A federal judge in Washington struck down Trump administration guidance that would have restricted how wind and solar energy projects qualify for tax credits, ruling the IRS changed its longstanding position without adequate explanation and acted in an arbitrary and capricious manner.

Judge Colleen Kollar-Kotelly, a Clinton appointee, issued the decision Saturday, less than a month before a critical July 5 deadline that determines which renewable energy projects can still claim the credits under the One Big Beautiful Bill Act. The ruling hands a procedural win to renewable energy developers and environmental groups that sued the administration, but the judge herself acknowledged the victory may be short-lived.

The dispute centers on what it means to "begin construction", a question worth billions in tax subsidies and one the IRS had answered the same way for more than a decade before the Trump administration changed course.

The five percent safe harbor at the heart of the fight

Since 2013, the IRS has recognized two ways a project can demonstrate it has begun construction. The first: starting "physical work of a significant nature." The second: spending at least five percent of a project's total cost, a threshold known as the Five Percent Safe Harbor.

The Trump administration's guidance kept the physical-work pathway but dropped the five percent option. That meant developers who had committed real money to a project, but had not yet broken ground, could lose access to the credits entirely.

President Trump directed the Treasury Department to limit the credits after signing the GOP tax bill into law, calling for "restricting the use of broad safe harbors unless a substantial portion of a subject facility has been built." The IRS guidance followed that directive.

Kollar-Kotelly found the agency failed to justify the shift. The Hill reported that the judge wrote the elimination of the safe harbor was "a significant change in the IRS's position on what it means to 'begin construction' for purposes of clean energy tax credits."

"Because neither the Notice nor the administrative record provides an explanation from which 'the agency's path may reasonably be discerned' in light of all the facts and circumstances, the Notice is arbitrary and capricious."

That language tracks the standard framework courts use under the Administrative Procedure Act. The judge did not say the administration lacked the authority to narrow the credits. She said it failed to explain why it reversed a 13-year-old position, a procedural failure, not a substantive one.

A win with an asterisk

Even as she struck down the guidance, Kollar-Kotelly signaled the ruling may not settle much. She wrote that "significant uncertainty will exist no matter how this Court resolves this case and what remedy it awards."

The reason: an appeal could reverse everything. The judge acknowledged as much directly.

"It is likely that market participants will need to await the outcome of an appeal before they will have certainty about the legal effect of the Notice."

That leaves renewable developers in a difficult spot. The One Big Beautiful Bill Act phased out the solar and wind tax credits. Projects can only qualify if they begin construction before July 5, 2026, or are placed in service before 2028. With the July deadline weeks away, developers face a binary choice: commit capital now and hope the ruling holds, or wait for clarity that may not arrive in time.

An IRS spokesperson declined to comment on the ruling or say whether projects will be allowed to use the Five Percent Safe Harbor, telling reporters the agency does not speak about pending litigation. Whether the Trump administration will appeal remains an open question.

Environmental groups celebrate, but the clock is ticking

The Oregon Environmental Council, one of the groups that sued the administration, praised the decision. Executive director Jana Gastellum called it a major development for the energy sector.

"This is a huge win for clean energy development, and for everyone already feeling the impacts of rising electricity costs."

Gastellum added that "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."

That framing, casting the administration as the source of market instability, is predictable from an environmental advocacy group. But it sidesteps the larger context. Congress itself chose to phase out these credits through the One Big Beautiful Bill Act. The administration's guidance was an attempt to implement that phase-out in a way that limited last-minute claims. The judge's ruling does not restore the credits permanently. It simply says the IRS cut one pathway without explaining itself.

In a legal landscape where courts increasingly scrutinize agency action, that procedural misstep matters. Newsmax reported that Kollar-Kotelly found the administration "failed to adequately explain its change in position on what qualifies as beginning construction for clean energy tax credits." The ruling did not question the policy goal, only the paperwork trail behind it.

What the ruling does and doesn't change

The practical effect depends on what happens next. If the administration appeals and wins, the guidance snaps back into place. If it does not appeal, or if the appellate court agrees with Kollar-Kotelly, developers who spent five percent of their project costs before the July deadline could claim the credits.

The ruling does not revive the credits beyond the statutory deadlines Congress set. It does not overrule the One Big Beautiful Bill Act. And it does not prevent the administration from issuing new guidance that eliminates the Five Percent Safe Harbor, so long as the agency provides a reasoned explanation this time.

That last point is where the administration's approach fell short. Courts across the ideological spectrum have held that agencies cannot reverse longstanding positions without showing their work. The Trump team had a defensible policy objective, ensuring tax credits go only to projects with real physical progress, not paper commitments. But the IRS notice apparently failed to lay out the reasoning in a way that survived judicial review.

High-profile court decisions continue to reshape the legal landscape across multiple areas of law. In another striking judicial development, the South Carolina Supreme Court recently threw out Alex Murdaugh's murder convictions and ordered a new trial, underscoring how appellate review can upend outcomes that once seemed settled.

The broader pattern

This case fits a recurring pattern in the Trump administration's regulatory agenda. The policy direction is sound, in this case, tightening eligibility for subsidies that Congress voted to phase out. But the execution trips over procedural requirements that federal courts enforce regardless of who occupies the White House.

Administrative law demands that agencies explain themselves. A 13-year-old IRS interpretation cannot be erased with a one-page notice and no rationale. That is not a liberal principle or a conservative one. It is how the system works.

The fix here is straightforward. The Treasury Department and IRS can reissue guidance that eliminates the Five Percent Safe Harbor, and this time, include the explanation the court found missing. Whether there is enough time to do that before the July 5 deadline is another matter.

For now, the ruling creates a narrow window. Developers who have spent five percent of their project costs may rush to lock in credits before the statutory deadline. The administration may seek an emergency stay on appeal. And the IRS sits silent, citing pending litigation.

None of this changes the bottom line: Congress voted to end these subsidies. The question was never whether the credits would go away, but how many projects could squeeze through the door on the way out. Saturday's ruling may have widened that door, but only because the agency forgot to explain why it was closing it.