I
107TH CONGRESS
2D SESSION
H. R. 3884
To amend the Internal Revenue Code of 1986 to prevent corporations from
avoiding the United States income tax by reincorporating in a foreign country.
IN THE HOUSE OF REPRESENTATIVES
MARCH 6, 2002
Mr. NEAL of Massachusetts (for himself, Mr. MALONEY of Connecticut, Mr.
FRANK, Mr. DEFAZIO, Mr. CONYERS, Mr. OLVER, Mr. GEORGE MILLER
of California, Mr. TIERNEY, Mr. MCGOVERN, Mr. MARKEY, Mr. LYNCH,
Mr. ISRAEL, Mr. BROWN of Ohio, Mr. DUNCAN, Mr. CAPUANO, Mr.
LAMPSON, Mr. MEEHAN, Mr. DELAHUNT, and Mr. TOWNS) introduced
the following bill; which was referred to the Committee on Means
A BILL
To amend the Internal Revenue Code of 1986 to prevent
corporations from avoiding the United States income tax
by reincorporating in a foreign country.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Corporate Patriot En-
forcement 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 ap-
plied to a corporation or partnership means cre-
ated 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 Sec-
retary provides otherwise by regulations.
‘‘(B) CERTAIN
CORPORATIONS
TREATED
AS DOMESTIC.—
‘‘(i) IN GENERAL.—The acquiring cor-
poration in a corporate expatriation trans-
action shall be treated as a domestic cor-
poration.
‘‘(ii) 
CORPORATE
EXPATRIATION
TRANSACTION.—For purposes of this sub-
paragraph, the term ‘corporate expatria-
tion transaction’ means any transaction
if—
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction,
directly or indirectly substantially all
of the properties held directly or indi-
rectly by a domestic corporation, and
‘‘(II) immediately after the trans-
action, more than 80 percent of the
stock (by vote or value) of the acquir-
ing corporation is held by former
shareholders of the domestic corpora-
tion by reason of holding stock in the
domestic corporation.
‘‘(iii) LOWER STOCK OWNERSHIP RE-
QUIREMENT
IN
CERTAIN
CASES.—Sub-
clause (II) of clause (ii) shall be applied by
substituting ‘50 percent’ for ‘80 percent’
with respect to any nominally foreign cor-
poration 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 corpora-
tion 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 trans-
action’ includes any transaction if—
‘‘(I) a nominally foreign corpora-
tion (referred to in this subparagraph
as the ‘acquiring corporation’) ac-
quires, as a result of such transaction,
directly or indirectly properties consti-
tuting a trade or business of a domes-
tic partnership,
‘‘(II) immediately after the trans-
action, more than 80 percent of the
stock (by vote or value) of the acquir-
ing 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 trans-
actions shall be treated as 1 trans-
action, and
‘‘(II) stock held by members of
the expanded affiliated group which
includes the acquiring corporation
shall not be taken into account in de-
termining ownership.
‘‘(vi) OTHER DEFINITIONS.—For pur-
poses of this subparagraph—
‘‘(I) NOMINALLY FOREIGN COR-
PORATION.—The term ‘nominally for-
eign corporation’ means any corpora-
tion which would (but for this sub-
paragraph) be treated as a foreign
corporation.
‘‘(II) 
EXPANDED
AFFILIATED
GROUP.—The term ‘expanded affili-
ated 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.
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