Altered Law Modifies Individual Retirement Account Tax Deductions
The One Big Beautiful Bill Act (OBBBA), recently enacted, introduces significant changes to renewable energy tax credits and imposes restrictions on foreign entities. Here's a breakdown of the key points:
Key Changes in Renewable Energy Tax Credits:
- The Act accelerates the repeal of tax credits for most commercial renewable energy projects, including wind and solar facilities. Projects placed in service after December 31, 2027, will not qualify for key tax credits unless construction begins within 12 months after the Act's enactment (July 4, 2025).
- It advances the "beginning of construction" (BOC) date for hydrogen and certain wind and solar projects to qualify for tax credits, creating urgency for developers to start projects sooner.
- The bill repeals several other energy-related tax credits, such as those for electric vehicles (both new and used) and EV charging infrastructure, as well as some home energy efficiency improvements after certain dates.
Foreign Entity Restrictions:
- The Act introduces new "prohibited foreign entity" (PFE) or foreign entity of concern (FEOC) rules, barring tax credits for energy projects owned or controlled by entities from certain countries such as China, Russia, North Korea, and Iran.
- Energy facilities constructed after December 31, 2025, cannot claim tax credits if the construction involves "material assistance" from a prohibited foreign entity, including in the supply chain or funding.
These restrictions aim to prevent tax credit claims by entities linked to foreign adversaries and require developers to carefully monitor ownership, financing, and supply chain components.
In addition, the Act defines a "specified foreign entity" to include foreign controlled entities, such as governments, agencies, or instrumentality of a government of a covered nation, citizens or nationals of a covered nation without U.S status, entities organized under the laws of, or having their principal place of business in, a covered nation, or entities controlled by any of the above.
The Act also introduces penalties for inaccurate or false certifications by suppliers that result in the "disallowance of an applicable energy credit" and understatements of income tax.
Overall, the OBBBA tightens eligibility for renewable energy tax credits by shortening deadlines for project starts and imposing strict ownership and foreign involvement restrictions to protect domestic energy incentives.
- Attorney General's office may provide legal advice to renewable energy developers on the new foreign entity restrictions outlined in the OBBBA.
- With the OBBBA, partnerships between domestic and international energy firms must carefully comply with the new rules to maintain eligibility for renewable energy tax credits.
- Intellectual property associated with renewable energy technologies must be carefully protected and licensed under corporate law to avoid any conflicts with the FEOC rules.
- As a result of the OBBBA, energy finance professionals need to carefully screen clients before offering services to ensure compliance with the new foreign entity restrictions.
- The One Big Beautiful Bill Act's foreign entity restrictions are of particular concern for firms involved in renewable energy acquisitions and mergers.
- An international law practice specializing in energy, finance, and M&A may be of great assistance to companies navigating these changes in compliance with the OBBBA.
- The prohibited foreign entity rules in the OBBBA mark a significant shift in the renewable energy industry, with far-reaching implications for energy associates working on overseas projects.
- The office of the legal associate must be diligent in monitoring all supply chain components to ensure compliance with the foreign entity restrictions outlined in the OBBBA.
- Financial implications for non-compliance with the OBBBA's foreign entity restrictions could be severe, including penalties for inaccurate or false certifications by suppliers and disallowance of energy credits.
- Energy firms operating in the finance, corporate, and renewable energy sectors will need to adapt their practices to remain competitive in the industry while maintaining strict compliance with the new OBBBA regulations.
