Senators Sheldon Whitehouse (D-RI) and Josh Hawley (R-MO) introduced bipartisan legislation March 25 that would end tax-free treatment for many large corporate mergers and certain related transfers, targeting deals the lawmakers say help consolidate corporate power.
The legislation is titled the Stop Subsidizing Giant Mergers Act (S. 4185).
Bill Would Limit Nonrecognition for Large-Corporation Deals
The bill would amend two tax provisions to deny tax-free treatment to mergers and related transfers involving large corporations. Under the proposed amendment to IRC § 368, certain transactions would not qualify as tax-free reorganizations if they involve the acquisition of another corporation’s stock or assets and the combined average annual gross receipts of the acquiring and acquired corporations for the prior three tax years exceed $500 million.
It would amend IRC § 351 so that the general nonrecognition rule in § 351(a) would not apply to a transfer of property by two or more corporate transferors if their combined average annual gross receipts for the prior three tax years exceed $500 million.
The legislation carves out exceptions for internal restructurings and smaller businesses. The new limit would not apply when one corporation controls the other before and after the transaction, when another corporation controls both parties, or when either party meets the gross receipts test of IRC § 448(c)(1). The IRC § 351 amendment includes similar exceptions.
While the bill would apply to transfers after enactment, beginning after 2026, the $500 million threshold would be adjusted for inflation. Treasury would be authorized to issue regulations to prevent companies from circumventing the new rules through a series of related transactions carried out as parts of a unitary plan.
Current Law Allows Tax-Free Reorganizations
The bill targets rules that currently allow corporations to complete acquisitions without immediately recognizing gain on appreciated assets. Under IRC § 368, a reorganization includes statutory mergers or consolidations, some stock-for-stock acquisitions, acquisitions of substantially all of another corporation’s properties in exchange for voting stock, and some asset transfers. Under IRC § 351, no gain or loss is recognized when one or more persons transfer property to a corporation solely in exchange for stock if those transferors immediately control the corporation.
According to an accompanying press release, these rules allow large corporations to structure deals so that appreciation in the target firm’s stock or assets goes untaxed at the time of the transaction. While the tax is deferred rather than forgiven, “in practice the corporation and its shareholders may escape tax forever.”
That tax-free structure has become a common feature of the largest corporate deals. Between 2007 and 2021, up to 40% of the aggregate value of all U.S. mergers was structured on a tax-free basis, and in 2021, more than half of mergers valued at more than $1 billion were tax-free. Examples include Facebook’s $19 billion acquisition of WhatsApp, ExxonMobil’s $59.5 billion acquisition of Pioneer Natural Resources, and Capital One’s $35 billion acquisition of Discover.
Policy Rationale
Whitehouse and Hawley framed the bill as a response to consolidation’s effects on households and market competition, arguing that taxpayers should not be asked to subsidize the very deals that drive up prices. “Families who get stuck paying higher prices because of anti-competitive mega-mergers should not also have to subsidize them with their tax dollars,” Whitehouse said.
Hawley added that Congress should pass the bill “to protect families and make large companies pay their own way.”
The senators noted that the volume of large mergers reported to federal antitrust agencies has nearly doubled over the past decade. They also cited a 2020 American Economic Liberties Project report finding that corporate consolidation costs the average American household $5,000 a year in lost purchasing power, and linked concentration to higher consumer prices, lower wages, and reduced business dynamism.
Whitehouse first introduced a version of the bill in 2024 with then-Senator J.D. Vance.
For more on § 368 corporate reorganization, see Checkpoint’s Federal Tax Coordinator 2d ¶ F-2000. For § 351 transfers to controlled corporations, see 2d ¶ F-1000.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
