meta_id 3197182

On May 29, 2026, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued additional guidance addressing the applicability dates of proposed regulations under Section 892 of the Internal Revenue Code. Section 892 exempts foreign governments, including sovereign wealth funds, from tax on certain income derived from passive U.S. investments. The guidance provides grandfathering protection and transitional relief to foreign governments investing in the United States. This follows the December 15, 2025 issuance of proposed regulations clarifying when an acquisition of debt by a foreign government constitutes commercial activity and when a foreign government has effective control of an entity engaged in commercial activities—circumstances in which the exemption does not apply. The Treasury and IRS implemented a two-part approach in response to stakeholder comments: a grandfathering rule proposing new applicability dates to ensure existing foreign government interests would not be subject to final regulations, and a transition period providing foreign governments at least 90 days after the publication date or until the start of the first taxable year after publication to transition to the final regulations. Treasury Secretary Scott Bessent said the guidance provides certainty on the treatment of current investments and transitional relief to sovereign investors. IRS Chief Executive Frank J. Bisignano said 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. The Treasury and IRS continue to consider comments from interested parties on all aspects of the proposed regulations. Further guidance is available on the Treasury website, with instructions for submitting comments included in the published guidance.