A U.S. district court has vacated Notice 2025-42, which narrowed the beginning of construction (BOC) rules for wind and solar facilities seeking section 45Y or 48E tax credits and remanded the matter to the Internal Revenue Service (IRS) for further consideration. Oregon Environmental Council v. IRS, No. 25-4400 (CKK) (D.D.C. June 06, 2026). The court held that the Notice inadequately explained the elimination of a BOC safe harbor only for wind and solar projects and, consequently, was arbitrary and capricious under the Administrative Procedure Act (APA). 

Sections 45Y and 48E are clean electricity tax credits. Both credits are "technology-neutral," meaning a clean electricity-generating facility may qualify regardless of energy type, e.g., wind, solar, nuclear, or hydropower. IRS Notices have long provided two methods to determine a facility's BOC date: a Physical Work Test and a Five Percent Safe Harbor. The Physical Work Test requires a taxpayer to begin physical work of a significant nature. The Five Percent Safe Harbor requires a taxpayer to pay or incur at least five percent of the total cost of a facility. IRS Notices have provided these rules since 2013 and the IRS extended their applicability to sections 45Y and 48E in Notice 2022-61.

The One Big Beautiful Bill Act (OBBBA) restricted the wind and solar projects that are eligible for tax credits under sections 45Y and 48E. As amended, both tax credits remain available for wind and solar projects that began construction on or before July 4, 2026. Wind and solar projects that begin construction after this date are ineligible for the tax credits unless the project is placed in service before 2028. Shortly after the OBBBA was enacted, the president issued Executive Order 14315, which directed the Department of the Treasury to strictly enforce the statutory revisions to clean energy credits, including "issuing new and revised guidance" to prevent circumvention of the BOC rules and manipulation of "broad safe harbors." Treasury and the IRS responded by issuing Notice 2025-42, which eliminated the Five Percent Safe Harbor for wind and most solar projects for sections 45Y and 48E purposes. The Notice explained its rationale in one paragraph and did not acknowledge the comment letters that stakeholders had provided in response to the executive order.

After holding that five of the seven plaintiffs had "standing" and satisfied an exception to the Anti-Injunction Act, the court held that the Notice was arbitrary and capricious under the APA. Specifically, the court held that the Notice's single paragraph explaining the elimination of the Five Percent Safe Harbor was insufficient for failing to address how satisfaction of the Five Percent Safe Harbor circumvented statutory cutoff dates, why elimination of the Five Percent Safe Harbor was adopted over alternatives put forward in comment letters, or why the Five Percent Safe Harbor for a technology-neutral credit was eliminated only for wind and solar projects. Finally, the court found that the appropriate remedy was to vacate the Notice and remand the matter to the IRS.

It remains to be seen whether the IRS will appeal the decision or seek to reissue the Notice with additional explanation and justification. In the meantime, taxpayers seeking to satisfy the July 4, 2026, BOC deadline are, where possible, likely to document satisfaction of both the Physical Work Test and the Five Percent Safe Harbor.

For more information, please contact:

Andy L. Howlett, ahowlett@milchev.com, 202-626-5821

Katherine Chace, kchace@milchev.com, 202-626-5894

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