The prohibited foreign entity rules for solar now have numbers attached. Under IRS Notice 2026-15, a commercial solar facility that begins construction in calendar year 2026 includes "material assistance from a prohibited foreign entity," and therefore loses the federal clean electricity credit, if its material assistance cost ratio is below 40 percent. For energy storage that begins construction in 2026 the floor is 55 percent. The notice is the interim guidance Treasury and the IRS issued to implement the restrictions Congress added in the July 4, 2025 tax law, and it says taxpayers may rely on it until 60 days after proposed regulations are published.
The ratio itself is simple to state. Take the total direct cost of the manufactured products in the facility, subtract the direct cost attributable to prohibited foreign entities, and divide by the total. What makes it a project question rather than a tax question is where the cost sits. In the notice's own worked example for a ground-mounted array, photovoltaic modules carry 65.8 percent of the assigned cost. The module decides the test.
How is the material assistance cost ratio calculated?
The notice lets a taxpayer identify manufactured products and their components using the same tables already used for the domestic content bonus, and to assign each product a cost percentage from those tables rather than from invoices. Until the Treasury publishes new safe harbor tables, which the law requires by December 31, 2026, the tables in Notice 2025-08 serve that purpose.
The second input is a certification from each supplier. Under the notice it must state the share of the product's direct cost that was not produced or manufactured by a prohibited foreign entity, carry the supplier's employer identification number, be signed under penalties of perjury, and be retained by both supplier and taxpayer for at least six years. If the buyer knows, or has reason to know, that a product was made by a prohibited foreign entity, every dollar of that product counts against the ratio, whatever the certification says.
For storage the arithmetic is tighter. Energy News, in a September 2 analysis of the notice, points out that the federal safe harbor tables already assign 52 percent of a grid-scale battery system's total direct cost to the cells alone. With a 55 percent floor in 2026, and Energy News reporting a 75 percent floor for storage that begins construction in 2030 or later, the origin of the cells settles most of the question before the cabinet is bolted down.
What this means for a business planning a system in the Southeast
The 30 percent credit is claimed on the owner's return, so the ratio is the owner's number to defend. A facility in Georgia or the Carolinas that signs a contract this fall for construction in 2026 wants three things in the file before the modules ship: the bill of materials with assigned cost percentages, the supplier certifications in the form the notice describes, and a written record of when construction began. The notice is explicit that its earlier begin-construction guidance for the credit's termination dates, Notice 2025-42, does not decide the begin-construction question for these rules, so the date needs its own support.
There is a separate federal action that has caused some confusion, and it is worth stating plainly what it does not do. Executive Order 14421 of August 26, 2026 declared a national emergency over foreign-produced bulk-power system equipment and gave the Secretary of Energy authority to prohibit acquisitions and installations initiated after that date. The order defines the bulk-power system around transmission rated at 69,000 volts and above, and its definition expressly excludes facilities used in the local distribution of electric energy. A rooftop or ground-mounted system behind a business's meter, connected at distribution voltage, is outside that definition as written. The Department of Energy has 120 days to publish implementing rules, and it opened a request for information on September 9 with comments due October 9.
The two programs pull in the same direction. A project that documents where its modules, inverters and cells were made satisfies the tax test and is ready for whatever the energy rules ask.
How we handle the sourcing question
We build under a single commercial solar EPC contract, which means the same people who specify the equipment assemble the certification file. On the 1.267 MW Samsonite and TUMI roof in Vidalia the module, inverter and racking supply was fixed at contract, and that is the point at which the cost ratio is decided. The notice's tables say the module carries most of the weight, so module selection is where the time goes, with the supplier certification requested before the purchase order is signed rather than after.
For commercial battery storage we set out the cell origin and its cost share in the proposal so the customer's tax adviser can run the 55 percent test on real numbers rather than assumptions. The credit rules themselves, including the construction and placed-in-service deadlines that sit alongside this test, are covered on our federal solar tax credit page and in our report on the 2027 deadline for the commercial solar tax credit. How the credit interacts with depreciation is in stacking the solar tax credit with Section 179.
If you are planning a system in Georgia or elsewhere in the Southeast for construction in 2026, the ratio is easier to clear now than it will be in 2027. Send us twelve months of utility bills and we will size the system, price it with equipment that is documented to the notice's standard, and show you the cost ratio on the proposal.