On August 15, 2025, the IRS released Notice 2025-42 (Notice) on how to determine when wind and solar projects have begun construction for purposes of qualifying for the tax credits under IRC Section 45Y and 48E. The "5% safe harbor" test is generally eliminated, leaving the "physical work" test as the only way to show the project has begun construction (effective for projects that have not begun construction before September 2, 2025).

The "One Big Beautiful Bill Act" (P.L. No. 119-21, OBBBA) eliminated the IRC Section 45Y and 48E credits for wind and solar projects placed in service after December 31, 2027, except for projects on which construction begins within 12 months of July 4, 2025.

The Notice, issued in response to an Executive Order, generally eliminates the "5% safe harbor" test for making the beginning-of-construction determination. Instead, the Notice states that the sole method of determining beginning of construction is the "physical work" test, which requires the start of physical work of a significant nature and requires a continuous program of construction. The Notice defines this test in detail.

The Executive Order also asked for guidance on the foreign entity of concern provisions, which the IRS said will be issued separately.

A detailed Tax Alert is forthcoming.

For more information, please register for our webcast, "Tax credits and 'foreign entity of concern' under H.R. 1: What companies need to know and consider now"

Date: Tuesday, August 26, 2025

Time: 2:00-3:00 p.m. ET New York; 11:00 a.m.-12:00 p.m. PT Los Angeles

Registration: Register for this event.