If your clean energy project claims tax credits under Sections 45Y, 48E, or 45X, FEOC compliance is now one of the conditions standing between your project and those credits. The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, introduced comprehensive Foreign Entity of Concern requirements that go well beyond what the Inflation Reduction Act asked for.
The core idea is straightforward, even if the documentation is not. To qualify, a project must show that it is not owned by, controlled by, or materially assisted by a Prohibited Foreign Entity. In practice, that means satisfying three distinct tests: Ownership, Effective Control, and the Material Assistance Cost Ratio (MACR). A project must pass all three.
The Three FEOC Tests
FEOC compliance is not a single checkbox. Each test examines a different way a Prohibited Foreign Entity could be connected to your project, and each requires its own evidence.
Ownership
Your project cannot have Prohibited Foreign Entity involvement in its ownership structure. This test looks at corporate ownership, headquarters location, and governmental entity lists to confirm there is no connection at any level of the ownership chain.
Effective Control
A Prohibited Foreign Entity cannot hold effective control over project operations or energy generation. Control can arise through contracts, master service agreements, procurement terms, convertible financing, or warranty-based data access rights, so this test reviews the structure of each relationship, not just the cap table.
Material Assistance (MACR)
The Material Assistance Cost Ratio determines whether your project contains too much content from Prohibited Foreign Entities. Thresholds tighten each year, so a defensible MACR draws on original supplier documentation and certifications traced to the component level, not self-reported data.
Which Projects Are Subject to FEOC
Timing determines what applies. Projects beginning construction on or after January 1, 2026 are subject to all three FEOC tests. Ownership and effective control obligations apply from July 2025. Projects that began construction before January 1, 2026 are generally exempt from the material assistance requirements, but that exemption status is worth documenting and certifying so it holds up if the IRS asks.
Because the rules turn on a beginning-of-construction date, your compliance position is set early. The documentation you gather, or fail to gather, at the start of a project follows it through the full audit window.
Key Terms
- FEOC (Foreign Entity of Concern)
- An entity tied to a foreign country of concern through ownership, control, or jurisdiction. Clean energy tax credits under OBBBA are conditioned on a project's freedom from prohibited FEOC involvement.
- Prohibited Foreign Entity (PFE)
- The category of entities whose involvement in ownership, control, or material assistance can disqualify a project from tax credits. It encompasses both Specified Foreign Entities and Foreign-Influenced Entities.
- OBBBA (One Big Beautiful Bill Act)
- The law enacted July 4, 2025 that introduced comprehensive FEOC requirements for clean energy tax credits, expanding on the Inflation Reduction Act.
- Ownership Test
- The requirement that no Prohibited Foreign Entity appears at any level of a project's ownership structure.
- Effective Control Test
- The requirement that no Prohibited Foreign Entity holds control over project operations or energy generation, whether through contracts, financing arrangements, or warranty-based data access rights.
- MACR (Material Assistance Cost Ratio)
- The metric that determines whether a project or component contains too much content from Prohibited Foreign Entities, measured against an annual threshold that tightens over time.
- Recapture Window
- The multi-year period after a project is placed in service during which the FEOC compliance record remains subject to IRS audit and potential credit recapture.
Common Questions
What is FEOC compliance?
FEOC compliance means demonstrating that a clean energy project, and the components it uses, are not owned by, controlled by, or receiving material assistance from a Prohibited Foreign Entity. Under the One Big Beautiful Bill Act (OBBBA), projects claiming tax credits under Sections 45Y, 48E, and 45X must satisfy three FEOC tests: Ownership, Effective Control, and the Material Assistance Cost Ratio (MACR).
Which projects are subject to FEOC requirements?
Projects beginning construction on or after January 1, 2026 are subject to all three FEOC tests under OBBBA, which was enacted July 4, 2025. Ownership and effective control obligations apply from July 2025. Projects that began construction before January 1, 2026 are generally exempt, though that exemption status should be documented and certified so it holds up under IRS scrutiny.
What are the three FEOC tests?
The Ownership test confirms that no Prohibited Foreign Entity sits in the project's ownership chain. The Effective Control test confirms that no Prohibited Foreign Entity holds control over project operations or energy generation through contracts, financing, or data access rights. The Material Assistance Cost Ratio (MACR) test confirms that the project does not contain more than the allowed share of content from Prohibited Foreign Entities. A project must pass all three.
What is the MACR and how is it calculated?
The Material Assistance Cost Ratio (MACR) measures the share of a project's or component's costs attributable to Prohibited Foreign Entities, measured against an annual threshold. Thresholds tighten each year. A defensible MACR calculation draws on original supplier documentation and certifications, traced to the component level, rather than self-reported supplier claims.
How long does FEOC exposure last and what documentation is required?
FEOC exposure runs through a multi-year recapture window after a project is placed in service, during which the compliance record remains subject to IRS audit. Required documentation includes supplier certificates with taxpayer identification and a declaration under penalty of perjury, component-level (SKU) coverage of all manufactured product components, line-by-line attestations against each FEOC criterion, sub-tier documentation where a reason-to-know standard applies, and a formal compliance assessment your tax counsel and investors can rely on.
FEOC compliance rewards teams that document early and trace their supply chain to the source. A certificate accepted at face value today can resurface at tax equity review, or in an audit, years later. The projects that close on time are the ones that built a defensible record from the start.