On May 12, 2025, the House Ways and Means Committee reported out a significant tax reconciliation bill, known as the “One, Big, Beautiful Bill.” While the bill aims to extend and enhance several provisions from the 2017 Tax Cuts and Jobs Act, it introduces substantial new restrictions on clean energy tax credits related to the involvement of “foreign entities of concern” (FEOCs) (also referred to as “prohibited foreign entities”), particularly targeting Chinese entities. Although the OBBB as reported by the Ways and Means Committee provided some delay in some of the FEOC restriction effective dates, the House Rules Committee subsequently added a manager’s amendment to accelerate the effective dates of these restrictions. These accelerated deadlines were adopted in the version passed by the full House on May 22, 2025. (Please see our alert here regarding the full House-passed version.)
Most of the major Inflation Reduction Act (IRA) credits that survive in the bill are now subject to new FEOC restrictions. Additionally, credits §45Y, §48E, and §45X are subject to additional restrictions for facilities or projects deemed to receive “material assistance” from FEOCs. Below is a summary of the affected credits, including the date of termination and the effective date of FEOC restrictions:
*This table assumes enactment in 2025
Key provisions of the FEOC rule
Under the bill, eligibility for these credits is generally denied where a “prohibited foreign entity” (i.e., a FEOC) is involved in certain aspects of the facility’s development or ownership. There are several prongs:
- Ownership: The facility cannot be owned, in whole or part, by a FEOC. In other words, it cannot be a “foreign-controlled entity.”
- Control/Operation: FEOCs may not operate or have control rights over the project. In other words, it cannot be a “foreign-influenced entity.”
- Use of Components or Assistance: The most sweeping limitation applies to any project whose construction “involves material assistance” from a FEOC.
“Material Assistance” — The Most Onerous Restriction
Almost certainly the most significant restriction, the material assistance provision denies eligibility for any credit to any facility that receives “material assistance” from a prohibited foreign entity. Material assistance is defined as:
- Any component, subcomponent, or critical mineral (as defined under §45X(c)(6)) that is extracted, processed, recycled, manufactured, or assembled by a prohibited foreign entity;
- Any design of the property that is based on copyrights, patents, know-how, or trade secrets provided by such entities.
Exceptions: What doesn’t count as “Material Assistance”?
The bill provides limited safe harbors for certain non-specialized materials:
- Assembly parts and constituent materials do not constitute material assistance if they are:
- Not uniquely designed or formulated for the type of facility or component that benefits from the tax credit; and
- Not exclusively or predominantly produced or sourced from prohibited foreign entities.
A key interpretive question arises: would the fact that a component (say, steel or circuit boards) is used across a variety of facility types mean that it qualifies under the “not designed exclusively” clause? That seems plausible—and may be critical to structuring compliance strategies. However, the “predominantly available” test introduces ambiguity, especially in markets where supply chains are heavily concentrated in China.
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