That law, known as Subpart F, made the tax code increasingly complex as businesses grew larger and more diverse. The law was revised 10 times between 1969 and 1996 as the U.S. Internal Revenue Service tried to figure out how to classify, and then tax, tens of thousands of corporate units.
In 1996 the Treasury Department moved to simplify matters with a rule that enabled companies to "check the box" on a tax form to describe a given corporate entity—including whether it was, for tax purposes, irrelevant, a so-called "disregarded entity."
For a company and its subsidiaries that all operate in the U.S., the rule streamlined tax filing by allowing the subsidiaries' income to be reported on the same forms as the parent company's income.
When applied to U.S.-based multinational companies, however, the "disregarded entities" status could be used to set up high-volume subsidiaries in low-tax jurisdictions such as Luxembourg or Ireland. A key part of Apple's tax strategy, for example, is having a subsidiary in Ireland that takes in all of the income from Apple's retail stores in Europe.
Treasury had given little thought to how the "check the box" rule might affect U.S.-based multinational corporations, according to several people involved in the effort.
Treasury officials realized they had created a massive loophole when they noticed a spike in cross-border financing shortly after the rule took effect.
"The mistake was extending it to foreign entities," Donald Lubick, Treasury's top tax official at the time, told Reuters. "That was apparent pretty quickly."
Clinton's Treasury Department moved to revoke the "check the box" rule in early 1998. But multinational companies such as Hallmark, Coca-Cola, IBM and Philip Morris launched a full-court press to convince Congress to keep the rule in place.
Enter Kies, a former tax specialist for Congress' Joint Tax Committee who was eager to put his expertise and contacts to work as a tax lobbyist.
Kies's former Republican bosses—Representative Bill Archer of Texas and Senator William Roth of Delaware—accused the IRS and Treasury of overstepping their authority in trying to take away the loophole.
Kies, meanwhile, says he pursued a strategy that he figured would resonate with businesses, lawmakers and regular citizens: He argued that eliminating the "check the box" loophole would damage U.S.-based multinational companies by forcing them to pay more taxes not only in the United States, but also to high-tax nations such as France.
Roth's Senate Finance Committee passed a bill in April 1998 to prevent Treasury from making any changes to "check the box." That language was watered down to a non-binding resolution by the time the measure passed the Senate the next month, but Congress' message was clear: Don't mess with the loophole.
Treasury soon gave up its effort to revoke it.
"In light of that reception that this rule got on Capitol Hill, we withdrew the notice," said Philip West, who was then the top international tax official at Treasury and now advises clients on international tax strategy for the law firm Steptoe & Johnson.
'Check the Box' Grows Up
By 2004, thanks in part to the "check the box" rule, U.S.-based multinational corporations paid an effective tax rate of about 2.3 percent on $700 billion in foreign earnings, according to the Obama administration.
To make "check the box" tougher to revoke, Kies and other corporate lobbyists urged Congress to turn the rule into a law.
Congress did so in 2006 with legislation that became known as the "look through" rule. It bolstered the "check the box" loophole by giving corporations more latitude to move some types of income from one foreign unit to another without paying a tax.
The "look through" rule became law with little debate, according to congressional records. It was tucked into a broad extension of other tax cuts.
The 2006 law wasn't permanent, but supporters have managed to extend it repeatedly by embedding it in large and important but unrelated pieces of legislation that were headed toward easy passage in Congress.
That is what happened in 2009, when Obama threatened to cut the loophole.
Congress has extended it temporarily twice since then as part of larger pieces of legislation. Both Levin and McCain voted to extend it in January as part of the legislation that kept the U.S. government from going off the "fiscal cliff," a package of across-the-board tax hikes and spending cuts that threatened to plunge the U.S. economy into another recession.
Both also voted to extend it in 2010 as part of a broad tax bill.
Obama has not proposed a repeal of the loophole since 2009.
During the Senate hearing last week on Apple's tax strategy, Mark Mazur, Treasury's assistant secretary for tax issues, said in written testimony that the Obama administration remained "concerned about the misuse of various income-shifting devices, including misuse of the 'check the box' rules."
Mazur noted that the White House has made proposals to discourage profit-shifting offshore. But it's unclear whether Obama will try again to have the "check the box" rule revoked.
For perspective, Obama could read the words of another president who also fell short in his assault on tax shelters, this one failing to raise taxes on overseas holding companies.
"We face a challenge to the power of government to collect uniformly and fairly, and without discrimination, taxes based on statutes adopted by Congress," that president wrote.
The letter was signed by Franklin Roosevelt and dated June 1, 1937.