Senators Propose Bill to End Tax Breaks for Large Corporate Mergers

The measure, titled the Stop Subsidizing Giant Mergers Act (S. 4185), would modify existing tax rules that currently allow certain corporate deals to proceed without immediate tax consequences. The legislation focuses on limiting “nonrecognition” provisions that let companies defer taxes on gains realized during mergers and asset transfers.

Under the bill, tax-free treatment would be denied for mergers or acquisitions involving corporations whose combined average annual gross receipts exceed $500 million over the previous three years. According to Reuters, this would apply to transactions involving stock or asset acquisitions that currently qualify as tax-free reorganizations under Internal Revenue Code Section 368.

The proposal would also amend Section 351, which generally allows companies to transfer property in exchange for stock without recognizing gains or losses. Per Reuters, the new rules would block that benefit when multiple corporate entities involved in a transfer collectively exceed the same $500 million revenue threshold.

However, the legislation includes carve-outs designed to protect smaller businesses and routine internal restructurings. According to Reuters, exceptions would apply when companies are already under common control before and after a transaction or when one of the parties meets existing small-business revenue criteria.

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If enacted, the changes would take effect for transactions occurring after 2026, with the revenue threshold adjusted for inflation. The Treasury Department would also gain authority to issue rules preventing companies from sidestepping the limits by breaking deals into smaller, related transactions, per Reuters.

Current tax law allows corporations to structure mergers in ways that defer taxes on appreciated assets. According to Reuters, these provisions mean gains tied to stock or asset appreciation are not taxed at the time of the deal. While taxes may eventually be owed, lawmakers argue that in practice they can often be avoided indefinitely.

Data cited by the senators suggests that tax-free structures are widely used in major corporate deals. As much as 40% of the total value of U.S. mergers between 2007 and 2021 was arranged to qualify for tax-free treatment. In 2021 alone, more than half of mergers valued above $1 billion used such structures.

Whitehouse and Hawley framed the legislation as part of a broader effort to address the economic effects of corporate consolidation. Whitehouse said that families facing higher prices due to large mergers should not also be subsidizing those deals through the tax system. Hawley added that Congress should act to ensure large corporations “pay their own way.”

The lawmakers also pointed to a rise in large merger activity reported to federal antitrust regulators and cited research linking consolidation to higher consumer prices, lower wages and reduced competition. According to Reuters, they referenced findings that corporate concentration may cost the average U.S. household thousands of dollars annually in lost purchasing power.

Whitehouse previously introduced a similar version of the legislation in 2024 alongside then-Senator J.D. Vance.

Source: Thomson Reuters