One month after the enactment of the tax package formerly known as the One Big Beautiful Bill, clean energy stakeholders are preparing for the realities of what the new law means for their industries and specific tax strategies.
‘It Is What it Is’
The tax component of the 2025 budget reconciliation law amended several clean energy credits from their previous versions under the Inflation Reduction Act. Many incentives for businesses are now either terminated or will be sunset at an accelerated pace.
But these changes vary between Code Sections and also between different energy types. Overall, the act made deeper cuts to wind and solar benefits compared to other industries. Now a month removed from its signing, how taxpayers are digesting provisions relevant to their business.
As Baker Tilly Principal Peter Henderson told Checkpoint, “it really depends on what sector they’re in.” He is “expecting kind of a rush” – largely from wind and solar – “to get things moving” ahead of new expiration deadlines.
But Henderson said it is also not “all out panic by any means.” Some companies “still have good runway” and may not be in a hurry to “sell their facilities.” He added that over the course of his involvement with the IRC § 45X Advanced Manufacturing Production Credit and talking with companies, it’s “difficult with these rules – you can’t just sell a facility” at the drop of a hat.
Credits like Section 45X incentivized companies to bring “a lot of workers” to “more remote” areas of the country, such as parts of Texas and South Carolina “where a lot of them got other incentives as a result of setting up those facilities,” said Henderson. Most of those workers, he added, are full-time employees with W-2 income.
As for who would buy a facility from a prospective seller, “it’s really got to be a company that’s coming in with their own IP and their own manufacturing process because of the way those rules are structured,” according to Henderson.
For many companies, it is a matter of acceptance of the OBBBA provisions that are now law. “I haven’t heard a lot of optimism” that the changes will be “getting pulled back,” he said. “I think at this point, it kind of is what it is. The rules are what they are … [and] guidance is only going to do so much.” Taxpayers at this point “know what’s going away.”
Foreign Entity Rules
Besides expedited credit phase-outs, taxpayers are preparing for new foreign entity of concern (FEOC) restrictions now applied to various energy credits. In addition to the IRC § 30D Clean Vehicle Credit, FEOC rules will extend to the following Code sections in 2026:
- IRC § 45U Zero-emission Nuclear Production Credit;
- IRC § 45Y and IRC § 48E tech-neutral Clean Electricity Production and Investment credits;
- IRC § 45Q Carbon Capture Credit;
- IRC § 45Z Clean Fuel Production Credit; and
- Section 45X credit.
The OBBBA expanded the Inflation Reduction Act’s definition of a FEOC by distinguishing between “specified foreign entities” (SFEs) and “foreign influenced entities” (PFEs). These two categories are known as “prohibited foreign entities” under the FEOC umbrella.
SFEs now include foreign-controlled entities (individual, business, government, etc.) under control of China, Russia, North Korea, or Iran. A SFE can also be a citizen of one of these countries or an entity controlled by an entity with a 50% or more interest in one of those jurisdictions. The new law’s SFE provisions took effect July 4.
FIE provisions carry “effective control” and “material assistance” guardrails for credit eligibility. They largely serve to prevent entities with significant foreign influence or control from benefiting from these credits.
PFEs are prohibited from claiming any of the credits. A company could also lose a credit or be denied eligibility if key components are sourced from outside the U.S. or if critical technologies are licensed from a PFE. An entity also cannot enter into financial arrangements with a PFE.
Henderson said the FEOC changes are an area where he is “seeing a lot of questions and concern on navigating” the restrictions. Some aspects are more straightforward, such as the treatment of U.S. subsidiaries of Chinese companies, but the “second and third tier of the rules” will run into “scenarios where we’re not able to tell how things will shake out right now without guidance.” Material assistance ratios, for example, is something the IRS will need to elaborate on, he said.
Many Chinese companies “set up operations in the U.S. and began manufacturing in the U.S.” to claim incentives like the Advanced Manufacturing Production Credit, said Henderson, and “a lot of jobs are created as a result of that. What’s going to become of those facilities is really unclear.”
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
