future-focused

EPA and Army Corps Announce Proposed WOTUS Rule: Key Updates

3 minute read

Featured Image

On November 20, 2025, the EPA and U.S. Army Corps of Engineers (the agencies) issued proposed revisions to the regulatory definition of “waters of the United States” (WOTUS), a term that outlines the scope of the Clean Water Act’s (CWA) jurisdiction. Updated Definition of ‘‘Waters of the United States,’’ 90 Fed. Reg. 52498. The proposed rule seeks to align the WOTUS definition with the Supreme Court’s May 25, 2023, decision in Sackett v. EPA and resolve certain implementation-related issues, most notably defining “relatively permanent” and “continuous surface connection,” both of which are specifically used in the Sackett decision to limit CWA jurisdiction.  

In September 2023, the agencies published a final rule that amended the regulations defining WOTUS in response to the Supreme Court’s Sackett decision. As a result of the final rule, jurisdictional waters, with certain listed exclusions, are now: (1) traditional navigable waters, territorial seas, interstate waters; (2) impoundments of WOTUS; (3) tributaries of the aforementioned waters that are relatively permanent, standing or continuously flowing bodies of water; (4) wetlands having a continuous surface connection to WOTUS; and (5) intrastate lakes and ponds, streams, or wetlands that are relatively permanent, standing or continuously flowing bodies of water with a continuous surface connection to navigable waters, territorial seas, or interstate waters. 40 C.F.R. § 120.2(a); 33 C.F.R. § 328.3(a).

However, the agencies note in the preamble to the proposed rule that they have heard “numerous concerns raised by stakeholders” regarding the September 2023 rule, including that it “does not adequately comply” with the Sackett Court’s interpretation of the scope of CWA jurisdiction. Thus, the agencies are proposing to revise the September 2023 rule to implement the Sackett decision and reduce regulatory uncertainty by clarifying what constitutes WOTUS. In particular, the agencies are defining key terms such as “relatively permanent” and “continuous surface connection” and are further clarifying and expanding major exclusions. 

Definition of “Relatively Permanent” 

The proposed rule defines “relatively permanent” to mean “standing or continuously flowing bodies of surface water that are standing or continuously flowing year-round or at least during the wet season.” The phrase “at least during the wet season” is meant to include “extended periods of predictable, continuous surface hydrology occurring in the same geographic feature year after year in response to the wet season, such as when average monthly precipitation exceeds average monthly evapotranspiration.”

The agencies state that they intend to use metrics from the Web-based Water-Budget Interactive Modeling Program (WebWIMP), which are reported in an Army Corps of Engineers tool for informing wetlands delineations and jurisdictional determinations, “as a primary source for identifying the wet season.” The agencies also provide that this “wet season” approach “can be viewed as a bright line test, as it would provide a duration threshold requirement for which an abutting wetland or an abutting lake or pond must have surface water in order to be considered jurisdictional.” Further, “Unlike typical bright line approaches, … the agencies’ proposed approach would also allow for regional variation given the range in hydrology and precipitation throughout the country.”

Definition of “Continuous Surface Connection”

The agencies are not revising the definition of “adjacent,” which means “having a continuous surface connection,” but are proposing to define “continuous surface connection” to mean “having surface water at least during the wet season and abutting (i.e., touching) a jurisdictional water.” Thus, the agencies’ proposed definition of “continuous surface connection” provides a two-prong test that “requires both (1) abutment of a jurisdictional water; and (2) having surface water at least during the wet season.” 

The proposed rule states the agencies intend that the term “wet season” in the definition of “continuous surface connection” be implemented in the same manner as described under the definition of “relatively permanent.”

Clarification and Expansion of Exclusions

In addition, the proposed rule clarifies and expands upon the regulatory status of certain exclusions, including by:

  • Removing interstate waters and intrastate lakes and ponds from the WOTUS definition to make clear that such waters are not WOTUS unless they are otherwise jurisdictional.
  • Explaining that “excluded ditches” means “those non-navigable ditches (including roadside ditches) that are constructed or excavated entirely in dry land, even if those ditches have relatively permanent flow and connect to a jurisdictional water.”
  • Clarifying the “waste treatment system” and “prior converted cropland” exclusions through the addition of definitions for those terms.
  • Underscoring that groundwater is not considered WOTUS through a proposed exclusion.

Comments on the proposed rule must be submitted by January 5, 2026. Stay tuned for further updates. For more information, contact Liskow attorneys Greg Johnson, Clare Bienvenu, Emily von Qualen, and Colin North, and visit Liskow’s The Louisiana Industrial Insights Hub to stay up-to-date on further WOTUS developments.

"With this proposed rule, the agencies intend to provide greater regulatory certainty and increase Clean Water Act program predictability and consistency by clarifying the definition of ‘waters of the United States.’"

www.epa.gov/…

Series: Treasure Salvage and the Law of Finds – Exploring Maritime Jurisdiction and Claims Through Sunken Treasure

3 minute read

Part 1: Finders Keepers? The Law of Salvage vs. The Law of Finds

Ever-evolving technology is allowing more and more shipwrecks to be discovered and salvaged. But what law governs the search for and recovery of artifacts and shipwrecks? How does the would be treasure hunter obtain a legal right to the salvaged treasure? Join us in our series on the legal issues arising out of the discovery and recovery of shipwrecks and other artifacts.

Once a shipwreck is discovered, the first question for the treasure hunter and would be salvor is how to obtain the right to salvage the wreck and prevent others from doing the same? As a preliminary matter, claims relating to the recovery of sunken property are maritime claims arising under maritime jurisdiction. The recovery of sunken ships and treasure arises under two separate but related maritime laws. The first is the law of maritime salvage, and the second is the law of finds. The laws cannot be applied simultaneously. They serve different purposes and promote different behaviors. Fairport Intern. Exploration, Inc. v. Shipwrecked Vessel, Captain Lawrence, 177 F.3d 491, 498 (6th Cir. 1999).

Salvage law has a long and ancient history, but in short, salvage relates to the voluntary rescue of property in danger at sea. A salvor who acts voluntarily gains exclusive “possession” of the salvaged property to secure the salvor’s claim for a salvage award, which is based on the value of the property salvaged.  This is an in rem claim on the property that is salvaged—in other words, the property salvaged is personified as owing the liability. While a court can award the treasure salvor an “in kind” salvage award (i.e. the actual salvaged property), that result is not guaranteed. And a salvage claim does not automatically entitle the salvor to the treasure he recovers. However, a salvor can be made the “salvor in possession” and obtain the exclusive rights to salvage the ship, excluding all others from attempting to salvage the property. There are of course limits to this exclusive right, as we will discuss in future blog posts.

By contrast, the law of finds allows a finder to acquire title to abandoned property by “reducing the property to his or her possession.” In other words, “finders keepers”—whomever obtains physical possession of the treasure can obtain the right to keep it under the law of finds. But unlike the law of salvage, the law of finds does not entitle the finder to exclude all others from seeking the same property. To establish a claim under the law of finds the “finder” must show: “(1) the intent to reduce property to possession, (2) actual or constructive possession of the property, and (3) that the property is either unowned or abandoned.” See Titantic III, 435 F.3d at 532 n.3.

Thus, the treasure hunter must make a choice: seek an application of the law of finds and race to find the treasure before anyone else does; or obtain salvage rights to the wreck and exclude all others from salvaging the same property, but risk not obtaining an “in kind” award of the treasure. 

The law of finds is disfavored, and there is a presumption that property lost at sea is not abandoned—it still has an owner.  Element (3) to the application of the law of finds raises an interesting question, when is a thing lost at sea “unowned” or abandoned? The traditional presumption was that title remains with the true owner regardless of how long the wreck has been underwater. The clear exception to this is “ancient shipwrecks,” where no owner appears in court to claim the wreck. See Columbus-America Discovery Group v. Atlantic Mutual Ins. Co., 974 F.2d 450 (4th Cir. 1992). But, the definition of “ancient” is open to interpretation. Insurers who paid out on very old cargo claims have appeared in cases where the treasure hunter sought the application of the law of finds for ships that were lost 150 years ago. Columbus-America Discovery Group v. Atlantic Mutual Ins. Co., 974 F.2d 450 (remanding case for more discovery where insurers had intervened in suit seeking application of law of finds to gold from a 150 year old shipwreck, the SS CENTRAL AMERICA). By contrast, in perhaps one of the most famous cases of treasure salvage, the Atocha, a Spanish treasure ship lost in a hurricane in 1622 was deemed to be an abandoned vessel such that the law of finds was correctly applied. These are all considerations when determining whether the treasure hunter should seek a court order that they are the salvor-in-possession, or whether the treasure hunter should wait and seek the application of the law of finds.

Next up in our series – how does one obtain jurisdiction over the wreck and what happens if the wreck is not within the jurisdiction of the United States?

Series: Treasure Salvage and the Law of Finds – Exploring Maritime Jurisdiction and Claims Through Sunken Treasure

3 minute read

Part 1: Finders Keepers? The Law of Salvage vs. The Law of Finds

Ever-evolving technology is allowing more and more shipwrecks to be discovered and salvaged. But what law governs the search for and recovery of artifacts and shipwrecks? How does the would be treasure hunter obtain a legal right to the salvaged treasure? Join us in our series on the legal issues arising out of the discovery and recovery of shipwrecks and other artifacts.

Once a shipwreck is discovered, the first question for the treasure hunter and would be salvor is how to obtain the right to salvage the wreck and prevent others from doing the same? As a preliminary matter, claims relating to the recovery of sunken property are maritime claims arising under maritime jurisdiction. The recovery of sunken ships and treasure arises under two separate but related maritime laws. The first is the law of maritime salvage, and the second is the law of finds. The laws cannot be applied simultaneously. They serve different purposes and promote different behaviors. Fairport Intern. Exploration, Inc. v. Shipwrecked Vessel, Captain Lawrence, 177 F.3d 491, 498 (6th Cir. 1999).

Salvage law has a long and ancient history, but in short, salvage relates to the voluntary rescue of property in danger at sea. A salvor who acts voluntarily gains exclusive “possession” of the salvaged property to secure the salvor’s claim for a salvage award, which is based on the value of the property salvaged.  This is an in rem claim on the property that is salvaged—in other words, the property salvaged is personified as owing the liability. While a court can award the treasure salvor an “in kind” salvage award (i.e. the actual salvaged property), that result is not guaranteed. And a salvage claim does not automatically entitle the salvor to the treasure he recovers. However, a salvor can be made the “salvor in possession” and obtain the exclusive rights to salvage the ship, excluding all others from attempting to salvage the property. There are of course limits to this exclusive right, as we will discuss in future blog posts.

By contrast, the law of finds allows a finder to acquire title to abandoned property by “reducing the property to his or her possession.” In other words, “finders keepers”—whomever obtains physical possession of the treasure can obtain the right to keep it under the law of finds. But unlike the law of salvage, the law of finds does not entitle the finder to exclude all others from seeking the same property. To establish a claim under the law of finds the “finder” must show: “(1) the intent to reduce property to possession, (2) actual or constructive possession of the property, and (3) that the property is either unowned or abandoned.” See Titantic III, 435 F.3d at 532 n.3.

Thus, the treasure hunter must make a choice: seek an application of the law of finds and race to find the treasure before anyone else does; or obtain salvage rights to the wreck and exclude all others from salvaging the same property, but risk not obtaining an “in kind” award of the treasure. 

The law of finds is disfavored, and there is a presumption that property lost at sea is not abandoned—it still has an owner.  Element (3) to the application of the law of finds raises an interesting question, when is a thing lost at sea “unowned” or abandoned? The traditional presumption was that title remains with the true owner regardless of how long the wreck has been underwater. The clear exception to this is “ancient shipwrecks,” where no owner appears in court to claim the wreck. See Columbus-America Discovery Group v. Atlantic Mutual Ins. Co., 974 F.2d 450 (4th Cir. 1992). But, the definition of “ancient” is open to interpretation. Insurers who paid out on very old cargo claims have appeared in cases where the treasure hunter sought the application of the law of finds for ships that were lost 150 years ago. Columbus-America Discovery Group v. Atlantic Mutual Ins. Co., 974 F.2d 450 (remanding case for more discovery where insurers had intervened in suit seeking application of law of finds to gold from a 150 year old shipwreck, the SS CENTRAL AMERICA). By contrast, in perhaps one of the most famous cases of treasure salvage, the Atocha, a Spanish treasure ship lost in a hurricane in 1622 was deemed to be an abandoned vessel such that the law of finds was correctly applied. These are all considerations when determining whether the treasure hunter should seek a court order that they are the salvor-in-possession, or whether the treasure hunter should wait and seek the application of the law of finds.

Next up in our series – how does one obtain jurisdiction over the wreck and what happens if the wreck is not within the jurisdiction of the United States?

Fifth Circuit Holds Master Services Contract to Provide Workers for Offshore Oil & Gas Platforms Governed by Louisiana—not Maritime—Law

4 minute read

The United States Court of Appeals for the Fifth Circuit recently affirmed a district court’s partial grant of summary judgment holding a Master Services Contract (“MSC”) was governed by Louisiana, rather than maritime, law. 1Because Louisiana law applied, the Louisiana Oilfield Indemnity Act (“LOIA”) rendered the indemnity provision in the MSC unenforceable. Both the district court and Fifth Circuit decisions relied on the Fifth Circuit’s test in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) and the Court’s more recent decision, Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), in deciding whether the parties to the MSC expected a vessel to play a substantial role in the completion of the work.

This ruling is yet another example of the Fifth Circuit’s ongoing attempt to clarify how the test set forth in In re Doiron should be applied and is significant for operators and contractors involved in offshore oil and gas operations, especially those who frequently seek defense and indemnity for offshore personal injury claims. A detailed discussion of the case and the Court’s analysis is discussed in the sections below.

Background

Island Operating Company, Inc. (“Island”) employee, Tyrone Felix, was injured during a personnel basket transfer from the M/V ANNA M to a platform owned and operated by Fieldwood Energy LLC (“Fieldwood”). The ANNA M was owned and operated by Offshore Oil Services, Incorporated (“OOSI”). Fieldwood and Island entered into a Master Services Contract in 2014, through which Island provided production operators to man Fieldwood’s offshore production platforms. In that agreement, Island agreed to indemnify Fieldwood’s “third party contractors”, such as OOSI from and against claims resulting from injuries to Island employees. OOSI filed a limitation action and a third-party demand against Island seeking pass-through indemnity and insurance coverage from Island pursuant to the terms of the MSC between Island and Fieldwood. Island moved for summary judgment arguing that the defense, indemnity, and insurance coverage provisions in the MSC were null and void under the LOIA.

In determining the enforceability of the indemnity provision of the MSC, the district court first analyzed what law applied to the contract. To determine whether the OCSLA choice-of-law provision applied, the court had to determine whether federal maritime law applied of its own force. Following the two-part test from the Fifth Circuit’s ruling in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) (i.e., (1) Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable water? (2) Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If the answer to both questions is yes, the contract is maritime in nature.), the district court found the second prong of Doiron was not met.

Specifically, the district court noted that the parties expected that the use of vessels under the MSC would be solely as a means of transportation to relocate production workers as necessary amount the field platforms and/or transport them back to shore. Such maritime activity is ignored in the analysis of whether the parties had an expectation that vessels would play a substantial role. See also In re Crescent Energy Services, L.L.C., 896 F.3d 350, 360 (5th Cir. 2018). (citing Doiron at 576 n.47). The district court found that this reasoning also extended to loading and unloading items from a vessel, even though that is generally considered a maritime activity.

The court ultimately concluded that the MSC failed the second prong of the Doiron test and was therefore non-maritime, meaning the OCSLA mandatory choice-of-law provision applied and the MSC’s contractual choice-of-law provision was void. As a result, the court determined that LOIA applied, which invalidated the indemnity and insurance provisions in the MSC.

Fifth Circuit Appeal and Ruling

On appeal, the Fifth Circuit noted that under its recent decision in Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), the actual use of the vessels is only considered when the expectations of the parties or the terms of the contract regarding the use of vessels in completing the work are unclear. The MSC’s terms and the parties’ expectations were clear, thus, consideration of the actual use of the vessels was unnecessary. Further the court focused on the fact that the MSC only contemplated the use of vessels for transporting workers to the job site, which was not representative of the actual work that the MSC contemplated. Similarly, the Court held that the fact that the plaintiff occasionally load and unload equipment from a vessel to the platform does not alter the language of the contract, which made no mention of such work. Ultimately, the Court affirmed the district court’s ruling that the MSC was for nonmaritime services and just because it might have required personnel to conduct “atypical and incidental vessel-related maritime tasks” does not make it a maritime contract. LOIA applied to the MSC and the indemnity provision was unenforceable. Thus, summary judgment in favor of Island was affirmed.

For more information, contact Liskow attorneys Alex Baynham and Lance Bullock and visit Liskow’s Maritime Litigation & Casualty Response practice page.

1In re Offshore Oil Services, Inc., 150 F.4th 677 (5th Cir. 2025).

Fifth Circuit Holds Master Services Contract to Provide Workers for Offshore Oil & Gas Platforms Governed by Louisiana—not Maritime—Law

4 minute read

The United States Court of Appeals for the Fifth Circuit recently affirmed a district court’s partial grant of summary judgment holding a Master Services Contract (“MSC”) was governed by Louisiana, rather than maritime, law. 1Because Louisiana law applied, the Louisiana Oilfield Indemnity Act (“LOIA”) rendered the indemnity provision in the MSC unenforceable. Both the district court and Fifth Circuit decisions relied on the Fifth Circuit’s test in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) and the Court’s more recent decision, Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), in deciding whether the parties to the MSC expected a vessel to play a substantial role in the completion of the work.

This ruling is yet another example of the Fifth Circuit’s ongoing attempt to clarify how the test set forth in In re Doiron should be applied and is significant for operators and contractors involved in offshore oil and gas operations, especially those who frequently seek defense and indemnity for offshore personal injury claims. A detailed discussion of the case and the Court’s analysis is discussed in the sections below.

Background

Island Operating Company, Inc. (“Island”) employee, Tyrone Felix, was injured during a personnel basket transfer from the M/V ANNA M to a platform owned and operated by Fieldwood Energy LLC (“Fieldwood”). The ANNA M was owned and operated by Offshore Oil Services, Incorporated (“OOSI”). Fieldwood and Island entered into a Master Services Contract in 2014, through which Island provided production operators to man Fieldwood’s offshore production platforms. In that agreement, Island agreed to indemnify Fieldwood’s “third party contractors”, such as OOSI from and against claims resulting from injuries to Island employees. OOSI filed a limitation action and a third-party demand against Island seeking pass-through indemnity and insurance coverage from Island pursuant to the terms of the MSC between Island and Fieldwood. Island moved for summary judgment arguing that the defense, indemnity, and insurance coverage provisions in the MSC were null and void under the LOIA.

In determining the enforceability of the indemnity provision of the MSC, the district court first analyzed what law applied to the contract. To determine whether the OCSLA choice-of-law provision applied, the court had to determine whether federal maritime law applied of its own force. Following the two-part test from the Fifth Circuit’s ruling in In re Larry Doiron, Inc., 879 F.3d 568, 569 (5th Cir. 2018) (en banc) (i.e., (1) Is the contract one to provide services to facilitate the drilling or production of oil and gas on navigable water? (2) Does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? If the answer to both questions is yes, the contract is maritime in nature.), the district court found the second prong of Doiron was not met.

Specifically, the district court noted that the parties expected that the use of vessels under the MSC would be solely as a means of transportation to relocate production workers as necessary amount the field platforms and/or transport them back to shore. Such maritime activity is ignored in the analysis of whether the parties had an expectation that vessels would play a substantial role. See also In re Crescent Energy Services, L.L.C., 896 F.3d 350, 360 (5th Cir. 2018). (citing Doiron at 576 n.47). The district court found that this reasoning also extended to loading and unloading items from a vessel, even though that is generally considered a maritime activity.

The court ultimately concluded that the MSC failed the second prong of the Doiron test and was therefore non-maritime, meaning the OCSLA mandatory choice-of-law provision applied and the MSC’s contractual choice-of-law provision was void. As a result, the court determined that LOIA applied, which invalidated the indemnity and insurance provisions in the MSC.

Fifth Circuit Appeal and Ruling

On appeal, the Fifth Circuit noted that under its recent decision in Earnest v. Palfinger Marine U.S.A., Inc., 90 F.4th 804 (5th Cir. 2024), the actual use of the vessels is only considered when the expectations of the parties or the terms of the contract regarding the use of vessels in completing the work are unclear. The MSC’s terms and the parties’ expectations were clear, thus, consideration of the actual use of the vessels was unnecessary. Further the court focused on the fact that the MSC only contemplated the use of vessels for transporting workers to the job site, which was not representative of the actual work that the MSC contemplated. Similarly, the Court held that the fact that the plaintiff occasionally load and unload equipment from a vessel to the platform does not alter the language of the contract, which made no mention of such work. Ultimately, the Court affirmed the district court’s ruling that the MSC was for nonmaritime services and just because it might have required personnel to conduct “atypical and incidental vessel-related maritime tasks” does not make it a maritime contract. LOIA applied to the MSC and the indemnity provision was unenforceable. Thus, summary judgment in favor of Island was affirmed.

For more information, contact Liskow attorneys Alex Baynham and Lance Bullock and visit Liskow’s Maritime Litigation & Casualty Response practice page.

1In re Offshore Oil Services, Inc., 150 F.4th 677 (5th Cir. 2025).

2026 Internal Revenue Service Limits Annual Cost of Living Adjustments

2 minute read

At long last the government shut-down of 2025 ends as President Trump Signs legislation extending funding for most governmental agencies.  As a result, the Internal Revenue Service (IRS) almost immediately announced the annual cost-of-living adjustments to the dollar limits applicable to employer sponsored retirement plans.  Previously the limits for welfare and fringe benefit plans for 2026 had been amounts, and the Social Security Administration (SSA) had announced the taxable wage base amounts for 2026.

The table below provides the IRS and SSA limits for 2026† applicable to the various employer-sponsored retirement, welfare, and fringe benefit plans or programs listed below.  The amounts for 2026 in the table below are based on information contained in IRS Notice 2025-67; IRS Rev. Proc. 2025-19; IRS Rev. Proc. 2025-32; One Big Beautiful Bill Act; and SSA Press Release (10.24.2025).

†The dollar limits in the table above are generally calendar-year limits; however, certain of the limits are applied based on a plan year, tax year or limitation year.

For further inquiries on the annual cost of living adjustments, contact Liskow attorney Robbie Mashburn and visit our Employee Benefits practice page on our website.

Tax Court Allows Oil Company to Split NOL Elections, Opening Path to Significant Refunds

3 minute read

Featured Image

The U.S. Tax Court has opened the door to new tax planning opportunities, holding in Apache Corp. v. Commissioner that the taxpayer was permitted to make different elections for different types of net operating losses (NOLs), enabling the company to secure roughly $24 million in tax refunds. The ruling brings welcome clarity to the interaction of several NOL provisions under IRC § 172 and confirms that taxpayers may treat general NOLs and specified liability losses (SLLs) differently when making carryback and carryforward elections.

At issue was whether Apache could elect to carry forward its substantial 2016 and 2017 general NOLs, totaling $1.93 billion and $3.08 billion, respectively, while simultaneously carrying back $40.7 million and $30.8 million in SLLs from those same years. The SLLs, which stemmed from long-tail obligations such as infrastructure dismantling and environmental remediation, were carried back to tax years 2006 and 2007, generating refund claims of $13.8 million and $10.1 million. 

The IRS disallowed the claims on the theory that once Apache elected to relinquish the carryback period for its general NOLs, it was required to treat all NOL components, including SLLs included, the same way.

Judge Emin Toro, writing for the court, rejected the IRS’s position. The opinion concluded that neither the text nor structure of § 172 requires a single, unified election for all forms of NOLs. To the contrary, the statute provides distinct carryback rules for specified liability losses, and nothing in the Code compels a taxpayer to forgo those special rules merely because it elects to carry other NOLs forward. The court noted that the statutory text, surrounding context, judicial precedent, and even prior IRS regulatory interpretations supported Apache’s approach. The IRS’s chief objection, that allowing split elections would create administrative inconvenience, was deemed unpersuasive.

The court’s reasoning emphasizes that § 172 is designed to smooth income across economic cycles by allowing losses to be absorbed in the years that best match a taxpayer’s economic reality. Allowing Apache to carry back only its SLLs aligns with that purpose, particularly given the long-term nature of the underlying liabilities. The opinion also reflects the longstanding interpretive principle that ambiguities in tax statutes should be construed against the government, a point highlighted in a separate concurrence by Judge Ronald L. Buch. In a partial dissent, Judge James S. Halpern, joined by Judge Alina Marshall, agreed that the IRS misinterpreted the taxpayer’s election but disagreed that the statute permits carrying some NOLs back and others forward from the same tax year.

For taxpayers, the decision provides valuable guidance and additional flexibility when planning NOL utilization. Companies with significant SLLs, particularly in energy, natural resources, and environmental sectors, may now confidently consider split elections as a tool to maximize available carryback periods while preserving forward-looking tax attributes. The ruling also invites taxpayers with prior-year SLLs to reassess whether refund opportunities may exist under this newly clarified framework. However, NOL carrybacks are only allowable for certain tax years as the carryback provisions were removed from § 172 beginning in 2018 with a temporary COVID related exception for NOLs arising in tax years 2018 through 2020.

If your organization maintains multiple categories of NOLs or long-tail liabilities, this case may open strategic opportunities for refund claims or refined election planning. Companies seeking guidance on the potential implications of the Apache decision for their tax planning may contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari and visit our Tax practice page.

IRS Issues Safe Harbor Allowing Investment Trusts to Stake Digital Assets Without Losing Favorable Tax Status

3 minute read

Featured Image

The Internal Revenue Service issued new guidance providing a safe harbor for certain investment trusts and grantor trusts that engage in staking of digital assets. This safe harbor gives trustees and sponsors a pathway to participate in proof-of-stake blockchain networks without jeopardizing the trust’s classification as an investment trust under Treas. Reg. §301.7701-4(c) or its treatment as a grantor trust for federal income tax purposes.

In a typical custodial staking arrangement, a third-party custodian holds a taxpayer’s digital assets and facilitates their staking on a blockchain network. Staking rewards, newly minted tokens or other returns, are generally shared between the asset owner and the staking provider under a pre-arranged allocation formula. Staking rewards are earned by locking up some of the trust’s coins, either for a predetermined period of time or at will with a short delay, to help validate transactions and support the network’s system. Staking rewards compensate the asset owner for supporting the network’s operations. 

Historically, investment trusts were not permitted to engage in activities that could be viewed as operating a business or “varying the investments” of certificate holders. As a result, staking activity risked converting a passive investment trust into a business trust and potentially reclassifying it as a corporation or partnership for tax purposes. Because regular trusts are not publicly traded, they do not have to be concerned about being reclassified as business trusts taxed as either partnerships or corporations. The new IRS guidance provides much-needed clarity and relief by setting out the circumstances under which a trust may authorize and conduct staking without altering its tax status. The guidance is effective for tax years ending on or after November 10, 2025.

The safe harbor applies to an arrangement that:

  1. Would qualify as an investment trust and as a grantor trust if the trust did not authorize staking; and

  2. Qualified as such immediately before its governing instrument was amended to authorize staking.

If the requirements listed below are met, the IRS will not treat the authorization or performance of staking activities as inconsistent with investment trust or grantor trust status.

To qualify for the safe harbor:

  • Exchange-Traded Interests. Trust interests must be traded on a national securities exchange and comply with applicable SEC regulations governing staking.

  • Single Digital Asset Type. The trust may hold only cash and a single type of digital asset as defined under Code §6045(g)(3)(D).

  • Proof-of-Stake Network. Transactions in the trust’s digital asset must occur on a permissionless proof-of-stake network.

  • Custodial Control. The digital assets must be held by a custodian acting on behalf of the trust, which alone may exercise ownership rights, including during staking.

  • Purpose of Staking. Staking must serve to protect and conserve trust property, such as mitigating network control risks, rather than operate a business.

  • Permitted Activities. The trust’s operations must be limited to traditional passive activities, such as accepting deposits, holding assets, paying expenses, redeeming or issuing units, selling assets for liquidation, and directing staking in compliance with exchange requirements.

  • Delegated Staking. The trust may direct staking only through custodians who work with independent staking providers. The trust and custodian cannot direct or participate in the staking provider’s operations.

  • Risk Management. The trust must have liquidity policies tied solely to exchange redemption rules and must ensure that its assets are indemnified from slashing losses.

  • Rewards. The only new property the trust may receive from staking is additional units of the same digital asset it already holds.

Existing investment trusts have a nine-month window, beginning November 10, 2025, to amend their governing instruments to authorize staking in accordance with the safe harbor. Such an amendment will not, by itself, alter the trust’s classification as an investment or grantor trust, provided all requirements are satisfied.

This safe harbor provides long-awaited certainty for sponsors and trustees of digital asset investment trusts seeking to participate in proof-of-stake networks. Trusts that comply with the new requirements can earn staking rewards while maintaining favorable tax treatment as investment trusts and grantor trusts. Trustees and fund sponsors should review existing trust agreements to determine whether amendments will be necessary to take advantage of the new rules and should plan to act within the nine-month amendment window beginning in late 2025.

For more information, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari and visit Liskow’s Tax practice page. 

The new IRS guidance provides much-needed clarity and relief by setting out the circumstances under which a trust may authorize and conduct staking without altering its tax status. The guidance is effective for tax years ending on or after November 10, 2025.

Podcast: All’s Well that Ends in a Well: Drilling Contracts

less than a minute

In this episode of “Energy Law This Week,” hosts Matt Jones and April L. Rolen-Ogden discuss significant legal cases affecting the energy sector, including the Greenpeace case and a royalty class action lawsuit in North Dakota. They delve into the implications of these cases on the oil and gas industry, as well as the importance of drilling contracts, their types, and the associated legal standards. The conversation emphasizes the need for careful negotiation and understanding of contract terms, performance standards, and liability issues in drilling operations.

Listen to the full episode here.

Podcast: All’s Well that Ends in a Well: Drilling Contracts

less than a minute

In this episode of “Energy Law This Week,” hosts Matt Jones and April L. Rolen-Ogden discuss significant legal cases affecting the energy sector, including the Greenpeace case and a royalty class action lawsuit in North Dakota. They delve into the implications of these cases on the oil and gas industry, as well as the importance of drilling contracts, their types, and the associated legal standards. The conversation emphasizes the need for careful negotiation and understanding of contract terms, performance standards, and liability issues in drilling operations.

Listen to the full episode here.