CHICAGO, IL / ACCESS Newswire / May 21, 2026 / Authored by Baker Tilly's Rob Bellile
Energy tax credits continue to reshape the U.S. manufacturing landscape, with one requirement emerging as a defining factor in eligibility: foreign entity of concern (FEOC) compliance. FEOCs had their beginnings in the Inflation Reduction Act (IRA), specifically with the electric vehicle tax credit. FEOC rules expanded under the One Big Beautiful Bill Act (OBBBA) and the impact on manufacturers in the U.S. is only beginning to unfold.
FEOC basics and why it matters for manufacturers
The basics
The requirements for FEOC compliance were first introduced in the IRA's 30D electric vehicle credit, restricting the use of battery minerals or components sourced from China, Iran, North Korea or Russia. The passage of the One Big Beautiful Bill Act (OBBBA) expanded these rules to include:
Additional definitions of disallowed entities
Restrictions on licensing agreements, royalty payments and other structured payments
Guardrails on debt or financial arrangements that could create foreign influence
The goal of these requirements is clear - ensure that U.S. tax credits support domestic or allied-nation supply chains and not companies tied to FEOCs.
While there is no comprehensive list of required documents necessary to submit to be compliant, there is a certification letter that companies must sign stating that they are not a prohibited foreign entity, which includes two new terms introduced in OBBBA: Specified foreign entity and foreign influenced entity.
Why FEOC matters for manufacturers
Under the clean energy tax credit framework, FEOC is not a bonus credit, but rather a baseline requirement. This means that if you fail the FEOC certification process, the entire credit disappears. When you take into consideration that these credits can offset nearly half of project costs, compliance isn't just a nice-to-have box checked off on a to-do list. It is instead a critical factor in a manufacturer's strategy.
What FEOC compliance looks like today
The IRS has yet to publish a list of required documents for certification, but there is a certification that needs to be signed that declares the manufacturer is not a prohibited foreign entity. To support the certification, manufacturers must evaluate the following:
Ownership structure. No more than 25% of manufacturer voting rights, board seats or equity interests can be from FEOC countries, and the direct and indirect ownership of the company matter.
Debt and financial influence. The manufacturer's lending arrangements cannot have more than 15% ownership of debt by entities with ties to a FEOC.
Licensing and royalty agreements. Intellectual property, technology licenses or other rights related to products eligible for credits cannot be owned by prohibited foreign entities.
Significant payments. This requirement is very loosely defined currently, but could include service, software or technology payments if they create a material influence.
Impacts on the supply chain
FEOC compliance doesn't stop at the manufacturers' ownership, either - the implications extend deep into the supply chain. This is where the material assistance cost ratio comes into play. The material assistance cost ratio stipulates the percentage of component cost within a product or project that must be FEOC compliant.
For manufacturers providing products that claim credits under Sections 48E or 45Y, that product and all other products provided on the project must meet the material assistance cost ratio. This requires:
Reviewing the Level 1 Bill of Materials for direct components
Assessing whether each component came from a FEOC source
Looking at not only the manufacturing location of the component, but also the supplier ownership structure
For example, if a project component is made in Vietnam, a country not on the FEOC list, but their ownership structure demonstrates being Chinese-owned, that still counts as a FEOC noncompliant component and thus failing to increase the material assistance cost ratio.
As a result of this, many companies are requesting supplier certification statements confirming their FEOC status, independently verifying global ownership structures of their supply chain, and reassessing their supplier relationships to avoid risking noncompliance.
FEOC versus domestic content: Similar frameworks, different impacts
FEOC and domestic content both involve taking a deeper look at the supply chain, their purpose and consequences of noncompliance differ.
Focus
Domestic content is focused on where components are manufactured, while FEOC dives deeper into who owns or influences the manufacturer.
Credit impact
Domestic content compliance means a bonus credit of 10% in most cases. Failing to comply with FEOC means no credit at all for most activities in 2026 and beyond.
Analysis method
Domestic content takes a look at bill of materials and cost percentages. FEOC looks at the bill of materials, ownership structure, licensing, and other areas of influence on a manufacturer.
In short, FEOC requirements introduce a new lens - economic influence, not just geography.
What manufacturers can do now for future compliance
Additional guidance is forthcoming, but in the meantime, it can be prudent for manufacturers to start evaluating things that are in their control such as:
Evaluate ownership structures and debt structures to understand the influence and control behind all major investors and lenders in your capital structure.
Review licensing or royalty agreements for any payments that may flow to a prohibited foreign entity.
Map and assess the supply chain by documenting component suppliers and evaluate for any potential ties to prohibited foreign entities.
Start seeking supplier certifications from partners willing and able to attest to their FEOC compliance status.
Prepare strategically for the long-term as many companies are already restructuring to present themselves as FEOC-compliant, which is a potential competitive advantage in the long run.
How Baker Tilly can help
Baker Tilly offers manufacturers and their suppliers a structured risk assessment process, designed to help manufacturers navigate these new requirements.
Detailed information gathering on ownership, licensing, financing and supply chains
FEOC risk identification and mitigation planning
FEOC status memo outlining findings, risks and next steps
Support for evaluating domestic content without exposing sensitive supply chain data
Connect with a Baker Tilly specialist to learn more
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SOURCE: Baker Tilly
View the original press release on ACCESS Newswire:
https://www.accessnewswire.com/newsroom/en/business-and-professional-services/preparing-for-feoc-what-manufacturers-need-to-know-to-be-complia-1169216
