On June 16, 2025, the Senate Finance Committee released a proposed version of the so-called “One Big Beautiful Bill” (the Senate Bill). If enacted into law in its current form, the Senate Bill would significantly alter, and largely restrict, the current renewable energy tax credit landscape. The Senate Bill comes in the wake of a previous proposal passed by the House on May 22 (the House Proposal). While the House Proposal was, generally speaking, significantly more restrictive with respect to renewable energy tax credits, it appeared immediately clear that its chances to become law in its then-current form were almost non-existent. The Senate Bill, on the other hand, may stand a better chance than its predecessor to be codified.
As regards renewable energy tax credits and incentives, the highlights of the Senate Bill are as follows:
- Transferability remains, except where there are transfers of credits to certain “specified foreign entities.”
- Effective repeal of the clean hydrogen PTC under Section 45V of the Code where construction begins in 2026 or later.
- New foreign entity of concern (FEOC) restrictions, discussed in more detail below, have been imposed across the board for all renewable energy credits.
- New ITC and PTC under Sections 48E and 45Y of the Code phase down to 60%, 20% and 0% of credit value for projects beginning construction in 2026, 2027, and 2028, respectively, although storage technology is exempted from this phase out.
- The Senate Bill would effectively repeal various smaller-scale individual credits, including the following:
- Section 25E (Previously Owned Clean Vehicle Credit) – credit no longer available as to vehicles acquired more than 90 days after the date of enactment.
- Section 30D (Clean Vehicle/EV Credit) – repeals the credit for vehicles acquired more than 180 days after date of enactment.
- Section 45W (Credit for Qualified Commercial Clean Vehicles) – generally, repeals the credit for vehicles acquired more than 180 days after the date of enactment. Special rules and new battery component restrictions for vehicles under 14,000 lbs. and vehicles acquired after June 16, 2025.
- Section 30C Credit (Alternative Fuel Vehicle Refueling Property Credit) – effectively repealed as to property placed in service more than 12 months after date of enactment.
- Section 25C Credit (Energy Efficient Home Improvement Credit) – effectively repealed for property placed in service more than 180 days after date of enactment.
- Section 25D Credit (Residential Clean Energy Credit) – effectively repealed for expenditures made more than 180 days after the date of enactment.
- Section 45L Credit (New Energy Efficient Home Credit) – effectively repealed in the case of homes acquired more than 12 months after date of enactment.
The Senate Bill also would stand to significantly impact other tax provisions, as discussed in the following client alert.
Major Changes to Key Provisions
A brief summary of key proposed changes under the Senate Bill are as follows:
PTC and ITC – Sections 45Y and 48E of the Code
The Inflation Reduction Act of 2022 (IRA) had created a “new” PTC and ITC, which would apply to projects placed in service in 2025 or later, would be technology-neutral and which would last until the later of 2032 or the date when greenhouse emissions had decreased by 25% compared to 2022 levels. Under the Senate Bill, rather than enjoying this protracted validity period, the PTC and ITC would both begin phasing out almost immediately – decreasing to 60% of current value where construction begins in 2026, 20% of current value where construction begins in 2027, and phasing out completely for projects that do not begin construction prior to 2028.
Observation: Prior to the IRA, renewable energy credits seemed to always be in a state of perpetual sunset, with Congress often acting to either retroactively save the credits or otherwise restore their economic viability for at least one more year. Demand for continued survival of the ever-popular PTC and ITC is now more robust than ever, particularly in the solar and battery storage space. As a result, if the Senate Bill is to be passed, the new reality for the PTC and ITC may end up being more akin to their sunset being “kicked down the road” rather than the credits being “repealed,” per se.
The Senate Bill would also add FEOC restrictions by denying credits for any taxable year beginning after the date of enactment if the taxpayer is a prohibited foreign entity, calculated as of the last day of the applicable taxable year. It would also deny credits for facilities beginning construction in 2026 or later that receive “material assistance” from a prohibited foreign entity. The applicable material assistance amount (discussed in more detail below) is 40% in 2026, 45% in 2027, 50% in 2028, 55% in 2029 and 60% in 2030 and after.
Observation: New foreign entity rules under the Senate Bill would require more diligence than taxpayers might currently realize. These rules are more expansive and complicated than similar rules already in effect under the Section 30D EV credit, and even these more straightforward rules have caused some confusion.
Carbon Capture Sequestration and Utilization Credit, Section 45Q of the Code
The Senate Bill would effectively increase the value of the Section 45Q credit, providing for a credit value of $17 ($85 assuming prevailing wage and apprenticeship requirements are met) regardless of end-use, indexed to inflation. Direct air capture projects would still enjoy the sizeable $36 credit value ($180 where prevailing wage and apprenticeship requirements are met).
The Senate Bill would, however, extend FEOC requirements to the Section 45Q credit, prohibiting specified foreign entities or foreign-influenced entities from claiming credits for the taxable years beginning after the date of enactment.
Observation: While most IRA credits have been rolled back, the changes under the Senate Bill would in certain cases amount to an effective increase in the value of Section 45Q credits. Viewed in the context of the support that enhanced oil recovery projects have enjoyed from Republicans, this is not particularly shocking and further reinforces the notion that when it comes to tax reform in 2025, not all IRA credits are created equal.
Advanced Manufacturing Credit, Section 45X of the Code
Under the IRA, the advanced manufacturing credit would begin to phase out with respect to credits generated by components sold in calendar year 2030. The Senate Bill would actually delay this phase-out, but solely with respect to credits generated by the production and sale of critical minerals. Under the new critical minerals phase-out, for critical minerals produced in 2031, the credit would be reduced to 75% of the credit otherwise allowed, then 50% in 2032, 25% in 2033, with ultimately no credit being available for components produced in 2034 or later. Under the Senate Bill, there would also be no credits available for wind energy components produced and sold in 2028 or later.
Observation: Unlike prior proposals, including the House Proposal, the new phase-out references production, not sale. Because the Section 45X credit requires both production and sale, and vests only in the year of sale, this affords a more generous runway for taxpayers than prior legislative proposals.
The Senate Bill would impose several additional FEOC rules. For taxable years beginning after the date of enactment, a taxpayer cannot be a prohibited foreign entity, and the material assistance restriction applies for tax years beginning after the date of enactment with varying and escalating threshold percentages for solar, wind, inverters, battery components, and applicable critical minerals.
FEOC
- A “prohibited foreign entity” is either (i) a specified foreign entity or (ii) a foreign-influenced entity.
- “Specified foreign entities” include:
- entities designated as a foreign terrorist organization by the Secretary of State;
- entities included on the specially designated nationals and blocked persons list maintained by the Treasury Department’s Office of Foreign Assets Control;
- entities alleged by the Attorney General to have engaged in conduct for which a conviction was obtained under certain laws;
- entities determined by the Secretary of Commerce, in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to U.S national security or foreign policy;
- Chinese military companies operating in the United States;
- entities listed under the Uyghur Forced Labor Prevention Act;
- an entity specified under section 154(b) of the National Defense Authorization Act for Fiscal Year 2024 (Public Law 118–31; 10 U.S.C. note prec. 4651); or
- certain “foreign controlled entities.”
- For these purposes, “foreign controlled entities” include (i) the government of a covered nation (e.g., China, Russia, Iran, or North Korea), (ii) a citizen or resident of a covered nation without U.S. status as a lawful permanent resident, (iii) an entity incorporated in or organized under the laws of, or having its principal place of business in, a covered nation, or (iv) an entity controlled by any of the above, including subsidiaries, measured by more than 50% ownership of stock in a corporation, profits interests or capital interests in a partnership, or other beneficial interest in the entity.
FEOC Definitions
- An entity is a “foreign-influenced entity” if:
- (i) During the taxable year:
- a specified foreign entity has direct or indirect authority to appoint a board member, executive officer, or similar individual;
- a single specified foreign entity owns at least 25% of the entity;
- one or more specified foreign entities own(s) in the aggregate at least 40% of the entity;
- at least 40% of the entity’s debt is held in the aggregate by one or more specified foreign entities; or
- Section 318 attribution applies for these purposes.
- (ii) During the prior taxable year, it made a payment to an SFE in order to exercise effective control over:
- any qualified facility or energy storage technology of the taxpayer; or
- with respect to any eligible component produced by the TP or related party:
- the extraction, processing or recycling of any applicable critical mineral; or
- the production of an eligible component which is not an applicable critical mineral;
- more than one specified foreign entity in an amount ≥25% of the total of such payments (each, an “applicable payment”).
- (i) During the taxable year:
- Material Assistance from a Prohibited Foreign Entity looks to a specific material assistance cost ratio (MACR), which, depending on the type of technology, will increase over time until ultimately settling on a fixed percentage. The ratio is generally equal to the quotient of the fraction where the numerator is the total costs attributable to all the manufactured products which are incorporated into the qualified facility minus the total costs attributable to all the manufactured products incorporated that are mined, produced or manufactured by a prohibited foreign entity, and the denominator is total costs.
- An example in the context of solar energy components, battery components, and applicable critical minerals is as follows:
- A MACR is required that is less than 50% for components sold in 2026, 60% in 2027, 70% in 2028, 80% in 2029 and 85% thereafter.
- For battery components, a less than 60% MACR is required for components sold in 2026, 65% in 2027, 70% in 2028, 80% in 2029 and 85% thereafter.
- For applicable critical minerals, a less than 25% MACR is required for components sold in 2030, 30% in 2031, 40% in 2032, and 50% thereafter.
Observation: The FEOC standards in the Senate Bill are slightly more lenient than predecessors from prior proposals, and despite the fact that compliance may generally prove burdensome for taxpayers, requiring significant guidance from the Treasury department, the Senate Bill does reference standards from the domestic content bonus calculations that will be somewhat familiar to taxpayers.
Some additional provisions of the Senate Bill include, but are not limited to, the following:
- Section 45Z Clean fuel production credit extended through 2031 and now subject to general FEOC restrictions:
- Publicly traded partnership provision – expands the natural resource category income to include nuclear, geothermal etc.
- New penalty provisions for substantial misstatements related to renewable energy credits.
- Termination of five-year cost recovery for renewable facilities.
- FEOC restrictions added to the Section 45U Zero Emission Nuclear Power PTC.
For further information, please contact:
Michael Rodgers, Partner, Linklaters
michael.rodgers@linklaters.com
