What Are the FEOC Supply Chain Tracing Requirements Under OBBBA?

Supply chain tracing answers a different question from entity screening. Entity screening determines whether the entity that mined, produced or manufactured a relevant manufactured product or manufactured product component was a prohibited foreign entity for the applicable taxable year. Tracing asks how much of the relevant direct cost of a qualified facility or energy storage technology is attributable to manufactured products or manufactured product components produced by a PFE.

A project can clear an entity-level review and still fail the material assistance test. A direct supplier that is not itself a PFE may incorporate components produced by a PFE. For that reason, a supplier certification can be an important input, but it does not replace the component-level analysis required to calculate MACR.

The analysis depends on records that distinguish between the following levels:

Manufactured product: The finished product incorporated into the facility, such as a solar module, inverter, wind turbine component or battery enclosure.

Manufactured product component: A component incorporated into a manufactured product, such as cells, frames or glass. The tracing analysis must identify and track these components.

Structural steel or iron items are generally disregarded in the Clean Electricity MACR unless they are otherwise identified as manufactured products or manufactured product components under the applicable rules.

A summary bill of materials that stops at the finished-product level does not support the calculation. The compliance file must connect the project-level result to the underlying products, components, suppliers, costs and sourcing determinations used to produce it.

Under Notice 2026-15, a taxpayer calculating the Clean Electricity MACR generally must identify the manufactured products and manufactured product components included in the facility or energy storage technology, determine the relevant direct costs attributable to those products and components and determine which of those direct costs are attributable to products or components produced by a PFE.

For an acquired manufactured product, direct costs generally consist of the taxpayer's acquisition costs. If the taxpayer manufactures the product, direct costs generally include direct material and direct labor costs. Costs of incorporating the manufactured product into the facility or energy storage technology are not included in the direct costs attributable to that product.

The ratio measures the share of total relevant direct costs that are not attributable to PFE-produced products or components. The calculation subtracts aggregate PFE direct costs from total direct costs and divides the result by total direct costs. If the resulting MACR is below the applicable statutory threshold, the facility or energy storage technology includes material assistance from a PFE and is not eligible for the applicable credit.

The calculation must be supported, not merely stated. A final percentage without the component identification, cost records, supplier information, sourcing determinations and methodology behind it will not constitute a complete substantiation record.

For qualified facilities and energy storage technologies, the threshold is based on the calendar year in which construction begins:

Because the applicable percentage turns on the year construction begins, the project's beginning-of-construction analysis and supporting records directly affect the material assistance result. The material assistance restrictions apply to Section 45Y facilities for which construction begins after December 31, 2025, and to Section 48E qualified facilities or energy storage technologies for which construction, reconstruction or erection begins after that date.

Developers and manufacturers often sit on opposite sides of the same supply chain. A manufacturer claiming Section 45X on a component it produces runs its own material assistance analysis on that component, separate from the project-level analysis run by the developer that buys it. Both analyses draw on the same underlying sourcing and cost records.

The Section 45X advanced manufacturing production credit uses a separate Eligible Component MACR threshold schedule based on the calendar year in which the eligible component is sold, rather than the project's beginning-of-construction year:

Note: The applicable critical mineral thresholds shown above reflect the statutory schedule in Section 7701(a)(52)(C). OBBBA directs Treasury to issue adjusted threshold percentages for individual applicable critical minerals by December 31, 2027.

Wind energy components are not listed after 2027 because Section 45X does not apply to wind energy components produced and sold after December 31, 2027.

Notice 2026-15 provides interim identification, cost-percentage and certification safe harbors. Depending on the safe harbor used, a taxpayer may rely on assigned component classifications or assigned cost percentages found in Notice 2025-08 rather than determining every relevant cost using actual direct-cost records.

Reliance is conditional. A taxpayer using a safe harbor must apply the applicable safe-harbor requirements and methodology consistently, retain substantiation under Section 6001 and attach a statement identifying the safe harbor and how it was applied to the relevant credit form for the first taxable year in which the credit is claimed.

The practical point is that a safe harbor can simplify the calculation, but it does not eliminate the documentation required to support it. The project still needs records showing which products and components were included, which were treated as PFE-produced, which safe harbor was used and how the final MACR was derived.

Material assistance compliance must begin during procurement, ideally while suppliers are being vetted and material supply agreements negotiated, not after construction is complete. Developers and manufacturers need a repeatable process to:

• collect bills of materials and component-level supplier data before contracting;
• screen direct suppliers and relevant upstream producers for PFE status;
• capture the cost and sourcing information needed for the selected MACR methodology;
• document the beginning-of-construction year and applicable threshold;
• retain certifications, calculations, underlying records and methodology in a retrievable compliance file; and
• update the analysis when products, suppliers or sourcing relationships change.

This is where the gap between legal interpretation and operational execution becomes material. The statute and guidance establish the test. The project team must build and maintain the evidence that shows how the test was applied.