PVTIME – A district court judge in Columbia has overturned a restrictive IRS rule that previously prevented US solar and wind operators from claiming federal tax credits via the established 5% safe harbour mechanism. Colleen Kollar-Kotelly ruled that IRS Notice 2025-42, which had withdrawn the eligibility scheme for all renewable assets rated above 1.5MW shortly before relevant tax incentives were due to expire on 4 July 2026, was invalid.
Since 2013, the 5% safe harbour has been the standard qualifying method, enabling developers to demonstrate project commencement and access the 30% 48E investment tax credit and 45Y production tax credit. Last year, the IRS abolished this mechanism as part of the former administration’s budgetary bill, enforcing a physical construction test as the sole alternative route for projects above 1.5MW to obtain fiscal subsidies.
Following legal action initiated by multiple environmental bodies, the court condemned the revoked notice for arbitrary governance across three key aspects. The authorities were criticised for providing insufficient reasoning for the policy reversal and for implementing biased restrictions that target wind and solar assets, which goes against the technology-neutral principle of existing tax schemes. The judges also confirmed that the regulator had disregarded feasible alternatives and failed to protect investors’ legitimate reliance interests.
The reinstated framework provides a vital alternative route for developers to secure tax credits within the limited timeframe before the deadline. Professionals at advisory firms such as Baker Tilly and PwC recognise this policy turnaround as a vital lifeline, as early-stage capital spending can qualify projects without physical construction. However, financing specialist Crux still advises caution given the limited time for new project deployment and the ongoing regulatory litigation risks from the IRS.
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