The word inversion brings about many definitions but, when applied to the corporate world it is defined as the re-incorporation of a domestic company to a foreign country in order to reduce the organization’s United States (U.S.) tax burden. Corporate inversion is not illegal, however, some consider this strategy as a “positively un-American tax dodge” (Sloan, 2014). Inversions were extremely prevalent in the 1990s and have been on the increase in recent years. Naturally, making news headlines, as well as, drawn considerable attention from congress through the years inciting legislative changes within the U.S. tax code. In an article deliberating on corporate tax inversions in The Tax Magazine, the author Darren Mills delves into the U.S. …show more content…
This regulation further address two loop holes in which corporate inversions were still being successful in reducing U.S. tax burdens. First, corporations initiating actions to circumvent either the 60% or 80% test described above, and the second addressing transactions after inversion that avoid earnings and profit taxation (Mills, 2015). In the first loop hole, one of the strategies would be for the foreign corporation acquiring the domestic corporation would then increase its value through the accumulation of passive assets such as, cash and investments. This would result in a lower percentage circumventing the 60% or 80% test. Notice 2014-52 excludes portions of the stock of the CFC which is attributable to the passive assets. Through the second loop hole, the foreign corporation controlled by the original domestic corporation owners loaned money “hopscotch loan” to the new foreign corporation, thus, the post inversion status would avoid what would otherwise pre-inversion be taxable income (Mills, 2015). Notice 2014-52 deems the hopscotch loan as investments in U.S.