THE APEX TIMES
In Oregon Environmental Council v. IRS, the judge ruled that an IRS notice tightening “beginning of construction” standards for wind and solar projects was arbitrary and capricious under the Administrative Procedure Act, vacating the guidance and remanding the matter to the agency.
A federal judge in Washington, D.C., vacated an Internal Revenue Service notice that tightened eligibility rules for federal wind and solar energy tax credits, a development coming with the July 4, 2026 “beginning of construction” deadline for certain credits under the One Big Beautiful Bill Act fast approaching. In a memorandum opinion issued June 6, 2026, Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia granted summary judgment in part to plaintiffs challenging Notice 2025-42 and vacated the notice in full, remanding the matter to the IRS for further administrative action.
The case, Oregon Environmental Council et al. v. Internal Revenue Service et al., Civil Action No. 25-4400 (CKK), targets Notice 2025-42, which the IRS said was issued to provide guidance tied to credit-termination provisions in Public Law 119-21. The court said the notice affected two major clean electricity credits for wind and solar projects, the clean electricity production credit under 26 U.S.C. § 45Y and the clean electricity investment credit under 26 U.S.C. § 48E.
Under Notice 2025-42, the IRS stated that, except for certain “low output” solar facilities, the Five Percent Safe Harbor method for demonstrating that construction has “begun” was not available for purposes of the applicable statutory beginning-of-construction deadline. For most wind and solar projects, the notice said the Physical Work Test became the sole method a taxpayer could use for those purposes, with the credit-termination timing linked to facilities placed in service after December 31, 2027. The IRS also said the notice was effective for facilities whose construction had not begun before September 2, 2025, as determined under earlier IRS guidance.
The One Big Beautiful Bill Act, signed July 4, 2025, altered the timing rules for the wind and solar clean electricity credits. According to the court, as amended, the credits remain available for wind and solar projects that begin construction on or before July 4, 2026, while wind and solar projects that begin construction after that point are not eligible for the credits unless the eligible facilities are placed in service on or before December 31, 2027. In the litigation, the court also described expedited proceedings intended to resolve the dispute before that July 4 deadline.
In vacating the notice, the judge concluded it was arbitrary and capricious under the Administrative Procedure Act. The court said the plaintiffs challenged the notice on three grounds, including that the IRS failed to articulate a reasoned basis for the major policy change, treated wind and certain solar projects more restrictively without sufficient justification, and did not give due consideration to serious reliance interests or evaluate alternatives when adopting the notice. The opinion states that, because the notice and administrative record did not provide an explanation from which the agency’s decisionmaking path could reasonably be discerned in light of the record, the notice failed the APA’s requirement for reasoned decisionmaking.
The court ordered vacatur and remand in full. It said the remedy was not limited only to the plaintiffs because their injuries were tied to the notice’s effects on market participants and broader economic consequences. The opinion also notes the court dismissed two plaintiffs from the action while granting relief for the remaining claims. The defendants were identified as the IRS, the Treasury Department, and Scott Bessent in his official capacity as Secretary of the Treasury and as Acting Commissioner of the IRS.
The ruling leaves the IRS notice without effect while the agency reviews and potentially revises the guidance on what constitutes “beginning of construction” for wind and solar projects subject to the Act’s timing rules. Because the court remanded the matter for “further administrative action,” the IRS could consider issuing replacement guidance. The decision also sets up the possibility of appellate review, though the court’s order itself directed the notice’s vacatur and remand rather than any immediate substitute rule.