Politicians, regulators aim to stop inversions.

Just as the Treasury Department and the Internal Revenue Service issued guidance to curb corporate tax inversions late Monday, lawmakers said they would work to ensure legislation is passed to rein in such inversions.

Treasury and the IRS issued a joint notice, which they say takes “targeted action to reduce the tax benefits of — and when possible, stop — corporate tax inversions.”

Treasury Secretary Jacob J. Lew explained in a statement that “these first, targeted steps make substantial progress in constraining the creative techniques used to avoid U.S. taxes, both in terms of meaningfully reducing the economic benefits of inversions after the fact, and when possible, stopping them altogether.”

He continued: “While comprehensive business tax reform that includes specific anti-inversion provisions is the best way to address the recent surge of inversions, we cannot wait to address this problem.”

Treasury will review “a broad range of authorities for further anti-inversion measures as part of our continued work to close loopholes that allow some taxpayers to avoid paying their fair share,” Lew stressed. 

Specifically the Treasury and IRS Notice does the following, as explained in the Treasury fact sheet:

— Prevents inverted companies from accessing a foreign subsidiary’s earnings while deferring U.S. tax through the use of creative loans, which are known as “hopscotch” loans (Action under section 956(e) of the code);

— Discourages inverted companies from restructuring a foreign subsidiary in order to access the subsidiary’s earnings tax-free (Action under section 7701(l) of the tax code);

— Closes a loophole to prevent an inverted companies from transferring cash or property from a CFC to the new parent to completely avoid U.S. tax (Action under section 304(b)(5)(B) of the code); and

— Makes it more difficult for U.S. entities to invert by strengthening the requirement that the former owners of the U.S. entity own less than 80 percent of the new combined entity.

Lew said companies are “increasingly using the technique of inversion, whereby a U.S. based multinational restructures so that the U.S. parent is replaced by a foreign corporation, in order to avoid U.S. taxes. These transactions erode the U.S. tax base, unfairly placing a larger burden on all other taxpayers, including small businesses and hardworking Americans.”

He noted that President Obama laid out his framework for business tax reform more than two years ago. In addition, the Administration’s FY 2015 budget included a legislative plan to reduce the incentives to invert as well as make it more difficult to accomplish an inversion. Secretary Lew has been urging Congress to move forward with anti-inversion legislation, which is the only way to fully rein in these transactions. Senate Finance Committee Chairman Ron Wyden, D-Ore., and Ranking Member Orrin Hatch, R-Utah, issued statements after the new guidance was released.

Both Wyden and Hatch said they “remain steadfast in their commitment” to developing a prudent stop-gap measure that will garner support from both sides of the aisle and move through the Congress as soon as possible.

“Today’s action by the Treasury Department reinforces the urgency for action before this growing wave of inversions erodes our nation’s tax base. But only Congress has the full range of tools to address both the immediate problem and ensure U.S. businesses continue to be competitive in the global economy,” Wyden said in a statement. “This will require a series of stopgap reforms to the tax code that siphon the economic juice out of inversions, including limiting abusive interest stripping, preventing hopscotch loans to foreign parent companies, cracking down on decontrol transactions that shift U.S. companies’ income overseas, and relieving competitive pressures that drive these transactions.”

Such actions, Wyden continued “can and should be done consistent with comprehensive tax reform,” adding that “Congress should move a bipartisan bill in the lame duck session as an immediate action to address inversions, to create incentives so businesses will remain in or move to the U.S., and to use that legislation as a springboard to comprehensive tax reform.”

Senate Majority Leader Harry Reid, D-Nev., added that while the Treasury and IRS announcement “may not go as far as some would have liked, it is a thoughtful approach and an effective first step that establishes a platform for future Congressional action.”

Lew, Reid said, “has also indicated that further announcements will be forthcoming. We look forward to working with the Treasury on this and future announcements to address this important issue.”