American manufacturer Ingersoll-Rand Co. forged the tools thatcarved the Panama Canal and shaped Mount Rushmore. When it shiftedits legal address to Bermuda in 2001 to reduce taxes, the maneuversparked bipartisan outrage in Congress.

“These corporations have turned their back on their country,”Nevada Democrat Harry Reid fumed from the Senate floor, adding thathis father, a hard-rock miner, had wielded an Ingersoll-Randjackhammer. “There is no reason the U.S. government should rewardtax runaways with lucrative government contracts.”

Over the next dozen years, Congress passed law after law toprohibit American companies that reincorporate overseas from doingbusiness with the federal government.

Those laws haven't worked. Benefiting from loopholes and acooperative Obama administration, the companies avoid the ban onfederal contracts as effectively as they avoid U.S. taxes.

Ingersoll-Rand continues to score federal work worth hundreds ofmillions of dollars, touting projects for the Army and Navy insales brochures. The company's strategies have even included tryingto piggyback on the eligibility of other companies, according totwo former Ingersoll-Rand employees.

Ingersoll-Rand is one of more than a dozen large U.S. companiesthat have shifted their tax addresses offshore yet still earnfederal business, a Bloomberg News investigation has found. In all,these companies are collecting more than $1 billion a year from thegovernment, even as their tax-avoidance techniques have deprivedthe Treasury of untold billions of dollars in revenue.

Regulators rely on the companies to police themselves forcompliance with the prohibition. At least three companies — XomaCorp., Cooper Industries Plc and Foster Wheeler AG — haveacknowledged they were subject to the ban and yet have said in afederal database that they're exempt.

Other firms that reincorporated overseas — a strategy known as“inversion” — qualify for contracts because they don't meet thelaw's narrow definition of an inverted company. Under the law, aU.S. company that shifts its address to a location abroad isn'teligible for federal contracts, unless it has substantial businessin its new home or undergoes a major change in ownership. Thatmeans the prohibition doesn't apply, for example, to companies thatgot a new address through a takeover of a foreign competitor.

“These are bad actors. We should not be rewarding them,” saidRepresentative Rosa DeLauro, a Connecticut Democrat who has led thepush to keep contracts from the companies. “Let's give it to thecompanies that stay here, employ people here and pay their taxeshere.”

Complex Law

Ingersoll-Rand, which now is run from North Carolina, continuesto reap the benefits of a low-tax foreign address. The company saysit works closely with government contracting officials to ensurecompliance with a “complex area of the law.”

For several years, said spokeswoman Misty Zelent, Ingersoll-Randavoided bidding on contracts that were off-limits to companies thatshifted their tax address overseas. The company won other saleslegally because they were awarded during periods when theprohibition had temporarily lapsed, or that were grandfatheredbecause of earlier contracts, she said. Ingersoll-Rand also warnedshareholders and federal customers that it may be ineligible forcontracts.

Recently, the company conducted an “exhaustive legal analysis”and concluded that it's not subject to the prohibition after all,Zelent said.

She declined to share the firm's reasoning or say whether thegovernment endorsed this view, citing “competitive reasons.”

Representatives for a half-dozen federal agencies said theyfollowed the law in awarding projects to Ingersoll-Rand. Some ofthe agencies, including the U.S. Forest Service and the U.S. Mint,said they relied on the company's statements in a federal databasethat it wasn't banned.

The ranks of federal contractors with foreign addresses arelikely to grow this year as a new stampede of companies escapes theU.S. tax system. Medtronic Inc., a Minnesota medical device makerwith $17 billion in annual sales, announced plans last month tobecome Irish. Four other American companies are in the process ofreincorporating abroad, and Pfizer Inc., Monsanto Co. and WalgreenCo. also have flirted with the idea this year.

Without a change to the tax code, future inversions may cost thegovernment $19.5 billion in forgone revenue over the next decade, acongressional panel estimated this year. That doesn't count thebillions avoided by the 36 U.S. companies that already have shiftedtheir address overseas.

Rented Mailboxes

The U.S. has the highest corporate income-tax rate in thedeveloped world, 35 percent. Because the U.S. taxes profits basedon the country of the company's legal incorporation, rather than ofexecutives, factories or customers, switching to an address in alower-tax nation can dramatically reduce a firm's tax bills. Beforea tax-law change in 2004, this exercise involved little more thancompleting some paperwork and renting an office or a mailbox inBermuda or the Cayman Islands.

That's how Ingersoll-Rand did it. The company was founded bySimon Ingersoll, a Connecticut farmer who invented a steam-poweredrock drill in 1871. Its factories have made everything from golfcarts to refrigerated boxcars.

Changing its address from New Jersey to Bermuda, an island inthe Atlantic with no corporate income tax, was onlyIngersoll-Rand's first step in cutting its U.S. tax bills. Thecompany then loaned more than $3 billion to itself, which had theeffect of shifting reported profits from its main U.S. unit toBermuda, according to records in U.S. Tax Court.

In part because of this loan, the company's effective tax ratedropped by half to about 16 percent in the years following itschange in address. The Internal Revenue Service is challengingaspects of the loan arrangement, demanding $774 million inadditional taxes from 2002 through 2006, plus interest andpenalties, Ingersoll-Rand said in securities filings. The companysays the arrangements were proper and is defending them in TaxCourt.

Ingersoll-Rand was one of several companies to take Bermudaaddresses in the early 2000s, and by 2002 the trend caughtlawmakers' attention. As Congress prepared legislation to set upthe Homeland Security Department, DeLauro and others sought aclause prohibiting the new agency from doing business with invertedcompanies, arguing that their lower tax costs would give them anunfair advantage over domestic contractors.

Congressional Critics

As one of the biggest companies to go offshore, Ingersoll-Randbecame a punching bag for Reid and the measure's other advocates.Charles Grassley, the top Republican on the Senate FinanceCommittee, described the company's move as “immoral” and called foran end to “fat government contracts” for such firms. RepresentativeRichard Neal, a Massachusetts Democrat, called the company andanother firm “financial traitors.”

A version of the Homeland Security contract ban became law, butit was toothless. It applied only to the inverted companiesthemselves, not to any subsidiaries they might have. And it appliedonly to companies that had shifted overseas after November 2002,sparing all those that had already done so, includingIngersoll-Rand.

The ban had so little effect that when Homeland Security awardedits first big contract in 2004, it chose Accenture Ltd., the formerconsulting arm of the Arthur Andersen accounting firm. AlthoughAccenture had Chicago roots and a Dallas CEO, it had incorporatedin Bermuda in 2001. The contract was worth as much as $10billion.

That summer, a group of Democrats pushed to tighten the law andrevoke the Accenture contract. Eventually, Accenture kept theaward, though the loopholes for subsidiaries and for pre-November2002 inversions were closed.

In 2007, Congress extended the ban to all contracts funded by anannual government-wide appropriations bill. Similar one-year banswere approved in four of the following six years.

The law defines an “inverted” company so narrowly that it stilldoesn't catch Accenture or Tyco International Ltd., another companythat took a Bermuda address and was repeatedly cited by legislatorsas a target. Also exempt is Chicago Bridge & Iron NV, aTexas-run company with a Dutch address. All three companies, aswell as Ingersoll-Rand, were included on a list of dozens ofinverted companies published yesterday by Democrats on the HouseWays and Means Committee, who said the names were furnished by thenonpartisan Congressional Research Service. Accenture got $960million from federal contracts in 2013, and Chicago Bridge had $734million, according to data compiled by Bloomberg.

Never U.S.-Based

All three companies say they've complied with the law. JamesMcAvoy, a spokesman for Accenture, said the company isn't invertedbecause it was never a U.S.-based organization. When it firstseparated from Chicago-based Arthur Andersen in 1989, it was set upas a network of separate partnerships around the world overseen bya Swiss entity. For that reason, the U.S. General Accounting Officeconcluded in 2002 that Accenture wasn't inverted.

McAvoy said a 2012 legal analysis by the Homeland SecurityDepartment confirmed that Accenture isn't covered by the ban.

The most recent U.S. companies seeking foreign addresses alsoqualify for exceptions to the contracting ban. For instance,Medtronic plans to reincorporate through a foreign takeover. Amaker of pacemakers and defibrillators, Medtronic's customersinclude the Veterans Affairs Department.

One of the few companies to face real consequences is McDermottInternational Inc., a Houston engineering firm that's beenincorporated in Panama since 1982. In 2010, citing the contractingban, McDermott spun off a division that specializes in governmentcontracts as a separate U.S. company.

Even as Ingersoll-Rand reaped the tax benefits of its foreignaddress, it took steps to expand its U.S. government business. InDecember 2007, two weeks before the first government-widecontracting ban took effect, Ingersoll-Rand agreed to buy TraneInc., a New Jersey maker of energy-efficient air conditioners andheating and ventilation gear.

Part of Trane's sales came from retrofitting buildings —including government facilities — with new equipment to cut fueland power costs. Combined with the legislation, the sale toIngersoll-Rand was greeted with apprehension by Trane employees inthe unit that served government customers, according to a formermember of the unit who spoke on condition of anonymity. Since theprohibition applied to subsidiaries, would Trane be ineligible forgovernment contracts?

Instead, Ingersoll-Rand has championed Trane's work for thegovernment and used it as a selling point. Marketing materialshighlight how the unit is one of an elite group of contractorsauthorized by the Energy Department to bid on major federalretrofitting projects, including at military bases all over thecountry.

'Valued Customers'

“Trane counts among our valued customers nearly all majorgovernment departments and agencies,” reads a pamphlet for thecompany's Federal Sector Team that's posted on the EnergyDepartment's website. There's a photograph of a serviceman in whitegloves, snapping a salute.

Since the company agreed to buy Trane in 2007, shares ofIngersoll-Rand have returned 79 percent, including dividends,through July 3, compared with a 56 percent return for the Standard& Poor's 500 Index.

As it pursued government business, Ingersoll-Rand gave differentaccounts of whether it was subject to the contracting ban. In 2008,it warned shareholders in a securities filing that the company'scontracting work may be affected by the ban. The warning wasrepeated as recently as February. The company as recently as Mayincluded boilerplate language in its bids stating that it wasrestricted from receiving some government funds.

Ingersoll-Rand made those statements “out of an abundance ofcaution,” because it wasn't sure until recently whether it wassubject to the ban, spokeswoman Zelent said.

Meanwhile, in a federal contracting database known as the Systemfor Award Management, Ingersoll-Rand was taking the position thatit was exempt from the ban.

SAM is a central registry for government contractors.Procurement officials can use SAM to check if a company is eligibleto receive federal contracts or if it's on a list of firms that areprohibited — for instance, if they're deemed a national securityrisk. As early as 2011, company employees stated in filings thatIngersoll-Rand was “not an inverted domestic corporation.”

For the most part, Ingersoll-Rand has been able to sidestep thequestion of whether it's inverted or not. Three different gaps inthe laws have allowed the company to continue making big sales togovernment customers.

Military Supermarkets

First, Ingersoll-Rand could garner contracts that aren't fundedby annual congressional appropriations. In March 2010, anIngersoll-Rand unit received a contract to maintain equipment atsupermarkets on military bases from Texas to Hawaii. Funded by a 5percent surcharge on purchases at the stores, the contract hasalready paid more than $100 million, according to data compiled byBloomberg.

Second, the company was awarded contracts during periods whenthe ban had temporarily expired. For example, a few months afterIngersoll-Rand completed the Trane acquisition, the EnergyDepartment selected it as one of 16 contractors allowed to bid onlarge government retrofitting projects. Signed in December 2008,the contract authorizes Ingersoll-Rand to pursue up to $5 billionin government work, over as much as 10 years.

Congress's first government-wide contracting ban had applied tothe 2008 fiscal year, which ended in September 2008. Not until thefollowing March did Congress restore the ban when it passed afunding bill for the 2009 fiscal year. By that time, officials atthe Energy Department in Colorado had already signedIngersoll-Rand's contract. The prohibition didn't applyretroactively.

Third, some contracts gave Ingersoll-Rand what spokeswomanZelent calls a “grandfather clause,” allowing the company to bid onnew projects for decades without running afoul of the ban. The 2008contract, and similar ones that Trane had won in earlier years,basically designate the company as an approved vendor that cancompete on projects as they become available.

Thus Ingersoll-Rand has bid for and won 10 energy-savingsprojects since 2008, worth more than $350 million in all, under theauthority of Energy Department contracts signed years earlier.

The biggest of these was a $124 million project at Naval AirStation Oceana in Virginia Beach, Virginia, the East Coast home ofthe Navy's fighter jets. The Trane unit was hired to replace an oldsteam plant with a more efficient heating system, and get paid backfrom the Navy's cost savings. It was Trane's third such project atthe base.

Old Contract

Despite being awarded in August 2009, when the ban wastechnically in effect, the project came under the authority of anold Trane contract from 1999.

“The Navy had no legal basis for not considering Trane'sproposal, which the Navy found to be the best value to thegovernment,” the Navy said in an e-mailed statement.

Later that year, service members from Oceana and Ingersoll-Randofficials traveled to a ceremony at the Ronald Reagan Building inWashington to accept a presidential award for their work on anearlier energy-savings project at the base. The company has used aphoto of the Lucite trophy in its marketing material. The WhiteHouse didn't respond to a request for comment.

Ingersoll-Rand tried other ways to get around the contractingban, according to Jose Sanchez, a former senior engineer at theTrane unit that works on federal projects.

“In some cases, they do a joint venture with a companythat's not inverted,” said Sanchez, who left Ingersoll-Rand in 2011and now works in Texas for a competitor. “They're able to processthe application that way.” He declined to discuss specifictransactions.

Ingersoll-Rand submitted just such a bid in 2010, according tothe other former Trane employee. That year, company officialsbelieved they were well positioned to win a bid on anenergy-savings project at a Marine Corps base in Okinawa, Japan,yet were concerned the contracting ban might disqualify them, thisperson said. So they teamed up with Clark Energy Group LLC, a muchsmaller Virginia-based company, this person said.

Under the joint proposal, Clark would serve as the Navy's primecontractor at the base in Okinawa and subcontract most of the workto Ingersoll-Rand, this person said.

In a statement, the Navy said the project was ultimatelycanceled “for reasons unrelated to any company's status” asinverted, adding that “the Navy never formally accepted Clark'sproposal or its use of Trane as a subcontractor.” Clark confirmedits involvement in the bid and declined to answer specificquestions.

'Bidding Groups'

“The characterization that Ingersoll-Rand did anything improperis inaccurate,” said Zelent, the spokeswoman. She added thatforming bidding groups on projects is common and “often encouragedby the acquiring governmental agency.”

Inside the Trane unit that catered to government customers, someemployees now worried they were being too cautious in avoiding bidswhere inverted companies were off limits, according to the formerTrane employee. Some said the company should just start assertingthat it wasn't inverted after all, forcing the government to rebutthe claim if it disagreed, this person said.

Advocates of this strategy were emboldened by the company'sdecision to switch its legal domicile again in 2009 to Ireland fromBermuda, this person said. Although Ireland's tax-friendlypolicies, like Bermuda's, make it a magnet for U.S. companieslooking to avoid taxes, it also has a network of treaties and astrong trading relationship with the U.S.

Zelent declined to say why the company recently decided thatit's not banned. It reached that conclusion after a federalrulemaking process that ended in 2011, she said.

If companies could escape the contracting ban by hopping fromone foreign domicile to another, it would “eviscerate” the law,said Willard Taylor, a retired corporate tax lawyer and adjunctprofessor at New York University School of Law.

Congress “would be very annoyed, I'm sure,” he said.

DeLauro says she's working on a bill that would expand thedefinition in the contracting ban to apply to more companies,including most of those that inverted recently.

To bid on federal contracts, companies must attest in the SAMdatabase that they aren't subject to the ban. Three such companieshave contradicted their SAM filings by acknowledging elsewhere thatthe ban did apply to them.

Xoma Contract

Xoma Corp., a California drugmaker, had a Bermuda address whenit got contracts worth as much as $93 million from 2008 to 2011 tomake an antitoxin for the deadly poison botulinum for the NationalInstitute of Allergy and Infectious Diseases.

A Xoma employee submitted a form in the federal SAM databaseclaiming that, as of July 2011, it wasn't inverted, the databaseshows. The form includes language acknowledging unspecified“penalties” if the information is inaccurate.

The statement was probably an “honest mistake,” said spokeswomanAshleigh Barreto. “The form that he's filling out was all thesecheck, check, check boxes and he probably just checked the wrongbox,” she said. Both of the contracts were awarded lawfully becauseof other exceptions to the law, she said.

The institute said in a statement that it was unaware Xoma wasinverted. The company switched back to a U.S. domicile in December2011.

Cooper Industries Plc, a Texas-run firm that picked up a Bermudaaddress in 2002, said in a securities filing in 2009 that itsomehow got $8 million in federal contracts that probably shouldhave been prohibited. It said it might face penalties from theDefense Department, which was reviewing the matter. That reviewcontinues six years later, according to Maureen Schumann, adepartment spokeswoman.

Nevertheless, Cooper continued to do work for the government. ASAM filing by an employee at a Cooper division in Sarasota,Florida, effective as of February 2012, stated that the companywasn't inverted after all.

Later that year, Cooper was sold for $11.8 billion to EatonCorp., a larger Ohio firm that coveted its offshore address. Thanksto the way the contracting ban is worded, the entire combinedcompany, known as Eaton Corp. Plc and incorporated in Ireland, isnow qualified to bid on government work, said spokesman ScottSchroeder. He declined to comment on Cooper's conflictingstatements about whether it was inverted prior to the takeover.

Swiss Incorporation

Another inverted company that claimed not to be is FosterWheeler AG, a former New Jersey firm now incorporated in low-taxSwitzerland. Scott Lamb, the company's vice president for investorrelations, said the division whose name appears on the filinghasn't worked for the government since 2006.

“We recognize that Foster Wheeler is classified as an invertedcorporation,” he said in an e-mail. “I cannot vouch for theauthenticity of that document.”

The U.S. General Services Administration, which oversees the SAMdatabase, said in a statement that “submission of falserepresentations or certifications is a very serious matter.” Itsaid penalties range from “monetary recoveries” to barring thecontractor from future government work.

Ingersoll-Rand's quest for profit from making buildings moreefficient dovetails with a priority of the Obama administration,which announced this year a raft of energy conservationinitiatives. Among them was the expansion of the EnergyDepartment's program for government buildings that's already worthmore than $500 million to Ingersoll-Rand, including its work forthe Navy in Virginia.

The president announced the initiatives in May from the aislesof a Wal-Mart store in California equipped with solar panels.Ingersoll-Rand Chief Executive Officer Michael Lamach, 51, was aninvited guest.

“Thanks to all the companies who are doing the great work,”Obama said as he stepped from the stage. “We appreciate yourleadership.”

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