SECTION 2. BACKGROUND

.01 Overview of §§ 45Y, 48E, and 45X and OBBBA Amendments Related to PFEs .

Sections 45Y, 48E, and 45X were added to the Code by §§ 13701(a), 13702(a), and 13502(a), respectively, of Public Law 117-169, 136 Stat. 1818, 1971-1997 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). Sections 70512(b)(1), 70513(b) (1), and 70514(c)(1) of the OBBBA added new §§ 45Y(b)(1)(E); ² 48E(b)(6) ³ and (c) (3); and 45X(c)(1)(C), respectively, to the Code to provide that the terms qualified facility, EST, and eligible component do not include items that include material assistance from a PFE. ⁴ The OBBBA also amended § 7701 to add the definitions of the terms “prohibited foreign entity” and “material assistance from a prohibited foreign entity.” ⁵ In addition, the OBBBA created § 6695B and amended §§ 45Q, 45U, 45X, 45Y, 45Z, 48E, 50, 139L, 6417, 6418, 6501, and 6662 to add provisions relating to PFEs. ⁶

(1) Section 45Y: Clean Electricity Pro- duction Credit

Section 45Y(a)(1) provides a production credit for kilowatt hours of electricity produced by the taxpayer at a qualified facility and either (1) sold by the taxpayer to an unrelated party during the taxable year or, (2) in the case of a qualified facility equipped with a metering device which is owned or operated by an unrelated person, sold, consumed, or stored by the taxpayer during the taxable year.

Section 45Y(b)(1)(A) generally defines the term “qualified facility” for purposes of § 45Y as a facility which is used for the generation of electricity, which is placed in service after December 31, 2024, and for which the greenhouse gas emissions rate is not greater than zero.

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax Regulations (26 CFR part 1).

2 There are two § 45Y(b)(1)(E) in the Code. All references in this notice to § 45Y(b)(1)(E) are to the subparagraph titled, “Material Assistance from Prohibited Foreign Entities.”

3 OBBBA § 70513(b)(1)(A) also redesignated former § 48E(b)(6) as § 48E(b)(7).

4 Consistent with the usage in § 7701(a)(52), this notice uses the terms qualified facility, qualified interconnection property, energy storage technology, and eligible component throughout to mean items that are within the definitions of those terms without regard to whether the “material assistance from a PFE” rules are satisfied.

5 See OBBBA § 70512(c).

6 See OBBBA §§ 70512(k)-(l); 70522(a), (d); 70510(a)-(b); 70514(c)(2) and (f); 70512(b)(2), (l); 70521(k); 70513(b)(2), (g); 70513(b)(3)(A)(ii), (g); 70435(a)-(c); 70512(j)(2), (l); 70512(h), (l); 70512(i), (l); and 70512(j)(1), (l).

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that are paid or incurred by the taxpayer for qualified interconnection property, properly chargeable to the capital account of the taxpayer, in connection with a qualified facility that has a maximum net output of not greater than 5 megawatts (as measured in alternating current) and is placed in service during the taxable year.

Section 48E(b)(3)(A) defines the term “qualified facility” for purposes of § 48E as a facility which is used for the generation of electricity, which is placed in service after December 31, 2024, and for which the anticipated greenhouse gas emissions rate is not greater than zero.

Sections 48E(b)(3)(B)(i) provides that rules similar to the rules of § 45Y(b)(1) (C) (regarding the Incremental Production Rule) apply for purposes of § 48E(b)(3). Section 1.48E-4(c)(1) provides that a retrofitted qualified facility or EST may qualify as originally placed in service even if it contains some used components of property within the unit of qualified facility or unit of EST, provided the fair market value of the used components of the unit of qualified facility or unit of EST is not more than 20 percent of the total value of the unit of qualified facility (that is, the 80/20 Rule). Section 48E(c)(2) defines the term “energy storage technology” by reference to § 48(c)(6), excepting the application of § 48(c)(6)(D) (regarding a beginning of construction limitation). Section 48(c)(6) defines energy storage technology as, in general, property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) that receives, stores, and delivers energy for conversion to electricity (or, in the case of hydrogen, which stores energy), and has a nameplate capacity of not less than 5 kilowatt hours, and thermal energy storage property. ⁷

Section 48E(b)(2) provides that the term “qualified property” means property which is tangible personal property, or other tangible property (not including a building or its structural components), but only if such property is used as an integral

part of the qualified facility; with respect to which depreciation (or amortization in lieu of depreciation) is allowable; and the construction, reconstruction, or erection of which is completed by the taxpayer, or which is acquired by the taxpayer, provided the original use of such property commences with the taxpayer.

Section 48E(b)(4) defines the term “qualified interconnection property” by reference to § 48(a)(8)(B) to mean any tangible property which is part of an addition, modification, or upgrade to a transmission or distribution system which is required at or beyond the point at which the qualified facility interconnects to such transmission or distribution system in order to accommodate such interconnection; is either constructed, reconstructed, or erected by the taxpayer or the cost with respect to the construction, reconstruction, or erection of which is paid or incurred by such taxpayer; and the original use of which, pursuant to an interconnection agreement, commences with a utility. Section 1.48E-4(a)(2) provides that qualified interconnection property is not part of a qualified facility.

Section 48E(b)(6), as added by the OBBBA, provides that qualified facility and qualified interconnection property do not include any facility or property the construction, reconstruction, or erection of which begins after December 31, 2025, if the construction, reconstruction, or erection of such facility or property includes any material assistance from a PFE (as defined in § 7701(a)(52)).

Section 48E(c)(3), as added by the OBBBA, provides that energy storage technology does not include any property the construction of which begins after December 31, 2025, if the construction of such property includes any material assistance from a PFE (as defined in § 7701(a) (52)).

(3) Section 45X: Advanced Manufac- turing Production Credit

Section 45X provides a production credit for eligible components produced and sold by a taxpayer to an unrelated

party, as determined under § 45X(b)(1) for the different eligible components. Section 45X(c)(1)(A) defines the term “eligible component” to mean any solar energy component, any wind energy component, any inverter described in § 45X(c)(2) (B) through (G), any qualifying battery component, and any applicable critical mineral. Section 1.45X-3 and 1.45X-4 define eligible components for purposes of § 45X.

Section 45X(c)(1)(C), as added by the OBBBA, provides that for taxable years beginning after July 4, 2025, the date of the OBBBA’s enactment, the term “eligible component” does not include any property which includes any material assistance from a PFE (as defined in § 7701(a)(52), as applied by substituting “used in a product sold before January 1, 2027” for “used in a product sold before January 1, 2030” in § 7701(a)(52)(D)(iv) (II)(bb) (relating to existing, binding written contracts)).

.02 Overview of § 7701: Definitions . Section 7701 was enacted as part of the Internal Revenue Code of 1954, Public Law 83-591, Ch. 736, 68A Stat. 3, 911 (Aug. 16, 1954), and provides definitions for terms used in the Code. Section 70512(c) of the OBBBA added new §§ 7701(a)(51) and (52) to the Code.

(1) Section 7701(a)(51): Prohibited Foreign Entity .

Section 7701(a)(51) includes detailed rules defining a PFE. Section 7701(a)(51) (A) defines PFE as a specified foreign entity or a foreign-influenced entity.

Section 7701(a)(51)(B) provides that for purposes of the PFE restrictions, the term “specified foreign entity” means (i) a foreign entity of concern described in subparagraph (A), (B), (D), or (E) of section 9901(8) of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (Public Law 116283; 15 U.S.C. 4651) (2021 NDAA), ⁸ (ii) an entity identified as a Chinese military company operating in the United States in accordance with section 1260H of the 2021 NDAA (10 U.S.C. 113 note), (iii) an

7 Section 48(c)(6)(B) and (C) also define energy storage technology in the case of modifications of certain property and thermal energy storage property.

8 As enacted, § 9901(6) of the 2021 NDAA defined the term “foreign entity of concern.” Section 103(a)(2) of the CHIPS Act of 2022, Public Law 117-167, 136 Stat. 1366, 1379 (August 9, 2022), amended the 2021 NDAA by redesignating § 9901(6) as § 9901(8). Accordingly, the Treasury Department and the IRS interpret § 7701(a)(51)(B)(i)’s reference to § 9901(8) of the 2021 NDAA to be to the 2021 NDAA as amended by the CHIPS Act of 2022.

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entity included on a list required by clause (i), (ii), (iv), or (v) of section 2(d)(2)(B) of Public Law 117-78 (135 Stat. 1527), (iv) an entity specified under section 154(b) of the National Defense Authorization Act for Fiscal Year 2024 (Public Law 118-31; 10 U.S.C. note prec. 4651), or (v) a foreign-controlled entity. ⁹

Section 7701(a)(51)(D) provides that for purposes of defining a PFE, a “foreign-influenced entity” includes two categories of entities. In the first category, under § 7701(a)(51)(D)(i)(I), an entity is a “foreign-influenced entity” if, during the taxable year (aa) a specified foreign entity has the direct authority to appoint a covered officer of such entity, (bb) a single specified foreign entity owns at least 25 percent of such entity, (cc) one or more specified foreign entities own in the aggregate at least 40 percent of such entity, or (dd) at least 15 percent of the debt of such entity has been issued, in the aggregate, to 1 or more specified foreign entities. In the second category, under § 7701(a)(51)(D) (i)(II), an entity is a “foreign-influenced entity” if, during the previous taxable year, the entity made a payment to a specified foreign entity pursuant to a contract, agreement, or other arrangement which entitles such specified foreign entity (or an entity related to such specified foreign entity) to exercise effective control over (aa) any qualified facility or EST of the taxpayer (or any person related to the taxpayer), or (bb) with respect to any eligible component produced by the taxpayer (or any person related to the taxpayer), (AA) the extraction, processing, or recycling of any applicable critical mineral, or (BB) the production of an eligible component which is not an applicable critical mineral.

For purposes of § 7701(a)(51)(D)(i) (II), the term “effective control” is defined generally in § 7701(a)(51)(D)(ii)(I). However, § 7701(a)(51)(D)(ii)(II) provides that during any period prior to the issuance of guidance by the Secretary of the Treasury or the Secretary’s delegate

(Secretary), the term, “effective control” means the unrestricted contractual right of a contractual counterparty to (aa) determine the quantity or timing of production of an eligible component produced by the taxpayer, (bb) determine the amount or timing of activities related to the production of electricity undertaken at a qualified facility of the taxpayer or the storage of electrical energy in EST of the taxpayer, (cc) determine which entity may purchase or use the output of a production unit of the taxpayer that produces eligible components, (dd) determine which entity may purchase or use the output of a qualified facility of the taxpayer, (ee) restrict access to data critical to production or storage of energy undertaken at a qualified facility of the taxpayer, or to the site of production or any part of a qualified facility or EST of the taxpayer, to the personnel or agents of such contractual counterparty, or (ff) on an exclusive basis, maintain, repair, or operate any plant or equipment which is necessary to the production by the taxpayer of eligible components or electricity.

Section 7701(a)(51)(D)(ii)(III)(aa) adds that, in general, effective control also includes, with respect to a licensing agreement for the provision of intellectual property (or any other contract, agreement or other arrangement entered into with a contractual counterparty related to such licensing agreement) with respect to a qualified facility, EST, or the production of an eligible component, any of the following: (AA) a contractual right retained by the contractual counterparty to specify or otherwise direct one or more sources of components, subcomponents, or applicable critical minerals utilized in a qualified facility, EST, or in the production of an eligible component; (BB) a contractual right retained by the contractual counterparty to direct the operation of any qualified facility, any EST, or any production unit that produces an eligible component; (CC) a contractual right retained by the contractual counterparty to limit the tax

payer’s utilization of intellectual property related to the operation of a qualified facility or EST, or in the production of an eligible component; (DD) a contractual right retained by the contractual counterparty to receive royalties under the licensing agreement or any similar agreement (or payments under any related agreement) beyond the tenth year of the agreement (including modifications or extensions thereof); (EE) a contractual right retained by the contractual counterparty to direct or otherwise require the taxpayer to enter into an agreement for the provision of services for a duration longer than two years (including any modifications or extensions thereof); (FF) such contract, agreement, or other arrangement does not provide the licensee with all the technical data, information, and know-how necessary to enable the licensee to produce the eligible component or components subject to the contract, agreement, or other arrangement without further involvement from the contractual counterparty or a specified foreign entity; (GG) such contract, agreement, or other arrangement was entered into (or modified) on or after July 4, 2025. ¹⁰

Section 7701(a)(51)(E)(i)(I) provides that § 7701(a)(51)(C)(v) (defining a specified foreign entity as including a foreign-controlled entity) does not apply in the case of any entity the securities of which are regularly traded on (aa) a national securities exchange which is registered with the Securities and Exchange Commission; (bb) the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934; or (cc) any other exchange or other market which the Secretary has determined in guidance issued under § 1296(e) (1)(A)(ii) has rules adequate to carry out the purposes of part VI of subchapter P of chapter 1 of subtitle A of the Code.

Section 7701(a)(51)(E)(i)(II) provides that § 7701(a)(51)(D)(i)(I) does not apply in the case of any entity (aa) the securities of which are regularly traded in a man

9 The definition of the term “foreign-controlled entity” includes an agency or instrumentality of the government (including any level of government below the national level) of a covered nation. § 7701(a)(51)(C)(ii). Federal tax determinations of whether an entity is an agency or instrumentality of any government typically are analyzed on a facts and circumstances basis. In determining whether an entity is an agency or instrumentality of a U.S. State for Federal tax purposes, Federal courts have applied a test similar to the six-factor test in Rev. Rul. 57-128, 1957-1 CB 311, which generally provides guidance on whether an entity is an instrumentality for purposes of the exemptions from employment taxes under §§ 3121(b)(7) and 3306(c)(7) of the Code. See, e.g., Bernini v. Federal Reserve Bank of St. Louis, Eighth District, 420 F. Supp. 2d 1021 (E.D. Mo. 2005); Michigan v. United States, 40 F.3d 817 (6th Cir. 1994); and Rose v. Long Island Railroad Pension Plan, 828 F.2d 910 (2d Cir. 1987), cert. denied, 485 U.S. 936 (1988). However, whether an entity is an agency or instrumentality of any government is outside the scope of this notice.

10 Section 7701(a)(51)(D)(ii)(III)(bb) provides an exception to the general rule under § 7701(a)(51)(D)(ii)(III)(aa), in the case of a bona fide purchase or sale of intellectual property.

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ner described in § 7701(a)(51)(E)(i)(I); or (bb) for which not less than 80 percent of the equity securities of such entity are owned directly or indirectly by an entity which is described in § 7701(a)(51)(E)(i) (II)(aa).

Section 7701(a)(51)(E)(iii) provides that, in the case of an entity described in § 7701(a)(51)(E)(i)(II), such entity is deemed to be a foreign-influenced entity under § 7701(a)(51)(D)(i)(I) if one of four conditions are met. The first three conditions are provided in § 7701(a)(51)(E) (iii)(I), which provides that an entity is deemed to be a foreign-influenced entity if, during the taxable year: (aa) a specified foreign entity has the authority to appoint a covered officer of such entity; (bb) a single specified foreign entity required to report its beneficial ownership under Rule 13d-3 of the Securities and Exchange Act of 1934 (or, in the case of an exchange or market described in § 7701(a)(51)(E)(i) (I)(cc), an equivalent rule) owns not less than 25 percent of such entity, or; (cc) one or more specified foreign entities that are required to report their beneficial ownership under Rule 13d-3 of the Securities and Exchange Act of 1934 own, in the aggregate, not less than 40 percent of such entity. For the fourth condition, § 7701(a) (51)(E)(iii)(II) provides that an entity is deemed to be a foreign-influenced entity if such entity has issued debt, as part of an original issuance, in excess of 15 percent of its publicly-traded debt to one or more specified foreign entities.

Section 7701(a)(51)(J) provides that for purposes of applying any provision under § 7701(a)(51), the beginning of construction with respect to any property is determined pursuant to rules similar to the rules under Notice 2013-29 and Notice 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either such Notice), as in effect on January 1, 2025. ¹¹

(2) Section 7701(a)(52): Material assistance from a PFE .

Section 7701(a)(52) provides rules for determining whether a qualified facility, EST, or eligible component includes material assistance from a PFE.

Section 7701(a)(52)(A) provides that the term “material assistance from a prohibited foreign entity” means, with respect to any qualified facility or EST, a MACR which is less than the threshold percentage applicable under § 7701(a)(52) (B); or, with respect to any facility which produces eligible components, a MACR which is less than the threshold percentage applicable under § 7701(a)(52)(C). Section 7701(a)(52)(B) provides applicable threshold percentages for a qualified facility and EST based on the calendar year during which construction of the qualified facility or EST begins. Section 7701(a) (52)(C) provides applicable threshold percentages for eligible components (solar energy component, wind energy component, inverter, qualifying battery component, applicable critical mineral) based on the calendar year during which the eligible component is sold.

Section 7701(a)(52)(D) provides rules for determining the MACR for a qualified facility, EST, or eligible component.

Section 7701(a)(52)(D)(i) applies to any qualified facility (as defined in § 7701(a)(52)(E)(iv)) or EST (as defined in § 7701(a)(52)(E)(ii)). Section 7701(a) (52)(D)(i) provides that for purposes of § 7701(a)(52)(A)(i), the term “material assistance cost ratio” means the amount (expressed as a percentage) equal to the quotient of (I) an amount equal to (aa) the total direct costs to the taxpayer attributable to all manufactured products (MPs) (including components) which are incorporated into the qualified facility or EST upon completion of construction, minus (bb) the total direct costs to the taxpayer attributable to all MPs (including components) which are (AA) incorporated into the qualified facility or EST upon completion of construction, and (BB) mined, produced, or manufactured by a PFE, divided by (II) the amount described in § 7701(a)(52)(D)(i)(I)(aa) (for purposes of this notice, the term “Clean Electricity MACR” means the MACR for a qualified facility or an EST).

Section 7701(a)(52)(D)(ii) applies to any eligible component (as defined in § 7701(a)(52)(E)(i)). With respect to any

facility that produces eligible components for purposes of § 7701(a)(52)(A)(ii), § 7701(a)(52)(D)(ii) provides that the term “MACR” means the amount (expressed as a percentage) equal to the quotient of (I) an amount equal to (aa) with respect to an eligible component, the total direct material costs that are paid or incurred (within the meaning of § 461 and any regulations issued under § 263A) by the taxpayer for production of such eligible component, minus (bb) with respect to an eligible component, the total direct material costs that are paid or incurred (within the meaning of § 461 and any regulations issued under § 263A) by the taxpayer for production of such eligible component that are mined, produced, or manufactured by a PFE, divided by (II) the amount described in § 7701(a)(52)(D)(ii)(I)(aa) (for purposes of this notice, the term “Eligible Component MACR” means the MACR for an eligible component).

Section 7701(a)(52)(D)(iii)(I) requires the Secretary to issue safe harbor tables (and authorizes such other guidance as deemed necessary) no later than December 31, 2026, to (aa) identify the percentage of total direct costs of any MP which is attributable to a PFE, (bb) identify the percentage of total direct material costs of any eligible component which is attributable to a PFE, and (cc) provide all rules necessary to determine the amount of a taxpayer’s material assistance from a PFE within the meaning of § 7701(a)(52).

Section 7701(a)(52)(D)(iii)(II) provides that, for purposes of § 7701(a)(52), prior to the date on which the Secretary issues the forthcoming safe harbor tables (and other such guidance) described in § 7701(a)(52)(D)(iii)(I), and for construction of a qualified facility or EST which begins on or before the date which is 60 days after the date of issuance of such tables, a taxpayer may (aa) use the tables included in Notice 2025-08, 2025-8 I.R.B. 800, to establish the percentage of the total direct costs of any listed eligible component and any MP, and (bb) rely on a certification by the supplier of the MP, eligible component, or constituent element, material, or subcomponent of an eligible

11 Notice 2025-42 provides guidance regarding when construction of an applicable wind facility or applicable solar facility has begun for purposes of determining whether such facility is subject to credit termination provisions added to §§ 45Y and 48E by the OBBBA. Notice 2025-42 was issued on August 15, 2025, and is not intended to address the beginning of construction rules for the purposes of PFE restrictions under § 7701(a)(51) and (52). See Notice 2025-42, fn 3. Accordingly, the guidance in Notice 2025-42 is inapplicable for purposes of determining whether the PFE restrictions under § 7701(a)(51) apply.

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component (AA) of the total direct costs or the total direct material costs, as applicable, of such product or component that was not produced or manufactured by a PFE, or (BB) that such product or component was not produced or manufactured by a PFE.

Section 7701(a)(52)(D)(iii)(III) provides that, notwithstanding § 7701(a)(52) (D)(iii)(I) and (II), (aa) if the taxpayer knows (or has reason to know) that an MP or eligible component was produced or manufactured by a PFE, the taxpayer must treat all direct costs with respect to such MP, or all direct material costs with respect to such eligible component, as attributable to a PFE, and (bb) if the taxpayer knows (or has reason to know) that the certification referred to in § 7701(a) (52)(D)(iii)(II)(bb) pertaining to an MP or eligible component is inaccurate, the taxpayer may not rely on such certification.

Section 7701(a)(52)(D)(iii)(IV) provides that, in a manner consistent with § 1.45X-4(c)(4)(i) (as in effect on July 4, 2025), the certification referred to in § 7701(a)(52)(D)(iii)(II)(bb) must–(aa) include (AA) the supplier’s employer identification number, or (BB) any such similar identification number issued by a foreign government, (bb) be signed under penalties of perjury, (cc) be retained by the supplier and the taxpayer for a period of not less than six years and must be provided to the Secretary upon request, and (dd) be from the supplier from which the taxpayer purchased any MP, eligible component, or constituent elements, materials, or subcomponents of an eligible component, stating (AA) that such property was not produced or manufactured by a PFE and that the supplier does not know (or have reason to know) that any prior supplier in the chain of production of that property is a PFE, (BB) for purposes of § 45X, the total direct material costs for each component, constituent element, material, or subcomponent that were not produced or manufactured by a PFE, or (CC) for purposes of § 45Y or § 48E, the

total direct costs attributable to all MPs that were not produced or manufactured by a PFE.

Section 7701(a)(52)(D)(iv) provides that upon the taxpayer’s election (in such form and manner as the Secretary designates), in the case of any MP, eligible component, or constituent element, material, or subcomponent of an eligible component which is (I) acquired by the taxpayer, or manufactured or assembled by or for the taxpayer, pursuant to a binding written contract which was entered into prior to June 16, 2025, and (II) (aa) placed into service before January 1, 2030 (or, in the case of an applicable facility, as defined in § 45Y(d)(4)(B), before January 1, 2028) in a facility the construction of which began before August 1, 2025, or (bb) in the case of a constituent element, material, or subcomponent, used in a product sold before January 1, 2030, ¹² the cost to the taxpayer with respect to such product, component, element, material, or subcomponent is not included for purposes of determining the MACR under § 7701(a)(52)(D).

Section 7701(a)(52)(D)(v) provides the Secretary authority to prescribe such regulations and guidance as may be necessary or appropriate to prevent circumvention of the rules under § 7701(a)(52) (D), including prevention of (I) any abuse of the exception provided under § 7701(a) (52)(D)(iv) through the stockpiling of any MP, eligible component, or constituent element, material, or subcomponent of an eligible component during any period prior to the application of the requirements under § 7701(a)(52), or (II) any evasion with respect to the requirements of § 7701(a)(52)(D) where the facts and circumstances demonstrate that the beginning of construction of a qualified facility or EST has not in fact occurred.

Section 7701(a)(52)(E) provides definitions for purposes of § 7701(a)(52). Section 7701(a)(52)(E)(i) provides that the term “eligible component” means (I) any property described in § 45X(c)(1), or (II) any component which is identified by

the Secretary pursuant to regulations or guidance issued under § 7701(a)(52)(G). Section 7701(a)(52)(E)(ii) provides that the term “energy storage technology” has the same meaning given such term under § 48E(c)(2). Section 7701(a)(52)(E)(iii) provides that the term “manufactured product” means (I) an MP which is a component of a qualified facility, as described in § 45Y(g)(11)(B) and any guidance issued thereunder, or (II) any product which is identified by the Secretary pursuant to regulations or guidance issued under § 7701(a)(52)(G). Section 7701(a) (52)(E)(iv) provides that the term “qualified facility” means (I) a qualified facility, as defined in § 45Y(b)(1), (II) a qualified facility, as defined in § 48E(b)(3), and (III) any 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)). For purposes of this notice, the terms eligible component, energy storage technology, and qualified facility have the same meanings, respectively, as provided in §§ 7701(a)(52)(E)(i)(I), (ii), and (iv), and, as authorized under § 7701(a)(52) (E)(iii)(II), manufactured product has the meaning provided in section 3.01(2)(a) of this notice. ¹³

Section 7701(a)(52)(F) provides that rules similar to the rules under § 7701(a) (51)(H) and (J) (relating to determination of ownership and beginning of construction, respectively) apply for purposes of § 7701(a)(52). For purposes of determining whether the material assistance rules under § 7701(a)(52) apply, the beginning of construction is determined pursuant to rules similar to the rules under Notice 2013-29, 2013-20 I.R.B. 1085, and Notice 2018-59, 2018-28 I.R.B. 196 (as well as any subsequently issued guidance clarifying, modifying, or updating either such notice), as in effect on January 1, 2025. ¹⁴

Section 7701(a)(52)(G) provides the Secretary with the authority to prescribe such regulations and guidance as may be necessary or appropriate to carry out the

12 In referencing § 7701(a)(52) for the definition of material assistance from a PFE, § 45X(c)(1)(C) substitutes “used in a product sold before January 1, 2027” for “used in a product sold before January 1, 2030” in § 7701(a)(52)(D)(iv)(II)(bb) (relating to existing, binding written contracts). See section 2.01(3) of this notice for a description of § 45X(c)(1)(C).

13 As described in § 7701(a)(52)(E)(iv)(II) and (III), a 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)).” See sections 3.01(7)(c); 4.01(2)(f); and 4.02(2) (b)(vi) of this notice for additional information about the application of § 7701(a)(52) to qualified interconnection property.

14 The guidance in Notice 2025-42 regarding beginning of construction is inapplicable for purposes of determining whether the material assistance rules under § 7701(a)(52) apply. See fn 11 of this notice.

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provisions of § 7701(a)(52), including–(i) identification of components or products for purposes of § 7701(a)(52)(E)(i) and (iii), and (ii) for purposes of § 7701(a)(52) (A)(ii), rules to address facilities which produce more than one eligible component.

Section 70512(l)(1) of the OBBBA provides that the amendments made to § 7701(a)(52) apply to taxable years beginning after July 4, 2025.

.03 Applicable Penalties and Statutes of Limitations .

Section 6662 imposes accuracy-related penalties on certain underpayments of tax. Under § 6662(a) and (b), any portion of an underpayment that is attributable to a substantial understatement of income tax is subject to a penalty amount equal to 20 percent of the portion of the applicable underpayment. Section 6662(d)(1)(A) states that, in general, there is a substantial understatement of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of–(i) 10 percent of the tax required to be shown on the return for the taxable year, or (ii) $5,000. ¹⁵

Section 6662(m)(1), as added to the Code by § 70512(j) of the OBBBA, generally provides that in the case of a disallowance of an applicable energy credit, § 6662(d)(1) must be applied–(A) in § 6662(d)(1)(A) and (B), by substituting “1 percent” for “10 percent” each place it appears, and (B) without regard to § 6662(d)(1)(C). ¹⁶ Section 6662(m) (2) defines the term “disallowance of an applicable energy credit” as the disallowance of a credit under § 45X, 45Y, or 48E by reason of overstating the MACR (as determined under § 7701(a) (52)) with respect to any qualified facility, EST, or facility which produces eligible components. Section 70512(l)(1) of the OBBBA generally provides that the amendments made to § 6662 apply to taxable years beginning after July 4, 2025. New § 6501(o), as added to the Code by § 70512(i) of the OBBBA, ¹⁷ provides that in the case of a deficiency attributable to an error with respect to the determination under § 7701(a)(52) for any taxable year,

such deficiency may be assessed at any time within six years after the return for such year was filed.

Section 6417(d)(6)(D), as added to the Code by section 70512(j)(2) of the OBBBA, provides that in the case of an applicable entity (as defined in § 6417(d) (1)) which made an election under § 6417(a) with respect to an applicable credit for which there is a disallowance described in § 6662(m)(2), § 6417(d)(6) (A) shall apply with respect to any excessive payment resulting from such disallowance.

Section 6695B, as added to the Code by § 70512(k) of the OBBBA, provides that a person must pay a penalty in the amount determined under § 6695B(b) (described in the following paragraph) if the following conditions are satisfied: (1) the person (A) provides a certification described in § 7701(a)(52)(D)(iii)(II)(bb) with respect to any MP, eligible component, or constituent element, material, or subcomponent of an eligible component, and (B) knows, or reasonably should have known, that the certification would be used in connection with a determination under § 7701(a)(52) (D)(iii)(II)(bb); (2) the person knows, or reasonably should have known, that such certification is inaccurate or false with respect to (A) whether such property was produced or manufactured by a PFE, or (B) the total direct costs or total direct material costs of such property that was not produced or manufactured by a PFE that were provided on such certification; and (3) the inaccuracy or falsity described in § 6695B(a)(2) resulted in the disallowance of an applicable energy credit (as defined in § 6662(m)(2)) and an understatement of income tax (within the meaning of § 6662(d)(2)) for the taxable year in an amount which exceeds the lesser of (A) 5 percent of the tax required to be shown on the return for the taxable year, or (B) $100,000.

Section 6695B(b) provides that the amount of penalty imposed under § 6695B(a) is equal to the greater of (1) 10 percent of the amount of the underpayment (as defined in § 6664(a)) solely attributable to the inaccuracy or falsity described

in § 6695B(a)(2), or (2) $5,000. Under § 6695B(c), no penalty may be imposed under § 6695B(a) if the person establishes to the satisfaction of the Secretary that any inaccuracy or falsity described in § 6695B(a)(2) is due to a reasonable cause and not willful neglect. Section 6696(d) (1), as modified by § 70512(k)(2)(A)(iv) of the OBBBA, provides in relevant part that the amount of any § 6695B penalty shall be assessed within 6 years after the return or claim for refund with respect to which the penalty is assessed was filed, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. Section 70512(l)(3) of the OBBBA provides that the penalty for substantial misstatements on certifications provided by suppliers applies to certifications provided after December 31, 2025.

.04 Domestic Content Bonus Credit Guidance .

Sections 45(b)(9), 45Y(g)(11), 48(a) (12), and 48E(a)(3)(B) provide an increase to the amount of a credit determined under §§ 45, 45Y, 48, and 48E, respectively, for a taxpayer whose qualified facility under §§ 45 or 45Y, energy project under § 48, or qualified investment with respect to a qualified facility or EST under § 48E satisfies the domestic content requirement set forth in § 45(b)(9)(B)(i) (the Domestic Content Requirement).

(1) Notice 2023-38 . On May 12, 2023, the Treasury Department and the IRS released Notice 202338, 2023-22 I.R.B. 872, which describes a safe harbor regarding the classification of certain components in representative types of qualified facilities, energy projects, or ESTs for purposes of satisfying the Domestic Content Requirement.

Section 2.01 of Notice 2023-38 defines the term “Applicable Project” to mean (i) a qualified facility under §§ 45 or 45Y; (ii) an energy project under § 48, which may include qualified property for which a valid irrevocable election under § 48(a) (5) has been made to treat such qualified property as energy property under § 48; or (iii) a qualified investment with respect to a qualified facility or EST under § 48E.

15 Section 6662(d)(1)(B) also defines a substantial understatement of income tax in the case of certain corporations.

16 Section 6662(d)(1)(C) provides a special rule for taxpayers claiming a deduction under § 199A.

17 OBBBA § 70512(i) redesignated former § 6501(o) as § 6501(p) and added the new § 6501(o) discussed in section 2.03 of this notice.

Bulletin No. 2026–11 663 March 9, 2026

Section 3.01(2) of Notice 2023-38 provides definitions of terms for purposes of the Domestic Content Requirement. Section 3.01(2)(a) defines the term “Applicable Project Component” to mean any article, material, or supply, whether manufactured or unmanufactured, which is directly incorporated into an Applicable Project. Section 3.01(2)(c) defines the term “Manufactured Product” to mean an item produced as a result of the manufacturing process. Section 3.01(2)(d) defines the term “Manufactured Product Component” (MPC) to mean any article, material, or supply, whether manufactured or unmanufactured, which is directly incorporated into an Applicable Project Component that is an MP. Section 3.01(2)(e) of Notice 2023-38 defines “Manufacturing Process” as the application of processes to alter the form or function of materials or of elements of a product in a manner adding value and transforming those materials or elements so that they represent a new item functionally different from that which would result from mere assembly of the elements or materials.

Section 3.04 of Notice 2023-38 provides a safe harbor for classifications of certain Applicable Project Components. Table 2 of section 3.04 of Notice 2023-38 provides a Categorization of Applicable Project Components, so taxpayers can identify whether an Applicable Project Component is subject to rules for steel or iron or different rules for MPs in identifying whether the components meet the Domestic Content Requirement. Table 2 identifies a list of certain Applicable Project Components that may be found in the following types of Applicable Projects: Utility-scale photovoltaic system; Land-based wind facility; Offshore wind facility; and Battery energy storage technology.

(2) Notice 2024-41 . On May 24, 2024, the Treasury Department and the IRS released Notice 202441, 2024-24 I.R.B. 1615, which, among other things, modified the existing domestic content safe harbor in Notice 202338 by (i) expanding the non-exclusive list of Applicable Projects in Table 2 to include hydropower and pumped hydro

power storage facilities; (ii) redesignating “Utility scale photovoltaic system” as “Ground-mount and rooftop photovoltaic system”; and (iii) adding certain MPCs to previously listed Applicable Projects.