June 8, 2026 | By: Dorian Hunt Partner, Head of Energy & Renewables tax practice
Just one week can completely change the tax credit strategy for a renewable energy project.
On June 6, a U.S. court struck down IRS Notice 2025-42, bringing the 5% safe harbor back into play for many wind and solar developers.
The result? Developers now have more flexibility than they did a week ago, but also more uncertainty.
For those following this issue, Notice 2025-42 had effectively eliminated the 5% safe harbor as a pathway for establishing federal tax credit eligibility after September 1, 2025. Developers were largely left with one option: satisfying the “physical work of a significant nature” test.
Now, that has changed.
A few key takeaways:
- The physical work test remains relevant and should not be overlooked.
- The 5% safe harbor may once again be available as a qualifying pathway.
- Treasury is expected to appeal, so the legal landscape could shift again.
- Developers should review recent construction activities and expenditures to determine whether they may now qualify under the reinstated safe harbor rules.
The biggest challenge isn’t understanding the rules. It’s keeping up with how quickly they evolve.
In an environment where guidance, regulations, and court decisions can materially impact project economics, proactive planning is more important than ever.
How are you approaching tax credit qualification strategies in light of this decision?