Prohibited Foreign Entity (PFE) Rules
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Prohibited Foreign Entities
Energy Tax Resource Library
The One Big Beautiful Bill Act (OBBB) – enacted on July 4, 2025 – included new Prohibited Foreign Entity (PFE) Rules that restrict who may qualify for various tax credits, including the investment tax credit (Section 45Y or ITC), production tax credit (Section 48E or PTC), Advanced Manufacturing Tax Credit (Section 45X), Zero-Emission Nuclear Power Production Credit (Section 45U), Clean Fuel Production Credit (Section 45Z) and Credit for Carbon Oxide Sequestration (Section 45Q). These new rules are sometimes referred to as the foreign entity of concern (FEOC) rules.
Specifically, under the new PFE Rules, taxpayers seeking the credits listed above must determine if they are a "specified foreign entity" (SFE) or a "foreign-influenced entity" (FIE). If a taxpayer is either one, then it will not qualify for the tax credits. Moreover, for purposes of claiming the ITC, PTC or Advanced Manufacturing Tax Credit, taxpayers must comply with rules that prohibit qualified facilities, qualified interconnection property and eligible components from including any "material assistance from a prohibited foreign entity."
Taxpayers who wish to claim these tax credits for years beginning after OBBB's enactment – for most taxpayers, the 2026 calendar year – must comply with these rules.