Sponsor
Austin Scott
Representative · R-GA
Representative · R-GA
The bill strengthens tax enforcement and could raise federal revenue while incentivizing domestic hiring, but it imposes higher tax costs and compliance burdens on businesses that use foreign services and risks higher consumer prices and cross-border disputes.
U.S. workers and domestic businesses could face stronger incentives to hire domestically because deductions for certain cross-border service payments are disallowed, reducing the relative financial benefit of offshoring.
Gives the Treasury clearer authority to issue anti-avoidance and transfer-pricing rules, improving tax enforcement and reducing opportunities for profit-shifting and abusive tax planning.
Raises potential federal revenue by denying deductions for a category of cross-border service payments, which could help fund public services or reduce deficits.
Businesses that contract with foreign service providers will face higher effective tax bills because those payments become nondeductible, increasing operating costs for affected firms.
Higher costs for businesses are likely to be passed on to consumers as higher prices for goods and services that rely on outsourced labor or foreign service providers.
Creates additional compliance complexity and administrative burden for taxpayers and the IRS because of new definitions, pro rata allocation rules, and Treasury rulemaking, increasing compliance costs and paperwork.
Based on analysis of 2 sections of legislative text.
Disallows federal tax deductions for payments to foreign persons for services whose benefit is directed to U.S. consumers, with a pro rata rule and Treasury rulemaking.
Official title: To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments.
Introduced February 12, 2026 by Austin Scott · Last progress February 12, 2026
Denies U.S. taxpayers any federal tax deduction for payments made to foreign persons for labor or services when the benefit of those services is directed (directly or indirectly) to consumers located in the United States. The rule includes a pro rata allocation for payments that support both U.S. and non-U.S. consumers, excludes U.S. persons (and certain U.S. possessions entities) from the definition of “foreign person,” requires Treasury to write regulations including anti-avoidance rules, and applies to payments made after December 31, 2025, in taxable years ending after that date. The change raises the after-tax cost of outsourcing customer-facing activities to foreign service providers, creates new compliance and documentation obligations for businesses, and gives Treasury rulemaking authority to define and police avoidance strategies.