Industry Update — June 7, 2026
On June 6, 2026, the U.S. District Court for the District of Columbia vacated IRS Notice 2025-42 in full. Oregon Environmental Council v. IRS, No. 1:25-cv-04400 (CKK) (D.D.C. June 6, 2026), ECF No. 50. The Notice had eliminated the Five Percent Safe Harbor for establishing “beginning of construction” (BOC) for wind and most solar projects under Sections 45Y and 48E.
Bottom line. The Five Percent Safe Harbor is available again on the current posture as a BOC pathway, but the ruling is not settled law. The government is expected to appeal and may seek a stay, and the court itself acknowledged that appeals will almost certainly run past the July 4, 2026 deadline. For any project targeting July 4, the Physical Work Test remains the primary and most durable path. Treat the restored safe harbor as valuable backup optionality, not the foundation of your position.
Why the Notice Was Vacated
The court did not hold that the IRS lacks authority to restrict the safe harbor. It held only that Notice 2025-42 was arbitrary and capricious because the agency failed to explain itself: a single conclusory paragraph of justification, no meaningful engagement with more than a decade of industry reliance, no explanation for rejecting narrower alternatives, and no rationale for singling out wind and large-scale solar under technology-neutral credits. Because the defects are procedural, Treasury can attempt to re-issue similar guidance on remand with a better record.
Key Risks to Weigh
Timing: Final certainty is unlikely before July 4. Appellate proceedings will almost certainly outlast the deadline.
Stay: A stay is not automatic. If the government seeks and obtains a stay, the legal effect may be contested and could create immediate uncertainty for projects relying on the restored safe harbor.
Jurisdiction: The court dismissed the one developer-plaintiff with a 5%-satisfied project, Hopi Utilities Corporation, because, as a taxpayer, it had an alternative remedy through a refund suit. The surviving plaintiffs proceeded on downstream electricity-price theories. That jurisdictional posture is likely to be challenged on appeal and could matter for sponsors with similar project-level facts.
Recommended Posture: Dual-Track
Run both tracks in parallel, anchored on physical work.
Primary — Physical Work Test. Keep advancing physical work of a significant nature, with documentation that independently supports BOC. This is the path least exposed to the vacatur/stay fight and remains the most durable position if new guidance lands.
Backup — Five Percent Safe Harbor. Confirm and document that at least 5% of total facility cost is paid or incurred by July 4, with supporting contracts, invoices, payments, and cost allocations in place.
This is most relevant for projects that have incurred, or can incur, 5% by July 4; involve long-lead-time procurement; cannot readily complete physical work by the deadline; or were restructured in response to the Notice.
Immediate Actions
- Reassess costs through July 4 for safe-harbor eligibility.
- Review procurement contracts, deposits, and milestone payments.
- Keep advancing physical work; do not pivot entirely to safe harbor.
- Maintain continuity planning for both tracks.
- Align tax counsel, tax equity, lenders, and credit buyers on the BOC position.
- Monitor the docket for any appeal, stay motion, or new guidance.
What the Decision Does Not Change
The July 4, 2026 BOC deadline and December 31, 2027 placed-in-service deadline remain in place. The decision also does not change FEOC or material-assistance restrictions, domestic content, prevailing wage and apprenticeship, post-BOC continuity, transferability and elective pay, or general credit eligibility rules.
Note on FEOC: The BOC test for OBBBA’s prohibited-foreign-entity provisions is anchored by statute to the pre-2025 guidance -Notices 2013-29 and 2018-59, as in effect on January 1, 2025 – under 26 U.S.C. § 7701(a)(51)(J). It rests on the statute, not the vacated Notice, and should be analyzed separately from the credit-timing BOC question.
How Walker Blue Can Help
We can move quickly to assess Five Percent Safe Harbor eligibility, build dual-track documentation protocols, review procurement and cost records, update Section 45Y and Section 48E eligibility analysis, and coordinate with your counsel, investors, lenders, and credit buyers.
With under four weeks to July 4, the window to act is narrow. Contact us now to start a project review. We are actively monitoring the docket as the situation develops.
This update is for general informational purposes only and does not constitute legal, tax, or accounting advice. Consult qualified tax counsel regarding project-specific facts.
Walker Blue, LLC
Engineering-led tax strategy, compliance, and transaction advisory for utility-scale clean energy infrastructure
