S. 2976 — HIRE Act

This section imposes a 25% excise tax on outsourcing payments made by any U.S. person, in the course of a trade or business, to a foreign person (i.e., any non-U.S. person, excluding corporations or partnerships organized under U.S. possession laws) for labor or services directed to U.S. consumers, effective for payments made after December 31, 2025. An outsourcing payment includes any premium, fee, royalty, service charge, or similar payment; for mixed payments benefiting U.S. and non-U.S. consumers, the taxable portion is pro-rated based on the share of services directed to U.S. consumers. (Thus, the tax targets U.S.-benefiting services outsourced abroad, such as customer support or data processing.) The section further (1) denies deduction of the tax under IRC §275; (2) authorizes the Secretary of the Treasury to require information returns and certifications from U.S. payers identifying outsourcing payments; (3) increases the failure-to-pay penalty under IRC §6651(a) to 50% (from 5%) with no 25% aggregate cap; (4) preserves application of the economic substance doctrine to such payments; and (5) makes conforming clerical amendments. The Secretary must issue regulations to prevent avoidance, including via related parties, controlled foreign corporations, transfer pricing, or intermediaries.

This section establishes the Domestic Workforce Fund in the Treasury of the United States as a trust fund financed by amounts equivalent to revenues from (1) the tax imposed under new section 5000E, (2) additions to tax under section 6051(a) for failures to pay the section 5000E tax, and (3) penalties under part II of subchapter B of chapter 68 related to returns described in section 2(b) of the Halting International Relocation of Employment Act. Moneys in the fund are available without further appropriation solely for (1) workforce development and retraining programs administered by the Department of Labor, (2) apprenticeship programs and industry partnerships to expand domestic employment in sectors impacted by outsourcing, and (3) grants to states for workforce development initiatives targeted at communities with high levels of job displacement. This section also makes a clerical amendment to add the new section to the table of sections for subchapter A of chapter 98 of the Internal Revenue Code.

This section disallows any income tax deduction for outsourcing payments (as defined in §5000E(b)), effective for payments made after December 31, 2025, in taxable years ending after such date.