IRS Chief: U.S. Can't End Corporate inversions

In the wake of a spate of corporate inversions over the last two years, regulators are considering ways to curb the use of this tax strategy, under which corporations move overseas to enjoy lower income tax rates. On April 30, a U.S. Treasury official told Reuters that the Obama administration is focused on ways to curb tax-motivated inversions.

“Cracking down on companies that reincorporate overseas to reduce their U.S. taxes is a priority for the administration,” the official told the news source in an emailed statement. “Inversion transactions illustrate the need for comprehensive business tax reform that would lower corporate tax rates and limit the ability of multinationals to shift income outside the U.S.”

This focus comes on the heels of two companies’ announcements that they were pursuing inversions with overseas rivals, including Pfizer and Omnicom Group Inc., the largest U.S. advertising company, Reuters explained. The IRS issued a notice April 25 limiting shareholders’ tax free treatment in these deals.

Despite this focus, IRS commissioner John Koskinen announced April 30 that the government probably can’t take regulatory action to stop companies from undergoing inversions, according to Bloomberg.

“We’ve done, I think, probably all we can within the statute,” Koskinen, 74, told reporters in Washington, the news source reported. “We try to make sure people are within the bounds, but if they’re within the bounds, if they play according to the rules, then they have a right to do that.”

Koskinen’s announcement demonstrates the limits of the Obama administration’s ability to effect tax reform without Congress, which remains deadlocked on tax issues, Bloomberg explained. In response to the recent string of inversions, U.S. lawmakers have spoken about the importance of making broad changes to the tax code, but these are likely to be months or years away from reality.