IRS Issues Tough New Anti-Inversion Regulations

The U.S. Treasury Department and the Internal Revenue Service (IRS) recently took a major step forward in their fight against inversion transactions by releasing an extensive package of new temporary regulations under section 7874 of the Internal Revenue Code. The new rules will affect pending deals, including ones already announced, and limit how new ones may be structured. The new rules generally incorporate previous guidance from Notice 2014-52 (2014 Notice) and Notice 2015-79 (2015 Notice) and add a new restriction on multiple inversions over a short time period.

The new rules take a considerably more aggressive approach to limiting inversions than previous guidance, presumably due to pressure from Congress and the Obama Administration to stop U.S. businesses from relocating offshore in an effort to pay less U.S. tax. There is some question, however, whether the new provisions are outside the Treasury Department's authority.