Amendments to IRA Tax Credits in the Senate Budget Bill

On July 1, 2025, the Senate passed (by a vote of 51-50) its version of the budget reconciliation bill (H.R. 1, the "One Big Beautiful Bill Act") containing numerous tax reform provisions. Below are our summaries of the proposed amendments to certain tax credits under the Inflation Reduction Act of 2022 ("IRA") as well as our initial observations. The bill now returns to the House of Representatives for further consideration and markup, and we will continue to monitor any developments and updates.

The focus of the updates in the Senate bill relative to the bill passed by the House of Representatives are as follows:

• Special rules would apply to wind and solar, including (i) a placed in service deadline of Dec. 31, 2027, for facilities beginning construction after 1 year from enactment, (ii) removal of "energy property" under section 48 from 5-year MACRS depreciation, and (iii) amendments to the applicable domestic content percentages under section 48E;
• Enhanced foreign entity of concern (FEOC) restrictions, including (i) application of the "material assistance" rules to wind and solar facilities beginning construction after Dec. 31, 2025, (ii) extending the period for assessment to 6 years for a deficiency attributable to an error in the determination of "material assistance from a prohibited foreign entity", and (iii) introducing accuracy-related penalties for understatements of income tax by more than 1% due to overstating the "material assistance cost ratio" of property qualifying for credits under sections 45X, 45Y, or 48E;
• Codification of the beginning of construction rules in IRS Notices 2013-29 and 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either Notice), as in effect on Jan. 1, 2025, for purposes of the FEOC requirements;
• "Metallurgical coal" would be eligible for the advanced manufacturing production credit under section 45X in tax years beginning after enactment and until Dec. 31, 2029; and
• Clean hydrogen production facilities beginning construction before Jan. 1, 2028, would remain eligible for credits under section 45V, with no applicable FEOC requirements.

Reference Guide for Amendments to IRA Tax Credits in the Senate Budget Bill:

Observation: Projects seeking tax credits under sections 45 and 48 are generally unaffected by the bill, except as described below with respect to the termination of 2% energy credit. To be eligible for tax credits under sections 45 or 48, a project (except for ground or groundwater thermal systems, as described below) must have begun construction before Jan. 1, 2025, and generally be placed in service within 4 years (or 10 years in the case of offshore wind) after in year in which construction begun.

§168 – Accelerated Cost Recovery System (Depreciation)

• Section 45Y and 48E property would continue to be listed as 5-year MACRS property under section 168.
• Property that would be "energy property" as defined in section 48 would no longer be listed as 5-year MACRS property under Section 168.

Observation: Without a specific indication to the contrary, there are arguments that such property would continue to be subject to the MACRS rules/guidance, which include general rules regarding the determination of MACRS class lives (such as Rev. Proc. 87-56).

• Alternatively, taxpayers would appear to be able to elect the alternative depreciation system and apply 12-year, straight-line recovery under section 168(g).

45Y – Clean Electricity Production Credit & §48E – Clean Electricity Investment Credit

• Placed in Service Deadline for Wind and Solar: Credits would terminate for wind and solar facilities that begin construction after 1 year from enactment and are not placed in service before Jan. 1, 2028—facilities that begin construction within 1 year from enactment would not be subject to the placed in service deadline.
• Phase-Out for other technologies: All technology other than wind and solar would phase out after 2032 as follows:
  • 100% credit for facilities beginning construction during 2033;
  • 75% credit for facilities beginning construction during 2034;
  • 50% credit for facilities beginning construction during 2035; and
  • 0% credit for facilities beginning construction after Dec. 31, 2035.

Observation: The version of the bill that passed the House included deadlines based on beginning construction (within 60 days of enactment) and being placed in service (by Dec. 31, 2028). The Senate Finance Committee's version of the bill included a modified phaseout for wind and solar based on beginning construction by Dec. 31, 2027, however that proposal was then replaced with a placed in service deadline of Dec. 31, 2027 for projects beginning construction one year after enactment.

Observation: The accelerated timeline for wind and solar projects to be placed in service (as compared to the phase out for other technologies) presents additional challenges for developers faced with construction and supply uncertainty and potential inability to control the timing for when their facilities can be placed in service.

• FEOC restrictions would disallow credit to:
  • Taxpayers who are a "specified foreign entity" or a "foreign-influenced entity" (without regard to "effective control") for tax years beginning after enactment;
  • Taxpayers whose facilities are determined to be under "effective control" by a "specified foreign entity" in tax years beginning after enactment; and
  • Facilities that begin construction after Dec. 31, 2025, and include "material assistance from a prohibited foreign entity".

Observation: Requiring that "effective control" be "determined", in this context, implies that the determination will be made during post-filing examination and enforcement.

• Special ITC Recapture Rule: 100% of ITCs claimed under section 48E with respect to a property would be recaptured if a "specified taxpayer" (i.e., one who is allowed an ITC for any tax year beginning 2 years after enactment) makes an "applicable payment" within 10 years after the property is placed in service.
• Transferability would continue to be available for the duration of the credit period.
• Special Rule for Residential Property: No credit would be allowed for residential solar water heating property or small wind energy property if the taxpayer/owner rents or leases such property to a third party.

Observation: Projects subject to PPAs and other property (such as battery storage projects) apparently would not be subject to the rule above.

Observation: Under the current Senate bill (unlike the House bill and previous Senate Finance Committee bill), residential solar electric property would not be subject to the rule above. Therefore, residential solar electric property leased to customers would still be eligible for section 45Y or 48E credits provided that other credit eligibility requirements are satisfied.

Observation: Residential projects that can demonstrate that they began construction in 2024 would qualify for the ITC under section 48.

• Nuclear Energy Communities: Advanced nuclear facilities located in a metropolitan statistical area that has (or at any time after Dec. 31, 2009 has had) 0.17% of greater direct employment related to advanced nuclear power would be eligible for the energy community bonus credit amount for PTCs under section 45Y (but not for ITCs under section 48E).
• Correction to Domestic Content Percentages Under 48E: The domestic content applicable percentage under 48E for qualified facilities and energy storage technology would be revised to match current 45Y as follows:
  • 40% (or 20% for offshore wind) if construction begins before June 16, 2025;
  • 45% (or 27.5% for offshore wind) if construction begins after June 16, 2025, and before Jan. 1, 2026;
  • 50% (or 35% for offshore wind) if construction begins during 2026; and
  • 55% if construction begins after Dec. 31, 2026.
• Special Rules for Fuel Cell Property: For qualified fuel cell property that begins construction after Dec. 31, 2025, the credit rate would be fixed at 30% and could not be increased or otherwise adjusted, and the zero GHG emissions requirement and recapture rule for GHG emissions greater than 10 grams of C02e per KWh would not apply.

Observation: The fixed 30% ITC rate for fuel cell property suggests that PWA compliance would no longer be necessary to qualify for the full ITC rate, however the ITC rate could not be increased through bonus credit amounts for energy community or domestic content or otherwise.

§45Q – Carbon Oxide Sequestration Credit

• Parity of Credit Rate: For facilities placed in service after enactment, the credit amount would be the same regardless of whether the taxpayer merely disposed of the captured carbon oxide or undertakes use or utilization of the captured carbon oxide, as follows:
  • $17 ($36 for direct air capture) for tax years beginning in a calendar year after 2024 and before 2027 (indexed for 2025-inflation for any taxable year beginning in a calendar year after 2026)
• FEOC restrictions would disallow credit to:
  • Taxpayers who are a "specified foreign entity" or a "foreign-influenced entity" (without regard to "effective control") for tax years beginning after enactment.

§45U – Clean Electricity Production (For Existing Nuclear Facilities)

• The credit would terminate for electricity produced and sold after Dec. 31, 2032.
• FEOC restrictions would disallow credit to:
  • Taxpayers who are a "specified foreign entity" for tax years beginning after enactment;
  • Taxpayers who are a "foreign-influenced entity" (without regard to "effective control") in tax years beginning 2 years after enactment; and
• Transferability would continue to be available for the duration of the credit period.

§45V – Clean Hydrogen Production Credit

• This credit would be terminated for facilities that begin construction after Dec. 31, 2027.

Observation: The FEOC restrictions apparently would not apply to section 45V.

§45X – Advanced Manufacturing Production Credit

• Except as noted below, the credit rate would phase out under the current schedule based on the date the eligible components are sold:
• Before Jan. 1, 2030: 100%;
  • During 2030: 75%;
  • During 2031: 50%;
  • During 2032: 25%;
  • After Dec. 31, 2032: 0%.
• Wind energy components produced and sold after December 31, 2027, would not be credit eligible.
• For critical minerals other than metallurgical coal, the credit rate would phase out as follows based on the date the critical minerals are produced:
  • Before Jan. 1, 2031: 100%;
  • During 2031: 75%;
  • During 2032: 50%;
  • During 2033: 25%;
  • After Dec. 31, 2033: 0%.
• Inclusion of Metallurgical Coal as a Critical Mineral: Metallurgical coal that is suitable for use in the production of steel (within the meaning of the Department of Energy notice "Critical Mineral List; Addition of Metallurgical Coal Used for Steelmaking" (90 Fed. Reg. 22711 (May 29, 2025))) would be credit-eligible at a rate of 2.5% of the costs incurred by the taxpayer with respect to production, regardless of whether such production occurs inside or outside of the United States.
  • Metallurgical coal produced after Dec. 31, 2029, would not be credit eligible.

Observation: Under section 45X(d)(2) (not modified by the bill), sales are taken into account for section 45X credits only when production of eligible components is within the United States (or its possession). It remains to be seen whether this provision effectively requires the production of metallurgical coal to be within the United States to be credit-eligible.

• FEOC restrictions would disallow credit to:
  • Taxpayers who are a "specified foreign entity" or a "foreign-influenced entity" (without regard to "effective control") for tax years beginning after enactment;
  • Taxpayers who are determined to have produced eligible components through "effective control" by a "specified foreign entity" in tax years beginning after enactment; and
  • Eligible components produced in tax years beginning after enactment that include any "material assistance from a prohibited foreign entity".
• Additional Requirement for Battery Modules: To be credit-eligible, battery modules would be required to be comprised of all other essential equipment needed for battery functionality, such as current collector assemblies and voltage sense harnesses, or any other essential energy collection equipment.
• Sale of Integrated Components: For tax years beginning after Dec. 31, 2026, sales of integrated components would remain credit-eligible only if the "primary component" is integrated, incorporated, or assembled into a "secondary component" (i) that is produced within the same manufacturing facility as the primary component, (ii) that is sold to an unrelated person, and (iii) for which not less than 65% of the total direct material costs are attributable to primary components which are mined, produced, or manufactured in the United States.

Observation: Taxpayers could still elect to treat a sale of components to a related person as being made to an unrelated person.

§45Z – Clean Fuel Production Credit

• The credit period would be extended until Dec. 31, 2029 (based on when the fuel is sold).
• Fuel produced after December 31, 2025, would be required to be exclusively derived from feedstock produced or grown in the United States, Mexico, or Canada.
• Transportation fuel emissions rates published after Dec. 31, 2025, could not be less than zero.
• Lifecycle greenhouse gas emissions would exclude any emissions attributed to indirect land use charge, and distinct emissions rates would be provided for transportation fuels derived from animal manure, including dairy, swine, and poultry.
• Prevention of Double Credit: fuel produced from a fuel that generated a credit under section 45Z would not be credit eligible, and Treasury would be authorized to issue guidance on preventing the doubling of 45Z credits.
• Sales to Unrelated Persons: Treasury would be authorized to prescribe rules for related persons whom the taxpayer has reason to believe will sell fuel to an unrelated person.
• Special Rules for Sustainable Aviation Fuel:
  • For fuel sold or used on or after enactment (and fuel sold or used before enactment that have not yet been allowed or paid a credit under section 6426(k)), the sustainable aviation fuel credit under section 6426(k) would not be allowed for any gallon of fuel that could receive a credit under section 45Z.
  • For fuel produced after Dec. 31, 2025, the increased credit rate for SAF would not apply.
  • The sustainable aviation fuel credit under section 6426(k) would not apply to any sale or use for any period after September 30, 2025.
• Small Agri-Biodiesel Producer Credit: For fuel sold or used after June 30, 2025:
  • The small agri-biodiesel producer credit under section 40A would be extended to sale or use on or before Dec. 31, 2026;
  • The credit amount would be increased from $0.10 to $0.20 per gallon of qualified agri-biodiesel production, and would be in addition to any credit determined under section 45Z with respect to such gallon of fuel;
  • The small agri-biodiesel producer credit could be transferred pursuant to section 6418; and
  • Eligible small agri-biodiesel producers would be required to be exclusively derived from feedstock produced or grown in the United States, Mexico, or Canada.
• FEOC restrictions would disallow credit to:
  • Taxpayers who are a "specified foreign entity" for tax years beginning after enactment; and
  • Taxpayers who are a "foreign-influenced entity" (without regard to "effective control") for tax years beginning 2 years after enactment.

§48 – Energy Credit

• The 2% energy credit would terminate for any energy property beginning construction after June 16, 2025.

Observation: For projects beginning construction on or after Jan. 1, 2025, only ground or groundwater thermal systems remain eligible for the 6% energy credit, because other energy property eligible for a 6% energy credit (including fuel cells, solar, geothermal, small wind property, waste energy recovery property, energy storage technology, biogas property, microgrid controllers, and combined heat and power property) converted to the "tech-neutral" ITC under section 48E.

§48C – Qualifying Advanced Energy Project Credit

• Upon enactment, allocations revoked for failure to place the project in service within 2 years from the date of certification would not be restored to the total amount of allocations under the program.

§6418 – Transfer of Certain Credits

• Unlike the House bill, the Senate bill does not include a deadline with respect to the transfer of credits; however, transfers of credits under 45Q, 45U, 45X, 45Y, 45Z, or 48E to a "specified foreign entity" would be prohibited.

Observation: The preservation of transferability is undermined by the accelerated expiration of the credits themselves.

Observation: Additional FEOC requirements would apply to credits under sections 45Y,48E, and 45X that would not apply to credits under sections 45U, 45Q, 45Z, and 48.

FEOC Restrictions:

• A "prohibited foreign entity" is either (i) a specified foreign entity or (ii) a foreign-influenced entity.
• "Specified foreign entities" include:
  • entities designated as a foreign terrorist organization by the Secretary of State;¹⁷
  • entities included on the specially designated nationals and blocked persons list maintained by the Treasury Department's Office of Foreign Assets Control;¹⁸
  • entities alleged by the Attorney General to have engaged in conduct for which a conviction was obtained under certain laws;
  • entities determined by the Secretary of Commerce, in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to U.S national security or foreign policy;¹⁹
  • Chinese military company operating in the United States;²⁰
  • entities Listed Under the Uyghur Forced Labor Prevention Act²¹; or
  • certain battery producing entities.²²
• Specified foreign entities include "foreign controlled entities" such as (i) the government of a covered nation (e.g., China, Russia, Iran, or North Korea), (ii) an agency or instrumentality of a government of a covered nation, (iii) a citizen or national of a covered nation without U.S. status as a citizen, national or lawful permanent resident, (iv) an entity organized under the laws of, or having its principal place of business in, a covered nation, or (v) an entity controlled by any of the above, including subsidiaries, measured by more than 50% ownership of stock in a corporation, profits interests or capital interests in a partnership, or other beneficial interest in the entity (under the section 318 attribution rules).
  • There would be an exception for publicly traded entities, except that (i) any exchange or market which is incorporated or organized under the laws of a covered nation or has its principal place of business in a covered nation is excluded from the definition of exchange or market for this purpose, and (ii) such entity shall still be deemed to be a foreign-controlled entity if 1 or more specified foreign entities or foreign-controlled entities controls more than 50%.
• An entity is a "foreign-influenced entity" if:
  • (i) During the taxable year:
    • A specified foreign entity has direct or indirect authority to appoint a board member, executive officer, or similar individual;
    • A single specified foreign entity owns at least 25% of the entity;
    • One or more specified foreign entities own in the aggregate at least 40% of the entity; or
    • At least 15% of the entity's debt is held in the aggregate by one or more specified foreign entities; or
  • (ii) During the prior taxable year, the entity made an "applicable payment" to a specified foreign entity pursuant to a contract, agreement, or other arrangement which entitles the specified foreign entity (or a related entity) to exercise "effective control" over (i) any qualified facility or energy storage technology of the taxpayer (or any related person) or (ii) the extraction, processing, or recycling of any applicable critical mineral or production of an eligible component by the taxpayer (or any related person):
  • "Effective control" generally would mean 1 or more agreements or arrangements which provide 1 or more contractual counterparties (or related person) of a taxpayer with specific authority over key aspects of the production of eligible components, energy generation, or energy storage which are not included in the measures of control through authority, ownership, or debt held.
  • Until FEOC guidance is issued, "effective control" would mean the unrestricted contractual right of a contractual counterparty to make certain major decisions for the taxpayer (including any related party to the taxpayer), such as (i) determine the quantity or timing of production of an eligible components, (ii) determine the amount or timing of activities related to the production of electricity or the storage or electrical energy, (iii) determine which entity may purchase or use the output of a production unit, (iv) determine which entity may purchase or use the output of a qualified facility, (v) restrict access to data critical to production or storage of energy, or to the site of production or any part of a qualified facility or energy storage technology of the taxpayer, to the personnel or agents of such contractual counterparty, or (vi) on an exclusive basis, maintain, repair, or operate any plant or equipment which is necessary to the production of eligible components or electricity.
  • With respect to a licensing agreement entered into with a contractual counterparty (or related person), "effective control" would also mean a contractual right to (i) specify or otherwise direct 1 or more sources of components, subcomponents, or applicable critical minerals, (ii) direct the operation, (iii) limit the taxpayer's utilization of intellectual property, (iv) receive royalties under the licensing agreement or any similar arrangement (or payments under any related agreement) beyond the 10th year of the agreement (including modifications or extensions), (v) direct or otherwise require the taxpayer (or any related party) to enter into an agreement for the provision of services for a duration longer than 2 years (including any modifications or extensions), or the contract, agreement, or other arrangement (vi) does not provide the licensee with all the technical data, information, and know-how necessary to enable the licensee to produce the eligible component or components subject to the contract, agreement, or other arrangement without further involvement from the contractual counterparty (or related person) or a specified foreign entity, or (vii) was entered into (or modified) on or after the date of enactment.
    • There would be an exception for a bona fide purchase or sale of intellectual property. However, a bona fide purchase or sale would not include any purchase or sale of intellectual property where the agreement provides that ownership of the intellectual property reverts to the contractual counterparty after a period of time.
  • There would be an exception for publicly traded entities, except such entity shall still be deemed to be a foreign-influenced entity if (i) a specified foreign entity has the authority to appoint a covered officer, (ii) a single specified foreign entity owns not less than 25% of the publicly traded entity, (iii) 1 or more specified foreign entities own in the aggregate not less than 40% of the publicly traded entity, or (iv) debt in excess of 15% of the publicly traded debt of the publicly traded entity has been issued to 1 or more specified foreign entities.
• Whether construction or production of any property includes "material assistance from a prohibited foreign entity" would be determined based on whether the "material assistance cost ratio" is less than the "threshold percentage".
  • Threshold percentages:
  • For any qualified facility under sections 45Y or 48E, the threshold percentage would be:
    • 40% if construction begins in 2026;
    • 45% if construction begins in 2027;
    • 50% if construction begins in 2028;
    • 55% if construction begins in 2029; and
    • 60% if construction begins after Dec. 31, 2029.
  • For energy storage technology under section 48E, the threshold percentage would be:
    • 55% if construction begins in 2026;
    • 60% if construction begins in 2027;
    • 65% if construction begins in 2028;
    • 70% if construction begins in 2029; and
    • 75% if construction begins in after Dec. 31, 2029.
  • For solar energy components:
    • 50% if sold during 2026;
    • 60% if sold during 2027;
    • 70% if sold during 2028;
    • 80% if sold during 2029; and
    • 85% if sold after Dec. 31, 2029.
  • For wind energy components:
    • 85% if sold during 2026; and
    • 90% if sold during 2027.
  • For inverters:
    • 50% if sold during 2026;
    • 55% if sold during 2027;
    • 60% if sold during 2028;
    • 65% if sold during 2029; and
    • 70% if sold after Dec. 31, 2029.
  • For qualifying battery components:
    • 60% if sold during 2026;
    • 65% if sold during 2027;
    • 70% if sold during 2028;
    • 80% if sold during 2029; and
    • 85% if sold after Dec. 31, 2029.
  • For applicable critical minerals:
    • 0% if sold after Dec. 31, 2025 and before Jan. 1, 2030;
    • 25% if sold during 2030;
    • 30% if sold during 2031;
    • 40% if sold during 2032; and
    • 50% if sold after Dec. 31, 2032.

Observation: For purposes of the FEOC requirements, the Senate bill would codify that "beginning of construction" for tax purposes is determined pursuant to rules under IRS Notices 2013-29 and 2018-59 (as well as any subsequently issued guidance clarifying, modifying, or updating either Notice), as in effect on Jan. 1, 2025.

Observation: Treasury would be required to issue guidance not later than Dec. 31, 2027 applying new threshold percentages for critical minerals equaling or exceeding these amounts, taking into account domestic geographic availability, supply chain constraints, domestic processing capacity needs, and national security concerns.

• Material assistance cost ratios:
  • For any qualified facility or energy storage technology, the material assistance cost ratio is the ratio of (i) the total costs of all manufactured products incorporated into the qualified facility or energy storage technology upon completion of construction minus such costs that are mined, produced, or manufactured by a prohibited foreign entity, divided by (ii) the total costs of all manufactured products incorporated into the qualified facility or energy storage technology upon completion of construction.
    • "Manufactured product" has the same meaning as provided in domestic content guidance.
  • For any product line that produces eligible components, the material assistance cost ratio is the ratio of (i) the total direct materials costs that are paid or incurred for production of such eligible components minus such costs that are mined, produced, or manufactured by a prohibited foreign entity, divided by (ii) the total direct materials costs that are paid or incurred for production of such eligible components.
  • Safe harbor tables: Not later than Dec. 31, 2026, Treasury would be required to issue safe harbor tables. Until then, and for qualified facilities that begin construction within 60 days after the issuance of such tables, a taxpayer may (i) use the tables provided in the domestic content safe harbor guidance (IRS Notice 2025-08) to establish the total direct material cost of any listed eligible component or manufactured product and (ii) rely on a certification by the supplier that the manufactured product, eligible component, constituent element, material, or subcomponent was not produced or manufactured by a prohibited foreign entity.
    • Certification requirement: The certification from the supplier would be required to (i) include the supplier's EIN, (ii) be signed under penalty of perjury, (iii) be retained by the supplier for not less than 6 years and be provided to the IRS upon request, and (iv) state either (1) that such property was not produced or manufactured by a prohibited foreign entity and that the supplier does not know (or have reason to know) that any prior supplier in the chain of production of that property is a prohibited foreign entity, or (2) the total direct material cost for each product or component that were not produced or manufactured by a prohibited foreign entity.
    • If a taxpayer knows or has reason to know that a manufactured product or eligible component was produced or manufactured by a prohibited foreign entity, then the taxpayer must treat all direct material costs with respect to such product or component as mined, produced, or manufactured by a prohibited foreign entity and may not rely on a certification from the supplier.
  • Binding written contract exception: Upon the election of the taxpayer (in form and manner to be designated by Treasury), any manufactured product, eligible component, or constituent element, material, or subcomponent acquired by the taxpayer pursuant to a binding written contract entered into before June 16, 2025, and placed in service before Jan. 1, 2030 (January 1, 2028 in the case of solar and wind property used to generate electricity) in a facility that began construction before August 1, 2025, would not be included for purposes of determining the material assistance cost ratio.

Observation: The imposition of FEOC rules to tax credit qualification would introduce an additional layer of complexity. The statute would further authorize the Treasury Department to issue regulations under these rules, including establishing rules to prevent evasion, circumvention, or abuse of the rules through (i) impermissible technology licensing arrangements with specified foreign entities, (ii) abuse of the binding written contract exception through stockpiling of any manufactured product, eligible component, or constituent material, or subcomponent during any period prior to application of the rules, or where the facts and circumstances demonstrate that the beginning of construction of a qualified facility or energy storage technology has not in fact occurred.

• Extended assessment period: Any deficiency attributable to an error in the determination of material assistance from a prohibited foreign entity could be assessed within 6 years after the return for such year was filed.
• Accuracy-related penalty: If there is a "disallowance of an applicable energy credit", then the substantial understatement of income tax penalty would apply to understatements of income tax by more than 1% of the tax required to be shown on the return.
  • A "disallowance of an applicable energy credit" would be disallowance of a credit under sections 45X, 45Y, or 48E by reason of overstating the material assistance cost ratio.
  • For an entity claiming direct pay under section 6417, a "disallowance of an applicable energy credit" would cause an "excessive payment" and incur the 20% penalty on the amount of the excessive payment (unless the taxpayer shows reasonable cause).
• Penalty for false certification of supplier: If an inaccurate or false certification by a supplier results in the "disallowance of an applicable energy credit" and the understatement of income tax exceeds the lesser of (i) 5% of the tax required to be shown on the return or (ii) $100,000, then the person making the certification would be required to pay a penalty equal to the greater of (a) 10% of the amount of the underpayment attributable to the inaccuracy or falsity or (b) $5,000 (unless the person shows reasonable cause).

Po-Ting Peng (White & Case, Associate, Washington, DC) contributed to the development of this publication.

_{1 All references are to the applicable section of the Internal Revenue of 1986, as amended.
2 Section 25E (previously-owned clean vehicles).
3 Section 30D (clean vehicle credit).
4 Section 45W (credit for qualified commercial clean vehicles).
5 Section 30C (alternative fuel vehicle refueling property credit).
6 Section 25C (energy efficient home improvement credit).
7 Section 25D (residential clean energy credit).
8 Section 45L (new energy efficient home credit).
9 Section 45Y (clean electricity production credit).
10 Section 48E (clean electricity investment credit).
11 Section 45U (zero-emission nuclear power production credit).
12 Section 45V (credit for production of clean hydrogen).
13 Section 45X (advanced manufacturing production credit).
14 Section 45Z (clean fuel production credit).
15 Section 45Q (credit for carbon oxide sequestration).
16 Section 6662 (imposition of accuracy-related penalty on underpayments).
17 Available at https://www.state.gov/foreign-terrorist-organizations/.
18 Available at: https://sanctionslist.ofac.treas.gov/Home/SdnList.
19 The Espionage Act (18 U.S.C. §§792 et seq.); 18 U.S.C. §951 (agents of foreign governments); 18 U.S.C. §1030 (computer-related crimes); the Economic Espionage Act (18 U.S.C. §§1831–1839); the Arms Export Control Act (22 U.S.C. §2751 et seq.) sections 224–227 or 236 of the Atomic Energy Act (42 U.S.C. §§2274–2278; 2284); the Export Control Reform Act of 2018 (50 U.S.C. §4801 et seq.); and the International Emergency Economic Powers Act (50 U.S.C. §1701 et seq.).
20 Available at https://media.defense.gov/2025/Jan/07/2003625471/-1/-1/1/ENTITIES-IDENTIFIED-AS-CHINESE-MILITARY-COMPANIES-OPERATING-IN-THE-UNITED-STATES.PDF.
21 See Public Law 117–78, §2(d)(2)(B)(i), (ii), (iv), or (v).
22 An entity specified under section 154(b) of Public Law 118-31, including Contemporary Amperex Technology Co., Ltd. (CATL), BYD Company, Limited, Envision Energy, Limited, EVE Energy Company, Limited, Gotion High Tech Company, Limited, Hithium Energy Storage Technology Company, Limited, and any successor entity to those listed above.}

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