The Material Assistance Cost Ratio: A Purity Test, Not a Domestic Content Test

September 17, 2026 · Dezzmond Team

Tax & Policy Policy & Regulation FEOC Material Assistance

The first FEOC problem is about who controls the taxpayer.

The second is about what went into the project.

Those sound related, but they produce two different diligence systems.

A U.S. project company can pass every ownership, debt and effective-control test described in the previous post and still lose its §45Y or §48E credit because too much of the equipment incorporated into the facility was mined, produced or manufactured by a prohibited foreign entity.

That second test is the Material Assistance Cost Ratio, or MACR.

Its arithmetic looks familiar because Congress deliberately borrowed cost-accounting machinery that renewable developers had already seen in the domestic-content guidance.

That similarity is useful.

It is also dangerous.

Domestic content asks how much qualifying U.S. content is in the project.

MACR asks how much of the relevant cost base is not attributable to a PFE.

A component can be foreign-made and still help MACR.

A component can be made in the United States and still hurt MACR if the relevant producer is a PFE.

So the same procurement decision can move the two tests in opposite directions.

That is why MACR should not be a tab hidden inside the domestic-content workbook.

It is an eligibility test for the underlying credit.

For §45Y and §48E facilities beginning construction after December 31, 2025, failing the applicable MACR threshold means the facility or energy storage technology includes material assistance from a PFE and is not eligible for the credit.

The cliff is the story.

Meet Project Mesa: Procurement Looks Fine Until the Date Moves

Project Mesa is an illustrative ground-mounted solar project.

Assume:

PFE beginning-of-construction year          2026
Qualified-facility MACR threshold            40%
Method                           table-based safe harbor
PFE-produced cell weight                      38%
Everything else initially treated non-PFE     62%

Mesa's first calculation is easy:

MACR = 100% - 38% = 62%
Threshold              40%
Headroom               22 percentage points

At procurement committee, 62% sounds comfortable.

Keep Mesa in mind. We will change only three facts as the article progresses: one supplier classification, the beginning-of-construction year, and one additional uncertain component. Those three changes move the same procurement package from a 22-point cushion to a failed credit-eligibility test.

Congress Turned Sourcing Into a Credit-Eligibility Test

The 2025 legislation added §7701(a)(52).

The new rule defines “material assistance from a prohibited foreign entity” by reference to a ratio.

For a qualified facility or energy storage technology:

Clean Electricity MACR
=
(Total Direct Costs - PFE Total Direct Costs)
/
Total Direct Costs

For a §45X eligible component, the structure is similar but uses direct material costs rather than facility-level direct costs.

The key conceptual point is that the ratio measures the non-PFE share of the relevant cost base.

A high ratio is good.

A low ratio is bad.

If the ratio falls below the statutory threshold, the project fails.

Notice 2026-15 then supplied interim rules for how to identify the property being tested, how to determine costs, how to use old domestic-content cost tables as temporary MACR safe harbors and how supplier certifications can substitute for information that a developer often cannot obtain itself.

As of September 28, 2026, the new PFE-specific safe-harbor tables required by §7701(a)(52) have not yet been published. Notice 2026-15 remains the operative interim guidance.

That matters because current transactions are being financed under a methodology that Treasury has explicitly said is temporary.

A Solar Project and a Battery Do Not Have the Same 2026 Threshold

One of the most important modeling errors is to create a single MACR threshold input.

There is no single threshold.

For qualified facilities under §45Y/§48E, the threshold depends on the year construction begins:

BOC year	Qualified facility threshold
2026	40%
2027	45%
2028	50%
2029	55%
After 2029	60%

For energy storage technology, the schedule is materially tighter:

BOC year	Energy storage threshold
2026	55%
2027	60%
2028	65%
2029	70%
After 2029	75%

So a 2026 solar facility can pass with a 45% Clean Electricity MACR.

A 2026 stand-alone BESS with the same 45% ratio fails.

That difference is not a footnote.

It belongs in the project model, the procurement strategy and the lender diligence checklist.

The §45X manufacturing thresholds are yet another schedule. For example, components sold in 2026 generally begin at:

50% for solar energy components;
85% for wind energy components;
50% for covered inverters; and
60% for qualifying battery components.

Those percentages increase in later years.

The relevant clock is also different:

§45Y / §48E project     → BOC year
§45X eligible component → sale year

A single “FEOC year” field is therefore not enough.

The Denominator Is Not Total Project Capex

The shorthand formula can create another bad model.

“Total Direct Costs” does not mean:

EPC price
+ development
+ financing fees
+ interconnection
+ contingency
+ land
+ everything else

For a qualified facility or energy storage technology, the statutory MACR looks to direct costs attributable to manufactured products, including components, incorporated into the facility or EST upon completion of construction.

Notice 2026-15 then tells taxpayers how to identify and track those manufactured products and manufactured-product components.

That means the denominator is a defined tax-cost population.

It is not total capex.

This is one reason a project can have a $300 million EPC budget and a much smaller MACR denominator.

Steel and iron can disappear from the calculation

Notice 2026-15 makes an important distinction for steel and iron.

Where steel or iron meets the description used in the domestic-content guidance and is not itself identified as a manufactured product or manufactured-product component under the applicable rules, it is not relevant to the Clean Electricity MACR.

Under the interim Identification and Cost Percentage Safe Harbors, rows identified as “Steel/Iron” or “Steel/Iron Product” are disregarded.

That is almost the opposite instinct a procurement team may have from domestic content, where steel and iron receive special attention.

Again: same project, different legal question.

Notice 2026-15 Gives Two Interim Safe-Harbor Paths, Not Three Independent Ones

The old version of this article described three separate safe harbors:

Identification;
Cost Percentage; and
Certification.

That is not the cleanest way to understand the notice.

The statute authorizes two interim safe-harbor mechanisms.

1. The table-based safe harbor

This is implemented through two linked pieces in Notice 2026-15.

Identification Safe Harbor
Use the 2023–2025 domestic-content safe-harbor tables to identify the relevant manufactured products and components for listed project types.

Cost Percentage Safe Harbor
Use the assigned cost percentages in those tables instead of determining actual direct costs.

You can use Identification without necessarily using Cost Percentage.

But if you use the Cost Percentage Safe Harbor, you first use the Identification Safe Harbor.

The tables therefore solve two different data problems:

What items do I need to track?
                 ↓
Identification Safe Harbor

What cost weight do I assign to them?
                 ↓
Cost Percentage Safe Harbor

For listed projects, the assigned percentages can dramatically simplify the model.

But the simplification comes with rules.

The listed components become an exclusive framework for the safe-harbor calculation. Listed-but-unused items are removed. Unlisted items can be disregarded under the safe-harbor rules. Steel/iron rows are removed as described above.

That is why this is a safe-harbor model, not a reconstruction of actual EPC economics.

2. The Certification Safe Harbor

The second route solves the information problem another way.

A direct supplier can certify either:

the relevant non-PFE direct costs / direct material costs; or
that the relevant manufactured product, component or constituent material was not PFE-produced or PFE-sourced.

A valid certification must satisfy formal statutory requirements, including identification information, signature under penalties of perjury and six-year retention by both supplier and taxpayer.

The supplier must also address what it knows — or has reason to know — about upstream suppliers.

The taxpayer may rely on the certification unless it knows or has reason to know that it is inaccurate.

That sentence is what turns a piece of paper into a diligence process.

A Certification Is Not a Magical Liability Transfer

Suppose a module supplier provides a signed certification saying the module and relevant components are not PFE-produced.

The taxpayer cannot put the PDF into a folder and stop thinking.

If other information in the transaction contradicts the certificate, reliance can fail.

The Code and Notice 2026-15 use a “knows or has reason to know” standard.

If the taxpayer knows or has reason to know that a manufactured product or eligible component was PFE-produced, the taxpayer must treat the relevant direct costs as PFE costs.

If it knows or has reason to know the supplier certification is inaccurate, it cannot rely on it.

That creates two separate contract questions:

Does the certification satisfy the tax safe harbor?
Who pays if the certification is wrong?

The first belongs to tax.

The second belongs in the supply agreement.

A bankable procurement package should address:

delivery timing;
required form and signatory;
supplier identification data;
upstream representations;
update obligations;
notice of ownership/control changes;
audit rights;
retention;
replacement rights;
indemnity;
survival; and
security or credit support where the tax exposure is material.

A tax certificate is evidence.

It is not a remedy.

The Safe-Harbor Tables Came From Domestic Content, but MACR Uses Them Differently

This is where the two regimes most easily get confused.

Notice 2026-15 temporarily reuses tables from:

Notice 2025-08;
Notice 2024-41; and
Notice 2023-38 for certain technologies.

Those tables were developed for domestic-content analysis.

For MACR, they are being repurposed to identify components and assign cost percentages.

That does not make MACR a domestic-content calculation.

Take a 2026 ground-mounted PV facility.

Notice 2026-15's example uses the Notice 2025-08 solar table and identifies, among other things:

PV modules     65.8%
Inverters       5.5%
PV trackers    28.7%

Inside the PV module, the table further assigns percentages to cells, glass, frame/backrail, encapsulant, junction box, ribbons and other components.

The taxpayer then flags which listed items are PFE-produced.

The MACR is calculated from the assigned percentage that remains non-PFE.

The country of manufacture is not the question unless it matters to whether the producer is a PFE.

That is why a Vietnamese non-PFE supplier can be completely acceptable for MACR and useless for a domestic-content bonus.

Actual Costs and Safe-Harbor Percentages Are Different Models

A project should know which methodology it is using.

Actual-cost route

The taxpayer determines:

the relevant MPs and MPCs;
its actual direct costs;
which items are PFE-produced; and
the resulting PFE direct costs.

That route may be economically faithful.

It can also require cost information the taxpayer does not have.

Cost-percentage route

The taxpayer uses the temporary safe-harbor tables.

Now the model is not trying to replicate purchase price.

It is applying assigned percentages.

A module that represents 65.8% of the safe-harbor project stack does not mean the developer literally paid 65.8% of project capex for modules.

It means the notice instructs the taxpayer to use that assigned weight for the safe-harbor calculation.

That distinction becomes important in diligence.

A lender should be able to tell whether a MACR workbook is:

actual-cost MACR
or
safe-harbor-percentage MACR

If the answer is “a mixture,” the project needs to identify exactly where the guidance permits that mixture and what evidence supports each input.

Storage Deserves Its Own MACR Workstream

BESS has two reasons to be treated separately.

First, its statutory threshold is higher.

A 2026 EST needs at least 55%, compared with 40% for a qualified facility.

Second, the battery supply chain is exactly where component and subcomponent sourcing can become difficult to trace.

Notice 2026-15's own energy-storage example shows how the ratio can change over a year as sourcing changes. It calculates separate MACRs for groups of otherwise similar EST units placed in service in different specified periods because the mix of PFE-produced components changed.

That is a useful modeling lesson.

Do not assume that:

Supplier = same
Technology = same
MACR = same

The relevant production source can change.

The taxpayer may need to track by unit, batch or specified period depending on the facts and the permitted averaging methodology.

For a BESS portfolio, procurement data therefore needs more granularity than the headline supplier name.

The Project and the Interconnection Can Produce Two Different MACR Results

Notice 2026-15 contains a particularly important §48E rule that is easy to miss.

Qualified interconnection property can be part of the qualified investment for certain facilities.

But it is not part of the §48E qualified facility itself.

For MACR, the notice treats qualified interconnection property separately.

If a taxpayer wants to claim §48E on qualifying interconnection expenditures, it must calculate a separate Clean Electricity MACR for that interconnection property.

Now suppose:

Facility MACR                  62%   → passes
Interconnection MACR          30%   → fails
Applicable threshold          40%

The failure of the interconnection MACR does not automatically destroy the §48E credit on the facility.

Instead, the interconnection expenditures are excluded from qualified investment.

The opposite is also true.

If the facility fails MACR, a passing interconnection MACR does not rescue the facility credit.

That gives the model three possible outputs:

Facility passes / QIP passes
→ facility basis + eligible interconnection expenditures potentially qualify

Facility passes / QIP fails
→ facility can qualify; QIP expenditures drop out

Facility fails
→ QIP cannot rescue the project

The table-based Identification and Cost Percentage Safe Harbors cannot be used for qualified interconnection property because the 2023–2025 tables were not built for it.

That means QIP can require actual-cost or certification work even when the facility uses the table safe harbor.

Beginning of Construction Determines Whether the Rule Applies at All

For §45Y qualified facilities and §48E qualified facilities / energy storage technology, the material-assistance restriction applies to construction beginning after December 31, 2025.

That makes BOC a gateway.

A project that legitimately began construction in 2025 can sit outside the new facility-level material-assistance restriction even if it reaches financial close or COD much later.

Mesa shows why the year matters even after the rule applies. Its initial 2026 qualified-facility threshold is 40%. If the exact same procurement package instead has a PFE BOC year of 2029, the applicable threshold rises to 55%. Nothing about the equipment changed; the legal hurdle did.

But this BOC analysis uses the PFE beginning-of-construction framework discussed in the previous post, not the later Notice 2025-42 wind/solar termination test.

That means a project finance model should not have one universal BOC date without identifying what legal purpose the date serves.

The anti-circumvention language also matters.

Congress specifically authorized rules against attempts to evade MACR through stockpiling or through a claimed BOC position where the facts and circumstances show construction had not actually begun.

A December invoice is not a tax strategy by itself.

The Existing-Contract Rule Can Remove Costs From the Ratio

There is a separate transition rule for older procurement.

At the taxpayer's election, certain property acquired, manufactured or assembled under a binding written contract entered into before June 16, 2025 can have its cost excluded from the MACR calculation if the other statutory timing conditions are satisfied.

For project property, those conditions include the relevant placed-in-service and BOC deadlines.

This is not the same as saying:

“Anything ordered before June 16, 2025 is grandfathered.”

The rule is cost-specific and conditional.

It also sits next to explicit anti-stockpiling authority.

For an acquisition of a partially developed project, this can create a major diligence item:

Contract date
Binding status
Counterparty
Property covered
BOC date
Expected PIS date
Election availability
Excluded cost
Anti-circumvention support

A legacy supply contract can materially improve MACR.

But only if the file proves that it qualifies.

Passing by One Percentage Point Is Not the Same as Being Bankable

Return to Mesa.

Its original MACR was 62%. Now supplier diligence concludes that module production itself must also be treated as PFE-produced, adding 4.7 percentage points to the PFE bucket.

Original PFE percentage                 38.0%
Additional PFE production weight         4.7%
                                        -----
Revised PFE percentage                  42.7%

Revised MACR = 100% - 42.7% = 57.3%

If Mesa begins construction in 2026:

MACR                     57.3%
Threshold                40.0%
Headroom                 17.3 points
Status                   PASS

Still comfortable.

Now change only the PFE BOC year to 2029:

MACR                     57.3%
2029 threshold           55.0%
Headroom                  2.3 points
Status                   PASS — thin

Finally, suppose another component with a 3.0% safe-harbor weight cannot obtain a reliable non-PFE certification and must be treated adversely.

Prior MACR               57.3%
Additional PFE weight    (3.0%)
                         -----
Stressed MACR            54.3%

2029 threshold           55.0%
Status                   FAIL

Mesa moved from 22 points of headroom to failure through three diligence/timing changes without changing the project's headline supplier list. That is what lenders should mean by MACR headroom. A binary PASS cell hides the financing risk.

There Is No General MACR Cure Comparable to PWA

Prevailing wage has correction mechanics.

MACR is different.

If the facility includes material assistance from a PFE because the ratio is below the applicable threshold, the project does not get a proportionally smaller §45Y or §48E credit.

The relevant property fails the eligibility rule.

That is why procurement needs to solve the issue before incorporation, not after tax diligence discovers it.

There can be contractual remedies against suppliers.

There can be replacement rights before construction completes.

There can be transition rules, certifications and safe harbors.

But there is no general statutory mechanism that says:

MACR shortfall
+ penalty payment
= full credit restored

The economics should reflect that asymmetry.

The IRS Filing Now Has to Tell the IRS Which Safe Harbor You Used

Notice 2026-15 does not only create a calculation methodology.

It creates a reporting trail.

A taxpayer using the interim safe harbors must attach a statement to the applicable credit form identifying:

the specific safe harbor used;
the applicable 2023–2025 table, where relevant; and
how the safe harbor was applied.

For §45Y, that connects to Form 7211.

For §48E, Form 3468.

For §45X, Form 7207.

The compliance model therefore needs to survive all the way from procurement through tax return preparation.

A spreadsheet that works at financial close but cannot explain which safe harbor generated each number is not finished.

The Safe-Harbor Rules Are Still Temporary

The statute requires Treasury to issue new safe-harbor tables and related guidance no later than December 31, 2026.

As of September 28, 2026, those PFE-specific tables have not yet been published.

Notice 2026-15 therefore remains the current bridge.

Its reliance periods are not identical for every provision.

For the interim substantive calculation guidance, §45Y/§48E projects can rely on the notice for construction beginning through 60 days after forthcoming proposed regulations are published.

For the interim table safe harbors, §45Y/§48E projects can rely on the notice for construction beginning through 60 days after the new safe-harbor tables and related guidance are published.

For §45X eligible components, the safe-harbor transition ends differently.

The practical implication is simple:

version-control the MACR conclusion.

Every financing model should record:

MACR methodology version
Notice / table relied upon
BOC date
Calculation date
Supplier certificates relied upon
Re-test trigger

When Treasury publishes the new tables, the project should know exactly which transactions need to be rerun.

Build Domestic Content and MACR on the Same Procurement Data — but Never the Same Logic

The cleanest implementation uses one component master table.

For each item:

Field	Example
Component	PV module
Supplier	Supplier A
Country of manufacture	Vietnam
Domestic-content status	Non-U.S.
PFE status	No
PFE-produced?	No
Safe-harbor cost %	65.8%
Supplier certification	Received
Reason-to-know issue	None
MACR treatment	Non-PFE

Then calculate two different outputs.

Domestic content

US manufactured-product percentage
vs
applicable domestic-content threshold

MACR

Non-PFE relevant cost percentage
vs
applicable MACR threshold

Same procurement database.

Different legal filters.

That is the architecture that exposes conflicts early.

Follow Project Mesa From Procurement to Credit Decision

Mesa's running example now reconciles in one table:

Step	PFE share	MACR	Threshold	Headroom	Result
Initial 2026 diligence	38.0%	62.0%	40.0%	22.0 pts	Pass
Module production reclassified	42.7%	57.3%	40.0%	17.3 pts	Pass
Same sourcing, BOC slips to 2029	42.7%	57.3%	55.0%	2.3 pts	Pass, thin
Another 3% component treated PFE	45.7%	54.3%	55.0%	(0.7) pts	Fail

The spreadsheet formula is simple; the diligence behind the inputs is not:

PFE_Safe_Harbor_Weight = SUM(weight of every item treated as PFE-produced)
MACR                   = 100% - PFE_Safe_Harbor_Weight
Headroom               = MACR - Applicable_Threshold

One more perimeter matters for §48E. Assume Mesa's facility ends at 57.3% against its 55% 2029 threshold, but separately tested qualified interconnection property produces only a 35% MACR. Under the rules described earlier, the facility's passing MACR is not automatically destroyed by the QIP failure; the interconnection expenditures can instead fall out of qualified investment.

That is why a single project-level MACR cell is not enough. Mesa may need a facility MACR and a separate QIP MACR.

What Lenders and Tax Credit Investors Should Ask

A useful MACR diligence request should be capable of rebuilding the conclusion.

Does the material-assistance rule apply based on the correct PFE BOC test?
Is the asset a qualified facility or an EST, and therefore what threshold applies?
What is the BOC-year threshold?
Is the calculation using actual costs, the table safe harbor, supplier certifications or a permitted combination?
If using the table-based safe harbor, which 2023–2025 table is being used?
Were steel/iron items treated correctly?
Are there unlisted but utilized components, or listed-but-unutilized components?
Is the project an 80/20 retrofit or an incremental-production facility, and do the safe-harbor limitations matter?
Are supplier certifications valid, signed, retained and from the correct direct supplier?
Does the taxpayer know or have reason to know anything inconsistent with those certifications?
What is the MACR headroom under adverse supplier classifications?
Does qualified interconnection property require a separate MACR?
Is any pre-June-16-2025 binding contract exclusion being used?
What happens when Treasury publishes the new PFE-specific tables?
Who owns the re-test obligation before tax-credit funding?

Those questions belong in lender and tax-credit diligence because the downside is not a modest adjustment to the rate.

It is the eligibility of the credit itself.

MACR Is a Procurement Covenant Disguised as a Tax Formula

The formula is simple:

non-PFE relevant costs
÷
total relevant costs

The transaction required to support that formula is not.

It needs:

a defensible BOC date;
a defined facility or EST perimeter;
component mapping;
cost methodology;
PFE status information;
upstream supplier representations;
certifications;
document retention;
adverse-case testing;
contract remedies; and
a process for future Treasury guidance.

Then there is a second ratio sitting next to it — domestic content — using much of the same procurement data to answer a different question.

That is why the right system is not two independent tax memos.

It is one procurement dataset with separate legal engines.

For domestic content:

How much of the relevant project is U.S.-made?

For MACR:

How much of the relevant project is not attributable to prohibited foreign entities?

Those questions can point in opposite directions.

And because one is a bonus while the other can determine whether the credit exists at all, the project should know which one gets priority before the purchase order is signed.

Primary sources: IRS — PFE Restrictions · IRS Notice 2026-15 · 26 U.S.C. §7701