The One Big Beautiful Bill (OBBB, P.L. 119-21) imposes complex foreign entity of concern (FEOC) restrictions on clean energy credits – but practitioners are still awaiting clarity on the new provisions. Tax experts weighed in on when guidance might begin to trickle out, and which credit will likely be addressed first.
FEOC restrictions already applied to some tax credits, including the IRC § 30D Clean Vehicle Credit and IRC § 48D Advanced Manufacturing Investment Credit. Those restrictions were put in place by the 2022 Inflation Reduction Act and CHIPS and Science Act, respectively.
But the OBBB applies new and expanded FEOC restrictions to several other clean energy credits, namely the IRC § 45X Advanced Manufacturing Production Credit, IRC § 45Y Clean Electricity Production Credit, IRC § 48E Clean Electricity Investment Credit, IRC § 45Q Carbon Capture and Sequestration Credit, IRC § 45U Nuclear Power Production Credit, and IRC § 45Z Clean Fuel Production Credit.
Under the OBBB, credits are subject to two types of entity-level restrictions – those applicable to “specified foreign entities” and to “foreign-influenced entities.” The Sections 45X, 45Y, and 48E credits are also subject to new “material assistance” provisions.
NYU’s Tax Law Center describes the provisions as “a thicket of new and complex prohibited foreign entity rules that will, at minimum, impose significant compliance burdens on taxpayers.” The Tax Law Center’s Kyle Sweeney, Seth Hanlon, and Michael Kaercher delve into the details in a July post.
Guidance Watch
With a maze of new statutory requirements, the clean energy sector and tax practitioners are watching for implementation guidance from Treasury and the IRS. “There’s a huge amount of uncertainty around those rules and how this administration will apply them,” Hanlon explained during a September 8 American Tax Policy Institute webinar.
While clean energy credits aren’t loved by most Republicans, Holland & Knight’s Elizabeth Crouse said that “Treasury kind of needs to deliver on some guidance so that people can run their businesses.” That’s because “no matter what anyone thinks of the renewable energy industry, it is an industry that employs hundreds of thousands of people in this country – millions, depending on how you count,” Crouse told Checkpoint.
The Tax Law Center included the FEOC provisions in its OBBB implementation watch list. The group takes a more skeptical view than Crouse, cautioning of the “risk that the Administration will implement these provisions in ways that impermissibly restrict access to clean energy tax credits or will not issue guidance at all.”
A July 7 executive order, issued in the wake of the OBBB, directed Treasury to “take prompt action … to implement the enhanced Foreign Entity of Concern restrictions.” The executive order had called for action within 45 days of the OBBB’s July 4 enactment – but guidance has yet to be released.
Crouse said she’d be “pleasantly surprised” to see FEOC guidance trickle out by the end of this year – and having no guidance until the first quarter of 2026 “isn’t out of the question” to her. “I don’t know that anyone really thought they would issue FEOC [guidance] within 45 days, because, these rules are very, very complicated,” explained Crouse. She thinks of it as “domestic content turned on its head.”
But FEOC guidance is needed, because the statutory language of OBBB is “vague, in part” and leaves “gray areas to fill in,” Crouse said. However, FEOC is not the only area in need of guidance, and “it’s entirely possible that the FEOC rules are just not as high a priority” to Treasury and the White House as some other areas, Crouse explained.
“It goes without saying that clean energy tax incentives is less of a priority” for the Trump administration, Hanlon said during his September 8 remarks. The OBBB is a “sweeping law,” he added, with other high priority tax provisions such as “no tax on tips” and “no tax on overtime.”
But more than that, Hanlon is concerned about the loss of “sources of expertise within the government.” That includes not only Treasury and the IRS, but also “many of the technical agencies … like the Department of Energy and the EPA.”
Hanlon, who served as Treasury Deputy Assistant Secretary for Tax and Climate Policy in the Biden administration, explained that when implementing the Inflation Reduction Act, Treasury and the IRS relied on those technical agencies to produce guidance. With recent federal workforce reductions, “I think it’s going to be more difficult to tackle these extremely complicated issues,” said Hanlon.
What Will Come First?
Crouse suspects that when the Trump administration does release FEOC guidance, the Advanced Manufacturing Production Credit under Section 45X “has to be the first focus.” That’s because “everything under 45X becomes more pertinent more quickly,” she added.
More specifically, Crouse elaborated, “the material assistance rules are really the thing that’s causing people to lose sleep in the 45X context.”
The OBBB restricts three credits where a prohibited foreign entity provides “material assistance” to a taxpayer. For Sections 45Y and 48E, the restriction applies for facilities and energy storage technology where construction begins after 2025. However, for Section 45X, the restriction applies for components sold in tax years beginning after the OBBB’s date of enactment.
Crouse said that one implementation challenge is that “the rules for 48E, 45Y, and 45X are kind of smushed together when it comes to material assistance, which makes them a bit more difficult to interpret.” To understand the requirements “you kind of have to untangle the threads” – but then “you end up with some questions, some little knot that you’re not quite sure exactly how to untangle.”
Crouse seemed confident, however, that the IRS and Treasury can address Section 45X separately from Sections 48E and 45Y.
For Section 45X, production must happen in the U.S. “It’s pretty clear” that manufacturers will need to look at some “thing” or component “beyond the thing that qualifies for 45X,” Crouse explained. What’s not clear, she said, is whether manufacturers will “have to look down to the itty-bitty stuff.”
For Sections 48E and 45Y, however you “pretty clearly, are supposed to be looking at the prior domestic content notice first,” she explained.
Crouse also stressed that guidance on material assistance for purposes of Sections 48E and 45Y is “not as pressing,” because plants can “begin construction by the end of this year in order to avoid the material assistance rules.” And “there will be other plants that safe harbor during the first half of next year,” she added. Although those plants will have to qualify for material assistance, “they’re not going to start procuring equipment until probably into 2028.”
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