A federal court ruling issued earlier this month underscores that agencies can change policy, but they can’t erase settled guidance without acknowledging reliance interests, explaining changes, and tailoring fixes to a clearly stated problem.
The case centered on clean energy tax credits. But the real issue was that taxpayers had structured projects, financing, and contracts around settled agency guidance that the government suddenly ripped out from under them. The question before the US District Court for the District of Columbia was whether agencies could do that with minimal explanation.
The court’s answer: a resounding no.
For years, the IRS recognized the 5% safe harbor as a way for taxpayers to show a clean energy project had begun construction for purposes of meeting statutory eligibility deadlines. This path was key planning infrastructure for large energy projects.
Wind and solar projects aren’t assembled in a weekend like IKEA furniture. They require financing, permitting, procurement, interconnection and power purchase agreements, and substantial coordination among myriad interested parties.
But last July, Executive Order 14,315 directed the Treasury Department to restrict safe harbors unless a substantial portion of the facility had been built. So the Treasury and IRS issued Notice 2025-42, eliminating the 5% safe harbor for wind and most solar projects. The DC court vacated and remanded the notice as arbitrary and capricious, effectively holding that the Treasury can follow the executive order, but not by pretending a decade of taxpayer reliance had never happened.
Agencies should assume that major guidance changes will be litigated. They should document the problem, respond seriously to reliance interests, consider transition periods, and explain why the given fix fits the actual harm. In tax administration, political preferences don’t substitute for reasoned decision-making—especially when taxpayers have already built their scaffolding around yesterday’s rules.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined the New York Knicks and Madison Square Garden’s place in the city’s unusual commercial real estate tax, data centers’ ROI, and more.
Insights
New York Knicks’ Home Court Holds History of Unusual City Tax
Madison Square Garden, the home of the New York Knicks, produced one of the most important decisions on New York City’s commercial real estate tax that resonates today, attorneys Jarrett Kalish and Nicholas Combs write.
US Audit Board Proposal Would Preserve Quality and Ease Burdens
The PCAOB’s latest proposal represents a practical effort to strengthen audit quality while reducing implementation challenges that could further discourage participation in the public company audit market, PICPA’s Allison Henry writes.
Knicks, Spurs NBA Finals Run Raises Sports Betting Tax Issues
Major sporting events such as the NBA Finals create excitement for fans, and part of the excitement over who will win often comes with a large side of sports betting. Tax pros who assist both recreational and professional gamblers should look out for potential “gotchas” and advise clients who may not otherwise realize the tax consequences until it’s too late, writes the AICPA’s April Walker.
Canada’s Transfer Pricing Transformation Will Get an OECD Buffer
International guidelines and a longstanding history of judicial restraint should temper a significant change in Canada’s transfer pricing framework, Blakes’ Pooja Mihailovich and Erich Schultze say.
Federal, State Tax Laws Boost Data Centers’ Return-on-Investment
Successful data center developers will be the ones who maximize the efficiencies of every state and federal tax program in such a capital-intensive market, Ryan LLC’s Ian Boccaccio and Dane Ware say.
US Business Structures Can Create UK Tax Mismatch for Investors
Lucy Woodward of Saffery says addressing the UK-US LLC mismatch would be a meaningful improvement, but wider certainty over their prospective UK tax exposure is vital for high-net-worth individuals.
Australia’s Tax Proposals Mean No Capital Gain Without Pain
The most controversial aspect of the proposed laws amending Australia’s capital gains framework is their retroactivity, as DLA Piper practitioners explain.
Donating Digital Tech for Tax Breaks Opens Valuation Pitfalls
Just like some charitable conservation easements, acquiring and donating software subscriptions as a tax-reduction strategy also may be too good to be true, Taxbit’s Miles Fuller writes.
India’s Transfer Pricing Overhaul Demands a Company Risk Review
The changes to India’s transfer pricing rules means multinationals must carefully determine the best path to tax certainty and to preserve documentation along the way, Crowe’s Sowmya Varadharajan and Carol Adebowale say.
Lawyers’ Self-Compassion Is Crucial for Firms’ Risk Management
Self-compassion and freedom from the inner critic aren’t wellness concepts; they are risk-management and bottom-line concepts for firms. Lawyers who can process failure cleanly aren’t just healthier—they’re also better lawyers, writes Chicago Loyola’s Elizabeth Pyjov.
Five Questions With Jeff Soar, UK Tax Firm CEO and Ex-EY Partner
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Jeff Soar, the CEO and founding partner of WTS UK, a private equity-backed tax advisory firm, and EY’s former UK and Ireland tax and law managing partner.
Technically Speaking
The state and local tax deduction cap’s problems lie in its design rather than its constitutionality, Andrew Leahey argues in his latest Technically Speaking column, writing that “the best way to challenge the cap is through narrowly tailored claims and political avenues.”
Critics of the SALT cap should push for changes such as eliminating the marriage penalty, smoothing the phaseout to avoid arbitrary marginal-rate spikes, and requiring the Treasury Department to revisit and rationalize pass-through entity tax treatment, Andrew says. Read More
News Roundup
Adviser Roles in IRS Legal Unit Hit by Trump Workforce Order
Three positions in the IRS’s legal arm are expected to be reclassified to be more easily fireable as part of a new executive order that’s reshaping the federal government, according to a person familiar with the matter.
US Audit Board Moves to Roll Back Quality Control Provisions
The US audit board, under new leadership, is moving to amend the 2024 overhaul of its quality control standard, targeting provisions that accounting firms have flagged as stumbling blocks to adopting the foundational rule changes by year’s end.
OECD Offers Technical Remedies for Global Minimum Tax Returns
The Organization for Economic Cooperation and Development offered remedies to a series of technical issues facing companies attempting to file their first global minimum corporate tax returns.
Data Center Tax Breaks at Risk as States Rethink Cost and Impact
State leaders, while largely siding with the industry this year, have sought to impose restrictions and reporting requirements on energy and water use in order to obtain lucrative sales tax exemptions. But repeal efforts are likely to return.
Tax Management International Journal
South Africa and Nigeria Drive AI-Enabled Transfer Pricing Audits
Robust taxpayer protection policies, transparent AI governance, strong data integrity practices, and meaningful human oversight are essential to ensuring that digital transformation enhances rather than undermines fairness, KPMG practitioners, Christian Wiesener, Barbara Mbaebie, and Akaoma Osele, say.
OBBBA Restores R&E Expensing, Alters Multinational Tax Strategy
OBBBA restores immediate domestic R&E expensing while reshaping CAMT, BEAT, FDDEI, and R&D credit planning, KPMG practitioners, Natalie Tucker, Kate Abdoo, Seevun Dunckzar, Hogan Humphries, and Alexander Fox state.
Career Moves
Paul Weiss Hires Daniel Zygielbaum as Tax Partner in Washington
Daniel Zygielbaum joined Paul, Weiss, Rifkind, Wharton & Garrison as a partner in its tax department in Washington, DC, the firm announced Monday.
Holland & Knight Brings On Garlovsky as Wealth and Tax Partner
Elizabeth Garlovsky joined Holland & Knight as a partner in its wealth and tax section in Chicago, the firm announced Monday.
Kelley Drye Adds Edward Hannon as Tax and Real Estate Partner
Edward Hannon joined Kelley Drye & Warren as a partner in its tax and real estate practice groups in Chicago, the firm announced Tuesday.
Burr & Forman Brings Back Sam Grimes as Corporate Tax Partner
Sam Grimes joined Burr & Forman as a partner in its corporate & tax group in Birmingham, Ala., the firm announced Thursday.
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