MA Notice represents the first issuance of guidance on such restrictions from Treasury and the IRS, but is, disappointingly, limited to the narrow issue of “material assistance” and is preliminary in nature. Among other shortfalls, the MA Notice does not provide insight into the appropriate taxpayer for making a PFE determination, the definition of “determined,” guideposts for determining whether an entity is a “foreign controlled entity” or “foreign influenced entity,” or clarity of the concept of “effective control” – with one exception: the MA Notice unfortunately confirms that an IP license entered into or amended on or after July 4, 2025 with a specified foreign entity creates an “effective control” issue if payment is made by the taxpayer to such specified foreign entity (or a related party of such entity), regardless of whether the license actually confers any modicum of control.
As expected, the MA Notice provides that future regulations will include an anti-abuse provision:
“to prevent entities from evading, circumventing, or abusing the application of restrictions with respect to PFEs under § 7701(a)(51), including rules to prevent such evasion, circumvention, or abuse through transfers or alterations of rights, property, or both, including transfers or alterations resulting in lapses of restricted foreign ownership or control that are temporary in nature.”
“Material Assistance”
Under OBBBA, a tax credit will be disallowed for facilities under sections 45Y or 48E for which construction begins after December 31, 20253, or for eligible components under section 45X that are produced and sold in taxable years beginning after July 4, 2025, if such facilities or components include “material assistance” from a PFE. The material assistance restrictions generally prohibit more than a threshold amount of components in a “qualified facility” or eligible component to be produced by a PFE.4
MA Notice Updates
While a full summary of the MA Notice is beyond the scope of this alert, a few items are worth highlighting:
- The MA Notice includes three safe harbors for purposes of determining a taxpayer’s MACR: the “Identification Safe Harbor,” “the Cost Percentage Safe Harbor,” and the “Certification Safe Harbor”
- These safe harbors are largely consistent with rules described in the OBBBA with some further clarifying details; unfortunately, the Identification Safe Harbor and Cost Percentage Safe Harbor are only useful for facilities and certain 45X components identified in the MA Notice (e.g., inverters, solar modules, and battery modules using battery cells) and manufactured product components (“MPCs”) identified in the domestic content notices (collectively, the tables provided in sections 5.05, 5.06, 6.02, and 7.02 of Notice 2025-08 (Notice 2025-08 Tables), section 3.02 in Notice 2024-41 for a Hydropower Facility, or a Pumped Hydropower Storage Facility, and section 3.04 in Notice 2023-38 for an Offshore Wind Facility).
- If using the Identification Safe Harbor and Cost Percentage Safe Harbor, the listed manufactured products (“MPs”) and MPCs are the exclusive and exhaustive list of MPs and MPCs
- In other words, unlisted components or subcomponents and items identified as steel or iron can generally be disregarded. In the 80/20 context, the MA Notice confirms that used MPs and MPCs may be disregarded. And, with respect to “qualified interconnection property,” such property is subject to a separate MACR determination if it is included in the qualified facility’s ITC-eligible basis (but it does not impact the taxpayer’s MACR determination in respect of the qualified facility).
- Taxpayers are generally required to individually track each of their MPs and MPCs and incorporation of elements and constituent materials into eligible components (for section 45X), with limited relief for MPs and MPCs that comprise less than 10% of the taxpayer’s total direct costs and/or circumstances where taxpayers can average use of MPs and MPCs across multiple similar facilities or eligible components
- For taxpayers not using the Cost Percentage Safe Harbor, the MA Notice clarifies that the taxpayer’s direct costs (not the costs of any supplier or sub-supplier) are relevant
- To determine whether an MP or MPC is produced by a PFE, taxpayers may use the Certification Safe Harbor (rather than an exhaustive supply-chain analysis); otherwise, the taxpayer is required to make an independent determination as to whether the direct supplier (or, if the direct supplier is a reseller, the entity that performed the actual manufacturing) was a PFE in the year the relevant cost was paid or incurred by the taxpayer
- Pursuant to the Certification Safe Harbor, if the supplier does not certify to the direct costs of MPs or MPCs, the supplier must certify that such property was not produced or manufactured by a PFE and that the supplier does not know, or have reason to know, that any prior supplier in the chain of production of that property is a PFE
- For this purpose, the MA Notice includes a useful example which seems to indicate that the supplier only needs to certify that it does not know (or have reason to know) that any prior supplier of MPCs in the chain of production of that property is a PFE (rather than all prior suppliers generally)
Taxpayers are encouraged to submit written comments on the MA Notice and on all issues relating to PFEs and material assistance to Treasury and the IRS by March 30, 2026.5 For better or worse, given the scope of outstanding guidance on PFE matters, there is hopefully ample opportunity for taxpayer input on future guidance.
1See our prior coverage of the OBBBA here.
2For more on the nuances of these rules, see [client alert links].
3See prior coverage of the “beginning of construction” for purposes of exempting a qualified facility from the material assistance restrictions here.
4The material assistance restrictions apply when the material assistance cost ratio (“MACR”) is less than the applicable threshold percentage, meaning taxpayers fail the test and credits are disallowed if the proportion of costs attributable to PFEs is too high.
5Taxpayers may rely on the guidance provided in the MA Notice for section 45X eligible components sold in taxable years beginning after July 4, 2025, and on or before the date that is 60 days after the publication of the forthcoming proposed regulations in the Federal Register.
