Compliance
Ensuring Compliance: IRS Updates on Clean Fuel Credits & Material Assistance Rules
New proposed regulations from the IRS clarify eligibility and rules for clean-fuel production credits, especially related to feedstock origin and foreign entities—critical for businesses in energy sectors.
By NomadicTax Research Team • 5-8 min read • February 19, 2026
## 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):
1. **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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
2. **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](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
## 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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Prohibited foreign entities restrictions**: Entities with material assistance by PFEs are disqualified unless safe harbors apply under interim guidance.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
- **Certification and registration**: Registration via IRS Form 637 required at time of production; sale attribution rules apply through intermediaries.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
## 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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))
- **Follow interim safe harbors** provided for calculating material assistance cost ratio until permanent tables are published.([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-for-certain-energy-tax-credits-regarding-material-assistance-provided-by-prohibited-foreign-entities-under-the-one-big-beautiful-bill?utm_source=openai))
- **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](https://www.irs.gov/newsroom/treasury-irs-issue-proposed-regulations-on-the-clean-fuel-production-credit-under-the-one-big-beautiful-bill?utm_source=openai))