The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have issued new guidance regarding Section 892 of the Internal Revenue Code, providing grandfathering protection and transitional relief to foreign governments and sovereign wealth funds investing in the United States. This guidance addresses the applicability dates of previously proposed regulations concerning tax exemptions on certain passive U.S. investment income.
Treasury Secretary Scott Bessent said, "President Trump’s economic policies continue to attract trillions of dollars in investment into the United States. Treasury and the IRS conducted thorough reviews of taxpayer and stakeholder comments on proposed technical U.S. tax rules, which informed the release of additional guidance to provide certainty on the treatment of current investments and transitional relief to sovereign investors." He added that feedback would be evaluated to ensure final regulations strengthen the American economy and maintain a stable environment for investment.
IRS Chief Executive Officer Frank J. Bisignano also commented, saying, "In response to comments on the recent proposed regulations, the IRS heard the concerns of many taxpayers and decided to provide transitional relief." He noted that these changes aim to preserve established market practices, drive domestic economic growth, and support current and future sovereign wealth fund investment.
The new guidance modifies proposed regulations from December 15, 2025, which clarified when a foreign government's debt acquisition constitutes commercial activity or when it has effective control of a commercially active entity, thus negating the tax exemption. The two-part approach includes a grandfathering rule, proposing new applicability dates to exempt existing foreign government interests from final regulations, and a transition period of at least 90 days or until the start of the first taxable year after publication for sovereign investors to adapt. Treasury and the IRS continue to solicit comments on all aspects of the proposed regulations.