Proposed Rule2026-10841
Income of Foreign Governments and of International Organizations
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 1, 2026
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations regarding the applicability dates of proposed rules relating to the taxation of the income of foreign governments from investment in the United States. This document also withdraws a portion of the proposed regulations published on December 15, 2025, relating to applicability dates.
Full Text
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<title>Federal Register, Volume 91 Issue 104 (Monday, June 1, 2026)</title>
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[Federal Register Volume 91, Number 104 (Monday, June 1, 2026)]
[Proposed Rules]
[Pages 32366-32369]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10841]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[CC-00349656-26]
RIN 1545-BR10
Income of Foreign Governments and of International Organizations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking; partial withdrawal of proposed
rulemaking.
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SUMMARY: This document contains proposed regulations regarding the
applicability dates of proposed rules relating to the taxation of the
income of foreign governments from investment in the United States.
This document also withdraws a portion of the proposed regulations
published on December 15, 2025, relating to applicability dates.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 31, 2026. As of June 1, 2026, proposed
Sec. Sec. 1.892-4(d) and 1.892-5(e), contained in the notice of
proposed rulemaking published in the Federal Register on December 15,
2025 (90 FR 57928), are withdrawn.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> (indicate IRS and CC-00349656-26) by following the
online instructions for submitting comments. Requests for a public
hearing must be submitted as prescribed in the ``Comments and Requests
for a Public Hearing'' section. Once submitted to the Federal
eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (CC-00349656-26),
Room 5503, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Jack Zhou at (202) 317-6938; concerning submissions of comments,
requests for a public hearing, and access to a public hearing,
Publication and Regulations Section at (202) 317-6901 (not toll-free
numbers) or by email to <a href="/cdn-cgi/l/email-protection#b4c4c1d6d8ddd7dcd1d5c6dddad3c7f4ddc6c79ad3dbc2"><span class="__cf_email__" data-cfemail="bfcfcaddd3d6dcd7dadecdd6d1d8ccffd6cdcc91d8d0c9">[email protected]</span></a> (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 892 of the Internal Revenue
Code (Code). These proposed regulations are issued under the express
delegations of authority under sections 892(c) and 7805(a) of the Code.
Background
I. 2025 Proposed Regulations Under Section 892
On December 15, 2025, the Treasury Department and the IRS published
in the Federal Register (90 FR 57928) proposed regulations (the 2025
proposed regulations) under section 892 relating to taxation of the
income of foreign governments from investments in the United States.
The 2025 proposed regulations would provide guidance for determining
whether an acquisition of debt is commercial activity, and whether a
foreign government has
[[Page 32367]]
effective control of an entity. See proposed Sec. Sec. 1.892-
4(c)(1)(ii) and 1.892-5(c)(2). The 2025 proposed regulations are
proposed to apply to taxable years beginning on or after the date of
publication of the Treasury decision adopting the 2025 proposed
regulations as final regulations (the final regulations). See proposed
Sec. Sec. 1.892-4(d) and 1.892-5(e).
II. Comments on the Proposed Applicability Dates
Following the publication of the 2025 proposed regulations, the
Treasury Department and the IRS received comments requesting
transitional relief with respect to the proposed applicability dates.
Commenters requested that the proposed debt acquisition rules, when
finalized, apply only to debt instruments acquired on or after the
publication date of the final regulations (the publication date).
Commenters also requested a rule that would preserve the application of
existing rules under section 892 to debt acquired before the
publication date and to debt acquired on or after the publication date
pursuant to a legally binding commitment entered into before the
publication date. Alternatively, a commenter requested an extended
period of time after the publication date during which foreign
governments could continue relying on the existing rules for
outstanding debt instruments and commitments while they reposition
their interests to accord with the final regulations. In addition, a
commenter requested a transition rule that would preserve the
application of existing rules for debt instruments acquired on or
before 90 days after the publication date of the final regulations and
for debt instruments acquired after that date but pursuant to a binding
commitment entered into on or before that date.
Likewise, commenters requested that the proposed effective control
rules, when finalized, apply only to rights granted (or materially
expanded) on or after the publication date. Commenters recommended a
rule that would preserve the application of existing rules under
section 892 to arrangements in place before the publication date as
well as to entity interests acquired pursuant to legally binding
commitments entered into before the publication date. Alternatively,
commenters requested an extended period after the publication date
during which foreign governments may continue relying on the existing
rules with respect to existing interests, and not have to consider
renegotiating or restructuring certain legacy holdings solely due to
the final regulations. Similarly, one commenter requested a transition
rule that would preserve the application of the existing rules for
agreements and other arrangements entered into on or before 90 days
after the publication date.
Explanation of Provisions
I. New Proposed Applicability Dates
As a general matter, the Treasury Department and the IRS did not
intend for the 2025 proposed regulations, once finalized, to apply
retroactively to existing foreign government holdings of debt and of
interests in entities (collectively, foreign government holdings). In
addition, in response to the comments, these proposed regulations would
include additional transitional relief. Accordingly, this notice of
proposed rulemaking withdraws the applicability dates in Sec. Sec.
1.892-4(d) and 1.892-5(e) of the 2025 proposed regulations and proposes
new applicability dates to ensure that certain existing foreign
government holdings, as well as holdings acquired during a transition
period, would not be subject to the final regulations. The existing
rules under section 892 would continue to apply to foreign government
holdings acquired before the applicability date and to foreign
government holdings acquired on or after the applicability date if
acquired pursuant to a binding commitment entered into before the
applicability date.
These proposed regulations would address only the proposed
applicability dates of the 2025 proposed regulations. The Treasury
Department and the IRS recognize the importance of the issues raised by
stakeholders on the substantive aspects of the 2025 proposed
regulations. The Treasury Department and the IRS have received 18
comments on the 2025 proposed regulations--including with respect to
the debt acquisition rules and the effective control rules--and are
evaluating how to reflect these comments in the next phase of this
project by taking into account established market practices and the
general policy to support current and future sovereign wealth fund
investment in the United States. Any terms used but not defined in this
preamble have the meanings given to them in the 2025 proposed
regulations.
II. Applicability Date for Debt Acquisition Rules
Proposed Sec. 1.892-4(d)(2) would provide foreign governments with
a transition period of at least 90 days after the publication date, or
until the start of the first taxable year after the publication date,
before the debt acquisition rules in the final regulations apply.
Under proposed Sec. 1.892-4(d)(4), if debt is acquired before the
end of the transition period or is acquired pursuant to a binding
commitment entered into before the end of the transition period, the
existing rules applicable before the final regulations are published
would continue to apply to determine whether that acquisition is
commercial activity, and, accordingly, whether income received from
that debt in future periods is derived from commercial activity.
Because it is the acquisition of debt, and not the mere holding of
debt, that is potentially treated as commercial activity for purposes
of section 892, a debt acquirer is not engaged in commercial activity
in taxable years following the taxable year of the acquisition of the
debt solely by reason of holding the debt in the subsequent taxable
years. Furthermore, a debt that was acquired in a previous year and
held in the current year does not cause other debt acquisitions in the
current year to be treated as commercial activity.
III. Applicability Date for Effective Control Rules
Proposed Sec. 1.892-5(e)(2)(i) would similarly provide foreign
governments with a transition period of at least 90 days after the
publication date, or until the start of the first taxable year after
the publication date, before the effective control rules in the final
regulations apply.
Under proposed Sec. 1.892-5(e)(2)(ii), the effective control rules
in the final regulations would not apply to a foreign government's
existing interests in an entity unless the foreign government acquires,
after the transition period, and excluding acquisitions pursuant to a
binding commitment entered into before the end of the transition
period, new interests in the entity that, by themselves, would provide
the foreign government with effective control under the final
regulations. Unless and until this occurs, whether that entity is a
controlled commercial entity would be determined under the existing
rules applicable before the final regulations are published, which will
take into account all interests, regardless of when acquired.
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
These proposed regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the
[[Page 32368]]
Memorandum of Agreement (July 4, 2025) between the Treasury Department
and the Office of Management and Budget (OMB) regarding review of tax
regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a Federal agency obtain the approval of the OMB before
collecting information from the public, whether such collection of
information is mandatory, voluntary, or required to obtain or retain a
benefit. There are no additional information collection requirements
associated with these proposed regulations.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that this rulemaking will not have a significant
economic impact on a substantial number of small entities within the
meaning of section 601(6) of the Regulatory Flexibility Act. This
certification is based on the fact that the proposed regulations affect
foreign governments, including their controlled entities, with income
from sources within the United States. Accordingly, the entities
affected by the proposed regulations are not considered small entities,
and a regulatory flexibility analysis under the Regulatory Flexibility
Act is not required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the Code, these proposed regulations
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The proposed
regulations do not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments, or by the private
sector in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. The proposed regulations do not have
federalism implications and do not impose substantial direct compliance
costs on State and local governments or preempt State law within the
meaning of the Executive order.
Comments and Requests for Public Hearing
Before the proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in the preamble under the ADDRESSES heading.
The Treasury Department and the IRS request comments on all aspects of
the proposed regulations. Any comments submitted will be made available
at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
A public hearing will be scheduled if requested in writing by any
person who submits electronic or written comments. Requests for a
public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
Drafting Information
The principal authors of the proposed regulations are Jack Zhou and
Peter Merkel of the Office of Associate Chief Counsel (International).
However, other personnel from the Treasury Department and the IRS
participated in their development.
Partial Withdrawal of Proposed Regulations
Under the authority of 26 U.S.C. 892(c) and 7805, proposed
Sec. Sec. 1.892-4(d) and 1.892-5(e), contained in the notice of
proposed rulemaking that was published in the Federal Register on
December 15, 2025 (90 FR 57928), are withdrawn.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
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Par. 2. Section 1.892-4 is amended by:
0
a. Redesignating paragraph (d) as paragraph (d)(1);
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b. Revising the heading of newly redesignated paragraph (d)(1); and
0
c. Adding paragraphs (d)(2) introductory text and (d)(3) and (4).
The revision and additions read as follows:
Sec. 1.892-4 Commercial activities.
* * * * *
(d) Applicability date--(1) In general. * * *
(2) Debt acquisition applicability date. Except as provided in
paragraph (d)(3) of this section, paragraph (c)(1) of this section
applies to acquisitions of debt on or after the date that is the later
of:
(i) The first day of the acquirer's first taxable year beginning on
or after [DATE OF PUBLICATION OF FINAL RULE], or
(ii) 90 days after [DATE OF PUBLICATION OF FINAL RULE].
(3) Binding commitment rule. Paragraph (c)(1) of this section does
not apply to debt acquired pursuant to a binding commitment entered
into before the later of the dates described in paragraphs (d)(2)(i)
and (ii) of this section.
(4) Rules for debt acquisitions and commitments before the
applicability date. Debt acquired before the later of the dates
described in paragraphs (d)(2)(i) and (ii) of this section or pursuant
to a binding commitment described in paragraph (d)(3) of this section
shall continue to be governed by Sec. Sec. 1.892-4 and 1.892-4T, as
contained in 26 CFR in part 1 in effect on April 1, 2026.
0
Par. 3. Section 1.892-5 is amended by:
0
a. Redesignating paragraph (e) as paragraph (e)(1);
0
b. Revising the heading of newly redesignated paragraph (e)(1); and
0
c. Adding paragraph (e)(2) introductory text.
The revision and addition read as follows:
Sec. 1.892-5 Controlled commercial entity.
* * * * *
(e) Applicability date--(1) In general. * * *
(2) Effective control applicability date--(i) In general. Except as
provided in paragraph (e)(2)(ii) of this section,
[[Page 32369]]
paragraph (c)(2) of this section applies to determine whether a foreign
government has effective control of an entity on or after the date that
is the later of:
(A) The first day of the foreign government's first taxable year
beginning on or after [DATE OF PUBLICATION OF FINAL RULE], or
(B) 90 days after [DATE OF PUBLICATION OF FINAL RULE].
(ii) Rules with respect to previously acquired interests. If a
foreign government holds any previously acquired interests (as defined
in paragraph (e)(2)(ii)(B) of this section) in an entity, paragraph
(c)(2) of this section applies to determine whether the foreign
government has effective control of the entity beginning on the date on
which the foreign government first acquires new controlling interests
(as defined in paragraph (e)(2)(ii)(A) of this section) in the entity.
Until the date that the foreign government first acquires new
controlling interests in the entity, all of the foreign government's
interests in that entity shall continue to be governed by Sec. Sec.
1.892-5 and 1.892-5T, as contained in 26 CFR in part 1 in effect on
April 1, 2026.
(A) New controlling interests. For purposes of this paragraph
(e)(2)(ii), the term new controlling interests means one or more
interests in an entity, other than any previously acquired interests
(as defined in paragraph (e)(2)(ii)(B) of this section), that in the
aggregate result in effective control of the entity under paragraph
(c)(2) of this section.
(B) Previously acquired interests. For purposes of this paragraph
(e)(2)(ii), the term previously acquired interests means one or more
interests in an entity acquired by a foreign government before the
later of the dates described in paragraphs (e)(2)(i)(A) and (B) of this
section, or acquired pursuant to a binding commitment entered into
before the later of such dates.
Frank J. Bisignano,
Chief Executive Officer.
[FR Doc. 2026-10841 Filed 5-29-26; 8:45 am]
BILLING CODE 4831-GV-P
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