Court vacates IRS notice, restoring clean-energy safe harbor for developers

The IRS’ clean-energy playbook just changed again, and renewable-energy deal teams need to move fast. A U.S. District Court judge in Washington, D.C., vacated Notice 2025-42, the guidance that had stripped wind and large-scale solar projects of the five-percent safe harbor used to prove construction had begun.

For KPMG tax professionals, that means client advice written around the narrower rule may need same-day revision. Projects that were modeled under the physical-work test alone now have to be reconsidered under the restored safe harbor, including milestone tracking, financing assumptions, due-diligence checklists and the timing of tax credit eligibility for sections 45Y and 48E.

The case, Oregon Environmental Council v. IRS, Civil Action No. 25-4400 (CKK), was decided June 6, 2026 by U.S. District Judge Colleen Kollar-Kotelly. The court held that the IRS acted arbitrarily and capriciously under the Administrative Procedure Act and set aside the notice in its entirety, then remanded the matter to the IRS for further consideration.

That is a major reversal from the IRS’ August 2025 position. Notice 2025-42 had been issued in response to Executive Order 14315 and the One Big Beautiful Bill Act, and it applied special beginning-of-construction rules to applicable wind and solar facilities. It eliminated the five-percent safe harbor for wind projects and for solar projects larger than 1.5 MWac, leaving physical work as the other route to show that construction had started.

The practical impact for practitioners is immediate. Developers that had paused projects, sponsors trying to lock in capital stacks and tax equity desks repricing transactions all have to decide whether deals can again rely on the familiar safe harbor. The June 6 ruling also arrives with a short runway: under the One Big Beautiful Bill Act, wind and solar projects generally must begin construction by July 4, 2026, or face tighter placement-in-service pressure under the new regime.

The decision does not end the uncertainty. The IRS could revise the guidance, Treasury could act, or an appeal could change the result. But for now, the safe harbor is back on the table, and KPMG teams serving renewable-energy clients need to reassess documentation, deadline tracking and client communications before the next financing conversation turns into a dispute over which construction test still applies.