There has been a recent major development regarding the clean energy tax credits under Internal Revenue Code (“IRC”) §§ 45Y and 48E for commercial wind and solar projects. In Oregon Environmental Council v. Internal Revenue Service, No. CV-25-4400 (D.D.C. June 6, 2026), the U.S. District Court for the District of Columbia vacated IRS Notice 2025-42, 2025-36 IRB 351 (“Notice 2025-42”), which had eliminated a beginning-of-construction safe harbor for claiming wind and solar energy tax credits under IRC §§ 45Y or 48E.

What Changed for Wind and Solar Credits

IRC §§ 45Y (clean electricity production tax credit or “PTC”) and 48E (clean electricity investment tax credit “ITC”) provide tax credits for wind or solar facilities. Notably, the One Big Beautiful Bill Act (“OBBBA”) terminates the energy tax credits for wind and solar projects under IRC §§ 45Y and 48E for projects that do not “begin construction” before July 4, 2026 or are not place-in-service by December 31, 2027.[1]

Before the IRS released Notice 2025-42, taxpayers could satisfy the beginning-of-construction requirement for wind or solar projects by using one of two methods—the Physical Work Test or the 5-Percent Safe Harbor. Under the 5-Percent Safe Harbor, the beginning-of-construction requirement was met by paying or incurring 5-percent of the total cost of the facility. To meet the Physical Work Test, a taxpayer must commence physical work of a significant nature on the wind or solar facility. The Physical Work Test remained intact but Notice 2025-42 eliminated the 5-Percent Safe Harbor for wind or solar projects (except for smaller solar projects of less than 1.5 MW) that did not begin construction before September 2, 2025.

Court Vacates IRS Notice 2025-42

By vacating Notice 2025-42, the ruling in Oregon Environmental allows taxpayers to once again meet the beginning-of-construction requirement by satisfying either method. That is, to claim the energy tax credits under IRC §§ 45Y or 48E for wind or solar projects, taxpayers may still use the 5-percent safe harbor to meet the beginning-of-construction requirement. The Oregon Environmental court found that, in the Notice, the IRS did not adequately articulate its concerns about the circumvention or manipulation of eligibility, did not provide reasoning for why wind and solar projects should be treated differently from other kinds of clean energy projects, and did not offer more than a cursory explanation for eliminating the 5-percent Safe Harbor. The court therefore held that Notice 2025-42 is arbitrary and capricious.

What This Means for Taxpayers and Project Eligibility

Because Notice 2025-42 was vacated in full, wind or solar projects that have already begun, as well as wind or solar projects that taxpayers plan to begin, can use the 5-Percent Safe Harbor to satisfy the beginning-of-construction requirement. Additionally, this means that the ruling in Oregon Environmental applies not only to the named plaintiffs, but to all taxpayers. Wind or solar projects, however, will still need to meet a beginning-of-construction requirement by July 4, 2026 to be eligible for the energy tax credits under IRC 45Y or 48E because the tax credits are still scheduled to be eliminated under the OBBBA. Additionally, both beginning-of-construction requirement methods require a taxpayer to make continuous progress towards completion of the facility once construction has begun.

Proceed With Caution: Appeal and Guidance Risks

While the 5-Percent Safe Harbor is available for now, caution should still be exercised because the government may appeal, seek a stay, or issue new guidance, and any appellate resolution likely would not occur before the July 4, 2026 deadline. If the decision is reversed after the deadline, taxpayers who relied solely on the 5-Percent Safe Harbor could face uncertainty as to whether Notice 2025-42 applies, and the credits could be in jeopardy. That said, taxpayers with wind and solar projects should keep records supporting compliance with the 5-Percent Safe Harbor to preserve eligibility for the credit even if the project does not meet the Physical Work Test.

Key Takeaways for Developers and Taxpayers

In sum, if nothing changes, both the PTC and ITC under IRC §§ 45Y and 48E remain available for wind and solar projects that begin construction on or before July 4, 2026; however, wind projects and solar projects that begin construction after that date are not eligible for the credits unless the eligible facilities are placed in service on or before December 31, 2027. Due to the ruling in Oregon Environmental vacating Notice 2025-42, wind and solar projects may meet the beginning-of-construction requirement by satisfying either the Physical Work Test or the 5-Percent Safe Harbor. Taxpayers that rely on the 5-Percent Safe Harbor should also consider the possibility of the IRS revising its guidance, issuing new guidance, or appealing the court’s ruling.

If you have any questions or need assistance, please contact the Kean Miller Tax Group.

Jaye Calhoun, Kevin Baker, and Derek Brondum are members of Kean Miller’s Tax Group, advising businesses and individuals on complex federal and state and local tax (SALT) matters, including compliance, planning, audits, and controversies. They regularly counsel clients on evolving federal tax developments affecting project structuring and credit eligibility, helping taxpayers assess risk and preserve valuable incentives amid shifting IRS guidance and regulatory change, including issues impacting clean energy tax credits such as those discussed in this article.

[1] The residential clean energy tax credits under IRC 25D were not subject to Notice 2025-42 and remain unaffected and unavailable as of December 31, 2025 under the OBBBA.