Court Restores Solar 5% Safe Harbor Before July 4
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- US District Court for the District of Columbia vacated IRS Notice 2025-42 in Oregon Environmental Council v. Internal Revenue Service (Civil Action No. 25-4400 (CKK)), restoring the 5% safe harbor rule the Trump-era IRS had moved to eliminate.
- The 5% safe harbor, established under a 2018 IRS notice, let developers of long-lead-time solar and wind projects qualify for tax credits by paying or incurring 5% or more of total project cost, as an alternative to the 'Physical Work Test.'
- The Trump administration had been pushing to force most solar and wind projects onto the 'far more demanding' Physical Work Test to establish beginning of construction (BOC) for Sections 45Y and 48E credits.
- Bill Curtis, an attorney at Spencer Fane, called the ruling a 'significant victory' that provides 'ample certainty' to anyone who meets the 5% rule — 'even if the IRS appeals or attempts to limit the deduction in the future.'
- Curtis argued the IRS 'typically cannot unilaterally increase a taxpayer's tax burden absent congressional action,' calling Notice 2025-42 'clearly an attempt by the IRS to dissuade taxpayers from claiming a rightful deduction.'
- The ruling lands less than a month before the July 4 Federal Clean Energy tax-credit deadline, reopening a pathway the industry had largely written off for projects with longer lead times.
Why it matters: Solar developers who were told their projects wouldn't qualify for safe harbor now have a viable path to Section 45Y and 48E credits, with attorney Bill Curtis asserting the ruling provides 'ample certainty' even if the IRS appeals. With the July 4 federal deadline weeks away, projects with longer lead times gain a reprieve from the more demanding Physical Work Test — though the IRS could still attempt to narrow the deduction on appeal.
