Tax Court allows split NOL election for Apache’s specified liability losses
Apache Corp. v. Commissioner, No. 25984-22, 165 T.C. No. 11 (U.S. Tax Court, Nov. 13, 2025).
The Tax Court holds that a consolidated group can waive the standard 2-year net operating loss (NOL) carryback under §172(b)(3) while still keeping the 10-year carryback for the portion of the NOL that is a specified liability loss (SLL) under §172(b)(1)(C) and §172(f).
This lets Apache carry SLLs back 10 years while carrying the rest of its 2016 and 2017 NOLs only forward.
Holding
The court holds that §172(b)(1) provides separate “carryback periods” for different types of losses within a single NOL, including SLLs.
A taxpayer that has multiple carryback periods in the same year may elect under §172(b)(3) to relinquish one carryback period without relinquishing the others.
Apache’s elections validly waived only the 2-year carryback for its “normal” NOL while preserving the 10-year carryback for the SLL portions of its 2016 and 2017 NOLs.
Apache’s motion for partial summary judgment is granted, and the Commissioner’s cross-motion is denied.
Why It Matters
Confirms that §172(b)(3) elections can be scoped to specific carryback periods where the statute provides multiple carryback periods in §172(b)(1).
Preserves the ability of large corporate groups to protect expiring credits and other attributes in near years while still using 10-year SLL carrybacks.
Relies heavily on the structure of §172, prior case law, and the government’s own regulations, which practitioners can cite in other multi-bucket NOL disputes.
Signals that courts may construe ambiguous NOL rules against the government where tax-raising provisions are reasonably read both ways.
Timeline
2006 and 2007: Apache has taxable years that later become the target of 10-year SLL carrybacks from 2016 and 2017.
2016: Apache, as common parent of a consolidated group, reports an NOL of about $1.93 billion, including approximately $40.7 million identified as SLL under §172(f)(1)(B).
Apache files its 2016 consolidated Form 1120 with an election statement under Treas. Reg. §1.1502-21(b)(3)(i) to waive the entire carryback period under §172(b)(3) for the group’s consolidated NOL, while expressly stating that it does not elect under §172(f)(6) to relinquish the 10-year carryback for SLL.
Apache files Form 1139 to carry the 2016 SLL back to 2006 and receives a tentative refund of $13,829,316.
2017: Apache reports a 2017 NOL of about $3.08 billion, including approximately $30.8 million of SLL.
Apache files 2017 consolidated returns with a similar election statement: waiver of the NOL carryback under §172(b)(3), but no waiver of the SLL 10-year carryback under §172(f)(6).
Apache files Form 1139 to carry the 2017 SLL back to 2007 and receives a tentative refund of $10,139,167.
September 26, 2022: IRS issues a notice of deficiency for 2006, 2007, and 2015, disallowing the SLL carrybacks from 2016 and 2017 on the ground that Apache’s §172(b)(3) elections waived the entire NOL carryback for those years.
2023–2025: Apache petitions the Tax Court and both parties file cross-motions for partial summary judgment on the scope of the §172(b)(3) election and its effect on SLL carrybacks.
November 13, 2025: Tax Court issues reviewed opinion granting Apache’s motion and denying the Commissioner’s motion.
Key Facts
Apache is an oil and gas exploration and production company, common parent of a consolidated group filing Forms 1120 for 2016 and 2017.
2016 NOL: approximately $1.93 billion, including about $40.7 million of SLL; the SLL relates to obligations under federal or state law as described in §172(f)(1)(B), not product liability.
2017 NOL: approximately $3.08 billion, including about $30.8 million of SLL, also not product liability amounts.
Election language on both years’ returns:
Waives the “entire carryback period” for the consolidated NOL under §172(b)(3) and Treas. Reg. §1.1502-21(b)(3)(i).
Explicitly states that Apache does not elect under §172(f)(6) to relinquish the 10-year SLL carryback.
IRS disallows the SLL carrybacks and asserts that Apache’s elections barred all carrybacks, including SLL, for 2016 and 2017.
Statutory or Regulatory Framework
§172(a) allows a deduction for NOL carrybacks and carryforwards.
§172(b)(1) sets the years to which an NOL can be carried:
General rule: 2-year carryback and 20-year carryforward under prior law.
Special rules: 10-year carryback for SLLs (§172(b)(1)(C)), other special periods for eligible losses and farming losses.
§172(f) defines SLL, including obligations for reclamation, environmental remediation, and similar statutory liabilities, and treats SLL as a separate NOL for sequencing purposes under §172(f)(5).
§172(b)(3) allows a taxpayer “entitled to a carryback period under paragraph (1)” to “elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year.”
§172(f)(6) separately allows an election to give up the special 10-year SLL carryback and instead apply the general 2-year period.
Treas. Reg. §1.172-13(c)(4) provides that a §172(b)(3) election to relinquish an NOL carryback does not preclude the 10-year carryback of a product liability loss, which later became part of the SLL category.
Treas. Reg. §1.1502-21(b)(3)(i) describes the consolidated return election to waive the carryback period for a consolidated NOL.
Arguments
Taxpayer (Apache) argued:
§172(b)(1) creates multiple, distinct carryback periods for different components of a single NOL, including a 2-year period for general NOL and a 10-year period for SLL.
The phrase “a carryback period under paragraph (1)” in §172(b)(3) can apply to each distinct carryback period; the election can be applied on a per-period basis.
SLLs are treated as a separate NOL for sequencing under §172(f)(5) and should have a separable carryback period.
Treasury’s own regulation, §1.172-13(c)(4), recognizes that a §172(b)(3) election does not prevent a 10-year carryback for product liability losses, which are now part of SLL; the same logic should apply to SLL under §172(f)(1)(B).
Past case law (NextEra, Barrick, Norwest) and legislative history treat extended NOL categories as having distinct carryback periods.
Government (IRS) argued:
§172(b)(3) uses singular terms (“entire carryback period” and “a net operating loss”) and was originally designed as an all-or-nothing waiver, so Apache’s election relinquished all carrybacks for the NOL, including SLL.
A single NOL has a single carryback period, even if parts of it can be carried to different years.
Allowing taxpayers to “slice” elections by loss component complicates administration and tracking of attributes.
§172(f)(6) already supplies the specific mechanism to opt out of the 10-year SLL carryback; Apache’s decision not to use that election should not be replicated indirectly through §172(b)(3).
The election language in Apache’s returns attempted an election not authorized by statute and therefore should be ineffective or treated as a complete waiver.
Court’s Reasoning
The court starts with the text of §172(b)(1) and §172(b)(3), and applies the Dictionary Act rule that the singular includes the plural. The reference in §172(b)(3) to “a carryback period under paragraph (1)” can therefore cover multiple carryback periods.
§172(b)(1) sets out several distinct carryback “periods” by length and category (2-year general, 10-year SLL, specific rules for other loss types). The court treats each of these as a separate “carryback period” to which a taxpayer can be “entitled” in the same year.
The ordinary meaning of “carryback period” is a division of time during which a loss can be carried back; each subparagraph in §172(b)(1) describes a different such division of time, so they qualify as separate periods.
§172(f)(5) and similar provisions treating SLLs, eligible losses, and farming losses as separate NOLs for sequencing support the view that these portions are treated as distinct for various NOL rules, which fits with separate carryback periods.
Appellate decisions (NextEra, Barrick) and this court’s own Norwest opinion describe special NOL categories as having longer or different “carryback periods,” reinforcing that multiple periods exist within a single NOL.
Treasury Reg. §1.172-13(c)(4) explicitly states that a §172(b)(3) election does not prevent a 10-year product liability loss carryback; because product liability losses were later folded into SLL, the government’s own regulation supports Apache’s reading.
Legislative materials from the 1997 amendments acknowledge that the general carryback rule was shortened while special, longer carryback periods (including SLL) were preserved, consistent with parallel and independent carryback periods.
Even if the interpretive question were close, the court notes long-standing canons that revenue-raising provisions are construed against the government in cases of reasonable doubt, which would favor Apache.
Forward-Looking Implications
Corporate taxpayers with mixed NOLs that include SLL or other extended-carryback components can structure §172(b)(3) elections to protect credits and other attributes in the near years while still accessing long-term carrybacks on specified components.
Consolidated groups can use customized election language, provided it clearly identifies which §172(b)(1) carryback periods are being relinquished and which are retained.
Practitioners can rely on Apache and Treas. Reg. §1.172-13(c)(4) when defending partial carryback strategies and resisting IRS attempts to treat §172(b)(3) as all-or-nothing.
The case may influence disputes involving other special NOL buckets (for example, eligible losses or farming losses) where taxpayers seek to elect differently for different portions of the same NOL.
Result
The Tax Court grants Apache’s motion for partial summary judgment, holds that Apache validly relinquished only the 2-year carryback for its general NOL while preserving the 10-year carryback for its SLLs, and denies the Commissioner’s cross-motion.
The Takeaway
Taxpayers with layered NOLs are not stuck with an all-or-nothing carryback waiver. Where §172 creates separate carryback periods for different loss categories, a §172(b)(3) election can surgically waive one period while preserving another, as long as the election language and the statutory framework line up.
List of Citations
United Dominion Indus., Inc. v. United States, 532 U.S. 822 (2001): Provides general description of NOL mechanics and discusses SLL as a statutory category.
NextEra Energy, Inc. v. United States, 893 F.3d 1353 (11th Cir. 2018): Describes extended carryback periods for specified liability losses.
Barrick Res. (USA) Inc. v. United States, 529 F.3d 1252 (10th Cir. 2008): Characterizes SLLs as having a 10-year carryback period distinct from ordinary NOLs.
Norwest Corp. v. Commissioner, 111 T.C. 105 (1998): Discusses different carryback periods for portions of a bank’s NOL attributable to bad debt losses.