A federal judge has revoked an exclusion that prevented solar and wind energy projects of a certain size from receiving tax benefits through long-standing means for qualification.
Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia vacated Notice 2025-42, which made solar and wind projects larger than 1.5 MW ineligible for the declining 48E investment and 45Y production tax credits through safe harboring by absorbing 5% of a project’s total cost. Solar and wind projects above that scale were limited to completing a “physical work test” to qualify for the subsidies. Now they can qualify through the 5% safe harbor – with less than a month until the July 4 deadline.
Several groups, including the Oregon Environmental Council, Natural Resources Defense Council (NRDC), and Public Citizen, has filed a lawsuit against the IRS, alleging that the notice – which was issued shortly after the One Big Beautiful Bill Act was enacted – caused property damage to its members and utility customers.
“The Trump Administration’s illogical and illegal war on clean energy is making it harder than ever to get the electricity the grid needs, driving up costs for cash-strapped utilities,” said Grace Henley, tax attorney at NRDC. “This decision shows once again that its attacks are unlawful. The administration should take the hint and move on an energy policy that actually serves the American people.”
Much of their arguments focused on the rising costs of electricity and the increased production of pollution due to reliance on existing fossil fuel power plants. The court agreed that by limiting the availability of these tax credits, it slowed the development of new large-scale electricity sources, such as wind and solar projects. It also noted that this IRS notice only covered wind and solar energy.
“Finally, the notice does not explain why the agency has chosen to treat wind and large-scale solar projects differently than other types of clean energy projects, even though the tax credits themselves are technology neutral,” the document said.
The court alleges that the 5% safe harbor rule has become a standard for qualifying clean energy tax credits. The IRS created the rule in 2013, and since then, clean energy developers have relied on it to secure new projects.
“The court’s decision reinforces that the Trump administration acted unlawfully by using the IRS to target wind and solar energy projects,” said Nandan Joshi, an attorney at Public Citizen. “The Trump Administration’s war on solar and wind energy is resulting in tangible harm to consumers by raising energy prices. By using the tax code to wage war on wind and solar energy, the Trump Administration will cause electricity bills to rise, workers to lose their jobs, and older, dirtier power plants to spew more pollution into our air.”
