212 
‘‘(B) after such acquisition if the transfer 
or license is to a foreign related person. 
Subparagraph (B) shall not apply to property de-
scribed in section 1221(a)(1) in the hands of the ex-
patriated entity. 
‘‘(3) FOREIGN
RELATED
PERSON.—The term 
‘foreign related person’ means, with respect to any 
expatriated entity, a foreign person which— 
‘‘(A) is related (within the meaning of sec-
tion 267(b) or 707(b)(1)) to such entity, or 
‘‘(B) is under the same common control 
(within the meaning of section 482) as such en-
tity. 
‘‘(d) SPECIAL RULES.— 
‘‘(1) CREDITS NOT ALLOWED AGAINST TAX ON 
INVERSION GAIN.—Credits (other than the credit al-
lowed by section 901) shall be allowed against the 
tax imposed by this chapter on an expatriated entity 
for any taxable year described in subsection (a) only 
to the extent such tax exceeds the product of— 
‘‘(A) the amount of the inversion gain for 
the taxable year, and 
‘‘(B) the highest rate of tax specified in 
section 11(b)(1).
213 
For purposes of determining the credit allowed by 
section 901, inversion gain shall be treated as from 
sources within the United States. 
‘‘(2) SPECIAL RULES FOR PARTNERSHIPS.—In 
the case of an expatriated entity which is a partner-
ship— 
‘‘(A) subsection (a)(1) shall apply at the 
partner rather than the partnership level, 
‘‘(B) the inversion gain of any partner for 
any taxable year shall be equal to the sum of— 
‘‘(i) the partner’s distributive share of 
inversion gain of the partnership for such 
taxable year, plus 
‘‘(ii) gain recognized for the taxable 
year by the partner by reason of the trans-
fer during the applicable period of any 
partnership interest of the partner in such 
partnership to the surrogate foreign cor-
poration, and 
‘‘(C) the highest rate of tax specified in 
the rate schedule applicable to the partner 
under this chapter shall be substituted for the 
rate of tax referred to in paragraph (1). 
‘‘(3) COORDINATION
WITH
SECTION
172
AND 
MINIMUM TAX.—Rules similar to the rules of para-
214 
graphs (3) and (4) of section 860E(a) shall apply 
for purposes of subsection (a). 
‘‘(4) STATUTE OF LIMITATIONS.— 
‘‘(A) IN GENERAL.—The statutory period 
for the assessment of any deficiency attrib-
utable to the inversion gain of any taxpayer for 
any pre-inversion year shall not expire before 
the expiration of 3 years from the date the Sec-
retary is notified by the taxpayer (in such man-
ner as the Secretary may prescribe) of the ac-
quisition described in subsection (a)(2)(B)(i) to 
which such gain relates and such deficiency 
may be assessed before the expiration of such 
3-year period notwithstanding the provisions of 
any other law or rule of law which would other-
wise prevent such assessment. 
‘‘(B) PRE-INVERSION YEAR.—For purposes 
of subparagraph (A), the term ‘pre-inversion 
year’ means any taxable year if— 
‘‘(i) any portion of the applicable pe-
riod is included in such taxable year, and 
‘‘(ii) such year ends before the taxable 
year in which the acquisition described in 
subsection (a)(2)(B)(i) is completed.
215 
‘‘(e) 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. 
‘‘(f) 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 
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) CONFORMING AMENDMENT.—The table of sec-
tions for subchapter C of chapter 80 is amended by adding 
at the end the following new item: 
‘‘Sec. 7874. Rules relating to expatriated entities and their for-
eign parents.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after 
March 4, 2003.
216 
SEC. 602. EXCISE TAX ON STOCK COMPENSATION OF INSID-
ERS IN EXPATRIATED CORPORATIONS. 
(a) IN GENERAL.—Subtitle D is amended by insert-
ing after chapter 44 end the following new chapter: 
‘‘CHAPTER 45—PROVISIONS RELATING TO 
EXPATRIATED ENTITIES 
‘‘Sec. 4985. Stock compensation of insiders in expatriated cor-
porations. 
‘‘SEC. 4985. STOCK COMPENSATION OF INSIDERS IN EXPA-
TRIATED CORPORATIONS. 
‘‘(a) IMPOSITION OF TAX.—In the case of an indi-
vidual who is a disqualified individual with respect to any 
expatriated corporation, there is hereby imposed on such 
person a tax equal to 15 percent of the value (determined 
under subsection (b)) of the specified stock compensation 
held (directly or indirectly) by or for the benefit of such 
individual or a member of such individual’s family (as de-
fined in section 267) at any time during the 12-month 
period beginning on the date which is 6 months before 
the expatriation date. 
‘‘(b) VALUE.—For purposes of subsection (a)— 
‘‘(1) IN GENERAL.—The value of specified stock 
compensation shall be— 
‘‘(A) in the case of a stock option (or other 
similar right) or a stock appreciation right, the 
fair value of such option or right, and
217 
‘‘(B) in any other case, the fair market 
value of such compensation. 
‘‘(2) DATE
FOR
DETERMINING
VALUE.—The 
determination of value shall be made— 
‘‘(A) in the case of specified stock com-
pensation held on the expatriation date, on such 
date, 
‘‘(B) in the case of such compensation 
which is canceled during the 6 months before 
the expatriation date, on the day before such 
cancellation, and 
‘‘(C) in the case of such compensation 
which is granted after the expatriation date, on 
the date such compensation is granted. 
‘‘(c) TAX TO APPLY ONLY IF SHAREHOLDER GAIN 
RECOGNIZED.—Subsection (a) shall apply to any disquali-
fied individual with respect to an expatriated corporation 
only if gain (if any) on any stock in such corporation is 
recognized in whole or part by any shareholder by reason 
of the acquisition referred to in section 7874(a)(2)(B)(i) 
with respect to such corporation. 
‘‘(d) EXCEPTION WHERE GAIN RECOGNIZED
ON 
COMPENSATION.—Subsection (a) shall not apply to— 
‘‘(1) any stock option which is exercised on the 
expatriation date or during the 6-month period be-
219 
‘‘(2) EXPATRIATED
CORPORATION; EXPATRIA-
TION DATE.— 
‘‘(A) EXPATRIATED
CORPORATION.—The 
term ‘expatriated corporation’ means any cor-
poration which is an expatriated entity (as de-
fined in section 7874(a)(2)). Such term in-
cludes any predecessor or successor of such a 
corporation. 
‘‘(B) EXPATRIATION DATE.—The term ‘ex-
patriation date’ means, with respect to a cor-
poration, the date on which the corporation 
first becomes an expatriated corporation. 
‘‘(3) SPECIFIED STOCK COMPENSATION.— 
‘‘(A) IN
GENERAL.—The term ‘specified 
stock compensation’ means payment (or right 
to payment) granted by the expatriated cor-
poration (or by any member of the expanded af-
filiated group which includes such corporation) 
to any person in connection with the perform-
ance of services by a disqualified individual for 
such corporation or member if the value of such 
payment or right is based on (or determined by 
reference to) the value (or change in value) of 
stock in such corporation (or any such mem-
ber).
220 
‘‘(B) EXCEPTIONS.—Such term shall not 
include— 
‘‘(i) any option to which part II of 
subchapter D of chapter 1 applies, or 
‘‘(ii) any payment or right to payment 
from a plan referred to in section 
280G(b)(6). 
‘‘(4) EXPANDED
AFFILIATED
GROUP.—The 
term ‘expanded affiliated group’ means an affiliated 
group (as defined in section 1504(a) without regard 
to section 1504(b)(3)); except that section 1504(a) 
shall be applied by substituting ‘more than 50 per-
cent’ for ‘at least 80 percent’ each place it appears. 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) CANCELLATION
OF
RESTRICTION.—The 
cancellation of a restriction which by its terms will 
never lapse shall be treated as a grant. 
‘‘(2) PAYMENT OR REIMBURSEMENT OF TAX BY 
CORPORATION TREATED AS SPECIFIED STOCK COM-
PENSATION.—Any payment of the tax imposed by 
this section directly or indirectly by the expatriated 
corporation or by any member of the expanded affili-
ated group which includes such corporation—
221 
‘‘(A) shall be treated as specified stock 
compensation, and 
‘‘(B) shall not be allowed as a deduction 
under any provision of chapter 1. 
‘‘(3) 
CERTAIN
RESTRICTIONS
IGNORED.— 
Whether there is specified stock compensation, and 
the value thereof, shall be determined without regard 
to any restriction other than a restriction which by 
its terms will never lapse. 
‘‘(4) PROPERTY TRANSFERS.—Any transfer of 
property shall be treated as a payment and any right 
to a transfer of property shall be treated as a right 
to a payment. 
‘‘(5) OTHER
ADMINISTRATIVE
PROVISIONS.— 
For purposes of subtitle F, any tax imposed by this 
section shall be treated as a tax imposed by subtitle 
A. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary or appropriate to 
carry out the purposes of this section.’’. 
(b) DENIAL OF DEDUCTION.— 
(1) IN
GENERAL.—Paragraph (6) of section 
275(a) is amended by inserting ‘‘45,’’ before ‘‘46,’’. 
(2) $1,000,000 LIMIT
ON
DEDUCTIBLE
COM-
PENSATION REDUCED BY PAYMENT OF EXCISE TAX
222 
ON SPECIFIED STOCK COMPENSATION.—Paragraph 
(4) of section 162(m) is amended by adding at the 
end the following new subparagraph: 
‘‘(G) COORDINATION WITH EXCISE TAX ON 
SPECIFIED STOCK COMPENSATION.—The dollar 
limitation contained in paragraph (1) with re-
spect to any covered employee shall be reduced 
(but not below zero) by the amount of any pay-
ment (with respect to such employee) of the tax 
imposed by section 4985 directly or indirectly 
by the expatriated corporation (as defined in 
such section) or by any member of the ex-
panded affiliated group (as defined in such sec-
tion) which includes such corporation.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) The last sentence of section 3121(v)(2)(A) 
is amended by inserting before the period ‘‘or to any 
specified stock compensation (as defined in section 
4985) on which tax is imposed by section 4985’’. 
(2) The table of chapters for subtitle D is 
amended by inserting after the item relating to 
chapter 44 the following new item: 
‘‘Chapter 45. Provisions relating to expatriated entities.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on March 4, 2003; except that 
periods before such date shall not be taken into account
223 
in applying the periods in subsections (a) and (e)(1) of 
section 4985 of the Internal Revenue Code of 1986, as 
added by this section. 
SEC. 603. REINSURANCE OF UNITED STATES RISKS IN FOR-
EIGN JURISDICTIONS. 
(a) IN GENERAL.—Section 845(a) (relating to alloca-
tion in case of reinsurance agreement involving tax avoid-
ance or evasion) is amended by striking ‘‘source and char-
acter’’ and inserting ‘‘amount, source, or character’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to any risk reinsured after the date 
of the enactment of this Act. 
SEC. 604. REVISION OF TAX RULES ON EXPATRIATION OF 
INDIVIDUALS. 
(a) EXPATRIATION TO AVOID TAX.— 
(1) IN
GENERAL.—Subsection (a) of section 
877 (relating to treatment of expatriates) is amend-
ed to read as follows: 
‘‘(a) TREATMENT OF EXPATRIATES.— 
‘‘(1) IN GENERAL.—Every nonresident alien in-
dividual to whom this section applies and who, with-
in the 10-year period immediately preceding the 
close of the taxable year, lost United States citizen-
ship shall be taxable for such taxable year in the 
manner provided in subsection (b) if the tax imposed
224 
pursuant to such subsection (after any reduction in 
such tax under the last sentence of such subsection) 
exceeds the tax which, without regard to this section, 
is imposed pursuant to section 871. 
‘‘(2) INDIVIDUALS
SUBJECT
TO
THIS
SEC-
TION.—This section shall apply to any individual 
if— 
‘‘(A) the average annual net income tax 
(as defined in section 38(c)(1)) of such indi-
vidual for the period of 5 taxable years ending 
before the date of the loss of United States citi-
zenship is greater than $124,000, 
‘‘(B) the net worth of the individual as of 
such date is $2,000,000 or more, or 
‘‘(C) such individual fails to certify under 
penalty of perjury that he has met the require-
ments of this title for the 5 preceding taxable 
years or fails to submit such evidence of such 
compliance as the Secretary may require. 
In the case of the loss of United States citizenship 
in any calendar year after 2004, such $124,000 
amount shall be increased by an amount equal to 
such dollar amount multiplied by the cost-of-living 
adjustment determined under section 1(f)(3) for 
such calendar year by substituting ‘2003’ for ‘1992’
225 
in subparagraph (B) thereof. Any increase under the 
preceding sentence shall be rounded to the nearest 
multiple of $1,000.’’. 
(2) REVISION
OF
EXCEPTIONS
FROM
ALTER-
NATIVE TAX.—Subsection (c) of section 877 (relat-
ing to tax avoidance not presumed in certain cases) 
is amended to read as follows: 
‘‘(c) EXCEPTIONS.— 
‘‘(1) IN
GENERAL.—Subparagraphs (A) and 
(B) of subsection (a)(2) shall not apply to an indi-
vidual described in paragraph (2) or (3). 
‘‘(2) DUAL CITIZENS.— 
‘‘(A) IN GENERAL.—An individual is de-
scribed in this paragraph if— 
‘‘(i) the individual became at birth a 
citizen of the United States and a citizen 
of another country and continues to be a 
citizen of such other country, and 
‘‘(ii) the individual has had no sub-
stantial contacts with the United States. 
‘‘(B) SUBSTANTIAL CONTACTS.—An indi-
vidual shall be treated as having no substantial 
contacts with the United States only if the indi-
vidual—
226 
‘‘(i) was never a resident of the 
United States (as defined in section 
7701(b)), 
‘‘(ii) has never held a United States 
passport, and 
‘‘(iii) was not present in the United 
States for more than 30 days during any 
calendar year which is 1 of the 10 calendar 
years preceding the individual’s loss of 
United States citizenship. 
‘‘(3) CERTAIN MINORS.—An individual is de-
scribed in this paragraph if— 
‘‘(A) the individual became at birth a cit-
izen of the United States, 
‘‘(B) neither parent of such individual was 
a citizen of the United States at the time of 
such birth, 
‘‘(C) the individual’s loss of United States 
citizenship occurs before such individual attains 
age 181⁄2, and 
‘‘(D) the individual was not present in the 
United States for more than 30 days during 
any calendar year which is 1 of the 10 calendar 
years preceding the individual’s loss of United 
States citizenship.’’.
227 
(3) 
CONFORMING
AMENDMENT.—Section 
2107(a) is amended to read as follows: 
‘‘(a) TREATMENT OF EXPATRIATES.—A tax com-
puted in accordance with the table contained in section 
2001 is hereby imposed on the transfer of the taxable es-
tate, determined as provided in section 2106, of every de-
cedent nonresident not a citizen of the United States if 
the date of death occurs during a taxable year with respect 
to which the decedent is subject to tax under section 
877(b).’’. 
(b) SPECIAL RULES FOR DETERMINING WHEN AN 
INDIVIDUAL IS NO LONGER A UNITED STATES CITIZEN 
OR LONG-TERM RESIDENT.—Section 7701 (relating to 
definitions) is amended by redesignating subsection (n) as 
subsection (o) and by inserting after subsection (m) the 
following new subsection: 
‘‘(n) SPECIAL RULES FOR DETERMINING WHEN AN 
INDIVIDUAL IS NO LONGER A UNITED STATES CITIZEN 
OR LONG-TERM RESIDENT.—An individual who would 
(but for this subsection) cease to be treated as a citizen 
or resident of the United States shall continue to be treat-
ed as a citizen or resident of the United States, as the 
case may be, until such individual— 
‘‘(1) gives notice of an expatriating act or ter-
mination of residency (with the requisite intent to
228 
relinquish citizenship or terminate residency) to the 
Secretary of State or the Secretary of Homeland Se-
curity, and 
‘‘(2) provides a statement in accordance with 
section 6039G.’’. 
(c) PHYSICAL PRESENCE IN THE UNITED STATES 
FOR MORE THAN 30 DAYS.—Section 877 (relating to ex-
patriation to avoid tax) is amended by adding at the end 
the following new subsection: 
‘‘(g) PHYSICAL PRESENCE.— 
‘‘(1) IN GENERAL.—This section shall not apply 
to any individual to whom this section would other-
wise apply for any taxable year during the 10-year 
period referred to in subsection (a) in which such in-
dividual is physically present in the United States at 
any time on more than 30 days in the calendar year 
ending in such taxable year, and such individual 
shall be treated for purposes of this title as a citizen 
or resident of the United States, as the case may be, 
for such taxable year. 
‘‘(2) EXCEPTION.— 
‘‘(A) IN GENERAL.—In the case of an indi-
vidual described in any of the following sub-
paragraphs of this paragraph, a day of physical 
presence in the United States shall be dis-
229 
regarded if the individual is performing services 
in the United States on such day for an em-
ployer. The preceding sentence shall not apply 
if— 
‘‘(i) such employer is related (within 
the meaning of section 267 and 707) to 
such individual, or 
‘‘(ii) such employer fails to meet such 
requirements as the Secretary may pre-
scribe by regulations to prevent the avoid-
ance of the purposes of this paragraph. 
Not more than 30 days during any calendar 
year may be disregarded under this subpara-
graph. 
‘‘(B) INDIVIDUALS WITH TIES TO OTHER 
COUNTRIES.—An individual is described in this 
subparagraph if— 
‘‘(i) the individual becomes (not later 
than the close of a reasonable period after 
loss of United States citizenship or termi-
nation of residency) a citizen or resident of 
the country in which— 
‘‘(I) such individual was born,