Stop Corporate Inversions Act of 2026
- Sponsor
- Sen. Durbin, Richard J. [D-IL]
- Committees
- Finance Committee (primary)
- Last action
- Feb 11, 2026
Bottom line
This bill aims to prevent U.S. companies from reincorporating abroad to avoid U.S. taxes by broadening the criteria under which such "inverted" entities are still treated as domestic for tax purposes, with retroactive effect.
What it actually does
This bill amends Section 7874 of the Internal Revenue Code to significantly expand the definition of "inverted corporations" that are treated as domestic for U.S. tax purposes. It lowers the ownership threshold for a foreign corporation to be considered a "surrogate foreign corporation" from 80% to 60% and introduces a new category of "inverted domestic corporation" based on a 50% ownership test or primary management and control in the U.S. combined with significant domestic business activities. These changes apply retroactively to taxable years ending after May 8, 2014.
Proponents argue
Proponents argue that this bill is essential to close tax loopholes that allow profitable U.S. corporations to reduce their tax liability by undergoing corporate inversions, thereby ensuring a fairer tax system and preventing the erosion of the U.S. tax base. They contend that these inversions are often purely for tax purposes, without genuine relocation of business activities, and that the retroactive application is necessary to capture past avoidance.
Opponents contend
Opponents might argue that the bill could make the U.S. a less attractive place for businesses to incorporate or expand, potentially hindering global competitiveness and investment. They would also strongly criticize the retroactive application of new tax rules, asserting that it creates significant uncertainty, undermines business planning, and can be seen as unfair to companies that acted legally under previous rules.
The bill is short but technically dense, requiring careful reading and understanding of tax code intricacies to grasp its full implications.
Section 2(a), amending IRC Section 7874(b)(1)(A)
Redefinition of Surrogate Foreign Corporation Ownership Threshold
This provision changes the threshold for a foreign corporation to be considered a "surrogate foreign corporation" (and thus treated as domestic for tax purposes) from 80% to 60% of its stock being held by former shareholders of the acquired domestic corporation. This means more foreign-parented companies resulting from inversions will be treated as U.S. companies for tax purposes, increasing their U.S. tax liability.
Supporters argue
Supporters argue this change broadens the reach of anti-inversion rules, capturing more transactions designed primarily for tax avoidance without substantial business relocation, thereby protecting the U.S. tax base.
Critics contend
Critics might argue this further restricts corporate restructuring options, potentially making the U.S. less competitive globally and discouraging legitimate cross-border mergers.
Tradeoffs
This provision balances the goal of preventing tax avoidance by expanding the definition of an inverted corporation against potential impacts on corporate flexibility and international competitiveness.
Section 2(a), amending IRC Section 7874(b)(1)(B) and (b)(2)
New Category: Inverted Domestic Corporation
This provision creates a new definition for an "inverted domestic corporation," which is also treated as domestic for tax purposes. A foreign corporation becomes an inverted domestic corporation if, after May 8, 2014, it acquires substantially all properties of a domestic corporation or partnership, and either more than 50% of its stock is held by former U.S. shareholders/partners, OR its management and control are primarily in the U.S. and it has significant domestic business activities.
Section 2(a), amending IRC Section 7874(b)(3)
Substantial Foreign Business Activities Exception
This provision provides an exception to being treated as an "inverted domestic corporation" if the expanded affiliated group has substantial business activities in the foreign country where the entity is organized, when compared to the total business activities of the group. It also grants the Secretary of the Treasury authority to increase the threshold percentage for what constitutes "substantial business activities" in future regulations.
Section 2(a), amending IRC Section 7874(b)(4)
Defining U.S. Management and Control
This provision directs the Secretary of the Treasury to issue regulations defining when the management and control of an expanded affiliated group are considered to occur primarily within the United States. It specifically states that if substantially all executive officers and senior management who make strategic, financial, and operational decisions are based or primarily located in the U.S., then management and control are considered U.S.-based.
Section 2(a), amending IRC Section 7874(b)(5)
Defining Significant Domestic Business Activities
This provision defines "significant domestic business activities" for an expanded affiliated group. It states that such activities exist if at least 25% of the group's employees, employee compensation, assets, or income are based or derived in the United States. It also allows the Secretary to issue regulations decreasing this 25% threshold, making it easier to meet the 'significant domestic business activities' test.
Section 2(c)
Retroactive Effective Date
The amendments made by this bill apply to taxable years ending after May 8, 2014. This means the new, expanded anti-inversion rules could retroactively affect the tax status of corporations that completed inversion transactions after that date, potentially leading to unexpected tax liabilities for past years.