Significant Cuts to IRA Clean Energy Tax Credits Included in Enacted Reconciliation Bill

President Trump signed the “One Big Beautiful Bill Act” (the “OBBB”) into law on July 4, 2025. Congress passed the legislation using the budget reconciliation process to avoid the 60-vote Senate filibuster. In addition to making many of the individual tax cuts from the 2017 Tax Cuts and Jobs Act permanent, the bill makes significant changes to many of the clean energy credits included in the Inflation Reduction Act of 2022 (the “IRA”). 

Projects that began construction before 2025 and are planning on claiming production tax credits (“PTCs”) or investment tax credits (“ITCs”) under sections 45 and 48 are generally unaffected by the OBBB.  However, the OBBB is a mixed bag when it comes to the other energy tax credits that were introduced or extended by the IRA. The OBBB makes substantial cuts to the tech-neutral tax credits for solar and wind facilities and eliminates certain other energy tax credits (e.g., those for hydrogen, EVs, and homeowners), but other technologies and activities (e.g., geothermal, carbon capture, nuclear, clean fuel production) experienced fewer claw backs of the benefits provided by the IRA. The OBBB also adds foreign entity of concern (“FEOC”) restrictions to the surviving energy tax credits. Finally, the OBBB expands the definition of “qualifying income” (“QI”) for master limited partnerships (“MLPs”) under section 7704(d)(1)(E). 

While a prior version of the OBBB released by the Senate contained an excise tax on certain wind and solar facilities deemed to have received material assistance from a prohibited foreign entity (“PFE”), the tax was removed shortly before its passage by the Senate and is not included in the OBBB. 

On July 7, 2025, President Trump also issued an Executive Order (Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources) (the “EO”) directing the Secretary of the Treasury to, within 45 days of enactment of the OBBB, “take all action as the Secretary of the Treasury deems necessary and appropriate to strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code for wind and solar facilities.”  The EO specifically directs Treasury to issue new and revised guidance on “beginning of construction” ("BOC"), and notes that broad safe harbors should not apply “unless a substantial portion of a subject facility has been built.” In the same 45-day window, Treasury is also directed to implement the FEOC restrictions in the OBBB.

Below is a summary of the key changes for the clean energy industry as a result of the enactment of the OBBB.  

I. TAX CREDIT AND DEDUCTION MODIFICATIONS

1. Sections 45Y (Clean Electricity Production Tax Credit) and 48E (Clean Electricity Investment Tax Credit)

• FEOC: Disallows the credits when certain FEOC provisions are triggered. These provisions are discussed below in Section II.
• PIS DEADLINE: Adds a placed in service ("PIS") deadline for solar and wind facilities of December 31, 2027.
  • Applies to facilities that begin construction after July 4, 2026 (i.e., 12 months after the enactment of the OBBB).
    [Akin Note: Allowing construction to begin for up to one year after enactment was a late change to the OBBB. However, taxpayers’ ability to take advantage of this window may be limited as a result of guidance to be issued by Treasury implementing the EO.]

• • Statute makes clear that batteries are not impacted by this change. Other facilities that qualify for credits under §§ 45Y and 48E (besides solar and wind facilities) are also not impacted.
    [Akin Note: The language making clear that batteries are not impacted by this change is arguably not necessary in light of Treasury's position in regulations that energy storage technologies cannot be part of qualified facilities.]

• LEASING DISALLOWANCE: Disallows credits for solar electric heating and small wind residential property if the taxpayer rents or leases the property.
  • Applies to taxable years beginning after July 4, 2025 (i.e., after enactment of the OBBB).
    [Akin Note: In earlier versions of the OBBB, this rule also applied to residential photovoltaic solar systems. The final enacted version of the OBBB does not disallow ITCs or PTCs for residential photovoltaic solar systems.]

• PHASEOUT TIMELINE: Sets both §§ 45Y and 48E to begin phasing out in 2034.
  • Except for solar and wind facilities that have a special PIS deadline (see above), facilities that qualify for either §§ 45Y or 48E and:
    • BOC before 2034 can access the full credit;
    • BOC in 2034 can access 75% of the credit;
    • BOC 2035 can access 50% of the credit; and
    • BOC after 2035 cannot access either credit.
• TAX OWNERSHIP OF GEOTHERMAL HEAT PUMPS: For purposes of determining tax ownership of geothermal heat pumps for depreciation and tax credit purposes, the fact that such property is not readily usable by anyone other than the lessee or offtaker is disregarded.
  [Akin Note: This point removes a key obstacle to allowing geothermal heat pumps to be subject to “third party ownership” structures which more readily allows for tax equity financing.]

• FUEL CELL FACILITIES (§ 48E (ITC) only): Removes requirement that the anticipated greenhouse gas emission rate not be greater than zero for fuel cell facilities.
  • Changes apply to facilities where BOC is after December 31, 2025.
  • Sets a 30% ITC rate without the ability to increase with adders.
• NUCLEAR ENERGY COMMUNITY (§ 45Y (PTC) only): Creates an energy community adder based on local employment in nuclear facilities, nuclear R&D, and nuclear component manufacturing.
• DOMESTIC CONTENT (§ 48E (ITC) only): Facilities that begin construction on and after June 16, 2025, are subject to the same domestic content thresholds for the ITC as the PTC.
  • Domestic content thresholds are 45% for BOC in 2025, 50% for BOC in 2026, and 55% for BOC in 2027+ (separate rates still apply for off-shore wind).
    [Akin Note: This change corrects what has long been viewed as a typo or glitch in the statutory framework.]

• • Facilities with BOC before June 16, 2024, can utilize a 40% threshold.

2. Section 45Z (Clean Fuel Production Tax Credit)

• FEOC: Disallows the credit when certain FEOC provisions are triggered. These provisions are discussed below in Section II.
• CREDIT EXTENSION: Extends the deadline to sell eligible fuel from December 31, 2027, to December 31, 2029.
• EMISSIONS RATES: Disallows emissions rates from being negative, excludes indirect land use changes from the lifecycle analysis, and requires Treasury to provide emissions rates for each specific animal manure feedstock.
  • Applies to transportation fuels produced after December 31, 2025.
    [Akin Note: Many clean fuel producers were hoping to be able to generate multiples of the statutory credit rate as a result of their fuel having negative emissions rates. This change eliminates this possibility, which had previously been implied by other statutory language that contemplated negative emissions rates.]

• FEEDSTOCK SOURCING: Requires feedstock to be produced or grown exclusively in the United States, Mexico, or Canada.
  • Applies to transportation fuels produced after December 31, 2025.
  • Disallows any feedstock sources that already generated a § 45Z credit but includes a directive to Treasury to issue regulations or guidance to implement this anti-double counting rule.
• RELATED PARTY SALES: Directs Treasury to expand the rule allowing sales between related parties prior to a sale to an unrelated party.
• SUSTAINABLE AVIATION FUEL: Eliminates the increased credit rate of $1.75/gallon for sustainable aviation fuel ("SAF"), but the standard $1.00/gallon rate remains available for SAF.
  • Applies to transportation fuels produced after December 31, 2025.
• EXCISE TAX CREDIT: Eliminates the ability to claim § 45Z and the § 6426(k) excise tax credit for the same fuel.
  • Applies to fuel sold or used on or after July 4, 2025 (i.e., enactment of the OBBB), and to fuel sold or used before such date if claims for the § 6426(k) excise tax credit have not been paid or allowed as of such date.

3. Section 45Q (Carbon Oxide Sequestration Tax Credit)

• FEOC: Disallows the credit when certain FEOC provisions are triggered. These provisions are discussed below in Section II.
• CREDIT RATES: Equalizes the credit rate for all potential disposal pathways (e.g., EOR, secure geologic storage and utilization) to $17/MT (indexed for inflation after 2026).
  • Rate is $36/MT for direct air capture.
  • Applies to facilities PIS after July 4, 2025 (i.e., after the date of the enactment of the OBBB).

4. Section 45X (Advanced Manufacturing Production Tax Credit)

• FEOC: Disallows the credit when certain FEOC provisions are triggered. These provisions are discussed below in Section II.
• SALE OF INTEGRATED COMPONENTS: No credit for the sale of integrated components unless certain requirements are satisfied.
  • Applies to taxable years beginning after December 31, 2026.
  • To the extent an eligible component (called a “primary component”) is incorporated into another eligible component (called a “secondary component”) prior to sale to an unrelated person, a § 45X credit is allowed with respect to the primary component only if:
    • The secondary component is produced in the same manufacturing facility as the primary component; and
    • At least 65% of the total direct material costs of the secondary component are attributable to primary components which are mined, produced, or manufactured in the United States.
• PHASEOUT FOR WIND ENERGY COMPONENTS: Wind energy components, sold after December 31, 2027, no longer generate a § 45X credit.
• PHASEOUT FOR CRITICAL MINERALS: Adds a phaseout for applicable critical minerals produced after 2030 based on timing of production.

• ADDITION OF METALLURGICAL COAL: Metallurgical coal added as an applicable critical mineral.
  • Defined as “metallurgical coal which is suitable for use in the production of steel (within the meaning of the notice published by the Department of Energy entitled ‘Critical Material list; Addition of Metallurgical Coal Used for Steelmaking’ (90 Fed. Reg. 22711 (May 29, 2025))), regardless of whether such production occurs inside or outside of the United States.”
  • Generates credit at a special rate of 2.5% of costs (as opposed to 10% of costs for other critical minerals).
  • Applies only to metallurgical coal produced before December 31, 2029.
• REVISED DEFINITION OF BATTERY MODULE: Definition of “battery module” is updated to include a requirement for the module to include “all other essential equipment needed for battery functionality, such as current collector assemblies and voltage sense harnesses, or any other essential energy collection equipment.”
  • Applies to taxable years beginning after July 4, 2025 (i.e., after the enactment of the OBBB).

5. Section 45U (Zero-Emission Nuclear Power Production Credit)

• FEOC: Disallows the credit when certain FEOC provisions are triggered. These provisions are discussed below in Section II.
• CREDIT TERMINATION: Terminates credit for electricity produced and sold after December 31, 2032.

6. Terminated Credits and Deductions

• SECTION 45V (CLEAN HYDROGEN PRODUCTION TAX CREDIT): The deadline for beginning construction under §45V is moved up to December 31, 2027 (instead of December 31, 2032).

• EV RELATED CREDITS: Credits for EVs and EV charging property are eliminated.
  • The deadlines for acquiring an eligible vehicle under §§ 25E (Previously Owned Clean Vehicle Credit), 30D (Clean Vehicle Credit), and 45W (Qualified Commercial Clean Vehicle Credit) are moved up to September 30, 2025 (instead of December 31, 2032).
  • The deadline for PIS under § 30C (Alternative Fuel Vehicle Refueling Property) is moved up to June 30, 2026 (instead of December 31, 2032).

• RESIDENTIAL CREDITS: Credits for energy efficient homes and residential clean energy are eliminated.
  • The PIS deadline for residential clean energy property under § 25D (Residential Clean Energy Credit) of December 31, 2034, is replaced with a deadline for incurring expenditures of December 31, 2025.
  • The deadline for PIS for energy efficiency improvements, residential energy property expenditures, and home energy audits under § 25C (Energy Efficient Home Improvement Credit) is December 31, 2025 (instead of December 31, 2032).

• REPEAL OF 5-YEAR MACRS: Removes the ability to utilize 5-year MACRS schedules under § 168 for “energy property” described in § 48.
  • Property eligible for a credit under §§ 45Y and 48E would remain eligible for 5-year MACRS.

• ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION: Deduction for energy efficient commercial buildings is eliminated by adding a new BOC deadline of June 30, 2026.

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II. NEW FEOC RESTRICTIONS

1. Key Definitions

• PROHIBITED FOREIGN ENTITY (“PFE”): Means any “Specified Foreign Entity” or “Foreign-Influenced Entity”.
  • Generally, determination is made as of the last day of each taxable year.
  • For the first taxable year beginning after July 4, 2025 (i.e., enactment of the OBBB), determination is made as of the first date of such taxable year (except with respect to status as a “Foreign-Controlled Entity”).
• SPECIFIED FOREIGN ENTITY (“SFE”): A “specified foreign entity” means:
  • a foreign entity of concern (“FEOC”) described in 15 U.S.C. § 4651(8)(A), (B), (D), or (E) - These FEOCs include foreign terrorist organizations, entities on Treasury’s Office of Foreign Assets Control Specially Designated Nationals list, and entities engaged in violations of certain national security statutes;
  • an entity on the 1260H List (i.e., an entity identified as a Chinese military company operating in the United States under Section 1260H of the FY2021 National Defense Authorization Act (Pub. L. 116-283);
  • an entity on the Uyghur Forced Labor Prevention Act Entity List;
  • an entity on the 154(b) List (i.e., a specified Chinese battery company specified under section 154(b) of the FY2024 National Defense Authorization Act (Pub. L. 118-31); or
  • a "foreign-controlled entity."
• FOREIGN-CONTROLLED ENTITY:
  • A “foreign-controlled entity” means:
    • the government (including any level of government below the national level) of a covered nation;
    • an agency or instrumentality of a government described in the immediately preceding bullet;
    • a person who is a citizen or national of a covered nation, provided that such person is not an individual who is a citizen, national, or lawful permanent resident of the United States;
    • an entity or a qualified business unit incorporated or organized under the laws of, or having its principal place of business in, a covered nation; or
    • other than certain publicly traded entities, an entity (including subsidiary entities) controlled by an entity described in the foregoing bullets.
  • For purposes of this definition, “control” means, (i) in the case of a corporation, ownership (by vote or value) of more than 50% of the stock of such corporation, (ii) in the case of a partnership, ownership of more than 50% of the profits interests or capital interests in such partnership, or (iii) in any other case, ownership of more than 50% of the beneficial interests in the entity.
  • For purposes of this definition, "covered nation" is cross-referenced to 10 U.S.C. § 4872(f)(2) and currently means North Korea, China, Russia, and Iran.
• FOREIGN INFLUENCED ENTITY (“FIE”):
  • Other than certain publicly traded entities, an FIE is an entity with respect to which, during the taxable year:
    • An SFE has the direct authority to appoint a covered officer of such entity;
      “Covered Officer” means, with respect to an entity: (i) a member of the board of directors, board of supervisors, or equivalent governing body; (ii) an executive-level officer, including the president, chief executive officer, chief operating officer, chief financial officer, general counsel, or senior vice president; or (iii) an individual having powers or responsibilities similar to those of officers or members described in the foregoing bullets.

• • • A single SFE owns at least 25% of such entity;
    • One or more SFEs own, in the aggregate, at least 40% of such entity;
    • At least 15% of the debt of such entity has been issued, in the aggregate, to one or more SFEs; or

• • • Which, during the previous taxable year, made a payment to an SFE pursuant to a contract, agreement, or other arrangement which entitles such SFE (or an entity related to such SFE) to exercise effective control over:
      • Any qualified facility or energy storage technology of the taxpayer (or any person related to the taxpayer), or
      • With respect to any eligible component produced by the taxpayer (or any person related to the taxpayer), (i) the extraction, processing, or recycling of any applicable critical mineral, or (ii) the production of an eligible component which is not an applicable critical mineral.
  • The term “taxpayer” for purposes of the FIE rules includes any person related to the taxpayer.

• ATTRIBUTION RULE: For purposes of the definition of a PFE (and the subsidiary definitions), ownership is determined by taking into account the attribution rules under § 318(a)(2) for purposes of determining ownership of stock in a corporation and with similar principles being applied for non-corporate entities.
• EFFECTIVE CONTROL:
  • “Effective Control” means one or more agreements or arrangements similar to those described in the following bullets which provide one or more contractual counterparties of a taxpayer with specific authority over key aspects of the production of eligible components, energy generation in a qualified facility, or energy storage which are not included in the measures of control through authority, ownership, or debt held which are described in the definition of “foreign-influenced entity”.

  • The OBBB directs Treasury to issue guidance to carry out the “effective control” restrictions. Until such guidance is issued, the statute adopts prior guidance issued by the Department of Energy for purposes of implementing the IRA under § 30D. It provides that “effective control” includes the unrestricted contractual right of a contractual counterparty to:

    • Determine the quantity or timing of production of an eligible component produced by the taxpayer;
    • Determine the amount or timing of activities related to the production of electricity undertaken at a qualified facility of the taxpayer or the storage of electrical energy in energy storage technology of the taxpayer;
    • Determine which entity may purchase or use the output of a production unit of the taxpayer that produces eligible components;
    • Determine which entity may purchase or use the output of a qualified facility of the taxpayer;
    • Restrict access to data that is critical to production or storage of energy undertaken at a qualified facility of the taxpayer, or to the site of production or any part of a qualified facility or energy storage technology of the taxpayer, to the personnel or agents of such contractual counterparty; or
    • On an exclusive basis, maintain, repair, or operate any plant or equipment which is necessary to the production by the taxpayer of eligible components or electricity, or
  • The OBBB establishes an additional effective control framework with respect to a licensing agreement for the provision of intellectual property (or any other contract, agreement, or other arrangement entered into with a contractual counterparty related to such licensing agreement) with respect to a qualified facility, energy storage technology, or the production of an eligible component. In this content, the following confer "effective control" to an SFE:  
    • A contractual right retained by the contractual counterparty to specify or otherwise direct one or more sources of components, subcomponents, or applicable critical minerals utilized in a qualified facility, energy storage technology, or in the production of an eligible component);
    • A contractual right retained by the contractual counterparty to direct the operation of any qualified facility, any energy storage technology, or any production unit that produces an eligible component;
    • A contractual right retained by the contractual counterparty to limit the taxpayer’s utilization of intellectual property related to the operation of a qualified facility or energy storage technology, or in the production of an eligible component;
    • A contractual right retained by the contractual counterparty to receive royalties under the licensing agreement or any similar agreement (or payments under any related agreement) beyond the 10th year of the agreement (including modifications or extensions thereof);
    • A contractual right retained by the contractual counterparty to direct or otherwise require the taxpayer to enter into an agreement for the provision of services for a duration longer than 2 years (including any modifications or extensions thereof);
    • Such contract, agreement, or other arrangement does not provide the licensee with all the technical data, information, and know-how necessary to enable the licensee to produce the eligible component or components subject to the contract, agreement, or other arrangement without further involvement from the contractual counterparty or a specified foreign entity; or
    • Such contract, agreement, or other arrangement entered into (or modified) on or after July 4, 2025 (i.e., enactment of the OBBB).
• BEGINNING OF CONSTRUCTION (BOC):
  • Generally, determined pursuant to rules similar to rules under IRS Notice 2013-29 and IRS Notice 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either such Notice), as in effect on January 1, 2025.
  • Treasury is directed to prescribed regulations and guidance as may be necessary or appropriate to prevent circumvention of the subparagraph relating to the Material Assistance Cost Ratio, including the prevention of any evasion with respect to the Material Assistance Cost Ratio “where the facts demonstrate that the beginning of construction of a qualified facility or energy storage technology has not in fact occurred.”

2. Credit Disallowance

• SPECIFIED FOREIGN ENTITIES AND FOREIGN INFLUENCED ENTITIES: Prevents SFEs and FIEs from claiming the credit.

• • SFE restriction applies to taxable years beginning after July 4, 2025 (i.e., enactment of the OBBB).
    • Credits Impacted: §§ 45Y, 48E, 45Z, 45Q, 45X, and 45U.
  • FIE restriction applies to:
    • Taxable years beginning after July 4, 2025 (i.e., enactment of the OBBB) for §§ 45Y, 48E, 45Q, and 45X.
      • “Effective Control” is carved out from the FIE restriction for §§ 45Y, 48E and 45X.
  • Taxable years beginning after July 4, 2027, for §§ 45Z and 45U.
• EFFECTIVE CONTROL: Prevents taxpayers subject to “effective control” by an SFE for a given taxable year from claiming credits if the effective control determination was made with respect to a qualified facility, an energy storage technology, or an eligible component (as applicable).
  • Applies to §§ 45Y, 48E, and 45X for taxable years beginning after July 4, 2025 (i.e., enactment of the OBBB).
• MATERIAL ASSISTANCE: Credits under §§ 45X, 45Y, and 48E are disallowed if the taxpayer receives material assistance from a PFE.
  • Applies to facilities with BOC after December 31, 2025, for §§ 45Y and 48E.
  • Applies to taxable years beginning after July 4, 2025, for § 45X.
  • Determination of whether the taxpay received “material assistance” is discussed below in Section II.3.
• APPLICABLE PAYMENTS: For any ITC allowed in a taxable year beginning after July 4, 2027 (i.e., after two years following the enactment of the OBBB), recapture of 100% of any allowed ITC is required if an “applicable payment” (defined by cross-reference to payments that trigger “effective control”) is made to a PFE within 10 years of PIS of the facility.

3. Material Assistance

• CALCULATION OF RATIO: Requires calculation of a percentage, the numerator of which is direct costs not attributable to PFEs and the denominator of which is all direct costs.
  • For Qualifying Facilities and Energy Storage Technologies under §§ 45Y and 48E, the calculation focuses on Manufactured Products (including components) and can be expressed as:
    
    

• For eligible components under § 45X, the calculation focuses on direct material costs related to the production of eligible components and can be expressed as:
  
  

• QUALIFIED FACILITIES AND ENERGY STORAGE TECHNOLOGY (§45Y/§48E): Requires an increasing amount of a facility’s manufactured products NOT to be manufactured by PFEs based on the BOC date of the qualified facility or energy storage technology. This calculation is called the “Material Assistance Cost Ratio”.
  • Applies to facilities that BOC after December 31, 2025.
  • Material Assistance Cost Ratio calculations include qualified interconnection property (as defined in §48E(b)(4)).
  • Material Assistance Cost Ratio for Qualified Facilities and Energy Storage Technology:
    
    

• ELIGIBLE COMPONENTS (§ 45X): Requires an increasing amount of an eligible component’s direct material costs NOT to be mined, produced, or manufactured by PFEs based on the year the eligible component is sold.

• • Applies to taxable years beginning after July 4, 2025 (i.e., after the enactment of the OBBB).
  • Material Assistance Cost Ratio for Solar Energy Components, Wind Energy Components and Battery Components:
    
    

• Material Assistance Cost Ratio for Critical Minerals*:
  
  

*Subject to increase by Treasury no later than December 31, 2027, taking into account domestic geographic availability, supply chain constraints, domestic processing capacity needs, and national security concerns.

• GUIDANCE ON CALCULATION: Prior to promulgation of new guidance from Treasury (required by December 31, 2026), for purposes of calculating the Material Assistance Cost Ratio, the statute permits reliance on:
  • IRS Notice 2025-08 (relating to certain safe harbors for domestic content adder calculations), but scope of such reliance is not yet clear; and
    [Akin Note: This guidance only applies to §§ 45Y and 48E projects, and thus there is no current guidance for calculation of the Material Assistance Cost Ratio in the context of § 45X credits. Further, it is also not clear the extent to which IRS Notice 2025-08 may be relied upon for these purposes. For example, it is not clear whether the universe of manufactured products that must be tested are limited to the manufactured products and components thereof identified in IRS Notice 2025-08 or whether “production costs” can be included if all of the MPCs for an APC are not manufactured by a PFE.]

• • Supplier certifications are required to be made in a manner consistent with Treas. Reg. § 1.45X-4(c)(4)(i) and contain:
    • the supplier’s EIN or similar identification number issued by a foreign government;
    • be signed under penalties of perjury;
    • be retained by the supplier and the taxpayer for a period of not less than six years and provided to the IRS upon request; and
    • be made from the supplier from which the taxpayer purchased any manufactured product, eligible component, or constituent elements, materials, or subcomponents stating:
      • such property was not produced or manufactured by a PFE and that the supplier does not know (or have reason to know) that any prior supplier in the chain of production of that property is a PFE;
      • for purposes of § 45X, the total direct material costs for each component, constituent element, or subcomponent that were not produced or manufactured by a PFE; or
      • for purposes of §§ 45Y or 48E, the total direct costs attributable to all manufactured products that were not produced or manufactured by a PFE.
• EXCLUSION FOR CERTAIN MANUFACTURED PRODUCTS:
  • For purposes of §§ 45Y and 48E, calculations exclude the cost of any manufactured product if (i) acquired pursuant to a binding written contract entered into before June 16, 2025, (ii) PIS in a facility that BOC before August 1, 2025, and (iii) PIS before January 1, 2030 (or before January 1, 2028, in the case of wind and solar facilities).
  • For purposes of § 45X, calculations exclude the cost of any eligible component or constituent element, material, or subcomponent if the constituent element, material, or subcomponent is used in a product sold before January 1, 2027.
  • Treasury is instructed to issue regulations or guidance as may be necessary to prevent abuse of this exception through “stockpiling”.

4. Audit and Penalty Provisions

• EXTENDED STATUTE OF LIMITATIONS FOR MATERIAL ASSISTANCE: Extends the statute of limitations from three to six years for assessing deficiencies related to the material assistance rules.
• REDUCED PENALTY THRESHOLD: Reduces the threshold from 10% to 1% for the threshold to assess penalties related to a substantial understatement of income tax if the cause is an overstatement of the Material Assistance Cost Ratio with respect to the determination of credits under §§ 45Y, 48E, or 45X.
• NEW SUPPLIER CERTIFICATION PENALTY: Creates a new penalty based on inaccurate supplier certifications that result in a disallowance of credit.
  • Penalty applies where:
    • the certifying person knew or reasonably should have known that (A) the certification was inaccurate and (B) the certification would be used in connection with a credit determination; and
    • the disallowance exceeds the lesser of (x) 5% of the tax required to be shown on the return for the taxable year to be shown on the return and (y) $100,000.
  • Penalty is the greater of (x) 10% of the underpayment and (y) $5,000.
  • An exception applies to the extent a person can demonstrate to the satisfaction of the IRS that the inaccuracy was due to reasonable cause and not willful neglect.
  • Penalty is applicable to certifications made after December 31, 2025.

5. Transferability

• EXCLUSION FOR SFEs: An SFE is not eligible to be a transferee taxpayer under § 6418.
  • Applicable to taxable years beginning after July 4, 2025 (i.e., enactment of the OBBB).

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III. QI EXPANSION FOR MLPs

1. Qualifying Income

• 90% REQUIREMENT: Treatment of an MLP as a partnership for federal income tax purposes requires that at least 90% the MLP’s gross income for every taxable year consists of “qualifying income.”

2. Historical Application  

• LIMITED SCOPE OF QI: Previously, QI under § 7704(d)(1)(E) was limited to income and gains from the exploration, development, mining, production, processing, refining, transportation, or marketing of minerals or natural resources such as oil, gas, and certain fuels.

3. Expansion of QI

• NEW CATEGORIES OF QI:
  • Adds to QI income derived from:
    • transportation or storage of liquified hydrogen or compressed hydrogen;
    • carbon capture facilities and electricity production from qualifying facilities with sufficient carbon capture;
    • electricity production from advanced nuclear, hydropower, and geothermal facilities; and
    • thermal energy from hydropower and geothermal facilities.
  • Applicable to tax years beginning after December 31, 2025.

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