The Department of the Treasury and the Internal Revenue Service issued additional guidance on May 29 addressing the applicability dates of recent proposed regulations under Section 892 of the Internal Revenue Code, which exempts foreign governments, including sovereign wealth funds, from tax on certain income derived from passive U.S. investments. The new guidance provides grandfathering protection and transitional relief to foreign governments investing in the United States.
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. As final regulations continue to develop, we will evaluate feedback to ensure that they strengthen the American economy, uphold established market practices, and maintain a stable environment for existing and future sovereign wealth fund investment.”
IRS Chief Executive Officer Frank J. Bisignano said, “In response to comments on the recent proposed regulations, the IRS heard the concerns of many taxpayers and decided to provide transitional relief. With these changes, 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.”
On December 15, 2025, Treasury and IRS issued proposed regulations under Section 892 clarifying when an acquisition of debt by a foreign government is considered commercial activity or when a foreign government has effective control over an entity engaged in commercial activities—circumstances where exemptions would not apply.
The latest guidance introduces a two-part approach: a grandfathering rule proposes new applicability dates so that existing foreign government interests are not subject to final regulations; additionally, there is a transition period allowing at least 90 days after publication or until commencement of a taxable year following publication for compliance with final rules.
Treasury and IRS stated they will continue considering comments from interested parties as development continues. Instructions for submitting comments are included in today’s guidance.
