U.S. FEOC Restrictions Under the IRA Clean Vehicle Tax Credit: Overall Framework and MACR Standards

The IRA's Section 30D Clean Vehicle Tax Credit required, as a condition for purchasers to receive a credit of up to $7,500, that battery components (starting 2024) and critical minerals (starting 2025) not be manufactured or processed by a Foreign Entity of Concern (FEOC)—an entity in which the governments or companies of China, Russia, Iran, or North Korea hold 25% or more of the capital, voting rights, or board seats. Under the "One Big Beautiful Bill Act" (OBBBA), enacted July 4, 2025, Section 30D itself was terminated effective December 31, 2025, but the Act also extended and expanded the FEOC framework to other tax credits, including the Clean Electricity Production and Investment Tax Credits (Sections 45Y/48E).

As a transitional accommodation, a new standard—the Material Assistance Cost Ratio (MACR)—was introduced. MACR is calculated by subtracting the procurement cost of FEOC-sourced items from total item cost, then dividing the result by total item cost. Projects that fail to meet the thresholds set for each technology and construction-start year are excluded from the tax credit. Treasury is required to publish safe harbor tables for MACR calculation by December 31, 2026; until then, taxpayers must rely on supplier certifications and existing IRS guidance (Notice 2025-08). Taxpayers who overstate their credit by failing to meet the MACR standard face penalties, including a 20% accuracy-related penalty.

Certain exclusions apply under transitional relief for binding written contracts entered into before June 16, 2025, where construction of the facility began before August 1, 2025. The underlying policy of eliminating dependence on Chinese supply chains has been further strengthened, and industry has raised concerns that the expanded FEOC restrictions could inadvertently classify domestic companies as "foreign" or "prohibited" entities.