Some Specifics to IRA Energy Cuts in "The One Big Beautiful Bill"

On May 22, 2025, the U.S. House of Representatives passed a highly anticipated piece of legislation - commonly referred to as “The One, Big, Beautiful Bill” (the “Bill”) - by a mostly party-line vote of 215-214-1 (two Republicans and all Democrats voted against it and one Republican voted present) that would make significant changes to the tax law if enacted. The Bill makes substantial cutbacks to various tax credits (the “Applicable Credits”) that were created or expanded under the Inflation Reduction Act (“IRA”) (which, under current law, were generally available through the end of 2032) and imposes expanded foreign entity of concern (“FEOC”) restrictions. While advanced nuclear facilities would only experience a one-year credit window haircut under the Bill, other technologies that currently qualify under the “tech-neutral” Clean Electricity Production Tax Credit (“PTC”) (§ 45Y) and the Clean Electricity Investment Tax Credit (“ITC”) (§ 48E) would be eliminated under the Bill if construction of the applicable facility did not begin before 60 days after enactment.

Below is a high-level summary of the key changes to the Applicable Credits. The Bill uses both the Begun Construction (“BOC”) and Placed in Service (“PIS”) dates for a project to constrain the availability of the Applicable Credits. Where relevant, we have noted with an asterisk where the version of the Bill passed by the U.S. House of Representatives deviates from the draft released on May 12, 2025. While the Bill has passed the U.S. House of Representatives, it is expected to be modified while under consideration in the Senate. 

• SURVIVING CREDITS: The Bill would modify but preserve the following credits:
  • Advanced Manufacturing PTC (§ 45X); Carbon Oxide Sequestration Credit (§ 45Q); Zero-Emission Nuclear Power Production Credit (§ 45U); Clean Fuel PTC (§ 45Z) and Energy Property ITC for Geothermal Heat Property (§ 48).
    • The Clean Fuel PTC (§ 45Z) is the only surviving credit that would be extended (it was scheduled to terminate at the end of 2027 but would be extended an additional four years under the Bill.)
• CREDITS ELIMINATED: The Bill would generally eliminate the following credits:

*Clean Electricity PTC (§ 45Y) (safe harbor for projects with a BOC date before 60 days after enactment and have a PIS date before 2029);

• • • An advanced nuclear facility would remain eligible so long as BOC is before December 31, 2028.
    • Certain leasing arrangements where the Residential Clean Energy Credit (§ 25D) would be available to the lessee if it owned the relevant property would also be ineligible for the credit for any taxable year beginning after enactment.

*Clean Electricity ITC (§ 48E) (safe harbor for projects with a BOC date before 60 days after enactment and have a PIS date before 2029);

• • • An advanced nuclear facility (or expansion of a nuclear facility) would remain eligible so long as BOC is before December 31, 2028.
    • Certain leasing arrangements where the Residential Clean Energy Credit (§ 25D) would be available to the lessee if it owned the relevant property would also be ineligible for the credit for any taxable year beginning after enactment.
  • Clean Hydrogen PTC (§45V) (safe harbor for projects with a BOC date before December 31, 2025);
  • The following residential tax credits for energy efficiency and clean energy would generally expire at the end of 2025: Energy Efficient Home Improvement Credit (§ 25C), Residential Clean Energy Credit (§ 25D), New Energy Efficient Home Credit (§ 45L); and
  • The following credits related to clean vehicles would generally expire at the end of 2025: Clean Vehicle Credit (§ 30D), Previously-Owned Clean Vehicles Credit (§ 25E), Alternative Fuel Vehicle Refueling Property Credit (§ 30C), Qualified Commercial Clean Vehicles Credit (§ 45W).

*TRANSFERABILITY: The Bill would substantially limit the ability to transfer certain Applicable Credits pursuant to §6418. Transferability would not be available to facilities with BOC dates falling after the second anniversary of the enactment of the Bill for the Carbon Oxide Sequestration Credit (§ 45Q). Transferability would not be available for the Clean Fuel PTC (§45Z) or Advanced Manufacturing PTC (§ 45X) for credits generated after 2027.

• FEOC RULES: The Bill contains new Prohibited Foreign Entity (“PFE”) rules that are applicable to the Clean Electricity Investment Tax Credit (“ITC”) (§ 48E); the Clean Electricity Production Tax Credit (“PTC”) (§ 45Y); the Advanced Manufacturing PTC (§ 45X); the Carbon Oxide Sequestration Credit (§ 45Q); the Zero-Emission Nuclear Power Production Credit (§ 45U); the Clean Fuel PTC (§ 45Z) and the Energy Property ITC for Geothermal Heat Property (§ 48) (the “Restricted Credits”). These rules are more expansive than the original § 30D FEOC restriction. The PFE rules applicable to the Restricted Credits generally make such credits unavailable to taxpayers claiming them when such taxpayers are deemed to be (by designation, ownership, control or certain financial relations) either a Specified Foreign Entity (“SFE”) or a Foreign-Influenced Entity (“FIE”). The PFE rules would further limit availability of a subset of the Restricted Credits (the Clean Electricity Investment Tax Credit (§ 48E), the Clean Electricity Production Tax Credit (§ 45Y) and the Advanced Manufacturing PTC (§ 45X)) in cases where it is deemed that the credit-generating investment or activity was facilitated by “material assistance” from a PFE or where the taxpayer makes certain types of prohibited payments to one or more PFEs of an amount that reach a specified threshold.

Credit Phaseouts and Modifications

The tables below summarize the qualification dates applicable under the Bill as passed May 22, 2025 and the Bill as initially released on May 12, 2025 for certain Applicable Credits.

BILL PASSED HOUSE MAY 22, 2025

BILL DRAFT RELEASED MAY 12, 2025

New Prohibited Foreign Entity Rules

A Prohibited Foreign Entity (“PFE”) is a Specified Foreign Entity (“SFE”) or a Foreign-Influenced Entity (“FIE”). The key terms used in this summary are defined in more detail below.

Key Terms Under PFE Rules

As noted above, a Prohibited Foreign Entity (“PFE”) is a Specified Foreign Entity (“SFE”) or a Foreign-Influenced Entity (“FIE”).

Specified Foreign Entity (“SFE”) means any one of the following:

1. An FEOC, as described in specified sections of the 2021 National Defense Authorization Act (“NDAA”), which is generally a foreign terrorist organization, but is specifically:
   • An entity designated as a foreign terrorist organization by the Secretary of State under section 219 of the Immigration and Nationality Act (8 U.S.C. 1189);
   • An entity included on the list of specially designated nationals and blocked persons maintained by the Office of Foreign Assets Control of the Department of the Treasury;
   • An entity alleged by the Attorney General to have been involved in activities for which a conviction was obtained under certain national security laws; or
   • An entity determined by the Secretary, in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.
2. An entity on the 1260H List (a Chinese military company operating in the United States);
3. An entity on the Uyghur Forced Labor Prevention Act (UFLPA) Entity List;
4. A listed Chinese battery and energy storage manufacturer (specifically, the entities listed in paragraphs (1) through (7) on page 47 of L. 118-31); or
5. A foreign-controlled entity, which includes at a high level:
   • The governments of the Democratic People's Republic of North Korea, the People's Republic of China, the Russian Federation or the Islamic Republic of Iran (each a “Covered Nation”);
   • A citizen, national or resident of a Covered Nation (with some exceptions);
   • An entity incorporated or having its principal place of business in a Covered Nation; and
   • An entity controlled by an entity described above.

Foreign-Influenced Entity (“FIE”) means an entity for which an SFE:

1. Can appoint a covered officer (i.e., a board member; executive-level officer, including president, CEO, COO, CFO, general counsel or senior vice president or an individual with similar powers or responsibilities);
2. Owns 10% or more of the FIE;
3. In aggregate with any other SFE, owns 25% or more of the FIE;
4. In aggregate with any other SFE, holds 25% or more of the FIE’s debt; or
5. During the previous tax year, receives 10% or more of all dividends, interest, compensation for services, rentals or royalties, guarantees or any other fixed, determinable, annual or periodic amount, from the FIE and which the FIE makes knowingly or with reason to know.

Covered payments that trigger the restrictions discussed above have two features: type and amount. The payment type must be dividends, interest, compensation for services, rentals or royalties, guarantees or any other fixed, determinable, annual or periodic amount. The amount of the payment must be equal to or greater than 5% of the taxpayer’s total expenditures during such taxable year that are related to the credit-generating investment or activity (or, in the case of multiple payments, 15% or more of same).

Material Assistance from a Prohibited Foreign Entity means any property that meets the following criteria: (i) any component, subcomponent, or critical mineral (as defined in section 45X(c)(6)) included in such property that is extracted, process, recycled, manufactured, or assembled by a PFE; and (ii) any design of such property which is based on a copyright or patent held by a PFE or any know-how or trade secret provided by a PFE.

1. Material Assistance from a PFE does not include any assembly part or constituent material IF such part or material is not acquired directly from a PFE.
2. An “assembly part” means a subcomponent or collection of subcomponents which is not (i) uniquely designed for use in the construction of a qualified facility described in section 45Y or 48E or an eligible component described in section 45X and (ii) is not exclusively or predominately produced by prohibited foreign entities.
3. “Constituent material” means any material which is (i) not uniquely formulated for use in a qualified facility described in section 45Y or 48E or an eligible component described in section 45X, and (ii) not exclusively or predominately produced, process, or extracted by prohibited foreign entities.