The accounting profession is closely watching the recent introduction of the Halting International Relocation of Employment, or HIRE, Act in the U.S. Senate. This proposed legislation could fundamentally reshape how CPA firms approach international outsourcing, potentially making offshore services significantly more expensive, while encouraging domestic workforce development.
Sen. Bernie Moreno, R-Ohio, introduced the HIRE Act on Sept. 5, 2025, proposing substantial changes to the Internal Revenue Code that would directly impact businesses utilizing foreign service providers. The bill currently sits in committee and faces the standard legislative process.
The HIRE Act centers on three primary mechanisms designed to discourage outsourcing while generating revenue for domestic workforce programs: It would establish a 25% excise tax on payments made to foreign service providers when those services benefit U.S. consumers. This tax would apply directly to the gross payment amount, creating an immediate cost increase for firms utilizing international outsourcing.
Under current tax law, outsourcing expenses qualify as deductible business costs. The HIRE Act would eliminate this deduction entirely, forcing companies to pay income tax as though these expenses never occurred. This double impact — losing the deduction while paying the excise tax — creates a compounding financial effect.
The proposed legislation includes several important definitional and procedural elements:
- Geographic coverage: The bill applies to payments made to "foreign persons," but specifically excludes entities organized within U.S. territories such as Puerto Rico, creating potential planning opportunities.
- Proportional application: When services benefit both U.S. and international consumers, only the portion attributable to U.S. consumption would be subject to the tax.
- Anti-avoidance measures: The Treasury Department would receive authority to implement regulations preventing circumvention through intermediate entities or complex structuring arrangements.
If enacted, the provisions would take effect for payments made after Dec. 31, 2025.
To illustrate the potential cost implications, consider a typical CPA firm scenario, where a firm pays $100,000 annually to an Indian outsourcing provider for tax preparation services. Under existing law, this expense is fully deductible, providing a tax benefit of $21,000 (assuming a 21% corporate tax rate), resulting in a net after-tax cost of $79,000.
Under the HIRE Act, the same $100,000 payment would lose its deductibility while triggering a $25,000 excise tax. The effective after-tax cost would increase to $146,000 — an 85% increase over current costs.
Strategic implications for CPA firms
The legislation could force significant operational adjustments across the accounting industry:
- Direct offshore arrangements: Firms maintaining direct relationships with overseas providers would face the most severe cost increases. Many current arrangements could become economically unviable, particularly for smaller firms operating on tight margins.
- Intermediary structures: U.S.-based intermediary companies might become more attractive, as payments to domestic entities would remain deductible. However, these intermediaries would likely increase their fees to account for their own excise tax exposure when working with foreign subcontractors.
- Territorial opportunities: The exclusion of U.S. possessions from the "foreign person" definition could make Puerto Rico and other territories increasingly attractive for outsourcing operations, potentially spurring investment in these regions.
- Competitive dynamics: Larger accounting firms with established U.S.-based shared service centers may gain competitive advantages over smaller firms that are more heavily dependent on offshore outsourcing, potentially accelerating industry consolidation.
Political and economic context
The HIRE Act emerges amid broader political discussions about protecting American jobs and addressing economic inequality. However, several factors suggest the bill faces significant challenges:
- Industry opposition: The proposed 25% excise tax rate will likely generate substantial lobbying opposition from multiple industries, including technology, finance, health care and professional services.
- Economic complexity: Critics may argue that the legislation could reduce business competitiveness and potentially increase costs for American consumers.
- Implementation challenges: The Treasury Department would need to develop comprehensive regulations addressing complex international business arrangements and anti-avoidance measures.
As of its introduction earlier this month, the HIRE Act remains in the early stages of the legislative process. Historical precedent suggests that tax legislation of this magnitude typically requires extensive committee review, stakeholder input, and potential amendments before reaching floor votes in either chamber.
The bill's proposed Jan. 1, 2026, effective date assumes passage within the current legislative session. However, given the complexity and potential controversy surrounding the proposals, a more realistic timeline might extend well beyond this target date.
Strategic recommendations for CPA firms
Given the uncertain but potentially significant impact of this legislation, accounting firms should consider several proactive measures:
- Risk assessment: Evaluate current outsourcing arrangements to understand potential financial exposure under the proposed tax structure.
- Contract flexibility: Review existing agreements with overseas providers to identify termination clauses or renegotiation opportunities that could provide operational flexibility if the legislation advances.
- Alternative planning: Begin exploring alternative service delivery models, including domestic providers, nearshore arrangements in U.S. territories, or hybrid approaches combining domestic and international resources.
- Industry monitoring: Stay informed about the bill's progress through professional associations and trade publications, as amendments during the legislative process could significantly alter the final provisions.
- Client communication: Prepare to discuss potential cost implications with clients, as firms may need to adjust pricing structures if outsourcing costs increase substantially.
New advisory opportunities
While the HIRE Act presents cost challenges, it also creates significant revenue opportunities for CPA firms. The legislation's complexity would generate demand for specialized services that businesses cannot handle internally.
If enacted, companies would need professional help with payment classification, service apportionment between U.S. and international beneficiaries, comprehensive documentation for IRS compliance, and ongoing monitoring of regulatory changes. This creates immediate opportunities for compliance-focused services.
Beyond basic compliance, CPA firms could develop higher-value advisory offerings, including alternative structure analysis, contract renegotiation support, cost-benefit modeling for different outsourcing strategies, and transition planning for clients seeking to modify existing arrangements.
The legislation would also create recurring revenue opportunities through annual compliance reviews, regulatory update services and ongoing optimization of client outsourcing structures as Treasury regulations evolve.
Rather than viewing this as purely a compliance burden, proactive CPA firms could position these services as strategic business advisory offerings, helping clients transform regulatory complexity into competitive advantage through proper planning and optimization.
Conclusion
While the HIRE Act currently exists only as proposed legislation, its introduction represents a significant development for CPA firms utilizing international outsourcing. The potential for nearly doubling outsourcing costs through combined excise taxes and lost deductions demands serious strategic consideration.
Firms that begin planning now for various regulatory scenarios — whether the bill passes as written, emerges in modified form, or fails entirely — will be better positioned to maintain operational effectiveness and client service quality regardless of the ultimate legislative outcome. The key is maintaining flexibility while staying informed about this evolving policy landscape that could reshape the fundamental economics of professional services delivery.
