On June 6, Judge Colleen Kollar-Kotelly of the US District Court for the District of Columbia vacated IRS Notice 2025-42, the Treasury guidance that had eliminated the 5% cost safe harbor for wind and solar projects seeking to qualify under the Section 45Y production credit and Section 48E investment credit. The court found the notice arbitrary and capricious under the Administrative Procedure Act.
Notice 2025-42, issued in August 2025, had required wind and solar developers to demonstrate continuous physical work to establish begin-of-construction status, replacing the decade-old 5% threshold methodology that allowed developers to lock in tax-credit eligibility by incurring at least 5% of total project cost. The vacatur restores that pathway, at least for now.
Why the timing matters
The One Big Beautiful Bill Act sets July 4, 2026 as the begin-construction deadline for wind and solar projects to preserve full 45Y/48E credit eligibility. Projects that miss the date must instead be placed in service by December 31, 2027, a much tighter operational bar.
For developers sitting on partially financed pipelines, the 5% pathway is the difference between a credit-eligible project and a project that has to race procurement, interconnection, and EPC schedules into a 2027 placed-in-service window. Restoration of the safe harbor with three weeks to spare puts a meaningful slice of late-stage pipeline back inside the credit envelope.
The catch
Treasury has not yet indicated whether it will appeal, but practitioners across multiple law-firm advisories assume an appeal is coming and may include a request for a stay. The court itself noted that any appellate process would extend past July 4, meaning developers face a window where the safe harbor is technically available but the legal status is not settled. Several firms advising the sector are recommending continuous-work documentation as a backstop even where the 5% test is used.
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The ruling moves the dial on near-term pipeline preservation, not on the underlying credit architecture. The 45Y/48E sunset schedule and the FEOC material-assistance regime under Notice 2026-15 still apply. What changes is the share of in-flight wind and solar capacity that can credibly claim begin-of-construction status before July 4, and that share matters for 2027-2029 interconnection and offtake economics.
Watch for: a Treasury appeal filing, any stay motion, and whether developers who paused safe-harbor purchases in late 2025 restart procurement before the deadline.