Earlier this month, the U.S. District Court for the District of Columbia vacated Treasury guidance that had limited options for wind and solar developers looking to qualify for federal tax credits before the July deadline. Perkins Coie’s Vivek Chandrasekhar said the ruling provides an alternate pathway to qualify for the credits — for now. However, he anticipates clients will “stay the course” or pursue a dual-path strategy to qualify for the credits.
In the One Big Beautiful Bill Act, congressional Republicans accelerated the timeline for developers to claim a variety of clean energy credits, including those under IRC § 45Y and IRC § 48E. Wind and solar developers, specifically, must begin construction before July 5, 2026, to claim these two types of credits.
Notice 2025-42, issued in August 2025, eliminated one option for wind and solar energy developers claiming tax credits under § 45Y and § 48E to show they began construction by the deadline. However, in a June 6 decision in Oregon Environmental Council v. IRS, 2026 WL 1631612, a district court held that Notice 2025-42 was “arbitrary and capricious.”
Prior to Notice 2025-42, developers had two options to satisfy clean energy credit beginning of construction requirements. They could use the “physical work test,” which requires starting physical work of a “significant nature,” or the 5% safe harbor, which requires paying or incurring at least 5% of the project’s total cost.
“The 5% safe harbor is back on the table, as an alternative way for determining beginning of construction,” Chandrasekhar told Checkpoint after the court’s decision. But he caveated that the government could move to reconsider or appeal the district court ruling.
As we approach the July deadline, Chandrasekhar recommends wind and solar developers take a “belt-and-suspenders” approach to satisfying beginning of construction. “It’s clear that the physical work test remains viable,” he explained. However, developers whose physical work strategy is “a bit novel” may now also want to employ a 5% strategy as an alternative, he added.
“It seems like it’s relatively easy to also employ a 5% safe harbor strategy, even while going on with physical work,” Chandrasekhar said. And this dual-pathway approach may be helpful for some developers to shore up their beginning of construction date position for tax equity investors, tax credit purchases, and eventually, the IRS, in the case of an audit. “It may not make sense for everybody, but it could in some cases,” he said.
But generally, Chandrasekhar said the district court decision is not causing developers to change course. Rather, his clients are viewing the 5% safe harbor test as a backup plan. “It’s not quite status quo, but I think people are going to largely stay the course,” he said.
Path ahead unclear
Notice 2025-42, and now the district court’s ruling, have created a lot of uncertainty for clean energy developers.
Chandrasekhar pointed out that Notice 2025-42 departed from over a decade of guidance on clean energy beginning of construction. The IRS released a series of notices beginning in 2013 that led to a “market understanding” he said. “Notice 2025-42 interrupted that, because it said that is the sole notice, the sole guidance for purposes of this July 5 deadline.”
Prior to the district court ruling, Chandrasekhar had anticipated people would “pore over every word in Notice 2025-42 to see how it’s different from prior guidance.” Now he suspects people will “default to the common understanding of beginning of construction.”
He gave the example of Notice 2025-42 using the phrase “manufacturer’s inventory” whereas the phrase “inventory” appeared in prior guidance. “Does that mean something different? Maybe, maybe not,” he said.
Compounding the issue is that Notice 2025-42 applied exclusively for § 45Y and § 48E wind and solar credits. “There are other beginning of construction deadlines,” Chandrasekhar stressed. That includes deadlines for other energy types under § 45Y and § 48E, other energy credits, and the OBBB’s prohibited foreign entity limitations.
And a future court could reinstate Notice 2025-42, he noted. He described the current situation as “kind of like reading tea leaves.”
Overall, Chandrasekhar is emphasizing to his clients that between the multiple beginning of construction deadlines and the different and changing rules, “it’s complicated.”
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