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Guidance to Apply Interim Safe Harbors for Purposes of Determining a Taxpayer’s

Material Assistance from a Prohibited Foreign Entity; Other Prohibited Foreign Entity

Guidance

Notice 2026-15

SECTION 1. PURPOSE

This notice describes interim guidance regarding restrictions to certain energy credits

under the Internal Revenue Code (Code), 1 with respect to status as, and sourcing from,

a prohibited foreign entity (PFE). These restrictions were enacted by Public Law 11921, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act

(OBBBA). Section 3 of this notice describes rules addressing material assistance from

a PFE that the Department of the Treasury (Treasury Department) and the Internal

Revenue Service (IRS) intend to include in proposed regulations (forthcoming proposed

regulations). Section 4 of this notice describes interim safe harbor guidance under

§§ 45X, 45Y, and 48E for determining a qualified facility’s, energy storage technology’s

(EST), or eligible component’s material assistance cost ratio (MACR) for purposes of

determining whether there was material assistance from a PFE. Section 5 of this notice

addresses certain PFE restrictions that the Treasury Department and the IRS intend to

include in the forthcoming proposed regulations. Sections 6, 7, and 8 of this notice,

respectively, provides a glossary of certain defined terms; a request for comments; and

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code or the Income Tax

Regulations (26 CFR part 1).

guidance on substantiation and the ability of taxpayers to rely on the guidance provided

in sections 3 through 5 of this notice. The Treasury Department and the IRS intend to

issue more comprehensive proposed regulations and other guidance with respect to the

definitions of a PFE and material assistance from a PFE.

SECTION 2. BACKROUND

.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 Production Credit

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).

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.

Section 45Y(b)(1)(C) provides that a qualified facility includes a new unit or additions

of capacity placed in service after December 31, 2024, in connection with an existing

facility used for the generation of electricity with a greenhouse gas emissions rate not

greater than zero, which was placed in service before January 1, 2025, but only to the

extent of the increased amount of electricity produced at the facility by reason of such

new unit or additions of capacity (Incremental Production Rule).

Section 45Y(b)(1)(E), as added by the OBBBA, provides that a qualified facility does

not include any facility for which construction begins after December 31, 2025, if the

construction of such facility includes any material assistance from a PFE (as defined in

§ 7701(a)(52)).

Sections 1.45Y-4(d)(1) provides that a facility may qualify as originally placed in

service even if it contains some used components of property within the unit of qualified

facility, provided the fair market value of the used components of the unit of qualified

facility is not more than 20 percent of the total value of the unit of qualified facility (80/20

Rule). The total value of the unit of qualified facility includes the cost of the new

components of property plus the fair market value of the used components of property

within the unit of qualified facility.

(2) Section 48E: Clean Electricity Investment Credit

Section 48E provides an investment credit for any taxable year in which a qualified

investment is made with respect to any qualified facility and any EST under § 48E,

determined as a percentage of the qualified investment in any qualified facility and any

EST.

Sections 48E(b)(1)(A) and (B) provide that a taxpayer’s qualified investment with

respect to a qualified facility is the sum of the basis of any qualified property placed in

service by the taxpayer during the taxable year, which is part of the qualified facility, plus

the amount of expenditures 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

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.

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 Manufacturing 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 116-283; 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 entity included on a list required by clause (i), (ii), (iv), or (v) of section

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.

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 11831; 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 “foreigninfluenced 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

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.

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 taxpayer'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

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.

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 manner

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

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.

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

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 § 1.45X4(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

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).

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

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.

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

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

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.

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.

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.

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 2023-38,

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.

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 2024-41,

2024-24 I.R.B. 1615, which, among other things, modified the existing domestic content

safe harbor in Notice 2023-38 by (i) expanding the non-exclusive list of Applicable

Projects in Table 2 to include hydropower and pumped hydropower 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.

Notice 2024-41 further provides a new elective safe harbor in Table 1 of section

4.04(1)-(3) that taxpayers may use to classify the identified Applicable Project

Components. Table 1 also provides the associated cost percentages for each of the

identified MPs and MPCs that may be found in the identified Applicable Projects

(Assigned Cost Percentages), 18 which include solar photovoltaic (PV) systems, landbased wind facilities, and battery energy storage systems. Finally, Notice 2024-41

provides that taxpayers electing to use the new safe harbor must follow certain

requirements, including treating the lists of Applicable Project Components and MPCs

and the cost percentages listed in Table 1 as exclusive and exhaustive for purposes of

determining compliance with the Domestic Content Requirement for an Applicable

Project.

To be eligible for the safe harbor, Notice 2024-41 explains that an Applicable Project

is not required to be constituted of the full list of Applicable Project Components in Table

1, and each Applicable Project Component listed is not required to be constituted of the

full list of MPCs in Table 1. However, any Applicable Product Component or MPC listed

in Table 1 that is not utilized as an input to the Applicable Project must be treated by the

electing taxpayer as having a zero value in calculating whether the components meet

the Domestic Content Requirement.

18 The term “Assigned Cost Percentages” as used in this notice also includes the Updated Assigned Cost

Percentages that are described in Notice 2025-08.

(3) Notice 2025-08.

On January 16, 2025, the Treasury Department and IRS released Notice 2025-08,

2025-8 I.R.B. 800. Notice 2025-08 provides an updated elective safe harbor for the

Domestic Content Requirement that modifies the safe harbor provided in Notice 202441, including Table 1. Section 5.05 of Notice 2025-08 provides an Updated Table for

Solar PV Ground-Mount Applicable Projects. Sections 5.07(13) and (14) provide

updated definitions for representative types of Ground-mounted PV (fixed-tilt) and

Ground-mounted PV (tracker) facilities, respectively. Section 5.06 of Notice 2025-08

provides an Updated Table for Solar PV Rooftop Applicable Projects. Sections 5.07(18)

and (19) provide updated definitions for representative types of Rooftop PV (MLPE)

facilities and Rooftop PV (string inverter) facilities, respectively. Section 6.02 of Notice

2025-08 provides an Updated Table for Land-Based Wind Applicable Projects. Section

6.03(2) provides an updated definition for representative types of land-based wind

facilities. Section 7.02 of Notice 2025-08 provides an Updated Table for battery energy

storage systems Applicable Projects. Section 7.03(6) provides an updated definition for

representative types of battery energy storage systems facilities. Collectively, the tables

provided in sections 5.05, 5.06, 6.02, and 7.02 of Notice 2025-08 (Notice 2025-08

Tables), section 3.02 in Notice 2024-41 for a Hydropower Facility, or a Pumped

Hydropower Storage Facility, and section 3.04 in Notice 2023-38 for an Offshore Wind

Facility, are referred to after this as the “2023-2025 Safe Harbor Tables.”

Section 4 of Notice 2025-08 provides that a taxpayer may elect to use the

classifications and cost percentages in Table 1 of Notice 2024-41 or the Notice 2025-08

Tables (as applicable) to qualify for the domestic content bonus credit amount for

Applicable Projects of the specific types identified in Table 1 of Notice 2024-41 or the

Notice 2025-08 Tables that are eligible for a credit under §§ 45, 45Y, 48, or 48E by

virtue of the 80/20 Rule. However, only new property listed in Table 1 of Notice 2024-41

or the Notice 2025-08 Tables (as applicable) is included in the calculation of the

Domestic Cost Percentage; all other MPs or MPCs, including used property in an

Applicable Project that satisfies the 80/20 Rule, is treated as foreign-sourced and must

take a zero value consistent with section 4.03(3) in Notice 2024-41 and section 8.03(3)

of Notice 2025-08.

.05 Substantiation.

Section 6001 provides that every person liable for any tax imposed by the Code, or

for the collection thereof, must keep such records as the Secretary may from time to

time prescribe. Section 1.6001-1(a) provides that any person subject to income tax

must keep such permanent books of account or records, including inventories, as are

sufficient to establish the amount of gross income, deductions, credits, or other matters

required to be shown by such person in any return of such tax. Section 1.6001-1(e)

provides that the books and records required by § 1.6001-1 must be retained so long as

the contents thereof may become material in the administration of any internal revenue

law.

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 qualified 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 qualified 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 20232025 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 EST. 19 The taxpayer must apply an assignment method that is

consistent with the purposes of § 7701(a)(52).

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).

(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.

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 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 calculation. 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 qualified 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 Harbor 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

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

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.

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), 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

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).

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.

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

Incorporated into EST Units Placed in

Service During First 6 Months of Taxable

Year

Total Quantity PFE-MP&MPC

Total Quantity MP&MPC

PFE Production

86.7%

Percentage

(Total Quantity PFE-MP&MPC) /

(Total Quantity MP&MPC)

Clean Electricity MACR for each EST

Unit Placed in Service During First 6

Months of Taxable Year

Total Direct Costs

$100

PFE Production

Percentage

86.7%

Cost attributable to heat

exchangers (based on

Average Cost)

$84

PFE Total Direct Costs

(PFE Production

Percentage × Cost

attributable to heat

exchangers)

$72.83

Clean Electricity MACR

(Total Direct Costs – PFE

Total Direct Costs) / (Total

Direct Costs)

27.2%

(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 1 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 PFEMP&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.

(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 Electricity MACR of 68.7% is not less than the

applicable Material Assistance Threshold Percentage (55%).

PFE Production Percentage Based on

Quantity of Heat Exchangers

Incorporated into EST Units Placed in

Service During Second 6 Months of

Taxable Year

Total Quantity PFE-MP&MPC

Total Quantity MP&MPC

PFE Production

33.3%

Percentage

(Total Quantity PFE-MP&MPC) /

(Total Quantity MP&MPC)

Clean Electricity MACR for each EST

Unit Placed in Service During Second 6

Months of Taxable Year

Total Direct Costs

$100

PFE Production

Percentage

33.3%

Cost attributable to heat

exchangers (based on

Average Cost)

$93.99

PFE Total Direct Costs

(PFE Production

Percentage × Cost

attributable to heat

exchangers)

$31.30

Clean Electricity MACR

(Total Direct Costs – PFE

Total Direct Costs) / (Total

Direct Costs)

68.7%

(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 facilities 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.

(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.

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.

(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, 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

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.

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 eligible 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

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.

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.

(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 calculation. 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

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.”

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 eligible 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 longer 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 Harbor 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.

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 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.

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

26 See fn. 19 of this notice.

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.

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 PV Cells Incorporated into EC

Units Produced During First 39 Weeks of

Taxable Year

Total Quantity PFE-CM

21,020

Total Quantity CM

23,040

PFE Production

Percentage

(Total Quantity PFE-CM) /

(Total Quantity CM)

91.2%

Eligible Component MACR for each EC

Unit Produced During First 39 Weeks of

Taxable Year

Total Direct Material Costs

$144.96

PFE Production

Percentage

91.2%

Cost attributable to PV

cells (based on Average

Cost)

$84.96

PFE Total Direct Material

Costs

(PFE Production

Percentage × Costs

attributable to PV cells)

$77.48

Eligible Component MACR

(Total Direct Material Costs

– PFE Total Direct Material

Costs) / (Total Direct

Material Costs)

46.5%

(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

Eligible Component MACR for each EC

Unit Produced During Next 13 Weeks of

Taxable Year

2,620

Total Direct

Material Costs

$211.20

Total

Quantity CM

5,760

PFE Production

Percentage

45.5%

PFE

Production

Percentage

(Total Number

PFE-CM) / (Total

Number CM)

45.5%

Cost attributable to

PV cells (based on

Average Cost)

$151.20

PFE Total Direct

Material Costs

(PFE Production

Percentage ×

Costs attributable

to PV cells)

$68.80

Eligible

Component MACR

(Total Direct

Material Costs –

PFE Total Direct

Material Costs) /

(Total Direct

Material Costs)

67.4%

Total Quantity

PFE-CM

(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.

SECTION 4. INTERIM SAFE HARBORS

Section 7701(a)(52)(D)(iii)(II) provides two interim safe harbors that a taxpayer may

choose to apply when determining a Clean Electricity MACR or Eligible Component

MACR.

Section 7701(a)(52)(D)(iii)(II)(aa) permits a taxpayer to use the tables included in

Notice 2025-08 to establish the percentage of the total direct costs of any listed eligible

component and any MP. To effectuate this safe harbor, section 4.01 of this notice

describes the Identification Safe Harbor that a taxpayer may use to identify MPs and

MPCs of a Listed qualified facility or EST or to identify Constituent Materials of a Listed

eligible component, and section 4.02 this notice describes the Cost Percentage Safe

Harbor that a taxpayer may use to determine Direct Costs and PFE Direct Costs for a

qualified facility or EST or to determine the Direct Material Costs and PFE Direct

Material Costs for an eligible component,

Section 7701(a)(52)(D)(iii)(II)(bb) permits a taxpayer to rely upon supplier

certifications for certain information. To effectuate this safe harbor, section 4.03 of this

notice describes the Certification Safe Harbor that a taxpayer may use to determine

Direct Costs or Direct Material Costs, PFE Direct Costs or PFE Direct Material Costs,

and whether MPs and MPCs are PFE Produced or Constituent Materials are PFE

Sourced.

.01 Identification Safe Harbor.

(1) In general.

This section 4.01 describes the Identification Safe Harbor. A taxpayer may use the

Identification Safe Harbor to identify MPs and MPCs of a Listed qualified facility or EST

or to identify Constituent Materials of a Listed eligible component.

(2) Identification Safe Harbor requirements for qualified facilities or ESTs.

(a) In general. A taxpayer may rely upon the Identification Safe Harbor to identify

the types of MPs and MPCs of a qualified facility or EST only if the qualified facility or

EST is listed as an “Applicable Project” in the 2023-2025 Safe Harbor Tables. For this

purpose, in the 2023-2025 Safe Harbor Tables with cost percentages, the titles of the

tables (for example, “Updated Table for Solar PV Ground-Mount”) or the column titled

“Applicable Project” may be considered as listing the qualified facility or EST, the column

titled “Applicable Project Component” or “APC” may be considered as listing the types

of MPs within the qualified facility or EST (Listed MPs), and the column titled

“Manufactured Product Component” or “MPC” may be considered as listing the types of

MPCs within the qualified facility or EST (Listed MPCs). In the 2023-2025 Safe Harbor

Tables without cost percentages, the column titled “Applicable Project Component” may

be considered as listing the types of MPs and MPCs within the qualified facility or EST

(Listed MPs and MPCs). 27

(b) Exclusive list. Except as provided in section 4.02(2)(b)(ii) of this notice, a

taxpayer that uses the Identification Safe Harbor with respect to a Listed qualified facility

or EST to identify types of MPs and MPCs must use the Listed MPs and Listed MPCs

as the exclusive and exhaustive list of MPs and MPCs for that purpose. Any MPs or

MPCs contained in the taxpayer’s qualified facility or EST that are not listed in an

applicable 2023-2025 Safe Harbor Table are disregarded for purposes of using the

Identification Safe Harbor. For examples of using the Identification Safe Harbor to help

calculate a Clean Electricity MACR with unlisted but utilized MPs or MPCs that are

27 The definitions provided in Notice 2025-08 for Applicable Project, APC, or MPCs are applicable.

disregarded, see section 4.04(2) and (5) of this notice. The requirements in the

previous sentence apply regardless of whether property listed in the 2023-2025 Safe

Harbor Tables is fully or fractionally owned or shared.

not utilized as an input to the taxpayer’s qualified facility or EST is disregarded for

purposes of using the Identification Safe Harbor. For examples of calculating a Clean

Electricity MACR with listed but unutilized MPs or MPCs, see sections 4.04(1) and (6) of

this notice.

(d) Treatment of steel and iron. A taxpayer using the Identification Safe Harbor

with respect to a Listed qualified facility or EST to identify types of MPs and MPCs

disregards any item that is identified in the applicable table as “Steel/Iron” or a

“Steel/Iron Product.” As described in section 3.01(7)(b) of this notice, any steel or iron

components incorporated into the taxpayer’s qualified facility or EST are disregarded for

purposes of calculating a Clean Electricity MACR.

(e) 80/20 Rule.

(i) In general. A taxpayer that owns a facility that is a qualified facility by virtue

of the 80/20 Rule may be unable to determine the source of any used property that is

part of the facility. Accordingly, a taxpayer disregards any used property for purposes of

using the Identification Safe Harbor for any such facility.

(ii) Partially replaced property. In applying the Identification Safe Harbor to any

facility that is a qualified facility by virtue of the 80/20 Rule, if the facility includes a mix

of new and used property of the same type of Listed MP or Listed MPC, the taxpayer

may not disregard the new property for purposes of using the Identification Safe

Harbor. 28 For example, if a taxpayer replaces some, but not all, used PV modules with

new PV modules in their solar facility that is a qualified facility by virtue of the 80/20 rule,

the taxpayer may not disregard the new PV modules as a Listed MP for purposes of

using the Identification Safe Harbor. See section 4.04(6) of this notice for an example of

using the Identification Safe Harbor with partially replaced property.

(f) Qualified interconnection property. A taxpayer may not use the Identification

Safe Harbor with respect to qualified interconnection property because the 2023-2025

Safe Harbor Tables list only MPs and MPCs for qualified facilities as defined in

§ 48E(b)(3), and qualified interconnection property is not part of a qualified facility as

defined in § 48E(b)(3).

(3) Identification Safe Harbor requirements for eligible components.

(a) In general. A taxpayer may rely upon the Identification Safe Harbor to identify

types of Constituent Materials (as defined in section 3.02(1) of this notice) only if the

eligible component is a Listed eligible component in section 4.01(3)(d) of this notice.

For this purpose, in the 2023-2025 Safe Harbor Tables with cost percentages, the

column titled “Applicable Project Component” or “APC” may be considered as

identifying the eligible component, and the column titled “Manufactured Product

Component” or “MPC” may be considered as identifying the type of Constituent

Materials of the Listed eligible component. In the 2023-2025 Safe Harbor Tables

without cost percentages, the column titled “Applicable Project Component” may be

considered as identifying the types of Constituent Materials of the eligible component. If

28 Except as provided in section 4.02(2)(b)(v) of this notice, for purposes of determining Total Direct Costs

and Total PFE Direct Costs, only costs paid or incurred with respect to new property will be included to

compute the Clean Electricity MACR.

an eligible component is not listed in section 4.01(3)(d) of this notice, then the taxpayer

may not treat the eligible component as a Listed eligible component, and therefore may

not use the Identification Safe Harbor. See section 4.04(3) of this notice for an example

of being unable to use the Identification Safe Harbor.

(b) Exclusive list. Except as provided in section 4.02(3)(b)(ii) of this notice, a

taxpayer that uses the Identification Safe Harbor with respect to a Listed eligible

component to identify Constituent Materials must use the Listed MPCs as the exclusive

and exhaustive list of Constituent Materials. The requirements in the previous sentence

apply regardless of whether property listed in the 2023-2025 Safe Harbor Tables is fully

or fractionally owned or shared.

Listed eligible component is disregarded for purposes of using the Identification Safe

Harbor. For examples of calculating an Eligible Component MACR with listed but

unutilized MPCs, see sections 4.04(2) and (5) of this notice.

(d) Listed eligible components and corresponding Applicable Project

Components.

(i) In general. Subject to section 4.01(3)(d)(ii) of this notice, the following chart

identifies the only 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. If the eligible

component is listed in more than one of the Notice 2025-08 tables, then the taxpayer

must use the table for the Applicable Project that most closely reflects the reasonably

anticipated use of the eligible component.

Eligible Component

Central inverters

§ 45X(c)(2)(B)

Commercial inverters

§ 45X(c)(2)(C)

Distributed wind inverters

§ 45X(c)(2)(D)

Microinverters

§ 45X(c)(2)(E)

Residential inverters

§ 45X(c)(2)(F)

Utility inverters

§ 45X(c)(2)(G)

Solar module

§ 45X(c)(3)(B)(v)

Battery modules using battery cells

§ 45X(c)(5)(B)(iii)

(as described in section 4.01(3)(c)(ii)

of this notice)

Applicable Project Component

(Listed eligible component)

Inverter

PV module

Battery pack/module

(ii) Special requirements for battery modules. Battery modules using battery

cells may be treated as a Listed eligible component upon first meeting the requirements

of § 45X(c)(5)(B)(iii)(I)(aa), (c)(5)(B)(iii)(II), and (c)(5)(B)(iii)(III), notwithstanding when

this transformation occurs in a manufacturing production chain. However, consistent

with the definition of an Applicable Project Component in section 3.01(2)(a) of Notice

2023-38, only battery modules that are “directly incorporated” into a distributed battery

energy storage system or a grid-scale battery energy storage system, as those facilities

are defined in section 7.03(6) and (9) of Notice 2025-08, may be treated as Listed

eligible components under the “Updated Table for Battery Energy Storage System” in

section 7.02 of Notice 2025-08.

.02 Cost Percentage Safe Harbor.

(1) In general.

This section 4.02 describes the Cost Percentage Safe Harbor. A taxpayer may use

the Cost Percentage Safe Harbor to determine Direct Costs, determine PFE Direct

Costs, and calculate the Clean Electricity MACR only if the (i) the taxpayer is using the

Identification Safe Harbor with respect to such qualified facility or EST and (ii) the

qualified facility or EST satisfies the requirements of section 4.02(2) of this notice. A

taxpayer may use the Cost Percentage Safe Harbor to determine Direct Material Costs,

determine PFE Direct Material Costs, and calculate the Eligible Component MACR only

if (i) the taxpayer is using the Identification Safe Harbor with respect to such eligible

component and (ii) the eligible component satisfies the requirements of section 4.02(3)

of this notice. The Cost Percentage Safe Harbor is not used to determine whether an

MP, MPC, or Constituent Material is PFE Produced or PFE Sourced.

(2) Cost Percentage Safe Harbor requirements for qualified facilities or ESTs.

(a) In general. In lieu of determining Direct Costs, determining PFE Direct Costs,

and calculating the Clean Electricity MACR in the manner specified in section 3.01 of

this notice, a taxpayer can instead determine Direct Costs, determine PFE Direct Costs,

and calculate the Clean Electricity MACR by using the Cost Percentage Safe Harbor as

described in section 4.02(2)(c) of this notice.

(b) Specific requirements for using 2023-2025 Safe Harbor Tables.

(i) Exclusive list. Except as provided in section 4.02(2)(b)(ii) and (v) of this

notice, a taxpayer that uses the Cost Percentage Safe Harbor with respect to a Listed

qualified facility or EST must use the Assigned Cost Percentages of the Listed MPs and

Listed MPCs as the exclusive and exhaustive set of costs for that purpose. Any MPs or

MPCs contained in the taxpayer’s qualified facility or EST that are not listed in an

applicable 2023-2025 Safe Harbor Table are disregarded for purposes of using the Cost

Percentage Safe Harbor. For examples of using the Cost Percentage Safe Harbor to

calculate a Clean Electricity MACR with unlisted but utilized MPs or MPCs, see sections

4.04(1) and (6) of this notice. The requirements in this section 4.02(2)(b) apply

regardless of whether property listed in the 2023-2025 Safe Harbor Tables is fully or

fractionally owned or shared.

(ii) Listed but unutilized MPs or MPCs. Any Listed MP or Listed MPC that is not

utilized as an input to the taxpayer’s qualified facility or EST is disregarded for purposes

of using the Cost Percentage Safe Harbor. For examples of calculating a Clean

Electricity MACR with listed but unutilized MPs or MPCs, see sections 4.04(1) and (6) of

this notice.

(iii) Treatment of steel and iron. A taxpayer using the Cost Percentage Safe

Harbor for a Listed qualified facility or EST may disregard any item that is identified in

the applicable table as a “Steel/Iron” or “Steel/Iron Product” for purposes of using this

safe harbor. As described in section 3.01(7)(b) of this notice, any steel or iron

components incorporated into the taxpayer’s qualified facility or EST are disregarded for

purposes of calculating a Clean Electricity MACR.

(iv) Incremental Production Rule. The 2023-2025 Safe Harbor Tables are

designed to provide cost percentages for different types of MPs and MPCs that are

included in an entirely new qualified facility. Using those tables in the context of a

facility which is a qualified facility by virtue of the Incremental Production Rule, which

may consist of only a small fraction of the components that are included in an entire

new qualified facility, can generate results inconsistent with the purpose of the material

assistance rules under § 7701(a)(52). Accordingly, a taxpayer may not use the Cost

Percentage Safe Harbor for any such facility.

(v) 80/20 Rule.

(A) In general. A taxpayer that owns a facility that is a qualified facility by

virtue of the 80/20 Rule may be unable to determine the source of any used property

which is part of the facility. Accordingly, a taxpayer disregards any used property for

purposes of using the Cost Percentage Safe Harbor for any such facility.

(B) Partially replaced property. In applying the Cost Percentage Safe Harbor

to any facility that is a qualified facility by virtue of the 80/20 Rule, a taxpayer must use

the entire Assigned Cost Percentages for Listed MPs and Listed MPCs for any new

property which is part of the facility. For example, if a taxpayer were to replace only 5

out of 9 Blades in a land-based wind facility that is a qualified facility by virtue of the

80/20 Rule, the taxpayer must use the 31.2% Assigned Cost Percentage attributable to

Blades, without adjustment based on partial replacement of the Blades, for purposes of

using the Cost Percentage Safe Harbor. See section 4.04(6) of this notice for an

example of using the Cost Percentage Safe Harbor with partially replaced property.

(vi) Qualified interconnection property. As described in section 4.01(2)(e) of

this notice, a taxpayer may not use the Identification Safe Harbor with respect to

qualified interconnection property. To use the Cost Percentage Safe Harbor, a taxpayer

must also use the Identification Safe Harbor. Accordingly, a taxpayer may not use the

Cost Percentage Safe Harbor with respect to qualified interconnection property.

taxpayer using the Cost Percentage Safe Harbor will calculate a Clean Electricity MACR

using the following steps. For an example of using the Cost Percentage Safe Harbor to

calculate a Clean Electricity MACR, see section 4.04(1) of this notice.

(i) Step one: Identify MPs and MPCs using the Identification Safe Harbor. To

determine the Clean Electricity MACR using the Cost Percentage Safe Harbor, a

taxpayer must first identify MPs and MPCs using the Identification Safe Harbor, as

described in section 4.01(2) of this notice.

(ii) Step two: Track MPs and MPCs. To determine the Clean Electricity MACR

using the Cost Percentage Safe Harbor, a taxpayer must track only whether each MP or

MPC incorporated into the qualified facility or EST was PFE Produced, as described in

section 3.01(3) of this notice.

(iii) Step three: determine Total Percentage. Next, in lieu of determining Direct

Costs and Total Direct Costs in the manner described in section 3.01(4)(a) of this notice,

a taxpayer using the Cost Percentage Safe Harbor determines Total Direct Costs by

summing the Assigned Cost Percentages for each Listed MPC and the Assigned Cost

Percentages for Production of each Listed MP within the Applicable Project (Total

Percentage). The Assigned Cost Percentages for MPs and MPCs listed in the 20232025 Safe Harbor Tables will sum to a Total Percentage of 100% unless the taxpayer

has listed but unutilized MPs or MPCs or the 80/20 Rule applies. 29

(iv) Step four: determine Total PFE Percentage. Then, in lieu of determining PFE

Direct Costs and PFE Total Direct Costs in the manner described in section 3.01(5) of

29 As described in section 4.02(2)(b)(ii) of this notice, the Assigned Cost Percentages for listed but

unutilized MPs or MPCs are disregarded from the determination of a Clean Electricity MACR. See

sections 4.04(1) and (6) of this notice for an example of using the Cost Percentage Safe Harbor to

calculate a Clean Electricity MACR for a facility with listed but unutilized MPs or MPCs. Additionally, as

described in section 4.02(2)(b)(v) of this notice, any used property in a facility that is a qualified facility by

virtue of the 80/20 Rule is disregarded from the determination of a Clean Electricity MACR. See section

4.04(6) of this notice for an example of using the Cost Percentage Safe Harbor to calculate a Clean

Electricity MACR for a facility that is a qualified facility by virtue of the 80/20 rule.

this notice, a taxpayer using the Cost Percentage Safe Harbor determines PFE Total

Direct Costs by summing the Assigned Cost Percentages for each Listed MPC that is

PFE Produced and Assigned Cost Percentages for Production of each Listed MP that is

PFE Produced within the Applicable Project (Total PFE Percentage). If an MP is PFE

Produced, but some or all of the MPCs included in the MP are not PFE Produced, then

the taxpayer includes in the Total PFE Percentage the Assigned Cost Percentages for

Production of the MP plus the Assigned Cost Percentages for each PFE Produced

MPC. If an MP is not PFE Produced, but some or all of the MPCs included in the MP

are PFE Produced, then the taxpayer only includes in the Total PFE Percentage the

Assigned Cost Percentages for the PFE Produced MPCs.

(v) Step five: determine Clean Electricity MACR. After determining the Total

Percentage and Total PFE Percentage, a taxpayer using the Cost Percentage Safe

Harbor determines the Clean Electricity MACR by subtracting the Total PFE Percentage

from the Total Percentage and then dividing that result by the Total Percentage. If the

Clean Electricity MACR is less than the applicable threshold percentage, then the

qualified facility or EST includes material assistance from a PFE.

(3) Cost Percentage Safe Harbor requirements for eligible components.

(a) In general. In lieu of determining Direct Material Costs, determining PFE

Direct Material Costs, and calculating the Eligible Component MACR in the manner

specified in section 3.02 of this notice, a taxpayer can instead 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)(b) and

(b) Specific requirements for using 2023-2025 Safe Harbor Tables for § 45X

eligible components.

(i) Exclusive list. Except as provided in section 4.02(3)(b)(ii) of this notice, a

taxpayer that uses the Cost Percentage Safe Harbor with respect to a Listed eligible

component to determine Direct Material Costs must use the Listed MPCs as the

exclusive and exhaustive set of Constituent Materials for that purpose. Any Constituent

Material contained in the taxpayer’s eligible component which is not listed as an MPC in

the applicable 2023-2025 Safe Harbor Table is disregarded for purposes of using the

Cost Percentage Safe Harbor. For examples of using the Cost Percentage Safe Harbor

to calculate an Eligible Component MACR with unlisted but utilized MPCs, see sections

4.04(2) and (5) of this notice.

(ii) Listed but unutilized MPCs. Any Listed MPC that is not utilized as an input

to the Listed eligible component is disregarded for purposes of using the Cost

Percentage Safe Harbor. For examples of calculating an Eligible Component MACR

with listed but unutilized MPCs, see sections 4.04(2) and (5) of this notice.

taxpayer using the Cost Percentage Safe Harbor will calculate an Eligible Component

MACR using the following steps.

(i) Step one: Identify Constituent Materials using the Identification Safe Harbor.

To determine the Eligible Component MACR using the Cost Percentage Safe Harbor, a

taxpayer must first identify types of Constituent Materials included in the Listed Eligible

Component using the Identification Safe Harbor, as described in section 4.01(3) of this

notice.

(ii) Step two: Track Constituent Materials. To determine the Eligible

Component MACR using the Cost Percentage Safe Harbor, a taxpayer must only track

whether each Constituent Material incorporated into the eligible component was PFE

Sourced, as described in section 3.02(5) of this notice.

(iii) Step three: determine Total Percentage. Next, in lieu of determining Direct

Material Costs and Total Direct Material Costs in the manner described in section

3.02(4)(a) of this notice, a taxpayer using the Cost Percentage Safe Harbor determines

Total Direct Material Costs by summing the Assigned Cost Percentages for each Listed

MPC included in the Listed eligible component (Total Percentage).

(iv) Step four: determine Total PFE Percentage. Then, in lieu of determining

PFE Direct Material Costs and PFE Total Direct Material Costs in the manner described

in section 3.02(5) of this notice, a taxpayer using the Cost Percentage Safe Harbor

determines PFE Total Direct Material Costs by summing the Assigned Cost Percentages

for each Listed MPC that is PFE Sourced and included in the Listed eligible component

(Total PFE Percentage).

(v) Step five: determine Eligible Component MACR. After determining the Total

Percentage and Total PFE Percentage, the taxpayer will determine the Eligible

Component MACR by subtracting the Total PFE Percentage from the Total Percentage

and then dividing that result by the Total Percentage. If the Eligible Component MACR

is less than the applicable threshold percentage, then the eligible component includes

material assistance from a PFE.

.03 Certification Safe Harbor.

(1) In general.

This section 4.03 describes the Certification Safe Harbor. In lieu of determining

Direct Costs or Direct Material Costs and PFE Direct Costs or PFE Direct Material

Costs in the manners specified in sections 3.01(4)(a), 3.02(4)(a), 3.01(5)(a) and (c), and

3.02(5)(a) and (c) of this notice, a taxpayer can instead determine Direct Costs or Direct

Material Costs by using the Certification Safe Harbor as described in section 4.03(2) of

this notice. In addition, in lieu of determining whether MPs and MPCs are PFE

Produced or Constituent Materials are PFE Sourced in the manners specified in

sections 3.01(5)(b) and 3.02(5)(b) of this notice, a taxpayer can instead determine

whether MPs and MPCs are PFE Produced or Constituent Materials are PFE Sourced

by using the Certification Safe Harbor as described in section 4.03(2) of this notice.

(2) Requirements to be a valid certification.

(a) In general. The certifications described in section 4.03(2)(b) of this notice

must be prepared in a manner consistent with § 1.45X-4(c)(4)(i), meaning that any

certifications must be attached to Form 7211, Clean Electricity Production Credit; Form

3468, Investment Credit; Form 7207, Advanced Manufacturing Production Credit; or any

other applicable form for claiming a § 45Y, 48E, or 45X credit filed with the taxpayer’s

annual return submitted to the IRS for the first taxable year in which the taxpayer claims

a credit for a qualified facility, EST, or eligible component. See section 2.05 of this

notice for rules regarding substantiation under § 6001. Additionally, under

§ 7701(a)(52)(D)(iii)(IV), any certification, 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.

(b) Requirements for Certification Safe Harbor. The direct supplier may certify

either (1) the total direct costs to the taxpayer or the total direct material costs paid or

incurred by the taxpayer, as applicable, of such MP, MPC, eligible component, or

Constituent Material that was not PFE Produced or PFE Sourced, as applicable, or (2)

that such MP, MPC, eligible component, or Constituent Material was not PFE Produced

or PFE Sourced, as applicable. See sections 4.04(4) and (5) of this notice for examples

applying the Certification Safe Harbor.

section 4.03(2)(b) for the purposes described in section 4.03(1) of this notice unless the

taxpayer knows or has reason to know that such certification is inaccurate. Where the

taxpayer knows (or has reason to know) that an MP, MPC, eligible component, or

Constituent Material was PFE Produced or PFE Sourced the taxpayer must treat all

direct costs or direct material costs, as applicable, with respect to such property as PFE

Produced or PFE Sourced.

.04 Examples.

The provisions of this section are illustrated by the following examples. In each

example, assume that the taxpayer uses the calendar year as the taxpayer’s taxable

year.

(1) Example 1: calculating Clean Electricity MACR using the Identification Safe

Harbor and Cost Percentage Safe Harbor.

(a) In taxable year 2026, Taxpayer D purchases a 50-megawatt direct current

ground-mounted PV (tracker) (Facility) and places the Facility in service. Construction

of the Facility began in calendar year 2026. Under § 7701(a)(52)(B)(i)(I), the Facility

includes material assistance from a PFE if the Clean Electricity MACR with respect to

the Facility is less than 40%. Taxpayer D would like to use the Identification Safe

Harbor and the Cost Percentage Safe Harbor to calculate a Clean Electricity MACR and

determine whether its Facility includes material assistance from a PFE.

(b) Taxpayer D first uses the identification Safe Harbor to identify MPs and

MPCs. Taxpayer D identifies the Applicable Project in the Notice 2025-08 Table for

“Updated Table for Solar PV Ground-Mount,” that corresponds to the Facility. Taxpayer

D disregards the table rows for Steel pile or Steel ground screw and Steel or Iron

reinforcing products in foundation and identifies 3 MPs in the column for Ground-mount

(Tracking): PV modules (65.8%), Inverters (5.5%), and PV trackers (28.7%). The

Facility’s PV modules do not include Bypass Diodes (0.4%) (that is, listed but

unutilized), but do include heat sensors (that is, unlisted but utilized).

the previous step was PFE Produced. With respect to the PV modules’ MPCs,

Taxpayer D knows that only the cells were PFE Produced; no additional Listed MPCs

incorporated into the PV Modules were PFE Produced. With respect to the PV modules

as an MP, Taxpayer D also knows that the PV modules were not PFE Produced.

Additionally, Taxpayer D knows that the inverters and PV trackers, including each of the

Listed MPCs within the inverters and PV trackers that were incorporated into the

inverters and PV trackers, were not PFE Produced.

(d) Taxpayer D then uses the Cost Percentage Safe Harbor to aggregate the

Assigned Cost Percentages and determine a Total Percentage. Taxpayer D sums the

Assigned Cost Percentages for each of the identified MPs, disregarding Bypass Diodes,

to determine a Total Percentage of 99.6% (65.8% + 5.5% + 28.7% - 0.4%) (Total

Percentage).

(e) Taxpayer D next uses the Cost Percentage Safe Harbor to aggregate the

Assigned Cost Percentages attributable to PFE Produced MPs and MPCs and

determines a Total PFE Percentage. The Assigned Cost Percentage for the only PFE

Produced MP or MPC is 38.0% for the PFE Produced Cells (Total PFE Percentage).

(f) Taxpayer D calculates the Clean Electricity MACR of the Facility, disregarding

Bypass Diodes and heat sensors, as follows: (99.6% [Total Percentage] – 38.0% [Total

PFE Percentage]) / 99.6% [Total Percentage] = 61.8%. The Clean Electricity MACR of

61.8% is not less than the applicable threshold percentage (40%).

Clean Electricity MACR

Total Percentage

99.6%

Total PFE Percentage

38.0%

Eligible Component MACR

61.8%

99.6% - 38.0%

= 61.8%

99.6%

Total Percentage - Total PFE Percentage

= Eligible Component MACR

Total Percentage

(g) Taxpayer D’s Facility does not include material assistance from a PFE and,

therefore, § 48E(b)(6) does not prohibit Taxpayer D from claiming the credit under § 48E

for the Facility.

(2) Example 2: calculating Eligible Component MACR using the Identification Safe

Harbor and the Cost Percentage Safe Harbor.

(a) In taxable year 2026, Taxpayer E produces and sells 100 solar modules

(within the meaning of § 45X(c)(3)(B)(v)) (Solar Modules) to an unrelated person.

Under § 7701(a)(52)(C)(i)(I)(aa), the Solar Modules include material assistance from a

PFE if the Eligible Component MACR with respect to the Solar Modules is less than

50%. Taxpayer E would like to use the Identification Safe Harbor and the Cost

Percentage Safe Harbor to calculate an Eligible Component MACR and determine

whether its Solar Modules include material assistance from a PFE.

(b) Taxpayer E determines the Solar Modules may be treated as a Listed eligible

component by relying on section 4.01(3)(d)(i) of this notice, which identifies solar

modules as defined in § 45X(c)(3)(B)(v) as a Listed eligible component. As a result,

Taxpayer E may use the Identification Safe Harbor to identify Constituent Materials and

use the Assigned Cost Percentages of the MPCs listed for PV module to determine

Total Direct Material Costs. Taxpayer E finds that PV module is a Listed eligible

component in two separate Notice 2025-08 tables: “Updated Table for Solar PV GroundMount” and the “Updated Table for Solar PV Rooftop”. Taxpayer E knows that the Solar

Modules do not have domestic c-Si PV Cells or domestic wafers and will be used in a

Solar PV Ground-mount (Tracking) and so must use the column “Ground-mount

(Tracking)” to identify Assigned Cost Percentages for the Solar Modules. A PV module

identified in the “Ground-mount (Tracking)” column of the “Updated Table for Solar PV

Ground-Mount” consists of 10 MPCs: Cells (38.0%), Frame/Backrail (6.0%), Front Glass

(6.0%), Encapsulant (3.8%), Backsheet/Backglass (3.8%), Junction Box (1.0%), Edge

Seals (0.3%), Pottants (0.3%), Bus Ribbons (1.5%), and Bypass Diodes (0.4%). The

Solar Modules do not include Bypass Diodes (that is, listed but unutilized), but do

include heat sensors (that is, unlisted but utilized). In addition to these MPCs and

Assigned Cost Percentages, the Ground-mount (Tracking) column provides that

Production of a PV module for such an Applicable Project has an Assigned Cost

Percentage of 4.7%.

step was PFE Sourced. Taxpayer E knows that 800 out of 1000 Cells incorporated in

each Solar Module were PFE Sourced and that no additional Constituent Materials

incorporated into the Solar Modules and listed as an MPC in the “Updated Table for

Solar PV Ground-Mount” for a PV module were PFE Sourced.

(d) Taxpayer E then uses the Cost Percentage Safe Harbor to aggregate

Assigned Cost Percentages and determine a Total Percentage and Total PFE

Percentage. Taxpayer E sums the Assigned Cost Percentages for each of the MPCs

listed within the PV Module, plus Production of the PV Module, disregarding Bypass

Diodes and heat sensors, to determine a Total Percentage of 65.4% (38.0% + 6.0% +

6.0% + 3.8% + 3.8% + 1.0% + 0.3% + 0.3% + 1.5% + 0.4% + 4.7% - 0.4%).

(e) To determine Total PFE Percentage, Taxpayer E determines the Assigned

Cost Percentage attributable to the PFE Sourced Cells by multiplying the Assigned Cost

Percentage for Cells (38.0%) by the percentage of such Cells that were PFE Sourced

(800 out of 1000 = 80%), which equals 30.4% (Total PFE Percentage).

(f) Taxpayer E calculates the Eligible Component MACR as follows: (65.4% [Total

Percentage] – 30.4% [Total PFE Percentage]) / 65.4% [Total PFE Percentage] = 53.5%.

The Eligible Component MACR of 54.0% is not less than the applicable threshold

percentage (50%).

Eligible Component MACR

Total Percentage

65.4%

Total PFE Percentage

30.4%

Eligible Component MACR

53.5%

65.4% - 30.4%

= 53.5%

65.4%

Total Percentage – Total PFE Percentage

= Eligible Component MACR

Total Percentage

(g) Taxpayer E’s Solar Modules do not include material assistance from a PFE,

and thus satisfy the requirements of § 45X(c)(1)(C), therefore, § 45X(c)(1)(C) does not

prohibit Taxpayer E from claiming the credit under § 45X for the Solar Modules.

(3) Example 3: unable to rely on the Cost Percentage Safe Harbor.

(a) In taxable year 2026, Taxpayer F produces and sells 100 PV cells to an

unrelated person (PV Cells). Under § 7701(a)(52)(C)(i)(I)(aa), the PV Cells include

material assistance from a PFE if the Eligible Component MACR with respect to the PV

Cells is less than 50%. Taxpayer F would like to use the Identification Safe Harbor and

the Cost Percentage Safe Harbor to calculate an Eligible Component MACR and

determine whether its PV Cells include material assistance from a PFE.

(b) Taxpayer F first uses the Identification Safe Harbor to identify Constituent

Materials. To determine whether a PV cell may be treated as a Listed eligible

component, Taxpayer F determines whether a PV cell that is an eligible component

under § 45X(c)(3)(A)(ii) may be treated as a Listed eligible component under section

4.01(3)(d)(i) of this notice. A PV cell that qualifies as an eligible component under

§ 45X(c)(3)(A)(ii) is not listed in section 4.01(3)(d)(i) of this notice, and so Taxpayer F

may not treat the PV Cells as a Listed eligible component. Because a PV Cell may not

be treated as a Listed eligible component, Taxpayer F is unable to rely on the

Identification Safe Harbor to identify Constituent Materials or the Cost Percentage Safe

Harbor to calculate an Eligible Component MACR for the PV Cells and determine

whether its PV Cells include material assistance from a PFE.

provided in section 3.02 of this notice to calculate the Eligible Component MACR.

(4) Example 4: calculating Clean Electricity MACR using the Identification Safe

Harbor and the Certification Safe Harbor.

(a) Assume the same facts provided in Example 1, except that Taxpayer D

decides to rely on the Identification Safe Harbor and the Certification Safe Harbor,

instead of the Cost Percentage Safe Harbor, to calculate a Clean Electricity MACR and

determine whether its Facility includes material assistance from a PFE.

(b) Taxpayer D first identifies the Facility as an Applicable Project in the Notice

2025-08 Table for “Updated Table for Solar PV Ground-Mount”. The Facility’s PV

modules do not include Bypass Diodes (that is, listed but unutilized), but do include heat

sensors (that is, unlisted but utilized). Taxpayer D disregards the table rows for

Applicable Project Components categorized as Steel/Iron, disregards Bypass Diodes

and heat sensors, and identifies the following MPs for the Applicable Project Solar PV

Ground-mount (Tracking): PV tracker, PV module (which includes the following MPCs:

Cells, Frame/Backrail, Front Glass, Encapsulant, Backsheet/Backglass, Junction Box,

Edge Seals, Pottants, and Bus Ribbons), and Inverter.

the sum of Taxpayer D’s Direct Costs attributable to the MPs identified is $3,000 (Total

Direct Costs). Of the $3,000 in Total Direct Costs, $2,400 is attributable to the PV

modules, and the PV tracker and inverter account for the remaining $600 of the Total

Direct Costs.

(d) Taxpayer D obtains a certification from each supplier of the Facility’s identified

MPs. Taxpayer D does not know or have reason to know that any of the certifications

are inaccurate.

(e) The supplier of the PV modules certifies that Taxpayer D’s Direct Costs for

such PV modules, including MPCs, that were not produced or manufactured by a PFE,

is $1,320. Accordingly, Taxpayer D treats $1,080 of its Total Direct Costs for the PV

modules as attributable to production by a PFE ($2,400 - $1,320).

(f) The supplier of the inverters and the supplier of the PV trackers each certify

that such MPs were not produced or manufactured by a PFE and that the supplier does

not know (or have reason to know) that a prior supplier of any MPC in the chain of

production of such MPs is a PFE. Accordingly, Taxpayer D treats $0 of its Direct Costs

for the PV tracker and inverter as attributable to production by a PFE ($600 - $600).

Taxpayer D determines PFE Total Direct Costs of $1,080 by adding its Direct Costs for

the PV modules that are attributable to production by a PFE and its Direct Costs for the

PV tracker and inverter that are attributable to production by a PFE ($1,080 + $0).

(g) Taxpayer D calculates the Clean Electricity MACR as follows: ($3,000 [Total

Direct Costs] - $1,080 [PFE Total Direct Costs]) / $3,000 [Total Direct Costs] = 64%.

The Clean Electricity MACR of 64% is not less than the applicable threshold percentage

(40%).

Clean Electricity MACR

Total Direct Costs

$3,000

PFE Total Direct Costs

$1,080

Clean Electricity MACR

64%

$3,000 - $1,080

= 64.0%

$3,000

Total Direct Costs - Total PFE Direct Costs

= Clean Electricity MACR

Total Direct Costs

(h) Taxpayer D’s Facility does not include material assistance from a PFE and

thus satisfies the requirements of § 48E(b)(6), therefore, § 48E(b)(6) does not prohibit

Taxpayer D from claiming the credit under § 48E for the Facility.

(5) Example 5: calculating Eligible Component MACR using the Identification Safe

Harbor and the Certification Safe Harbor.

(a) Assume the same facts provided in Example 2, except that Taxpayer E

decides to rely on the Identification Safe Harbor and the Certification Safe Harbor,

instead of the Cost Percentage Safe Harbor, to calculate an Eligible Component MACR

and determine whether its Solar Modules include material assistance from a PFE.

(b) Taxpayer E uses the Notice 2025-08 Table for “Updated Table for Solar PV

Ground-Mount” to identify the Constituent Materials of the Listed eligible component.

The Solar Modules do not include Bypass Diodes (that is, listed but unutilized), but do

include heat sensors (that is, unlisted but utilized). Taxpayer E disregards Bypass

Diodes and heat sensors. Taxpayer E identifies the following Constituent Materials:

Cells, Frame/Backrail, Front Glass, Encapsulant, Backsheet/Backglass, Junction Box,

Edge Seals, Pottants, and Bus Ribbons.

E’s Direct Material Costs attributable to the identified Constituent Materials is $2,000

(Total Direct Material Costs).

(d) Taxpayer E obtains certifications from each direct supplier of the identified

Constituent Materials. Taxpayer E does not know or have reason to know that the

certifications are inaccurate.

(e) The direct suppliers of the Constituent Materials certify that Taxpayer E’s total

direct material costs for such Constituent Materials that were not produced or

manufactured by a PFE is $900. Accordingly, Taxpayer E treats $1,100 of its Total

Direct Material Costs as attributable to Constituent Materials that are PFE Sourced

($2,000 - $900) (PFE Total Direct Material Costs).

(f) Taxpayer E calculates the Eligible Component MACR as follows: ($2,000

[Total Direct Material Costs] – $1,100 [PFE Total Direct Material Costs]) / $2,000 [Total

Direct Material Costs] = 45%. The Eligible Component MACR of 45% is less than the

applicable threshold percentage (50%).

Eligible Component MACR

Total Direct Material Costs

$2,000

PFE Total Direct Material Costs

$1,100

Eligible Component MACR

45%

$2,000 - $1,100

= 45.0%

$2,000

Total Direct

PFE Total

Material Costs Direct Material Costs = Eligible Component MACR

Total Direct Material Costs

(g) Taxpayer E’s Solar Modules include material assistance from a PFE and thus

do not satisfy the requirements of § 45X(c)(1)(C), therefore, § 45X(c)(1)(C) prohibits

Taxpayer E from claiming the credit under § 45X for the Solar Modules.

(6) Example 6: calculating Clean Electricity MACR using the Identification Safe

Harbor and the Cost Percentage Safe Harbor for a qualified facility that meets the 80/20

Rule.

(a) In taxable year 2026, Taxpayer G partially replaced the PV modules in an

existing 100-megawatt direct current ground-mounted PV (tracking) and installed new

corresponding PV trackers (Facility). Taxpayer G retained the existing inverters and PV

trackers and PV modules that were not replaced. The fair market value of the used

property is not more than 20 percent of the Facility’s total value (calculated by adding

the cost of the new property to the value of the used property). Taxpayer G placed the

Facility into service in 2026. Under § 7701(a)(52)(B)(i)(I), the Facility includes material

assistance from a PFE if the Clean Electricity MACR with respect to the Facility is less

than 40%. Taxpayer G would like to use the Identification Safe Harbor and the Cost

Percentage Safe Harbor to calculate a Clean Electricity MACR and determine whether

its Facility includes material assistance from a PFE.

(b) Taxpayer G first uses the Identification Safe Harbor to identify MPs and

MPCs. Taxpayer G identifies the Facility as an Applicable Project in the Notice 2025-08

Table for “Updated Table for Solar PV Ground-Mount.” Taxpayer G disregards the table

rows for Steel pile or Steel ground screw and Steel or Iron reinforcing products in

foundation and identifies 3 MPs in the column for Ground-mount (Tracking): PV

modules (65.8%), Inverters (5.5%), and PV trackers (28.7%). The “Updated Table for

Solar PV Ground-Mount” identifies a PV module as consisting of 10 MPCs, identified in

the column for Ground-mount (Tracking): Cells (38.0%), Frame/Backrail (6.0%), Front

Glass (6.0%), Encapsulant (3.8%), Backsheet/Backglass (3.8%), Junction Box (1.0%),

Edge Seals (0.3%), Pottants (0.3%), Bus Ribbons (1.5%), and Bypass Diodes (0.4%).

The same table identifies a PV Tracker as consisting of 7 MPCs, identified in the column

for Ground-mount (Tracking): Torque tube (11.0%), Structural Fasteners (0.4%), Drive

System (1.9%), Dampers (0.5%), Actuator (2.8%), Controller (0.7%), and Rails (2.0%).

In addition to these MPCs and Assigned Cost Percentages, the Ground-mount

(Tracking) column provides that Production of a PV module for such an Applicable

Project has an Assigned Cost Percentage of 4.7% and that Production of a PV Tracker

has an Assigned Cost Percentage of 9.4%.

the previous step was PFE Produced. Multiple new PV modules were incorporated into

the Facility. Taxpayer G knows that during taxable year 2026, 6 out of 10 new PV

modules (and all of their constituent MPCs) were PFE produced, and that the remaining

4 out of 10 new PV modules (and all of their constituent MPCs) were not PFE produced.

Additionally, Taxpayer G knows that the new PV trackers were PFE Produced, and that,

of the identified MPCs for a PV tracker, only the new Rails were PFE Produced.

(d) Taxpayer G next uses the Cost Percentage Safe Harbor to aggregate the

Assigned Cost Percentages and determine a Total Percentage. Even though Taxpayer

G only partially replaced the Facility’s PV Modules and accompanying PV Trackers,

because the Facility is a qualified facility by virtue of the 80/20 rule, Taxpayer G uses

the Assigned Cost Percentages without adjustment to determine a Total Percentage and

Total PFE Percentage. Taxpayer G sums the Assigned Cost Percentages for each of

the identified MPs, disregarding the Inverters (which are entirely used property), to

determine a Total Percentage of 94.5% (65.8% + 28.7% + 5.5% - 5.5%).

(e) Taxpayer G next uses the Cost Percentage Safe Harbor to aggregate the

Assigned Cost Percentages attributable to PFE Produced MPs and MPCs and

determine a Total PFE Percentage. To determine Total PFE Percentage, Taxpayer G

determines the Assigned Cost Percentage attributable to the PFE Produced new PV

modules by multiplying the Assigned Cost Percentage for PV modules (65.8%) by the

percentage of such PV modules, including MPCs, that were PFE Produced (6 out of 10

= 60%), which equals 39.5%. Taxpayer G adds the Assigned Cost Percentage

attributable to the PFE Produced new PV modules (39.5%) to the Assigned Cost

Percentages attributable to production of the new PV Trackers by a PFE (9.4%) and the

PFE Produced new Rails (2.0%) to equal a Total PFE Percentage of 50.9% (39.5% +

9.4% + 2.0%).

(f) Taxpayer G calculates the Clean Electricity MACR of the Facility as follows:

(94.5% [Total Percentage] - 50.9% [Total PFE Percentage]) / 94.5% [Total Percentage] =

46.1%. The Clean Electricity MACR of 46.1% is not less than the applicable threshold

percentage (40%).

Clean Electricity MACR

Total Percentage

94.5%

Total PFE Percentage

50.9%

Clean Electricity MACR

46.1%

94.5% - 50.9%

= 46.1%

94.5%

Total Percentage – Total PFE Percentage

= Clean Electricity MACR

Total Percentage

(g) Taxpayer G’s Facility does not include material assistance from a PFE and

thus satisfies the requirements of § 48E(b)(6), therefore, § 48E(b)(6) does not prohibit

Taxpayer G from claiming the credit under § 48E for the Facility.

SECTION 5. CERTAIN PFE RESTRICTIONS

This section describes rules that the Treasury Department and the IRS expect to

include in the forthcoming proposed regulations for determining the application of

certain PFE restrictions.

.01 Application of Foreign-Influenced Entity Rules.

Effective control is determined independently under each provision of

§ 7701(a)(51)(D)(ii)(III)(aa)(AA) through (GG). A specified foreign entity (or an entity

related to such specified foreign entity) is determined to exercise effective control for

purposes of § 7701(a)(51)(D)(i)(II) as a result of any contract, agreement, or other

arrangement under § 7701(a)(51)(D)(ii)(III)(aa) that fulfills any one of

§ 7701(a)(51)(D)(ii)(III)(aa)(AA) through (GG). For example, under

§ 7701(a)(51)(D)(ii)(III)(aa)(GG), if a taxpayer makes a payment to a specified foreign

entity under a licensing agreement for the provision of intellectual property with respect

to a qualified facility, and such agreement was entered into or modified on or after July

4, 2025, the specified foreign entity would be exercising effective control over the

taxpayer’s qualified facility and the taxpayer would be considered a foreign-influenced

entity.

.02 Establishment of rules to prevent entities from evading, circumventing, or

abusing the application of the PFE restrictions.

Pursuant to the grants of authority provided to the Secretary under § 7701(a)(51)(D)

and (K), the Treasury Department and the IRS intend to propose regulations to prevent

entities from evading, circumventing, or abusing the application of restrictions with

respect to PFEs under § 7701(a)(51), including rules to prevent such evasion,

circumvention, or abuse through transfers or alterations of rights, property, or both,

including transfers or alterations resulting in lapses of restricted foreign ownership or

control that are temporary in nature.

SECTION 6. GLOSSARY OF CERTAIN TERMS USED IN THIS NOTICE

Term

2023-2025 Safe

Harbor Tables

Definition

Collectively, the tables provided in sections 5.05, 5.06, 6.02, and

7.02 of Notice 2025-08 (Notice 2025-08 Tables), section 3.02 in

Notice 2024-41 for a Hydropower Facility, or a Pumped

Hydropower Storage Facility, and section 3.04 in Notice 2023-38

for an Offshore Wind Facility.

80/20 Rule

Sections 1.45Y-4(d)(1) and 1.48E-4(c)(1) provide that a qualified

facility or EST, as applicable, may qualify as originally placed in

service even if it contains some used components of property

within the unit of qualified facility, provided the fair market value of

the used components of the unit of qualified facility or EST is not

more than 20 percent of the total value of the unit of qualified

facility (that is, the cost of the new components of property plus

the fair market value of the used components of property within

the unit of qualified facility).

Assigned Cost

Percentages

The associated cost percentages for each of the identified MPs

and MPCs that may be found in the identified Applicable Projects.

Average Costs

The average of the Direct Costs of MPs and MPCs of the same

type that were incorporated into ESTs that were placed in service,

or the average of the Direct Material Costs of Constituent

Materials incorporated in or consumed in the production of

eligible components produced in the same specified period of

time.

Clean Electricity

MACR

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 (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 manufactured products

(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 (aa).

Constituent

Materials

Constituent elements, materials, or subcomponents of the eligible

component that are considered direct materials costs under §

1.263A-1(e)(2)(i)(A).

Direct Costs

The taxpayer’s direct costs attributable to the MPs (including

MPCs) included in the qualified facility or EST.

Direct Material

Costs

The total costs of a Constituent Material that is paid or incurred

(within the meaning of § 461 and any regulations issued under

§ 263A) by the taxpayer for the production of an eligible

component.

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).

Domestic Content

Requirement

Eligible

Component

MACR

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 (aa).

EST

Energy storage technology.

Incremental

Production Rule

Section 45Y(b)(1)(C) provides that the term “qualified facility”

includes a new unit or additions of capacity placed in service after

December 31, 2024, in connection with an existing facility used

for the generation of electricity with a greenhouse gas emissions

rate not greater than zero that was placed in service before

January 1, 2025, but only to the extent of the increased amount

of electricity produced at the facility by reason of such new unit or

additions of capacity.

Listed eligible

component

An eligible component listed as an Applicable Project Component

in the 2023-2025 Safe Harbor Tables.

Listed MPs

In the 2023-2025 Safe Harbor Tables with cost percentages, the

column titled “Applicable Project Component” or “APC” may be

considered as identifying the types of MPs within the qualified

facility or EST.

Listed MPCs

In the 2023-2025 Safe Harbor Tables with cost percentages, the

column titled “Manufactured Product Component” or “MPC” may

be considered as identifying the types of MPCs within the

qualified facility or EST.

Listed MPs and

MPCs

In the 2023-2025 Safe Harbor Tables without cost percentages,

the column titled “Applicable Project Component” may be

considered as identifying the types of MPs and MPCs within the

qualified facility or EST

Listed qualified

facility or EST

A qualified facility or EST listed as an Applicable Project in the

2023-2025 Safe Harbor Tables.

MACR

Material assistance cost ratio.

Manufactured product.

MPC

Manufactured product component.

PFE

Prohibited foreign entity.

PFE Direct Costs

The Direct Costs attributable to the each of the identified MPs

and MPCs that were PFE Produced.

The Direct Material Costs attributable to each PFE Sourced

Constituent Material.

An MP or MPC mined, manufactured, or produced by a PFE.

PFE Direct

Material

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