IRS Sued Over Anti-Solar & Anti-Wind Tax Rules

NRDC

Tribal utility, localities, and consumer and environmental groups argue tax guidance illegally hurts renewable energy.

WASHINGTON, D.C. — A broad array of groups with strong interests in clean and affordable energy sued the IRS and Treasury Department over new rules for tax credits that unfairly and illegally discriminate against wind and solar projects.

As part of a series of attacks on wind and solar, the IRS eliminated 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 administration unjustly and arbitrarily singled out solar and wind projects for these more restrictive — and unprecedented — eligibility rules.

The IRS guidance “unlawfully changes the tests for beginning of construction for only solar and wind facilities, without providing adequate reasons or data for treating those facilities differently from all other industries,” the filing says. This change is “likely to increase power prices, resulting in higher electric rates and bills for consumers.”

This lawsuit asks the court to declare the rules arbitrary and capricious and reject them, restoring projects’ ability to rely on the prior rules that had been in place for more than a decade.

The case was filed in the U.S. District Court for the District of Columbia this month by a coalition of groups, led by the Oregon Environmental Council. Other plaintiffs are: NRDC (Natural Resources Defense Council), Public Citizen, Hopi Utilities Corporation, Woven Energy, the City and County of San Francisco, and the Maryland Office of People’s Counsel.

“Oregon is counting on renewable energy. The Trump administration’s unfair decision to pull the rug out from under wind and solar projects will lock Oregon ratepayers into expensive, polluting energy sources,” said Jana Gastellum, executive director of Oregon Environmental Council. “Oregonians are already paying the price through devastating wildfires, toxic air pollution, and extreme weather. We can’t afford to go backwards — not when the climate crisis is worsening, and communities are suffering.”

The filing also notes that this is part of a series of actions by the Trump administration to block renewable energy, listing 11 specific measures it has taken to stop or delay wind or solar projects. Those actions are putting a damper on much-needed new electricity generation, restricting supply just as utility prices are skyrocketing across the nation.

“The Trump administration has undertaken an illogical and illegal war on clean energy, and these arbitrary tax rules are just another salvo,” said Grace Henley, a tax attorney at NRDC. “This is bad for clean energy, bad for workers and communities, bad for the air we all breathe, and horrible for Americans squeezed by higher utility bills.”

“These new IRS rules have been a harsh blow. We have been counting on new solar projects to get electricity to those without it, help support essential services, and to create and provide jobs,” said Tim Nuvangyaoma, former Chairman of the Hopi Tribe. “The guidance has forced us to change our plans, and the Hopi Utilities Corporation is now racing to qualify for tax credits under the new guidelines. Getting the court to rectify this unjust action would give us the certainty we need.”

“In Maryland, hundreds of thousands of households live paycheck to paycheck and struggle to pay their utility bills,” said Maryland People’s Counsel David Lapp. “Adding renewable energy lowers those bills and eliminates fuel cost price volatility. The Treasury Department’s guidance is a nonsensical attack on clean energy and an assault on affordable energy at a time when Marylanders can least afford it.”

“Undercutting solar and wind projects will drive up energy prices for average Americans and cities like San Francisco,” said San Francisco City Attorney David Chiu. “Clean energy developers need predictability and certainty to build projects that benefit us all. San Francisco is joining this coalition to fight for our clean energy future and keep energy costs affordable for consumers.”

“The Trump administration’s use of the IRS to target wind and solar energy projects will result in even higher electricity prices for consumers,” said Nandan Joshi, attorney with Public Citizen’s Litigation Group. “Congress wanted to encourage investment in new, cleaner power generation without favoring any one technology. 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.”

Background

Last year’s Republican tax law cut tax credits for solar and wind and provided a transition period for projects that begin construction within a year.

For more than a decade, Congress has established that an 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.

The so-called “Five Percent Safe Harbor” is what is at issue in this month’s lawsuit.

Days after passage of the tax law, President Trump issued an Executive Order to “eliminate” clean energy incentives. The order specifically directed the agencies to revise the IRS’s guidance on the meaning “beginning of construction” for wind and solar facilities. In rules issued in August, the IRS eliminated the five percent standard for all wind projects and solar projects larger than 1.5 megawatts. The lawsuit this month argues IRS’s elimination of that option is without any legal rationale. Moreover, sources like nuclear, geothermal and hydropower did not face these new restrictions.

The case concerns an IRS notice issued on August 15 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.”

NRDC (Natural Resources Defense Council) Is an international nonprofit environmental organization with more than 3 million members and online activists. Established in 1970, NRDC uses science, policy, law and people power to confront the climate crisis, protect public health and safeguard nature. NRDC has offices in New York City, Washington, D.C., Los Angeles, San Francisco, Chicago, Beijing and Delhi (an office of NRDC India Pvt. Ltd).