New FEOC guidance that the Internal Revenue Service released Thursday fills in more detail about how to calculate whether a new power plant or storage project and solar, wind or battery equipment made in a US factory contains too much Chinese equipment to qualify for federal tax credits.

The IRS is expected to issue guidance on other FEOC issues on a rolling basis. No target dates have been announced. 

"FEOC" stands for foreign entity of concern.

The new guidance is in Notice 2026-15.

The One Big Beautiful Bill Act last July imposed a set of three FEOC restrictions that can prevent owners of new power plants and storage projects -- and manufacturers of solar, wind and storage equipment -- from claiming federal tax credits.

The restrictions generally took effect on January 1, 2026.

They apply to "technology-neutral" tax credits under section 45Y or 48E of the US tax code and to section 45X tax credits for manufacturing solar, wind and storage equipment in the United States. They do not apply to "legacy" tax credits claimed under sections 45 and 48 of the tax code. Legacy tax credits may be claimed on projects that were under construction for tax purposes by the end of 2024.

Material Assistance 

The part of FEOC addressed by the new IRS notice limits the amount of equipment supplied by "prohibited foreign entities" that can be used in US power plants and storage projects on which tax credits will be claimed. It also limits the amount of parts and materials supplied by prohibited foreign entities that can be used by US manufacturers of solar, wind and battery equipment on which section 45X tax credits will be claimed by the manufacturers.

Taxpayers must calculate a "material assistance cost ratio," meaning the percentage of the project or product cost that is attributable to equipment, parts and materials supplied by prohibited foreign entities.

Prohibited foreign entities are companies that have too much Chinese ownership, debt or involvement in management. For more detail, see "Working Through the FEOC Maze".

The percentage limit varies by year and type of project or product. For example, tax credits cannot be claimed on a new power plant on which construction starts in 2026 unless the non-PFE equipment accounts for at least 40% of the project cost. The non-PFE equipment must be at least 60% for power projects starting construction in 2030 or later. The non-PFE equipment must account for at least 55% of storage projects on which construction starts in 2026, increasing to at least 75% for such projects starting construction in 2030 or later.

The material assistance cost ratio is a fraction: (A - B) ÷ A, where A is the direct cost of all the equipment used in the project or product and B is the direct cost of the equipment supplied by prohibited foreign entities.

The material assistance cost ratio must be calculated by project owners separately at the level of each "qualified facility," meaning each circuit, wind turbine or other part of the project that can be placed in service independently of the other parts.

It must be calculated by US manufacturers separately for each product. A manufacturer uses its direct material costs. The new notice allows manufacturers to average costs over time intervals of up to a year in length.

Project owners and manufacturers only have to focus on a discrete number of "manufactured products" and "manufactured product components" in an IRS table when doing the calculations. For example, it does not matter where the polysilicon used in solar cells or solar panels was produced. Polysilicon is not one of the manufactured product components that factors into the cost ratio calculation.

Steel and iron construction materials can be ignored.

Main power transformers can be ignored.

Some developers fold network upgrade costs paid to utilities into the tax basis on which investment tax credits are claimed on their projects. The IRS said a separate material assistance cost ratio must be calculated for these network upgrades. This may be difficult to do unless the utility making the upgrades is willing to share cost information and help identify how much of the material used for the upgrades came from prohibited foreign entities.

The notice gives project owners and manufacturers options for how to determine whether they are using too much PFE equipment.

A taxpayer can rely on certificates from its suppliers that the suppliers are not prohibited foreign entities, unless the taxpayer has reason to know a certificate is inaccurate. The notice specifies certain other information that must also be in such certificates.

A taxpayer can use the adjusted cost percentages in the domestic content tables the IRS issued in Notice 2025-08, but only for the types of projects for which there are tables, or rely on actual cost data. The cost is the cost to the taxpayer.

The determination whether a supplier is a prohibited foreign entity is made in most cases on the last day of the supplier's tax year. The project owner or manufacturer focuses on the supplier's tax year in which it paid or incurred the cost of the equipment.

The material assistance calculations for repowered wind projects are done by looking solely at the new equipment.

Future Guidance

The IRS is still working on guidance about the other parts of FEOC. This is expected to take the form of additional notices. Comprehensive proposed regulations are not expected any time soon.

FEOC bars any US company that is a prohibited foreign entity from claiming federal tax credits. Although the major law and accounting firms have generally gotten comfortable with analyzing PFE status, there are lingering questions.

FEOC also bars tax credits from being claimed on any project or product over which a "specified foreign entity" has been given effective control by contract. A "specified foreign entity" is a company that is on a US sanctions list or is more than 50% Chinese-owned. Congress wrote into the FEOC statute a list of 13 contract clauses that it felt are signs of effective control. Most developers and manufacturers have been identifying any contracts they have with specified foreign entities and then scrubbing them of effective control clauses. Granting a right to use intellectual property belonging to an SFE, or modifying an existing such right, on or after July 4, 2025 is automatically considered to give the SFE effective control.

The IRS is collecting comments on the notice through March 30.