IRS Address BOC Requirements for Solar, Wind Projects

In renewable energy, “BOC” doesn’t mean “board of commissioners” or “bottom of coffee.” It means beginning of constructionand yes, it can determine whether your solar or wind project gets the tax credit you modeled… or the tax credit you wish you modeled.

The IRS has long used BOC rules to separate projects that truly started building from projects that merely started talking about building. But recent legislative changes and IRS guidance have put BOC back in the spotlight for utility-scale solar and wind developers, tax equity investors, EPCs, and anyone who has ever said, “We’ll start next quarter,” for six quarters in a row.

This article breaks down what the IRS is saying now, what still applies from older BOC guidance, and how to protect your eligibility with practical documentation and real-world exampleswithout turning your project schedule into a suspense novel.

What “BOC” Means (and Why the IRS Cares)

“Beginning of construction” is a tax concept used to determine whether a facility qualifies for certain clean electricity credits under the Internal Revenue Code. It is not the same as signing a term sheet, ordering a drone survey, or posting “groundbreaking soon” on LinkedIn (although those can be spiritually uplifting).

In IRS terms, BOC is about proving that your project moved past preliminary steps and started meaningful physical workand then kept going. The reason is simple: Congress often ties credit eligibility or credit level to deadlines. BOC rules help prevent “paper starts” designed to lock in benefits without real construction progress.

Why the IRS Is Talking About BOC Again: The 2026 Deadline Problem

Newer clean electricity credits (including the “tech-neutral” credits under Sections 45Y and 48E) were designed to run for years, with phaseouts that depend on broader emissions metrics. Then the law changed.

Under legislation enacted in 2025, applicable wind and solar facilities face a new cliff: for certain projects, credits terminate if the facility is placed in service after December 31, 2027. Whether that cliff applies depends on when construction beginsand the law sets a beginning-of-construction deadline tied to July 4, 2026.

The IRS responded with Notice 2025-42, aimed at (1) preventing taxpayers from “gaming” BOC to avoid the termination date and (2) tightening which BOC methods count for meeting the statutory deadline. Translation: “Show us the shovel marks, not just the invoices.”

The Two Classic BOC Pathsand the One the IRS Now Emphasizes

1) Physical Work Test (the IRS favorite for the new deadline)

Under the Physical Work Test, construction begins when physical work of a significant nature starts. The test focuses on the nature of the work, not the amount or the cost. If the work is significant, there is no minimum dollar value required.

Physical work can be done on-site or off-site (for example, manufacturing certain custom components), including work performed by another party under a qualifying contract.

2) Five Percent Safe Harbor (still relevantjust not for every wind/solar situation)

Historically, developers could establish BOC by paying or incurring at least 5% of total project cost. That approach has been popular because it can be easier to document than on-site physical workespecially for projects waiting on permits, interconnection, or supply chain slots.

But under the IRS’s 2025 guidance for meeting the July 2026 BOC deadline, the 5% cost method is generally not available for most wind and solar facilitieswith a limited exception for certain low-output solar projects (covered below).

What Counts as “Physical Work of a Significant Nature” (With Examples)

The IRS draws a bright line between real construction work and “preliminary activities.” You can spend plenty of money before construction beginsbut still fail the Physical Work Test if the work is not the right kind.

Wind: foundations and custom components are your usual front door

For wind projects, on-site physical work of a significant nature typically begins with work like:

• Excavation for turbine foundations
• Setting anchor bolts into the ground
• Pouring concrete pads for foundations

Off-site manufacturing can also count, but only when it’s tied to the project in a real way. For example, if turbine and tower units will be assembled on-site from components manufactured off-site, physical work can begin when manufacturing startsif it is done under a binding written contract and the components are not sitting in the manufacturer’s normal inventory.

Solar: racking and integral equipment can be strong BOC candidates

For solar projects, examples of on-site physical work of a significant nature may include installing racks or other structures used to affix PV panels, collectors, or solar cells to the site.

Off-site work can also count for solar, including manufacturing certain components such as mounting equipment, support structures (racks and rails), inverters, transformers, and other power conditioning equipmentagain, assuming the contract and “not inventory” conditions are satisfied.

What does not count: preliminary activities (even if they’re expensive)

The IRS explicitly treats many common development steps as preliminary. Examples include:

• Planning or designing
• Securing financing
• Resource assessment, mapping, modeling
• Obtaining permits and licenses
• Environmental and engineering studies
• Site clearing
• Test drilling for soil conditions
• Excavation to change land contour (as distinct from foundation excavation)
• Removing old foundations, turbines, towers, panels, or other components being replaced

If your “construction” package looks like a stack of consultant reports and a very confident schedule, you may still be in “preliminary” land, no matter how many meetings your calendar sacrificed.

The inventory trap: buying “normal stock” won’t establish physical work

Physical work of a significant nature does not include work to produce a component that is already in inventoryor normally held in inventory by the seller. In plain English: custom manufacturing tied to your project can count; off-the-shelf gear sitting in someone’s warehouse usually doesn’t.

Contracts Matter: The “Binding Written Contract” Requirements

If you rely on work performed by another party (including off-site manufacturing), the IRS looks closely at whether your agreement is a binding written contract. A contract is binding only if:

• It is enforceable under local law against the taxpayer (or predecessor), and
• It does not limit damages to a specified amountunless damages are at least 5% of the total contract price.

That damages detail surprises people. Many commercial contracts cap liability tightly. For BOC purposes, if your cap is too low, your “binding” contract can become “binding in spirit only,” which is not a recognized IRS standard.

The IRS also addresses master contracts and project-level assignments: if a taxpayer enters into a binding master contract for components and later assigns rights to an affiliated special purpose vehicle (SPV) under a new binding project contract, the work under the master contract can still count toward the project’s BOC.

Continuity Requirement: You Can’t Start and Then Ghost the Project

BOC isn’t just about the first day of real construction. The IRS also requires the taxpayer to maintain a continuous program of construction. If you start physical work and then go silent for a long period without good reason, the IRS can argue you did not satisfy continuity.

The 4-year Continuity Safe Harbor

IRS guidance provides a helpful safe harbor: if you place the facility in service by the end of a calendar year that is no more than four calendar years after the year construction began, you are treated as satisfying the Continuity Requirement.

Example (simple version): begin construction in 2025, place in service by December 31, 2029, and continuity is generally deemed satisfied.

Excusable disruptions: the IRS acknowledges real life happens

If you miss the safe harbor, you may still satisfy continuity under a facts-and-circumstances analysis. The IRS lists disruptions that generally won’t count against you when they are beyond your control, including:

• Delays in obtaining permits from federal agencies (examples include FERC, EPA, BLM, FAA)
• Government-requested delays for public safety or similar concerns
• Interconnection delays (including transmission or distribution upgrades and grid congestion constraints)
• Delays in manufacturing custom components
• Labor stoppages
• Inability to obtain specialized equipment of limited availability
• Endangered species issues
• Financing delays
• Supply shortages

The practical takeaway is not “the IRS will always forgive you.” It’s “document the reason, document your mitigation, and keep doing what you can while the bottleneck clears.”

Single Project vs Multiple Facilities: When “One Project” Is a Legal Conclusion

Large renewable developments often involve multiple facilities that are built in phases or placed in service across multiple dates. IRS guidance recognizes a “single project” concept for certain BOC determinations.

Factors that indicate multiple facilities may be treated as part of a single project include (among others):

• Common ownership by a single legal entity
• Contiguous land
• Shared power purchase agreement(s)
• A common intertie or shared substation
• Common permits
• A single master construction contract
• Financing under the same loan agreement

This matters because continuity and timing can be evaluated at the project level in some casesespecially where the IRS considers the “last placed in service” facility when determining certain project-level conclusions.

Retrofitting and Repowering: The 80/20 Rule in Plain English

Not every wind or solar “project” is brand new. Repowering and retrofits can qualify as originally placed in service if the facility meets the IRS “80/20 Rule.”

Under that rule, a retrofitted facility may still be treated as newly placed in service even with some used components, provided the fair market value of used components is no more than 20% of total facility value (new cost + used value). When the 80/20 Rule applies, the Physical Work Test focuses on work performed on (or amounts paid/incurred for) the new components used in the retrofit.

Transfers and Sales: What Happens If the Project Changes Hands?

Renewable projects change hands all the timedevelopment-stage sales, tax equity flips, portfolio rotations. The IRS generally allows a fully or partially developed facility to be transferred without losing BOC qualification under the Physical Work Test.

But there is a key caution: if the “transfer” is only a sale of equipment (or contract rights to equipment) to an unrelated party, work performed by the seller may not count for the buyer’s BOC. In other words, “We bought your half-built components” is not always the same as “We bought your half-built project.”

Another practical point: the IRS also discusses situations where a taxpayer begins construction intending to build at one site and later relocates equipment to a different site. Under certain conditions, work performed before the relocation may still count toward BOC.

A Practical “BOC Playbook” for Solar and Wind Developers

Here’s a practical checklist that aligns with IRS themes and common tax diligence expectations:

1. Pick your BOC strategy early. If you must meet a statutory BOC deadline, plan around qualifying physical work (not just spend).
2. Choose a “BOC work package” you can defend. For wind: foundations/anchor bolts. For solar: racking installation or qualifying custom manufacturing.
3. Lock down site control and permitting path. You may not need all permits to start, but you’ll need enough to do real work safely and legally.
4. Use binding written contracts that meet the damages rule. Have counsel review limitation-of-liability language with BOC in mind.
5. Document “not inventory” status for off-site work. Keep manufacturer statements, serial tracking, production logs, and allocation methodology if components serve multiple projects.
6. Build a continuity evidence file. Monthly progress reports, photos, contractor invoices, purchase orders, construction schedules, board approvals, and interconnection correspondence.
7. Plan for disruptionsthen document them. When delays occur, keep the paper trail: agency letters, interconnection queue notices, force majeure claims, supplier communications.
8. Coordinate BOC with other tax requirements. For example, separate rules govern prevailing wage/apprenticeship thresholds and recordkeeping for certain enhanced credits.

Common Mistakes That Trigger BOC Headaches

• Counting preliminary work as construction. Studies and permitting are importantbut generally not physical work of a significant nature.
• Relying on inventory components. Off-the-shelf purchases rarely prove physical work began.
• Using a “binding” contract with a tiny damages cap. If damages are effectively limited below the IRS threshold, BOC support can collapse.
• Starting strong, then pausing with no record. Continuity is a story you must be able to prove with documents, not vibes.
• Ignoring “single project” implications. Shared substations, common PPAs, and common financing can connect facilities in ways that affect timing analyses.
• Assuming a component purchase transfers BOC. Buying equipment from an unrelated developer doesn’t automatically buy their BOC date.

Conclusion

BOC rules are the IRS’s way of asking a simple question with complicated consequences: Did you actually start building, and did you keep building? With new deadlines and tightened rules for many wind and solar projects, the safest approach is to plan around defensible physical work, use contracts that meet the IRS’s “binding” standard, and treat documentation like it’s part of the project because in tax credit diligence, it is.

One last friendly reminder: BOC is not a substitute for good project management. It’s the tax version of good project management. And like good project management, it rewards people who do the work and keep receipts.

Field Notes: Real-World Experiences with BOC on Solar and Wind Projects

The most common “BOC stories” developers share aren’t about clever tricks. They’re about ordinary decisionsmade early that either (a) made tax diligence smooth or (b) turned diligence into a scavenger hunt. Here are a few patterns that come up again and again in real projects.

1) The racking-first solar site that saved a year of arguing

One recurring theme is that teams who treat BOC like a deliverablecomplete with a work package, schedule, and document checklistrarely get surprised later. A classic example is a solar project that deliberately scheduled early installation of racking and support structures on a defined portion of the site. It wasn’t the most dramatic part of construction, but it was clearly physical work, tied to the facility, and easy to photograph and verify. Years later, when financing and interconnection delays pushed COD, the BOC file was still clean: dated daily logs, invoices, photos, and contractor scope documents. The tax equity team didn’t have to “interpret” what happenedthey could see it.

2) The “binding contract” that wasn’t (because lawyers did what lawyers do)

Another frequent experience: a developer signed what everyone called a binding supply contract, celebrated, and moved on. During diligence, a reviewer noticed the limitation-of-liability clause effectively capped damages at a small fixed amount. That’s normal in commercial contractsuntil you’re using the contract to support BOC. The developer had to renegotiate, re-paper, and re-date agreements, and then explain why the “binding” contract wasn’t actually binding for tax purposes. The lesson: if BOC matters, ask contract counsel to review damages language specifically through the IRS lens, not just a general risk lens.

3) The off-site manufacturing plan that got tripped by the inventory rule

Some wind projects plan to rely on off-site manufacturing of components to start physical work. The strategy can work, but the inventory concept is where projects stumble. If the manufacturer normally holds the component in inventory, or if it looks like the project merely purchased standard stock, the “physical work” argument gets shaky. Teams that have the smoothest outcomes usually do two extra things: (1) ensure the component is demonstrably custom or specifically allocated to the project (serial numbers, production logs, allocation methodology), and (2) keep written confirmation that the component was not pulled from existing inventory.

4) The continuity file that proved the project kept movingeven when the grid said “not yet”

Interconnection delays are now a standard plot twist. Projects that survive diligence best are those that document what they did while waiting. Reviewers tend to respond well to a timeline that shows consistent activity: procurement decisions, site work progression, equipment staging, incremental construction milestones, and active management of interconnection steps. Even when a delay is “excusable,” teams still need to show they didn’t simply pause the entire project without action. The strongest files read like a practical diary, not a last-minute reconstruction.

5) The “single project” surprise that changed how phases were financed

Finally, phased developments can accidentally behave like a single project: shared substations, common PPAs, common permits, and common financing can connect facilities more tightly than teams realize. Some developers report adjusting phase boundaries, contracts, or financing structures after learning how IRS factors could treat multiple facilities as one project for certain determinations. The big insight: if you plan to phase, think early about how operational and legal integration might affect your story laterand keep your “why these are separate” explanation as clear as your electrical one-line diagram.

Final takeaway from these experiences: the IRS isn’t asking for perfection. It’s asking for proof. Build your BOC plan like you’ll someday have to explain it to a smart skepticbecause you probably will.

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