To amend the Internal Revenue Code of 1986 to deny deduction for outsourcing payments.

Part IX of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

No deduction shall be allowed under this chapter for any outsourcing payment.

For purposes of this section—

The term outsourcing payment means any premium, fee, royalty, service charge, or other payment made—

(A) in the course of a trade or business,

(B) to a foreign person, and

(C) with respect to labor or services the benefit of which is directed, directly or indirectly, to consumers located in the United States.

In the case of any payment to a foreign person with respect to which labor or services are directed to consumers both within and without the United States, the amount treated as an outsourcing payment shall not exceed the amount equal to the product of such payment and a fraction—

(A) the numerator of which is the amount of labor or services with respect to such payment directed to consumers within the United States, to

(B) the labor or services with respect to such payment directed to all consumers.

For purposes of this section, the term foreign person means any person who is not a United States person, except that such term shall not include any corporation or partnership which is organized under the laws of a possession of the United States.

The Secretary shall prescribe such regulations and other guidance as may be necessary or appropriate to carry out this section, including regulations or guidance to prevent the avoidance or abuse of the purposes of this section, including through the use of transfer pricing arrangements.

The table of section for part IX of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

The amendments made by this section shall apply to payments made after December 31, 2025, in taxable years ending after such date.