Tax Insight

Invalidated IRS Notice 2025-42 creates uncertainty for wind and solar credit projects

Insight
5 minute read
June 11, 2026

What happened?

The US District Court for the District of Columbia on June 6 issued a decision in Oregon Environmental Council v. IRS, vacating Notice 2025-42 in its entirety and remanding the matter to Treasury and the IRS for further consideration. The court held that Notice 2025-42, which had eliminated the Five Percent Safe Harbor as a method for establishing the beginning of construction (BOC) for most wind and solar projects under Sections 45Y and 48E, was arbitrary and capricious in violation of the Administrative Procedure Act (APA).

Why is it relevant?

As amended by the “One Big Beautiful Bill Act” (OBBBA), wind and solar facilities eligible for Section 45Y and 48E clean electricity credits generally must be placed in service before January 1, 2028, unless construction of the facilities begins before July 5, 2026. The court's decision restores, at least for now, the long-standing dual-method framework under Notice 2013-29 and its successors that allows taxpayers to establish BOC for wind and solar projects using either the Physical Work Test or the Five Percent Safe Harbor. Invalidation of Notice 2025-42 benefits developers, investors, and other stakeholders that otherwise would have been required to redesign or accelerate projects to meet the Physical Work Test.

Observation: Given the timing of the court’s decision, the practical benefit of the restored Five Percent Safe Harbor may be limited for taxpayers that have not already incurred sufficient eligible costs before the BOC deadline of July 5, 2026.

Actions to consider

Taxpayers should consider the impact of the court’s decision and assess the ability of current and planned wind and solar projects to satisfy the Five Percent Safe Harbor. Because the decision still could be appealed, however, a prudent course for most developers may be to preserve flexibility under both methods rather than switching methods based on the court’s ruling, which could be stayed, modified, or reversed. Continued engagement with contractors, suppliers, and tax equity investors will be important as legal clarity develops.