Federal spending ban targets companies that fled U.S. tax code

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 administration, with 14-day congressional notification required.

Why we flagged it

The bill's core mechanism is a procurement eligibility filter targeting inverted corporations—companies that have reincorporated abroad to reduce U.S. tax liability. It is a direct accountability measure against corporate tax avoidance using federal spending as leverage.

What the text implies

• The bill's 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 as tax law evolves.
• The 25% threshold for 'significant domestic business activities' (employees, compensation, assets, or income in the U.S.) may allow some inverted firms with minimal U.S. presence to still qualify for contracts if they meet the 'substantial business activities' exception.
• Subcontractor restrictions apply only to first-tier subcontracts >10% of prime contract value, creating potential for structuring workarounds through multiple lower-tier subcontractors below the 10% threshold.
• Waiver authority is broad and discretionary; agency heads may waive the ban for 'efficient or effective administration' of health programs, potentially creating a loophole for healthcare-related contracts.
• The bill applies only to contracts subject to the Federal Acquisition Regulation (FAR), excluding certain procurement categories and potentially leaving gaps in coverage.

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 relocated their tax domicile offshore to avoid U.S. taxes, redirecting taxpayer money away from tax-avoidance structures. Citizens benefit by reducing indirect subsidies to corporate tax evasion and preserving federal procurement dollars for companies maintaining U.S. tax residency.

Who stands to gain

• U.S.-domiciled corporations (relative competitive advantage in federal procurement)
• Domestic-focused contractors and subcontractors

Named in the bill

Secretary of the Treasury, Executive agencies (civilian procurement), Department of Defense (defense procurement), Federal Acquisition Regulation (FAR), Internal Revenue Code Section 7874, Homeland Security Act Section 835(c)

Where it stands

4 cosponsors: 3 Democrats, 1 Independents.

• Feb 9, 2026 — Introduced · Congress.gov: “Introduced in Senate”
• Feb 9, 2026 — Referred to Senate Committee on Homeland Security and Governmental Affairs · Congress.gov: “Read twice and referred to the Committee on Homeland Security and Governmental Affairs. (text: CR S535-537)”

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