Environmental Groups Sue the IRS Over Renewable Energy Tax Credit Restrictions

A coalition of environmental groups and state and city offices sued the Internal Revenue Service over what they are calling an “all-out attack on solar and wind technologies” by President Donald Trump.

Specifically, the group is suing over the restrictions the IRS placed on which wind and solar projects can qualify for renewable energy tax credits.

Wind and solar developers can only claim federal tax credits if they complete a certain amount of physical work on a project by a given deadline, per the IRS’ new guidance issued in August.

That change was “made at the direction of the President, and with no reasoned explanation, evidentiary support, or statutory grounding,” the groups claim in court filings.

The Oregon Environmental Council led the lawsuit, and other environmental advocacy groups, the city of San Francisco and the Maryland Office of People’s Counsel also signed on.

Under previous guidance, developers could claim federal tax credits if they completed a certain amount of physical work or if they incurred at least 5% of the total cost of a wind or solar project by a deadline. The new IRS guidance removed the cost pathway, leaving some developers scrambling.

The lawsuit comes several months after Trump issued an executive order on the renewable tax credits. That order, as NOTUS reported earlier this year, came at the behest of conservatives in Congress during negotiations over Trump’s budget bill.

In the lawsuit, the groups claimed the new IRS guidance puts renewable energy developers at risk, which could halt clean energy projects and drive up electricity prices for consumers.

“Project developers have relied on the IRS’s longstanding methodology to plan projects, obtain financing and insurance, structure deals, seek permits, and complete required reviews,” the complaint reads. “Because tax credits can offset 30 to 50 percent or more of the total cost of a facility, meeting or missing the Congressional deadline for beginning construction can have a dramatic effect on a project’s cost and viability.”

The IRS did not immediately respond to a request for comment.

The Hopi Utilities Corporation, a subsidiary of the Hopi Tribe, is also among the plaintiffs. The lawsuit details how the tribe’s effort to build solar projects on its land — an effort that the lawsuit says could address unemployment, poverty and electricity access challenges — has been stymied by the new IRS guidance.

One 8-megawatt solar project on the tribe’s reservation, for instance, “faces additional costs and risks that it would not otherwise have experienced” because the developers have had to scramble to meet the physical work test, which was not part of their original plans, the lawsuit said.

The city and county of San Francisco, another plaintiff, said that the tax credit policy changes will make it difficult for the city’s public utility commission to meet its net-zero goals by procuring renewable energy.

Some industry players cheered the IRS guidance when it was released because it was not as severe as some renewable energy developers expected. The guidance also allowed small solar projects to continue using the 5% cost threshold to qualify for federal tax credits, giving them a leg up over midsized and larger projects that could only use the physical work test.

But the lawsuit alleges that the changes and the distinctions the guidance entailed for small projects were “arbitrary and capricious.”

The lawsuit comes amid a number of other legal actions to challenge Trump administration actions against renewable energy developers. A federal judge ruled this month that the president’s directive halting all new wind energy leasing and development was unlawful.