To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments.
- Sponsor
- Rep. Scott, Austin [R-GA-8]
- Committees
- Ways and Means Committee (primary)
- Last action
- Feb 12, 2026
Bottom line
This bill aims to disincentivize U.S. companies from outsourcing services abroad by eliminating a key tax deduction, potentially increasing their tax liability for such activities and encouraging domestic job creation.
What it actually does
This bill amends the Internal Revenue Code of 1986 to prohibit businesses from deducting "outsourcing payments" made to foreign persons for labor or services directed, directly or indirectly, to consumers located in the United States. It defines outsourcing payments to include premiums, fees, royalties, and service charges, and provides rules for allocating payments for services that benefit both U.S. and non-U.S. consumers. The Secretary of the Treasury is also directed to issue regulations to prevent avoidance or abuse of these new provisions.
Proponents argue
Proponents argue this bill will encourage companies to keep jobs and services within the United States by making it less financially attractive to outsource. They contend it will level the playing field for domestic businesses, boost American employment, and ensure that companies contributing to the U.S. market also contribute more to the U.S. tax base, rather than benefiting from deductions for foreign labor.
Opponents contend
Opponents might argue that this measure would increase costs for U.S. businesses, making them less competitive globally and potentially leading to higher prices for consumers. They may also contend that it could complicate international trade relations and create significant administrative burdens for companies trying to delineate services directed to U.S. consumers versus those abroad, potentially stifling innovation and economic efficiency.
The bill is very short and can be read quickly, but its implications for tax law and business operations require careful consideration beyond a superficial reading.
Section 1(a), adding new IRC Section 280I(a)
Prohibition on Deducting Outsourcing Payments
This provision establishes that businesses operating in the United States can no longer claim tax deductions for payments they make to foreign entities for labor or services that ultimately benefit U.S. consumers. This means that expenses like service fees, royalties, or other charges paid to overseas contractors for work serving the U.S. market will no longer reduce a company's taxable income, thereby increasing their tax liability.
Supporters argue
Supporters argue this directly addresses the incentive for companies to move jobs overseas, encouraging domestic job creation and investment by making foreign labor less attractive from a tax perspective.
Critics contend
Critics contend this could lead to higher operational costs for U.S. businesses, which might be passed on to consumers through higher prices or reduce the competitiveness of U.S. firms in the global market.
Tradeoffs
This provision balances the goal of domestic job retention and strengthening the U.S. tax base against potential increases in business costs and impacts on global supply chains and the competitiveness of U.S. companies.
Section 1(a), adding new IRC Section 280I(b)
Defining "Outsourcing Payment" and Mixed Payments
This section precisely defines what constitutes an "outsourcing payment" for the purpose of denying deductions. It includes various forms of payments (premiums, fees, royalties, service charges) made by a business to a foreign person for labor or services benefiting U.S. consumers. Crucially, it also provides a method for calculating the deductible portion of payments for services that benefit both U.S. and non-U.S. consumers, ensuring only the U.S.-directed portion is subject to the deduction denial.
Section 1(a), adding new IRC Section 280I(c) and (d)
Defining "Foreign Person" and Anti-Avoidance Regulations
This provision clarifies that a "foreign person" is generally any non-U.S. person, with an explicit exception for corporations or partnerships organized under the laws of a U.S. possession. It also grants the Secretary of the Treasury broad authority to issue regulations and guidance necessary to implement the section and prevent its avoidance or abuse, specifically mentioning transfer pricing arrangements, which are common methods for allocating income and expenses between related entities in different tax jurisdictions.