A federal court in Washington, DC, ruled that the IRS acted in an “arbitrary and capricious” manner when — after more than a decade of precedent — it required wind and solar facilities alone to change how they establish “safe harbor.”
In a ruling with national implications, the US District Court for the District of Columbia found that the Internal Revenue Service (IRS) acted in an “arbitrary and capricious” manner when it dictated that wind and solar power facilities were no longer eligible to use the 5% safe harbor method to lock in the tax credit in Notice 2025-42 (the Notice). The court vacated the Notice nationwide and sent it back to the IRS.
The effect of the ruling may be small, though, especially among risk-averse solar developers. David Burton, partner at Norton Rose Fulbright, told pv magazine USA, “Given the risk of it being overturned on appeal, most developers will be disinclined to rely on it.” He noted that he thought the opinion was well reasoned, the practical possibility of reversal was enough that developers would avoid relying on it outright.
Burton does suggest the ruling does give a strong backup value though if a developer has already spent 5% of the project’s costs in the already ongoing, ordinary course of business.
