A List of Compliance Questions and a Decision Tree to Understand Prohibited Foreign Entities

On July 4, 2025, Congress passed Public Law 119-21 (OBBBA), which imposes new restrictions on renewable energy asset owners that seek to take advantage of certain federal tax credits. Applying the full scope of OBBBA’s rules to determine whether a project is eligible for tax credits requires understanding what a “prohibited foreign entity” (PFE) is, including the PFE status of suppliers, contractors, and other partners under the material assistance rules. The basic PFE rules set in the statute, however, are complex and densely cross-referenced.

To help stakeholders navigate this complexity, the Clean Energy States Alliance (CESA) has produced two companion resources: a numbered list of compliance questions, and an Excel “decision tree” worksheet that walks users through the PFE analysis step by step. Together, these resources unpack the layered statutory definitions and help users determine whether they, their counterparties, shareholders, or other partners may qualify as a PFE for purposes of Section 48E or Section 45Y tax credit eligibility.

The numbered list of compliance questions covers:

• Whether you are a Specified Foreign Entity (SFE), including the full set of foreign-entity-of-concern categories under the NDAA, Chinese military company designations, Uyghur Forced Labor Prevention Act listings, the named entities under the NDAA of 2024, and the rules for Foreign Controlled Entities (FCEs)
• Direct and indirect ownership tracing rules for corporations, partnerships, and other entities, including multi-tier chains through intermediate corporations, partnerships, S corporations, estates, and trusts
• Whether you are a Foreign-Influenced Entity (FIE), including tests based on appointment authority, single-SFE ownership thresholds, aggregate SFE ownership thresholds, debt thresholds, and contractual “effective control” tests for both general contracts and intellectual property licensing agreements

The accompanying Excel decision tree worksheet cross-references each numbered question and includes instructions on how to proceed when the answer is “yes,” “no,” or “I don’t know.” Where relevant, it also notes statutory and regulatory sources, areas of remaining uncertainty, and links to additional resources. The worksheet will help users highlight where remediation may be needed for compliance, what to discuss with a tax attorney, and how to organize a PFE analysis more broadly.

These resources are intended for renewable energy asset owners seeking to understand their own PFE status, as well as for partners, suppliers, and contractors who may need to determine their PFE status to support Section 48E or Section 45Y tax credit eligibility for a project. They focus exclusively on the statutory definitions of PFE; they do not cover Qualified Interconnection Property (QIP), partial production, or tax credit transfers. Treasury is expected to release clarifying information about PFEs in the future, and these documents will be updated as that guidance becomes available.

Important: Nothing in these resources should be construed as tax or legal advice. They are provided in an accessible format to support learning. Investment decisions should not be made on the basis of these documents, and tax law questions relating to specific situations should be directed to a reputable tax attorney.