This bill denies specific federal tax benefits, such as bonus depreciation and research expensing, to entities that utilize technology controlled by foreign adversaries.
Nathaniel Moran
Representative
TX-1
This bill, the Deterring Adversarial Access to Americans’ Data Act, amends the tax code to penalize entities that utilize technology controlled by foreign adversaries. It specifically denies key tax benefits, such as bonus depreciation and immediate research expensing, to businesses using this prohibited technology or to the prohibited entities themselves. The legislation aims to discourage reliance on technology from foreign adversaries through financial disincentives.
New Data Act Denies Key Tax Breaks for Businesses Using Foreign Adversary Tech Starting Next Year
The Deterring Adversarial Access to Americans’ Data Act is a major push to purge foreign adversary tech from the U.S. economy by hitting businesses where it hurts most: their tax returns. Under Section 2, any company using hardware, software, or even cloud services designed or provided by a 'prohibited foreign entity' will lose access to standard tax benefits that most businesses rely on to grow. This isn't just a slap on the wrist; it’s a full-scale financial pivot that forces companies to choose between their current tech stacks and their bottom lines, with changes kicking in for tax years starting one year after the bill becomes law.
The High Cost of 'Adversarial' Tech
The bill creates a massive financial barrier for companies tied to foreign tech. For starters, Section 168(k) bonus depreciation—the rule that lets businesses deduct the cost of big equipment purchases immediately—is completely off the table for any tech controlled by a foreign adversary. It also blocks the full expensing of domestic research costs under Section 174A. Imagine a local software startup or a mid-sized manufacturing plant trying to upgrade their servers or develop a new app. If they use a cloud provider or specialized hardware deemed to be from a prohibited entity, they can no longer write those costs off right away. Instead of getting a tax break to reinvest in their business, they’ll be stuck with a much higher tax bill.
Redefining the 'Prohibited' List
One of the trickiest parts of this bill is the broad definition of 'foreign adversary-controlled technology.' It doesn't just cover the hardware itself; it includes any service that 'depends on or works with' that tech for its core functions. This could create a domino effect. If a small business owner uses a specific data storage service that relies on infrastructure from a prohibited entity, that business could suddenly be classified as a 'prohibited foreign entity' for tax purposes. This would trigger a modification of their business interest deductions under Section 163(j), effectively forcing them to ignore any income or losses tied to that tech when calculating their taxes. It’s a complex accounting headache that could leave businesses scrambling to audit their entire supply chain just to ensure they aren't accidentally disqualified from their usual deductions.
Innovation Under Pressure
The bill also takes a hard line on research and development. Under Section 41, the tax credit for increasing research activities—a lifeline for many tech companies—is flatly denied to any 'specified foreign entity' or 'foreign-influenced entity.' While the goal is to protect American data and intellectual property, the implementation relies heavily on the Treasury Secretary’s future regulations to fill in the blanks. For a business owner, this means living in a state of 'wait and see' while trying to plan long-term investments. The challenge here is the 'Medium' level of vagueness in the text; until the Treasury issues specific rules, many companies won't know if their current international partnerships or software subscriptions will suddenly become a massive tax liability.