SECTION 3. MATERIAL

ASSISTANCE FROM A PFE

This section describes provisions that the Treasury Department and the IRS expect to include in the forthcoming proposed regulations for determining whether a qualified facility, EST, or eligible component includes material assistance from a PFE. If a qualified facility, EST, or eligible component includes material assistance from a PFE, meaning its Clean Electricity MACR or Eligible Component MACR is less than the applicable threshold percentage, it is ineligible for a credit under §§ 45Y, 48E, or 45X, as applicable. Section 3.01 describes provisions that the Treasury Department and the IRS expect to include in the forthcoming proposed regulations for determining a qualified facility’s or EST’s MACR. Section 3.02 describes provisions that the Treasury Department and the IRS expect to include in the forthcoming proposed regulations for determining an eligible component’s MACR.

.01 Clean Electricity MACR for quali- fied facilities and ESTs .

(1) In general . To calculate the Clean Electricity MACR for a qualified facility or EST, a taxpayer must: (a) identify the types of MPs and MPCs included in the qualified facility or EST; (b) of the identified types of MPs and MPCs, track the relevant characteristics of each MP and MPC included in the qualified facility or EST; (c) determine the taxpayer’s direct costs attributable to the identified MPs (including MPCs) (Direct Costs); and (d) determine the Direct Costs attributable to each of the identified MPs and MPCs

that were mined, manufactured, or produced by a PFE (PFE Direct Costs). These steps are specified in section 3.01(2) through (5) of this notice. After completing these steps, a taxpayer will determine the Clean Electricity MACR by subtracting the sum of all PFE Direct Costs (PFE Total Direct Costs) from the sum of all Direct Costs (Total Direct Costs) and then dividing that result by Total Direct Costs.

For any taxable year for which a taxpayer is determining the amount of a § 45Y or § 48E credit, the taxpayer will calculate a separate Clean Electricity MACR for each qualified facility or EST. For example, a taxpayer that places in service two qualified facilities under § 45Y within a taxable year would calculate two Clean Electricity MACRs to determine whether each facility separately meets the material assistance rules under § 45Y(b)(1)(E) and may qualify for the § 45Y credit.

(2) Identify MPs and MPCs for quali- fied facilities and ESTs .

(a) In general . To identify MPs and MPCs, a taxpayer must identify the types of MPs and MPCs that are incorporated into the qualified facility or EST. A type of MP or MPC refers to a type of product or component that performs a unique, specified function within the qualified facility or EST. A taxpayer must identify MPs and MPCs consistent with the meaning of the phrase “manufactured products (including components)” in § 45Y(g)(11)(B)(iii) and the guidance issued under § 45Y(g) (11) in Notice 2023-38, and at a level of detail that is substantially similar to the level of detail provided in the 2023-2025 Safe Harbor Tables, with respect to MPs and MPCs. A taxpayer may rely on the definition of an Applicable Project Component in 3.01(2)(a), the definition of an MP in section 3.01(2)(c), the definition of an MPC in section 3.01(2)(d), and the additional definitions in section 3.01(2) of Notice 2023-38 to identify types of MPs and MPCs. Subject to the requirements of section 3.01(2)(b) of this notice, a taxpayer may use the Identification Safe Harbor described in section 4.01 of this notice to identify MPs and MPCs.

(b) Using Identification Safe Harbor . A taxpayer may rely upon the Identification Safe Harbor in section 4.01 of this notice to identify MPs and MPCs only if

the qualified facility or EST is listed as an Applicable Project in the 2023-2025 Safe Harbor Tables (Listed qualified facility or EST).

(3) Track MPs and MPCs for qualified facilities and ESTs .

(a) In general . Except as provided by section 3.01(3)(b) and (c) of this notice, tracking MPs and MPCs must be completed by individually tracking each MP or MPC and its characteristic(s) to the specific qualified facility or EST into which the MP or MPC is incorporated. If not using the Cost Percentage Safe Harbor provided in section 4.02(2) to determine Direct Costs, the taxpayer must track the following characteristics of MPs and MPCs to a qualified facility or EST: (i) the Direct Costs of each MP or MPC incorporated into the qualified facility or EST, as determined in the manner specified in section 3.01(4) of this notice, and (ii) whether the MP or MPC incorporated into the qualified facility or EST was mined, manufactured, or produced by a PFE (PFE Produced), as determined in the manner specified in section 3.01(5) of this notice. For purposes of this notice and computing the Clean Electricity MACR, if ownership of an MP (including MPCs) is shared by multiple qualified facilities or ESTs, then the owner of each qualified facility or EST is considered to have an undivided ownership interest in the MP (including MPCs) incorporated into the qualified facility or EST and must track its Direct Costs and whether the MP (including MPCs) was PFE Produced accordingly. If using the Cost Percentage Safe Harbor to determine Direct Costs, the taxpayer must only track whether each MP or MPC incorporated into the qualified facility or EST was PFE Produced.

(b) De minimis assignment-based tracking for qualified facilities and ESTs . (i) In general. A taxpayer may assign MPs or MPCs of the same type (including their characteristics) to qualified facilities or ESTs placed in service during the same taxable year without individually tracking them to such facilities or ESTs, provided that, for each qualified facility or EST, the total Direct Costs of all MPs and MPCs so assigned to such qualified facility or EST represent less than 10 percent of the Total Direct Costs of such qualified facility or

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EST. ¹⁹ The taxpayer must apply an assignment method that is consistent with the purposes of § 7701(a)(52).

(ii) Example . Taxpayer A constructs and places in service three solar facilities (Facilities). Using the rules in section 3.01(2) of this notice to identify MPs and MPCs, Taxpayer A determines the Facilities contain three types of MPs—a PV Module, an Inverter, and a PV Tracker. Taxpayer A can track the PV Modules and Inverters to the specific facilities in which those MPs were incorporated. None of the MPCs included in the PV Modules and Inverters were PFE Produced.

Taxpayer A manufactured all of the PV Trackers incorporated among the Facilities. Taxpayer A can track the PV Trackers to a specific facility, and knows that some of the MPCs incorporated into the PV Trackers were PFE Produced. Taxpayer A would like to assign MPCs to specific facilities but must first determine whether any of the MPCs can be assigned.

For each type of MPC included in the PV Trackers, Taxpayer A determines that the percentage of the Total Direct Costs for each qualified facility is as follows: torque tube (11.0% of Total Direct Costs), structural fasteners (0.5% of Total Direct Costs), drive system (1.8% of Total Direct Costs), dampers (0.6% of Total Direct Costs), actuator (2.7% of Total Direct Costs), controller (0.8% of Total Direct Costs), and rails (1.9% of Total Direct Costs). For Taxpayer A, the percentage of Total Direct Costs represented by each type of MPC is the same in each Facility because Taxpayer A paid the same amount for each MPC and incorporated the MPCs equally into each facility (as each has the same number of PV Trackers). Otherwise, the Direct Costs and percentage of Total Direct Costs for each MPC would vary for each facility.

Except for the torque tubes, which exceed 10% of Total Direct Costs, Taxpayer A is permitted to assign the MPCs in the PV Trackers among its Facilities because, in the aggregate, the percentage of Total Direct Costs (8.3%) of these types of MPCs is less than 10 percent of the Total Direct Costs of each of the Facilities (that is, the sum cost of the MPCs that

comprise the PV Tracker, excluding the torque tube, do not exceed the 10 percent de minimis threshold).

While Taxpayer A paid the same amount for each MPC within each PV tracker, Taxpayer A’s assignment of the MPCs among the Facilities can still affect the Clean Electricity MACR for each of the Facilities because some of the MPCs in the PV Tracker were PFE Produced and others were not PFE Produced. Taxpayer A knows that it incorporated 99 each of structural fasteners, drive systems, dampers, and rails, evenly into Taxpayer A’s Facilities (meaning 33 of each were incorporated into each facility). Thirty-three of the structural fasteners, 66 of the drive systems, all of the dampers, and none of the rails were PFE Produced. Under section 3.01(3)(b) of this notice, Taxpayer A can assign the structural fasteners and drive systems to the Facilities using an assignment method that is consistent with the purposes of § 7701(a)(52), provided that the total Direct Costs of all MPs and MPCs so assigned to each Facility represent less than 10 percent of the Total Direct Costs of that Facility. For example, all 33 of its PFE Produced structural fasteners may be assigned to Facility 1 (and all 66 of its non-PFE Produced structural fasteners to Facilities 2 and 3), and all 66 of its PFE Produced drive systems may be assigned to Facilities 1 and 2 (and all 33 of its non-PFE Produced drive systems to Facility 3). Because all of the dampers were PFE Produced, they must be assigned to Facilities 1, 2, and 3 equally. Alternatively, Taxpayer A can assign the structural fasteners and drive systems among its Facilities in a manner that would result in a mix of PFE Produced units and non-PFE Produced units in each Facility. For example, Taxpayer A could assign 22 of its PFE Produced and 11 of its non-PFE Produced structural fasteners to Facility 1, 11 of its PFE Produced and 22 of its non-PFE Produced structural fasteners to Facility 2, and 33 of its non-PFE Produced structural fasteners to Facility 3. In that case, the PFE Produced structural fasteners assigned to Facility 1 would comprise 67% of the total structural fasteners in Facility 1 (22/33), 33%

of the total structural fasteners in Facility 2 (11/33), and 0% of the total structural fasteners in Facility 3 (0/33). Taxpayer A would use the percentages of structural fasteners assigned to each facility in calculating the Clean Electricity MACR for each of Facilities 1, 2, and 3.

(c) Tracking for ESTs with capacity under one megawatt (MW) . (i) In general . For ESTs that are (A) of the same type, (B) each with a maximum net output of less than 1MW measured in alternating current, (C) placed in service during the same taxable year, and (D) for which a taxpayer is not using de minimis assignment-based tracking described in section 3.01(3)(b) of this notice, a taxpayer may track the characteristic(s) of each MP or MPC incorporated in a specific EST as specified in this section 3.01(3)(c) of this notice.

If not using the Cost Percentage Safe Harbor to determine Direct Costs, a taxpayer may track (A) the Direct Costs of a given MP or MPC by calculating the average of the Direct Costs of the MPs and MPCs of the same type that were incorporated into the same type of EST that were placed in service during the same specified period of time (Average Costs), as described in section 3.01(3)(c)(ii), (iii), and (v) of this notice; and (B) whether a given MP or MPC was PFE Produced by calculating the percentage of the MPs and MPCs of the same type that were PFE Produced and that were incorporated into the same type of EST placed in service during a specified period of time (PFE Production Percentage), as described in section 3.01(3)(c)(ii), (iv), and (v) of this notice. If using the Cost Percentage Safe Harbor to determine Direct Costs, a taxpayer may track whether a given type of MP or MPC was PFE Produced by calculating the PFE Production Percentage.

(ii) Identification of types of EST . A type of EST may be identified by a shared production line, a shared method and capacity of energy storage, or any other reasonable method that is consistent with the purposes of § 7701(a)(52).

(iii) Average Costs calculation . A taxpayer may calculate Average Costs of a given MP or MPC by summing all Direct

19 As described in section 3.01(1) and (4) of this notice, the term “Total Direct Costs” means the sum of the Direct Costs of each MP (including MPCs).

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Costs of a given type of MP or MPC incorporated into all of the same type of EST placed in service during the specified period of time, then dividing that sum by the total quantity of MPs or MPCs of the same type incorporated into the same type of EST placed in service during that specified period of time.

(iv) PFE Production Percentage calcu- lation . A taxpayer may calculate the PFE Production Percentage of a given MP or MPC by determining the quantity of PFE Produced MPs or MPCs of the same type that were incorporated into the same type of EST placed in service during the specified period of time (Total Quantity PFE MP&MPC ^{), then dividing that quantity by the} total quantity of MPs or MPCs of the same type that were incorporated into the same type of EST placed in service during that specified period of time (Total Quantity

MP&MPC ^{). The specified period of time is as} described in section 3.01(3)(c)(v) of this notice.

(v) Specified period of time . For the purposes of the Clean Electricity MACR, a specified period of time must meet the following requirements: (A) The specified period must be at least one calendar day in length and may only include whole calendar days, (B) the first specified period of the taxpayer’s taxable year must start on the first day of the taxpayer’s taxable year, (C) specified periods shorter than a full taxable year must be contiguous, (D) every day of the taxpayer’s taxable year must be covered by a specified period, and (E) the specified period cannot be longer than the taxpayer’s taxable year. Any specified period of time selected under this section 3.01(3)(c)(v) must be consistent with the purposes of § 7701(a)(52).

(4) Determine Direct Costs for quali- fied facilities and ESTs .

(a) In general . To determine Direct Costs, a taxpayer must determine the direct costs to the taxpayer attributable to each MP (including MPCs) incorporated into the qualified facility or EST. To determine Total Direct Costs, a taxpayer must aggregate all Direct Costs. For these purposes, direct costs attributable to an

MP produced by a taxpayer include the taxpayer’s direct material costs and direct labor costs, as defined in § 1.263A-1(e)(2) (i)(A) ²⁰ and (B), respectively, which will include the cost of any MPCs (whether produced or acquired by the taxpayer) in the MP. If a taxpayer acquires an MP, the taxpayer’s Direct Costs attributable to the MP are its acquisition costs with respect to the MP. Direct costs, including direct labor costs, of incorporating MPs into the qualified facility or EST are not included as part of direct costs attributable to an MP.

(b) If using Cost Percentage Safe Har- bor or Certification Safe Harbor . Notwithstanding section 3.01(4)(a) of this notice, a taxpayer may use the Cost Percentage Safe Harbor described in section 4.02(2) of this notice or the Certification Safe Harbor described in section 4.03 of this notice to determine Direct Costs. A taxpayer using the Cost Percentage Safe Harbor must determine Direct Costs using the Assigned Cost Percentages of the MPs and MPCs, rather than actual Direct Costs. Section 4.02(2) of this notice describes how the calculation of the Clean Electricity MACR is modified when using the Assigned Cost Percentages under the Cost Percentage Safe Harbor. Alternatively, a taxpayer may use the Certification Safe Harbor identified in section 4.03 of this notice to determine Direct Costs in whole or in part.

(5) Determine PFE Direct Costs for qualified facilities and ESTs .

(a) In general . To determine PFE Direct Costs, a taxpayer must determine the Direct Costs attributable to (i) each PFE Produced MP and (ii) each PFE Produced MPC included in an MP. To determine PFE Total Direct Costs, the taxpayer must aggregate all PFE Direct Costs. For these purposes, if the taxpayer acquires a PFE Produced MP, but some or all of the 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 are attributable to the MPCs that are not PFE Produced. If the taxpayer acquires an MP

that is not PFE Produced, but some or all of the 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. If the taxpayer produces an MP that includes any acquired PFE Produced MPCs, then the taxpayer’s PFE Direct Costs include the acquisition costs of the PFE Produced MPCs.

(b) Determine whether MPs and MPCs are PFE Produced . To determine whether MPs and MPCs are PFE Produced, a taxpayer may use the Certification Safe Harbor described in section 4.03 of this notice. If a taxpayer is unable to or chooses not to use the safe harbor, then the taxpayer must determine whether MPs and MPCs are PFE Produced by applying the definition of PFE in § 7701(a)(51) to the entity that mined, produced, or manufactured the relevant MP or MPC.

(c) Year of determination . Whether an MP or MPC is PFE Produced depends on the PFE status of the relevant entities as of the taxable year during which the taxpayer paid or incurred Direct Costs attributable to such MP or MPC under the taxpayer’s method of accounting. In the case of a taxpayer whose taxable income is computed under an accrual method of accounting, Direct Costs are paid or incurred as the taxpayer produces such MP or MPC or when the taxpayer is provided such MP or MPC. For purposes of this section, the determination of whether an MP or MPC is PFE Produced is based on the taxable year of the entity that mined, produced, or manufactured the MP or MPC. For example, if a taxpayer paid for an MPC in 2026, but incorporated it into a facility placed in service in 2027, then whether the MPC is PFE Produced would be determined by whether the entity that mined, produced, or manufactured the MPC was a PFE for such entity’s tax year that includes the date in 2026 of payment for the MPC, as determined under § 7701(a)(51)(A) (ii). ²¹ If the entity that mined, produced, or manufactured the MP or MPC does not use a taxable year under § 7701(a)(23),

20 See § 1.471-3 for the elements of direct material costs.

21 Section 7701(a)(51)(A)(ii)(I) provides that an entity’s status as a PFE is determined as of the last day of its taxable year. However, for purposes of the first taxable year beginning after July 4, 2025, the determination of whether an entity is a PFE because it is a specified foreign entity described in § 7701(a)(51)(B)(i) through (iv) is made as of the first day of the first taxable year. Section 7701(a)(51)(A)(ii)(II).

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then whether such entity is a PFE would be based on the entity’s status for the calendar year in which the taxpayer paid or incurred the cost of the MP or MPC (or, in the case of an accrual method taxpayer, when the entity provided the MP or MPC to the taxpayer).

(6) Example . The provisions of this section 3.01 are illustrated by the following example. Assume that the taxpayer uses the calendar year as the taxpayer’s taxable year.

(a) In its taxable year beginning in 2026, Taxpayer B begins construction on 50 units of EST with a capacity of less than 1MW (EST Units) and places them in service. Taxpayer B identifies the 50 EST Units as being the same type of EST, because each EST Unit meets the definition of thermal energy storage property provided by § 48(c)(6)(C). In order to qualify for the § 48E credit, § 48E(c)(3) requires that the construction of the EST Units not include material assistance from a PFE, meaning, in the case of an EST which begins construction during calendar year 2026, the Clean Electricity MACR cannot be less than 55%. See § 7701(a)(52)(B)(ii).

(b) Each of the 50 EST Units includes 3 heat exchangers (for a total of 150 heat exchangers in the 50 EST Units), identified by Taxpayer B as a type of MP, as well as additional types of MPs and MPCs. Each EST Unit contains the same types of MPs and MPCs in identical amounts.

(c) During the first 6 months of the taxable year, Taxpayer B places in service 25 of the 50 EST Units, and during the second 6 months of the taxable year, Taxpayer B places in service the remaining 25 of the 50 EST Units. (d) Taxpayer B identifies the first 6 months of the taxable year as a specified period (Specified Period

1), and the second 6 months of the taxable year as another specified period (Specified Period 2).

(e) Of the 75 heat exchangers incorporated into the EST Units placed in service in Specified Period 1, 65 of them (including MPCs) are PFE Produced and 10 of them (including MPCs) are not PFE Produced. In Specified Period 2, Taxpayer B changes its supply chain such that only 25 of the 75 heat exchangers (including MPCs) incorporated into the EST Units placed in service in Specified Period 2 are PFE Produced and 50 of them (including MPCs) are not PFE Produced.

(f) No additional MPs or MPCs incorporated into the EST Units are PFE Produced.

(g) Of the 75 heat exchangers incorporated into the EST Units placed in service in Specified Period 1, Taxpayer B acquired 25 of them for $24 each, and 50 of them for $30 each. Of the 75 heat exchangers incorporated into the EST Units placed in service in Specified Period 2, Taxpayer B acquired 25 of them for $24 each, and 50 of them for $35 each. Taxpayer B’s Direct Costs attributable to MPs and MPCs other than the heat exchangers are $16 for each EST Unit placed in service in Specified Period 1 and $6.01 for each EST Unit placed in service in Specified Period 2. (h) Because the EST Units are all of the same type, each with a maximum net output of less than 1MW measured in alternating current, and placed in service during the same taxable year, Taxpayer B may track the characteristics of each MP or MPC incorporated in a specific EST as specified in section 3.01(3)(c) of this notice. Under Section 3.01(3) (c) of this notice, Taxpayer B calculates the Average Cost of each heat exchanger for Specified Period 1 by summing the Direct Costs of the heat exchangers incorporated into the EST Units placed in service during Specified Period 1, then dividing that sum by

the total quantity of heat exchangers incorporated into the EST Units placed in service during Specified Period 1 (((($24 × 25) + ($30 × 50)) / 75) = $28). Based on the Average Cost of each heat exchanger, the Direct Costs of the heat exchangers in each EST Unit placed in service during Specified Period 1 are $84 ($28 × 3). Accordingly, the Total Direct Costs of each EST Unit placed in service during Specified Period 1 is $100 ($84 + $16).

(i) Under Section 3.01(3)(c)(iv) of this notice, Taxpayer B calculates the PFE Production Percentage for the heat exchangers for Specified Period 1 based on the quantity of heat exchangers incorporated into the EST Units placed in service during Specified Period 1. The Total Quantity PFE-MP&MPC of heat exchangers included in such EST Units is 65, and the Total Quantity MP&MPC is 75. Taxpayer B divides the heat exchangers’ Total Quantity PFE-MP&MPC (65) by the Total Quantity MP&MPC (75) to determine its PFE Production Percentage of 86.7% (65/75) for its heat exchangers in Specified Period 1.

(j) Taxpayer B calculates the PFE Total Direct Costs for each EST Unit placed in service in Specified Period 1. As the heat exchangers are the only MP or MPC that were PFE Produced, Taxpayer B multiplies $84 (Direct Costs related to the heat exchangers in each EST Unit) by 86.7% (PFE Production Percentage) to determine the PFE Total Direct Costs of $72.83.

(k) Taxpayer B calculates a Clean Electricity MACR for each EST Unit placed in service in Specified Period 1 as follows: ($100 [Total Direct Costs of each EST Unit] – $72.83 [PFE Total Direct Costs]) / $100 [Total Direct Costs of each EST Unit] = 27.2%. For each EST Unit placed in service in Specified Period 1, the Clean Electricity MACR of 27.2% is less than the applicable threshold percentage (55%).

PFE Production Percentage Based on Quantity of Heat Exchangers

(l) Taxpayer B calculates the Average Cost of each heat exchanger for Specified Period 2 by summing the Direct Costs of the heat exchangers incorporated into the EST Units placed in service during Specified Period 2, then dividing that sum by the total quantity of heat exchangers incorporated into the EST Units placed in service during Specified Period 2 (((($24 × 25) + ($35 × 50)) / 75) = $31.33). Based on the Average Cost of each heat exchanger, the Direct Costs of the heat exchangers in each EST Unit placed in service during Specified Period 2 are

$93.99 ($31.33 × 3). Accordingly, the Total Direct Costs of each EST Unit placed in service during Specified Period 2 is $100 ($93.99 + $6.01).

(m) Taxpayer B calculates a PFE Production Percentage for the heat exchangers for Specified Period 2 based on the quantity of heat exchangers incorporated into the EST Units placed in service during Specified Period 2. The Total Quantity PFE-MP&MPC of heat exchangers included in such EST Units is 25, and the Total Quantity MP&MPC is 75. Taxpayer B divides the heat exchangers’ Total Quantity PFE-MP&MPC

(25) by the Total Quantity MP&MPC (75) to equal a PFE Production Percentage of 33.3% (25/75).

(n) Taxpayer B calculates the PFE Total Direct Costs for each EST Unit placed in service in Specified Period 2. As the heat exchangers are the only MP or MPC that were PFE produced, Taxpayer B multiples $93.99 (Direct Costs related to the heat exchangers in each EST Unit) by 33.3% (PFE Production Percentage) to determine the PFE Total Direct Costs of $31.30.

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(o) Taxpayer B calculates a Clean Electricity MACR for each EST Unit placed in service in Specified Period 2 as follows: ($100 [Total Direct Costs of

each EST Unit] – $31.30 [PFE Total Direct Costs]) / $100 [Total Direct Costs of each EST Unit] = 68.7%. For each such EST Unit, the Clean Electric

ity MACR of 68.7% is not less than the applicable threshold percentage (55%).

PFE Production Percentage Based on Quantity of

(p) Taxpayer B’s 25 EST Units placed in service during Specified Period 1 include material assistance from a PFE within the meaning § 48E(b)(6), and, therefore, Taxpayer B cannot claim the credit under § 48E for those EST Units. In contrast, Taxpayer B’s 25 EST Units placed in service during Specified Period 2 do not include material assistance from a PFE within the meaning of § 48E(b)(6), and, therefore, § 48E(b)(6) does not prohibit Taxpayer B from claiming the credit under § 48E for those EST Units.

(7) Special Cases for qualified facili- ties and ESTs .

(a) 80/20 Rule . For purposes of this notice, only the Direct Costs of the new MPs and MPCs incorporated into a facility that is a qualified facility by virtue of the 80/20 Rule are considered when calculating the Clean Electricity MACR.

(b) Treatment of steel and iron . Calculation of the Clean Electricity MACR includes only costs related to MPs (including MPCs) as provided in § 7701(a)(52) (D)(i). Accordingly, unless identified as an MP or MPC under § 7701(a)(52)(E) (iii) or (G), any steel or iron components that meet the description of steel or iron in section 3.02 of Notice 2023-38 ²² and are incorporated into the taxpayer’s qualified facility or EST are not relevant in determining the Clean Electricity MACR.

(c) Qualified interconnection property . (i) In general . As described in § 7701(a) (52)(E)(iv)(II) and (III), the term “qualified facility” separately includes a “qualified facility, as defined in section 48E(b)(3),” and “qualified interconnection property (as defined in section 48E(b)(4)) which is part

of the qualified investment with respect to a qualified facility (as described in section 48E(b)(1)).” Thus, a taxpayer seeking to claim a § 48E credit with respect to a qualified investment in a qualified facility (as defined in § 48E(b)(3)) without including qualified interconnection property is required to calculate a Clean Electricity MACR only for the qualified facility. However, a taxpayer seeking to claim a § 48E credit that includes qualified interconnection property (as defined in § 48E(b)(4)) which is part of the qualified investment with respect to a qualified facility (as described in § 48E(b)(1)) must also calculate a separate Clean Electricity MACR for the qualified interconnection property. The requirements in this section 3.01 for a qualified facility also apply to the calculation of a Clean Electricity MACR for qualified interconnection property.

(ii) Effect of MACR calculation for qualified interconnection property . The Clean Electricity MACR with respect to qualified interconnection property does not, on its own, affect whether a taxpayer is allowed to claim a § 48E credit. If a taxpayer calculates a Clean Electricity MACR with respect to its qualified interconnection property that is lower than the applicable threshold percentage (that is, the qualified interconnection property includes material assistance from a PFE), or if a taxpayer is unable to calculate a Clean Electricity MACR with respect to

its qualified interconnection property, then the taxpayer is not precluded from claiming a § 48E credit with respect to the taxpayer’s qualified investment in the qualified facility (as described in § 48E(b) (1)) if the Clean Electricity MACR with respect to the qualified facility (as defined in § 48E(b)(3)) is not less than the applicable threshold percentage (that is, the qualified facility does not include material assistance from a PFE). In this scenario, expenditures with respect to the qualified interconnection property are not included in the taxpayer’s qualified investment with respect to the qualified facility (as described in § 48E(b)(1)).

However, even if a taxpayer calculates a Clean Electricity MACR with respect to its qualified interconnection property that is not less than the applicable threshold percentage (that is, the qualified interconnection property does not include material assistance from a PFE), the taxpayer would not be allowed a § 48E credit with respect to its qualified interconnection property if the Clean Electricity MACR with respect to the qualified facility (as defined in § 48E(b)(3)) is less than the applicable threshold percentage (that is, the qualified facility includes material assistance from a PFE).

.02 Eligible Component MACR . (1) In general . To calculate the Eligible Component MACR for an eligible component,

22 Section 3.02 of Notice 2023-38 defines the Domestic Content Requirement’s Steel or Iron Requirement as applying to Applicable Project Components that are construction materials made primarily of steel or iron and are structural in function.

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a taxpayer must first: (a) identify the constituent elements, materials, or subcomponents (collectively, Constituent Materials) incorporated into the eligible component or consumed in production of the eligible component, the costs of which are considered direct material costs of the eligible component under § 1.263A-1(e)(2)(i)(A) with respect to the taxpayer’s production of the eligible component; (b) track the relevant characteristics of each Constituent Material used to produce the eligible component; (c) determine the taxpayer’s direct material costs for each Constituent Material used to produce the eligible component (Direct Material Costs); and (d) of the Direct Material Costs, determine the Direct Material Costs attributable to each PFE Sourced Constituent Material (PFE Direct Material Costs). These steps may be completed in the manner specified in section 3.02(2) through (5) of this notice, or alternatively by using the safe harbors described in sections 4.01(3), 4.02(3), and 4.03 of this notice. ²³ After determining those items, a taxpayer determines the Eligible Component MACR by subtracting the sum of all PFE Direct Material Costs for all PFE Sourced Constituent Materials (PFE Total Direct Material Costs) from the sum of all Direct Material Costs for all Constituent Materials (Total Direct Material Costs) and then dividing that result by Total Direct Material Costs.

For a taxable year that a taxpayer is determining a § 45X credit, a taxpayer calculates a separate Eligible Component MACR for each eligible component sold during the taxable year. Multiple eligible components may have the same Eligible Component MACR if such components share Constituent Materials that are mined, produced, or manufactured by the same entity or that are included in the same average percentage calculation as described in section 3.02(3)(b) of this notice.

(2) Identify Constituent Materials for § 45X eligible components .

(a) In general . To identify Constituent Materials, a taxpayer must identify each specific Constituent Material for the production of each eligible component. Alternatively, a taxpayer must identify the types of Constituent Materials incorporated into the eligible component if (i) using the Identification Safe Harbor described in section 4.01(3) of this notice or (ii) tracking Constituent Materials based on averaging as described in section 3.02(3)(b) of this notice.

(b) Using Identification Safe Harbor . A taxpayer may rely upon the Identification Safe Harbor in section 4.01(3) of this notice to identify Constituent Materials only if the eligible component is listed as an Applicable Project Component in the 2023-2025 Safe Harbor Tables (Listed eligible component). ²⁴

(3) Track Constituent Materials for eli- gible components .

(a) In general . Except as provided in section 3.02(3)(b) of this notice, tracking Constituent Materials must be completed by individually tracking each Constituent Material and its characteristic(s) to the specific eligible component into which the Constituent Material was incorporated or in the production of which the Constituent Material was consumed. If not using the Cost Percentage Safe Harbor provided in section 4.02(3) of this notice to determine Direct Material Costs, the taxpayer must track the following characteristics of each Constituent Material used to produce an eligible component: (i) the Direct Material Costs of the Constituent Material, as determined in the manner specified in section 3.02(4) of this notice, and (ii) whether the Constituent Material was mined, produced, or manufactured by a PFE (PFE Sourced), as determined in the manner specified in section 3.02(5)(b) and (c) of this notice. If using the Cost Percentage Safe Harbor to determine Direct Material Costs, the taxpayer must track only whether each Constituent Material was PFE Sourced.

(b) Track Constituent Materials based on averaging . (i) In general . As specified in this section 3.02(3)(b), a taxpayer may

track Constituent Materials of a given type of Constituent Material incorporated in or consumed in production of the same type of eligible component produced during a specified period of time. If not using the Cost Percentage Safe Harbor to determine Direct Material Costs, a taxpayer may track (A) the Direct Material Costs of a given type of Constituent Material by calculating the average of the Direct Material Costs of the Constituent Materials of the same type incorporated in or consumed in production of the same type of eligible component produced during a specified period of time, as specified in section 3.02(3)(b)(ii) of this notice (Average Costs); and (B) whether a given Constituent Material was PFE Sourced by calculating the percentage of the Constituent Materials of the same type that were PFE Sourced and incorporated in or consumed in production of the same type of eligible component during a specified period of time, as specified in section 3.02(3)(b)(iii) of this notice (PFE Production Percentage). For purposes of determining whether an eligible component is produced during a specified period of time, an eligible component is “produced” as a result of a process conducted by the taxpayer that substantially transforms constituent elements, materials, or subcomponents into a complete and distinct eligible component that is functionally different from that which would result from minor assembly or superficial modification of the elements, materials, or subcomponents. For solar grade polysilicon, electrode active materials, and applicable critical minerals, consistent with § 1.45X-1(c)(2), an eligible component is “produced” as a result of processing, converting, refining, or purifying source materials to substantially transform the source materials to derive a distinct eligible component. ²⁵ If using the Cost Percentage Safe Harbor to determine Direct Material Costs, a taxpayer may track whether a given type of Constituent Material was PFE Sourced by calculating the PFE Production Percentage.

23 A taxpayer may identify Constituent Materials using the Identification Safe Harbor described in section 4.01(3) of this notice. A taxpayer may determine Direct Material Costs, determine PFE Direct Material Costs, and calculate the Eligible Component MACR by using the Cost Percentage Safe Harbor described in section 4.02(3) of this notice. A taxpayer also may determine Direct Material Costs and PFE Direct Material Costs by using the Certification Safe Harbor described in section 4.03 of this notice.

24 See section 4.01(3)(d)(i) of this notice for a chart of eligible components defined in § 45X that may be treated as a Listed eligible component, along with the Applicable Project Component to which that eligible component must correspond to be treated as a Listed eligible component.

25 For the production process for electrode active materials and applicable critical minerals, the term “conversion” is defined in § 1.45X–3(e)(2)(iii)(A) or § 1.45X–4(c)(2)(i), respectively, as “a chemical transformation from one species to another,” and the term purification is defined in § 1.45X–3(e)(2)(iii)(B) or § 1.45X–4(c)(2)(ii), respectively, as “increasing the mass fraction of a certain element.”

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(c) Section 45X contract manufactur- ing arrangements . Section 1.45X-1(c)(3) (iii) permits parties that produce eligible components pursuant to a contract manufacturing arrangement to determine by agreement the party that may claim the § 45X credit. For purposes of section 3.02 of this notice, in the case of an eligible component produced pursuant to a contract manufacturing arrangement, as defined in § 1.45X-1(c)(3)(iii), Direct Material Costs are the direct material costs that are paid or incurred (within the meaning of § 461 and regulations issued under § 263A) by the party that performs the actual production activities that bring about a substantial transformation resulting in the eligible component. If the party performing the production activities did not incur any or all direct materials costs within the meaning of § 461 and any regulations issued under § 263A, then Direct Material Costs also include the direct material costs to the taxpayer claiming a § 45X credit in such contract manufacturing arrangement.

(5) Determine PFE Direct Material Costs .

(a) In general . To determine PFE Direct Material Costs, the taxpayer must determine the Direct Material Costs attributable to each PFE Sourced Constituent Material (that is, PFE Direct Material Costs). A taxpayer not using the Cost Percentage Safe Harbor described in section 4.02(3) of this notice or the Certification Safe Harbor described in section 4.03 of this notice to determine PFE Direct Material Costs, must determine PFE Direct Material Costs in the manner specified in this section 3.02(5). To determine PFE Total Direct Material Costs, the taxpayer must aggregate the PFE Direct Material Costs.

(b) Determine whether Constituent Materials are PFE Sourced . To determine whether Constituent Materials are PFE Sourced, a taxpayer may use the Certification Safe Harbor described in section 4.03 of this notice. If a taxpayer is unable to or chooses not to use the Certification Safe Harbor, then the taxpayer must determine whether Constituent Materials are PFE Sourced by applying the definition of PFE in § 7701(a)(51) to the direct supplier of the Constituent Material for all costs associated with the Constituent Material procured from that supplier. If the direct supplier is merely a reseller, then the taxpayer

(ii) Average Costs calculation . A taxpayer may calculate Average Costs of a given Constituent Material by summing all of the Direct Material Costs paid or incurred for that type of Constituent Material incorporated in or consumed in production of all of the same type of eligible component produced during a specified period of time, then dividing that sum by the total quantity of that type of Constituent Material incorporated in or consumed in production of the same type of eligible component produced during a specified period of time.

(iii) PFE Production Percentage cal- culation. A taxpayer may determine the PFE Production Percentage of a given Constituent Material for a specified period of time by determining the total quantity of PFE Sourced Constituent Materials of the same type that were incorporated into the same type of eligible component produced during a specified period of time (Total Quantity PFE-CM), then dividing that quantity by the total quantity of Constituent Materials of the same type that were incorporated into the same type of eligible component produced during that specified period of time (Total Quantity CM). The specified period of time is as described in section 3.02(3)(b)(v) of this notice.

(iv) Identification of types of eligi- ble components . For purposes of section 3.02(3)(b)(ii) and (iii) of this notice, each eligible component that is separately described in §§ 45X(c)(2)(B) through (G), (c)(3)(B)(i), (c)(3)(B)(ii)(I)(aa) and (bb), (c)(3)(B)(iii) through (v), (c)(3)(B)(vii)(I) and (II), (c)(4)(B)(i), (c)(4)(B)(ii)(I) and (II), (c)(4)(B)(iii) through (v), (c)(5)(B) (i) and (ii), (c)(5)(B)(iii)(I)(aa) and (bb), (c)(6)(A) through (Z), and (c)(6)(AA)(i) through (xxv) is considered a separate type of eligible component.

(v) Specified period of time . For purposes of the Eligible Component MACR, a specified period of time must meet the following requirements: (A) The specified period must be at least one calendar day in length and may only include whole calendar days, (B) the first specified period of the taxpayer’s taxable year must start on the first day of the taxpayer’s taxable year, (C) specified periods shorter than a full taxable year must be contiguous, (D) every day of the taxpayer’s taxable year must be covered by a specified period and (E) the specified period cannot be lon

ger than the taxpayer’s taxable year. Any specified period of time selected under this section 3.02(3)(b)(v) must be consistent with the purposes of § 7701(a)(52).

(4) Determine Direct Material Costs . (a) In general . To determine Direct Material Costs, the taxpayer must determine the direct material costs of the Constituent Materials tracked to the eligible component. A taxpayer not using the Cost Percentage Safe Harbor described in section 4.02(3) of this notice or the Certification Safe Harbor described in section 4.03 of this notice to determine Direct Material Costs, must determine Direct Material Costs in the manner specified in this section 3.02(4). Direct Material Costs are costs that a taxpayer paid or incurred (within the meaning of § 461 and regulations issued under § 263A) for materials that become an integral part of the eligible component produced by the taxpayer and for those materials that are consumed in the ordinary course of production and that can be identified or associated with particular units or groups of units of the eligible component (within the meaning of § 1.263A-1(e)(2) (i)(A)). See § 1.471-3 for the elements of direct material costs. For example, freight-in and tariffs paid or incurred by the taxpayer generally are direct material costs. See section 3.02(5)(b) of this notice for guidance regarding resellers. To determine Total Direct Material Costs, the taxpayer must aggregate the Direct Material Costs.

(b) If using Cost Percentage Safe Har- bor or Certification Safe Harbor .

Notwithstanding section 3.02(4)(a) of this notice, the taxpayer may use the Cost Percentage Safe Harbor identified in section 4.02(3) of this notice or the Certification Safe Harbor identified in section 4.03 of this notice to determine Direct Material Costs. A taxpayer using the Cost Percentage Safe Harbor must determine Direct Material Costs using the Assigned Cost Percentages of the Constituent Materials, rather than actual Direct Material Costs. Section 4.02(3) of this notice describes how the calculation of the Eligible Component MACR is modified when using the Assigned Cost Percentages under the Cost Percentage Safe Harbor. Alternatively, a taxpayer may use the Certification Safe Harbor identified in section 4.03 of this notice to determine Direct Material Costs in whole or in part.

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applies the definition of PFE in § 7701(a) (51) to the entity that mined, produced, or manufactured the Constituent Material at issue for all costs associated with those Constituent Materials.

(c) Year of determination . Whether a Constituent Material is PFE Sourced depends on the PFE status of the relevant entities as of the taxable year during which the taxpayer paid or incurred the Direct Material Costs of such Constituent Materials under the taxpayer’s method of accounting. In the case of a taxpayer whose taxable income is computed under an accrual method of accounting, Direct Material Costs are paid or incurred as the taxpayer produces such Constituent Materials or when the taxpayer is provided such Constituent Materials. For purposes of this section, the determination of whether a Constituent Material is PFE Sourced is based on the taxable year of the direct supplier of the Constituent Material, or in the case of a reseller, the entity that mined, produced, or manufactured the Constituent Material, as described in section 3.02(5) (b) and (c) of this notice. For example, if a taxpayer paid for Constituent Materials in 2026, but incorporated them into an eligible component sold in 2027, then whether the Constituent Materials are PFE Sourced would be determined by whether the direct supplier (who is not a reseller) was a PFE for such entity’s tax year that includes the date in 2026 of payment for the Constituent Materials, as determined under § 7701(a)(51)(A)(ii). ²⁶ If the direct supplier, or in the case of a reseller, the entity that mined, produced, or manufactured the Constituent Materials does not use a taxable year under § 7701(a)(23),

then whether such entity is a PFE would be based on the entity’s status for the calendar year in which the taxpayer paid or incurred the Direct Material Costs of such Constituent Materials (or, in the case of an accrual method taxpayer, when the entity provided the Constituent Materials to the taxpayer).

(6) Example . The provisions of this section 3.02 are illustrated by the following example. Assume that the taxpayer uses the calendar year as the taxpayer’s taxable year.

(a) In its taxable year beginning in 2026, Taxpayer C produces and sells 200 photovoltaic (PV) modules (EC Units). Taxpayer C identifies the EC Units as being of the same type, because each unit meets the definition of a PV module in § 45X(c) (3)(B)(v). In order to qualify for the § 45X credit, § 45X(c)(1)(C) requires that the EC Units not include material assistance from a PFE, meaning, in the case of any solar energy component sold during calendar year 2026, the Eligible Component MACR cannot be less than 50%. See § 7701(a)(52)(C)(I).

(b) Each of the 200 EC Units includes 144 PV cells (for a total of 28,800 PV cells in the 200 EC Units) as a Constituent Material, as well as additional Constituent Materials. Each EC Unit contains the same types of additional Constituent Materials in identical amounts, and the Total Direct Material Costs that are paid or incurred by Taxpayer C for the additional Constituent Materials amount to $60 for each of the 200 EC Units.

(c) Taxpayer C produces 160 EC Units during the first 39 weeks of the taxable year, and another 40 EC Units during the next 13 weeks of the taxable year.

(d) Taxpayer C identifies the first 39 weeks of the taxable year as a specified period (Specified Period 1), and the next 13 weeks of the taxable year as another specified period (Specified Period 2).

(e) Of the 23,040 PV cells incorporated into the EC Units produced in Specified Period 1, 21,020 are PFE Sourced and 2,020 are not PFE Sourced. In Specified Period 2, Taxpayer C changes its supply chain such that only 2,620 of the 5,760 PV cells incorporated into the EC Units produced in Specified Period 2 are PFE Sourced and 3,140 of them are not PFE Sourced.

(f) No other Constituent Materials incorporated into the EC Units are PFE Sourced.

(g) Of the 23,040 PV cells incorporated into the EC Units produced in Specified Period 1, Taxpayer C acquired 21,020 for $0.50 each and 2,020 for $1.50 each. Of the 5,760 PV cells incorporated into the EC Units produced in Specified Period 2, Taxpayer C acquired 2,620 for $0.50 each and 3,140 for $1.50 each.

(h) Taxpayer C calculates the Average Cost of each PV cell for Specified Period 1 by summing the Direct Material Costs of the PV cells incorporated into the EC Units produced during Specified Period 1, then dividing that sum by the total quantity of PV cells incorporated into the EC Units produced during Specified Period 1 (((($0.50 × 21,020) + ($1.50 × 2,020)) / 23,040) = $0.59). Based on the Average Cost of each PV cell, the Direct Material Costs of the PV cell in each EC Unit produced during Specified Period 1 are $84.96 ($0.59 × 144). The Total Direct Costs for each EC produced during Specified Period 1 is $144.96 ($84.96 + $60) (i) Taxpayer C calculates a PFE Production Percentage for the PV cells for Specified Period 1 based on the quantity of PV cells incorporated into the EC Units produced during Specified Period 1. The Total Quantity PFE-CM of PV cells included in such EC Units is 21,020, and the Total Quantity CM is 23,040. Taxpayer C divides the PV cells’ Total Quantity PFE-CM (21,020) by the Total Quantity CM (23,040) to equal a PFE Production Percentage of 91.2% (21,020/23,040) for its PV cells in Specified Period 1.

(j) Taxpayer C calculates the Total PFE Direct Material Costs for each EC Unit in Specified Period

1. As PV cells are the only Constituent Material that was PFE produced, Taxpayer C multiplies $84.96 (Direct Material Costs for the PV cells in each EC Unit) by 91.2% (PFE Production Percentage for Specified Period 1) to get the PFE Total Direct Material Costs of $77.48

(k) Taxpayer C calculates an Eligible Component MACR for each EC Unit produced in Specified Period 1 as follows: ($144.96 [Total Direct Material Costs of each EC Unit] – $77.48 [PFE Total Direct Material Costs]) / $144.96 [Total Direct Material Costs of each EC Unit] = 46.5%. For each such EC Unit sold in Specified Period 1, the Clean Electricity MACR of 46.5% is less than the applicable threshold percentage (50%).

PFE Production Percentage Based on Quantity of

26 See fn. 19 of this notice.

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(l) Taxpayer C calculates the Average Cost of each PV cell for Specified Period 2 by summing the Direct Material Costs of the PV cells incorporated into the EC Units produced during Specified Period 2, then dividing that sum by the total quantity of PV Cells incorporated into the EC Units produced during Specified Period 2 (((($0.50 × 2,620) + ($1.50 × 3,140)) / 5,760) = $1.05). Based on the Average Cost of each PV cell, the Direct Material Costs of the PV cells in each EC Unit produced during Specified Period 2 are $151.20 ($1.05 × 144). The Total Direct Costs for each EC produced during Specified Period 2 is $211.20 ($151.20 + $60)

(m) Taxpayer C calculates a PFE Production Percentage for the PV cells for Specified Period 2 based on the quantity of PV cells incorporated into the EC Units produced during Specified Period 2. The Total Quantity PFE-CM of PV cells included in such EST Units is 2,620, and the Total Quantity CM is 5,760. Taxpayer C divides the PV cells’ Total Quantity PFE-CM (2,620) by the Total Quantity CM (5,760) to equal a PFE Production Percentage of 45.5% (2,620/5,760).

(m) Taxpayer C calculates the Total PFE Direct Material Costs for each EC Unit in Specified Period 2. As PV cells are the only Constituent Material that was PFE produced, Taxpayer C multiplies $151.20

(Direct Material Costs for the PV cells in each EC Unit) by 45.5% (PFE Production Percentage for Specified Period 2) to get the PFE Total Direct Material Costs of $68.80.

(n) Taxpayer C calculates an Eligible Component MACR for each EC Unit produced in Specified Period 2 as follows: ($211.20 [Total Direct Material Costs of each EC Unit] – $68.80 [PFE Total Direct Material Costs]) / $211.20 [Total Direct Material Costs of each EC Unit] = 67.4%. For each EC Unit solid in Specified Period 2, the Eligible Component MACR of 67.4% is not less than the applicable threshold percentage (50%).

PFE Production Percentage Based on Quantity of PV Cells Incorporated into

EC Units Produced During Next 13 Weeks of Taxable Year

(o) Taxpayer C’s 160 EC Units produced during the first 39 weeks of the taxable year include material assistance from a PFE within the meaning of § 45X(c)(1)(C), therefore, Taxpayer C cannot claim the credit under § 45X for such EC Units. In contrast, Taxpayer C’s 40 EC Units produced during the next 13 weeks of the taxable year do not include material assistance from a PFE within the meaning of § 45X(c)(1)(C), therefore, § 45X(c)(1)(C) does not prohibit Taxpayer C from claiming the credit under § 45X for those EC Units.