FEOC Alphabet Soup

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The SFE side

Specified Foreign Entities (SFEs) are the core of the PFE compliance regime. They are used in the measure of ownership thresholds for FIEs, evaluated in contractual relations under effective control, and considered in the § 50(a)(4) ten year recapture evaluation.

Composed of five primary subcategories, SFEs are largely the most straightforward category, with a slight catch in item 5:

1. A foreign entity of concern described in section 9901(8) of the William M. (Mac) Thornberry National Defense Authorization Act
2. A Chinese military company operating in the United States in accordance with section 1260H of the Mac Act
3. An entity included on the UFLPA Entity List
4. The specified entities in § 2(d)(2)(B) of PL 118: CATL, BYD, Envision, EVE, Gotion, Hithium, and any successors
5. A Foreign-Controlled Entity

Foreign-Controlled Entities (FCEs) are a more amorphous category and can function as a catch-all for entities with strong, but potentially undefinable, foreign connections. They are broadly composed of the five following subcategories:

1. The government of a covered nation
2. An agency or instrumentality of such government
3. A person who is a citizen or national of a covered nation, provided that individual is not also a U.S. citizen, national, or lawful permanent resident
4. An entity or a qualified business unit incorporated or organized under the laws of, or having its principal place of business in, a covered nation
5. An entity, including subsidiary entities, controlled by an entity described in clause (i), (ii), (iii), or (iv)

The FIE side

Similarly to FCEs, Foreign-Influenced Entities (FIEs) are a broad category encompassing a variety of entities with strong ties to covered nations. The primary determination with FIEs is understanding the degree of influence SFEs exercise over the taxpayer through the lenses of ownership, management, debt, and contractual relationships over the tax year.

Generally, an entity is a foreign-influenced entity if, during the tax year, a specified foreign entity:

• Has the right to appoint one of the taxpayer's officers or directors
• Owns at least 25% of the taxpayer on its own
• Owns at least 40% of the taxpayer together with other SFEs, or
• Holds at least 15% of its debt

A taxpayer is also deemed a foreign-influenced entity if, during the taxable year, the taxpayer makes a payment to an SFE pursuant to an agreement which confers effective control over the taxpayer's qualified facility, energy storage, or the production of eligible components.

Effective control occurs where a Specified Foreign Entity holds authority over key aspects of the business by contractual means, instead of the means of ownership or debt as otherwise assessed under the FIE definition. Until Treasury issues further guidance, it covers unrestricted rights over:

• The amount or timing of component production
• The amount or timing of electricity produced or stored
• The use of the components
• The purchase or use of the output
• Access to data, the site, or personnel, or
• The maintenance, repair, or operation of the facility

For licensing or intellectual property agreements, effective control is deemed to occur where an SFE has a general contractual right to:

• Specify or direct where components, subcomponents, or critical minerals are sourced
• Direct facility operations
• Limit how the taxpayer uses the licensed technology
• Collect royalties for more than ten years
• Require services for more than two years, or
• Withhold the data or know-how needed to use the technology on its own

For licensing or intellectual property agreements entered into or modified after July 4, 2025, there is an automatic presumption of conferring effective control.

MACR

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