On June 6, 2026, the United States District Court for the District of Columbia vacated IRS Notice 2025-42 in full. The notice had eliminated the 5 percent safe harbor as a way for wind projects, and for solar projects above 1.5 MW AC, to begin construction for federal tax credit purposes. With the notice vacated, the 5 percent method is available to solar projects of every size under the longstanding prior guidance, for now. The government is expected to appeal, and the court itself acknowledged that appellate review will likely run past the July 4, 2026 begin-construction deadline. Here is what the ruling says, what it changed before July 4, and what it does not change now that the deadline has passed.
The July 4, 2026 begin-construction deadline discussed throughout this article has now passed. It did not close the federal solar credit. A project that established its begin-construction date by July 4, 2026 keeps the longer placed-in-service runway through the end of 2030. A project establishing its begin-construction date after July 4, 2026 is on the second path and must be placed in service by December 31, 2027 instead, per IRS Notice 2025-42 and Section 48E(e)(4). The 30 percent credit, 40 percent in a qualifying Energy Community, is the same either way. See the commercial solar tax credit guide for the full two-path breakdown.
Fast Facts
- The ruling: IRS Notice 2025-42 vacated in full and remanded to the IRS, June 6, 2026.
- The case: Oregon Environmental Council v. Internal Revenue Service, No. 25-4400, United States District Court for the District of Columbia.
- The holding: The notice was arbitrary and capricious under the Administrative Procedure Act, on three independent grounds.
- What it restores: The 5 percent cost method for wind and solar projects of every size, under the guidance in effect before the notice, while the vacatur stands.
- What it does not change: The July 4, 2026 begin-construction deadline, which is set by statute. The 30 percent credit, the Energy Community bonus, and the rules for systems at or below 1.5 MW AC are all exactly where they were.
- The risk: An appeal is expected. A stay would put the notice back in force while the appeal runs, and a reversal could reach back to projects that relied on the restored method.
- Primary sources: The June 6, 2026 memorandum opinion in Oregon Environmental Council v. IRS, and IRS Notice 2025-42.
- 1 The 5 percent safe harbor is restored for solar projects of every size, for now. A federal court found the IRS never adequately explained why it eliminated the method for wind and large solar.
- 2 Nothing changed for systems at or below 1.5 MW AC. The 5 percent method was preserved for them even under the notice. That is the line GEC engineers to on purpose, and it is unaffected by the ruling or the appeal.
- 3 The July 4, 2026 deadline did not move. It is set by statute. The ruling changes how a project can begin construction, not when.
- 4 Larger projects gained back an option that carries real legal risk. The court itself warned that appellate review will probably outlast July 4, and a reversal could have retroactive effect. The conservative position has not changed.
What the court decided
The case is Oregon Environmental Council v. Internal Revenue Service, brought by a coalition that included the Oregon Environmental Council, the Natural Resources Defense Council, Public Citizen, the Hopi Utilities Corporation, and the City and County of San Francisco. On June 6, 2026, the court issued a memorandum opinion vacating Notice 2025-42 in its entirety and remanding the matter to the IRS.
The court held that the notice was arbitrary and capricious under the Administrative Procedure Act on three independent grounds. First, the IRS never articulated a reasoned basis for eliminating the 5 percent method. The notice's explanation amounted to a single conclusory paragraph. Second, the notice singled out wind and large-scale solar for harsher treatment even though Sections 45Y and 48E are technology-neutral by design. Third, the IRS failed to consider the reliance interests built on more than a decade of consistent begin-construction guidance, and did not weigh the narrower alternatives that commenters had proposed.
What Notice 2025-42 did
Since 2013, IRS guidance has recognized two ways to begin construction for energy credit purposes: paying or incurring at least 5 percent of total project cost under a binding contract, or starting physical work of a significant nature. Notice 2025-42, issued in August 2025 following a July 2025 executive order, removed the 5 percent option for wind projects and for solar projects above 1.5 MW AC, leaving the physical work test as their only path. It took effect for projects that had not begun construction before September 2, 2025. Solar projects at or below the 1.5 MW AC low-output threshold kept the 5 percent method throughout.
What the ruling restores, for now
With the notice vacated, the begin-construction guidance in effect before it governs again. That means the 5 percent cost method is available to wind and solar projects of every size: pay or incur at least 5 percent of total project cost under a binding written contract before the deadline, then maintain continuous progress toward completion.
The reason every careful summary of this ruling says "for now" is that the decision is a district court opinion issued four weeks before a statutory deadline. The government is expected to appeal to the D.C. Circuit and may seek a stay, which would put the notice back in force while the appeal runs. The IRS could also issue new guidance on remand. And the court itself acknowledged that appellate review will probably outlast July 4, 2026, which means a project that relies on the restored 5 percent method today may not know whether that reliance was safe until after the deadline has passed. A reversal could have retroactive effect.
If your system is 1.5 MW AC or smaller, nothing changed
The 5 percent method was never in dispute for solar at or below 1.5 MW AC. Notice 2025-42 preserved it for low-output systems, the vacatur preserves it for everyone, and any outcome on appeal lands back at one of those two positions. A system engineered at or below that line qualifies for the simple 5 percent path under every scenario this litigation can produce.
That is exactly why GEC engineers the system AC nameplate to sit at or below 1.5 MW AC on purpose. Most commercial rooftop and ground-mount projects fit naturally under the line, and a project that sits under it does not need to follow this case at all. The begin-construction position GEC documents for clients was sound before June 6 and is sound after it.
GEC engineers every commercial system at or below 1.5 MW AC, which qualifies for the simple 5 percent method whether the vacatur stands, gets stayed, or gets reversed. For a project that established its begin-construction date by July 4, 2026, that position secured the longer runway through the end of 2030. For a project starting now, the same positioning applies going forward, on the December 31, 2027 placed-in-service deadline. Either way, it is the cleanest posture available, and it is the one GEC builds for clients.
If your project is above 1.5 MW AC
The ruling hands larger projects back an option, with real legal risk attached. Relying solely on the restored 5 percent method means betting that the vacatur survives a stay motion and an appeal, and the court itself flagged that the appellate timeline runs past July 4, 2026. The conservative positions are the same ones that existed before the ruling: satisfy the physical work test, or size the AC nameplate at or below 1.5 MW AC, which many projects can do while keeping a higher DC capacity. GEC's commercial systems are engineered at or below 1.5 MW AC, where the question never arises. A larger project that relied on the restored method to establish its begin-construction date before July 4 should confirm that position with tax counsel while the appeal proceeds.
The July 4 deadline did not move, and it has now passed
The July 4, 2026 begin-construction deadline came from statute, not from Notice 2025-42, so the ruling did not touch it, and it did not move. That date has now passed. A solar project that established its begin-construction date by July 4 preserved the full 30 percent credit under Section 48E, plus the 10 percent Energy Community bonus where the address qualifies, and has until the end of 2030 to be placed in service. A project establishing its begin-construction date after July 4 gets the same credit and must be placed in service by December 31, 2027 instead. The ruling changed how a project can begin construction. It did not change when the cutoff fell, and the two-path placed-in-service rule is what governs a project starting today.
The full walkthrough of the deadline, the two begin-construction methods, the credit math with depreciation, and the Illinois incentives that apply on top lives in the commercial solar tax credit safe harbor guide.
Get the Credit on the Path That Holds Either Way
Send one recent utility bill per meter and your facility address. GEC verifies Energy Community status, models the federal and Illinois programs that apply, and documents the begin-construction date on the 5 percent path, whether your project already started before July 4 or is starting today on the December 31, 2027 placed-in-service deadline. For strong projects, GEC puts up its own capital to fund the early commitment, secured by a letter of intent that does not commit you to build.
Frequently Asked Questions
This article reflects the litigation status as of June 11, 2026, updated July 10, 2026 to reflect that the July 4, 2026 begin-construction deadline has passed, and is general information, not tax or legal advice. The status of Notice 2025-42 can change quickly on appeal, stay, or new IRS guidance. Confirm the current state of the begin-construction rules with your tax advisor before acting.
Continue the series
- The flagship guide: Commercial solar tax credit safe harbor in 2026, the complete walkthrough of the deadline, the 5 percent method, the credit math, and the Illinois incentives on top.
- Up to the hub: Incentives & Safe Harbor, the pillar that ties every Illinois program together.
- The Illinois-manufacturer decision guide: Safe harbor for Illinois manufacturers in 2026, the week-by-week version for 100 to 500 employee plants.
References
- 1 Oregon Environmental Council v. Internal Revenue Service, No. 25-4400, U.S. District Court for the District of Columbia, memorandum opinion of June 6, 2026. Plaintiff announcement: citizen.org
- 2 IRS Notice 2025-42 (beginning of construction, vacated June 6, 2026). irs.gov/pub/irs-drop/n-25-42.pdf
- 3 KPMG TaxNewsFlash, Federal district court vacates Notice 2025-42. kpmg.com
- 4 Foley Hoag LLP, Federal Court Vacates IRS Notice 2025-42, Restoring Five Percent Safe Harbor . . . For Now. foleyhoag.com
- 5 Holland & Knight, Court Vacates IRS Notice 2025-42: 5% Safe Harbor for Wind and Solar Facilities Reinstated. hklaw.com
- 6 Norton Rose Fulbright Project Finance, US court rejects Treasury tightening of construction-start rules. projectfinance.law
