H.R. 7559: To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments.

This bill proposes an amendment to the Internal Revenue Code of 1986, specifically aimed at regulating deductions for certain payments made by businesses. The main feature of the bill is that it denies businesses the ability to deduct outsourcing payments from their taxable income. In simpler terms, if a business pays a foreign person for services or labor, these payments will not be allowed as tax-deductible expenses. Here are the key components of the bill:

Denial of Deductions

The primary change would be the addition of a new section to the tax code, labeled Section 280I, which states:

• No deductions will be allowed for outsourcing payments.

Definition of Outsourcing Payments

The bill defines "outsourcing payment" as any payment that involves:

• A premium, fee, royalty, service charge, or similar charge made during the course of business.
• Payments made to a "foreign person" (a non-U.S. entity or individual, excluding certain U.S. possessions).
• Labor or services that ultimately benefit consumers located in the United States.

Mixed Payments

If a payment involves both domestic and foreign services, the amount treated as an outsourcing payment will be calculated proportionally. This means:

• The portion of the service directed at consumers in the U.S. will be compared to the total service provided to all consumers.

Regulatory Guidance

The Secretary of the Treasury will be responsible for establishing regulations and guidelines to ensure compliance with this new rule, including measures to prevent tax avoidance through complex pricing strategies.

Effective Date

The provisions of this bill, if passed, would apply to payments made after December 31, 2025, meaning businesses would need to adjust their accounting practices starting in the 2026 tax year.

Clerical Update

The bill also requires a clerical amendment to the tax code, which involves updating the reference table to include the new section about outsourcing payments.

Relevant Companies

• None found