The Internal Revenue Code’s (IRC’s) Section 45X Advanced Manufacturing Production Credit (the credit) was enacted as part of the Inflation Reduction Act of 2022 (IRA). It was designed to incentivize U.S.-based production of clean energy components and applicable critical minerals. The credit continues to provide meaningful incentives for domestic manufacturing activities and remains a central driver of investment and operational planning for eligible manufacturers. But new IRS guidance indicates that taxpayers who qualified for the credit in previous years may face new challenges when attempting to claim the credit in 2026.
For many taxpayers, 2026 represents a transition year as supply chains may need realignment to maintain credit generation under evolving guidance. Recent changes enacted under the One, Big, Beautiful Bill Act (OBBBA) and explained in IRS guidance, including Notice 2026-15, have refined key aspects of the credit while preserving substantial benefits for qualifying taxpayers. To better understand how the credit calculation might change for a business in 2026, it helps to review the legislative framework for Section 45X, as it was originally enacted and then amended by the OBBBA, then focus on the impact of recent guidance, remaining areas of uncertainty, and the opportunities the credit continues to present.
Enactment of the Section 45X tax credit and OBBBA-related changes
The Section 45X Advanced Manufacturing Production Credit was enacted as part of the IRA to reward production of clean energy components and critical minerals in the United States. The credit applies to eligible components produced in the United States and sold to unrelated parties, with credit amounts determined on a component-specific basis. Treasury and the IRS finalized regulations under Section 45X in October 2024, largely adopting proposed rules that helped to clarify eligibility requirements, qualifying production activities, and the treatment of production costs. These final regulations continue to provide the core administrative framework for the credit.
The statutory landscape for the credit shifted materially with the enactment of the OBBBA in July 2025. While the OBBBA generally retained the IRA’s phaseout structure, it introduced targeted but consequential changes, including:
- Early termination of the credit for wind energy components sold after 2027.
- Extension of phaseout rules to critical minerals, which had previously been excluded.
Most significantly, the OBBBA extended new restrictions tied to certain foreign entities of concern (FEOC), as incorporated into the tax law through the definition of a “prohibited foreign entity” (PFE) in IRC Section 7701(a)(51), to Section 45X. These restrictions can deny the Section 45X credit entirely for taxpayers that are themselves PFEs (e.g., specified foreign entities or foreign-influenced entities, including certain effective-control situations), and they also exclude from the definition of an “eligible component” any property with respect to which the taxpayer is treated as receiving a material assistance from a PFE under IRC Section 7701(a)(52).
Administrative guidance on material assistance from a prohibited foreign entity
Treasury and IRS have issued Notice 2026-15, providing the first substantive administrative guidance addressing the material assistance limitation under the OBBBA. The notice details the material assistance cost ratio (MACR) to measure the contributions of a PFE to determine if the costs associated with the component meet MACR threshold requirements. The guidance offers an interim framework for evaluating material assistance through the MACR, as well as certain related safe harbors intended to improve administrability and provide some level of certainty to taxpayers while more comprehensive regulations are developed.
The new MACR guidance is a significant development for taxpayers planning to claim the Section 45X credit in 2026. While the credit was always intended to incentivize U.S.-based production of clean energy components, the implementation of the MACR calculation appears to draw a more defined boundary around eligible production costs. As a result, certain components that may have qualified for the credit in 2024 and 2025 could become ineligible starting in 2026. This new rule will also require the MACR calculation to be done on an annual basis, potentially causing ongoing shifts in credit eligibility for various potentially qualifying components.
Although the notice clarifies the mechanics of applying the material assistance test and the statutory PFE definitions in practice, it expressly defers guidance on other key FEOC concepts — such as effective control, PFE determinations, and broader anti-abuse rules — leaving those issues for future regulatory action.
Key areas of ongoing uncertainty and interpretive risk
While this guidance provides a helpful foundational framework for calculating the Section 45X credit in light of the OBBBA modifications, meaningful uncertainty remains concerning key concepts, such as the PFE and material assistance rules. Manufacturers continue to face unresolved questions regarding the determination of PFE status in a variety of relatively common situations, including:
- Attribution in complex ownership structures.
- Contract manufacturing arrangements.
- Licensing models.
The notice is also silent on the circumstances under which foreign counterparties may be viewed as exercising effective control. These issues are highly consequential. PFE involvement can independently disqualify otherwise eligible components. Manufacturers in this sector typically source at least some of their components through globalized supply chains, and they need clear rules they can count on to determine eligibility for this critical government incentive.
The notice is a helpful start, but it expressly states that it serves as interim guidance issued in advance of more comprehensive proposed regulations. As a result, it doesn’t fully resolve the interpretive questions that drive planning decisions and audit risk, including how taxpayers can establish durable reliance positions. With proposed regulations anticipated later in 2026, many manufacturers have adopted conservative compliance approaches, including operational restructuring and enhanced contractual protections. This underscores the continued importance of further regulatory clarification.
Outlook and strategic considerations for the 45X tax credit
The Section 45X Advanced Manufacturing Production Credit remains one of the most compelling federal tax incentives available to manufacturers in the renewable energy and advanced manufacturing sectors. Despite refinements since its enactment, the credit continues to support significant domestic production activity. In addition, changes introduced by the OBBBA have created meaningful merger and acquisition opportunities. Some PFE-owned manufacturers may face pressure to exit the market, potentially presenting non-FEOC-owned entities with opportunities for expansion and consolidation.
Uncertainty around PFE determinations tends to be concentrated in the edge-case scenarios discussed above — such as complex ownership attribution, contract manufacturing, and licensing arrangements — rather than in the core eligibility rules. For more straightforward fact patterns, existing statutory, regulatory, and administrative guidance, including several favorable clarifications related to material assistance and critical minerals requirements, generally provides sufficient clarity to determine PFE status. Against this backdrop, many taxpayers continue to make substantial investments in U.S. manufacturing operations, relying on available guidance while actively managing supply chain and PFE-related risks.
