and profits described in the matter preceding 
clause (i). 
‘‘(C) UNDISTRIBUTED
U.S. EARNINGS.— 
The term ‘undistributed U.S. earnings’ has the 
meaning given the term ‘post-1986 undistrib-
uted U.S. earnings’ in paragraph (5) of section 
245(a), determined— 
‘‘(i) as of the close of the taxable year 
described in subparagraph (A) of this 
paragraph, and 
‘‘(ii) without regard to ‘post-1986’ 
each place it appears in the matter before 
subparagraph (A) of such paragraph (5). 
‘‘(2) APPLICABLE CONTROLLED FOREIGN COR-
PORATION.—The term ‘applicable controlled foreign 
corporation’ means, with respect to any expatriated 
entity, any controlled foreign corporation with re-
spect to which such entity was a United States 
shareholder at any time during the 5-year period 
ending on the acquisition date. 
‘‘(3) EXPATRIATED ENTITY.—The term ‘expa-
triated entity’ means— 
‘‘(A) the corporation or partnership re-
ferred to in the matter preceding subparagraph 
(A) of subsection (c)(1) (including with respect 
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to the application of such subsection pursuant 
to subsection (c)(2)), and 
‘‘(B) any United States person who is re-
lated (within the meaning of section 267(b) or 
707(b)(1)) to a corporation or partnership de-
scribed in subparagraph (A). 
‘‘(4) ACQUISITION DATE.—The term ‘acquisi-
tion date’ means the date on which the acquisition 
described in paragraph (1) or (2) of subsection (c), 
as the case may be, is completed. 
‘‘(5) EXPANDED
AFFILIATED
GROUP.—The 
term ‘expanded affiliated group’ means an affiliated 
group as defined in section 1504(a) but without re-
gard to section 1504(b)(3), except that section 
1504(a) shall be applied by substituting ‘more than 
50 percent’ for ‘at least 80 percent’ each place it ap-
pears. 
‘‘(e) SPECIAL RULES.— 
‘‘(1) CREDITS NOT ALLOWED AGAINST TAX ON 
UNREPATRIATED
EARNINGS
AND
UNRECOGNIZED 
GAINS.—In the case of any expatriated entity and 
any United States shareholder of an applicable con-
trolled foreign corporation, credits (other than the 
credit allowed by section 901) shall be allowed 
against the tax imposed by chapter 1 on such entity 
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or corporation for any taxable year with respect to 
which any amount is included in income under sub-
section (a) only to the extent such tax exceeds the 
product of— 
‘‘(A) the amount so included in income, 
and 
‘‘(B) the highest rate of tax specified in 
section 11(b)(1). 
For purposes of determining the credit allowed by 
section 901, such income shall be treated as from 
sources within the United States. 
‘‘(2) COORDINATION
WITH
SECTION
172
AND 
MINIMUM TAX.—Rules similar to the rules of para-
graphs (3) and (4) of section 860E(a) shall apply 
for purposes of subsection (a). 
‘‘(f) SPECIAL RULE FOR TREATIES.—Nothing in sec-
tion 894 or 7852(d) or in any other provision of law shall 
be construed as permitting an exemption, by reason of any 
treaty obligation of the United States heretofore or here-
after entered into, from the provisions of this section. 
‘‘(g) REGULATIONS.—The Secretary shall provide 
such regulations as are necessary to carry out this section, 
including regulations providing for such adjustments to 
the application of this section as are necessary to prevent 
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the avoidance of the purposes of this section, including the 
avoidance of such purposes through— 
‘‘(1) the use of related persons, pass-through or 
other noncorporate entities, or other intermediaries, 
or 
‘‘(2) transactions designed to have persons 
cease to be (or not become) members of expanded 
affiliated groups or related persons.’’. 
(b) MODIFICATIONS TO RULES RELATING TO COR-
PORATE INVERSIONS COMPLETED ON OR BEFORE JANU-
ARY 4, 2017.— 
(1) IN
GENERAL.—Subsection (b) of section 
7874 of the Internal Revenue Code of 1986 is 
amended to read as follows: 
‘‘(b) INVERTED CORPORATIONS TREATED AS DO-
MESTIC CORPORATIONS.— 
‘‘(1) IN
GENERAL.—Notwithstanding section 
7701(a)(4), a foreign corporation shall be treated for 
purposes of this title as a domestic corporation if— 
‘‘(A) such corporation would be a surro-
gate foreign corporation if subsection (a)(2) 
were applied by substituting ‘80 percent’ for 
‘60 percent’, or 
‘‘(B) such corporation is an inverted do-
mestic corporation. 
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‘‘(2) INVERTED DOMESTIC CORPORATION.—For 
purposes of this subsection, a foreign corporation 
shall be treated as an inverted domestic corporation 
if, pursuant to a plan (or a series of related trans-
actions)— 
‘‘(A) the entity completes after May 8, 
2014, and on or before January 4, 2017, the 
direct or indirect acquisition of— 
‘‘(i) substantially all of the assets of a 
domestic corporation or domestic partner-
ship, 
‘‘(ii) substantially all of the trade or 
business assets of a domestic corporation 
or domestic partnership, or 
‘‘(iii) substantially all of the United 
States trade or business assets of a foreign 
partnership, and 
‘‘(B) after the acquisition, either— 
‘‘(i) more than 50 percent of the stock 
(by vote or value) of the entity is held— 
‘‘(I) in the case of an acquisition 
with respect to a domestic corpora-
tion, by former shareholders of the 
domestic corporation by reason of 
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holding stock in the domestic corpora-
tion, or 
‘‘(II) in the case of an acquisition 
with respect to a partnership, by 
former partners of the partnership by 
reason of holding a capital or profits 
interest in the partnership, or 
‘‘(ii) the management and control of 
the expanded affiliated group which in-
cludes the entity occurs, directly or indi-
rectly, primarily within the United States, 
and such expanded affiliated group has 
significant domestic business activities. 
‘‘(3) EXCEPTION
FOR
CORPORATIONS
WITH 
SUBSTANTIAL
BUSINESS
ACTIVITIES
IN
FOREIGN 
COUNTRY OF ORGANIZATION.—A foreign corporation 
described in paragraph (2) shall not be treated as an 
inverted domestic corporation if after the acquisition 
the expanded affiliated group which includes the en-
tity has substantial business activities in the foreign 
country in which or under the law of which the enti-
ty is created or organized when compared to the 
total business activities of such expanded affiliated 
group. For purposes of subsection (a)(2)(B)(iii) and 
the preceding sentence, the term ‘substantial busi-
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ness activities’ shall have the meaning given such 
term under regulations in effect on May 8, 2014, ex-
cept that the Secretary may issue regulations in-
creasing the threshold percent in any of the tests 
under such regulations for determining if business 
activities constitute substantial business activities for 
purposes of this paragraph. 
‘‘(4) MANAGEMENT AND CONTROL.—For pur-
poses of paragraph (2)(B)(ii)— 
‘‘(A) IN
GENERAL.—The Secretary shall 
prescribe regulations for purposes of deter-
mining cases in which the management and 
control of an expanded affiliated group is to be 
treated as occurring, directly or indirectly, pri-
marily within the United States. The regula-
tions prescribed under the preceding sentence 
shall apply to periods after May 8, 2014. 
‘‘(B) EXECUTIVE OFFICERS AND SENIOR 
MANAGEMENT.—Such regulations shall provide 
that the management and control of an ex-
panded affiliated group shall be treated as oc-
curring, directly or indirectly, primarily within 
the United States if substantially all of the ex-
ecutive officers and senior management of the 
expanded affiliated group who exercise day-to- 
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day responsibility for making decisions involving 
strategic, financial, and operational policies of 
the expanded affiliated group are based or pri-
marily located within the United States. Indi-
viduals who in fact exercise such day-to-day re-
sponsibilities shall be treated as executive offi-
cers and senior management regardless of their 
title. 
‘‘(5) SIGNIFICANT DOMESTIC BUSINESS ACTIVI-
TIES.—For purposes of paragraph (2)(B)(ii), an ex-
panded affiliated group has significant domestic 
business activities if at least 25 percent of— 
‘‘(A) the employees of the group are based 
in the United States, 
‘‘(B) the employee compensation incurred 
by the group is incurred with respect to employ-
ees based in the United States, 
‘‘(C) the assets of the group are located in 
the United States, or 
‘‘(D) the income of the group is derived in 
the United States, 
determined in the same manner as such determina-
tions are made for purposes of determining substan-
tial business activities under regulations referred to 
in paragraph (3) as in effect on May 8, 2014, but 
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applied by treating all references in such regulations 
to ‘foreign country’ and ‘relevant foreign country’ as 
references to ‘the United States’. The Secretary may 
issue regulations decreasing the threshold percent in 
any of the tests under such regulations for deter-
mining if business activities constitute significant 
domestic business activities for purposes of this 
paragraph.’’. 
(2) CONFORMING AMENDMENTS.— 
(A) Clause (i) of section 7874(a)(2)(B) of 
such Code is amended by striking ‘‘after March 
4, 2003,’’ and inserting ‘‘after March 4, 2003, 
and before May 9, 2014,’’. 
(B) Subsection (c) of section 7874 of such 
Code is amended— 
(i) in paragraph (2)— 
(I) 
by 
striking 
‘‘subsection 
(a)(2)(B)(ii)’’ and inserting ‘‘sub-
sections 
(a)(2)(B)(ii) 
and 
(b)(2)(B)(i)’’, and 
(II) by inserting ‘‘or (b)(2)(A)’’ 
after ‘‘(a)(2)(B)(i)’’ in subparagraph 
(B), 
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(ii) in paragraph (3), by inserting ‘‘or 
(b)(2)(B)(i), as the case may be,’’ after 
‘‘(a)(2)(B)(ii)’’, 
(iii) in paragraph (5), by striking 
‘‘subsection (a)(2)(B)(ii)’’ and inserting 
‘‘subsections 
(a)(2)(B)(ii) 
and 
(b)(2)(B)(i)’’, and 
(iv) in paragraph (6), by inserting ‘‘or 
inverted domestic corporation, as the case 
may be,’’ after ‘‘surrogate foreign corpora-
tion’’. 
(c) TECHNICAL
AND CONFORMING AMENDMENTS 
RELATED TO STOCK COMPENSATION OF INSIDERS IN EX-
PATRIATED CORPORATIONS.— 
(1) Section 4985(a)(1) of such Code is amended 
by striking ‘‘section 1(h)(1)(C)’’ and inserting ‘‘sec-
tion 1(h)(1)(D)’’. 
(2) Section 4985(c) of such Code is amended by 
inserting ‘‘or section 7874A(c)(1) (without regard to 
subparagraph 
(C) 
thereof)’’ 
after 
‘‘section 
7874(a)(2)(B)(i)’’. 
(3) Section 4985(e)(2)(A) of such Code is 
amended by inserting ‘‘or section 7874A(d)(3)’’ 
after ‘‘section 7874(a)(2)’’. 
(d) CLERICAL AMENDMENTS.— 
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(1) The heading for section 7874 of such Code 
is amended by striking ‘‘EXPATRIATED ENTITIES 
AND THEIR FOREIGN PARENTS’’ and inserting 
‘‘CORPORATE INVERSIONS COMPLETED ON OR 
BEFORE JANUARY 4, 2017’’. 
(2) The table of sections for subchapter C of 
chapter 80 of such Code is amended by striking the 
item relating to section 7874 and inserting the fol-
lowing new items: 
‘‘Sec. 7874. Rules relating to corporate inversions completed on or before Janu-
ary 4, 2017. 
‘‘Sec. 7874A. Rules relating to corporate inversions and corporate expatria-
tions.’’. 
(e) EFFECTIVE DATE.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section 
shall apply taxable years ending after January 4, 
2017. 
(2) MODIFICATIONS
TO
RULES
RELATING
TO 
CORPORATE
INVERSIONS
COMPLETED
ON
OR
BE-
FORE JANUARY 4, 2017.—The amendments made by 
subsection (b) shall apply to taxable years ending 
after May 8, 2014. 
Æ 
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