A US district court said Saturday that developers of wind and solar projects rushing to start construction by July 4 this year to lock in federal tax credits should have two options -- rather than a single option -- for how to do so.
The US Treasury said in a notice last August, in response to an executive order from President Trump, that wind and solar projects on which construction starts after September 1, 2025 must prove "physical work of a significant nature" started on the project.
Until the notice, developers also had the option to prove construction started by showing at least 5% of the total project cost was incurred by the construction-start deadline.
The August 2025 notice is Notice 2025-42. It applies solely to wind and solar projects. More details can be found here.
The notice said the option to use the 5% test would remain available for small solar projects of up to 1.5 MW in capacity.
The district court vacated the notice on grounds that the Treasury failed to provide a reasoned basis for the policy change and failed to take into account that developers may have relied on the availability of both options when planning work on future projects. Governments generally do not change rules after companies have already relied on them.
The decision is in a case called Oregon Environmental Council v. Internal Revenue Service. The full decision can be found here.
The Trump administration can be expected to appeal.
Most developers have been relying on physical work to start construction because it is a less expensive path than incurring 5% of the total project cost.
However, if the industry ultimately prevails on appeal, it will give developers the option when raising tax equity, buying tax insurance or defending an IRS audit adjustment of checking whether they had high enough incurred costs by July 4, 2026 to prove projects were under construction where questions are raised about the amount or type of physical work.
The Treasury could also forego an appeal and reissue the notice while attempting to address the infirmities identified by the court.