What are the new FEOC rules for solar developers and manufacturers?
For purposes of the solar industry, the FEOC rule prevents projects that use too many Chinese components from claiming federal investment tax credits under sections 45Y and 48E. It also prevents US manufacturers that use too many Chinese components from benefitting from section 45X credits.
Components from other designated foreign entities are affected too, but Chinese-made products are most likely to affect the solar industry. Other prohibited entities are Russia, North Korea, and Iran.
The calculation for “too many” components is below. The percentage of non-FEOC labor and materials must be at least 40 percent for power projects beginning construction in 2026. The percentage will step up, hitting a requirement of 60 percent in 2029.
Storage projects must be at least 55 percent non-FEOC for projects beginning construction this year, with an increase to 75 percent in 2029. 1
Who do the new FEOC rules apply to?
FEOC regulations apply to any taxpayer seeking to claim clean energy tax credits beginning in the 2026 tax year. Solar-specific tax credits that are affected are the 45Y Clean Energy Production Credit (PTC), 48E Clean Energy Investment Credit (ITC), and 45X Advanced Manufacturing Production Credit.
Solar developers or manufacturers that are identified to be foreign entities or foreign-influenced entities will be ineligible for tax credits, even if their products are sourced from non-FEOC countries. This
includes companies that are more than half owned by a prohibited foreign entity. It also includes companies that grant effective control to a prohibited foreign entity.
Companies that operate under Chinese technology licenses or that have Chinese investments are now also in violation of FEOC rules and are not eligible for US clean energy tax credits. Companies with Chinese shareholders or debt held by Chinese lenders may also be ineligible. 2
Are the OBBBA’s FEOC rules already in effect?
The OBBBA established the start date for FEOC enforcement as “tax years beginning after July 4, 2025.” In other words, for calendar-year taxpayers, January 1, 2026.
Projects that established a beginning construction date before December 31, 2025 were safe harbored and do not need to meet the new FEOC requirements to qualify for clean energy tax credits.
Projects with a beginning construction date AFTER December 31, 2025 that don’t meet the FEOC rules will not be eligible for 45Y, 45X, or 48E tax credits.
Has the Treasury issued FEOC guidelines?
Initial guidance from the US Treasury department is expected any day for FEOC rules. Without that guidance, there is uncertainty around the definitions of “material assistance,” “payment restrictions,” and “effective control.” Note that after the Inflation Reduction Act was passed in 2022, it took about 20 months for final 30D FEOC guidance to be released.
The IRS is expected publish new safe harbor tables for calculating non-FEOC labor and materials percentages by December 31, 2026. In the meantime, solar developers can use cost percentages in the published domestic content safe harbor tables (IRS Notice 2025-08). Taxpayers should maintain all documentation.
What are developers and manufacturers doing to comply with FEOC?
According to a survey by tech company Crux, most clean energy developers and manufacturers are already taking steps to ensure FEOC compliance. This includes auditing contracts, mapping supply chains, and reviewing ownership. Still, the same survey found only about a third of companies feel “fully prepared” for 2026. 3
What happens if a taxpayer claims a clean energy tax credit but is not FEOC-compliant?
There are substantial financial penalties for taxpayers and corporations that violate the FEOC restrictions and claim clean energy tax credits. The IRS will have six years after a return is filed to challenge whether a project benefitted form material assistance from a specified foreign entity.
Additionally, if the taxpayer makes any payments under contracts that grant a foreign entity effective control any time in the following 10 years, the full tax credit amount must be repaid.
How to ensure solar projects are FEOC compliant?
It may be tricky to identify interactions with foreign entities or foreign-influenced entities that would put a project or company in violation of FEOC regulations. As always, consult an attorney or tax adviser.
When sourcing materials or project equipment, ensure you have identified their level of FEOC compliance. Sourcing domestically manufactured content from American companies is generally the safest way to ensure full FEOC compliance.
Kinect Solar has solar equipment that complies with all FEOC standards, in stock and ready to ship. Additionally, we are an Austin, Texas-based company without ties to specified foreign entities. Our solar experts can assist with procurement and project strategies to maintain FEOC compliance and maximize available clean energy tax credits.
Has the Treasury issued FEOC guidelines?
Initial guidance from the US Treasury department is expected any day for FEOC rules. Without that guidance, there is uncertainty around the definitions of “material assistance,” “payment restrictions,” and “effective control.” Note that after the Inflation Reduction Act was passed in 2022, it took about 20 months for final 30D FEOC guidance to be released.
The IRS is expected publish new safe harbor tables for calculating non-FEOC labor and materials percentages by December 31, 2026. In the meantime, solar developers can use cost percentages in the published domestic content safe harbor tables (IRS Notice 2025-08). Taxpayers should maintain all documentation.
Sources and recommended reading
- https://www.projectfinance.law/publications/2025/july/working-through-the-feoc-maze/
- https://www.solarpowerworldonline.com/2025/12/feoc-rules-could-change-solar-panel-brand-trends-in-united-states/
- https://www.solarpowerworldonline.com/2025/12/feoc-rules-could-change-solar-panel-brand-trends-in-united-states/
- Posted in Regulation, Uncategorized
- Tagged in Industry Update, Solar Policy, solar tariffs