Sec. 3. Denial of deduction for outsourcing expenses

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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 otherwise allowable under this chapter shall be allowed for any specified outsourcing expense. For purposes of this section— The term specified outsourcing expense means— any eligible expense paid or incurred by the taxpayer in connection with the elimination of any business unit of the taxpayer (or of any member of any expanded affiliated group in which the taxpayer is also a member) located within the United States, and any eligible expense paid or incurred by the taxpayer in connection with the establishment of any business unit of the taxpayer (or of any member of any expanded affiliated group in which the taxpayer is also a member) located outside the United States, if such establishment constitutes the relocation of the business unit so eliminated.

For purposes of the preceding sentence, a relocation shall not be treated as failing to occur merely because such elimination occurs in a different taxable year than such establishment. The term eligible expenses means— any amount for which a deduction is allowed to the taxpayer under section 162, and permit and license fees, lease brokerage fees, equipment installation costs, and, to the extent provided by the Secretary, other similar expenses. Such term does not include any compensation which is paid or incurred in connection with severance from employment and, to the extent provided by the Secretary, any similar amount.

The term business unit means— any trade or business, and any line of business, or functional unit, which is part of any trade or business. The term expanded affiliated group means an affiliated group as defined in section 1504(a), determined without regard to section 1504(b)(3) and by substituting more than 50 percent for at least 80 percent each place it appears in section 1504(a). A partnership or any other entity (other than a corporation) shall be treated as a member of an expanded affiliated group if such entity is controlled (within the meaning of section 954(d)(3)) by members of such group (including any entity treated as a member of such group by reason of this paragraph).

Any amount paid or incurred in connection with the ongoing operation of a business unit shall not be treated as an amount paid or incurred in connection with the establishment or elimination of such business unit. In the case of any portion of a specified outsourcing expense which is not deductible in the taxable year in which paid or incurred, such portion shall neither be chargeable to capital account nor amortizable. For purposes of this section, the term United States shall be treated as including each possession of the United States (including the Commonwealth of Puerto Rico and the Commonwealth of the Northern Mariana Islands).

The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations which provide (or create a rebuttable presumption) that certain establishments of business units outside the United States will be treated as relocations (based on timing or such other factors as the Secretary may provide) of business units eliminated within the United States. . Subsection

(c)of section 952 of such Code is amended by adding at the end the following new paragraph: For purposes of this subsection, earnings and profits of any controlled foreign corporation shall be determined without regard to any specified outsourcing expense (as defined in section 280I(b)). . The table of sections for part IX of subchapter B of chapter 1 of such Code is amended by adding at the end the following new item: Sec. 280I. Outsourcing expenses. . The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.