Executive Order Directs Treasury to Update Guidance on Beginning of Construction for Tax Credits
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On July 7, 2025, President Trump issued an executive order titled "Ending Market Distorting Subsidies for Unreliable, Foreign Controlled Energy Sources". Below is our summary of the executive order.
The Executive Order (the "EO")1 directs the Secretary of the Treasury ("Treasury") to strictly enforce the termination of the clean electricity production and investment tax credits under sections 45Y and 48E2 for wind and solar technologies, including by issuing "new and revised" guidance to (i) ensure that policies concerning the "beginning of construction" ("BOC") are not circumvented and (ii) implement the enhanced foreign entity of concern ("FEOC") requirements of the One Big Beautiful Bill Act (the "OBBBA")3. The EO requires such guidance to be issued within 45 days from the enactment of the OBBBA, i.e., by August 18, 2025.
Under the OBBBA, tax credits terminate for wind and solar facilities that (i) begin construction after July 4, 2026, and (ii) are not placed in service before Jan. 1, 2028; facilities that begin construction by July 4, 2026, are not subject to the placed in service deadline.
The existing rules governing when (and how) the IRS determines when a project begins construction for tax purposes are established in sub-regulatory IRS guidance (the BOC Notices).4 (The IRS does not currently issue private letter rulings to taxpayers on the BOC requirement or application of the BOC rules.5) The BOC Notices prescribe two ways to establish that a project has begun construction:
- Performing physical work of a significant nature, either onsite or offsite (the "Physical Work Test:"), or
- Paying or incurring 5% or more of the total cost of the credit-eligible property (the "Five Percent Safe Harbor").
In either case, a taxpayer must make continuous efforts to complete construction of the project (the "Continuity Requirement"). A project is deemed to satisfy the Continuity Requirement if it is placed in service within 4 years (or 6 years for projects that began construction in 2016, 2017, 2018 or 2019; or 5 years for projects that began construction in 2020, or 10 years for offshore wind projects) after beginning construction; otherwise it is a facts and circumstances determination.
The EO instructs Treasury to issue "new and revised" guidance to "prevent[] the artificial acceleration or manipulation of eligibility" and "restrict[] the use of broad safe harbors unless a substantial portion of a subject facility has been built." It is unclear what would qualify as a "substantial portion" of a facility, but this language implies strengthening the requirements from existing BOC Notices. The proposed effective date of any new guidance on BOC is also unclear.
The OBBBA codifies existing BOC Notices "as in effect on January 1, 2025," but only for purposes of the FEOC restrictions.6
1 Executive Order on Ending Market Distorting Subsidies for Unreliable, Foreign-Controlled Energy Sources (July 7, 2025).
2 All references are to the applicable section of the Internal Revenue of 1986, as amended.
3 One Big Beautiful Bill Act, H.R. 1, 119th Cong. (2025) (enacted). See our alert on changes to IRA tax credits in the OBBBA here: New Law Changes IRA Tax Credits.
4 See IRS Notices 2013-29, 2013-60, 2014-46, 2015-25, 2016-31, 2017-04, 2018-59, 2019-43, 2020-12, 2020-41, and 2021-41.
5 See Revenue Procedure 2025-3, § 3.01(5) (with respect to section 45), (6) (with respect to section 45Q), and (9) (with respect to section 48). Although the BOC with respect to other credits (such as clean electricity production and investment tax credits under sections 45Y and 48E) is not included in the “no rule” list under Revenue Procedure 2025-3, the IRS presumably will not issue private letter rulings for other credits because of the factual nature of BOC determination.
6 See OBBBA, § 70512(c) (introducing new paragraphs (51) and (52) to section 7701(a)).
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