Prohibited Foreign Entity Restrictions for the Clean Energy Credits under Code Sections 48E and 45Y

This document provides a summary of current law and guidance to help entities understand Prohibited Foreign Entity (“PFE”) restrictions, including an explanation of taxable year and examples. While early draft bills referred to these as Foreign Entity of Concern or “FEOC” restrictions, this FEOC terminology is not used in the legislation as signed into law and official legislative sources will use the final PFE terminology.

These new and complex PFE restrictions were added to the requirements for the following six clean energy credits:

1. Clean Electricity Investment Tax Credit (“ITC”) under Section 48E,
2. Clean Electricity Production Tax Credit (“PTC”) under Section 45Y,
3. Advanced Manufacturing Production Tax Credit under Section 45X,
4. Credit for Carbon Oxide Sequestration under Section 45Q,
5. Zero-Emission Nuclear Power Production Tax Credit under Section 45U, and
6. Clean Fuel Production Tax Credit under Section 45Z.

There are different levels of PFE restrictions for the different credits. This guidance brief focuses on the PFE restrictions for the ITC and PTC, which are the credits that the entities with which L4GG works most frequently claim through the Elective Pay process.

Note that the PFE restrictions apply only to the six clean energy tax credits listed above. This means that the PFE restrictions do not apply to the legacy ITC and PTC under Sections 48 and 45, which are available with respect to eligible energy property for which construction began before January 1, 2025.

To stay informed of additional updates post guidance, subscribe here.

Read Full Article Here