Regulatory Compliance
FEOC & Prohibited Foreign Entity Compliance Software
Software that classifies entities, calculates Material Assistance Cost Ratios, and produces audit-ready documentation for the OBBBA Prohibited Foreign Entity rules — so a single threshold miss doesn't disallow the entire credit.
The rules that govern clean energy tax credits changed fundamentally with the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025. A project can be technically sound, domestically built, and still lose 100% of its credit because an owner, a lender, or a fourth-tier supplier trips a Prohibited Foreign Entity (PFE) threshold. The exposure is large, the tests are quantitative, and the documentation burden runs six to sixteen years. This is a data problem before it is a legal one — and it is the kind of problem we build software for.
Two regimes, one active
There are two parallel legal frameworks, and confusing them is a common and expensive mistake:
- Original IRA § 30D FEOC — a binary pass/fail test covering EV battery components and critical minerals. Terminated 9/30/2025, but audit exposure remains for prior-year claims.
- OBBBA Prohibited Foreign Entity — the active regime. It covers six credit sections (45Y, 48E, 45X, 45Q, 45U, 45Z) plus credit-transfer rules, and combines entity classification with quantitative cost-ratio thresholds. Primary guidance is IRS Notice 2026-15 (February 2026, 95 pages).
What the software actually tracks
Entity classification (SFE and FIE)
Every taxpayer, owner, transferee, and supplier is screened against a two-tier test. A Specified Foreign Entity (SFE) matches any of five categories — including the six statutorily named battery entities (CATL, BYD, Envision, EVE Energy, Gotion, Hithium) and any entity more than 50% owned by a covered nation (China, Russia, Iran, North Korea). A Foreign-Influenced Entity (FIE) is triggered by formal control (a single SFE owning ≥25% of stock, SFEs owning ≥40% in aggregate, ≥15% of debt, or the right to appoint a covered officer) or by effective control through payments and licensing arrangements.
Ownership rarely sits one level deep. The engine traverses recursive corporate hierarchies and applies the attenuation rules — full attribution above 50% ownership, proportional multiplication below it — so indirect control is calculated correctly rather than guessed at.
The MACR calculation engine
For § 45Y/48E facilities and § 45X components, eligibility turns on the Material Assistance Cost Ratio — direct costs not sourced from prohibited entities, divided by total direct costs, compared against a threshold that rises every year:
- Qualified facilities (non-storage): 40% (2026) → 60% (2030)
- Energy storage / BESS: 55% (2026) → 75% (2030) — deliberately stricter
- Solar § 45X components: 50% (2026) → 85% (2030)
Because the test is binary, being one point under the line disallows the whole credit. The engine tracks constituent materials, direct costs, and PFE-sourcing status per supplier, then applies the three safe harbors from Notice 2026-15 (Identification, Cost Percentage, and Certification) where they reduce the tracking burden.
List synchronization and audit trail
Classification depends on government lists that change: the OFAC SDN list, the BIS Entity List, the UFLPA Entity List, and the DoD NS-CMIC list. The system ingests these automatically and flags supplier certifications that are contradicted by public data — the “reason to know” screen that protects you in an audit. Every MACR calculation carries full provenance, with certification retention that respects the six-year statute of limitations and the sixteen-year record lifecycle for § 48E projects subject to ten-year recapture.
Why generic tools fall short
Off-the-shelf compliance software doesn’t model recursive ownership attenuation, date-sensitive threshold tables that are scheduled to change again by 12/31/2026 and 12/31/2027, or the interaction between FEOC, UFLPA, and AD/CVD (paying antidumping duties does not cure PFE status). We’ve built the data models — graph-based ownership traversal, a versioned rule engine, and supply-chain cost tracking — that these rules actually require. When Treasury issues the next round of safe harbor tables, configuration changes; your architecture doesn’t.
This page describes software capabilities and summarizes publicly available regulatory guidance as of 2026. It is not legal or tax advice. FEOC/PFE rules are actively evolving — verify all thresholds, dates, and determinations against current Treasury and IRS guidance and qualified tax counsel.
Frequently asked questions
What is FEOC compliance?
FEOC stands for Foreign Entity of Concern. In the clean energy tax-credit context, the rules that matter today are the OBBBA Prohibited Foreign Entity (PFE) restrictions, which determine whether a taxpayer, its owners, and its supply chain make a project or component eligible for credits under IRC sections 45Y, 48E, 45X, 45Q, 45U, and 45Z. Failing the test can disallow the entire credit, not a proportional share.
What is the difference between FEOC and PFE?
The original IRA Section 30D FEOC regime was a binary pass/fail test for EV batteries and critical minerals; it terminated on 9/30/2025 but retains audit exposure. The active regime is the OBBBA Prohibited Foreign Entity framework, created by IRC Section 7701(a)(51)-(52) and effective for tax years after 7/4/2025. It uses two-tier entity classification (SFE and FIE) plus quantitative Material Assistance Cost Ratio thresholds.
What is a Material Assistance Cost Ratio (MACR)?
MACR is the share of a facility's or component's direct costs that is NOT attributable to prohibited foreign entities. It is a binary test: if the ratio falls below the threshold for the relevant credit and year, the entire credit is disallowed. Thresholds ramp up over time — for example, qualified facilities move from 40% in 2026 to 60% in 2030, while energy storage runs higher, from 55% to 75%.
How far up the supply chain does the analysis go?
The due-diligence standard is 'know or have reason to know,' and it extends to every tier of the supply chain — mineral extraction, processing, constituent-material production, component manufacturing, assembly, and project ownership. Taxpayers may rely on supplier certifications signed under penalties of perjury unless they have actual or constructive knowledge of an inaccuracy.
Can this software replace tax counsel?
No. It operationalizes the rules — tracking ownership structures, running threshold calculations, screening suppliers against government lists, and preserving an audit trail — so your team and counsel work from reliable, documented data instead of spreadsheets. Determinations still require qualified legal and tax advice.