New BOC Guidance Released

On August 15, 2025, the IRS released new beginning of construction (BOC) guidance for solar and wind facilities claiming production and investment tax credits under sections 45Y and 48E of the Internal Revenue Code in IRS Notice 2025-42 (the Notice). The revised BOC guidance was mandated by President Trump in an executive order released on July 7, 2025.

The Notice largely follows prior BOC guidance with respect to physical work, and, as a result, should allow many solar and wind projects to avoid the December 31, 2027, placed in service deadline that was introduced in the “One Big Beautiful Bill Act” (the PIS Deadline). However, use of the 5% Safe Harbor has been relegated to smaller solar projects only. Included below is a high-level summary of the Notice.

Applicability of Notice:

• Only applies to the July 5, 2026 BOC deadline for solar and wind facilities to be exempt from the PIS Deadline.
• Rules do not apply to projects that establish BOC under prior guidance prior to September 2, 2025.

Methods of Establishing BOC:

• Physical work of a significant nature will generally be the only method to establish BOC for purposes of the PIS Deadline.
  • Physical work still includes both onsite and off-site work (including work performed by another pursuant to a binding written contract).
  • Physical work still cannot be on inventory equipment, but the Notice clarified that it is the inventory of the specific vendor providing the equipment to the taxpayer that counts. This is generally a favorable clarification.
  • Physical work must be with respect to property included in a qualified facility, which is still defined to include integral property (e.g., transformers).
  • Work performed must be of a significant nature, but the Notice, in line with prior BOC guidance, provides that there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the Physical Work Test.
  • Requires maintaining a continuous program of construction (i.e., continuous efforts are no longer included) but maintains a four-year continuity safe harbor.
• 5% safe harbor is generally unavailable except for “lower output solar facilities.”
  • Lower output solar facilities are facilities with an output less than 1.5MWac (measured at the qualifying facility level and tested on a nameplate capacity basis of the functionally interdependent property (e.g., not including integral property)).
  • Two or more solar facilities with “integrated operations” are aggregated for purposes of this test. Facilities have “integrated operations” if (1) owned by the same or related taxpayers, (2) placed in service in the same year, and (3) either (A) using the same point of interconnection or (B) for behind-the-meter projects, capable of service the same end user.

The Notice generally maintains the approach included in prior BOC guidance with respect to:

• Binding written contract requirements
• Excusable disruptions for purposes of maintaining a continuous program of construction
• Project aggregation rules
• 80/20 rules
• Equipment transfers/anti-trafficking rules.