Internal Revenue Code · 26 U.S.C.
§ 7874. Rules relating to expatriated entities and their foreign parents
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 7874
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- October 22, 2004 by Pub. L. 108–357
- Last amended
- December 22, 2017 by Pub. L. 115–97
- Amendments
- 2 dated changes in the source credit
- Length
- 7 subsections · 1,548 words · about 7 min to read
- Defines
- 6 terms
- Cross-references
- cites 10; cited by 5 Code sections and 12 other regulations
- Regulations
- 12 issued under this section
The taxable income of an expatriated entity for any taxable year which includes any portion of the applicable period shall in no event be less than the inversion gain of the entity for the taxable year.
Notwithstanding section 7701(a)(4), a foreign corporation shall be treated for purposes of this title as a domestic corporation if such corporation would be a surrogate foreign corporation if subsection (a)(2) were applied by substituting “80 percent” for “60 percent”.
The term “expanded affiliated group” means an affiliated group as defined in section 1504(a) but without regard 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 appears.
If a foreign corporation acquires directly or indirectly substantially all of the properties of a domestic corporation or partnership during the 4-year period beginning on the date which is 2 years before the ownership requirements of subsection (a)(2)(B)(ii) are met, such actions shall be treated as pursuant to a plan.
The transfer of properties or liabilities (including by contribution or distribution) shall be disregarded if such transfers are part of a plan a principal purpose of which is to avoid the purposes of this section.
For purposes of applying subsection (a)(2)(B)(ii) to the acquisition of a trade or business of a domestic partnership, except as provided in regulations, all partnerships which are under common control (within the meaning of section 482) shall be treated as 1 partnership.
Rules similar to the rules of paragraphs (3) and (4) of section 860E(a) shall apply for purposes of subsection (a).
The statutory period for the assessment of any deficiency attributable 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 Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of the acquisition 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 otherwise prevent such assessment.
Nothing in section 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 hereafter entered into, from the provisions of this section.
(Added Pub. L. 108–357, title VIII, § 801(a), Oct. 22, 2004, 118 Stat. 1562; amended Pub. L. 109–135, title IV, § 403(u), Dec. 21, 2005, 119 Stat. 2628; Pub. L. 115–97, title I, § 13001(b)(1)(C), Dec. 22, 2017, 131 Stat. 2096.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 7874
- § 1.7874-1 Disregard of affiliate-owned stock.
- § 1.7874-2 Surrogate foreign corporation.
- § 1.7874-3 Substantial business activities.
- § 1.7874-4 Disregard of certain stock related to the domestic entity acquisition.
- § 1.7874-5 Effect of certain transfers of stock related to the acquisition.
- § 1.7874-6 Stock transferred by members of the EAG.
- § 1.7874-7 Disregard of certain stock attributable to passive assets.
- § 1.7874-8 Disregard of certain stock attributable to serial acquisitions.
- § 1.7874-9 Disregard of certain stock in third-country transactions.
- § 1.7874-10 Disregard of certain distributions.
- § 1.7874-11 Rules regarding inversion gain.
- § 1.7874-12 Definitions.
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 10 other sections
- § 267(b) Losses, expenses, and interest with respect to transactions between related taxpayers
- § 7701(a)(4) Definitions
- § 1504(a) Definitions
- § 482 Allocation of income and deductions among taxpayers
- § 1221(a)(1) Capital asset defined
- § 901 Taxes of foreign countries and of possessions of United States
- § 11(b) Tax imposed
- § 172 Net operating loss deduction
- § 860E(a) Treatment of income in excess of daily accruals on residual interests
- § 894 Income affected by treaty
Cited by 5 Code sections
- § 1(h)(11)(C)(iii)(II) Tax imposed
- § 59A(d)(4)(C)(i) Tax on base erosion payments of taxpayers with substantial gross receipts
- § 965(l)(2) Treatment of deferred foreign income upon transition to participation exemption system of taxation
- § 4501(d)(3)(B) Repurchase of corporate stock
- § 4985(c) Stock compensation of insiders in expatriated corporations
Cited in 12 regulations not issued under it
- § 1.367(a)-3 Treatment of transfers of stock or securities to foreign corporations.
- § 1.367(a)-7 Outbound transfers of property described in section 361(a) or (b).
- § 1.367(a)-8 Gain recognition agreement requirements.
- § 1.367(b)-4 Acquisition of foreign corporate stock or assets by a foreign corporation in certain nonrecognition transactions.
- § 1.965-3 Section 965(c) deductions.
- § 1.1248(f)-2 Exceptions for certain distributions and attribution rules.
- § 1.1502-77 Agent for the group.
- § 1.1502-77B Agent for the group applicable for consolidated return years beginning on or after June 28, 2002, and before April 1, 2015.
- § 1.6038A-2 Requirement of return.
- § 58.4501-0 Table of contents.
- § 58.4501-5 Examples.
- § 58.4501-7 Special rules for acquisitions or repurchases of stock of certain foreign corporations.
Amendment history
From the source credit and the official notes, newest first.
Where it sits in the Code
- Subtitle F Procedure and Administration
- Chapter 80 GENERAL RULES
- Subchapter C Provisions Affecting More Than One Subtitle
Nearby sections
- § 7871 Indian tribal governments treated as States for certain purposes
- § 7872 Treatment of loans with below-market interest rates
- § 7873 Income derived by Indians from exercise of fishing rights
- § 7874 Rules relating to expatriated entities and their foreign parents
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2017—Subsec. (e)(1)(B). Pub. L. 115–97 substituted “section 11(b)” for “section 11(b)(1)”.
2005—Subsec. (a)(3). Pub. L. 109–135 reenacted heading without change and amended text generally. Prior to amendment, text read as follows: “Paragraph (1) shall not apply to any entity which is treated as a domestic corporation under subsection (b).”
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 13001(c)(1) of Pub. L. 115–97, set out as a note under section 11 of this title.
Effective Date of 2005 Amendment
Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.
Effective Date
Pub. L. 108–357, title VIII, § 801(c), Oct. 22, 2004, 118 Stat. 1566, provided that: “The amendments made by this section [enacting this section] shall apply to taxable years ending after March 4, 2003.”