Summary

Changes the tax-code rules that treat certain foreign corporations as U.S. corporations after inversion transactions. It creates a new definition of “inverted domestic corporation” for transactions completed after May 8, 2014, adds a >50% former-owner ownership test or a U.S.-management plus domestic-activity test, sets a 25% threshold for “significant domestic business activities,” preserves an existing foreign-activity exception (while allowing the Treasury to raise thresholds), and applies these rules to taxable years ending after May 8, 2014. The change tightens the circumstances under which a post-inversion entity avoids U.S. tax treatment, affecting multinational acquirers, sellers of U.S. targets, tax advisers, and IRS administration and enforcement.

• Creates a new statutory category called "inverted domestic corporation" for certain post-2014 inversion deals.
• Treats post-2014 acquisitions of U.S. targets as inverted domestic corporations if former owners hold >50% or if U.S. management plus 25% domestic activity test is met.
• Defines "significant domestic business activities" as at least 25% by employees, payroll, assets, or income in the U.S.
• Applies management-and-control regulations to periods after May 8, 2014 and allows Treasury to raise thresholds via regulation.
• Preserves an existing exception for firms with substantial foreign-country business activity but tightens other paths to avoid U.S. tax treatment.
• Conforming amendments update cross-references and date ranges to reflect the new post-2014 rules.
• Effective for taxable years ending after May 8, 2014 (retroactive application to transactions since that date).
• Increases compliance, reporting, and potential litigation for multinational transactions and their advisers.
• Likely reduces the ability of some corporations to avoid U.S. tax treatment through inversion structures, potentially increasing U.S. tax revenue.