Three letters have started appearing on residential solar proposals that did not carry them a year ago: FEOC. Installers use the term to justify a price, to explain why a particular module is unavailable, or to add an attestation page to the contract. Most homeowners reading those proposals assume FEOC is a compliance box they personally have to tick. For the majority of 2026 buyers, it is not — and understanding exactly whose problem it is changes how you read the rest of the quote.
FEOC stands for “foreign entity of concern.” The restrictions come from the One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, which rewrote the federal clean-energy credit structure and attached sourcing conditions to what survived. The rules limit how much of a project’s equipment cost can trace back to entities connected to four covered nations — China, Iran, North Korea, and Russia — before the credit is reduced or denied outright.
Whose Credit Is It? That Question Comes First
FEOC only matters to whoever is claiming a federal tax credit. So the first thing to establish about your own quote is whether anyone in the transaction is claiming one.
If you are buying the system with cash or a solar loan, and the installation is completed in 2026, the answer is no. Section 25D — the 30% residential clean energy credit that covered rooftop solar, solar water heating, geothermal, and home battery storage — does not apply to expenditures made after December 31, 2025. The IRS guidance on the OBBBA modifications ties the credit to the year the property is installed and ready for use, not the year it was ordered or paid for. There is no safe harbor and no beginning-of-construction exception on the residential side. A deposit paid in late 2025 against a spring 2026 install earns nothing.
That has a clean consequence: a cash or loan buyer in 2026 has no federal credit to lose, so no FEOC exposure. If an installer is quoting you a “FEOC compliance premium” on a straight purchase, ask them to name the credit that premium protects. There isn’t one.
Where FEOC does reach homeowners is third-party ownership. Under a lease, a power purchase agreement, or a prepaid arrangement, the finance company owns the equipment and claims the business credit under Section 48E. That claim is subject to FEOC. The compliance cost, the sourcing restrictions, and the audit risk all sit with the financier — and they get priced into your monthly payment.
The Material Assistance Cost Ratio, in Plain Arithmetic
The central FEOC test is the material assistance cost ratio, or MACR. Treasury and the IRS issued interim guidance in Notice 2026-15 on February 12, 2026, describing how the ratio is calculated and what taxpayers may rely on.
The formula is straightforward:
(A − B) ÷ A, where A is the direct cost of all manufactured products and components in the project, and B is the direct cost of those supplied by prohibited foreign entities.
The result is the share of equipment cost that is not attributable to a prohibited entity, and it has to clear a floor that rises over time. For projects beginning construction in 2026:
| Credit | Technology | 2026 minimum MACR |
|---|---|---|
| 48E / 45Y | Solar and wind generation | 40% |
| 48E | Energy storage | 55% |
| 45X | Solar components sold | 50% |
The thresholds tighten in later years — storage reaches 75% for construction beginning in 2030 and after. A project that misses its floor does not get a reduced credit; it fails the material assistance requirement for that credit.
One detail matters more to solar than any other line in the notice: polysilicon is excluded from the calculation. It is not treated as one of the manufactured product components, so where the polysilicon in a cell was produced does not enter the MACR math. This surprised a lot of people who assumed FEOC would function as a polysilicon-origin rule. It does not. Forced-labor scrutiny under the Uyghur Forced Labor Prevention Act is a separate regime with separate consequences, and it still applies.
Supplier Certificates and Why Your Quote Has an Attestation Page
Notice 2026-15 also created a reliance safe harbor. A taxpayer claiming the credit may rely on a supplier’s certificate stating non-prohibited status, provided the taxpayer has no reason to know the certificate is inaccurate. The notice sets out what a valid certificate has to contain.
This is why attestation paperwork has propagated down the chain into residential proposals. The financier needs documentation from the installer, who needs it from the distributor, who needs it from the manufacturer. When a lease quote restricts you to two module SKUs, that restriction is usually not about performance — it is about which manufacturers have issued certificates the finance company’s tax counsel will accept.
For a TPO quote, the practical questions are narrow:
- Which specific module and inverter SKUs are covered by supplier certificates?
- Does the agreement indemnify you if the credit is later disallowed, or does it let the provider re-price?
- Is your install date inside the timeline the provider’s tax position depends on?
That last one is no longer theoretical.
The July 4, 2026 Deadline Has Already Passed
OBBBA gave 48E projects a beginning-of-construction safe harbor with a hard date: begin construction on or before July 4, 2026, and the project keeps the standard continuity window — generally up to four calendar years to reach placed-in-service status. Projects that started under that window can finish well into the decade.
That date is behind us. A residential TPO project that had not begun construction by July 4, 2026 now has to be placed in service by December 31, 2027 to earn the credit at all.
For a rooftop system, 2027 is a comfortable runway; residential installs are measured in weeks, not years. But it means the provider’s tax position is now dated, and a lease that slips through permitting, interconnection delays, or an utility queue into 2028 is a lease whose economics were built on a credit that never arrived. Ask the provider directly what happens to your payment schedule if the system is not energized by the end of 2027. A confident answer is a good sign. A vague one is a repricing clause waiting to happen.
What This Changes About Comparing Proposals
The old comparison — cash versus lease, weighed mostly on whether you had the tax appetite to use a 30% credit — no longer describes the 2026 decision. The residential credit is gone. What remains is a business credit that a third party can capture and partially pass through, at the cost of sourcing restrictions, documentation, and a 2027 clock.
So compare on what actually differs. On a cash purchase, judge $/watt, inverter quality, warranty terms, and whether the installer will still exist in year eight; ignore FEOC entirely. On a lease or PPA, treat FEOC compliance as a proxy for whether the provider’s underwriting is sound, and read the timing and repricing language as carefully as the escalator. Our Section 201 tariff expiration walkthrough covers the trade-duty side of the same quote.
If a proposal cannot tell you which credit it depends on and who claims it, that is the finding. Everything else on the page is downstream of that answer.
