Sen. Dick Durbin, D-Illinois; Sen. Elizabeth Warren, D-Massachusetts; and Sen. Jack Reed, D-Rhode Island, sent Obama a letter Aug. 5 asking that he pass an executive order to eliminate or reduce the tax breaks companies see by undergoing an inversion, according to the St. Louis Post-Dispatch.

Corporate tax law allows inversions, but they have become highly controversial in the past several months. In an inversion, a U.S. multinational company acquires a smaller, foreign company and uses this event to "merge" with the company and re-domicile abroad. This enables the new company to pay a tax rate that is lower than the U.S. corporate income tax rate of 35 percent.

"Although we will continue to work toward a legislative solution to the problem, we urge you to use your authority to reduce or eliminate tax breaks associated with inversions," Durbin, Warren and Reed wrote to Obama, according to the news source. "Inverted corporations take advantage of all the things American tax dollars provide — from tax credits for research and development, investments in transportation infrastructure, and strong patent and copyright protections, to profiting from taxpayer-supported programs like Medicare and the Veterans Health Administration. Yet, these companies claim to be foreign corporations when it's time to pay their tax bill — denying the United States billions of dollars in tax revenue and thereby increasing the tax burden on other U.S. taxpayers."

There has been some serious debate regarding the legality of an executive order in this situation, The New York Times explained. In a controversial article written a few days after the president raised the issue of inversions, former Obama administration Treasury Department official Stephen Shay suggested that the Treasury secretary could use the power to determine whether a given financial instrument should be treated as debt or equity to remove incentives to re-domicile abroad.

As tax attorneys in the Metropolitan area, this isn't the first time James McDonough and I have written about tax inversions in the U.S. Here are just a few of our previous posts on the subject:

  • Inversions To Be An Election Hot-Button Issue
  • What Corporate Inversions Are Telling Us (And What Washington Refuses To Hear)
  • Treasury Secretary urges Congress to end inversions
  • New Congressional Report Highlights Tax Inversions
  • Medtronic the Latest Company to Propose Tax Inversion
  • Report Shows How Much Walgreens Stands To Gain with Inversion
  • Levin: Bill limiting corporate inversions later this week
  • Senators consider closing tax inversion loophole