On December 15, the U.S. Internal Revenue Service issued both
proposed regulations and final regulations under Section 892 of the
U.S. Internal Revenue Code relating to the taxation of income of
foreign governments from investments in the United States.
This bulletin discusses some of the key takeaways of the
Proposed Regulations and Final Regulations.
Proposed Regulations
The Proposed Regulations introduce several concerning changes
affecting Section 892 entities that invest in
loans1:
- They would treat all acquisitions of debt—including (but
not limited to) at original issuance—as generating commercial
activity income (CAI) unless the acquisition fits within one of two
safe harbors treating the acquisition as an investment (the Safe
Harbors) or under a facts and circumstances test.
