New FEOC restrictions impact clean energy tax credits
TL/DR –
The House Ways and Means Committee reported out a significant tax reconciliation bill on May 12, 2025, called the “One, Big, Beautiful Bill” which introduces substantial new restrictions on clean energy tax credits related to involvement of “foreign entities of concern” (FEOCs), specifically Chinese entities. The bill denies eligibility for tax credits where a FEOC is involved in the development or ownership of the facility, operation or control rights over the project, or if the project’s construction involves material assistance from a FEOC. This includes any component, subcomponent, or critical mineral that is extracted, processed, recycled, manufactured, or assembled by a prohibited foreign entity; or any design of the property that is based on copyrights, patents, know-how, or trade secrets provided by such entities.
2025 Tax Bill Introduces New Restrictions on Clean Energy Tax Credits
On May 12, 2025, the House Ways and Means Committee presented the “One, Big, Beautiful Bill”, a significant tax reconciliation bill. While the OBBB aims to extend several provisions from the 2017 Tax Cuts and Jobs Act, it brings forth new restrictions on clean energy tax credits related to involvement with “foreign entities of concern” (FEOCs), particularly Chinese entities. The House-passed version of the bill includes accelerated restrictions effective dates.
New FEOC Restrictions in Major Inflation Reduction Act Credits
Most major credits of the Inflation Reduction Act (IRA) that survive in the bill are now subject to new FEOC restrictions. Credits §45Y, §48E, and §45X are further restricted for projects receiving “material assistance” from FEOCs. The affected credits, their termination dates, and effective dates of FEOC restrictions are summarized in the bill.
Main Provisions of the FEOC Rule
The bill generally denies credits eligibility where a FEOC is involved in any of the facility’s development or ownership aspects. The key prongs are: Ownership, Control/Operation, and Use of Components or Assistance from FEOCs.
“Material Assistance” – The Major Restriction
The most significant restriction, the “material assistance” provision, denies credit eligibility to any facility receiving “material assistance” from a FEOC. Material assistance includes any component, subcomponent, or critical mineral by a prohibited foreign entity and any property design based on copyrights, patents, know-how, or trade secrets provided by such entities.
Exceptions to “Material Assistance”
The bill provides safe harbors for certain non-specialized materials and assembly parts, with conditions pertaining to their design and source. However, the “predominantly available” test introduces ambiguity, especially in markets where supply chains are heavily concentrated in China.
—
Read More US Economic News