Federal court vacates IRS Notice that undermines wind and solar projects

San Francisco, CA (June 8, 2026) — On Saturday, a federal court struck down an Internal Revenue Service (IRS) Notice that unfairly and illegally discriminated against wind and solar projects. San Francisco joined a broad coalition of government entities and clean energy nonprofits in a December 2025 lawsuit challenging the IRS rules that would have made energy more expensive for consumers.

As part of a series of attacks on solar and wind, the IRS attempted to eliminate a key pathway for companies to demonstrate they have begun construction and thus qualify for federal tax credits before they expire on July 4, 2026. The Federal Administration unjustly and arbitrarily singled out solar and wind projects for these more restrictive—and unprecedented—eligibility rules.

The Court agreed with Plaintiffs argument that the IRS Notice unlawfully changes standards for only solar and wind facilities, without providing adequate reasons for treating those energy sources differently from all other industries. The decision restores an important pathway to help finance construction of renewable energy projects.

“This decision puts an important check on the administration’s actions, which are driving up energy prices for everyday Americans in cities and towns across the country,” said San Francisco City Attorney David Chiu. “We will continue to fight for the market fairness and predictability that allow clean energy providers to build projects that benefit us all.”

Background
For more than a decade, Congress has established that a clean energy project could qualify for a tax credit if it began construction on that project before certain statutory deadlines. This provided certainty to companies that their project would qualify for the tax benefits even if they faced unforeseen delays. IRS rules have long held that starting construction could mean either spending five percent of the total project costs or beginning physical work of a significant nature.

In 2024, Congress passed a law cutting tax credits for solar and wind but provided a transition period for projects that begin construction within a year.

Days after passage of the tax law, the President issued an Executive Order to “eliminate” clean energy incentives. The order specifically directed agencies to revise the IRS’s guidance on the meaning “beginning of construction” for wind and solar facilities. In a Notice issued in August 2025—titled “Beginning of Construction Requirements for Purposes of the Termination of Clean Electricity Production Credits and Clean Electricity Investment Credits for Applicable Wind and Solar Facilities”—the IRS eliminated the five percent spending standard for all wind projects and solar projects larger than 1.5 megawatts.

In December 2025, San Francisco joined a coalition of governments, environmental organizations, and consumer advocates in a lawsuit challenging these new rules, arguing IRS’s elimination of the five percent spending standard was arbitrary and capricious. The rules singled out solar and wind as sources like nuclear, geothermal and hydropower did not face these new restrictions. It would have driven up energy prices for individual energy consumers as well as municipal utilities like the San Francisco Public Utilities Commission (SFPUC).

San Francisco has made substantial commitments to promote and provide clean and affordable energy solutions for the City, businesses, and residents. SFPUC generates or procures hydroelectric, solar, wind, and other renewable energy sources to serve the City’s own power needs, as well as those of other customers. The City’s departments and services—including its transit system, general hospital, and international airport—are powered by renewable or greenhouse gas-free energy from SFPUC.

SFPUC faces upcoming increases in electricity demand from City capital improvement projects, growing commercial technology sectors, and transitions from fossil fuels to clean electricity across the City. To meet this rising demand, SFPUC is actively procuring additional renewable energy sources. By eliminating significant tax incentives to make such investments, the new IRS rules would have made SFPUC’s current procurement of renewable energy sources more expensive.

Judge Colleen Kollar-Kotelly said in the decision that the IRS’s novel “begin construction” standards for wind and solar were “a significant change” from the agency’s consistent practice over the past decade, and the Administration’s attempts at clamping down on renewable energy would mean higher bills for customers and more air pollution for communities. The decision goes on to say, “the natural economic consequence of the Notice is less clean electricity generation capacity and higher electricity prices.”

The lawsuit was filed in U.S. District Court for the District of Columbia by a coalition of groups, led by the Oregon Environmental Council. San Francisco was joined by Natural Resources Defense Council (NRDC), Public Citizen, Hopi Utility Corporation, Woven Energy, and the Maryland Office of People’s Counsel.

“The Trump administration’s illogical and illegal war on clean energy is making it harder to get the electricity the grid needs now more than ever, raising costs for cash-strapped utility customers,” said Grace Henley, a tax attorney at NRDC. “This decision demonstrates, yet again, that its attacks are unlawful. The administration should take the hint and get to work on an energy policy that actually serves the American people.

“This is a huge win for clean energy development, and for everyone already feeling the impacts of rising electricity costs. Solar is the most affordable and fastest-growing energy source. Wind and solar energy are saving ratepayers from rising fossil fuel prices as well as combatting climate disruption. The IRS guidance that hindered these technologies was just another example of the federal administration causing energy market chaos. Saturday's decision removes that barrier. This is a win for communities, businesses, and households across the U.S.,” said Jana Gastellum, executive director of Oregon Environmental Council.

“While we’re disappointed with the Court’s decision to dismiss our office from this case, Maryland utility customers are better off with the IRS’s unlawful Notice off the books. We urge the administration to stop attacking clean energy development at a time when Marylanders can least afford it,” said Maryland People's counsel David Lapp.

“We are pleased that our clients – and really anyone developing wind and solar assets – have the opportunity to establish meaningfully earlier ‘start of construction’ for tax credit purposes or possibly revive projects that did not have a pathway to ‘start construction’ under the IRS 2025-42 guidelines. Having flexibility in how ‘start of construction’ is established is important, especially for many of our Tribal clients, where land development and disturbance has heightened implications. This ruling reestablishes industry norms that are critical for project development, certainty and investment,” said Woven Energy development executive Jake Schueller.

"The court's decision reinforces that the Trump administration acted unlawfully in using the IRS to target wind and solar energy projects," said Nandan Joshi, attorney with Public Citizen.  "The Trump administration’s war on solar and wind power results in concrete 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 electric bills to rise, workers to lose their jobs, and older, dirtier power plants to spew more pollution into our air.”

The case is Oregon Environmental Council, et al. v. Internal Revenue Service of the United States, et al., United States District Court for the District of Columbia, Case No. 1:25-cv-04400. View a copy of the order and the opinion.