The U.S. Tax Court ruled on July 27, 2026, against HBM Holdings Company in a case concerning consolidated net operating loss (CNOL) deductions. The court's decision affects HBM's ability to claim tax deductions for losses carried over from a subsidiary, impacting its financial strategy and tax liabilities for the years 2018, 2020, and 2021.

This ruling is significant as it clarifies how net operating losses from a predecessor company can be treated under tax law, particularly in the context of consolidated tax returns. The outcome may influence how other corporations approach tax deductions related to net operating losses in the future.

Background

HBM Holdings Company (HBM) is a Missouri corporation that serves as a holding company. It was formed in 2014 and became the common parent of an affiliated group that filed consolidated tax returns. The group included Mississippi Lime Co. (MLCO), which had acquired Delavau Holdings, LLC (Delavau) in 2012. Delavau had accumulated significant net operating losses (NOL) at that time.

In 2018, HBM underwent a deemed liquidation of Delavau, which resulted in HBM being required to account for Delavau's NOL carryovers. However, the Internal Revenue Service (IRS) denied HBM's claims for CNOL deductions for the years in question, arguing that the rules governing separate return limitation years (SRLY) barred the application of Delavau's NOLs to offset HBM's consolidated income.

The dispute led to both parties filing Cross-Motions for Partial Summary Judgment, seeking a ruling on whether HBM could claim the CNOL deductions based on Delavau's losses. This case was consolidated with other related cases, but the motions decided in this opinion were specific to HBM's claims.

The Ruling

The court, led by Judge Jenkins, ruled in favor of the IRS, stating that HBM was not entitled to CNOL deductions for the tax years 2018, 2020, and 2021 based on Delavau's NOL carryovers. The court determined that Delavau was a predecessor to HBM, which meant that the lonely parent rule did not apply to exclude Delavau's separate return years from being classified as SRLYs.

The court stated, "Delavau is a predecessor of HBM... the lonely parent rule does not apply to exclude its SRYs from SRLYs."

Furthermore, the court found that the original members of the HBM consolidated group did not constitute an SRLY subgroup, which would have allowed them to apply Delavau's NOLs to offset their income. The court concluded that HBM's CNOL deductions based on Delavau's NOL carryovers were properly disallowed.

Impact

This ruling has significant implications for HBM Holdings and potentially other corporations that may find themselves in similar situations. By clarifying the treatment of NOL carryovers from predecessor companies, the court's decision could affect how corporations strategize their tax planning and deductions in the future.

Specifically, the ruling emphasizes the importance of understanding the definitions and regulations surrounding predecessors and successors in tax law. Corporations may need to reassess their tax strategies regarding NOLs and consider the potential limitations imposed by SRLY regulations.

What's Next

HBM Holdings may consider appealing the court's decision, although details were not available in the court filing regarding any plans for appeal. There are also related cases pending that could further clarify the application of NOL deductions in similar contexts.