The Department of the Treasury and the Internal Revenue Service (IRS) today issued new guidance regarding Section 892 proposed regulations, offering grandfathering protection and transitional relief to foreign governments and sovereign investors in the United States. This guidance addresses the applicability dates of earlier proposed rules that clarify tax exemptions for certain passive U.S. investments by foreign governments.
The new guidance follows December 15, 2025, proposed regulations which aimed to define when a foreign government's debt acquisition constitutes commercial activity or when it has effective control over a commercially active entity, thereby negating the tax exemption. After reviewing stakeholder comments, Treasury and the IRS introduced a two-part approach.
This approach includes a grandfathering rule, proposing new applicability dates to ensure existing foreign government interests are not subject to the final regulations. Additionally, a transition period grants foreign governments at least 90 days after publication or until the start of their first taxable year after publication to adapt to the final rules.
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." IRS Chief Executive Officer Frank J. Bisignano added that the IRS "aims to preserve established market practices, drive domestic economic growth and support current and future sovereign wealth fund investment in the United States." Treasury and the IRS continue to consider comments on all aspects of the proposed regulations.