S. 4185 — Stop Subsidizing Giant Mergers Act

This section precludes tax-free treatment under IRC §368(a)(1)(A)–(D) (acquisitive reorganizations, i.e., statutory mergers, stock-for-stock acquisitions, assets-for-stock acquisitions, and certain transfers of assets) and IRC §351 (transfers to controlled corporations) for transactions involving large corporations. (1) Acquisitive reorganizations are ineligible if they constitute (or are treated as) an acquisition of stock or assets, are not excepted, and the acquiring and acquired corporations have combined average annual gross receipts exceeding $500 million for the prior three taxable years (with aggregation rules similar to IRC §448(c)(2)–(3), except that §448(c)(2) generally does not apply to the acquired corporation). Exceptions apply if (a) one corporation controls the other before (and if applicable, after) the transaction, (b) a third corporation controls both before (and if applicable, after), or (c) either meets the gross receipts test of IRC §448(c) (i.e., average annual gross receipts generally not exceeding approximately $30 million, inflation-adjusted). The $500 million threshold is adjusted for inflation after 2026 (using cost-of-living adjustment under IRC §1(f)(3), base year 2025, rounded to nearest $1 million). (2) Section 351 transfers by two or more corporate transferors to a single corporation are ineligible if the transferors have combined average annual gross receipts exceeding $500 million for the prior three taxable years (with aggregation rules similar to IRC §448(c)(2)–(3)). Exceptions apply if (a) the transferors control the transferee before the transfer, (b) another corporation controls all transferors and the transferee before the transfer, or (c) all transferors meet the IRC §448(c) gross receipts test. The $500 million threshold is adjusted for inflation after 2026 as described above. The Secretary may issue regulations to prevent abuse (e.g., step transactions) and for consistent nonapplication. The amendments apply to transfers after the date of enactment. (Thus, large corporations generally cannot use these provisions for tax-free combinations with unrelated large entities, absent an exception.)