Currents Podcast Ep335: New IRS Guidance on FEOC and 45Z Tax Credits

Date: February 19, 2026
Host: Todd Alexander (Norton Rose Fulbright)
Guest: Keith Martin (Norton Rose Fulbright)

Episode Overview

In this episode, host Todd Alexander welcomes Keith Martin to discuss the latest Internal Revenue Service (IRS) guidance on the Foreign Entity of Concern (FEOC) restrictions and the 45Z tax credits for clean transportation fuel. The conversation focuses on recently released IRS guidelines aimed at reducing uncertainty for market participants, the practical impact on current project finance transactions, and the effect of new rules on tax credit market liquidity.

Key Discussion Points & Insights

1. Background on FIAC/FEOC Rules

• Purpose: The FIAC rules, from last summer’s legislation, aim to restrict U.S. renewable energy projects from receiving federal tax credits if they overly rely on Chinese ties (ownership, equipment, debt, intellectual property).
• Uncertainties: Until now, market players were unclear about thresholds and calculation methods, particularly for Chinese equipment content.

[00:46] Keith Martin:
“FIAC is a set of three restrictions ... to make it harder for renewable energy projects to qualify for federal tax credits if they use too much Chinese equipment or have too many ties to China.”

2. New IRS Guidance—What’s Clarified?

• Focus: The 95-page guidance primarily addresses how to compute the percentage of Chinese equipment—a major source of industry confusion.
  • Uses established tables from domestic content calculations.
  • Specifies a set list of parts to focus on; unlisted items (e.g., main power transformers) are excluded from compliance checks.

[02:04] Keith Martin:
“... people continue to be able to use some tables they're familiar with from domestic content calculations ... finite list of parts ... For example, main power transformers are not listed in the table, therefore they're outside the calculation.”

• Market Impact:
  • Certainty improves for part of the rule, which should ease equipment procurement and early market transactions.
  • Certificates from suppliers that their equipment isn’t from a prohibited foreign entity are now more straightforward.
  • Separate calculation is required for network upgrades, not just primary project equipment—this was a surprise to many.

[07:18] Keith Martin:
“The one surprise was the need to calculate the amount of Chinese equipment separately for any network upgrades ... Treasury said you've got to ask the utility to calculate the amount of Chinese equipment in the network upgrades...”

3. Remaining Areas Awaiting Guidance

• Full clarity is still pending on:
  • Chinese Ownership/Participation: Guidelines around permissible levels of Chinese equity, management involvement, and debt.
  • Contractual Prohibitions: Contracts with majority Chinese-owned companies containing any of 13 “control” provisions or intellectual property licenses post July 4, 2025, automatically disqualify tax credits.

[04:44] Keith Martin:
“All we know on timing is the treasury says it will roll out guidance during the year in the form of additional notices. ... There are three parts to fiat. Part one is the limit on Chinese equipment. ... Part two is companies that have too much Chinese ownership or participation in management or debt ... Part three is the most difficult...”

• Intellectual property licensing remains a particularly difficult compliance area. A workaround is using covenants not to assert IP claims, rather than formal licenses.

4. Impact on Market Practices

• Certainty Improves for Equipment Sourcing:
  • Simpler supplier documentation.
• Cautious Optimism for Tax Equity Market:
  • Contrary to some media reports, Norton Rose Fulbright hasn’t noticed the tax equity market withdrawing, but recognizes most FEOC-sensitive projects are just entering the pipeline.

[03:13] Keith Martin:
“Bloomberg ran an article ... the tax equity market is backing away from financings until more guidance comes out. We have not seen that ourselves ... most of the projects ... are just starting to come to market.”

45Z Tax Credits – Update & Guidance

1. Overview of Section 45Z

• What Is It? Tax credit for producing clean transportation fuels—up to $1/gallon, $1.75/gallon for SAF (Sustainable Aviation Fuel, reduced by recent legislation).
• Timeframe: Originally 2025-2027, now extended to 2029.
• Demand for Clarity: Pressures from the market, particularly biofuel and SAF producers.

2. Major Clarifications in New Guidance

• Sales to Middlemen Permitted:
  • Previous ambiguity suggested credits only applied if fuel sold directly to end users; Trump-era Treasury clarified that sales to blenders and middlemen DO qualify—"huge" for the industry.

[08:23] Keith Martin:
“People had been concerned ... that you can't get a tax credit unless you sell the clean transportation fuel directly to somebody who puts the fuel in his or her tank. ... The Trump treasury has now allowed those middlemen sales. That was huge.”

• Definition of Transportation Use:

  • Fuel must be usable for on-road or aviation purposes but doesn’t have to be used that way.

• No Double-Dipping:

  • Only the producer of the primary transportation fuel in a supply chain can claim the credit; secondary processing (like blending to make SAF) doesn't create another credit.

3. Market Activity and Remaining Challenges

• Market Picking Up: New clarity should unlock deals and open the market to more buyers.
• Other Tax Credit Competition: Hesitation from some buyers due to better-defined credits elsewhere and recent changes to SAF credit values.

[11:06] Keith Martin:
“We closed five big deals last year for 45Z credits. The credits are trading at 92 and 93 cents per dollar tax credit. I think the issues were around this reseller issue ... was holding up some deals.”

Notable Quotes & Memorable Moments

• On the Length of Guidance Documents:

  [01:26] Keith Martin (quoting David Burton): “Basically a 95 page answer to a math question.”

• On Scrutiny of Contracts for Compliance:

  [05:28] Keith Martin: “So people are... scrubbing contracts, they're looking at all their project contracts to see which ones potentially have majority Chinese owned entities...”

• On Page-Count Fatigue:

  [11:51] Todd Alexander: “I can kind of feel through my computer screen ... you keep mentioning how many pages ... you got a lot of reading ahead of you and rereading probably. So I'll let you go.”

Timestamps for Key Segments

• [00:46] – FIAC rules overview and intent
• [01:26-02:04] – New IRS guidance on equipment computations
• [03:13] – Market implications and project finance impact
• [04:44] – Unresolved areas and guidance expectations
• [07:18] – Surprises in the new guidance (network upgrades)
• [08:23] – 45Z tax credits: what’s in the new 170-page proposal
• [11:06] – 45Z credit market developments and pricing

Summary

Keith Martin’s analysis provides practical clarity amidst complex new regulatory frameworks for renewable energy and clean fuel tax credits. The latest IRS guidance helps demystify compliance math for “too much” Chinese equipment and relaxes burdens on both suppliers and project financings. However, significant open questions remain, especially regarding Chinese ownership, management involvement, and intellectual property controls in contracts—areas which will need future Treasury guidance. Likewise, changes to 45Z tax credit rules, especially around eligible sales channels and prevention of double credit claims, are set to expand participation and liquidity once the market fully digests the details.

The episode is essential listening for anyone structuring, financing, or investing in U.S. clean energy and fuels tax credits heading into 2026.