In a rare Saturday afternoon ruling on June 6, 2026, the U.S. District Court for the District of Columbia vacated IRS Notice 2025-42 in its entirety and remanded to the IRS for further proceedings.

Notice 2025-42, issued in August 2025, eliminated the long-standing “Five Percent Safe Harbor” as a method of establishing “beginning of construction” for federal energy tax credit purposes for all wind projects and solar projects exceeding 1.5 megawatts. Under the Notice, developers of those projects could rely only on the “Physical Work Test” to meet the “beginning of construction” safe harbor.

The ruling comes less than one month before the July 4, 2026 statutory deadline for certain wind and solar projects to begin construction. Projects that do not begin construction by that date must be placed in service by the end of 2027 or risk losing the Section 48E Investment Tax Credit (ITC) or Section 45Y Production Tax Credit (PTC).

The ruling may be too little, too late for developers who spent the past year developing project pipelines around compliance with Notice 2025-42. Even the Court acknowledged that, given the timing, “it is likely that market participants will need to await the outcome of an appeal before they will have certainty about the legal effect of the Notice,” and that there is “‘almost zero chance’ that the parties’ appellate rights will not extend beyond the July 4 beginning-of-construction deadline.”

In practice, most developers will likely proceed with their existing strategies regardless of the ruling. Although the Five Percent Safe Harbor offers a relatively bright-line pathway to establish “beginning of construction,” it requires substantial upfront investment. That expense may be difficult to justify with less than a month before the deadline and a looming possibility that the ruling is stayed or reversed on appeal—reinstating Notice 2025-42 and eliminating the Five Percent Safe Harbor yet again.

The ITC and PTC, Inflation Reduction Act, and OBBBA

The ITC and PTC are the principal federal clean energy tax credits that solar, wind, and other clean energy developers rely on to finance and build thousands of projects across the United States. In 2022, Congress enacted the Inflation Reduction Act, which established the Section 48E ITC and Section 45Y PTC and set the timeframe for claiming those credits into the mid-2030s.

After President Trump was elected, Congress enacted the “One Big Beautiful Bill Act” (“OBBBA”) in 2025. Among other things, the OBBBA singled out solar and wind for early tax credit phase-outs. Wind and solar projects seeking the Section 48E ITC or Section 45Y PTC must be placed in service by the end of 2027 to claim the credits. However, the OBBBA created an exception for projects that establish “beginning of construction” before July 4, 2026—exactly one year after the OBBBA was enacted. Those projects are not subject to the 2027 placed-in-service requirement.

Neither the Inflation Reduction Act nor the OBBBA defined “beginning of construction” with specificity. Since at least 2013, the IRS has recognized two “beginning of construction” methods/safe harbors for clean energy tax credit purposes:

Both methods require compliance with other requirements set forth in the guidance, the specifics of which are outside the scope of this alert.