FEOC and prohibited foreign entity rules, in plain English

Why this matters now

If you build, buy or finance battery storage or battery components in the US, the clean energy tax credits now come with foreign ownership rules. A 2025 law added "prohibited foreign entity" restrictions to credits including 45X for manufacturing and 48E for clean electricity and storage. Getting this wrong can reduce or remove a credit, so buyers, lenders and tax equity investors are asking harder questions about suppliers.

FEOC or PFE: what's the difference?

"FEOC" (foreign entity of concern) comes from the 2021 infrastructure law and was first used for the electric vehicle credit. The newer tax credit rules use a different term, "prohibited foreign entity" (PFE). Many people still say FEOC for both. When someone asks about FEOC for a storage project or a battery factory, they usually mean the PFE rules.

The two questions the rules ask

1. Is the company claiming the credit itself a prohibited foreign entity? If so, it can't claim the credit.
2. Did too much of the project or component come from prohibited foreign entities? This is called material assistance, and it's measured with a cost ratio.

Who counts as a prohibited foreign entity

• Specified foreign entities. Companies on certain US government lists, and entities controlled by the governments of China, Russia, Iran or North Korea. The law says this includes regional and local governments, not just national ones.
• Foreign-influenced entities. Companies that aren't on a list but are tied to one that is. Examples include a specified foreign entity that can appoint a senior officer, or one that owns 25% or more. Control through contracts, especially licensing arrangements, can also count. This is called effective control.

The second group is where most of the work is. The links are often several layers up a corporate chain, held through funds or holding companies, or written into licensing and supply contracts rather than share registers.

The cost ratio, and what it leaves out

The material assistance cost ratio measures how much of a product's or project's direct costs did not come from prohibited foreign entities. It has to meet a minimum that rises over time. Accounting firms usually test this ratio.

But the ratio depends on knowing which suppliers are prohibited foreign entities in the first place. That ownership and control question is often left to counsel, and it is still the least settled part of the rules.

Supplier statements and "reason to know"

When working out the cost ratio, buyers can generally rely on a supplier's signed certification about where its products came from. That reliance has limits: if a buyer knows, or has reason to know, the certification is wrong, it can't rely on it. Public ownership disclosures, financing terms and licensing deals can all be the kind of information a buyer is expected to have noticed.

Where the rules stand

Treasury and the IRS released their first guidance, Notice 2026-15, on 12 February 2026. It says each type of licensing arrangement listed in the law is assessed separately for effective control, and it signals that regulations are coming. The law requires Treasury to publish safe harbor cost tables by 31 December 2026. Proposed regulations on who counts as a prohibited foreign entity are expected, but no date has been announced.

What a careful buyer does

• Trace each key supplier's ownership to the top, through every holding company and fund.
• Look beyond shares: board seats, officer appointments, debt and licensing deals.
• Keep an evidence file showing what you checked, where it came from and when.
• Bring your counsel and tax adviser in early, with the evidence in hand.

Battery Pulse helps with the first three: we research who owns and controls battery suppliers using public records, and deliver evidence and findings your advisers can use.

See a sample report

General information, not legal or tax advice. Current as of November 2026.