H.R. 7559 would prevent U.S. companies from deducting business expenses paid to foreign entities for labor or services that benefit American consumers. The bill, introduced in February 2026, targets outsourcing arrangements by denying tax deductions for payments like fees, royalties, and service charges made to foreign persons for work directed at U.S. consumers, though it allows a proportional deduction if services benefit both domestic and international consumers. The legislation would apply to payments made after December 31, 2025, and affects any business that outsources work to foreign contractors. The Internal Revenue Service would be tasked with developing regulations to enforce the rule and prevent companies from circumventing it through complex transfer pricing schemes designed to hide outsourcing arrangements.
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