Last July's One Big Beautiful Bill Act (OBBBA) amended the section 45Y clean electricity production tax credit (PTC), the section 45X advanced manufacturing PTC, and the section 48E clean electricity investment tax credit (ITC). These amendments deny tax credits for PTC or ITC property that includes "material assistance" from a "prohibited foreign entity" (PFE). Material assistance is determined through a material assistance cost ratio (MACR), which considers costs associated with the PTC or ITC property that are attributable to products or components that are mined, produced, or manufactured by a PFE. On February 12, 2026, the Department of the Treasury and the Internal Revenue Service (IRS) published Notice 2026-15 to provide guidance on the MACR.

The material-assistance restriction applies to section 45Y and section 48E tax credits for qualified facilities and energy storage property that begin construction after December 31, 2025, and to section 45X tax credits for eligible components that are sold in a taxable year beginning after July 4, 2025. The MACR formula for sections 45Y and 48E is different than the MACR formula for section 45X. Regarding sections 45Y and 48E, the MACR formula divides (1) a taxpayer's "total direct costs" attributable to all manufactured products incorporated into a qualified facility or energy storage technology which were mined, produced, or manufactured by a PFE by (2) the taxpayer's "total direct costs" attributable to all manufactured products incorporated into a qualified facility or energy storage technology. Regarding section 45X, the MACR formula divides (1) the "total direct material costs" that are paid or incurred by the taxpayer for production of an eligible component that are mined, produced, or manufactured by a PFE by (2) the "total direct material costs" that are paid or incurred by the taxpayer for production of an eligible component. Our prior coverage of the OBBBA's changes to section 45X is here. Notice 2026-15 elaborates on the differences between the two MACR calculations. 

With respect to the MACR for sections 45Y and 48E, Notice 2026-15 provides guidance for determining direct costs attributable to manufactured products (MPs) and manufactured product components (MPCs). If a taxpayer acquires an MP, the taxpayer's direct costs attributable to the MP are the taxpayer's acquisition costs with respect to the MP. If a taxpayer produces an MP, the taxpayer's direct costs include the taxpayer's direct material costs and direct labor costs, which include the production or acquisition costs of MPCs included in the MP. Direct costs that a taxpayer incurs to incorporate an MP into a qualified facility or energy storage technology are not treated as direct costs for these purposes.

Notice 2026-15 requires a taxpayer to evaluate PFE direct costs by reference to the MPCs included in an acquired MP. If a taxpayer acquires an MP that was produced by a PFE, but some or all of the applicable MPCs included in the MP are not PFE-produced, then the taxpayer excludes from PFE direct costs the portion of the MP's acquisition costs that is attributable to the MPCs that are not PFE-produced. Similarly, if a taxpayer acquires an MP that was not produced by a PFE, but some or all of the applicable MPCs included in the MP are PFE-produced, then the taxpayer includes in PFE direct costs the portion of the MP's acquisition costs that is attributable to the PFE-produced MPCs.

With respect to section 45X, taxpayers must calculate a MACR separately for each eligible component the taxpayer produces. A taxpayer must first identify the constituent elements, materials, or subcomponents (collectively, Constituent Materials) incorporated into the eligible component or consumed in the production of the eligible component, the costs of which are considered direct material costs of the eligible component under Treas. Reg. § 1.263A-1(e)(2)(i)(A) with respect to the taxpayer's production of the eligible component. A taxpayer must also determine the taxpayer's direct material costs for each Constituent Material used to produce the eligible component. Direct labor costs are not taken into account for these purposes.

Whereas the sections 45Y and 48E MACR calculation requires a taxpayer to evaluate whether the MPCs included in an acquired MP are PFE-produced or not PFE-produced, the section 45X MACR calculation focuses on whether a taxpayer acquired a Constituent Material from a PFE. In other words, the MACR for sections 45Y and 48E focuses on PFE-produced versus non-PFE-produced while the MACR for section 45X focuses on PFE-sourced versus non-PFE-sourced. Significantly, this distinction could result in looking through an MP supplier to determine who produced the MP's MPCs in the case of sections 45Y and 48E, while in the case of section 45X, generally the only relevant determination is whether the supplier of the Constituent Material is a PFE. One exception in the section 45X context is that if a taxpayer acquires a Constituent Material from a "reseller," then the taxpayer must look to the entity that mined, produced, or manufactured the Constituent Material to determine whether the Constituent Material is PFE-sourced or not PFE-sourced.

Notice 2026-15 also provides guidance on interim safe harbors that taxpayers may choose to apply when determining a MACR under sections 45X, 45Y, or 48E. First, the Notice describes an Identification Safe Harbor that a taxpayer may use to identify MPs and MPCs of certain qualified facilities, energy storage technology, and eligible components and a Cost Percentage Safe Harbor that a taxpayer may use to determine direct costs and PFE direct costs for a qualified facility or energy storage technology or to determine the direct material costs and PFE direct material costs for an eligible component. Second, the Notice describes a Certification Safe Harbor that a taxpayer may use to determine direct costs or direct material costs, PFE direct costs or PFE direct material costs, and whether MPs and MPCs are PFE-produced or Constituent Materials are PFE-sourced.

Taxpayers may rely on the rules in Notice 2026-15 until 60 days after the publication of proposed regulations on the subject in the Federal Register.

Treasury and the IRS request comments from stakeholders in response to Notice 2026-15 by March 30, 2026. While the Notice is a helpful starting point, additional guidance is critical on many outstanding issues. This comment period allows taxpayers to share their perspectives with Treasury and the IRS on what additional clarifying guidance is needed.

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