Sponsors
The bill seeks to raise revenue and curb profit‑shifting/offshoring by denying deductions for certain cross‑border service payments and strengthening anti‑avoidance authority, but it increases tax costs for businesses, may raise consumer prices, and adds compliance burden and dispute risk.
Businesses that pay for cross-border services (and the U.S. labor market) may face stronger incentives to keep or hire work domestically because deductions for certain payments that fund services to U.S. consumers are disallowed, potentially supporting domestic jobs.
Federal revenues could increase because a category of cross-border service payments is nondeductible, providing additional funds that could be used for public services or deficit reduction.
The Treasury gains clearer authority to issue anti-avoidance and transfer-pricing rules, strengthening tax administration and helping prevent profit‑shifting and abusive tax planning.
Businesses that contract with foreign service providers will face higher effective tax costs because those payments are nondeductible, reducing after‑tax profits and raising costs for affected firms.
Households and consumers may face higher prices for goods and services when businesses pass through increased costs from nondeductible foreign service payments.
Taxpayers and financial institutions will face increased compliance complexity and administrative burden from new definitions, allocation rules, and anticipated Treasury regulations, raising compliance costs and IRS workload.
Based on analysis of 2 sections of legislative text.
Disallows business deductions for payments to most foreign persons for labor or services benefiting U.S. consumers, with a pro rata rule for mixed-use payments.
Introduced February 12, 2026 by Austin Scott · Last progress February 12, 2026
Denies business tax deductions for “outsourcing payments” made to most foreign persons for labor or services when the benefit is directed to consumers located in the United States. It includes a pro rata rule so only the portion of a mixed-payment that funds services benefiting U.S. consumers is disallowed, directs the Treasury to write regulations and anti-avoidance rules, and generally applies to payments made after December 31, 2025. The change narrows deductible business expenses for firms that contract with or pay foreign service providers for work that serves U.S. customers. It also creates a carve-out for entities organized under the laws of a U.S. possession and gives the Secretary authority to issue implementing guidance and anti-abuse rules.