26 U.S.C. § 7874 — Rules relating to expatriated entities and their foreign parents

(a) Tax on inversion gain of expatriated entities.
(1) In general. If a company is an "expatriated entity," its taxable income for any tax year that overlaps the "applicable period" can never be less than its "inversion gain" for that year — even if other tax rules would normally let it report less.
(2) Expatriated entity. (A) This term means (i) the U.S. corporation^* or partnership^* that a foreign corporation acquired, where that foreign corporation counts as a "surrogate foreign corporation" (defined next), and (ii) any U.S. person closely related to that U.S. corporation or partnership. (B) A foreign corporation counts as a surrogate foreign corporation if, as part of one plan or a series of related deals: (i) after March 4, 2003, it acquires, directly or indirectly, substantially all the property of a U.S. corporation, or substantially all of a U.S. partnership's trade or business^*; (ii) afterward, at least 60% of its stock^* (by vote or value) is held by the old shareholders^* (or partners) simply because they used to own the U.S. company; and (iii) afterward, the expanded corporate group that includes the foreign corporation doesn't have substantial business activity in the foreign country where it was set up, compared to the group's total business activity. A company is not treated as described in (i) if it had already acquired more than half of those properties on or before March 4, 2003.
(3) Coordination with (b). A corporation already treated as domestic under (b) is not also counted as a surrogate foreign corporation under (2)(A).

(b) Inverted corporations treated as domestic corporations. Even though section 7701(a)(4) would normally call it foreign, a foreign corporation is treated as a U.S. (domestic) corporation for tax purposes if it would qualify as a surrogate foreign corporation using an 80% ownership threshold instead of the 60% threshold in (a)(2).

(c) Definitions and special rules.
(1) Expanded affiliated group. This means a corporate affiliated group as defined in section 1504(a), but ignoring section 1504(b)(3), and using "more than 50%" ownership everywhere section 1504(a) says "at least 80%."
(2) Certain stock disregarded. When counting ownership under (a)(2)(B)(ii), don't count: (A) stock held by other members of the foreign corporation's own expanded group, or (B) stock sold to the public as part of the acquisition deal.
(3) Plan deemed in certain cases. If a foreign corporation acquires substantially all of a U.S. company's property within a 4-year window starting 2 years before the 60% ownership test is met, the acquisition is treated as part of a single plan.
(4) Certain transfers disregarded. Transfers of property or debts are ignored if they're part of a plan whose main purpose is to dodge this section's rules.
(5) Special rule for related partnerships. When applying the 60% ownership test to a partnership's trade or business, partnerships under common control (as section 482 defines it) are treated as one partnership, unless regulations say otherwise.
(6) Regulations. The Secretary^* must issue regulations to determine surrogate foreign corporation status, including rules to (A) treat things like warrants, options, and convertible debt as if they were stock, and (B) treat certain stock as if it were not stock.

(d) Other definitions.
(1) Applicable period. This is the window (A) starting on the first date any property was acquired as part of the deal, and (B) ending 10 years after the last date property was acquired as part of the deal.
(2) Inversion gain. This means income or gain the expatriated entity recognizes from transferring stock or property during the applicable period, plus income it earns from licensing property, either (A) as part of the original acquisition, or (B) afterward, if the transfer or license goes to a "foreign related person." This does not include gain on property that is inventory or similar stock-in-trade.
(3) Foreign related person. This means a foreign person that (A) is closely related to the expatriated entity (as sections 267(b) or 707(b)(1) define "related"), or (B) is under the same common control (section 482) as the entity.

(e) Special rules.
(1) Credits not allowed against tax on inversion gain. Tax credits (other than the foreign tax credit under section 901) can only offset the expatriated entity's tax on inversion gain to the extent the total tax owed is more than the inversion gain multiplied by the top corporate tax rate. For the foreign tax credit, inversion gain is treated as U.S.-source income.
(2) Special rules for partnerships. If the expatriated entity is a partnership: (A) the minimum-tax rule in (a)(1) is applied to each partner^* instead of the partnership; (B) each partner's inversion gain equals their share of the partnership's inversion gain, plus any gain they personally recognize from transferring their partnership interest to the surrogate foreign corporation during the applicable period; and (C) the top individual tax rate that applies to that partner is used instead of the corporate rate in (1).
(3) Coordination with section 172 and minimum tax. Rules similar to specific provisions in section 860E(a) apply here too.
(4) Statute of limitations. (A) The deadline for the IRS to assess extra tax tied to inversion gain for a "pre-inversion year" does not expire until at least 3 years after the taxpayer^* tells the Secretary about the acquisition — and the IRS can assess the tax within that 3-year window no matter what other law would otherwise say. (B) A "pre-inversion year" is a tax year that (i) partly overlaps the applicable period, and (ii) ends before the year the acquisition is completed.

(f) Special rule for treaties. No treaty obligation of the United States — whether made before or after this section — lets anyone use section 894 or section 7852(d), or any other law, to escape the rules in this section.

(g) Regulations. The Secretary must issue whatever regulations are needed to carry out this section, including rules that adjust how it applies to stop people from avoiding its purpose — for example, by using related persons, pass-through entities, or other go-betweens, or by arranging transactions so people technically stop being (or never become) members of the expanded affiliated group or related persons.