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Recent IRS guidance, Notice 2026-15, clarifies how to calculate the
“material assistance cost ratio” or “MACR” for
clean energy component manufacturers seeking to claim the Section
45X advanced manufacturing production tax credit
(“45X”).

We addressed Notice 2026-15 (the “MACR guidance”) in a
previous alert as it applied to the Section
48E investment tax credit (“ITC”) and Section 45Y
production tax credit (“PTC”), key federal tax credits
for qualified clean energy facilities (e.g., solar, wind,
hydroelectric, geothermal, and more) and energy storage projects
(batteries, thermal storage, and hydrogen storage).

This article addresses the MACR guidance specifically as it
applies to 45X, which establishes a production tax credit for
several clean energy facility components and other materials
manufactured or produced in the United States and sold by the
taxpayer to unrelated parties. Creditable components, equipment,
and materials include solar, wind, and battery components,
inverters, electrode active materials, offshore wind vessels, and
several critical minerals. For a complete list, and more background
on 45X, see our previous post.

Introduction

The recently enacted, so-called “One Big Beautiful Bill
Act” (“OBBBA”) imposed prohibited foreign entity
(“PFE”) restrictions (colloquially known as the FEOC
(foreign entity of concern) restrictions) on several tax credits,
including 45X. As with other tax credits, such as the ITC and PTC,
45X precludes taxpayers from credit eligibility if they are deemed
to be PFEs themselves or receive “material assistance”
from PFEs.

The MACR guidance primarily addresses “material
assistance.” Material assistance refers to a set of
requirements and percentage thresholds the OBBBA sets for
incorporating non-PFE components and materials into 45X goods.
Falling below the OBBBA thresholds (i.e., incorporating PFE
components or materials into 45X goods) can result in serious
consequences, including loss of the 45X credits.

The OBBBA refers to the percentage of
non-PFE costs as the “material
assistance cost ratio” or “MACR.” The MACR guidance
addresses how to calculate the “Eligible Component” MACR
for 45X goods. “Eligible Components” refer to creditable
45X goods identified in the statute.

As mentioned in our previous alert, the MACR guidance is largely
silent on other PFE requirements in the OBBBA, including what it
means to be a PFE in the first place as well as the 10-year
recapture rules. The MACR guidance leaves those other PFE
requirements to be potentially addressed in future proposed
regulations.

IRS is soliciting comments on the MACR guidance by March
30, 2026. Thoughtful stakeholder engagement will be
critical to developing workable PFE rules for 45X and the other
credits to which the PFE restrictions apply.

Calculating the Eligible Component MACR in Five
Steps

At its core, calculating the Eligible Component MACR (the
percentage of non-PFE costs in 45X eligible components) requires
the taxpayer to determine its total direct materials costs and the
amount of those costs that are attributable to PFEs and do the
following calculation:

[Total Direct Material Costs] minus [PFE Total Direct Material
Costs] divided by [Total Direct Material Costs]

As with the ITC and PTC, the MACR
guidance sets out a five-step process for 45X taxpayers to
calculate their Eligible Component MACR.

Step 1: Identify “Constituent Materials”

Taxpayers must identify each specific Constituent Material in
the 45X eligible component they are producing and selling.
Constituent Materials are defined as the “[c]onstituent
elements, materials, or subcomponents of the [45X] eligible
component that are considered direct materials costs under” a
particular section of the Tax Code, Section
1.263A-1(e)(2)(i)(A).

Those terms—constituent elements, materials, or
subcomponents—are not further defined in the MACR guidance,
which could complicate how taxpayers will go about identifying
them.

For certain 45X eligible components, however, taxpayers will be
able to rely on the Identification Safe Harbor,
one of three interim safe harbors established by the MACR guidance.
The Identification Safe Harbor for 45X, as for the ITC and PTC,
allows the taxpayer to use certain tables IRS previously published
in guidance on the domestic content adder requirements in IRS
Notices 2023-38, 2024-41, and 2025-08, which the MACR guidance
refers to as the “2023-2025 Safe Harbor Tables.”

Importantly, the MACR guidance specifies that only certain 45X
eligible components may be treated as “Listed eligible
components” in the 2023-2025 Safe Harbor Tables. 45X eligible
components that are not treated as “Listed eligible
components” cannot use the Identification Safe Harbor or
the 2023-2025 Safe Harbor Tables for purposes of calculating
the Eligible Component MACR.

The “Listed eligible components” are as follows:

If a taxpayer is producing any of the above “Listed
eligible components,” they may use the columns in the
2023-2025 Safe Harbor Tables for “Manufactured Product
Components” to identify the “Constituent Materials”
of eligible components for purposes of calculating the Eligible
Component MACR. For example, the table excerpted below from Notice
2025-08 for the PV Module lists “Manufactured Product
Components” (i.e., Constituent Materials) in the right-hand
column:

Step 2: Track Constituent Materials

Taxpayers must track each Constituent Material and its
characteristics—its direct material costs and whether it was
“PFE Sourced”—to the specific 45X eligible
component into which it was incorporated. PFE Sourced is defined in
the MACR guidance as being “supplied by a PFE,” though
elsewhere the MACR guidance suggests that it also means
“mined, produced or manufactured by a PFE.”

Taxpayers producing Listed eligible components identified in the
chart above may also rely on the Cost Percentage Safe
Harbor, the second of the three interim safe harbors
established in the MACR guidance, in lieu of tracking each
Constituent Material’s direct material costs.

The Cost Percentage Safe Harbor allows taxpayers producing
Listed eligible components to rely on the cost percentages
established in the 2023-2025 Safe Harbor Tables. If using the Cost
Percentage Safe Harbor, taxpayers must rely on the applicable
2023-2025 Safe Harbor Tables as the exclusive and exhaustive list
of Constituent Materials. Materials that aren’t listed in the
Safe Harbor Tables can be disregarded, as can listed Constituent
Materials that the taxpayer does not in fact incorporate
into the taxpayer’s 45X eligible component.

Taxpayers electing to rely on the Cost Percentage Safe Harbor
still need to track whether Constituent Materials are PFE
Sourced.

The MACR guidance also provides an averaging method for tracking
Constituent Materials, which allows taxpayers to calculate the
average Direct Material Costs and PFE Production Percentage of a
given type of Constituent Material incorporated in the same type of
eligible component produced during a specified period.

Step 3: Determine Direct Material Costs

Taxpayers must determine the direct material costs of each
Constituent Material tracked to the eligible component. Taxpayers
relying on the Cost Percentage Safe Harbor do not need to
determine actual direct material costs, and will instead use the
assigned cost percentages for each Constituent Material in the
2023-2025 Safe Harbor Tables.

The MACR guidance also addresses contract manufacturing
arrangements under Section 1.45X-1(c)(3)(iii), which allow parties
to determine by agreement which party in the manufacturing
arrangement may claim the 45X credit. In the case of an eligible
component produced pursuant to a contract manufacturing
arrangement, direct material costs are those paid or incurred 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 material costs, then direct material
costs also include those costs to the taxpayer claiming the Section
45X credit.

Step 4: Determine PFE Direct Material Costs

Taxpayers must determine which of their Constituent Material
direct material costs are attributable to PFE Sourced Constituent
Materials (i.e., “PFE Direct Material Costs”).

Here, taxpayers may rely on the Certification Safe
Harbor, the third and final interim safe harbor
established by the MACR guidance.

Importantly, unlike the Cost Percentage Safe Harbor, the
Certification Safe Harbor is available to all 45X taxpayers,
regardless of whether they are producing Listed eligible
components.

To use the Certification Safe Harbor for PFE attribution,
taxpayers may obtain certifications from their direct suppliers
that meet several requirements.

• They must include the direct supplier’s employer
  identification number or similar identification number issued by a
  foreign government.




• They must be signed under penalties of perjury.




• They must be retained by the supplier, as well as the taxpayer,
  for no less than 6 years and be provided to the Treasury Secretary
  (or the Secretary’s delegate) upon request.




• They must also be from the supplier from which the taxpayer
  purchased an eligible component or Constituent Material and state
  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,

  
  

  • 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

  
  

  • for purposes of § 45Y or § 48E, the total direct
    costs attributable to all Manufactured Products that were not
    produced or manufactured by a PFE.

The final bullet in the list above mirrors the statutory
requirements for certifications in the OBBBA. The MACR guidance
also states that, for 45X, the certification must either (1)
include the total direct material costs paid or incurred by the
taxpayer for eligible components or Constituent Materials that were
not PFE Sourced, or (2) state that an eligible component or
Constituent Material was not PFE Sourced.

As with the ITC/PTC certifications under the Certification Safe
Harbor, taxpayers cannot rely on certifications that they know or
have reason to know are inaccurate. The MACR guidance does not
elaborate further on the “reason to know” standard,
suggesting some level of inquiry and diligence by the taxpayer will
be prudent if the taxpayer is relying on the Certification Safe
Harbor.

Step 5: Calculate the Eligible Component MACR

After determining costs in Steps 3 and 4, the final step is to
calculate the Eligible Component MACR as follows:

[Total Direct Material Costs] minus
[PFE Total Direct Material Costs] divided by [Total Direct Material
Costs]

A separate Eligible Component MACR must be calculated for each
eligible component sold during the taxable year, though multiple
eligible components may share the same MACR if they share
Constituent Materials from the same entity or are included in the
same averaging calculation.

Conclusion

As we described in our previous alert, the MACR guidance does
not address several key questions about the PFE requirements,
including how to determine whether certain entities are PFEs in the
first place. According to the MACR guidance, those issues and
others will be addressed in future proposed regulations.

Written comments on the MACR guidance are due by March 30, 2026.
As we noted in our prior alert, stakeholders who fail to raise
specific concerns now may find that Treasury and the IRS proceed
with regulations that prove unworkable or unduly burdensome.
Industry participation in the ongoing development of the PFE rules,
including the MACR guidance and forthcoming proposed regulations,
will be critical.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.