WASHINGTON (LN) — A federal judge on June 6 vacated an Internal Revenue Service notice that sought to redefine when construction begins for clean energy projects, ruling the agency’s action was arbitrary and capricious.
U.S. District Judge Colleen Kollar-Kotelly granted summary judgment for five plaintiffs in the case, including the Oregon Environmental Council, the Natural Resources Defense Council, Public Citizen, Woven Energy LLC, and the City and County of San Francisco.
The court declared that IRS Notice 2025-42 violated the Administrative Procedure Act. The order vacates the notice in full and remands the matter to the agency for further administrative action consistent with the court’s opinion.
The ruling preserves the existing framework for two significant tax credits under 26 U.S.C. §§ 45Y and 48E. Under current law, projects must begin construction on or before July 4, 2026, or be completed and placed in service by December 31, 2027, to qualify for the credits.
The central dispute concerned what actions a taxpayer must take by the July 4 deadline to satisfy the “beginning of construction” requirement. The IRS issued the challenged notice to clarify those requirements, but the court held the notice was arbitrary and capricious.
The court dismissed two other plaintiffs, Hopi Utilities Corporation and the Maryland Office of People’s Counsel, from the action. The court also denied the defendants’ motion to dismiss in part and denied their alternative motion for summary judgment.
In a footnote to the two-page order, the court noted the time sensitivity of the matter, explaining that the court issued the decision on June 6 rather than waiting until the next business day.
The order is final and appealable.