To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments.
- Bill Number
- H.R. 7559
- Origin Chamber
- House
- Congress
- 119th Congress, Session 2
- Policy Area
- Taxation
- Status
- Introduced
- Latest Action
- 2026-02-12: Referred to the House Committee on Ways and Means.
- Last Updated
- 2026-03-09T19:18:58Z
AI-Generated Summary
Purpose
This bill aims to discourage outsourcing of labor and services to foreign entities by denying U.S. businesses tax deductions for related payments, particularly when those services benefit American consumers. It seeks to promote domestic employment and reduce the tax advantages of offshoring work.
Key Provisions
- New Tax Rule (Section 280I): Adds a section to the Internal Revenue Code (IRC) that prohibits deductions for "outsourcing payments."
- Definition of Outsourcing Payment: Any premium, fee, royalty, service charge, or similar payment made:
- In the course of a trade or business.
- To a "foreign person" (anyone not a U.S. person, excluding entities organized in U.S. territories like Puerto Rico).
- For labor or services that directly or indirectly benefit U.S. consumers.
- Mixed Payments: If a payment covers services benefiting both U.S. and non-U.S. consumers, only the portion attributable to U.S. benefits is nondeductible (calculated as a fraction: U.S.-directed labor/services divided by total labor/services).
- Regulations: The Secretary of the Treasury must issue rules to implement the provision and prevent avoidance, such as through manipulated pricing between related entities (transfer pricing).
- Effective Date: Applies to payments made after December 31, 2025, for tax years ending after that date.
Significant Changes to Existing Law
- Previously, businesses could deduct most ordinary business expenses, including payments to foreign providers, under IRC Section 162 (trade or business expenses).
- This introduces a targeted disallowance specifically for outsourcing payments benefiting U.S. consumers, creating a new exception without altering broader deduction rules.
- It expands IRS oversight by mandating anti-avoidance regulations, potentially increasing scrutiny on international transactions.
Potential Impacts
- On Government Agencies: The IRS may see increased administrative workload for audits, compliance, and issuing guidance; could boost federal tax revenue from nondeductible expenses.
- On Citizens: May lead to higher costs for consumer goods and services if businesses pass on increased tax burdens; could encourage more U.S.-based jobs in affected sectors like customer service or manufacturing support.
- On International Relations: Might create tensions with trading partners (e.g., countries like India or the Philippines, common outsourcing destinations) by making U.S. outsourcing less economically viable, potentially affecting bilateral trade agreements.
Main Stakeholders Affected
- U.S. Businesses: Companies relying on foreign labor/services for U.S. markets (e.g., tech firms, call centers) will face higher taxable income and costs.
- Foreign Service Providers: Entities in other countries receiving U.S. payments may lose business as American clients seek domestic alternatives.
- U.S. Workers and Taxpayers: Potential beneficiaries through job preservation or creation, but indirect payers via higher prices or taxes.
- Government (IRS/Treasury): Responsible for enforcement and rulemaking.
Notable Legal, Constitutional, or Political Implications
- Legal: Fully within Congress's authority under the Constitution's tax power (Article I, Section 8); aligns with IRC amendment precedents but could face challenges on vagueness (e.g., defining "benefit directed to U.S. consumers") or discrimination against foreign entities, potentially under trade laws like WTO rules.
- Constitutional: No apparent conflicts, as it regulates taxation without infringing on free speech, due process, or equal protection.
- Political: Represents a protectionist tax policy to address job offshoring, appealing to domestic labor interests but criticized as anti-globalization; could influence future trade or immigration debates by prioritizing U.S. economic interests.
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Recent Actions
- 2026-02-12: Referred to the House Committee on Ways and Means.
- 2026-02-12: Introduced in House
- 2026-02-12: Introduced in House
Bill Versions
- To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments. — issued 2026-02-12 — PDF (3 pages)