SECTION 3. METHOD FOR

ESTABLISHING BEGINNING OF CONSTRUCTION

.01 In general . For purposes of the beginning of construction deadline in §§ 70512(l)(4) and 70513(g)(5) of the OBBBA, a taxpayer may establish that construction has begun before July 5, 2026, by satisfying the Physical Work Test as described in section 3.02 of this notice. Except as provided in section 6 of this notice, the Physical Work Test described in section 3.02 of this notice is the sole method that a taxpayer may use for these purposes. The Physical Work Test also requires that a taxpayer maintain a continuous program of construction (Continuity Requirement). Section 4 of this notice discusses the Continuity Requirement and section 4.04 of this notice provides a safe harbor for satisfying this requirement (Continuity Safe Harbor).

.02 Physical Work Test . Construction of an applicable wind or solar facility begins when physical work of a significant nature begins. Work performed by the taxpayer and work performed for the taxpayer by other persons under a binding written contract that is entered into prior to the manufacture, construction, or production of the applicable wind or solar facility for use by the taxpayer in the taxpayer’s trade or

business (or for the taxpayer’s production of income) is taken into account in determining whether construction has begun. See section 5.01 of this notice. Whether physical work of a significant nature has begun with respect to an applicable wind or solar facility before July 5, 2026, will depend on the relevant facts and circumstances.

.03 Physical work of a significant nature . The Physical Work Test requires that physical work of a significant nature be performed. This test focuses on the nature of the work performed, not the amount or the cost. Provided that physical work performed is of a significant nature, there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the Physical Work Test. Both off-site and on-site work (performed either by the taxpayer or by another person under a binding written contract) may be taken into account for purposes of demonstrating that physical work of a significant nature has begun.

(1) Off-site physical work of a signif- icant nature . Generally, off-site physical work of a significant nature may include the manufacture of components, mounting equipment, support structures such as racks and rails, inverters, and transformers and other power conditioning equipment.

(2) On-site physical work of a signifi- cant nature . The following non-exclusive list of examples is intended to illustrate what constitutes on-site physical work of a significant nature for applicable wind and solar facilities:

(a) Applicable wind facility . On-site physical work of a significant nature begins with the beginning of the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation. If the applicable wind facility’s wind turbines and tower units are to be assembled on-site from components manufactured off-site by a person other than the taxpayer and delivered to the site, physical work of a significant nature

3 In addition, § 3(b) of Executive Order 14315 directs the Secretary of the Treasury, within 45 days following enactment of the OBBBA, to take prompt action as the Secretary of the Treasury deems appropriate and consistent with applicable law to implement the enhanced “Foreign Entity of Concern” restrictions in the OBBBA (also known as “Prohibited Foreign Entities”). Section 70512 of the OBBBA added those new restrictions regarding certain foreign entities in order to qualify for the § 45Y credit and the § 48E credit, among others, and included separate beginning of construction rules for those new provisions. See § 7701(a)(51) and (52) of the Code. The guidance in this notice is not intended to address the beginning of construction rules for the purposes of those foreign entity restrictions. The Treasury Department and the IRS are currently drafting additional guidance as is necessary and appropriate to implement those restrictions, as enacted by the OBBBA.

September 2, 2025 352 Bulletin No. 2025–36

begins when the manufacture of the components begins at the off-site location, but only if: (i) the manufacturer’s work is done pursuant to a binding written contract (as described in section 5.01(1) of this notice); and (ii) these components are not held in the manufacturer’s inventory (as described in section 3.05 of this notice). If a manufacturer produces components for multiple applicable facilities, a reasonable method must be used to associate individual components with particular applicable facilities.

(b) Applicable solar facility . On-site physical work of a significant nature may include the installation of racks or other structures to affix photovoltaic (PV) panels, collectors, or solar cells to a site.

.04 Preliminary activities . Physical work of a significant nature does not include preliminary activities, even if the cost of those preliminary activities is properly included in the depreciable basis of the applicable wind or solar facility. Generally, preliminary activities for applicable wind or solar facilities include, but are not limited to:

(a) planning or designing; (b) securing financing; (c) exploring; (d) researching; (e) conducting mapping and modeling to assess a resource;

(f) obtaining permits and licenses; (g) conducting geophysical, gravity, magnetic, seismic and resistivity surveys;

(h) conducting environmental and engineering studies;

(i) clearing a site; (j) conducting test drilling to determine soil condition (including to test the strength of a foundation);

(k) excavating to change the contour of the land (as distinguished from excavation for a foundation); and

(l) removing existing foundations, turbines, and towers, solar panels, or any components that will no longer be part of the applicable wind or solar facility (including those on or attached to building structures).

.05 Inventory . Physical work of a significant nature does not include work (performed either by the taxpayer or by another person under a binding written contract) to produce a component/part of an applicable wind or solar facility that is

either in existing inventory or is normally held in inventory by one selling the component/part to the taxpayer.