Overview of Recent Regulatory Updates
In early 2026, the IRS issued two important policy announcements affecting compliance for energy tax credits under the One, Big, Beautiful Bill (OBBB):
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Proposed Regulations on the Clean Fuel Production Credit (Section 45Z) — Proposals issued Feb 3, 2026 clarify requirements for credit eligibility, emissions rates, feedstock sources, and anti-abuse rules.(irs.gov)
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Notice on Material Assistance by Prohibited Foreign Entities (Sections 45Y, 48E, and 45X Credits) — Notice published Feb 12, 2026 provides guidance for determining whether eligible facilities or components receive material assistance from prohibited foreign entities (PFEs), and safe harbors until full regulations are finalized.(irs.gov)
Key Compliance Requirements
Businesses involved in clean transportation fuel or clean electricity must pay attention to:
- Feedstock sourcing: Only feedstock produced or grown in the U.S., Mexico, or Canada qualifies for certain credits under 45Z.(irs.gov)
- Emissions calculations: Negative emissions rates generally prohibited, except for animal manure feedstock. For manure-derived fuels, feedstock-specific emissions rates will be required.(irs.gov)
- Prohibited foreign entities restrictions: Entities with material assistance by PFEs are disqualified unless safe harbors apply under interim guidance.(irs.gov)
- Certification and registration: Registration via IRS Form 637 required at time of production; sale attribution rules apply through intermediaries.(irs.gov)
Who Is Affected?
These rules impact:
- Producers of clean transportation fuels under Section 45Z
- Construction or manufacturing projects under clean electricity credits Sections 45Y & 48E
- Developers using eligible components under Section 45X
- Entities sourcing feedstock or components—especially those with cross-border supply chains or foreign investors/entities.
Practical Tips for Compliance
- Conduct supply chain audit to ensure your feedstock or components comply with origin and emissions rate requirements.
- Register with IRS early and secure certification for clean-fuel production to avoid delays or disqualification. Form 637 is critical to participate.(irs.gov)
- Follow interim safe harbors provided for calculating material assistance cost ratio until permanent tables are published.(irs.gov)
- Document everything: Contracts, invoices, feedstock origin, emissions modeling—good records mitigate audit risk.
- Stay involved in stakeholder comment periods where proposed regulations still allow public input.(irs.gov)