Federal contracts now off-limits to tax-dodging inverted corporations

What it does

This bill prohibits the federal government from awarding contracts to companies that have inverted their tax domicile—i.e., foreign-incorporated entities that acquired a U.S. company or business after May 2014 and are still substantially owned by the former U.S. shareholders. The ban applies to both civilian and defense contracts over $10 million, and extends to subcontractors. Companies with substantial business operations in their foreign country of incorporation are exempt. Agency heads may waive the ban for national security or health program reasons, with 14-day congressional notification required.

Why we flagged it

The bill's operative mechanism is a procurement ban targeting inverted corporations—entities that have reincorporated abroad to reduce U.S. tax liability. It is a straightforward policy tool to align federal spending with domestic tax compliance, not a subsidy, immunity grant, or hidden carve-out.

What the text implies

• The definition of 'inverted domestic corporation' relies on Treasury regulations under IRC §7874 as of January 18, 2017, freezing the standard at a specific date and potentially creating a moving target if Treasury updates those regulations for other purposes.
• The 25% threshold for 'significant domestic business activities' (employees, compensation, assets, or income based in the U.S.) may allow some inverted corporations with minimal U.S. presence to still qualify for the exception, limiting the bill's practical reach.
• Waiver authority is broad and discretionary; agency heads may waive the ban for 'efficient or effective administration' of health programs, creating potential loopholes for large healthcare contractors.
• The bill applies only to contracts subject to the Federal Acquisition Regulation (FAR), potentially excluding certain specialized procurement regimes or emergency contracting that falls outside FAR scope.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

The bill restricts federal spending to companies that have not inverted their tax domicile, directing taxpayer dollars toward firms that remain U.S.-incorporated and subject to full U.S. tax obligations. This protects the federal fisc and ensures procurement dollars support the domestic tax base rather than entities that have relocated incorporation to avoid U.S. taxation.

Who stands to gain

• U.S.-incorporated defense contractors and suppliers
• U.S.-domiciled civilian government contractors
• Domestic firms competing for federal procurement in sectors where inverted corporations previously h

Named in the bill

Department of Defense, Executive agencies (civilian procurement), Secretary of the Treasury, Inverted domestic corporations (foreign-incorporated entities), Federal Acquisition Regulation (FAR), Internal Revenue Code Section 7874, Homeland Security Act Section 835(c)

Where it stands

• Feb 9, 2026 — Introduced · Congress.gov: “Introduced in House”
• Feb 9, 2026 — Referred to House Committee on Armed Services and House Committee on Oversight and Government Reform · Congress.gov: “Referred to the Committee on Oversight and Government Reform, and in addition to the Committee on Armed…”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.