To amend the Internal Revenue Code of 1986 to prevent corporations from avoiding the United States income tax by reincorporating in a foreign country.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Corporate Patriot Enforcement Act of 
2002''.

SEC. 2. PREVENTION OF CORPORATE EXPATRIATION TO AVOID UNITED STATES 
              INCOME TAX.

    (a) In General.--Paragraph (4) of section 7701(a) of the Internal 
Revenue Code of 1986 (defining domestic) is amended to read as follows:
            ``(4) Domestic.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `domestic' when applied to a 
                corporation or partnership means created or organized 
                in the United States or under the law of the United 
                States or of any State unless, in the case of a 
                partnership, the Secretary provides otherwise by 
                regulations.
                    ``(B) Certain corporations treated as domestic.--
                            ``(i) In general.--The acquiring 
                        corporation in a corporate expatriation 
                        transaction shall be treated as a domestic 
                        corporation.
                            ``(ii) Corporate expatriation 
                        transaction.--For purposes of this 
                        subparagraph, the term `corporate expatriation 
                        transaction' means any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly substantially all of the 
                                properties held directly or indirectly 
                                by a domestic corporation, and
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                shareholders of the domestic 
                                corporation by reason of holding stock 
                                in the domestic corporation.
                            ``(iii) Lower stock ownership requirement 
                        in certain cases.--Subclause (II) of clause 
                        (ii) shall be applied by substituting `50 
                        percent' for `80 percent' with respect to any 
                        nominally foreign corporation if--
                                    ``(I) such corporation does not 
                                have substantial business activities 
                                (when compared to the total business 
                                activities of the expanded affiliated 
                                group) in the foreign country in which 
                                or under the law of which the 
                                corporation is created or organized, 
                                and
                                    ``(II) the stock of the corporation 
                                is publicly traded and the principal 
                                market for the public trading of such 
                                stock is in the United States.
                            ``(iv) Partnership transactions.--The term 
                        `corporate expatriation transaction' includes 
                        any transaction if--
                                    ``(I) a nominally foreign 
                                corporation (referred to in this 
                                subparagraph as the `acquiring 
                                corporation') acquires, as a result of 
                                such transaction, directly or 
                                indirectly properties constituting a 
                                trade or business of a domestic 
                                partnership,
                                    ``(II) immediately after the 
                                transaction, more than 80 percent of 
                                the stock (by vote or value) of the 
                                acquiring corporation is held by former 
                                partners of the domestic partnership 
                                (determined without regard to stock of 
                                the acquiring corporation which is sold 
                                in a public offering related to the 
                                transaction), and
                                    ``(III) the acquiring corporation 
                                meets the requirements of subclauses 
                                (I) and (II) of clause (iii).
                            ``(v) Special rules.--For purposes of this 
                        subparagraph--
                                    ``(I) a series of related 
                                transactions shall be treated as 1 
                                transaction, and
                                    ``(II) stock held by members of the 
                                expanded affiliated group which 
                                includes the acquiring corporation 
                                shall not be taken into account in 
                                determining ownership.
                            ``(vi) Other definitions.--For purposes of 
                        this subparagraph--
                                    ``(I) Nominally foreign 
                                corporation.--The term `nominally 
                                foreign corporation' means any 
                                corporation which would (but for this 
                                subparagraph) be treated as a foreign 
                                corporation.
                                    ``(II) Expanded affiliated group.--
                                The term `expanded affiliated group' 
                                means an affiliated group (as defined 
                                in section 1504(a) without regard to 
                                section 1504(b)).''
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section shall 
        apply to corporate expatriation transactions completed after 
        September 11, 2001.
            (2) Special rule.--The amendment made by this section shall 
        also apply to corporate expatriation transactions completed on 
        or before September 11, 2001, but only with respect to taxable 
        years of the acquiring corporation beginning after December 31, 
        2003.

Summary: Corporate Patriot Enforcement Act of 2002 - Amends the Internal Revenue Code by determining that acquiring corporations incorporate expatriation transactions shall be considered domestic corporations. Defines a corporate expatriation transaction as, with certain exceptions, one in which a nominally foreign corporation acquires substantially all of the properties held by a domestic corporation and in which, immediately after the transaction, more than 80 percent of the stock of the acquiring corporation is held by former shareholders of the domestic corporation. Lowers the 80 percent threshold to 50 percent when the acquiring nominally foreign corporation lacks substantial business activities in the foreign country in which it was created and organized compared to the total activities of the expanded affiliated group and the stock is publicly traded, with the principal market of trading being the United States. Defines the terms nominally foreign corporation and expanded affiliated group. Applies similar rules to partnership transactions. Establishes that a series of related transactions relevant to the Act shall be handled as a single transaction.