Internal Revenue Bulletin 2026-3 (PDF rendition): IRS Revenue Rulings

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Bulletin No. 2026–3
January 12, 2026
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
ADMINISTRATIVE
REG-110519-25, page 353.
The proposed regulations would update points of contact
within the Department of Justice and the IRS. The proposed
regulations are necessary to reflect a reorganization within
the Department of Justice to identify new points of contact
for matters involving the internal revenue laws. The proposed
regulations would also update points of contact at the IRS
for administrative claim submissions from taxpayers seeking
civil damages for certain unauthorized collection actions or
awards of administrative costs with respect to certain admin­
istrative proceedings.
REG-134219-08; REG-132251-11, page 358.
This document withdraws two notices of proposed rule­
making regarding innocent spouse relief.
INCOME TAX
REG-101952-24, page 349.
These proposed regulations relate to the taxation of
the income of foreign governments from investments in
the United States. In particular, these proposed regula­
tions provide guidance for determining when an acqui­
sition of debt by a foreign government is considered to
be commercial activity, and when a foreign government
has effective control of an entity engaged in commercial
activity. These proposed regulations will affect foreign
governments that derive income from sources within the
United States.
Rev. Rul. 2026-2, page 342.
Federal rates; adjusted federal rates; adjusted federal long­
term rate, and the long­term tax exempt rate. For purposes
of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for January 2026.
T.D. 10042, page 320.
These final regulations relate to the taxation of the income
of foreign governments from investments in the United
States. In particular, these final regulations provide guid­
ance for determining when a foreign government is engaged
in commercial activity and when an entity is a controlled
commercial entity. The final regulations will affect foreign
governments that derive income from sources within the
United States.
Finding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top­quality service by helping
them understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi­
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all sub­
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other­
wise indicated. Procedures relating solely to matters of inter­
nal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rul­
ings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar­
ment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
January 12, 2026 Bulletin No. 2026–3

Part I
26 CFR 1.892-3 through 5.
T.D. 10042
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Income of Foreign
Governments and of
International Organizations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final regulations relating to the taxation of
the income of foreign governments from
investments in the United States. In partic-
ular, these final regulations provide guid-
ance for determining when a foreign gov-
ernment is engaged in commercial activity
and when an entity is a controlled commer-
cial entity. The final regulations will affect
foreign governments that derive income
from sources within the United States.
DATES: Effective date: These regulations
are effective on December 15, 2025.
Applicability dates: For dates of appli-
cability, see §§ 1.892-3(c), 1.892-4(d),
and 1.892-5(e).
FOR FURTHER INFORMATION
CONTACT: Jack Zhou at (202) 317-
6938 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Authority
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under section 892 of the Internal
Revenue Code (Code). These regulations
are issued under the express delegations
of authority under sections 892(c) and
7805(a) of the Code.
Background
On June 27, 1988, the Department of
the Treasury (Treasury Department) and
the IRS published in the Federal Regis-
ter a notice of proposed rulemaking (53
FR 24100) (1988 proposed regulations)
with a cross-reference to temporary reg-
ulations under section 892 (TD 8211, 53
FR 24060) (1988 temporary regulations)
to provide guidance concerning the tax-
ation of income of foreign governments
and international organizations from
investments in the United States following
changes made to section 892 of the Code
by section 1247 of the Tax Reform Act of
1986 (1986 Act) (Public Law 99-514, 100
Stat. 2085, 2583). After the 1988 tempo-
rary regulations and 1988 proposed regu-
lations were published, section 892(a)(2)
(A) was amended by section 1012(t) of the
Technical and Miscellaneous Revenue Act
of 1988 (1988 Act or TAMRA) (Public
Law 100–647, 102 Stat. 3342, 3527-28)
to provide that income derived from the
disposition of any interest in a controlled
commercial entity (CCE) does not qual-
ify for the exemption under section 892.
Section 1019(a) of TAMRA states that,
except as otherwise provided, any amend-
ments made by TAMRA are effective as if
included in the provision of the 1986 Act
to which such amendment relates.
On August 1, 2002, the Treasury
Department and the IRS published
§ 1.892-5(a)(3) in the Federal Register
(TD 9012, 67 FR 49864) to provide that
the term “entity” for purposes of section
892(a)(2)(B) (defining “controlled com-
mercial entity”) includes partnerships
(2002 final regulations).
On November 3, 2011, the Treasury
Department and the IRS published in the
Federal Register a notice of proposed
rulemaking (76 FR 68119) that would pro-
vide additional guidance for determining
when a foreign government is engaged in
commercial activity (2011 proposed regu-
lations). On December 29, 2022, the Trea-
sury Department and the IRS published
in the Federal Register a notice (87 FR
80108) to reopen the comment period for
the 2011 proposed regulations.
Also on December 29, 2022, the Trea-
sury Department and the IRS published in
the Federal Register a notice of proposed
rulemaking (87 FR 80097) that would
make changes to § 1.892-5T(b)(1) to pro-
vide exceptions to the general rule that a
United States real property holding cor-
poration (USRPHC), as defined in section
897(c)(2), which may include a foreign
corporation, is treated as engaged in com-
mercial activity and, therefore, is a CCE if
the requirements of § 1.892-5T(a)(1) or (2)
are satisfied (2022 proposed regulations).
The Treasury Department and the IRS
received comments on the 2011 proposed
regulations and the 2022 proposed regula-
tions, all of which are available at https://
www.regulations.gov or upon request. A
public hearing was not requested and none
was held. After taking into account and
addressing those comments, this Treasury
decision finalizes, with modifications, the
2022 proposed regulations and the 2011
proposed regulations. In addition, this Trea-
sury decision finalizes proposed § 1.892-
3(a)(4) of the 1988 proposed regulations in
accordance with the modifications recom-
mended by the comments to the 2011 pro-
posed regulations, which were reiterated
by a comment to the 2022 proposed regula-
tions. Since reopening the comment period
of the 2011 proposed regulations has not
resulted in any new or different comments,
§ 1.892-3(a)(4) is finalized without repro-
posing the provision (as discussed in part
II.B.2 of the Summary of Comments and
Explanation of Revisions). Terms used but
not defined in this preamble have the mean-
ing provided in the final regulations.
Summary of Comments and
Explanation of Revisions.
The final regulations retain the gen-
eral approach and structure of the 2011
proposed regulations and the 2022 pro-
posed regulations, with certain revisions.
This section of the preamble discusses
the comments received in response to the
2011 proposed regulations and the 2022
proposed regulations, and explains the
revisions reflected in the final regulations.
I. Overview
Section 892 exempts a foreign gov-
ernment from U.S. income taxation under
January 12, 2026 320 Bulletin No. 2026–3

subtitle A of the Code on certain qualified
income received from investments in the
United States in stocks, bonds, or other
domestic securities, or financial instru-
ments held in the execution of govern-
mental financial or monetary policy. Sec-
tion 892(a)(1)(A). This exemption does
not apply to income that is (1) derived
from the conduct of any commercial activ-
ity (whether within or outside the United
States), (2) received by a CCE or received
(directly or indirectly) from a CCE, or (3)
derived from the disposition of any inter-
est in a CCE. Section 892(a)(2)(A).
Section 892 does not define the term
“foreign government.” The 1988 temporary
regulations generally define a foreign gov-
ernment to consist only of integral parts and
controlled entities of a foreign sovereign,
and define an “integral part” of a foreign
sovereign to include any body, however
designated, that constitutes a governing
authority of a foreign country. See
§ 1.892-
2T(a)(2). The 1988 temporary regulations
generally define a “controlled entity” of a
foreign sovereign to mean an entity that is
separate in form from a foreign sovereign
or otherwise constitutes a separate jurid-
ical entity if it satisfies certain require-
ments, including that it is wholly owned
and controlled by the foreign sovereign
directly or indirectly through one or more
controlled entities. See § 1.892-2T(a)(3).
The 1988 temporary regulations provide
that a controlled entity does not include
partnerships or any other entity owned and
controlled by more than one foreign sover-
eign. Thus, a foreign financial organization
organized and wholly owned and controlled
by several foreign sovereigns to foster eco-
nomic, financial, and technical cooperation
between various foreign nations is not a
controlled entity for purposes of section
892. See § 1.892-2T(a)(3).
Section 892(a)(2)(B) provides that, for
purposes of section 892(a)(2)(A), a CCE
is any entity engaged in commercial activ-
ities (whether within or outside the United
States) and in which a foreign government
holds (directly or indirectly) interests that
meet specified thresholds. The 2002 final
regulations provide that the term “entity”
in section 892(a)(2)(B) means a corpo-
ration, a partnership, a trust (including a
pension trust described in § 1.892-2T(c)),
and an estate. See § 1.892-5(a)(3).
Section 892(c) authorizes the Secretary
to prescribe such regulations as may be
necessary or appropriate to carry out the
purposes of section 892.
II. Defining Commercial Activities
A. General rule
The 1988 temporary regulations define
commercial activities to include all activi-
ties (whether conducted within or outside
the United States) which are ordinarily
conducted by the taxpayer or by other per-
sons with a view towards the current or
future production of income or gain. See
§ 1.892-4T(b). Furthermore, those regula-
tions provide that an activity may be con-
sidered commercial activity even if that
activity does not constitute the conduct
of a trade or business in the United States
under section 864(b). Id.
The 2011 proposed regulations would
continue to define commercial activ-
ities to include all activities (whether
conducted within or outside the United
States) which are ordinarily conducted
for the current or future production of
income or gain, and provide that only
the nature of the activity, not the pur-
pose or motivation for conducting it, is
determinative of whether the activity is
commercial in character.
1
See proposed
§ 1.892-4(d) (which corresponds to the
rule in § 1.892-4T(b)). Moreover, the
2011 proposed regulations would pro-
vide that an activity may be considered
commercial activity even if that activity
does not constitute a trade or business for
purposes of section 162 or does not con-
stitute (or would not constitute if under-
taken in the United States) the conduct of
a trade or business in the United States
for purposes of section 864(b). Id.
Several comments generally recom-
mended that the final regulations should not
distinguish between commercial activity
under section 892 and a trade or business
under section 864(b), or should provide
that an activity will not be treated as com-
mercial activity if it would not constitute
a trade or business under section 864(b)
if it were carried on in the United States.
The comments recommended that the final
regulations provide additional guidance by
making the existing Treasury regulations
under section 864(b) applicable to foreign
governments under section 892.
The Treasury Department and the IRS
agree that, subject to express exceptions,
an activity that constitutes a trade or busi-
ness for purposes of section 162 or con-
stitutes (or would constitute if undertaken
in the United States) a trade or business in
the United States for purposes of section
864(b) is commercial activity; however, the
best reading of the term “commercial activ-
ities” as used in section 892 is that it has a
different and broader meaning than “trade
or business” under sections 162 and 864.
In drafting section 892, Congress opted
for a different term, “commercial activi-
ties,” instead of the familiar term “trade or
business.” The word “activities” denotes a
standard more easily satisfied than the term
“trade or business.” Congress’s decision to
use a different term should be given effect.
The final regulations therefore employ
a broad definition, and provide that com-
mercial activities potentially include
activities that may not (or would not, if
undertaken in the United States) consti-
tute the conduct of a trade of business in
the United States under section 864(b).
Accordingly, the final regulations do not
adopt the comments to limit the defini-
tion of commercial activities to activities
that are a trade or business under section
864(b). In addition, the final regulations
clarify that activities that constitute a
trade or business for purposes of section
162 or constitute (or would constitute if
undertaken in the United States) a trade or
business in the United States for purposes
of section 864(b) are commercial activi-
ties for purposes of section 892, except as
expressly provided otherwise.
Another comment suggested that the
position taken in proposed § 1.892-4(d)
(that an activity may be considered com-
mercial activity even if it does not consti-
tute a trade or business) appears contrary
to the rules of proposed § 1.892-4(e)(1)
(ii), which would provide that effecting
transactions in securities, commodities,
or financial instruments for a foreign gov-
1
The 2011 proposed regulations provided rules in proposed § 1.892-4(d) and (e) that correspond to the same rules stated in § 1.892-4T(b) and (c). These final regulations revise the structure
of the provisions of the 2011 proposed regulations to be consistent with the structure of the 1988 temporary regulations.
Bulletin No. 2026–3 321 January 12, 2026

January 12, 2026 322 Bulletin No. 2026–3
ernment’s own account does not constitute
commercial activity regardless of whether
the activity constitutes a trade or business.
The Treasury Department and the IRS do
not agree with this comment, and are of the
view that the 2011 proposed regulations
are internally consistent. Proposed § 1.892-
4(d) would define the term commercial
activities generally to include activities
beyond those that would constitute a trade
or business, while proposed § 1.892-4(e)
(1)(ii) would provide a specific exception
to that general rule for trading activities.
The final regulations remove the reference
to trade or business activity to clarify the
trading exception under § 1.892-4(c)(2)
(formerly proposed § 1.892-4(e)(1)(ii)).
B. Investment exception
Section 892 does not identify specific
activities that do or do not constitute com-
mercial activities. However, the regulations
under section 892 provide that commercial
activities do not include investment activ-
ities, cultural events, governmental func-
tions, purchasing of goods for use of the
foreign sovereign, and non-profit activities.
See, for example, § 1.892-4T(c).
The 2011 proposed regulations would
provide an exclusive list of investments
that are not treated as commercial activ-
ities. This list includes investments in
stocks, bonds, and other securities (as
defined in § 1.892-3T(a)(3)); loans;
investments in financial instruments (as
defined in § 1.892-3T(a)(4)); the holding
of net leases on real property; the holding
of real property which is not producing
income (other than on its sale or from an
investment in net leases on real property);
and the holding of bank deposits in banks.
See proposed § 1.892-4(e)(1)(i) (which
corresponds to § 1.892-4T(c)(1)(i)). The
2011 proposed regulations’ investment
exception also would provide that trans-
ferring securities under a loan agreement
which meets the requirements of section
1058 is an investment and not commercial
activity, and that an activity will not cease
to be an investment solely because of the
volume of transactions of that activity or
because of other unrelated activities.
The 2011 proposed regulations also
would provide that investments (includ-
ing loans) made by a banking, financing,
or similar business constitute commer-
cial activities, even if the income derived
from such investments is not considered
to be income effectively connected with
the active conduct of a banking, financing,
or similar business in the United States by
reason of the application of § 1.864-4(c)(5).
See proposed § 1.892-4(e)(1)(iii) (which
corresponds to § 1.892-4T(c)(1)(iii)).
1. Investment in Loans
The exclusive list of investments that are
not treated as commercial activities under
the 2011 proposed regulations includes the
term “loans.” See proposed § 1.892-4(e)(1)
(i) (which corresponds to § 1.892-4T(c)(1)
(i)). A comment stated that there is uncer-
tainty as to the circumstances in which loan
origination is commercial activity. The
comment recommended that lending (and
charging of associated fees) should not be
treated as commercial activity unless an
entity offers to make loans to the general
public or makes more than five loans in a
single year.
The recommendation of the comment
is not adopted in the final regulations
because the Treasury Department and the
IRS do not agree that making loans to
the general public or making a particular
minimum number of loans constitute nec-
essary conditions for loan (or other debt)
acquisitions to be commercial in charac-
ter, or that a lack of those characteristics
necessarily indicates absence of commer-
cial activities. The Treasury Department
and the IRS are separately proposing rules
in this issue of the Federal Register as
to when acquiring a loan or other debt,
including in connection with original issu-
ance, is treated as an investment for pur-
poses of section 892.
2. Investment and Trading in Financial
Instruments
The 1988 temporary regulations provide
an exception from commercial activities for
investments in financial instruments held
in the execution of governmental financial
or monetary policy. See § 1.892-4T(c)(1).
The 2011 proposed regulations would have
modified this exception by providing that
investments in financial instruments (as
defined in § 1.892-3T(a)(4)) are not treated
as commercial activities, without regard to
whether the financial instruments are held
in the execution of governmental financial
or monetary policy. See proposed § 1.892-
4(e)(1)(i) (which corresponds to § 1.892-
4T(c)(1)(i)). The 2011 proposed regu-
lations also would have added financial
instruments (as defined in § 1.892-3T(a)
(4)) to the trading exception under § 1.892-
4T(c)(1)(ii), without regard to whether the
financial instruments are held in the execu-
tion of governmental financial or monetary
policy. See proposed § 1.892-4(e)(1)(ii).
Section 1.892-3T(a)(4) defines financial
instrument to include any forward, futures,
options contract, swap agreement or similar
instrument in a functional or nonfunctional
currency (as defined in section 985(b)) or
in precious metals when held by a foreign
government or central bank of issue (as
defined in § 1.895-1(b)).
Numerous comments to the 2011 pro-
posed regulations recommended clarifying
that all transactions in financial instruments
that are within the scope of the trading
safe harbors under section 864(b), includ-
ing derivative transactions within the
scope of the 1998 proposed regulations
(63 FR 32164, June 12, 1998) under pro-
posed § 1.864(b)-1, be treated as within
the investment and trading exceptions of
proposed § 1.892-4(e)(1)(i) and (ii) (which
correspond to § 1.892-4T(c)(1)(i) and (ii)).
Certain of these comments asserted that
investing in these financial instruments is
no less passive than a direct investment
in stocks or securities and, therefore, the
recommended clarification would be con-
sistent with the purposes of section 892.
Comments also recommended expanding
the definition of the term “financial instru-
ment” in § 1.892-3T(a)(4) to include all
types of market standard derivatives. The
recommendation was reiterated by a com-
ment to the 2022 proposed regulations.
The Treasury Department and the IRS
generally agree that investing and trading
by a foreign government investor in finan-
cial instruments that are derivatives within
the scope of the proposed regulations
under section 864(b) are not commercial
activities. See Prop. Reg. § 1.864(b)-1(b)
(2), 63 FR 32164, June 12, 1998. Investing
and trading in such financial instruments
generally involve only putting capital at
risk and do not involve activity such as
structuring the instrument, in contrast to
structuring of bespoke, non-market stan-
dard derivatives; thus, the expected return

Bulletin No. 2026–3 323 January 12, 2026
is generally a return exclusively on capi-
tal rather than on the activities conducted.
Accordingly, the final regulations adopt
these comments by revising the defini-
tion of the term “financial instrument”
under § 1.892-3(a)(4) to include financial
instruments that are derivatives, which
the final regulations define in a manner
that is substantially similar to the defini-
tion in proposed § 1.864(b)-1(b)(2). As a
result, a foreign government may invest
and effect transactions (as a nondealer)
for its own account with respect to these
expanded types of financial instruments
without being treated as engaged in com-
mercial activities. See § 1.892-3(a)(4)(i).
If, however, a contract or other financial
instrument would be characterized under
general Federal income tax principles
as resulting in beneficial ownership of
a reference asset, the determination of
whether the foreign government inves-
tor is conducting commercial activity is
made based on ownership of that asset
and not with regard to the financial instru-
ment. Moreover, if a contract or similar
arrangement is not a derivative described
in § 1.892-3(a)(4)(i), and does not other-
wise qualify as an investment within the
meaning of § 1.892-4(c)(1), effecting a
transaction for one’s own account in that
contract or similar arrangement may be
commercial activity unless it is within
the scope of an exception to commercial
activities under §§ 1.892-4(c) and 1.892-
4T(c). The final regulations also make
changes to the structure of § 1.892-3T(a)
(4) by separating the provision into sep-
arate paragraphs for ease of reference.
See § 1.892-3(a)(4)(i) and (ii). The final
regulations finalize proposed § 1.892-3(a)
(4) of the 1988 proposed regulations with
modifications in accordance with the com-
ments discussed above, together with the
changes described herein, and remove the
provision from the temporary regulations
that were published on the same date.
3. Holding of Non-functional Currency
A comment recommended adding the
holding of non-functional currency in a
capacity other than a dealer or financial
institution to the exclusive list of invest-
ments that are not treated as commercial
activities. The Treasury Department and
the IRS agree with this comment because
solely holding one’s own cash, whether or
not in functional currency, is not an activ-
ity ordinarily conducted for the current
or future production of income or gain.
Although currency deposited in a bank may
produce income or gain, merely depositing
currency does not rise to the level of com-
mercial activity. Since a foreign govern-
ment entity generally would hold currency
(whether functional or non-functional) in a
bank deposit, the Treasury Department and
the IRS are revising the rule for holding of
bank deposits to clarify that the exception
includes the holding of bank deposits in
any currency. See § 1.892-4(c)(1)(i). The
comment also recommended excluding
currency gains from commercial activity
income, but this recommendation is beyond
the scope of the final regulations. There-
fore, the final regulations do not adopt this
recommendation.
4. Receipt of Certain Fee Income
A comment recommended an exception
from commercial activity for the receipt of
certain fee income as a passive investor in
a private equity or private credit fund. The
comment noted that foreign governments
and their controlled investment vehicles
that invest in private equity or similar
funds may negotiate for the right to share
in fees for services provided to portfolio
companies by the sponsor of the fund. The
comment thus recommended that a for-
eign government investor should not be
treated as conducting commercial activity
solely by reason of receiving a share of the
fees for services performed by the sponsor
if the foreign government holds (directly
or indirectly) an equity interest in the
underlying fund, subject to certain con-
ditions. The comment also asserted that a
foreign government investor should not be
treated as conducting commercial activity
if it receives fees incidental to providing
capital for an investment in debt or equity
of an underlying issuer. The comment
contended that the receipt of these types of
fees is not commercial activity because the
fees are payable for making, continuing to
make, or having made capital available to
the underlying issuer for an investment
otherwise described in § 1.892-4T(c)(1).
The final regulations do not adopt this
comment. The Treasury Department and
the IRS are of the view that, for purposes of
determining whether a foreign government
is engaged in commercial activities, the
best reading of the term “commercial activ-
ities” is that it is concerned with the nature
of the activity performed by, or attribut-
able to, the foreign government. To the
extent the commercial activities of a fund
sponsor are attributable to a foreign gov-
ernment investor in a privately managed
fund under § 1.892-5(d)(5)(i) (attribution
from an entity classified as a partnership),
or on the basis of agency, the foreign gov-
ernment investor is considered to conduct
commercial activity unless one or more
exceptions under § 1.892-5 (for example,
the qualified partnership interest exception
under § 1.892-5(d)(5)(iii)(B)) applies. This
analysis applies without regard to whether
the foreign government actually or con-
structively receives or otherwise shares in
income labelled as a fee. The final regula-
tions do not treat the receipt of any partic-
ular type of fee as alone determinative of
whether a foreign government conducts
commercial activities. This approach is
consistent with Federal tax principles
which analyze the substance of a transac-
tion, rather than its label or form.
5. Partnership Equity Interests
The 2011 proposed regulations would
provide, in relevant part, that investments
in other securities (as defined in § 1.892-
3T(a)(3)) or generally effecting trans-
actions in other securities (as defined in
§ 1.892-3T(a)(3)) for a foreign govern-
ment’s own account as a nondealer do not
constitute commercial activities. See pro-
posed § 1.892-4(e)(1)(i) and (ii) (which
correspond to § 1.892-4T(c)(1)(i) and (ii)).
Section 1.892-3T(a)(3) provides that the
term “other securities” does not include
partnership interests (with the exception
of publicly traded partnerships within the
meaning of section 7704). As a result of
the cross-reference to § 1.892-3T(a)(3)
in proposed § 1.892-4(e)(1)(i) and (ii),
comments have requested clarification as
to whether a disposition of a partnership
interest would be treated as commercial
activity for purposes of section 892.
The Treasury Department and the IRS
have determined that holding or trading
partnership equity interests for one’s own
account and other than as a dealer is not by
itself commercial activity. Rather, holding

January 12, 2026 324 Bulletin No. 2026–3
equity interests in a partnership (including
holding by an entity incident to trading
partnership equity interests for one’s own
account and other than as a dealer) results in
commercial activity if the partnership con-
ducts commercial activity that is attributed
to the holder. If this were not the case, there
would be no need for a rule attributing the
commercial activities of a partnership to its
partners or for the exception to that rule for
qualified partnership interests as defined in
§ 1.892-5(d)(5)(iii)(B). The exclusion of
partnership equity interests from the defi-
nition of “other securities” for purposes
of the investment and trading exceptions
should not be read as implying that hold-
ing or trading such interests for one’s own
account and other than as a dealer are com-
mercial activities. Accordingly, although
a partner may be attributed commercial
activities conducted by a partnership, the
final regulations provide that the mere act
of holding a partnership equity interest
or effecting transactions in a partnership
equity interest (for a foreign government’s
own account and other than as a dealer) are
not in themselves treated as commercial
activities. See § 1.892-4(c)(1)(i) and (c)(2).
Further, pursuant to section 892(a)(2)(A), a
foreign government’s distributive share of
partnership income attributable to commer-
cial activities is not exempt from taxation
under section 892. Moreover, pursuant to
§ 1.892-3T(a)(2) and (3), gain from the dis-
position of a partnership equity interest is
not exempt from taxation under section 892
(though, depending on the partnership’s
assets and activities, it may be under the
generally applicable Code provisions).
Comments also recommended that any
income earned through a partnership and
any gain arising from the disposition of a
partnership interest be exempt under sec-
tion 892 to the extent such income or gain
would be exempt if realized directly by a
foreign government. These recommenda-
tions pertaining to the types of income that
are exempt under § 1.892-3T(a), however,
are beyond the scope of the final regula-
tions. Therefore, the final regulations do
not adopt these recommendations.
6. Banking, Financing, or Similar
Business
With respect to the 2011 proposed regu-
lations’ provision that otherwise qualifying
investments made by a banking, financing,
or similar business would constitute com-
mercial activities, comments recommended
that the final regulations define banking,
financing, or similar business by reference
to § 1.864-4(c)(5)(i) without regard to the
limitation that the activities be undertaken
in the United States.
The Treasury Department and the IRS
address this comment by proposing new
rules included in this issue of the Federal
Register for determining the circum-
stances in which acquisitions of loans
(and other debt) are investments or com-
mercial activities for purposes of section
892, and, in doing so, propose to withdraw
§ 1.892-4T(c)(1)(iii) (the rule that treats
investments and loans made by a banking,
financing, or similar business as commer-
cial activities). Therefore, the final regula-
tions do not adopt the comment or finalize
proposed § 1.892-4(e)(1)(iii) in the 2011
proposed regulations because it repeats
the text of § 1.892-4T(c)(1)(iii).
III. Controlled Commercial Entities
Consistent with section 892(a)(2)(B),
proposed § 1.892-5(a)(1) would define
CCE to mean any entity (including a con-
trolled entity as defined in § 1.892-2T(a)
(3)) that is engaged in commercial activi-
ties (whether conducted within or outside
the United States) if the foreign govern-
ment holds (directly or indirectly) any
interest in such entity which (by value or
voting power) is 50 percent or more of
the total of such interests in such entity,
or holds (directly or indirectly) any other
interest in such entity which provides the
foreign government with effective practical
control of such entity. The 2011 proposed
regulations would define entity for pur-
poses of section 892 and the regulations
thereunder to include a corporation, a part-
nership, a trust (including a pension trust
described in § 1.892-2T(c)), and an estate.
The 2002 final regulations, however, define
entity only for purposes of section 892(a)
(2)(B). Consistent with the 2002 final reg-
ulations, the final regulations provide that
the definition of “entity” in § 1.892-5(a) is
for purposes of section 892(a)(2)(B) only.
Several comments requested further
detail on the definition of effective practi-
cal control, including additional examples
of arrangements and rules to illustrate the
definition. Other comments made specific
recommendations for what should not be
treated as effective practical control, such
as normal creditor interests and holding
solely a minority equity interest (by vote
and value) without more.
The Treasury Department and the IRS
generally agree with the comments that
the definition of effective practical control
under § 1.892-5T(c)(2) would be made
clearer by inclusion of additional details
and examples. The final regulations replace
the term “effective practical control” with
the term “effective control” to be consistent
with section 892(a)(2)(B)(ii). See § 1.892-
5(a)(1)(iii)(B) and (c)(2). No inference is
intended that the term “effective control”
has any meaning different from that of
“effective practical control.” In a separate
notice of proposed rulemaking published
in this issue of the Federal Register, the
Treasury Department and the IRS propose
rules for defining effective control. See pro-
posed § 1.892-5(c)(2).
One comment recommended clarifying
that control with respect to entities held
through a partnership be determined based
on a foreign government’s indirect interest
through the partnership rather than based
on the direct interest held by the partner-
ship. The recommendation requires mod-
ifying § 1.892-5T(c), which is outside the
scope of these final regulations. There-
fore, the final regulations do not adopt this
recommendation.
A. U.S. real property holding
corporations and U.S. real property
interests
The 1988 temporary regulations pro-
vide that a USRPHC, as defined in section
897(c)(2), or a foreign corporation that
would be a USRPHC if it were a domes-
tic corporation, is treated as engaged in
commercial activity and, therefore, is a
CCE, if a foreign government meets cer-
tain ownership or control thresholds with
respect to that USRPHC or foreign cor-
poration (the USRPHC per se rule). See
§ 1.892-5T(b)(1).
Proposed § 1.892-4(e)(1)(iv) of the
2011 proposed regulations would provide
that a disposition, including a deemed dis-
position under section 897(h)(1), of a U.S.
real property interest (as defined in section
897(c)) (USRPI), by itself, does not con-

Bulletin No. 2026–3 325 January 12, 2026
stitute the conduct of commercial activity.
However, as provided in § 1.892-3T(a),
the income derived from the disposition
of a USRPI described in section 897(c)(1)
(A)(i) (generally an interest in real prop-
erty located in the United States or the Vir-
gin Islands) shall in no event qualify for
the exemption from tax under section 892.
The 2022 proposed regulations would
revise § 1.892-5T(b)(1) by providing two
exclusions from the USRPHC per se rule
for: (i) a foreign corporation that is a qual-
ified holder under § 1.897(l)-1(d) (refer-
ring to qualified foreign pension funds or
certain qualified controlled entities), or (ii)
a corporation that is a USRPHC solely by
reason of its direct or indirect ownership
interest in one or more other corporations
that are not controlled by the foreign gov-
ernment (as determined under § 1.892-
5T(a)). As a result of the latter exclusion in
the 2022 proposed regulations, a foreign
government could use a domestic holding
company for those minority interests with-
out that holding company being treated as
a CCE (the minority interest exception).
2

The 2022 proposed regulations would
apply to taxable years ending on or after
December 28, 2022, when finalized. The
preamble provided that taxpayers may
rely on the 2022 proposed regulations,
including the minority interest exception,
until the date the regulations are published
as final regulations in the Federal Register.
Comments recommended that the final
regulations withdraw the USRPHC per se
rule. They asserted that there is no policy
rationale under section 897 for the USR-
PHC per se rule in the context of section
892 and that it is merely a “trap for the
unwary” that causes section 892 investors
to devise ways to plan around the rule. One
comment asserted that the 1988 Act’s legis-
lative history (discussed below) addressed
only a foreign government’s disposition
of an investment in a domestic USRPHC,
rather than demonstrating an intent to
treat a foreign USRPHC as a per se CCE.
Another comment recommended that the
rule should apply solely to an entity that
would be a USRPHC if the reference to
USRPI in section 897(c)(2) were replaced
with a cross reference to the definition of a
USRPI in section 897(c)(1)(A)(i). Another
comment recommended replacing the
USRPHC per se rule with a rule that treats
the gain or loss on the sale of a controlled
USRPHC as if it were derived from com-
mercial activity, similar to the rule under
section 897(a) which treats gain or loss
realized from the disposition of a USRPI as
effectively connected with a U.S. trade or
business. This comment explained that this
recommendation is better aligned with the
1988 Act’s legislative history.
Several comments recommended that
the final regulations clarify or expand the
application of the minority interest excep-
tion. Two comments made recommenda-
tions that would modify the assets to be
taken into account for the minority interest
exception, such as by disregarding USRPIs
that do not collectively exceed ten percent
of an entity’s assets after excluding USR-
PIs that qualify for the minority interest
exception. Other comments recommended
other ways of expanding the minority
interest exception, including by taking into
account noncontrolling interests in non-
corporate entities and investments in debt
instruments or other financial instruments
that could be treated as USRPIs.
The 1988 Act’s legislative history
includes a statement that “a commercial
entity is to include any U.S. real property
holding corporation (sec. 897(c)(2)).” S.
Rep. No. 100-445, 306 (1988). Although
the legislative history does not expressly
distinguish between domestic and foreign
USRPHCs, the Treasury Department and
the IRS have determined that limiting the
USRPHC per se rule to domestic corpora-
tions is appropriate to preserve U.S. taxa-
tion of gain on the sale of shares of a con-
trolled domestic USRPHC, consistent with
the legislative history, while at the same
time addressing the concerns of comment-
ers as to application of the rule to foreign
USRPHCs. The Treasury Department and
the IRS also have determined that applying
the USRPHC per se rule only to domestic
corporations more directly addresses the
concerns raised by comments that con-
trolled entities, which are necessarily for-
eign and otherwise eligible for the section
892 exemption, must continuously monitor
their investments to ensure that they do not
become subject to the USRPHC per se rule.
Thus, the final regulations limit the USR-
PHC per se rule to domestic corporations
and do not deem a foreign corporation to
be engaged in commercial activity solely
by reason of its status as a USRPHC. See
§ 1.892-5(b)(1)(ii)(A). Due to this change
in the USRPHC per se rule in the final
regulations, the proposed exception for
foreign corporations that are qualified
holders under § 1.897(l)-1(d) is not nec-
essary and so is not finalized. Therefore,
foreign government investors as defined in
§ 1.892-2T(a) and foreign government pen-
sion funds that are qualified holders under
§ 1.897(l)-1(d) do not need to monitor their
own USRPHC status for purposes of the
USRPHC per se rule.
Similarly, the change in the USRPHC
per se rule in the final regulations renders
the proposed minority interest exception
unnecessary because, under the final reg-
ulations, foreign governments have the
alternative of investing directly or through
foreign holding companies. However, the
Treasury Department and the IRS under-
stand that foreign government investors
have relied on the minority interest excep-
tion for taxable years ending on or after
December 28, 2022, as permitted by the
preamble to the 2022 proposed regula-
tions, and have entered into long-term
minority interest investments in USR-
PHCs using domestic holding companies.
If the minority interest exception were not
finalized, the Treasury Department and
the IRS understand, these investors could
incur substantial costs to restructure these
investments. Accordingly, the final regula-
tions retain the minority interest exception
(with certain clarifying modifications).
See § 1.892-5(b)(1)(ii)(B). The Treasury
Department and the IRS are of the view
that adopting the minority interest excep-
tion does not present policy concerns under
section 897 in the context of section 892
because the exception allows foreign gov-
ernment investors to use domestic holding
companies for investments that could oth-
erwise be entered into directly or by using
foreign holding companies and therefore
does not present an opportunity to facilitate
the inappropriate avoidance of section 897.
With respect to the minority interest
exception, a comment asserted that there
2
The 2022 proposed regulations would also clarify § 1.892-5T(b)(1) by replacing the phrase “or a foreign corporation that would be a United States real property holding corporation if it was
a domestic corporation” with “which may include a foreign corporation” when referencing section 897(c)(2) to define a USRPHC. See proposed § 1.892-5(b)(1)(i).

January 12, 2026 326 Bulletin No. 2026–3
are two possible interpretations of the
phrase “solely by reason of its direct or indi-
rect ownership interest in one or more other
corporations”: (1) any ownership interests
in noncontrolled corporations are removed
from an entity’s balance sheet before per-
forming the asset test under section 897 to
determine whether USRPIs constitute 50
percent or more of the value of the entity’s
assets (the Balance Sheet Method); and (2)
noncontrolling interests in USRPHCs are
treated as “good” assets for purposes of
the asset test under section 897 and thereby
are included in the denominator but not the
numerator (the Good Asset Method).
The Treasury Department and the IRS
have determined that the correct interpre-
tation of the minority interest exception in
§ 1.892-5(b)(1)(ii)(B) requires use of the
Balance Sheet Method, and thus it (and
not the Good Asset Method) is the only
method permitted to be used when apply-
ing this exception. That is because a cor-
poration applying the Good Asset Method
could satisfy § 1.892-5(b)(1)(ii)(B) even if
it held a controlling interest in a USRPHC
or a direct interest in U.S. real estate. In
that case, the corporation would not be a
USRPHC “solely by reason of its direct or
indirect ownership interest in one or more
other corporations that are not controlled
by the foreign government,” as required
for the exception to apply. Thus, the final
regulations provide that the phrase “solely
by reason of its direct or indirect own-
ership interest in one or more other cor-
porations that are not controlled by the
foreign government” means disregarding
any ownership interests, held directly
or indirectly, in noncontrolled corpora-
tions determined under § 1.892-5(a)(1),
after applying the asset test under section
897(c)(2) and § 1.897-2. For example, if
a controlled entity (CE) within the mean-
ing of § 1.892-2T(a)(3) does not own any
assets other than 100 percent of the inter-
ests in a USRPHC whose only asset is a
minority interest in a real estate invest-
ment trust (REIT), neither the USRPHC
directly owned by CE nor CE itself (which
does not hold any other assets) would be
treated as a CCE pursuant to § 1.892-5(b)
(1)(ii)(B). The asset test under § 1.897-
2(e)(3) provides that CE, which holds a
controlling interest in the USRPHC within
the meaning of § 1.897-2(e)(3)(iii) (flush
language), holds a proportionate share of
each asset held by the USRPHC. Thus,
because CE holds a controlling interest
in the USRPHC, the USRPHC’s minority
interest in the REIT is treated as held by
CE. That ownership interest in the REIT,
which is a noncontrolled corporation
(within the meaning of § 1.892-5(a)(1)),
however, is disregarded when determin-
ing whether the USRPHC and CE are
USRPHCs for purposes of § 1.892-5(b)
(1)(ii)(B). Therefore, after having applied
the asset test under § 1.897-2, including
the look-through rules of § 1.897-2(e)(3),
and then removing such minority interests
from the balance sheets of the USRPHC
and CE, neither the USRPHC nor CE are
USRPHCs and therefore are not CCEs
pursuant to § 1.892-5(b)(1)(ii)(B).
Additionally, the final regulations do
not adopt the comments previously dis-
cussed relating to expanding the scope
of the minority interest exception. The
Treasury Department and the IRS have
determined that expanding the scope of
the minority interest exception may result
in foreign governments holding (through a
controlled U.S. corporation) active rather
than passive, noncontrolling investments
in U.S. real property, which would be con-
trary to the purpose of the CCE rules.
A comment recommended that the
parent-to-subsidiary attribution rule of
§ 1.892-5T(d)(2)(ii) not apply where the
parent corporation is treated as engaged in
commercial activity under § 1.892-5T(b)
(1) because it is a USRPHC. This recom-
mendation is beyond the scope of the final
regulations. Therefore, the final regula-
tions do not adopt this recommendation.
B. Inadvertent commercial activity
exception
The 2011 proposed regulations would
treat an entity that conducts only inadver-
tent commercial activities in a particular
tax year as not engaged in commercial
activities if (1) failure to avoid conduct-
ing the commercial activity is reasonable
as described in proposed § 1.892-5(a)
(2)(ii); (2) the commercial activity is
promptly cured as described in proposed
§ 1.892-5(a)(2)(iii); and (3) the record
maintenance requirements described in
proposed § 1.892-5(a)(2)(iv) are met (the
inadvertent commercial activity excep-
tion). However, any income derived from
any foreign government’s inadvertent
commercial activity, including activity
attributed from a partnership, would not
qualify for exemption from tax under sec-
tion 892. See proposed § 1.892-5(a)(2)(i).
Comments recommended that the final
regulations provide for a new rule permit-
ting a specified percentage of an entity’s
assets or income during a tested year to be
derived from the conduct of commercial
activities regardless of whether the com-
mercial activities were inadvertent and
regardless of whether the requirements
for the inadvertent commercial activity
exception were satisfied. The comment
asserted that section 892 allows for such a
de minimis rule.
The final regulations do not adopt these
comments. Section 892(a)(2)(B) provides
that any entity engaged in commercial
activities is a CCE if either clause (i) or
(ii) of section 892(a)(2)(B) is satisfied.
The provision notably does not provide
for a quantitative threshold for deter-
mining whether an entity is engaged in
commercial activities. Therefore, the
Treasury Department and the IRS have
determined that a quantitative thresh-
old for determining whether an entity is
engaged in commercial activities is incon-
sistent with section 892. However, the
Treasury Department and the IRS have
also determined that the best reading of
section 892(a)(2)(B) is that an entity is
not “engaged” in commercial activities
where reasonable precautions were taken
to avoid the commercial activities, but the
entity nevertheless conducted such activi-
ties inadvertently. Accordingly, the excep-
tion in § 1.892-5(a)(2) finalizes providing
targeted relief in the case of an entity that
inadvertently conducts commercial activ-
ity, provided that the activity is discontin-
ued in a timely manner.
A comment requested that the Treasury
Department and the IRS prescribe pro-
cedures to simplify the tax payment and
return filing obligations arising from inad-
vertent commercial activity. This com-
ment is beyond the scope of the final reg-
ulations and, therefore, it is not adopted.
1. Whether Failure to Avoid Conducting
Commercial Activities is Reasonable
Subject to the continuing due diligence
requirement under proposed § 1.892-5(a)

Bulletin No. 2026–3 327 January 12, 2026
(2)(ii)(B) and a safe harbor under pro-
posed § 1.892-5(a)(2)(ii)(C), the 2011
proposed regulations would provide that
whether an entity’s failure to avoid engag-
ing in commercial activity is reasonable
is determined in light of all the facts and
circumstances. Due regard will be given
to the number of commercial activities
conducted during the taxable year, and
the amount of income earned from, and
assets used in, the conduct of the com-
mercial activities in relationship to the
entity’s total income and assets. The 2011
proposed regulations would also provide
that for purposes of § 1.892-5(a)(2)(ii)(A)
and (C), where commercial activity con-
ducted by a partnership is attributed under
§ 1.892-5(d)(5)(i) to an entity owning an
interest in the partnership, assets used in
the conduct of the commercial activity by
the partnership are treated as assets used
in the conduct of commercial activity
by the entity in proportion to the entity’s
interest in the partnership, and the enti-
ty’s distributive share of the partnership’s
income from the conduct of the commer-
cial activity is treated as income earned by
the entity from the conduct of commercial
activities.
Comments recommended that the final
regulations provide that the continuing
due diligence and other requirements
to satisfy the inadvertent commercial
activity exception do not apply where an
entity reasonably concludes that it holds
an interest as a limited partner in a lim-
ited partnership described in proposed
§ 1.892-5(d)(5)(iii)(B). The final regula-
tions do not adopt this comment because
the inadvertent commercial activity
exception and qualified partnership inter-
est exception are provided for different
reasons and apply in different situations.
See, for example, § 1.892-5(a)(2)(ii)(A),
which acknowledges the separate excep-
tion for qualified partnership interests by
citing to § 1.892-5(d)(5)(i) (attribution
from an entity classified as a partnership
that is subject to the qualified partnership
interest exception under § 1.892-5(d)(5)
(iii)). The inadvertent commercial activ-
ity exception may be available when it
is not reasonably expected for an enti-
ty’s investment to result in the attribution
of commercial activities. In contrast, the
qualified partnership interest exception
may be available even when an entity
invests in a partnership that it expects
will deliberately conduct activities that
may be treated as commercial activities.
Therefore, whether an entity reasonably
concludes that it qualifies for the qualified
partnership interest exception is not a fac-
tor in determining whether the inadvertent
commercial activity exception is available
for activities conducted by the partnership
in which the entity invests.
Proposed § 1.892-5(a)(2)(ii)(B) pro-
vides that a failure to avoid commercial
activity will not be considered reasonable
unless there is continuing due diligence
to prevent the entity from engaging in
commercial activities within or outside
the United States as evidenced by having
adequate written policies and operational
procedures in place to monitor the entity’s
worldwide activities.
Comments requested additional details
and illustrations with respect to “adequate
written policies and operational proce-
dures.” One comment recommended
a safe harbor in which an entity will be
treated as having adequate written policies
and operational procedures if the entity
satisfies certain specified requirements,
including that the entity (1) establish a
written policy that prohibits the entity
from engaging in commercial activities
both directly and through investments
in entities whose activities could be
attributed to it for purposes of section 892,
(2) communicate that written policy and
its operational procedures to employees of
the entity and other persons who have a
relationship with the entity, and (3) peri-
odically review a representative sample
of the entity’s investments. Another com-
ment recommended replacing the word
“adequate” with “reasonably suitable”
because an entity that fails the inadvertent
commercial activity exception did not, by
definition, have “adequate” written poli-
cies and operational procedures.
The final regulations do not adopt
the comment requesting a change to the
description of written policies and opera-
tional procedures to “reasonably suitable,”
but instead provide examples of facts and
circumstances that may be used to deter-
mine whether a written policy or opera-
tional procedure is considered adequate.
See § 1.892-5(a)(2)(ii)(B). The description
of written policies and operational proce-
dures as being “adequate” does not mean
that the policies and procedures, viewed
with hindsight, had the effect of com-
pletely preventing commercial activities,
but instead means that there is a reason-
able expectation that the policies and pro-
cedures will be adequate for that purpose,
considering all facts and circumstances.
In determining whether written policies
and operational procedures are considered
adequate, the final regulations adopt, with
modifications, the factors recommended
by the comment but without providing a
safe harbor. See § 1.892-5(a)(2)(ii)(B)(1)
through (5).
Another comment recommended
adopting a standard of review for deter-
mining reasonableness by taking into
account whether commercial activity is
de minimis. The final regulations do not
adopt this comment because, as described
above, the Treasury Department and the
IRS have determined that a quantitative
threshold for determining whether an
entity is engaged in commercial activity is
inconsistent with section 892.
Proposed § 1.892-5(a)(2)(ii)(B) also
provides that a failure to avoid commercial
activity will not be considered reasonable
if the management-level employees of
the entity have not undertaken reasonable
efforts to establish, follow, and enforce
the written policies and operational proce-
dures. Comments recommended that the
final regulations include within the scope
of this rule the management-level per-
sonnel of an entity that is affiliated with
the foreign government investor or that
is responsible for the management of its
investments. Comments similarly recom-
mended that an entity should be able to rely
on the establishment and enforcement of
policies and procedures of the investment
manager of (or those of another third-party
controlling investments by) funds or man-
aged accounts in which the entity invests.
In response to these comments, the final
regulations provide that either employ-
ees of the entity claiming the inadvertent
commercial activity exception or employ-
ees of any of its controlling entities (such
control determined within the meaning
of § 1.892-5(a)(1)) may be designated to
establish, follow, and enforce the adequate
written policies and operational procedures
to appropriately monitor the worldwide
activities of the entity claiming the inad-
vertent commercial activity exception. See

January 12, 2026 328 Bulletin No. 2026–3
§ 1.892-5(a)(2)(v)(B). Moreover, the final
regulations concentrate on any employees
who have these oversight responsibilities,
rather than solely on management-level
employees, because management-level
employees are not always the only employ-
ees undertaking efforts with respect to the
written policies and operational proce-
dures. However, regardless of where the
responsible employees are located, the
written policies and operational procedures
must be adequate within the meaning of
the final regulations. See § 1.892-5(a)(2)
(ii)(B). Further, the responsible employ-
ees must in all cases undertake reasonable
efforts (meaning exercising ordinary busi-
ness care and prudence) in light of all facts
and circumstances to establish, follow, and
enforce the written policies and operational
procedures.
Comments also requested with respect
to the “reasonable efforts” requirement that
reasonable reliance on competent tax advi-
sors should constitute a reasonable effort
to avoid conducting commercial activity,
even if the advice is incorrect in hindsight.
Other comments recommended creating a
safe harbor under which an entity would
be treated as having undertaken reasonable
efforts if it had relied on tax advice that is
a reasoned opinion rendered based on per-
tinent information and before the undertak-
ing of the commercial activity.
The Treasury Department and the IRS
have determined that an entity’s failure
to avoid commercial activity will not be
treated as reasonable solely on the basis
of obtaining a tax opinion or legal advice.
Obtaining a tax opinion or legal advice
alone does not supersede the need for
employees of the entity claiming the inad-
vertent commercial activity exception (or
employees of a controlling entity within
the meaning of § 1.892-5(a)(1)) to take
reasonable efforts to establish, follow, and
enforce the applicable written policies and
operational procedures to prevent the appli-
cable entity from engaging in commercial
activity. Accordingly, the final regulations
do not adopt this comment with respect to
proposed § 1.892-5(a)(2)(ii)(B).
2. Inadvertent Commercial Activity Safe
Harbor
The 2011 proposed regulations would
provide a safe harbor under which, if there
are adequate written policies and oper-
ational procedures in place, the entity’s
failure to avoid the conduct of commer-
cial activity during a taxable year will be
considered reasonable if it satisfies the
following two conditions: (1) the value
of the assets used in, or held for use in,
all commercial activity does not exceed
five percent of the total value of the assets
reflected on the entity’s balance sheet for
the taxable year as prepared for financial
accounting purposes, and (2) the income
earned by the entity from commercial
activity does not exceed five percent of
the entity’s gross income as reflected on
its income statement for the taxable year
as prepared for financial accounting pur-
poses. Proposed § 1.892-5(a)(2)(ii)(C).
Numerous comments recommended
that the final regulations provide additional
information about the meaning of “pre-
pared for financial accounting purposes.”
Because foreign government entities are
not publicly traded and are not domestic
entities, they are not required to prepare
financial statements under U.S. GAAP.
Therefore, comments recommended that
the final regulations provide that financial
statements maintained under IFRS or an
entity’s local accounting rules or, if the
entity does not prepare separate financial
statements, books and records maintained
in the ordinary course of its operations or
for purposes of monitoring its investments
will qualify for use under this safe harbor.
A comment observed that many entities
that own financial assets are required to
use, or do use, mark-to-market accounting
which, in the case of the income test, may
distort an entity’s eligibility for the safe
harbor. The same comment also requested
guidance regarding when both the income
and assets limits are to be calculated and
using what convention (for example, aver-
age of the quarter-end or month-end).
The Treasury Department and the IRS
have determined that the safe harbor must
be applied using an applicable financial
statement as defined in section 451(b)
(3) and § 1.451-3(a), which may include
a financial statement prepared in U.S.
GAAP, IFRS, or another method required
under applicable regulatory accounting
rules. The final regulations provide that if
the entity does not prepare financial state-
ments for financial accounting or regula-
tory reporting purposes, the entity may
use books of account or records that are
adequate and sufficient to establish the
respective amount. The final regulations
also provide that the determination of
asset values for purposes of the safe har-
bor is made using the average of amounts
as of the close of each quarter of the tax-
able year and the determination of income
is made as of the end of the taxable year.
Whether mark-to-market accounting is
required with respect to financial assets
will depend upon the method used by the
applicable financial statement. The quar-
terly averaging method is unnecessary
for the income portion of the safe harbor
because income (in contrast to assets) is
measured over a period rather than as of
specific dates.
A comment recommended that the final
regulations increase the safe harbor thresh-
olds to ten percent (from five percent) to
alleviate challenges with obtaining nec-
essary information about Federal entity
classification status of foreign invest-
ments. Another comment recommended
that only asset values be used for the safe
harbor. The comment also recommended
that where an entity holds an interest as
a limited partner under proposed § 1.892-
5(d)(5)(iii), the value of that interest be
included in the entity’s calculation of its
total assets, but not included in the value
of its commercial activity assets.
The Treasury Department and the
IRS have determined that an analysis of
both the entity’s income and assets and a
five percent threshold are reasonable and
appropriate for a safe harbor that relates to
inadvertent commercial activity. The five
percent threshold for this purpose is used
to substantiate that the commercial activ-
ity is inadvertent, rather than permitting a
de minimis rule that ignores any evidence
of the commercial activity being inadver-
tent, such as, for example, having in place
adequate written policies and operational
procedures. Therefore, the final regula-
tions do not adopt the comment to increase
the safe harbor thresholds or to limit the
safe harbor measurements to assets only.
The Treasury Department and the IRS do
agree with the comment on the treatment
of qualified partnership interests in the
safe harbor asset test. The final regulations
provide that the commercial activity asset
of a qualified partnership interest that is
described in § 1.892-5(d)(5)(iii) is not

Bulletin No. 2026–3 329 January 12, 2026
included as an asset used in commercial
activity of the tested entity for purposes of
this safe harbor, but the value of the qual-
ified partnership interest is included in the
entity’s calculation of its total assets for
that purpose. See § 1.892-5(a)(2)(ii)(A)
and (a)(2)(ii)(C)(2). Furthermore, the final
regulations provide that a tested entity’s
distributive share of commercial activity
income from a qualified partnership inter-
est that is described in § 1.892-5(d)(5)(iii)
is not included as income earned by the
entity from commercial activity for pur-
poses of this safe harbor, but is included in
the entity’s gross income for that purpose
and treated as commercial activity income
for all other purposes of section 892. Id.
3. Cure Requirement
The second requirement to qualify
for the inadvertent commercial activity
exception is that the commercial activ-
ity must be promptly cured as described
in proposed § 1.892-5(a)(2)(iii). A cure
is considered prompt under proposed
§ 1.892-5(a)(2)(i)(B) if the entity engag-
ing in inadvertent commercial activity dis-
continues the activity within 120 days of
discovering it. See proposed § 1.892-5(a)
(2)(iii). The third requirement is that ade-
quate records of each discovered commer-
cial activity and the remedial action taken
to cure that activity must be maintained.
The records must be retained so long as
the contents thereof may become material
in the administration of section 892. See
proposed § 1.892-5(a)(2)(iv).
The proposed rule would provide, as an
example, that if an entity holding an inter-
est as a general partner in a partnership dis-
covers that the partnership is conducting
commercial activity, the entity will satisfy
the cure requirement if, within 120 days
of the discovery of the commercial activ-
ity, the entity discontinues the activity by
divesting itself of its partnership interest
(including by transferring its interest in
the partnership to a related entity) or the
partnership itself discontinues its conduct
of commercial activity.
Comments recommended that the final
regulations provide a period that is greater
than 120 days from the date of discovery
for an entity to cure the inadvertent com-
mercial activity. One comment recom-
mended a six-month (or 180 days) cure
period, and another comment requested
that the cure period be the greater of 120
days or the length of the notice and exit
terms to which the entity is contractually
bound under the relevant governing doc-
ument of the investment, plus 45 days
to initiate the process of notice and exit.
Another comment asserted that a period
longer than 120 days is required because
of the time needed to craft a legal plan
effecting the discontinuance of the com-
mercial activity and, in some cases, to
obtain required governmental or third-
party approvals. Yet another comment rec-
ommended tolling the curing period until
the commercial activity is discovered by
an officer or employee of the entity who
is reasonably expected to be aware of the
significance of the activity.
The Treasury Department and the IRS
have determined that a period greater than
120 days to cure the inadvertent commer-
cial activity is reasonable and appropriate
to accommodate foreign legal and com-
mercial or contractual considerations. The
final regulations extend the cure period to
180 days from the date of the discovery
by the employees who are responsible
for monitoring and reviewing the entity’s
commercial activity pursuant to § 1.892-
5(a)(2)(ii)(B) (the rule providing respon-
sible employees undertake reasonable
efforts to establish, follow, and enforce
the adequate written policies and opera-
tional procedures). However, the final reg-
ulations do not adopt the other comments
because adopting them would provide an
entity the ability to select its own cure
period based on contractual terms or by
disputing whether an officer or employee
of the entity was reasonably expected to
have been aware of the significance of the
activity.
Comments requested that the final
regulations provide that an entity that is
engaged in commercial activity solely by
attribution through its interest in a part-
nership may cure inadvertent commer-
cial activity by exchanging (including
by amending the terms of) its partner-
ship interest for one that qualifies for the
exception under proposed § 1.892-5(d)
(5)(iii) (the qualified partnership interest
exception). The final regulations provide
that an entity may, depending on the facts
and circumstances, be able to satisfy the
cure requirement by exchanging its part-
nership interest for one that is a qualified
partnership interest within the meaning
of § 1.892-5(d)(5)(iii) in the same part-
nership (including a deemed exchange
from an agreed modification of terms).
The final regulations do not adopt the
comment as a bright-line rule because the
Treasury Department and the IRS are con-
cerned about the potential of abuse, such
as negotiating for a partnership interest to
be automatically exchanged for a different
interest upon the discovery of commer-
cial activity. Such an automatic feature
also is inconsistent with the principles
of satisfying the inadvertent commercial
activity exception, which requires an enti-
ty’s active involvement. The final regula-
tions retain the language from proposed
§ 1.892-5(a)(2)(iii) that divesture by an
entity of its interest in a partnership may
be achieved by transferring its interest in
the partnership to a related entity, such
as to a related entity classified as a cor-
poration for Federal tax purposes, so that
commercial activity is not attributable to
an entity that is eligible for the section 892
exemption.
Finally, a comment recommended
that the final regulations use the term
“promptly” in § 1.892-5(a)(2) rather than
interchangeably using “promptly” and
“timely.” In the comment’s view, the term
“timely” indicates a deadline imposed by a
governmental body. The final regulations
do not adopt this comment, but instead
replace the term “promptly” in § 1.892-5(a)
(2)(i)(B) with the term “timely.” Because
§ 1.892-5(a)(2)(i)(B) provides that the
commercial activity is promptly cured as
described in § 1.892-5(a)(2)(iii) which in
turn describes a “timely” cure (relevant to a
particular time period), it is appropriate to
revise the general rule in § 1.892-5(a)(2)(i)
(B) as requiring a “timely” cure.
C. Annual CCE determination
Proposed § 1.892-5(a)(3) would pro-
vide that, if an entity described in pro-
posed § 1.892-5(a)(1)(i) or (ii) (relating to
whether the entity is controlled by a for-
eign government) engages in commercial
activities at any time during the taxable
year, the entity will be considered a CCE
for the entire taxable year. An entity not
otherwise engaged in commercial activi-
ties during a taxable year will not be con-

January 12, 2026 330 Bulletin No. 2026–3
sidered a CCE for a taxable year even if
the entity engaged in commercial activi-
ties in a prior taxable year.
A comment recommended that the final
regulations expressly provide that the rel-
evant taxable year for purposes of this rule
is the taxable year of the entity. Another
comment requested guidance on whether
an entity’s commercial activity carries
over to an acquiring entity in an asset
reorganization or a transaction in which
the transferee retains the tax attributes of
the transferor under section 381.
The final regulations generally adopt
the comment’s recommendation that the
annual determination of whether an entity
is a CCE under proposed § 1.892-5(a)
(3) be made with respect to the entity’s
taxable year, which may be less than a
12-month period if, for example, the enti-
ty’s taxable year is terminated as a result
of a transaction or reorganization. See
§ 1.892-5(a)(3)(i). If the taxable year of a
corporation engaged in commercial activ-
ity is terminated as a result of an acqui-
sition to which section 381(a) applies
(except for a complete liquidation under
section 332(a), which acquisition would
fall within the exception to this general
rule as described below), the acquiring
corporation generally does not succeed to
the commercial activity of the distributor
or transferor corporation for the acquir-
ing corporation’s applicable taxable year,
provided that after the acquisition, the
acquiring corporation is not the entity that
directly carries on such commercial activ-
ity. See § 1.892-5(a)(3)(ii)(A). This condi-
tion might be met in the case of reorgani-
zations followed by transfers described in
§ 1.368-2(k). However, if the corporation
engages in an acquisition to which section
381(a) applies with another corporation
controlled by the same foreign sovereign
under § 1.892-5(a)(1), for example, in a
complete liquidation of a subsidiary under
section 332(a), then the distributor or
transferor corporation’s commercial activ-
ity will cause the acquiring corporation
to be treated as a CCE for the acquiring
corporation’s taxable year in which the
acquisition occurred. See § 1.892-5(a)(3)
(ii)(B).
As a result of adopting the taxable year
as the relevant measurement period for the
annual CCE test, it is possible without fur-
ther safeguards that activity in one taxable
year, considered in isolation, might not be
characterized as commercial, even though
it is part of a course of conduct or trans-
action spanning two taxable years which,
taken as a whole, is characterized as com-
mercial activity. For example, consider
a controlled entity whose taxable year is
the calendar year and conducts activity in
December of year 1 that relates to a trans-
action the controlled entity enters into in
January of year 2. Without any additional
guardrails to the annual CCE test, if the
January transaction in isolation is not
considered commercial activity, and no
commercial activities were otherwise per-
formed by the controlled entity in year 2,
the controlled entity would not be treated
as a CCE in year 2, even if the activities in
December of year 1 and January of year
2 constitute commercial activities when
considered together. To address this sce-
nario, the final regulations provide that
for purposes of determining whether an
entity is engaged in commercial activities
during its taxable year, that entity’s activi-
ties during its immediately preceding tax-
able year will also be taken into account
to the extent relevant in characterizing the
activities in the current taxable year. See
§ 1.892-5(a)(3)(i). The Treasury Depart-
ment and the IRS concluded that this test
should not look past the immediately pre-
ceding year for reasons of administrabil-
ity, but other doctrines may still apply to
activities that occur across multiple years
in form and only one year in substance
when making the commercial activity
determination.
Another comment recommended that
an entity that is a CCE under § 1.892-
5T(b)(1) solely because it is a USRPHC
should not be treated as a CCE for its
entire taxable year if the entity ceases to
be a USRPHC on any determination date
under § 1.897-2(c) or through operation
of the cleansing rule of section 897(c)(1)
(B). The Treasury Department and the
IRS have determined that an exception to
proposed § 1.892-5(a)(3) in this limited
situation would be inconsistent with the
treatment of other types of entities that do
not have the option to cleanse themselves
of CCE status. Moreover, since the 2011
proposed regulations were published,
the cleansing rule of section 897(c)(1)
(B) generally was eliminated for regu-
lated investment companies (RICs) and
REITs and, therefore, adopting this com-
ment would have limited effect only for
domestic corporations that are not RICs
or REITs. In addition, the final regulations
provide that only domestic corporations
are subject to the rule in § 1.892-5(b)(1)
(i) that treats controlled USRPHCs as
CCEs. This change to § 1.892-5(b)(1) nar-
rows the scope of entities that are treated
as CCEs, thereby partially addressing the
comment’s concerns. Therefore, the final
regulations do not adopt this comment.
D. Commercial activities of partnerships
The 1988 temporary regulations gen-
erally attribute all commercial activities
of a partnership to its general and limited
partners except for partners of publicly
traded partnerships (PTP). See § 1.892-
5T(d)(3). Proposed § 1.892-5(d)(5)(i) of
the 2011 proposed regulations generally
would attribute commercial activities of
an entity classified as a partnership for
Federal tax purposes to its partners, sub-
ject to two exceptions, for trading activ-
ity and for limited partnership interests.
See proposed § 1.892-5(d)(5)(ii) and (iii).
The preamble to the 2011 proposed reg-
ulations explained that the limited part-
nership interest exception under proposed
§ 1.892-5(d)(5)(iii) “modifies the existing
exception to the partnership attribution
rule for PTP interests by providing a more
general exception for limited partnership
interests.” Comments noted that it may
be necessary to amend § 1.892-5T(d)(3)
and (4) to coordinate with the final regula-
tions to the extent they preserve proposed
§ 1.892-5(d)(5). The final regulations
withdraw § 1.892-5T(d)(3) and, in its
place, adopt proposed § 1.892-5(d)(5)(i)
with minor modifications. In addition, the
final regulations modify § 1.892-5T(d)(4)
by removing Example 4, which is obso-
leted by the final regulations.
The trading activity exception under
proposed § 1.892-5(d)(5)(ii) would pro-
vide that an entity not otherwise engaged
in commercial activities will not be
considered to be engaged in commer-
cial activities solely because the entity
is a member of a partnership (whether
domestic or foreign) that effects transac-
tions in stocks, bonds, other securities (as
defined in § 1.892-3T(a)(3)), commodities
(as defined in proposed § 1.892-4(e)(1)

Bulletin No. 2026–3 331 January 12, 2026
(ii)), or financial instruments (as defined
in § 1.892-3T(a)(4)) for the partner-
ship’s own account or solely because an
employee of such partnership, or a broker,
commission agent, custodian, or other
agent, pursuant to discretionary authority
granted by such partnership, effects such
transactions for the account of the partner-
ship. This exception does not apply to any
member in the case of a partnership that
is a dealer in stocks, bonds, other secu-
rities, commodities, or financial instru-
ments, as determined under the principles
of § 1.864-2(c)(2)(iv)(a). The final regu-
lations adopt proposed § 1.892-5(d)(5)(ii)
with minor modifications.
A comment recommended that transi-
tory ownership of a pass-through entity not
result in attribution of commercial activity
from that pass-through entity. The final
regulations do not adopt this comment
because of administrability challenges
as to whether a transfer was transitory.
No other comments were received with
respect to the attribution of commercial
activities by a partnership under proposed
§ 1.892-5(d)(5)(i) or the trading activity
exception under proposed § 1.892-5(d)(5)
(ii). Instead, comments made recommen-
dations about the treatment under section
892 of income derived from partnerships
or gain arising from the disposition of a
partnership interest.
The 2011 proposed regulations would
not alter the treatment of the income
derived by an entity. For example, pro-
posed § 1.892-5(d)(5)(iii)(A) would pro-
vide that, despite an entity that holds an
interest as a limited partner in a limited
partnership not being treated as conduct-
ing commercial activities, that entity’s
distributive share of partnership income
will not be exempt from taxation under
section 892 to the extent that the part-
nership derives such income from the
conduct of commercial activity. With the
exception of § 1.892-3(a)(4) (regarding
the definition of financial instruments),
the final regulations do not address the
items of income that are exempt under
section 892. Accordingly, recommenda-
tions about the treatment under section
892 of income derived from partner-
ships or gain arising from the disposition
of a partnership interest are outside the
scope of the final regulations and are not
adopted.
E. Qualified partnership interest
exception
The 2011 proposed regulations would
provide for a limited partnership interest
exception in which an entity that is not
otherwise engaged in commercial activ-
ities (including, for example, performing
services for a partnership as described in
section 707(a) or section 707(c)) will not
be deemed to be engaged in commercial
activities solely because it holds an inter-
est as a limited partner in a limited part-
nership. Proposed § 1.892-5(d)(5)(iii)
(A). The 2011 proposed regulations also
would provide that a foreign government
member’s distributive share of partnership
income will not be exempt from taxation
under section 892 to the extent that the
partnership derived such income from the
conduct of commercial activity.
For this purpose, an interest in an entity
classified as a partnership for Federal tax
purposes would be treated as an interest as
a limited partner in a limited partnership if
the holder does not have rights to partici-
pate in the management and conduct of the
partnership’s business at any time during
the partnership’s taxable year under the
law of the jurisdiction in which the part-
nership is organized or under the govern-
ing agreement. See proposed § 1.892-5(d)
(5)(iii)(B). The 2011 proposed regulations
would provide that rights to participate in
the management and conduct of a part-
nership’s business do not include consent
rights in the case of extraordinary events
such as admission or expulsion of a gen-
eral or limited partner, amendment of the
partnership agreement, dissolution of the
partnership, disposition of all or substan-
tially all of the partnership’s property out-
side of the ordinary course of the partner-
ship’s activities, merger, or conversion. Id.
1. Tax Classification as a Partnership
Comments recommended that the final
regulations confirm that § 1.892-5(d)(5)
(iii) does not apply solely to limited part-
nerships under State or local law. To this
end, the comments recommended replac-
ing the phrase “interest as a limited partner
in a limited partnership” with “a passive
investment in a partnership or other flow-
through entity” or expressly providing
that interests as a limited partner in limited
liability companies and other vehicles not
taking the form of State law partnerships
can qualify under § 1.892-5(d)(5)(iii).
The Treasury Department and the IRS
are of the view that the 2011 proposed
regulations already would provide that a
qualifying partnership interest can include
certain interests other than interests in a
State law limited partnership. By provid-
ing that “an interest in an entity classified
as a partnership for Federal tax purposes is
treated as an interest as a limited partner in
a limited partnership,” the 2011 proposed
regulations were not confining the scope
of the exception to State law partnerships.
Thus, for example, an interest in a lim-
ited liability company that is classified
as a partnership for Federal tax purposes
may qualify under proposed § 1.892-5(d)
(5)(iii) if the other requirements are satis-
fied. To make this clearer, the final regula-
tions adopt the term “qualified partnership
interest” rather than “interest as a limited
partner in a limited partnership.” No infer-
ence is intended by this change as to the
meaning of the phrase “limited partner”
in other Code sections or Treasury regu-
lations.
Because the qualified partnership
interest exception applies to more than
only State law partnerships, the Treasury
Department and the IRS determined that
the qualified partnership interest excep-
tion should set forth uniform requirements
applicable to all relevant juridical forms
to which the qualified partnership inter-
est exception may apply. Accordingly, the
final regulations contain requirements that
a holder of a qualified partnership inter-
est must not (1) have personal liability for
claims against the partnership; or (2) have
the right to enter into contracts or act on
behalf of the partnership. These require-
ments are generally consistent with the
rights of a limited partner under relevant
State law, but apply regardless of the legal
form of the entity or the governing law.
Further, the Treasury Department and
the IRS agree with the comment that
the qualified partnership interest excep-
tion should be available only for pas-
sive investments in partnerships. To that
end, in addition to the two requirements
provided in the previous paragraph, the
qualified partnership interest exception
retains the requirement that the holder
of the partnership interest must not have

January 12, 2026 332 Bulletin No. 2026–3
rights to participate in the management
and conduct of the partnership’s business
and adopts a requirement that the holder
must not control the partnership within the
meaning of § 1.892-5(a)(1). The Treasury
Department and the IRS have determined
that these four requirements are necessary
and appropriate guardrails to help ensure
that the qualified partnership interest
exception is available only to partnership
equity interest holders with passive par-
ticipation in the partnership. Accordingly,
the final regulations do not adopt a sep-
arate comment suggesting that a greater
than 50 percent economic interest (which
would constitute a controlling interest in
an entity under § 1.892-5(a)(1)(iii)(A)) in
a partnership could be a qualified partner-
ship interest.
2. Rights to Participate in the
Management and Conduct of a
Partnership’s Business
With respect to the requirement under
the qualified partnership interest excep-
tion that the holder does not have rights
to participate in the management and
conduct of the partnership’s business,
comments recommended that the final
regulations provide greater specificity on
exactly which rights satisfy the definition.
For example, a comment recommended
that the final regulations adopt a standard
under which general oversight rights, con-
sultation rights, and veto rights are treated
as consistent with holding an interest as a
limited partner under proposed § 1.892-
5(d)(5)(iii)(B) because these rights serve
the purpose of allowing the investor to
monitor and protect its investment and do
not convey control over the partnership’s
day-to-day operations. Another comment
recommended that the final regulations
provide that consent rights customarily
granted to a significant lender, such as
approval of a borrowing entity’s annual
budget, major transactions and expenses,
and other similar items be permitted under
§ 1.892-5(d)(5)(iii)(B). Other comments
recommended that the final regulations
provide that investor rights typically
granted by side letters, including certain
veto rights and consent rights with respect
to key decisions and extraordinary events
outside of a partnership’s day-to-day man-
agement, are consistent with holding an
interest as a limited partner. Comments
also recommended that the final regula-
tions provide that holding an interest as a
limited partner can include participating
on a partnership’s investment advisory
committee or holding a minority position
on a partnership’s governing committee
because these roles are consistent with
being a passive investor by providing
investors with consent rights normally
afforded to minority investors for the pur-
pose of monitoring and protecting their
investments.
These comments generally suggested
that participation in the management and
conduct of a partnership’s business refers
to participation in the day-to-day man-
agement or operation of the partnership’s
business and does not include participa-
tion in activities relating to monitoring
and protecting the partnership interest
holder’s capital investment. The Treasury
Department and the IRS agree, and the
final regulations clarify that rights to par-
ticipate in the management and conduct
of a partnership’s business mean rights to
participate in the day-to-day management
or operation of the partnership’s business.
The final regulations also provide that
rights to participate in monitoring or pro-
tecting the partnership interest holder’s
capital investment in the partnership do
not constitute rights to participate in the
management and conduct of the partner-
ship’s business, to the extent such rights
are not rights to participate in the day-
to-day management or operation of the
partnership’s business and do not result in
effective control under § 1.892-5(a)(1)(iii)
(B).
Due to the highly fact-intensive nature
of determining whether rights to partici-
pate in the management and conduct of a
partnership’s business exist, the final reg-
ulations do not provide an exclusive list of
rights that would (or would not) be consis-
tent with participating in the management
and conduct of a partnership’s business.
Instead, the Treasury Department and the
IRS have determined that this analysis
should be based on a holistic review tak-
ing into account all the facts and circum-
stances. The final regulations do specify,
however, that participation in the man-
agement and conduct of a partnership’s
business includes the right to participate
in ordinary-course personnel and com-
pensation decisions, and the right to take
active roles in formulating the business
strategy for the partnership. The final reg-
ulations also specify that rights to monitor
or protect capital investment in the part-
nership may include oversight or supervi-
sory rights in the case of major strategic
decisions, such as admission or expulsion
of a partner, amendment of the partnership
agreement, or dissolution of the partner-
ship, unusual and non-ordinary course
deviations from previously determined
investment parameters, extending the
term of the partnership’s governing agree-
ment, merger or conversion of the partner-
ship, or disposition of all or substantially
all of the partnership’s property outside of
the ordinary course of the partnership’s
activities. Facts and circumstances per-
taining to the analysis of participation in
the management and conduct of a partner-
ship’s business may be identified by ref-
erence to, for example, the conduct of the
relevant parties, the law of the jurisdiction
in which the partnership is organized, the
governing documents of the partnership,
contractual agreements such as side let-
ters, shareholders’ agreements, and the
partnership’s agreements with creditors.
See § 1.892-5(d)(5)(iii)(B).
Comments also recommended that the
final regulations eliminate the rule that
the law of the jurisdiction in which a part-
nership is organized determines whether
a partner has rights to participate in the
management and conduct of the partner-
ship’s business. These comments asserted
that making this determination under this
standard would be complex and burden-
some. These comments, therefore, also
recommended that an investor be permit-
ted to rely on the advice of local counsel
when determining whether the inves-
tor has rights exceeding those permitted
under proposed § 1.892-5(d)(5)(iii)(B).
The final regulations do not adopt these
comments because the Treasury Depart-
ment and the IRS have determined that the
relevant law of the jurisdiction in which
the partnership is organized often sets
forth certain default rights where rights
are not expressly provided by the enti-
ty’s governing documents, and that those
default rights are relevant to a facts and
circumstances analysis.
No inference is intended as to the
meaning of the phrase “participate in the

Bulletin No. 2026–3 333 January 12, 2026
management and conduct of the partner-
ship’s business” or similar phrases and
standards in other Code sections and Trea-
sury regulations.
3. Qualified Partnership Interest Safe
Harbors
A comment recommended that the final
regulations provide certainty to investors
by incorporating one or more of three
proposed safe harbors for determining
whether the investor holds an interest as
a limited partner in a limited partnership.
The first safe harbor would be available to
investors who have obtained legal opinions
stating that the investors are, in fact, and,
at law, limited partners with limited liabil-
ity. The second safe harbor recommended
by the comment would cover interests in
widely held investment partnerships with
more than ten unrelated partners. The
third recommended safe harbor would
cover investors who hold less than a pre-
scribed percentage of interests in a part-
nership. The comment recommended tak-
ing into account all investors both in the
main investment vehicle and any related
parallel or alternative investment vehicles
for purposes of determining whether an
investor qualifies for the widely held or
the de minimis safe harbors.
The final regulations adopt a safe har-
bor for a holder who at all times during
the partnership’s taxable year (1) has no
personal liability for claims against the
partnership; (2) has no right to enter into
contracts or act on behalf of the partner-
ship; (3) is not a managing member or
managing partner, and does not hold an
equivalent role under applicable law; and
(4) does not directly or indirectly (under
the principles of § 1.892-5(d)(5)(iii)(B)(2)
(iii)) own more than five percent of either
the partnership’s capital interests or the
partnership’s profits interests. See § 1.892-
5(d)(5)(iii)(C). The Treasury Department
and the IRS have determined that this safe
harbor would ease the compliance bur-
den for those investors who fall within
its scope. The first two requirements typi-
cally would be met by a holder treated as
a limited partner under State law. As to the
last two requirements, an investor with no
more than five percent of a partnership’s
capital or profits interests and who is nei-
ther a managing member (in the case of an
entity organized as a limited liability com-
pany) nor a managing partner (in the case
of an entity organized as a partnership) is
unlikely to control the partnership under
§ 1.892-5(a)(1) or have any rights to par-
ticipate in the management and conduct of
a partnership’s business and thus can be
treated as a passive investor. Although a
foreign government investor, for example,
that satisfies the requirements of the safe
harbor is not attributed the partnership’s
commercial activities, the investor’s dis-
tributive share of the partnership’s income
from the conduct of commercial activity
is not exempt from taxation under section
892. See § 1.892-5(d)(5)(iii)(A).
4. Holding Multiple Interests in a
Partnership or in Tiered Partnerships
Finally, comments made requests and
recommendations regarding tiers of part-
nerships and attribution of the qualified
partnership interest exception among
classes of partnership interests. Com-
ments recommended that the final regula-
tions provide rules for the operation of the
qualified partnership interest exception in
tiered partnership structures. These com-
ments asserted that an investor should not
be deemed to participate in the manage-
ment and conduct of a lower-tier partner-
ship’s business if that investor holds an
interest in an upper-tier partnership that
does not engage in any commercial activ-
ity and does not afford the investor any
rights to participate in the management
and conduct of the lower-tier partnership’s
business. In other words, these comments
requested that the final regulations apply
a “bottom-up” approach in determining
whether the requirements for the qualified
partnership interest exception are met.
Another comment requested that the
final regulations provide guidance on
whether the rights of one class of part-
nership interest could be attributed to
another class of partnership interest when
determining whether an investor, who
holds multiple classes of partnership
interests, satisfies the exception under
proposed § 1.892-5(d)(5)(iii). The com-
ment asserted that the qualified partner-
ship interest exception should apply in
situations where an investor, in addition to
holding its interest as a limited partner in a
limited partnership, also holds an interest
as a limited partner in the general partner
of the same limited partnership.
The final regulations adopt with mod-
ifications the comment that the qualified
partnership interest exception applies from
the bottom up. An upper-tier partnership
that holds a qualified partnership interest
in a lower-tier partnership is not attributed
the lower-tier partnership’s commercial
activities. If, however, the upper-tier part-
nership’s interest in a lower-tier partner-
ship is not a qualified partnership interest,
the lower-tier partnership’s commercial
activity will be attributed to the upper-tier
partnership and could, in turn, be further
attributed to a foreign government inves-
tor holding an interest in the upper-tier
partnership unless the investor holds a
qualified partnership interest in the upper-
tier partnership. See § 1.892-5(d)(5)(iii)
(D).
The rules in § 1.892-5(d)(5)(iii)(D)
applicable to tiered partnerships may pro-
vide relief in certain circumstances if, in
addition to holding directly a qualified
partnership interest in a lower-tier part-
nership, the foreign government investor
holds a qualified partnership interest in the
entity that is a general partner of the low-
er-tier partnership and does not have rights
to participate in the management and con-
duct of the general partner’s business in
managing the lower-tier partnership.
With respect to holding multiple classes
of interests in the same partnership, the
final regulations provide that all interests
held in a partnership by an investor are
evaluated in their totality to determine
whether the investor has rights to partic-
ipate in the management and conduct of
that partnership’s business. See § 1.892-
5(d)(5)(iii)(B)(2)(i). Thus, the final regu-
lations do not adopt the approach that the
qualified partnership interest exception
ignores other interests held by an investor
in the same partnership.
The final regulations also provide that
where a foreign sovereign holds directly
or indirectly multiple interests in a part-
nership through one or more integral
parts or controlled entities as defined
in § 1.892-2T, or controlled subsidiar-
ies under § 1.892-5(a)(1), all of these
entities’ interests in the partnership are
aggregated for purposes of the qualified
partnership interest exception. To the
extent any one entity’s interest or all of

January 12, 2026 334 Bulletin No. 2026–3
the interests aggregated together fails to
satisfy the qualified partnership inter-
est exception, then none of the entities
would qualify for the qualified partner-
ship interest exception. See § 1.892-5(d)
(5)(iii)(B)(2)(iii).
F. Other comments and revisions
In addition to the comments and revi-
sions described in parts II and III of this
Summary of Comments and Explanation
of Revisions, the final regulations include
several drafting changes. The final regula-
tions revise the structure of the provisions
of the 2011 proposed regulations to be
consistent with the structure of the 1988
temporary regulations. In doing so, the
final regulations change the placement of
rules under § 1.892-4(c).
There were numerous comments that
were outside the scope of the final regu-
lations and, therefore, are not adopted by
the final regulations. Several comments
recommended that § 301.7701-2(b)(6)
(treating a business entity wholly owned
by a foreign government as a per se cor-
poration) be modified so that a business
entity that is wholly owned by a foreign
government is not precluded from elect-
ing to be disregarded as an entity sepa-
rate from its owner. Another comment
requested guidance on whether incentive
compensation arrangements for invest-
ment advisors, brokers, or employees
would cause an entity to fail the require-
ment under § 1.892-2T(a)(3)(iii) (requir-
ing that net earnings of the entity be
credited to its own account or to other
accounts of the foreign sovereign, with
no portion of the entity’s income inuring
to the benefit of any private person) to
be a controlled entity. The comment also
requested guidance on whether an entity
established under a statute with a sepa-
rate legal personality can be an “inte-
gral part” of a foreign sovereign under
§ 1.892-2T(a). Finally, a comment rec-
ommended modifying § 1.882-5(a)(6) to
remove the limitation on a foreign gov-
ernment’s ability to deduct its allocable
interest expense. The final regulations do
not adopt these comments because they
are outside the scope of the final regu-
lations. However, the final regulations
modify § 1.882-5(a)(6) to update the
cross-reference to § 1.892-5.
IV. Applicability Dates
The 2011 proposed regulations were
proposed to apply on the date the final
regulations are published in the Federal
Register. See proposed §§ 1.892-4(f) and
1.892-5(e). The preamble to the 2011 pro-
posed regulations provided that taxpayers
may rely on the 2011 proposed regula-
tions until final regulations are issued.
The 2022 proposed regulations were pro-
posed to apply to taxable years ending on
or after December 28, 2022. See proposed
§ 1.892-5(b)(1)(iii). The preamble to the
2022 proposed regulations provided that
taxpayers may rely on the 2022 proposed
regulations until the date of publication of
the final regulations in the Federal Reg-
ister. The rules under §§ 1.892-4T and
1.892-5T are effective for taxable years
beginning after June 30, 1986, until, and
only to the extent that, they are replaced
by these final regulations.
The Treasury Department and the
IRS have determined that the applica-
bility date of the 2025 final regulations
should be consistent with the 2011 pro-
posed regulations and generally apply to
taxable years beginning on or after the
date the regulations become finalized in
the Federal Register. A comment rec-
ommended that when the 2011 proposed
regulations are finalized, taxpayers be
permitted to apply the provisions of the
final regulations to all open taxable years.
The Treasury Department and the IRS
agree that taxpayers should be permitted
to apply the rules of the 2025 final regu-
lations, once finalized, to their open tax-
able years subject to consistency require-
ments. Accordingly, except in the case of
§ 1.892-3(a)(6) and the second sentence
of § 1.892-5(a)(1) (rules finalized in prior
regulations), the final regulations provide
that a taxpayer may choose to apply the
2025 final regulations to a taxable year
beginning before December 15, 2025
(finalization date) if the period of limita-
tions on assessment of the taxable year
is open under section 6501 and the tax-
payer and entities that are related (within
the meaning of section 267(b) or sec-
tion 707(b)) to the taxpayer consistently
apply the rules of 2025 final regulations
in their entirety to the taxable year and
all succeeding taxable years beginning
before the finalization date.
Another comment recommended that
taxpayers who have structured invest-
ments in reliance on the 2011 proposed
regulations be given a transition period to
undertake any necessary restructuring if
the final regulations are different from the
2011 proposed regulations. The final reg-
ulations do not adopt this comment. The
Treasury Department and the IRS have
determined that the provisions of the final
regulations are consistent with the 2011
proposed regulations and the differences
do not require a transition period. A sepa-
rate notice of proposed rulemaking is pub-
lished in this issue of the Federal Regis-
ter which contains proposed changes and
modifications that are materially different
from the 2011 proposed regulations.
Special Analyses
I. Regulatory Planning and Review –
Economic Analysis
These final regulations are not subject
to review under section 6(b) of Executive
Order 12866 pursuant to the Memoran-
dum of Agreement (July 4, 2025) between
the Treasury Department and the Office of
Management and Budget (OMB) regard-
ing review of tax regulations.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) (PRA) 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. An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information dis-
plays a valid control number.
The collection of information in these
final regulations contains recordkeeping
requirements. The recordkeeping require-
ments are necessary for the IRS to vali-
date if certain entities have met the regu-
latory requirements and are entitled to the
inadvertent commercial activity excep-
tion under section 892. No public com-
ments received by the IRS were directed
at the recordkeeping requirements. The
recordkeeping requirements in § 1.892-

Bulletin No. 2026–3 335 January 12, 2026
5(a)(2)(ii)(B) and § 1.892-5(a)(2)(iv) are
approved by OMB under Control Number
1545-2239.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby certi-
fied that this rulemaking will not have a sig-
nificant economic impact on a substantial
number of small entities within the mean-
ing of section 601(6) of the Regulatory
Flexibility Act. This certification is based
on the fact that the final regulations affect
foreign governments, including their con-
trolled entities, with income from sources
within the United States. Accordingly, the
entities affected by the final regulations are
not considered small entities, and a regula-
tory flexibility analysis under the Regula-
tory Flexibility Act is not required.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking
that preceded these final regulations was
submitted to the Chief Counsel for the
Office of Advocacy of the Small Business
Administration for comment on its impact
on small business. No comments on that
notice of proposed rulemaking were
received from the Chief Counsel for the
Office of Advocacy of the Small Business
Administration.
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. These final regula-
tions do not include any Federal mandate
that may result in expenditures by State,
local, or Tribal governments, or by the pri-
vate sector in excess of that threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled “Feder-
alism”) prohibits an agency from publishing
any rule that has federalism implications if
the rule either imposes substantial, direct
compliance costs on State and local gov-
ernments, 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. These
final 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.
Statement of Availability of IRS
Documents
IRS guidance cited in this preamble is
published in the Internal Revenue Bulletin
and is available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
Drafting Information
The principal authors of the final reg-
ulations are Jack Zhou of the Office of
Associate Chief Counsel (International),
and Joel Deuth, formerly of the Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS amend 26 CFR part 1 as fol-
lows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries for
§§ 1.892-3 and 1.892-4 in numerical order
to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.892-3 also issued under 26
U.S.C. 892(c).
* * * * *
Section 1.892-4 also issued under 26
U.S.C. 892(c).
* * * * *
Par. 2. Section 1.882-5 is amended by
revising paragraph (a)(6) to read as fol-
lows:
§ 1.882-5 Determination of interest
deduction.
(a) * * *
(6) Special rule for foreign govern-
ments. The amount of interest expense
of a foreign government, as defined in
§ 1.892-2T(a), that is allocable to ECI
is the total amount of interest paid or
accrued within the taxable year by the
United States trade or business on U.S.
booked liabilities (as defined in para-
graph (d)(2) of this section). Interest
expense of a foreign government, how-
ever, is not allocable to ECI to the extent
that it is incurred with respect to U.S.
booked liabilities that exceed 80 per-
cent of the total value of U.S. assets
for the taxable year (determined under
paragraph (b) of this section). This para-
graph (a)(6) does not apply to controlled
commercial entities within the meaning
of § 1.892-5.
* * * * *
Par. 3. Section 1.892-3 is revised to
read as follows:
§ 1.892-3 Income of foreign
governments.
(a) Types of income exempt—(1) In
general. For further guidance, see § 1.892-
3T(a)(1).
(2) Income from investments. For fur-
ther guidance, see § 1.892-3T(a)(2).
(3) Securities. For further guidance,
see § 1.892-3T(a)(3).
(4) Financial instrument—(i) Defini-
tion. For purposes of this paragraph (a),
the term financial instrument includes:
(A) Any interest rate, currency, equity,
or commodity (as the term is used in
section 864(b)(2)(B) and § 1.864-2(d))
notional principal contract (as the term is
used in section 475(c)(2)); or
(B) Any evidence of an interest in
options, forward or futures contracts, and
any other similar contracts, the value of
which, or any payment or other transfer

January 12, 2026 336 Bulletin No. 2026–3
with respect to which, is (directly or indi-
rectly) determined by reference to one or
more of the following:
(1) Commodity (as the term is used in
section 864(b)(2)(B) and § 1.864-2(d));
(2) Currency;
(3) Share of stock;
(4) Partnership or beneficial ownership
interest in a widely held or publicly traded
partnership or trust;
(5) Note, bond, debenture, or other evi-
dence of indebtedness; or
(6) Notional principal contract
described in paragraph (a)(4)(i)(A) of this
section.
(ii) Special rule. For purposes of
paragraph (a)(4)(i) of this section, non-
functional currency or gold is a financial
instrument when physically held by a for-
eign central bank of issue (as defined in
§ 1.895-1(b)).
(5) Execution of financial or monetary
policy. For further guidance, see § 1.892-
3T(a)(5).
(6) Dividend equivalents. Income from
investments in stocks includes the pay-
ment of a dividend equivalent described
in section 871(m) and the regulations in
this part under section 871(m).
(b) Illustrations. For further guidance,
see § 1.892-3T(b).
(c) Applicability dates. (1) Paragraph
(a)(4) of this section applies to taxable
years beginning on or after December
15, 2025. See § 1.892-3T(a)(4), as con-
tained in 26 CFR in part 1 in effect on
April 1, 2025, for the rules that apply to
taxable years beginning before Decem-
ber 15, 2025. A taxpayer may choose to
apply paragraph (a)(4) of this section to
a taxable year beginning before Decem-
ber 15, 2025, if the period of limitations
on assessment of the taxable year is open
under section 6501 and the taxpayer and
entities that are related (within the mean-
ing of section 267(b) or section 707(b))
to the taxpayer apply this rule and
§§ 1.892-4 and 1.892-5 in their entirety
to the taxable year and all succeeding
taxable years beginning before Decem-
ber 15, 2025.
(2) Paragraph (a)(6) of this section
applies to payments made on or after
December 5, 2013.
Par. 4. Section 1.892-3T is amended
by revising paragraph (a)(4) to read as fol-
lows:
§ 1.892-3T Income of foreign
governments (temporary regulations).
(a) * * *
(4) Financial instrument. For further
guidance, see § 1.892-3(a)(4).
* * * * *
Par. 5. Section 1.892-4 is added to read
as follows:
§ 1.892-4 Commercial activities.
(a) Purpose. The exemption gener-
ally applicable to a foreign government
(as defined in § 1.892-2T) for income
described in §§ 1.892-3T and 1.892-3
does not apply to income derived from
the conduct of commercial activity
(whether within or outside the United
States), income received by a controlled
commercial entity or received (directly
or indirectly) from a controlled commer-
cial entity, or income derived from the
disposition of any interest in a controlled
commercial entity. This section provides
rules for determining whether income
is derived from the conduct of commer-
cial activity. The rules in this section also
apply in determining under §§ 1.892-5T
and 1.892-5 whether an entity is a con-
trolled commercial entity.
(b) In general. Except as provided in
paragraph (c) of this section, all activities
(whether conducted within or outside the
United States) that are ordinarily con-
ducted for the current or future production
of income or gain are commercial activ-
ities. Only the nature of the activity, not
the purpose or motivation for conducting
the activity, is determinative of whether
the activity is commercial in character.
For purposes of this paragraph (b), activ-
ities that constitute a trade or business
for purposes of section 162 or constitute
(or would constitute if undertaken in the
United States) a trade or business in the
United States for purposes of section
864(b) are commercial activities except
as otherwise provided in paragraph (c) of
this section.
(c) Activities that are not commer-
cial—(1) Investments—(i) In general.
Subject to the provisions of this para-
graph (c), the following are not com-
mercial activities: investments in stocks,
bonds, and other securities (as defined
in § 1.892-3T(a)(3)); loans; investments
in financial instruments (as defined in
§ 1.892-3(a)(4)); the holding of part-
nership equity interests; the holding of
net leases on real property; the holding
of real property which is not producing
income (other than on its sale or from
an investment in net leases on real prop-
erty); and the holding of deposits in any
currency in banks. Transferring securities
under a loan agreement which meets the
requirements of section 1058 is an invest-
ment for purposes of this paragraph (c)
(1)(i). An activity will not cease to be an
investment solely because of the volume
of transactions of that activity or because
of other unrelated activities.
(ii) [Reserved]
(iii) Banking, financing, etc. For further
guidance, see § 1.892-4T(c)(1)(iii).
(2) Trading. Effecting transactions in
stocks, bonds, other securities (as defined
in § 1.892-3T(a)(3)), partnership equity
interests, commodities, or financial instru-
ments (as defined in § 1.892-3(a)(4)) for
a foreign government’s own account does
not constitute commercial activity. Such
transactions are not commercial activities
regardless of whether they are effected
by the foreign government through its
employees or through a broker, commis-
sion agent, custodian, or other independent
agent and regardless of whether or not any
such employee or agent has discretionary
authority to make decisions in effecting
the transactions. Such transactions under-
taken as a dealer (as determined under
the principles of § 1.864-2(c)(2)(iv)(a)),
however, constitute commercial activity.
For purposes of this paragraph (c)(2), the
term commodities means commodities of
a kind customarily dealt in on an orga-
nized commodity exchange but only if the
transaction is of a kind customarily con-
summated at such place.
(3) Disposition of a U.S. real prop-
erty interest. A disposition (including a
deemed disposition under section 897(h)
(1)) of a U.S. real property interest (as
defined in section 897(c)), by itself, does
not constitute the conduct of commercial
activity. As described in § 1.892-3T(a),
however, gain derived from a disposition
of a U.S. real property interest defined in
section 897(c)(1)(A)(i) will not qualify for
exemption from tax under section 892.
(4) Cultural events. For further guid-
ance, see § 1.892-4T(c)(2).

Bulletin No. 2026–3 337 January 12, 2026
(5) Non-profit activities. For further
guidance, see § 1.892-4T(c)(3).
(6) Governmental functions. For fur-
ther guidance, see § 1.892-4T(c)(4).
(7) Purchasing. For further guidance,
see § 1.892-4T(c)(5).
(d) Applicability date. Except as other-
wise provided in this paragraph (d), this
section applies to taxable years begin-
ning on or after December 15, 2025. See
§ 1.892-4T, as contained in 26 CFR in
part 1 in effect on April 1, 2025, for the
rules that apply to taxable years beginning
before December 15, 2025. A taxpayer
may choose to apply this section to a tax-
able year beginning before December 15,
2025, if the period of limitations on assess-
ment of the taxable year is open under
section 6501 and the taxpayer and entities
that are related (within the meaning of
section 267(b) or section 707(b)) to the
taxpayer apply this section and §§ 1.892-
3(a)(4) and 1.892-5 in their entirety to the
taxable year and all succeeding taxable
years beginning December 15, 2025.
Par. 6. Section 1.892-4T is amended
by revising paragraphs (a), (b), and (c)(1)
(i) and (ii) to read as follows:
§ 1.892-4T Commercial activities
(temporary regulations).
(a) Purpose. For further guidance, see
§ 1.892-4(a).
(b) In general. For further guidance,
see § 1.892-4(b).
(c) * * *
(1) * * *
(i) In general. For further guidance, see
§ 1.892-4(c)(1)(i).
(ii) Trading. For further guidance, see
§ 1.892-4(c)(2).
* * * * *
Par. 7. Section 1.892-5 is revised to
read as follows:
§ 1.892-5 Controlled commercial entity.
(a) In general—(1) General rule and
definition of the term controlled com-
mercial entity. (i) Under section 892(a)
(2)(A)(ii) and (iii), the exemption gener-
ally applicable to a foreign government
(as defined in § 1.892-2T) for income
described in §§ 1.892-3T and 1.892-3
does not apply to income received by a
controlled commercial entity or received
(directly or indirectly) from a controlled
commercial entity, or to income derived
from the disposition of any interest in a
controlled commercial entity.
(ii) For purposes of section 892(a)
(2)(B) and this section, the term entity
includes a corporation, a partnership, a
trust (including a pension trust described
in § 1.892-2T(c)), and an estate.
(iii) The term controlled commercial
entity means any entity (including a con-
trolled entity as defined in § 1.892-2T(a)
(3)) engaged in commercial activities
(as defined in §§ 1.892-4T and 1.892-4)
(whether conducted within or outside
the United States) if the foreign govern-
ment—
(A) Holds (directly or indirectly) any
interest in such entity which (by value or
voting power) is 50 percent or more of the
total of such interests in such entity; or
(B) Holds (directly or indirectly) any
other interest in such entity which pro-
vides the foreign government with effec-
tive control of such entity.
(2) Inadvertent commercial activity—
(i) General rule. For purposes of section
892(a)(2)(B) and paragraph (a)(1) of this
section, a tested entity that conducts,
including by attribution, only inadvertent
commercial activity will not be consid-
ered to be engaged in commercial activ-
ities. However, any income derived from
any foreign government’s inadvertent
commercial activity (including activity
attributed from a partnership) will not
qualify for exemption from tax under sec-
tion 892. Commercial activity of a tested
entity will be treated as inadvertent com-
mercial activity only if:
(A) Failure to avoid conducting the
commercial activity is reasonable as
described in paragraph (a)(2)(ii) of this
section;
(B) The commercial activity is timely
cured as described in paragraph (a)(2)(iii)
of this section; and
(C) The record maintenance require-
ments described in paragraph (a)(2)(iv) of
this section are met.
(ii) Reasonable failure to avoid com-
mercial activity—(A) In general. Subject
to paragraphs (a)(2)(ii)(B) and (C) of this
section, whether a tested entity’s failure
to prevent its worldwide activities from
resulting in commercial activity is reason-
able will be determined based on all the
facts and circumstances. Due regard will
be given to the number of commercial
activities conducted during the taxable
year and the activities in the immediately
preceding taxable year to the extent rele-
vant in characterizing the activities in the
current taxable year, as well as the amount
of income earned from, and assets used in,
the conduct of the commercial activities
in relationship to the tested entity’s total
income and assets. For purposes of this
paragraph (a)(2)(ii)(A) and paragraph (a)
(2)(ii)(C) of this section, where commer-
cial activity conducted by a partnership is
attributed under paragraph (d)(5)(i) of this
section to a tested entity owning an inter-
est in the partnership—
(1) Assets used in the conduct of the
commercial activity by the partnership
are treated as assets used in the conduct of
commercial activity by the entity in pro-
portion to the tested entity’s interest in the
partnership; and
(2) The tested entity’s distributive share
of the partnership’s income from the con-
duct of the commercial activity is treated
as income earned by the tested entity from
the conduct of commercial activities.
(B) Continuing due diligence require-
ment. A failure to avoid commercial
activity will not be considered reasonable
unless there is continuing due diligence to
prevent the tested entity from engaging in
commercial activities within or outside
the United States as evidenced by hav-
ing adequate written policies and oper-
ational procedures, within the meaning
of this paragraph (a)(2)(ii)(B), in place
to monitor the tested entity’s worldwide
activities. A failure to avoid commercial
activity will not be considered reason-
able if responsible employees have not
undertaken reasonable efforts, based on
all facts and circumstances, to establish,
follow, and enforce such written policies
and operational procedures with respect
to the tested entity. For purposes of this
paragraph (a)(2)(ii)(B), all facts and cir-
cumstances are considered in the deter-
mination of whether written policies and
operational procedures are considered
adequate, including whether the written
policies and operational procedures:
(1) Prohibit the tested entity from
engaging in commercial activities both
directly and through investments in enti-
ties whose commercial activities would

January 12, 2026 338 Bulletin No. 2026–3
be attributed to the tested entity within the
meaning of this section;
(2) Are communicated in writing to
all persons who exercise discretionary
authority, acting alone or as part of a deci-
sional body, to cause the tested entity to
undertake an investment;
(3) Require an advance determination,
by receipt of an opinion of counsel or
otherwise, as to whether an investment is
commercial activity;
(4) Include an annual internal or exter-
nal audit or review of direct investments
and investments in entities whose com-
mercial activities would be attributed to
the tested entity within the meaning of this
section; and
(5) Require the result of periodic tests
to be reviewed and certified by responsible
employees who have authority and obliga-
tion to cause the curing of any commercial
activity disclosed in such procedures.
(C) Safe Harbor—(1) In general.
Provided that adequate written policies
and operational procedures are in place
to monitor the tested entity’s worldwide
activities as required in paragraph (a)
(2)(ii)(B) of this section, the tested enti-
ty’s failure to avoid commercial activity
during the taxable year will be considered
reasonable if:
(i) The value of the assets used in, or
held for use in, all commercial activity
does not exceed five percent of the total
value of the assets reflected on the tested
entity’s balance sheet for the taxable year,
determined using the average of the value
of the assets as of the close of each quar-
ter of the taxable year, as prepared for an
applicable financial statement as defined
in section 451(b)(3) and § 1.451-3(a), or, if
the tested entity is not required to prepare
a balance sheet for an applicable finan-
cial statement, as reflected in the books of
account or records that are adequate and
sufficient to establish the amount; and
(ii) The income earned by the tested
entity from commercial activity does not
exceed five percent of the tested entity’s
gross income as reflected on its income
statement for the taxable year, as prepared
for an applicable financial statement as
defined in section 451(b)(3) and § 1.451-
3(a), or, if the tested entity is not required
to prepare an income statement for an
applicable financial statement, as reflected
in the books of account or records that are
adequate and sufficient to establish the
amount.
(2) Calculation of total assets and
income. For purposes of paragraph (a)
(2)(ii)(C)(1) of this section, the amount
of total assets includes the value of the
tested entity’s qualified partnership inter-
ests under paragraph (d)(5)(iii) of this sec-
tion, and the amount of total gross income
includes the tested entity’s distributive
share of income, including income derived
from commercial activity, from partner-
ships in which the tested entity holds a
qualified partnership interest under para-
graph (d)(5)(iii) of this section.
(iii) Cure requirement. A timely cure
is considered to have been made if the
tested entity discontinues the conduct of
the commercial activity within 180 days
of the date of discovery of the commer-
cial activity by responsible employees
who are responsible for monitoring and
reviewing the tested entity’s commer-
cial activity pursuant to paragraph (a)(2)
(ii)(B) of this section. For example, if a
responsible employee discovers that the
partnership in which the tested entity
holds an interest as a partner is conduct-
ing commercial activity, the entity will
satisfy the cure requirement if, within
180 days of that person discovering the
commercial activity, the tested entity
discontinues the conduct of the activity
by divesting itself of its interest in the
partnership (including by transferring
its interest in the partnership to a related
entity), or the partnership discontinues
its conduct of commercial activity. The
tested entity may, depending on the facts
and circumstances, be able to satisfy the
cure requirement if, within 180 days of
a responsible employee discovering the
commercial activity, the tested entity
exchanges its interest in the partnership
for one that is a qualified partnership
interest, within the meaning of para-
graph (d)(5)(iii) of this section, of the
same partnership (including a deemed
exchange from an agreed modification of
terms).
(iv) Record maintenance. Adequate
records of each discovered commercial
activity and the remedial action taken to
cure that activity must be maintained. The
records must be retained so long as the
contents thereof may become material in
the administration of section 892.
(v) Definitions. The following defini-
tions apply for purposes of this paragraph
(a)(2).
(A) Tested entity. A tested entity means
an entity that is engaged, including by
attribution under paragraph (d)(5)(i) of
this section, in commercial activity with-
out regard to paragraph (a)(2)(i) of this
section.
(B) Responsible employees. Responsi-
ble employees may include employees of
a tested entity or employees of an entity
that controls (within the meaning of para-
graph (a)(1) of this section) the tested
entity.
(C) Reasonable efforts. The term rea-
sonable efforts means exercising ordinary
business care and prudence.
(3) Annual determination of controlled
commercial entity status—(i) In general.
If an entity described in paragraph (a)
(1) of this section engages in commer-
cial activities at any time during its tax-
able year, the entity will be considered a
controlled commercial entity for its entire
taxable year. An entity that is not engaged
in commercial activities during its taxable
year will not be considered a controlled
commercial entity for its taxable year. For
purposes of determining whether an entity
is engaged in commercial activities during
its taxable year, that entity’s activities
during its immediately preceding taxable
year will also be taken into account to the
extent relevant in characterizing the activ-
ities in the current taxable year.
(ii) Certain corporate acquisitions—
(A) In general. For purposes of paragraph
(a)(3)(i) of this section, if the assets of a
corporation that is engaged in commer-
cial activity in a taxable year are acquired
by another corporation in an acquisition
described in section 381(a), then, except
as provided in paragraph (a)(3)(ii)(B) of
this section, the acquiring corporation will
not be treated as conducting commercial
activity for the taxable year in which the
acquisition occurs solely by reason of
acquiring and holding the distributor or
transferor corporation’s assets, provided
that the taxable year of the distributor or
transferor corporation ends under sec-
tion 381(b), and after the acquisition, the
acquiring corporation is not the entity that
directly continues the distributor or trans-
feror corporation’s commercial activity.
If the taxable year of the distributor or

Bulletin No. 2026–3 339 January 12, 2026
transferor corporation does not end as a
result of such acquisition, the acquiring
corporation will be treated as conducting
commercial activity for the taxable year in
which the acquisition occurs.
(B) Exception. If the acquisition
described in paragraph (a)(3)(ii)(A) of this
section to which section 381(a) applies is
between corporations that are controlled
by the same foreign sovereign within the
meaning of paragraph (a)(1) of this sec-
tion, the acquiring corporation will be
treated as conducting commercial activity
for the taxable year of the acquiring cor-
poration in which such acquisition occurs
regardless of whether the taxable year of
the distributor or transferor corporation
ends as described in section 381(b) or
whether the acquiring corporation directly
continues the distributor or transferor cor-
poration’s commercial activity.
(b) Entities treated as engaged in com-
mercial activity—(1) United States real
property holding corporations—(i) Gen-
eral rule. Except as provided in paragraph
(b)(1)(ii) of this section, a corporation that
is a United States real property holding
corporation as defined in section 897(c)
(2), is treated as engaged in commercial
activity and, therefore, is a controlled
commercial entity if the requirements of
paragraph (a)(1)(iii)(A) or (B) of this sec-
tion are satisfied.
(ii) Exceptions. Paragraph (b)(1)(i) of
this section does not apply to the follow-
ing—
(A) Corporations that are foreign; or
(B) A corporation that is a United
States real property holding corporation,
as defined in section 897(c)(2), solely by
reason of its direct or indirect ownership
interest in one or more other corpora-
tions that are not controlled by the for-
eign government (as determined under
paragraph (a)(1) of this section). For
this purpose, the phrase solely by reason
of its direct or indirect ownership inter-
est in one or more other corporations
that are not controlled by the foreign
government (as determined under para-
graph (a)(1) of this section) means dis-
regarding any ownership interests, held
directly or indirectly, in noncontrolled
corporations (as determined under para-
graph (a)(1) of this section), after apply-
ing the asset test under section 897(c)(2)
and § 1.897-2.
(2) Central banks. For further guid-
ance, see § 1.892-5T(b)(2).
(3) Pension trusts. For further guid-
ance, see § 1.892-5T(b)(3).
(c) Control—(1) Attribution. For fur-
ther guidance, see § 1.892-5T(c)(1).
(2) Effective control. For further guid-
ance, see § 1.892-5T(c)(2).
(d) Related controlled entities—(1)
Brother/sister entities. For further guid-
ance, see § 1.892-5T(d)(1).
(2) Parent/subsidiary entities. For fur-
ther guidance, see § 1.892-5T(d)(2).
(3) [Reserved]
(4) Illustrations. For further guidance,
see § 1.892-5T(d)(4).
(5) Partnerships—(i) General rule.
Except as provided in paragraphs (d)(5)
(ii) and (iii) of this section, the commer-
cial activities of an entity classified as a
partnership for Federal tax purposes are
attributable to its partners for purposes
of section 892. For example, if an entity
described in paragraph (a)(1)(iii)(A) or
(B) of this section holds an interest as a
general or limited partner in a partner-
ship that is engaged in commercial activ-
ities, except as provided in paragraphs
(d)(5)(ii) and (iii) of this section, the
partnership’s commercial activities are
attributed to that entity for purposes of
determining if the entity is a controlled
commercial entity within the meaning of
section 892(a)(2)(B) and paragraph (a)
(1) of this section.
(ii) Trading activity exception. An
entity not otherwise engaged in commer-
cial activities will not be considered to be
engaged in commercial activities solely
because the entity is a member of a part-
nership (whether domestic or foreign) that
effects transactions in stocks, bonds, other
securities (as defined in § 1.892-3T(a)(3)),
partnership equity interests, commodities
(as defined in § 1.892-4(c)(2)), or financial
instruments (as defined in § 1.892-3(a)(4))
for the partnership’s own account or solely
because an employee of such partnership,
or a broker, commission agent, custodian,
or other agent, pursuant to discretionary
authority granted by such partnership,
effects such transactions for the account of
the partnership. This paragraph (d)(5)(ii)
does not apply to any member in the case
of a partnership that is a dealer in stocks,
bonds, other securities, partnership equity
interests, commodities, or financial instru-
ments, as determined under the principles
of § 1.864-2(c)(2)(iv)(a).
(iii) Qualified partnership interest
exception—(A) General rule. An entity
that is not otherwise engaged in commer-
cial activities (including, for example,
performing services for a partnership as
described in section 707(a) or section
707(c)) will not be deemed to be engaged
in commercial activities solely because
it holds a qualified partnership interest
in a partnership, notwithstanding that
the entity may be considered as being
engaged in a trade or business within
the United States under section 875(1).
Nevertheless, pursuant to section 892(a)
(2)(A)(i), a foreign government mem-
ber’s distributive share of partnership
income will be treated as from commer-
cial activity, and thus will not be exempt
from taxation under section 892 to the
extent that the partnership derived such
income from the conduct of commercial
activity. For example, where a controlled
entity described in § 1.892-2T(a)(3) that
is not otherwise engaged in commercial
activities holds a qualified partnership
interest in a partnership that is a dealer
in stocks, bonds, other securities, part-
nership equity interests, commodities, or
financial instruments in the United States,
although the controlled entity partner will
not be deemed to be engaged in com-
mercial activities solely because of its
interest in the partnership, its distributive
share of partnership income derived from
the partnership’s activity as a dealer will
not be exempt from tax under section 892
because it was derived from the conduct
of commercial activity.
(B) Qualified partnership interest—(1)
In general. Solely for purposes of para-
graph (d)(5)(iii) of this section, an interest
classified as equity in an entity classified
as a partnership for Federal tax purposes is
treated as a qualified partnership interest if
the holder of such interest has limited lia-
bility within the meaning of § 301.7701-
3(b)(2)(ii) of this chapter, does not pos-
sess the legal authority to bind or to act
on behalf of the partnership, does not con-
trol the partnership within the meaning of
paragraph (a)(1) of this section, and does
not have rights to participate in the man-
agement and conduct of the partnership’s
business at any time during the partner-
ship’s taxable year.

January 12, 2026 340 Bulletin No. 2026–3
(2) Rights to participate in the man-
agement and conduct of a partnership’s
business—(i) In general. Rights to par-
ticipate in the management and conduct
of a partnership’s business mean rights to
participate in the day-to-day management
or operation of the partnership’s business,
including, for example, the right to par-
ticipate in ordinary-course personnel and
compensation decisions, or take active
roles in formulating the partnership’s
business strategy or in respect of the part-
nership’s acquisition or disposition of
a specific investment. The existence of
these rights is determined based on all
facts and circumstances. In addition to the
conduct of relevant parties, such deter-
mination shall consider the totality of all
rights arising from all direct or indirect
interests of the holder of the partnership,
including rights provided under the law of
the jurisdiction in which the partnership
is organized, the partnership’s governing
documents, contractual agreements such
as side letters, shareholders’ agreements,
and agreements with creditors of the part-
nership.
(ii) Rights to participate in the mon-
itoring or protection of a partner’s cap-
ital investment. Rights to participate
in the management and conduct of a
partnership’s business generally do not
include participation rights with respect
to monitoring or protecting the partner’s
capital investment in the partnership, but
only if such rights do not include rights
to participate in the day-to-day manage-
ment or operation of the partnership’s
business and do not result in effective
control under paragraph (a)(1)(iii)(B) of
this section. These rights may, subject to
the limitations of the previous sentence,
include oversight and supervision rights
in the case of major strategic decisions
such as: admission or expulsion of a
partner; hiring or firing key strategic
personnel; amendment of the partner-
ship agreement; dissolution, merger, or
conversion of the partnership; unusual
and non-ordinary course deviations
from previously determined investment
parameters; extending the term of the
partnership’s governing agreement; and
disposition of all or substantially all of
the partnership’s property outside of
the ordinary course of the partnership’s
activities.
(iii) Holding more than one interest in
a partnership. If a foreign sovereign holds
directly or indirectly interests in a partner-
ship through one or more integral parts
or controlled entities (within the meaning
of § 1.892-2T) or entities controlled by
such foreign sovereign under paragraph
(a)(1) of this section, then such interests
are aggregated for purposes of this para-
graph (d)(5)(iii)(B)(2). For example, if a
controlled entity (within the meaning of
§ 1.892-2T) of a foreign sovereign or an
entity controlled by the foreign sovereign
under paragraph (a)(1) of this section holds
a partnership interest that is not a qualified
partnership interest, then any other equity
interest held in the same partnership by
any other controlled entities of the foreign
sovereign is also not treated as a quali-
fied partnership interest. Furthermore, if
a foreign sovereign directly or indirectly
holds more than one interest in a partner-
ship through one or more integral parts or
controlled entities (within the meaning of
§ 1.892-2T) or entities controlled by such
foreign sovereign under paragraph (a)(1)
of this section and those partnership inter-
ests in the aggregate result in a disqualifi-
cation from qualified partnership interest,
then each such interest in the partnership
is not treated as a qualified partnership
interest.
(C) Safe harbor for de minimis inter-
ests. For purposes of this paragraph (d)(5)
(iii), a holder of an interest classified as
equity in an entity classified as a partner-
ship for Federal tax purposes is treated
as holding a qualified partnership inter-
est (within the meaning of paragraph (d)
(5)(iii)(B) of this section) if the holder at
all times during the partnership’s taxable
year:
(1) Has limited liability within the
meaning of § 301.7701-3(b)(2)(ii) of this
chapter;
(2) Does not possess the legal authority
to bind or to act on behalf of the partner-
ship;
(3) Is not the partnership’s managing
partner, managing member, or an equiva-
lent role under applicable law; and
(4) Does not own, directly or indirectly
(under the principles of paragraph (d)(5)
(iii)(B)(2)(iii) of this section), more than
five percent of either the partnership’s
capital interests or the partnership’s prof-
its interests.
(D) Tiered partnerships. The rules of
this paragraph (d)(5)(iii) apply in cases
where a partnership (lower-tier partner-
ship) that conducts commercial activity
has a partner that is a partnership (upper-
tier partnership). If an upper-tier partner-
ship holds no interest in the lower-tier
partnership other than a qualified partner-
ship interest, within the meaning of para-
graph (d)(5)(iii)(B) or (C) of this section,
the lower-tier partnership’s commercial
activity is not attributed to the upper-tier
partnership. Nevertheless, the upper-tier
partnership’s distributive share of the low-
er-tier partnership’s income that is derived
from the conduct of commercial activity
will not be exempt from tax under section
892.
(iv) Illustration. The following exam-
ples illustrate the application of this para-
graph (d)(5):
(A) Example 1—(1) Facts. K is a controlled
entity of a foreign sovereign under § 1.892-2T(a)
(3). K holds a 20 percent equity interest in Opco,
a domestic limited liability company that is clas-
sified as a partnership for Federal tax purposes.
Opco owns and manages an office building that
produces income from rental and advertising
activities that constitute commercial activity under
§ 1.892-4. Under the governing agreement and the
applicable law of Opco, K is not liable for the
debts of or claims against Opco by reason of being
a member, does not possess the legal authority to
bind or act on behalf of Opco, and does not control
Opco within the meaning of paragraph (a)(1) of
this section. K is not the managing member of, and
does not hold an equivalent role under applicable
law in, Opco. Pursuant to a side letter between K
and Opco, K, however, has rights to review and
advise on Opco’s material business contracts and
business expenses.
(2) Analysis. Opco’s commercial activity is
attributable to K under paragraph (d)(5)(i) of this
section unless K’s interest in Opco is a qualified
partnership interest. K’s interest in Opco does not
satisfy the safe harbor under paragraph (d)(5)(iii)
(C) of this section because K holds a 20 percent
equity interest in Opco. Under all facts and cir-
cumstances as provided in paragraph (d)(5)(iii)(B)
of this section, K’s rights to review and advise on
Opco’s material business contracts and business
expenses constitutes the right to participate in the
day-to-day management and operation of Opco’s
business. As a result, K’s interest in Opco is not
a qualified partnership interest. Therefore, Opco’s
commercial activity is attributable to K under para-
graph (d)(5)(i) of this section, and K will be treated
as a controlled commercial entity.
(B) Example 2—(1) Facts. The facts are the same
as in paragraph (c)(5)(iv)(A) of this section (Exam-
ple 1), except that K does not have rights to review
and advise on Opco’s material business contracts
and business expenses. Instead, K is a member of
Opco’s member committee that only has the abil-

Bulletin No. 2026–3 341 January 12, 2026
ity to make non-binding recommendations, but not
decisions in respect of investor-level strategic mat-
ters such as dissolution of the partnership, deviations
from previously determined investment parameters,
and extending the term of the partnership’s govern-
ing agreement. The extent of K’s membership and
participation in Opco’s member committee does not
result in control over Opco within the meaning of
paragraph (a)(1) of this section. K does not otherwise
have control over Opco within the meaning of para-
graph (a)(1) of this section.
(2) Analysis. Although K is on Opco’s member
committee, the committee only has the ability to
make non-binding recommendations but not deci-
sions of an investor-level nature in respect of strate-
gic matters, and not in respect of Opco’s day-to-day
operations. As a result, Opco’s commercial activities
will not be attributable to K pursuant to paragraph
(d)(5)(iii)(A) of this section. Accordingly, if K is
not treated as engaged in any other activities that
are commercial activities, K will not be a controlled
commercial entity. The portion of K’s distributive
share of income from Opco, however, that is derived
from commercial activity will not be exempt from
tax under section 892.
(e) Applicability date. Except as oth-
erwise provided in this paragraph (e), this
section applies to taxable years begin-
ning on or after December 15, 2025. See
§§ 1.892-5 and 1.892-5T, as contained
in 26 CFR in part 1 in effect on April 1,
2025, for the rules that apply to taxable
years beginning before December 15,
2025. A taxpayer may choose to apply
this section to a taxable year beginning
before December 15, 2025, if the period
of limitations on assessment of the tax-
able year is open under section 6501 and
the taxpayer and entities that are related
(within the meaning of section 267(b)
or section 707(b)) to the taxpayer apply
this section and §§ 1.892-3(a)(4) and
1.892-4 in their entirety to the taxable
year and all succeeding taxable years
beginning before December 15, 2025.
The rule in paragraph (a)(1)(ii) of this
section applies on or after January 14,
2002.
Par. 8. Section 1.892-5T is amended
by:
a. Revising paragraph (a), the heading
of paragraph (b), and paragraph (b)(1);
b. Removing and reserving paragraph
(d)(3); and
c. Revising paragraph (d)(4).
The revisions read as follows:
§ 1.892-5T Controlled commercial
entity (temporary regulations).
(a) In general. For further guidance,
see § 1.892-5(a).
(b) Entities treated as engaged in com-
mercial activity—(1) U.S. real property
holding corporations. For further guid-
ance, see § 1.892-5(b)(1).
* * * * *
(d) * * *
(4) Illustrations. The principles of this
section may be illustrated by the follow-
ing examples.
(i) Example 1. (A) The Ministry of Industry and
Development is an integral part of a foreign sover-
eign under § 1.892-2T(a)(2). The Ministry is engaged
in commercial activity within the United States. In
addition, the Ministry receives income from various
publicly traded stocks and bonds, soybean futures
contracts and net leases on U.S. real property. Since
the Ministry is an integral part, and not a controlled
entity, of a foreign sovereign, it is not a controlled
commercial entity within the meaning of paragraph
(a) of this section. Therefore, income described in
§ 1.892-3T is ineligible for exemption under section
892 only to the extent derived from the conduct of
commercial activities. Accordingly, the Ministry’s
income from the stocks and bonds is exempt from
U.S. tax.
(B) The facts are the same as in paragraph (d)(4)
(i)(A) of this section, except that the Ministry also
owns 75 percent of the stock of R, a U.S. holding
company that owns all the stock of S, a U.S. operat-
ing company engaged in commercial activity. Min-
istry’s dividend income from R is income received
indirectly from a controlled commercial entity. The
Ministry’s income from the stocks and bonds, with
the exception of dividend income from R, is exempt
from U.S. tax.
(C) The facts are the same as in paragraph (d)
(4)(i)(A) of this section, except that the Ministry is
a controlled entity of a foreign sovereign. Since the
Ministry is a controlled entity and is engaged in com-
mercial activity, it is a controlled commercial entity
within the meaning of paragraph (a) of this section,
and none of its income is eligible for exemption.
(ii) Example 2. (A) Z, a controlled entity of a for-
eign sovereign, has established a pension trust under
the laws of the sovereign as part of a pension plan for
the benefit of its employees and former employees.
The pension trust (T), which meets the requirements
of § 1.892-2T(c), has investments in the U.S. in vari-
ous stocks, bonds, annuity contracts, and a shopping
center which is leased and managed by an indepen-
dent real estate management firm. T also makes secu-
rities loans in transactions that qualify under section
1058. T’s investment in the shopping center is not
considered an unrelated trade or business within
the meaning of section 513(b). Accordingly, T will
not be treated as engaged in commercial activities.
Since T is not a controlled commercial entity, its
investment income described in § 1.892-3T, with the
exception of income received from the operations of
the shopping center, is exempt from taxation under
section 892.
(B) The facts are the same as paragraph (d)(4)
(ii)(A) of this section, except that T has an interest
in a limited partnership (that is not a qualified part-
nership interest within the meaning of § 1.892-5(d)
(5)(iii)) which owns the shopping center. The shop-
ping center is leased and managed by the partnership
rather than by an independent management firm.
Managing a shopping center, directly or indirectly
through a partnership of which a trust is a member,
would be considered an unrelated trade or business
within the meaning of section 513(b) giving rise to
unrelated business taxable income. Since the com-
mercial activities of a partnership are attributable to
its partners, T will be treated as engaged in commer-
cial activity and thus will be considered a controlled
commercial entity. Accordingly, none of T’s income
will be exempt from taxation under section 892.
(C) The facts are the same as paragraph (d)(4)(ii)
(A) of this section, except that Z is a controlled com-
mercial entity. The result is the same as in paragraph
(d)(4)(ii)(A) of this section.
(iii) Example 3. (A) The Department of Interior,
an integral part of foreign sovereign FC, wholly
owns corporations G and H. G, in turn, wholly owns
S. G, H and S are each controlled entities. G, which
is not engaged in commercial activity anywhere in
the world, receives interest income from deposits in
banks in the United States. Both H and S do not have
any investments in the U.S. but are both engaged in
commercial activities. However, only S is engaged
in commercial activities within the United States.
Because neither the commercial activities of H nor
the commercial activities of S are attributable to the
Department of Interior or G, G’s interest income is
exempt from taxation under section 892.
(B) The facts are the same as paragraph (d)(4)
(iii)(A) of this section, except that G rather than S is
engaged in commercial activities and S rather than G
receives the interest income from the United States.
Since the commercial activities of G are attributable
to S, S’s interest income is not exempt from taxation.
Frank J. Bisignano,
Chief Executive Officer.
Approved: October 30, 2025
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Decem-
ber 12, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 15, 2025, 90
FR 57901)

January 12, 2026 342 Bulletin No. 2026–3
Part III
Section 1274.—
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
(Also, Sections 42, 280G, 382, 467, 468,
482, 483, 1288, 7520, 7702, 7872.)
Rev. Rul. 2026-2
This revenue ruling provides various
prescribed rates for federal income tax
purposes for January 2026 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the appro-
priate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. How-
ever, under section 42(b)(2), the applica-
ble percentage for non-federally subsi-
dized new buildings placed in service after
July 30, 2008, shall not be less than 9%.
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520. Table 6 contains
the deemed rate of return for transfers
made during calendar year 2026 to pooled
income funds described in section 642(c)
(5) that have been in existence for less
than 3 taxable years immediately preced-
ing the taxable year in which the transfer
was made. Finally, Table 7 contains the
average of the applicable federal mid-term
rates (based on annual compounding) for
the 60-month period ending December 31,
2025, for purposes of section 7702(f)(11).
REV. RUL. 2026-2 TABLE 1
Applicable Federal Rates (AFR) for January 2026
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR3.63%3.60%3.58%3.57%
110% AFR4.00%3.96%3.94%3.93%
120% AFR4.37%4.32%4.30%4.28%
130% AFR4.73%4.68%4.65%4.64%
Mid-term
AFR3.81%3.77%3.75%3.74%
110% AFR 4.19%4.15%4.13%4.11%
120% AFR4.57%4.52%4.49%4.48%
130% AFR4.96%4.90%4.87%4.85%
150% AFR5.74%5.66%5.62%5.59%
175% AFR6.71%6.60%6.55%6.51%
Long-term
AFR4.63%4.58%4.55%4.54%
110% AFR5.10%5.04%5.01%4.99%
120% AFR5.58%5.50%5.46%5.44%
130% AFR6.04%5.95%5.91%5.88%
REV. RUL. 2026-2 TABLE 2
Adjusted AFR for January 2026
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted AFR2.75%2.73%2.72%2.71%
Mid-term adjusted AFR 2.88%2.86%2.85%2.84%
Long-term adjusted AFR3.51%3.48%3.46%3.46%

Bulletin No. 2026–3 343 January 12, 2026
REV. RUL. 2026-2 TABLE 3
Rates Under Section 382 for January 2026
Adjusted federal long-term rate for the current month3.51%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal
long-term rates for the current month and the prior two months.)
3.51%
REV. RUL. 2026-2 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for January 2026
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.98%
Appropriate percentage for the 30% present value low-income housing credit 3.42%
REV. RUL. 2026-2 TABLE 5
Rate Under Section 7520 for January 2026
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest
4.6%
REV. RUL. 2026-2 TABLE 6
Deemed Rate for Transfers to New Pooled Income Funds During 2026
Deemed rate of return for transfers during 2026 to pooled income funds that have been in existence for
less than 3 taxable years
4.0%
REV. RUL. 2026-2 TABLE 7
Average of the Applicable Federal Mid-Term Rates for 2025
For purposes of section 7702(f)(11), the average of the applicable federal mid-term rates (based on annual compounding) for the
60-month period ending December 31, 2025, is 3.19% rounded to 3%.

January 12, 2026 344 Bulletin No. 2026–3
Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of January 2026. See Rev.
Rul. 2026-2, page 386.
Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of January 2026. See Rev. Rul.
2026-2, page 386.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.
Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of January 2026. See Rev. Rul.
2026-2, page 386.
Section 7702.—Life
Insurance Contract
Defined
The average of the applicable federal mid-term
rates for the 60-month period ending December 31,
2025, for purposes of section 7702(f)(11). See Rev.
Rul. 2026-2, page 386.
Section 7872.—Treatment
of Loans With Below-
Market Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2026. See Rev. Rul. 2026-2, page 386.

Bulletin No. 2026–3 345 January 12, 2026
Part IV
Notice of Proposed
Rulemaking
Income of Foreign
Governments and of
International Organizations
REG-101952-24
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations relating to the taxa-
tion of the income of foreign governments
from investments in the United States.
In particular, these proposed regulations
provide guidance for determining when
an acquisition of debt by a foreign gov-
ernment is considered to be commercial
activity, and when a foreign government
has effective control of an entity engaged
in commercial activities. These proposed
regulations will affect foreign govern-
ments that derive income from sources
within the United States.
DATES: Written or electronic comments
and requests for a public hearing must be
received by February 13, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemak-
ing Portal at https://www.regulations.gov
(indicate IRS and REG-101952-24) by
following the online instructions for sub-
mitting 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, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments submit-
ted to the IRS’s public docket. Send paper
submissions to: CC:PA:01:PR (REG-
101952-24), Room 5503, Internal Reve-
nue 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 Reg-
ulations Section at (202) 317-6901 (not
toll-free numbers) or by email to publi-
chearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 892 of
the Internal Revenue Code (Code). These
regulations are issued under the express
delegations of authority under sections
892(c) and 7805(a) of the Code.
Background
I. Overview
This document contains proposed
amendments to the Income Tax Regula-
tions (26 CFR part 1) under section 892
of the Code relating to income of foreign
governments (proposed regulations). Any
terms used but not defined in this pream-
ble have the meanings given to them in the
proposed regulations.
Section 892(a)(1) provides that income
of foreign governments received from
investments in the United States in stocks,
bonds, or other domestic securities owned
by the foreign governments, or financial
instruments held in the execution of gov-
ernmental financial or monetary policy, or
interest on deposits in banks in the United
States of moneys belonging to the foreign
governments, is not included in gross
income and is exempt from taxation under
subtitle A of the Code. Section 892(a)(2)
(A) provides that section 892(a)(1) does
not apply to any income that is (1) derived
from the conduct of any commercial activ-
ity (whether within or outside the United
States), (2) received by a controlled com-
mercial entity (CCE) or received (directly
or indirectly) from a CCE, or (3) derived
from the disposition of any interest in a
CCE.
Section 892(a)(2)(B) provides that, for
purposes of section 892(a)(2)(A), a CCE
means any entity engaged in commercial
activities (whether within or outside the
United States) if the foreign government
holds (directly or indirectly) any inter-
est in the entity which (by value or vot-
ing interest) is 50 percent or more of the
total of the interests in the entity, or holds
(directly or indirectly) any other interest
in the entity which provides the foreign
government with effective control of the
entity. Section 892(c) authorizes the Sec-
retary to prescribe such regulations as
may be necessary or appropriate to carry
out the purposes of section 892.
II. Regulations Addressing the
Application of Section 892
On June 27, 1988, the Treasury Depart-
ment and the IRS published in the Federal
Register a notice of proposed rulemaking
(53 FR 24100) (1988 proposed regula-
tions) with a cross-reference to temporary
regulations under section 892 (TD 8211,
53 FR 24060) (1988 temporary regula-
tions) to provide guidance under section
892.
On August 1, 2002, the Treasury
Department and the IRS published
§ 1.892-5(a)(3) in the Federal Register
(TD 9012, 67 FR 49864) to provide that
the term “entity” for purposes of section
892(a)(2)(B) (defining “controlled com-
mercial entity”) includes partnerships
(2002 final regulations).
On November 3, 2011, the Treasury
Department and the IRS published in the
Federal Register a notice of proposed
rulemaking (76 FR 68119) that would
provide additional guidance for determin-
ing when a foreign government is engaged
in commercial activities (2011 proposed
regulations). On December 29, 2022, the
Treasury Department and the IRS pub-
lished in the Federal Register a notice of
proposed rulemaking (87 FR 80097) that
would make changes to § 1.892-5T(b)(1)
to provide exceptions to the general rule

January 12, 2026 346 Bulletin No. 2026–3
that a United States real property hold-
ing corporation (USRPHC), as defined in
section 897(c)(2), which may include a
foreign corporation, is treated as engaged
in commercial activity and, therefore, is a
CCE if the requirements of § 1.892-5T(a)
(1) or (2) are satisfied (2022 proposed reg-
ulations).
The rules in the 2011 proposed regu-
lations and the 2022 proposed regulations
are finalized, with modifications, in the
Final Rules section of this issue of the
Federal Register (2025 final regulations).
The 2025 final regulations also finalized
proposed § 1.892-3(a)(4) (definition of
financial instrument) of the 1988 proposed
regulations.
Explanation of Provisions
I. Definition of Controlled Entity
Section 892 does not define the term
“foreign government.” The 1988 tempo-
rary regulations define a foreign govern-
ment to consist only of integral parts and
controlled entities of a foreign sovereign.
Section 1.892-2T(a)(3) defines “controlled
entity” to mean an entity that is separate
in form from a foreign sovereign or other-
wise constitutes a separate juridical entity
if it satisfies certain requirements, includ-
ing that it is wholly owned and controlled
by a single foreign sovereign directly or
indirectly through one or more controlled
entities. The flush language of § 1.892-
2T(a)(3) states “[a] controlled entity does
not include partnerships or any other
entity owned and controlled by more than
one foreign sovereign.”
The Treasury Department and the
IRS are aware that the flush language of
§ 1.892-2T(a)(3) may be interpreted by
taxpayers as referring only to partnerships
owned by more than one foreign sover-
eign. The Treasury Department and the
IRS are of the view, however, the better
reading of this flush language is that part-
nerships, including ones wholly owned
and controlled by a single foreign sover-
eign (including indirectly through con-
trolled entities), are not included in the
term “controlled entity” for purposes of
§ 1.892-2T(a)(3). The concept of a con-
trolled entity was developed to address
the question of whether an entity separate
from a foreign sovereign and otherwise
subject to Federal income tax could be
exempt from such tax under section 892.
1

Since an entity treated as a partnership
for Federal tax purposes generally is not
subject to such tax, without regard to the
exemption under section 892, the question
addressed by the concept of a controlled
entity does not arise in the case of a part-
nership.
2
Therefore, the proposed regula-
tions would clarify that a partnership for
Federal tax purposes is not a controlled
entity within the meaning of § 1.892-
2T(a)(3). The proposed regulations would
remove the flush language following
§ 1.892-2T(a)(3) and replace it with pro-
posed § 1.892-2(a)(4), which would pro-
vide that a controlled entity, within the
meaning of § 1.892-2T(a)(3), does not
include any partnership for Federal tax
purposes. The proposed regulations also
would revise the concluding sentence
of the flush language following § 1.892-
2T(a)(3) to clarify that the rule is not con-
fined to “foreign financial organizations”
and to make other drafting changes.
II. Acquisition of Debt
A. In general
Proposed § 1.892-4(e)(1)(i) of the
2011 proposed regulations would provide
in part, under the heading titled “invest-
ments,” that subject to the provisions of
proposed § 1.892-4(e)(1)(ii) and (iii)
(rules on trading activities and invest-
ments made by a banking, financing, or
similar business), loans and investments
in stocks, bonds, and other securities
are not commercial activities. Proposed
§ 1.892-4(e)(1)(iii) would provide that
investments (including loans) made by
a banking, financing, or similar business
constitute commercial activities, even
if the income derived from those invest-
ments is not considered to be income
effectively connected to the active conduct
of a banking, financing, or similar busi-
ness in the United States by reason of the
application of § 1.864-4(c)(5). A comment
to the 2011 proposed regulations stated
that there is uncertainty as to the circum-
stances in which loan origination is com-
mercial activity. The Treasury Department
and the IRS acknowledged the comment
when finalizing proposed § 1.892-4(e)(1)
(i) and (ii) in the 2025 final regulations
and stated that the issue will be addressed
by these proposed regulations.
The Treasury Department and the IRS
are of the view that whether the activity
of lending or otherwise acquiring debt,
including at original issuance, qualifies as
investment rather than commercial activ-
ity under section 892 is highly fact-depen-
dent, so that a consideration of all facts and
circumstances is needed to determine the
appropriate characterization. Accordingly,
the Treasury Department and the IRS are
proposing these regulations to provide a
framework for determining when acquir-
ing any debt, including at original issu-
ance, qualifies as investment for purposes
of section 892.
The proposed regulations would pro-
vide as a general rule that all acquisition
of debt is treated as commercial activity
unless the acquisition is characterized as
investment for purposes of section 892
under either of two safe harbors or under
a facts-and-circumstances test. See pro-
posed § 1.892-4(c)(1)(ii)(A). The term
“debt” means an obligation treated as
debt for Federal tax purposes, regardless
of its legal form. Accordingly, proposed
§ 1.892-4(c)(1)(ii) would also apply to a
financial instrument, within the meaning
of § 1.892-3(a)(4), that is treated as debt.
An acquisition of debt undertaken as a
dealer, as defined in § 1.864-2(c)(2)(iv)
(a), would be treated in any event as com-
mercial activity.
The proposed regulations’ framework
would constitute the exclusive set of rules
for determining whether acquiring debt,
including at original issuance, is treated
1
See Rev. Rul. 75-298, 1975-2 C.B. 290 (providing criteria to determine whether an organization will be considered part of a foreign government for purposes of qualifying for exemption
from Federal income tax pursuant to section 892), obsoleted by Rev. Rul. 2003-99, 2003-2 C.B. 388, and revoking Rev. Rul. 66-73, 1966-1 C.B. 174 (examining whether an organization
constitutes a corporation for purposes of section 892).
2
See section 701, which was enacted in 1954 and states that “[a] partnership as such shall not be subject to the income tax imposed by this chapter.” Section 701 refers to “this chapter”
(chapter 1) while section 892(a)(1) states that certain income of foreign governments is exempt “under this subtitle.” However, the taxes for which section 892 provides an exemption (section
892(a)(1)) are described in chapter 1 of the subtitle.

Bulletin No. 2026–3 347 January 12, 2026
as investment and thus not as commer-
cial activity for purposes of section 892.
Whether debt acquisition is investment
for purposes of section 892 would be,
unless otherwise provided, determined
without regard to whether the debt acqui-
sition is treated as a trade or business for
Federal tax purposes. Thus, no inference
is intended from the proposed regulations
as to the circumstances in which acquir-
ing debt, including at original issuance,
would or would not be a trade or business
for other purposes of the Code, including
section 864, section 162, or section 166 of
the Code.
B. Debt acquisition safe harbors
Proposed § 1.892-4(c)(1)(ii)(B) would
provide two safe harbors that treat debt
acquired in a registered offering or in a
qualified secondary market acquisition as
investment for purposes of § 1.892-4(c)
(1)(i) and, thus, not subject to the general
rule of proposed § 1.892-4(c)(1)(ii)(A).
The first safe harbor would treat acqui-
sitions of bonds or other debt securities
acquired in an offering registered under the
Securities Act of 1933, as amended (Secu-
rities Act), as investment provided that the
underwriters of the offering are not related
to the acquirer within the meaning of sec-
tions 267(b) and 707(b). Although the first
safe harbor would except only offerings of
debt securities registered under the Secu-
rities Act, the Treasury Department and
the IRS recognize that the securities laws
of some foreign countries may provide a
regulatory framework for debt offerings
sufficiently similar to the Securities Act
such that this exception may appropri-
ately apply in those circumstances. Com-
ments are requested regarding the circum-
stances, if any, in which the safe harbor
should be extended to offerings registered
under foreign securities laws in addition
to the Securities Act.
The second safe harbor would treat a
qualified secondary market acquisition of
debt as investment for purposes of § 1.892-
4(c)(1)(i). This generally would include
acquisitions of debt traded on an estab-
lished securities market provided that the
acquirer is not purchasing from the issuer
or participating in negotiation of the terms
or issuance of the debt. A qualified second-
ary market acquisition must not be from a
person that is under common management
or control with the acquirer, unless that
person acquired the debt as investment
within the meaning of § 1.892-4(c)(1)(i).
Comments are requested on this safe har-
bor, including the circumstances, if any, in
which it should apply to an acquisition of
debt that is not traded on an established
securities market.
C. Qualification as investment based on
all facts and circumstances
Proposed § 1.892-4(c)(1)(ii)(C) would
provide that debt acquisitions that do
not satisfy the safe harbors of proposed
§ 1.892-4(c)(1)(ii)(B) may be an invest-
ment based on consideration of all rele-
vant facts and circumstances. In general,
facts and circumstances would be relevant
to the extent they indicate that the enti-
ty’s expected return from acquiring the
debt is exclusively a return on its capital
rather than including a return on activities
it conducts. The proposed regulations pro-
vide a non-exclusive list of relevant fac-
tors, in proposed § 1.892-4(c)(1)(ii)(C)(1)
through (8), that would apply in determin-
ing whether a debt acquisition is invest-
ment for purposes of § 1.892-4(c)(1)(i).
Under this proposed analysis, all factors
would be taken into account and, depend-
ing on the particular case, the weight
given to each relevant factor (including
factors not listed in the proposed regula-
tions) may vary.
Comments are requested on whether
proposed § 1.892-4(c)(1)(ii)(C) should
include additional factors or examples of
transactions undertaken by foreign gov-
ernment investors. In particular, com-
ments are requested on the circumstances,
if any, in which acquisitions of distressed
debt, broadly syndicated loans, revolving
credit facilities, and delayed-draw debt
obligations should be treated as invest-
ment rather than commercial activities for
purposes of section 892.
D. Other changes
The proposed regulations would retain
the exception for investments in “other
securities” (which follows the reference to
stocks and bonds) and retain the definition
of “other securities” as “any note or other
evidence of indebtedness” which includes
loans. See proposed §§ 1.892-4(c)(1)(i)
and 1.892-3T(a)(3). Accordingly, the pro-
posed regulations would remove “loans”
from the list of investments in § 1.892-
4(c)(1)(i) of the 2025 final regulations that
are not treated as commercial activities.
Additionally, the proposed regula-
tions would withdraw the rule on bank-
ing, financing, or similar businesses in
§ 1.892-4T(c)(1)(iii). This is a conform-
ing change given that the proposed reg-
ulations’ framework would constitute
the exclusive set of rules for determining
whether acquiring debt, including at orig-
inal issuance, is treated as investment and
thus not as commercial activity for pur-
poses of section 892.
The proposed regulations also would
remove the phrase “or from an invest-
ment in net leases on real property” from
the parentheses that follow “the holding
of real property which is not producing
income” in § 1.892-4(c)(1)(i). The clause
that would be removed is duplicative of
“the holding of net leases on real prop-
erty,” which is another activity identified
in § 1.892-4(c)(1)(i) that is not a commer-
cial activity. Thus, no substantive change
to § 1.892-4(c)(1)(i) is intended by this
removal. An additional non-substantive
change is made in proposed § 1.892-4(c)
(1)(i) that would add “the transfer of secu-
rities under a loan agreement which meets
the requirements of section 1058” to the
list of activities that are not commercial
activities, rather than setting off that activ-
ity in its own sentence.
III. Defining Effective Control
Section 892(a)(2)(B) defines a CCE
as any entity engaged in commercial
activities (whether within or outside the
United States) if the government (i) holds
(directly or indirectly) any interest in such
entity which (by value or voting inter-
est) is 50 percent or more of the total of
such interests in such entity, or (ii) holds
(directly or indirectly) any other interest
in the entity which provides the foreign
government with effective control of the
entity.
The 1988 temporary regulations pro-
vide that an entity that is engaged in com-
mercial activities is a CCE if the foreign
government has “effective practical con-
trol” of the entity. See § 1.892-5T(a)(2).

January 12, 2026 348 Bulletin No. 2026–3
The 1988 temporary regulations explain
that effective practical control may be
achieved through a minority interest which
is sufficiently large to achieve effective
control, or through creditor, contractual,
or regulatory relationships which, together
with ownership interests held by the for-
eign government, achieve effective con-
trol. For example, an entity engaged in
commercial activities may be treated as a
CCE if a foreign government, in addition
to holding a minority interest (by value or
voting power), is also a substantial credi-
tor of the entity or controls a strategic nat-
ural resource which the entity uses in the
conduct of its trade or business, providing
the foreign government effective practical
control over the entity. See § 1.892-5T(c)
(2). Thus, under the 1988 temporary regu-
lations, the term “other interest” in section
892(a)(2)(B)(ii) includes business rela-
tionships, and an interest in the entity for
purposes of an analysis of effective control
may exist when the foreign government has
the ability to exert influence over the entity.
A comment to the 2011 proposed regula-
tions suggested that the regulations should
be expanded to provide a more thorough
definition of effective practical control
with more specific examples. The Treasury
Department and the IRS acknowledged the
comment in the 2025 final regulations and
stated that the issue will be addressed by
these proposed regulations.
The proposed regulations would revise
§ 1.892-5T(c)(2) to provide further guid-
ance on what constitutes effective con-
trol under section 892(a)(2)(B)(ii). The
Treasury Department and the IRS are of
the view that it is necessary and appro-
priate to define the terms “other interest”
and “effective control” broadly to include
circumstances in which a foreign govern-
ment would have control over either the
operational, managerial, board-level, or
investor-level decisions of an entity. The
proposed regulations would provide that,
generally, effective control is achieved by
any interest in the entity that, either sepa-
rately or in combination, results in control
over the operational, managerial, board-
level, or investor-level decisions of the
entity. All of the facts and circumstances
related to the interests would be consid-
ered in determining effective control.
Interests may include equity interests,
voting power in the entity, debt interests,
contractual rights in or arrangements with
the entity or with holders of equity or
other interests in the entity, certain busi-
ness relationships with the entity or with
other interest holders in the entity, regula-
tory authority over the entity, or any other
arrangement or relationship that provides
influence over the entity’s operational,
managerial, board-level, or investor-level
decisions. (Although the 1988 temporary
regulations provide guidance under sec-
tion 892(a)(2)(B) using the term “effec-
tive practical control,” the proposed regu-
lations use the term “effective control” to
be consistent with section 892(a)(2)(B)(ii)
and the 2025 final regulations.)
For example, a foreign government
would have effective control of an entity in
a case in which it owns a minority equity
interest in the entity that entitles that for-
eign government to appoint only one out
of several directors of the entity, if that
one director has the sole power to unilat-
erally appoint or dismiss the entity’s man-
ager. See proposed § 1.892-5(c)(2)(iii)(E)
(Example 4). In contrast, a foreign govern-
ment that holds only a minority interest by
value and voting power in an entity, and
no other interest, would not have effective
control of the entity if the foreign govern-
ment lacks the power (directly or indi-
rectly through other arrangements) to uni-
laterally elect the entity’s board, choose its
management, or otherwise direct the enti-
ty’s operational, managerial, board-level,
or investor-level decisions. See proposed
§ 1.892-5(c)(2)(iii)(B) (Example 1).
A foreign government would be
deemed to have effective control of an
entity if the foreign government is, or
under § 1.892-5(a)(1) controls an entity
that is, a managing partner or managing
member of such entity, or holds or con-
trols an entity that holds an equivalent
role with respect to such entity under local
law applicable to the entity. The Treasury
Department and the IRS are of the view
that these roles inherently carry control
over an entity so that the facts-and-cir-
cumstances test is unnecessary to deter-
mine whether a foreign government has
effective control of the entity. On the other
hand, the mere right to be consulted with
respect to operational, managerial, board-
level, or investor-level decisions of an
entity will not alone give rise to effective
control.
Additionally, a foreign government
would not need to hold any particular
amount of (or any) equity in an entity to
have effective control of the entity. For
example, if a foreign government is a
creditor of an entity with sufficient cred-
itor rights to give it effective control, then
that entity would be a CCE of the foreign
government, and any interest payments
(or other payments) made by the debtor
entity to the foreign government would
not qualify for the exemption under sec-
tion 892. See proposed § 1.892-5(c)(2)(iii)
(I) (Example 8) (finding effective control
when creditor’s rights generally included
veto rights over the debtor’s capital trans-
actions and operating budget).
With respect to related foreign gov-
ernment entities, the proposed regula-
tions would provide that the principles of
§ 1.892-5T(c)(1)(i) (attributing an interest
owned directly or indirectly by an inte-
gral part or controlled entity to the foreign
sovereign) apply for purposes of an effec-
tive control analysis. For example, if two
controlled entities (within the meaning
of § 1.892-2T(a)(3)) of the same foreign
sovereign have direct or indirect equity
or non-equity interests in a corporation,
all of those interests would be considered
together for purposes of the effective con-
trol analysis with respect to either con-
trolled entity. Comments are requested
as to the circumstances, if any, in which
a determination could be made that con-
trolled entities (within the meaning of
§ 1.892-2T(a)(3)) are functionally inde-
pendent of one another and therefore may
be appropriately considered separately for
purposes of an effective control analysis.
Comments are also requested as to the
circumstances, if any, in which the holder
of a minority equity interest in an entity
should not be treated as having effective
control (or as having at least 50 percent
of voting power) of the entity if manage-
rial or board-level decisions of the entity
are subject to veto or “blocking” rights of
the holder and other holders (for exam-
ple, through consent rights, supermajority
requirements, or otherwise).
Applicability Dates
These regulations are proposed to
apply to taxable years beginning on or
after the date of publication of the Trea-

Bulletin No. 2026–3 349 January 12, 2026
sury decision adopting these rules as final
regulations in the Federal Register (the
finalization date). A foreign government
within the meaning of §§ 1.892-2 and
1.892-2T may choose to apply § 1.892-
2(a)(4), once finalized, to a taxable year
of its directly or indirectly wholly-owned
entities beginning before the finalization
date if the period of limitations on assess-
ment of the taxable year is open under sec-
tion 6501, and provided that the foreign
government consistently applies the rule
in its entirety to the taxable year and all
succeeding taxable years of its directly or
indirectly wholly-owned entities begin-
ning before the finalization date.
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
Memorandum of Agreement (July 4,
2025) between the Treasury Department
and the Office of Management and Bud-
get (OMB) regarding review of tax regu-
lations.
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 col-
lection 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 cer-
tified that this rulemaking will not have a
significant economic impact on a substan-
tial number of small entities within the
meaning of section 601(6) of the Regu-
latory Flexibility Act. This certification is
based on the fact that the proposed regula-
tions affect foreign governments, includ-
ing 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 Advo-
cacy of the Small Business Administra-
tion 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 man-
date that may result in expenditures in any
one year by a State, local, or Tribal gov-
ernment, in the aggregate, or by the pri-
vate sector, of $100 million in 1995 dol-
lars, updated annually for inflation. The
proposed regulations do not include any
Federal mandate that may result in expen-
ditures by State, local, or Tribal govern-
ments, 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 regu-
lations do not have federalism implica-
tions and do not impose substantial direct
compliance costs on State and local gov-
ernments 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 this preamble under the ADDRESSES
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed regulations. Any com-
ments submitted will be made available
at https://www.regulations.gov or upon
request.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written com-
ments. 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 of the Office of
Associate Chief Counsel (International),
and Joel Deuth, formerly of the Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.
Statement of Availability of IRS
Documents
IRS guidance cited in this preamble is
published in the Internal Revenue Bulletin
and is available from the Superintendent
of Documents, U.S. Government Publish-
ing Office, Washington, DC 20402, or by
visiting the IRS website at https://www.
irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping 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
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
for § 1.892-2 in numerical order to read in
part as follows:

January 12, 2026 350 Bulletin No. 2026–3
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.892-2 also issued under 26
U.S.C. 892(c).
* * * * *
Par. 2. Section 1.892-2 is added to read
as follows:
§ 1.892-2 Foreign government defined.
(a) Foreign government—(1) Defini-
tion. For further guidance, see § 1.892-
2T(a)(1).
(2) Integral part. For further guidance,
see § 1.892-2T(a)(2).
(3) Controlled entity. For further guid-
ance, see § 1.892-2T(a)(3).
(4) Exceptions. A controlled entity,
within the meaning of paragraph (a)(3)
of this section, does not include any part-
nership for Federal tax purposes. A con-
trolled entity also does not include any
entity owned and controlled by more than
one foreign sovereign. Thus, a foreign
entity organized and wholly owned and
controlled by multiple foreign sovereigns
to invest jointly, or to foster economic,
financial, and/or technical cooperation,
is not a controlled entity for purposes of
paragraph (a)(3) of this section.
(b) Inurement to the benefit of pri-
vate persons. For further guidance, see
§ 1.892-2T(b).
(1) through (2) [Reserved]
(c) Pension trusts—(1) In general. For
further guidance, see § 1.892-2T(c)(1)
introductory text through (c)(1)(iv).
(i) through (v) [Reserved]
(2) Illustrations. For further guidance,
see § 1.892-2T(c)(2).
(d) Political subdivision and transna-
tional entity. For further guidance, see
§ 1.892-2T(d).
(e) Applicability date. Paragraph (a)
(4) of this section applies to taxable years
beginning on or after [DATE OF PUBLI-
CATION OF FINAL RULE]. However, a
foreign government within the meaning
of §§ 1.892-2 and 1.892-2T may choose
to apply paragraph (a)(4) of this section
to a taxable year of its directly or indi-
rectly wholly-owned entities beginning
before [DATE OF PUBLICATION OF
FINAL RULE] if the period of limitations
on assessment of the taxable year is open
under section 6501, and provided that the
foreign government consistently applies
the rule in its entirety to the taxable year
and all succeeding taxable years of its
directly or indirectly wholly-owned enti-
ties beginning before [DATE OF PUBLI-
CATION OF FINAL RULE].
Par. 3. Section 1.892-2T is amended
by:
a. Removing the undesignated text
under paragraph (a)(3)(iv); and
b. Adding paragraph (a)(4).
The addition reads as follows:
§ 1.892-2T Foreign government defined
(temporary regulations).
(a) * * *
(4) Exceptions. For further guidance,
see § 1.892-2(a)(4).
* * * * *
Par. 4. Section 1.892-4, as amended
in a final rule published elsewhere in this
issue of the Federal Register, effective
December 15, 2025, is amended by:
a. Revising paragraphs (c)(1)(i)
through (iii); and
b. Adding a sentence after the first sen-
tence of paragraph (d).
The revisions and addition read as fol-
lows:
§ 1.892-4 Commercial activities.
* * * * *
(c) * * *
(1) * * *
(i) In general. Subject to the pro-
visions of this paragraph (c)(1)(i) and
paragraphs (c)(1)(ii) through (c)(7) of
this section, the following are not com-
mercial activities: investments in stocks,
bonds, and other securities (as defined in
§ 1.892-3T(a)(3)); investments in finan-
cial instruments (as defined in § 1.892-
3(a)(4)); the holding of partnership equity
interests; the holding of net leases on real
property; the holding of real property
which is not producing income (other
than on its sale); the holding of deposits
in any currency in banks; and the trans-
fer of securities under a loan agreement
which meets the requirements of section
1058. An activity will not cease to be an
investment solely because of the volume
of transactions of that activity or because
of other unrelated activities.
(ii) Acquisition of debt—(A) In gen-
eral. An acquisition of debt is considered a
commercial activity for purposes of para-
graph (b) of this section notwithstanding
any other provision of this section, unless
the acquisition qualifies as investment
under the rules of paragraph (c)(1)(ii)(B)
or (C) of this section. For purposes of this
paragraph (c)(1)(ii), the term debt means
an obligation treated as debt for Federal
tax purposes. For purposes of applying
paragraphs (c)(1)(ii)(B) and (C) of this
section, actions by an agent or a person
otherwise acting on behalf of the acquirer
are treated as the actions of the acquirer.
An acquisition of debt undertaken as a
dealer, as defined in § 1.864-2(c)(2)(iv)
(a), constitutes commercial activity with-
out regard to paragraphs (c)(1)(ii)(B) and
(C) of this section.
(B) Safe harbors. An acquisition of
debt that satisfies paragraph (c)(1)(ii)
(B)(1) or (2) of this section is treated as
investment and not commercial activity
for purposes of paragraph (c)(1)(i) of this
section.
(1) Registered offerings. An acquisi-
tion of bonds or other debt securities in
an offering registered under the Securities
Act of 1933, as amended (15 U.S.C. 77a,
et seq.), (the Securities Act), provided that
the underwriters of the offering are not
related to the acquirer within the meaning
of sections 267(b) and 707(b).
(2) Qualified secondary market acqui-
sitions. An acquisition of debt traded on
an established securities market, within
the meaning of § 1.7704-1(b), provided
that—
(i) The acquirer does not acquire the
debt from the debt issuer or participate in
the negotiation of the terms or issuance of
the debt; and
(ii) The acquisition is not from a per-
son that is under common management or
control with the acquirer, unless that per-
son acquired the debt as investment within
the meaning of paragraph (c)(1)(i) of this
section.
(C) Investments in debt. An acquisition
of debt that does not satisfy either para-
graph (c)(1)(ii)(B)(1) or (2) of this sec-
tion may be an investment for purposes
of paragraph (c)(1)(i) of this section based
on all relevant facts and circumstances,
including the following:
(1) Whether the acquirer solicited pro-
spective borrowers, or otherwise held
itself out as willing to make loans or oth-

Bulletin No. 2026–3 351 January 12, 2026
erwise acquire debt at or in connection
with its original issuance;
(2) Whether the acquirer materially
participated in negotiating or structuring
the terms of the debt;
(3) Whether the acquirer is entitled to
compensation (whether or not labelled as
a fee) that is not treated as interest (includ-
ing original issue discount) for Federal tax
purposes;
(4) The form of the debt and the issu-
ance process, including, for example,
whether the debt is a bank loan or instead
a privately placed debt security pursuant
to Regulation S or Rule 144A under the
Securities Act;
(5) The percentage of the debt issuance
acquired by the acquirer relative to the
percentages acquired by other purchasers;
(6) The percentage of equity in the debt
issuer held or to be held by the acquirer;
(7) The value of that equity relative to
the amount of the debt acquired; and
(8) If debt is deemed to be acquired in
a debt-for-debt exchange as a result of a
significant modification under § 1.1001-3,
whether there was, at the time of acquisi-
tion of the original unmodified debt, a rea-
sonable expectation, based on objective
evidence, such as a decline in the financial
condition or credit rating of the debt issuer
between original issuance and the time of
the acquisition of the original unmodified
debt, that the original unmodified debt
would default.
(D) Examples—(1) Assumed facts. The rules of
this paragraph (c)(1)(ii) are illustrated by the exam-
ples in this paragraph (c)(1)(ii)(D). Except as oth-
erwise stated, the following facts are assumed for
purposes of paragraphs (c)(1)(ii)(D)(2) through (6)
of this section (Examples 1 through 5):
(i) FC is a foreign entity organized
under the laws of country X and is treated
as a corporation for Federal tax purposes;
FC is a controlled entity of the government
of country X under § 1.892-2T(a)(3);
(ii) FC has neither engaged in, nor has
been attributed, any conduct of commer-
cial activities for purposes of section 892;
(iii) FC has not previously acquired
any debt; and
(iv) FC is not a dealer as defined in
§ 1.864-2(c)(2)(iv)(a).
(2) Example 1: Isolated debt financing as com-
mercial activity—(i) Facts. In year 1, representa-
tives of FC offered, on behalf of FC, to provide debt
financing to a foreign corporation. FC’s representa-
tives structured and negotiated the terms of that debt
financing, and FC made a loan to the foreign corpo-
ration pursuant to those terms in year 1. FC does not
own any equity in that corporation. The debt was not
issued in a registered offering. All of the activities
occurred outside the United States in year 1.
(ii) Analysis. FC’s debt acquisition activity is
commercial activity under this paragraph (c)(1)(ii),
unless the acquisition qualifies as investment under
paragraph (c)(1)(ii)(B) or (C) of this section. The
debt acquisition does not qualify as investment under
either of the safe harbors in paragraph (c)(1)(ii)(B)
of this section because the debt was not issued in
an offering registered under the Securities Act, and
because FC materially participated in negotiating
the terms of the debt through its representatives and
acquired the debt at original issuance from the issuer.
This debt acquisition also does not qualify as invest-
ment under paragraph (c)(1)(ii)(C) of this section
because, through its representatives, FC held itself
out as a lender and solicited, structured, negotiated,
and funded the debt at original issuance, and because
FC acquired the debt in the form of a loan and did not
own any equity in the debt issuer. Although FC made
only one loan in year 1, the number of loans does
not change the determination that the acquisition is
commercial activity under this paragraph (c)(1)(ii),
regardless of whether FC is treated as engaged in a
trade or business for purposes of section 162, section
166, or section 864(b).
(3) Example 2: Debt financing as investment
when combined with certain equity investments—(i)
Facts. In year 1, FC owned 80 percent of a foreign
corporation’s equity interests, which had a total value
of $100 million. During year 1, FC lent $50 million
to the foreign corporation to finance the foreign cor-
poration’s activities. FC’s management structured
the terms of the debt in the form of a loan between
FC and the foreign corporation. FC acquired the debt
at original issuance without a registered offering. All
of the activities occurred outside the United States
in year 1.
(ii) Analysis. FC’s debt acquisition activity is
a commercial activity under this paragraph (c)(1)
(ii), unless the acquisition qualifies as investment
under paragraph (c)(1)(ii)(B) or (C) of this section.
The debt acquisition does not qualify as investment
under either of the safe harbors in paragraph (c)(1)
(ii)(B) of this section because the debt was not issued
in an offering registered under the Securities Act and
because FC acquired the debt at original issuance
from the issuer. Nonetheless, taking into account
all relevant facts and circumstances, including
those under paragraph (c)(1)(ii)(C) of this section,
FC’s acquisition of the foreign corporation’s debt
is investment for purposes of paragraph (c)(1)(i) of
this section. FC did not hold itself out as a lender
or solicit borrowers. Even though FC structured the
terms of the debt and acquired the debt in the form
of a loan, FC owned a substantial percentage of the
equity interests in the debt issuer and acquired an
amount of debt that is not significant relative to the
value of FC’s equity investment in the debt issuer.
Accordingly, taking into account all relevant facts
and circumstances, FC’s debt acquisition qualifies
as investment for purposes of paragraph (c)(1)(i) of
this section, and therefore is not commercial activity
under this paragraph (c)(1)(ii).
(4) Example 3: Private placement of debt secu-
rities and U.S. Treasury securities as investment—
(i) Facts. In year 1, representatives of FC met with
financial institutions unrelated to FC that were
serving as placement agents for the debt of a num-
ber of domestic corporations. At those meetings,
FC’s representatives communicated FC’s interest in
purchasing privately placed debt of U.S. corporate
issuers and communicated the terms on which FC
would be willing to purchase that debt. Based on
those discussions, in the same year, FC purchased, at
original issuance, ten privately placed debt securities
of several domestic corporations. Each of the debt
securities was offered by the placement agents under
Regulation S through a private placement memoran-
dum. FC purchased less than one-third by principal
amount of each debt offering and at least one other
unrelated purchaser purchased a larger percentage of
each debt offering than FC. In addition, in the same
year, FC purchased U.S. Treasury debt securities at
original issuance in a public auction.
(ii) Analysis. FC’s debt acquisition activities are
commercial activities under this paragraph (c)(1)
(ii), unless the acquisitions qualify as investments
under paragraph (c)(1)(ii)(B) or (C) of this section.
Because FC acquired the debt at original issuance
from the issuers and not in offerings registered under
the Securities Act, the acquisitions do not qualify for
either of the safe harbors under paragraph (c)(1)(ii)
(B) of this section. Nonetheless, taking into account
all relevant facts and circumstances, including those
under paragraph (c)(1)(ii)(C) of this section, FC’s
acquisitions of privately placed debt securities and
of U.S. Treasury debt securities are investments
for purposes of paragraph (c)(1)(i) of this section.
The corporate debt was structured on behalf of the
issuers by financial institutions unrelated to FC that
were serving as placement agents. The U.S. Trea-
sury debt securities were offered with terms and
conditions set by the Treasury Department. FC did
not hold itself out as a lender, solicit borrowers, or
materially participate in structuring or negotiating
the terms of the debt. Although FC did communi-
cate to the placement agents for the corporate debt
before issuance the terms on which FC would be
willing to acquire the debt and bid in the auction of
U.S. Treasury debt securities, these activities do not
indicate material participation in the structuring or
negotiation of the terms of the debt. Moreover, the
corporate debt was offered to FC in the form of a
privately placed security, and FC was not the larg-
est purchaser of any debt offering based on principal
amount. Accordingly, taking into account all relevant
facts and circumstances, FC’s debt acquisitions qual-
ify as investments for purposes of paragraph (c)(1)
(i) of this section, and therefore are not commercial
activities under this paragraph (c)(1)(ii).
(5) Example 4: Debt modification as invest-
ment—(i) Facts. In year 1, FC purchased debt of a
foreign issuer, X, in secondary market acquisitions
that qualify as investments under paragraph (c)(1)(ii)
(B)(2) of this section (the X Debt). At the time of
FC’s acquisitions, the X Debt was not in default, and
there were no objective indications at the time of the
purchase of the X Debt, such as a declining trend in
X’s financial condition or credit rating, that X would
default on the X Debt. In year 4, due to unexpected
changes in market conditions, X defaulted on the X
Debt. A committee of creditors of X, acting on behalf
of all holders of the X Debt, negotiated with X to

January 12, 2026 352 Bulletin No. 2026–3
modify the terms of the X Debt, including exten-
sions of maturity, deferral of interest payments, and
changes in interest rates. FC did not participate in the
creditors’ committee, thus was not involved in any
negotiations between the committee and X, and did
not directly negotiate with X on any aspect of the X
Debt. The modifications to the X Debt were signifi-
cant modifications within the meaning of § 1.1001-3,
and FC was deemed to acquire a new debt from X
(the Modified X Debt) in exchange for the unmodi-
fied X Debt.
(ii) Analysis. FC’s debt acquisition activity is
commercial activity under this paragraph (c)(1)(ii),
unless the acquisition qualifies as investment under
paragraph (c)(1)(ii)(B) or (C) of this section. FC’s
deemed acquisition of the Modified X Debt does not
qualify for either of the safe harbors under paragraph
(c)(1)(ii)(B) of this section because FC is deemed
to have acquired the Modified X Debt at original
issuance from the issuer and not in an offering regis-
tered under the Securities Act. However, taking into
account all relevant facts and circumstances, includ-
ing those under paragraph (c)(1)(ii)(C) of this sec-
tion, FC’s acquisition of the Modified X Debt quali-
fies as investment for purposes of paragraph (c)(1)(i)
of this section because the X Debt was not in default
at the time of FC’s acquisition, at that time there was
no expectation, based on objective indications, that X
would default on the X Debt, and because FC did not
participate in the creditors’ committee which negoti-
ated the terms of the Modified X Debt. Accordingly,
FC’s deemed acquisition of the Modified X Debt
qualifies as investment for purposes of paragraph (c)
(1)(i) of this section, and therefore is not treated as
commercial activity under this paragraph (c)(1)(ii).
(6) Example 5: Debt restructuring as commer-
cial activity—(i) Facts. The facts are the same as in
paragraph (c)(1)(ii)(D)(5) of this section (Example
4), except that FC was a member of the creditors’
committee of X, which materially participated in
negotiating and structuring the terms of the Modified
X Debt.
(ii) Analysis. In contrast to the acquisition in
paragraph (c)(1)(ii)(D)(5) of this section (Example
4), FC’s acquisition of the Modified X Debt is com-
mercial activity under this paragraph (c)(1)(ii). Tak-
ing into account all relevant facts and circumstances,
the acquisition does not qualify as investment under
paragraph (c)(1)(i) of this section because FC was a
member of the creditors’ committee and, as a result,
presumed to have materially participated in negotiat-
ing and structuring the terms of the Modified X Debt.
(iii) [Reserved]
* * * * *
(d) Applicability date. * * * Paragraph
(c)(1) of this section applies to taxable
years beginning on or after [DATE OF
PUBLICATION OF FINAL RULE]. * * *
Par. 5. Section 1.892-4T is amended
by revising paragraph (c)(1)(iii) to read as
follows:
§ 1.892-4T Commercial activities
(temporary regulations).
* * * * *
(c) * * *
(1) * * *
(iii) [Reserved]
* * * * *
Par. 6. Section 1.892-5, as amended
in a final rule published elsewhere in this
issue of the Federal Register, effective
December 15, 2025, is amended by:
a. Revising paragraph (c)(2); and
b. Adding a sentence after the second
sentence of paragraph (e).
The revision and addition read as fol-
lows:
§ 1.892-5 Controlled commercial entity.
* * * * *
(c) * * *
(2) Effective control—(i) Rule. An
entity engaged in commercial activity
is a controlled commercial entity under
paragraph (a)(1)(ii) of this section if a for-
eign government (within the meaning of
§ 1.892-2T(a)) has effective control of the
entity. Except as provided in paragraph (c)
(2)(ii) of this section, effective control is
achieved by any interest in the entity that,
directly or indirectly, either separately
or in combination with other interests,
results in control of the operational, mana-
gerial, board-level, or investor-level deci-
sions of the entity. However, mere consul-
tation rights with respect to operational,
managerial, board-level, or investor-level
decisions of an entity (such as extending
the term of the entity’s investment period,
change in control of the entity, or liquida-
tion of the entity) do not alone give rise
to effective control. The determination of
effective control is made considering all of
the facts and circumstances related to the
interests in an entity. Interests in an entity
may include, for example:
(A) Equity interests;
(B) Debt interests;
(C) Voting rights in the entity, includ-
ing the power to appoint directors or man-
agers, and to veto decisions;
(D) Contractual rights in or arrange-
ments with the entity, or with other inter-
est holders in the entity;
(E) Business relationships with the
entity, or with other interest holders in the
entity, including as a major customer or
a supplier having control over a strategic
natural resource used in the entity’s busi-
ness;
(F) Regulatory authority over the
entity; or
(G) Any other interest in or other rela-
tionship with the entity that may provide
influence over decisions relating to the
entity’s operations, management, board-
level, or investor-level matters.
(ii) Special rule. A foreign govern-
ment is deemed to have effective control
of an entity if the foreign government
is, or under paragraph (a)(1) of this sec-
tion controls an entity that is, a manag-
ing partner or managing member of such
entity, or holds or controls an entity that
holds an equivalent role with respect to
such entity under local law applicable to
the entity.
(iii) Examples—(A) Assumed facts.
The application of this paragraph (c)
(2) is illustrated by the examples in this
paragraph (c)(2)(iii). Except as otherwise
stated, the following facts are assumed
for purposes of paragraphs (c)(2)(iii)(B)
through (I) of this section (Examples 1
through 8):
(1) FX is a foreign entity organized
under the laws of country C and is treated
as a corporation for Federal tax purposes;
FX is a controlled entity of the govern-
ment of country C under § 1.892-2T(a)(3);
(2) Corp 1 is a corporation for Federal
tax purposes that is engaged in commer-
cial activities;
(3) Corp 1 has a single class of equity
interest and, unless otherwise stated, Corp
1’s governing documents or local law
require that more than 50 percent of its
equity holders approve the election of its
directors, the selection of its officers, and
certain major corporate decisions;
(4) FX owns less than 50 percent of
the value or voting power in Corp 1 under
paragraph (a)(1)(i) of this section and
whether Corp 1 is a controlled commercial
entity with respect to FX is determined
under paragraphs (a)(1)(ii) and (c)(2)(i) of
this section based on all of the facts and
circumstances; and
(5) The remaining equity interests of
Corp 1 are owned by several other inves-
tors unrelated to FX, none of which has
control of Corp 1 within the meaning of
paragraph (a)(1)(i) of this section.
(B) Example 1—(1) Facts. FX owns 40 percent
of the equity in Corp 1. Two other investors each
own 30 percent of the equity in Corp 1. FX is not a
party to any arrangement with other equity holders or
holders of other interests in Corp 1 that would give

Bulletin No. 2026–3 353 January 12, 2026
FX the right to elect a majority of Corp 1’s directors
or to appoint or replace officers of Corp 1. Under
Corp 1’s governing documents and local law, FX
does not have the power to unilaterally authorize or
veto a corporate action or appoint a majority of Corp
1’s directors or officers, and FX does not hold any
other interest in Corp 1, including by reason of any
business relationship that provides it with influence
over Corp 1.
(2) Analysis. Because FX holds only a minority
equity interest in Corp 1, is not a party to any
arrangement with other equity or other interest hold-
ers of Corp 1, does not have sufficient voting power
to unilaterally authorize or veto Corp 1’s actions or
to appoint a majority of Corp 1’s directors or officers,
and does not otherwise hold any other interest in
Corp 1, FX is not treated as having effective control
of Corp 1. Accordingly, Corp 1 is not a controlled
commercial entity with respect to FX.
(C) Example 2—(1) Facts. The facts are the same
as in paragraph (c)(2)(iii)(B) of this section (Exam-
ple 1), except that FX and Corp 1 have an invest-
ment agreement in place when FX invests in Corp 1.
The investment agreement provides criteria for what
types of investments can be made by Corp 1, and
provides no voting, operational, managerial, or other
rights to FX with respect to Corp 1.
(2) Analysis. The investment agreement between
FX and Corp 1 does not itself, or in combination with
the other facts provided in paragraph (c)(2)(iii)(B) of
this section (Example 1), give FX control of oper-
ational, managerial, board-level, or investor-level
decisions of Corp 1. Thus, for the reasons stated in
paragraph (c)(2)(iii)(B) of this section (Example 1),
FX is not treated as having effective control of Corp
1. Accordingly, Corp 1 is not a controlled commer-
cial entity with respect to FX.
(D) Example 3—(1) Facts. The facts are the
same as in paragraph (c)(2)(iii)(B) of this section
(Example 1), except that under Corp 1’s governing
documents, FX is entitled to participate in an invest-
ment committee and has the right only to discuss
acquisitions and sales of property by Corp 1, but FX
has no right to decide or execute such acquisitions
or sales and no other rights with respect to Corp 1.
(2) Analysis. FX’s rights arising from the invest-
ment committee for Corp 1 are mere consultation
rights with respect to managerial decisions of Corp
1. Such rights do not themselves, or in combination
with the other facts provided in paragraph (c)(2)
(iii)(B) of this section (Example 1), give FX control
of operational, managerial, board-level, or inves-
tor-level decisions of Corp 1. Thus, for the reasons
stated in paragraph (c)(2)(iii)(B) of this section
(Example 1), FX is not treated as having effective
control of Corp 1. Accordingly, Corp 1 is not a con-
trolled commercial entity with respect to FX.
(E) Example 4—(1) Facts. Under Corp 1’s gov-
erning documents, FX is entitled to appoint one out
of three directors of Corp 1. That director alone is
authorized under Corp 1’s governing documents to
unilaterally appoint or dismiss the manager, an offi-
cer of Corp 1 whose responsibilities are to manage
Corp 1’s operations. FX does not otherwise have suf-
ficient voting power directly or through any arrange-
ments with holders of equity or holders of other
interests in Corp 1 to unilaterally authorize or veto
any other Corp 1 action.
(2) Analysis. FX has, by reason of its equity
interest, power that allows it to appoint a director
who alone has the power to unilaterally appoint or
dismiss Corp 1’s manager, which provides FX with
control over decisions as to the operations and man-
agement of Corp 1. Therefore, FX has effective con-
trol of Corp 1. Accordingly, Corp 1 is a controlled
commercial entity with respect to FX.
(F) Example 5—(1) Facts. The facts are the same
as in paragraph (c)(2)(iii)(E) of this section (Exam-
ple 4), except instead of having the right to unilater-
ally appoint or dismiss the manager of Corp 1, FX’s
appointed director alone has rights to unilaterally
veto dividend distributions, material capital expendi-
tures, sales of new equity interests in Corp 1, and the
operating budget of Corp 1.
(2) Analysis. The veto rights of FX’s appointed
director give FX control over decisions as to the
operation of Corp 1. Therefore, FX has effective con-
trol of Corp 1. Accordingly, Corp 1 is a controlled
commercial entity with respect to FX.
(G) Example 6—(1) Facts. Under Corp 1’s gov-
erning documents, FX is entitled to appoint one out
of three directors of Corp 1 and the remaining two
directors are appointed by the other unrelated inves-
tors. However, one unrelated investor derives signif-
icant revenues from FX through other business deal-
ings, and, as a matter of course, causes its appointed
director to always vote in the same manner as FX’s
appointed director on all board decisions. That unre-
lated investor’s and FX’s appointed director’s votes,
when combined, constitute the majority of the Corp
1 board votes. FX does not otherwise have suffi-
cient voting power to unilaterally authorize or veto
any other Corp 1 action. FX does not hold any other
interest in Corp 1.
(2) Analysis. FX’s significant business relation-
ship with the unrelated investor constitutes an inter-
est in Corp 1 under paragraph (c)(2)(i)(E) of this
section. That interest indirectly provides FX, when
combined with its equity interest, with the power to
control Corp 1’s board. Therefore, FX has effective
control of Corp 1. Accordingly, Corp 1 is a con-
trolled commercial entity with respect to FX.
(H) Example 7—(1) Facts. Corp 1’s business
consists primarily of extracting and marketing a
mineral located in country C. FC, the government of
country C, owns all rights to that mineral and regu-
lates all businesses engaged in its extraction.
(2) Analysis. FX, by reason of FC’s ownership
of the mineral rights and the regulatory authority
over the mineral’s extraction, has the ability to sub-
stantially affect Corp 1’s business. For purposes of
paragraph (c)(2)(i) of this section, FC’s ownership of
the mineral rights and its regulatory relationship with
Corp 1’s business constitute FX’s interests in Corp 1
under paragraphs (c)(2)(i)(E) and (F) of this section.
Those interests indirectly provide FX with the power
to control decisions as to the operation and manage-
ment of Corp 1. Therefore, FX has effective control
of Corp 1. Accordingly, Corp 1 is a controlled com-
mercial entity with respect to FX.
(I) Example 8—(1) Facts. FX is a creditor of
Corp 1. Under the credit agreement between FX and
Corp 1, Corp 1 is subject to restrictions on the type of
investments that Corp 1 can make, asset dispositions,
levels of future borrowing, and dividend distribu-
tions by Corp 1. The credit agreement also provides
FX with veto rights over dividend and stock repur-
chases, additional borrowing, capital expenditures,
Corp 1’s annual operating budget, and redemption of
subordinated debt.
(2) Analysis. FX’s creditor interest, based on the
totality of the rights provided to FX by the terms
of the credit agreement, provides FX with control
over both investor-level and operational decisions of
Corp 1. Therefore, FX has effective control of Corp
1. Accordingly, Corp 1 is a controlled commercial
entity with respect to FX.
* * * * *
(e) Applicability date. * * * Paragraph
(c)(2) of this section applies to taxable
years beginning on or after [DATE OF
PUBLICATION OF FINAL RULE]. * * *
* * * * *
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register Decem-
ber 12, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 15, 2025, 90
FR 57928)
Notice of Proposed
Rulemaking
Updating Regulation
References to Reflect
Reorganizations at the
Department of Justice
and the Internal Revenue
Service
REG-110519-25
AGENCY: Internal Revenue Service
(IRS), Alcohol and Tobacco Tax and
Trade Bureau (TTB), Treasury.
ACTION: Notice of proposed rulemak-
ing.
SUMMARY: This document contains
proposed regulations that would update
points of contact within the Department of
Justice and the IRS. The proposed regula-
tions are necessary to reflect a reorgani-
zation within the Department of Justice to
identify new points of contact for matters
involving the internal revenue laws. The
proposed regulations would also update
points of contact at the IRS for adminis-

January 12, 2026 354 Bulletin No. 2026–3
trative claim submissions from taxpayers
seeking civil damages for certain unau-
thorized collection actions or awards of
administrative costs with respect to cer-
tain administrative proceedings.
DATES: Written or electronic comments
and requests for a public hearing must be
received by January 14, 2026.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically via the Federal eRulemak-
ing Portal at https://www.regulations.gov
(indicate IRS and REG-110519-25) by
following the online instructions for sub-
mitting 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, com-
ments cannot be edited or withdrawn. The
Department of the Treasury (Treasury
Department) and the IRS will publish for
public availability any comments submit-
ted to the IRS’s public docket. Send paper
submissions to: CC:PA:01:PR (REG-
110519-25), room 5503, Internal Revenue
Service, P.O. Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Shikha K. Patel at (202) 317-
6306; concerning submissions of com-
ments or a public hearing, the Publications
and Regulations Section at (202) 317-
6091 (not toll-free numbers) or by email
at publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Authority
This document contains proposed
amendments to the Procedure and Admin-
istration Regulations (26 CFR part 301)
under sections 6103, 6402, 7430, and
7433 of the Internal Revenue Code (Code)
previously issued under sections 6103(q)
and 7805(a) of the Code. This document
also contains a proposed amendment to
the Procedure and Administration Regu-
lations (27 CFR Part 70), which governs
taxpayer claims for credit or refund to the
Alcohol and Tobacco and Trade Bureau
(TTB) for certain excise taxes assessed
under the Code. Section 6103(q) autho-
rizes the Secretary of the Treasury or
the Secretary’s delegate (Secretary) “to
prescribe such other regulations as nec-
essary to carry out the provisions of [sec-
tion 6103].” Section 7805(a) of the Code
authorizes the Secretary to “prescribe
all needful rules and regulations for the
enforcement of [the Code], including all
rules and regulations as may be necessary
by reason of any alteration of law to inter-
nal revenue.”
Background
I. Changes in references to Department of
Justice organization
Civil and criminal litigation relating to
the Internal Revenue laws has historically
been handled or authorized by the Tax
Division of the Department of Justice. The
Treasury Department, IRS, and the TTB
have been made aware that the Depart-
ment of Justice has modified its organi-
zational structure to divide the responsi-
bilities of the Tax Division between the
Civil Division and Criminal Division of
the Department of Justice. References
to the Tax Division appear in 26 CFR
301.6103(h)(2)-1 and 301.6402-2, and 27
CFR 70.123.
Section 301.6103(h)(2)-1 of Title
26 of the Code of Federal Regulations
(Title 26) regulates the requirements and
grounds for disclosures of returns and
return information to and by officers and
employees of the Department of Justice
in Federal grand jury proceedings involv-
ing tax administration, including prepa-
ration for and investigation of those pro-
ceedings. These regulations provide that,
pursuant to section 6103(h)(2), such dis-
closures must be duly authorized by or on
behalf of the Assistant Attorney General
for the Tax Division of the Department
of Justice.
Section 301.6402-2 of Title 26 regu-
lates the requirements, grounds, and form
for a taxpayer to file a claim for credit or
refund as well as methods of refund. In the
event that the refund is based on a claim
that has been reduced to judgement, or
settled in or as a result of litigation, 26
CFR 301.6402-2 provides that the check
is to be mailed to the Department of Jus-
tice, Tax Division, which will then deliver
the check to the taxpayer or the counsel
of record.
Section 70.123 of Title 27 sets forth
the requirements, grounds, and form for
filing claims for credits or refunds, as
well as methods of refunds. It provides
that checks in payment of claims which
have been reduced to judgment or settled
in the course or as a result of litigation,
will be drawn in the name of the person
or persons entitled to the money and will
be sent to the Assistant Attorney General,
Tax Division, Department of Justice, for
delivery to the taxpayer or the counsel of
record in the court proceeding.
II. Changes in the processing of certain
claims at the IRS
Section 7433 provides for civil dam-
ages for certain unauthorized collection
actions and was enacted as part of the
Technical and Miscellaneous Revenue
Act of 1988, Public Law 100-647, 102
Stat. 3746 (November 10, 1988). The
Internal Revenue Service Restructuring
and Reform Act of 1998 (RRA 98), Pub-
lic Law 105-206, 112 Stat. 685 (July 22,
1998), mandated fundamental reorgani-
zation of the IRS. Additionally, the RRA
98 amended section 7433(e) to require an
exhaustion of administrative remedies.
On March 25, 2003, the Treasury Depart-
ment and the IRS published final regula-
tions (TD 9050) in the Federal Register
(68 FR 14316) under section 7433 that
require, for collection actions that do not
relate to section 362 or section 524 of
title 11, United States Code (Bankruptcy
Code), an administrative claim to first be
sent in writing to the “Area Director, Attn:
Compliance Technical Support Manager”
of the area in which the taxpayer currently
resides in order to exhaust administra-
tive remedies. In contrast, for collection
actions related to violations of section 362
or section 524 of the Bankruptcy Code, an
administrative claim must first be sent to
the “Chief, Local Insolvency Unit,” for
the judicial district in which the bank-
ruptcy petition that is the basis for the
asserted automatic stay or discharge vio-
lation was filed.
As part of that reorganization man-
dated by the RRA 98, the IRS shifted from
a geographically focused organizational
system to one that focuses on specific cat-

Bulletin No. 2026–3 355 January 12, 2026
egories of taxpayers with similar needs.
Since the regulations were published in
2003, there have been numerous changes
to which IRS offices are responsible for
the processing of these claims. The Inter-
nal Revenue Manual (IRM) 1.4.51.2 (June
25, 2025) sets forth the role of process-
ing such claims to the Field Insolvency
Manager and the Centralized Insolvency
Operation Manager. The Insolvency func-
tion is now comprised of two operations,
Field Insolvency (FI) and the Centralized
Insolvency Operation (CIO). These two
operations work together to provide cus-
tomer service while addressing employee
satisfaction in delivering improved busi-
ness results. Pursuant to IRM 1.4.51.2.5
(2) and (3) (February 12, 2020), the
CIO provides initial clerical processing
and sends complex issues to FI to work.
Addressing administrative claims for
damages to the CIO ensures the efficient
routing of these claims to the FI office best
suited to address those claims. References
to Compliance Technical Support appear
in 26 CFR 301.7433-1. References to
Local Insolvency Units appear in 26 CFR
301.7430-1, 301.7430-2, and 301.7433-2.
Section 301.7430-1(e) of Title 26
defines the manner in which a party seek-
ing damages for actions involving willful
violations of the automatic stay under sec-
tion 362 of the Bankruptcy Code or the dis-
charge provisions under section 524 of the
Bankruptcy Code can meet the exhaustion
of administrative remedies requirement of
section 7433(d)(1). It provides that a party
must file an administrative claim for dam-
ages or for relief from a violation of sec-
tion 362 or section 524 of the Bankruptcy
Code with the Chief, Local Insolvency
Unit, for the judicial district in which the
bankruptcy petition that is the basis for the
asserted automatic stay or discharge viola-
tion was filed. It also refers to actions for
damages for willful violation of the auto-
matic stay as section 362(h) claims. The
Bankruptcy Abuse Prevention and Con-
sumer Protection Act of 2005 (BAPCPA),
Public Law 109-8, 119 Stat. 23 (April 20,
2005) recodified section 362(h) of the
Bankruptcy Code in its entirety at section
362(k)(1) of the Bankruptcy Code.
Section 301.7430-2(c) of Title 26
describes the procedures that a party must
follow to recover reasonable administra-
tive costs regarding administrative pro-
ceedings within the IRS. It provides that
administrative claims with respect to
requests for administrative costs incurred
in damage actions for violations of sec-
tion 362 or section 524 of the Bankruptcy
Code should be made to the Chief, Local
Insolvency Unit.
Section 301.7433-1(e) of Title 26
describes the procedures that a party must
follow to file an administrative claim
for damages for unauthorized collection
actions to fulfill the exhaustion of admin-
istrative remedies requirement of section
7433(d)(1). Specifically, an administra-
tive claim for damages shall be sent to the
Area Director, Attn: Compliance Techni-
cal Support Manager, of the area in which
the taxpayer currently resides.
Section 301.7433-2(a) of Title 26
describes the civil cause of action for vio-
lation of section 362 or section 524 of the
Bankruptcy Code. Section 301.7433-2(a)
(2) of Title 26 clarifies that while section
7433 constitutes the exclusive remedy
under the Code for violations of section
362 or section 524 of the Bankruptcy Code,
such exclusivity does not preclude a cause
of action under the Bankruptcy Code relat-
ing to willful violations of the stay formerly
codified at section 362(h). The BAPCPA
recodified this cause of action under sec-
tion 362(k) of the Bankruptcy Code. Sec-
tion 301.7433-2(e) of Title 26 describes the
procedures that a party must follow to file
an administrative claim for damages for
violations of section 362 or section 524 of
the Bankruptcy Code to fulfill the exhaus-
tion of administrative remedies require-
ment of section 7433(d)(1). It provides that
an administrative claim for damages shall
be sent to the Chief, Local Insolvency Unit,
for the judicial district in which the tax-
payer filed the underlying bankruptcy case
giving rise to the alleged violation.
Explanation of Provisions
These proposed regulations would
amend 26 CFR 301.6402-2, 301.6103(h)
(2)-1, and 27 CFR 70.123 by updating ref-
erences to the “Assistant Attorney General
for the Tax Division of the Department of
Justice” to reflect the Assistant Attorneys
General who will supervise civil and crim-
inal tax functions after the reorganization
of the Department of Justice. Specifically,
references in 26 CFR 301.6402-2 and 27
CFR 70.123, which relate to civil mat-
ters, would be amended to read “Assistant
Attorney General for the Civil Division of
the Department of Justice.” References in
26 CFR 301.6103(h)(2)-1, which relate
to criminal matters, would be amended to
read “Assistant Attorney General for the
Criminal Division of the Department of
Justice.” Amending these regulations to
reflect the correct point of contact at the
Department of Justice will ensure that
communications are sent to the appropri-
ate Assistant Attorney General with super-
visory authority over the appropriate civil
or criminal tax function.
Additionally, these proposed regula-
tions would amend 26 CFR 301.7433-1(e)
(1) by updating references to “Area Direc-
tor, Attn: Compliance Technical Support
Manager” to reflect that those matters are
currently handled by Collection Advi-
sory Groups. These proposed regulations
would amend 26 CFR 301.7430-1(e),
301.7430-2(c)(2), and 301.7433-2(e)(1)
by updating references to “Chief, Local
Insolvency Unit” to reflect the shift to the
Centralized Insolvency Operation. Specif-
ically, the reference in 26 CFR 301.7433-
1(e)(1) to “Area Director, Attn: Compli-
ance Technical Support Manager” would
be amended to read “Collection Advisory
Group of the area in which the taxpayer
currently resides.” The references in 26
CFR 301.7430-1(e)(1), 301.7430-1(e)(2),
301.7430-2(c)(2), and 301.7433-2(e)(1) to
“Chief, Local Insolvency Unit” would be
amended to read “Centralized Insolvency
Operation.” Amending these regulations
to reflect the current points of contact
within the IRS Collection function will
ensure that claim submissions are sent to
the appropriate Collection contact.
Finally, these proposed regulations
would update references to actions under
Bankruptcy Code section 362(h) in 26
CFR 301.7430-1(e)(2) and 301.7433-2(a)
(2) to reflect the revision to the Bank-
ruptcy Code under the BAPCPA. Amend-
ing these regulations to reflect the current
version of the Bankruptcy Code would
decrease confusion around application of
that title.
Proposed Effective Date
The changes to the organizational
structure of the Department of Justice

January 12, 2026 356 Bulletin No. 2026–3
and the IRS are already in effect. It would
be unnecessary and contrary to the pub-
lic interest for the regulations to continue
to reference Department of Justice divi-
sions and IRS business units that have
been reorganized as points of contact. To
ensure that communications are sent to the
appropriate Assistant Attorney General
with supervisory authority over the appro-
priate civil or criminal tax function at the
Department of Justice for matters involv-
ing the internal revenue laws and that
administrative claims submitted from tax-
payers seeking civil damages for certain
unauthorized collection actions or awards
of administrative costs with respect to cer-
tain administrative proceedings are sent to
the appropriate IRS collection contact, the
Treasury Department, the IRS, and TTB
find that there is good cause to dispense
with a delayed effective date pursuant to
5 U.S.C. 553(d)(3). The regulations under
26 CFR part 301, as proposed, and 27 CFR
part 70, as proposed, would be effective
as of the date of publication of a Treasury
decision adopting these proposed rules
with any necessary modifications as final
in the Federal Register.
Proposed Applicability Date
For proposed applicability dates see 26
CFR 301.6402-2(h), 301.6103(h)(2)-1(c),
301.7430-1(h), 301.7430-2(f), 301.7433-
1(i); and 301.7433-2(i).
Special Analyses
I. Regulatory Planning and Review
These proposed regulations are not
subject to review under section 6(b) of
Executive Order 12866 pursuant to the
Memorandum of Agreement (July 4,
2025) between the Treasury Department
and the Office of Management and Budget
regarding review of tax regulations.
II. Regulatory Flexibility Act
The Secretary of the Treasury hereby
certifies that these proposed regulations
would not have a significant economic
impact on a substantial number of small
entities pursuant to the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6). The pro-
posed regulations would provide updated
points of contact within the Department of
Justice and the IRS, and would not impose
any new requirements or obligations upon
small entities. Accordingly, a regulatory
flexibility analysis under the Regulatory
Flexibility Act is not required.
III. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates
Reform Act of 1995 (UMRA) 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 aggre-
gate, or by the private sector, of $100
million in 1995 dollars, updated annually
for inflation. These 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.
IV. Executive Order 13132: Federalism
Executive Order 13132 (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 gov-
ernments, and is not required by statute,
or preempts State law, unless the agency
meets the consultation and funding
requirements of section 6 of the Execu-
tive order. These 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.
V. Small Business Administration
Pursuant to section 7805(f) of the
Code, this notice of proposed rulemaking
will be submitted to the Chief Counsel for
the Office of Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Request for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
timely submitted to the IRS as prescribed
in this preamble under the ADDRESSES
heading. The Treasury Department, the
IRS, and TTB request comments on all
aspects of the proposed regulations. Any
comments submitted will be available
at https://www.regulations.gov or upon
request. A public hearing will be scheduled
if requested in writing by any person who
timely submits electronic or written com-
ments. 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 author of these regula-
tions is Shikha K. Patel of the Office of
Associate Chief Counsel (Procedure and
Administration). However, other person-
nel from the Treasury Department partic-
ipated in the development of the regula-
tions.
Lists of Subjects
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
27 CFR Part 70
Administrative practice and procedure,
Claims, Excise taxes, Freedom of infor-
mation, Penalties, Reporting and record-
keeping requirements, Surety bonds.
Proposed Amendments to the
Regulations
Accordingly, the IRS proposes to
amend 26 CFR part 301 and the Treasury
Department proposes to amend 27 CFR
part 70 as follows:
PART 301 – PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation
for 26 CFR part 301 continues to read, in
part, as follows:

Bulletin No. 2026–3 357 January 12, 2026
Authority: 26 U.S.C. 7805.
Par. 2. Section 301.6402-2 is amended
by revising paragraphs (f)(2) and (h) to
read as follows:
§ 301.6402-2 Claims for credit or
refund.
* * * * *
(f) * * *
(2) Checks in payment of claims which
have either been reduced to judgment or
settled in the course or as a result of litiga-
tion will be drawn in the name of the per-
son or persons entitled to the money and
will be sent to the Assistant Attorney Gen-
eral for the Civil Division of the Depart-
ment of Justice, or such person’s designee,
for delivery to the taxpayer or the counsel
of record in the court proceeding.
* * * * *
(h) Applicability dates. This section
applies on or after December 15, 2025.
For periods before December 15, 2025,
see this section as in effect and contained
in 26 CFR part 301, revised as of April 1,
2025.
Par. 3. Section 301.6103(h)(2)-1 is
amended by revising paragraph (a)(2)(ii)
and adding paragraph (c) to read as fol-
lows:
§ 301.6103(h)(2)-1 Disclosure of
returns and return information
(including taxpayer return
information) to and by officers and
employees of the Department of
Justice for use in Federal grand jury
proceeding, or in preparation for
proceeding or investigation, involving
tax administration.
(a) * * *
(2) * * *
(ii) In connection with any Federal
grand jury proceeding, or preparation for
any proceeding (or with an investigation
which may result in such a proceeding),
described in paragraph (a)(1) of this sec-
tion which also involves enforcement of
a specific Federal criminal statute other
than one described in paragraph (a)(1) of
this section to which the United States is
or may be a party, provided such matter
involves or arises out of the particular
facts and circumstances giving rise to the
proceeding (or investigation) described in
paragraph (a)(1) of this section and further
provided the tax portion of such proceed-
ing (or investigation) has been duly autho-
rized by or on behalf of the Assistant Attor-
ney General for the Criminal Division of
the Department of Justice, pursuant to the
request of the Secretary, as a proceeding
(or investigation) described in paragraph
(a)(1) of this section. If, in the course of a
Federal grand jury proceeding, or prepa-
ration for a proceeding (or the conduct of
an investigation which may result in such
a proceeding), described in this paragraph
(a)(2)(ii), the tax administration portion
thereof is terminated for any reason, any
further use or disclosure of such returns
or taxpayer return information in such
Federal grand jury proceeding, or prepa-
ration or investigation, with respect to
the remaining portion may be made only
pursuant to, and upon the grant of, a court
order as provided by section 6103(i)(1)
(A), provided, however, that the returns
and taxpayer return information may in
any event be used for purposes of obtain-
ing the necessary court order.
* * * * *
(c) Applicability date. This section
applies on or after December 15, 2025.
For periods before December 15, 2025,
see this section as in effect and contained
in 26 CFR part 301, revised as of April 1,
2025.
Par. 4. Section 301.7430-1 is amended
by revising paragraphs (e) and (h) to read
as follows:
§ 301.7430-1 Exhaustion of
administrative remedies.
* * * * *
(e) * * * (1) Section 7433 claims. A
party has not exhausted administrative
remedies within the Internal Revenue Ser-
vice with respect to asserted violations of
the automatic stay under section 362 of
title 11, United States Code (Bankruptcy
Code) or the provisions under section 524
of the Bankruptcy Code unless it files an
administrative claim for damages or for
relief from a violation of section 362 or
section 524 of the Bankruptcy Code with
the Centralized Insolvency Operation or
successor function and satisfies the other
conditions set forth in § 301.7433-2(d)
prior to filing a petition under section
7433.
(2) Section 362(k) claims. A party has
not exhausted administrative remedies
within the Internal Revenue Service with
respect to asserted violations of the auto-
matic stay under section 362 of the Bank-
ruptcy Code unless it files an administra-
tive claim for relief from a violation of
section 362 of the Bankruptcy Code with
the Centralized Insolvency Operation pur-
suant to § 301.7433-2(e) and satisfies the
other conditions set forth in § 301.7433-
2(d) prior to filing a petition under section
362(k) (formerly 362(h)) of the Bank-
ruptcy Code.
* * * * *
(h) Applicability date. This section
applies to court proceedings described in
section 7430 filed in a court of the United
States (including the Tax Court and the
Court of Federal Claims) after December
15, 2025. For such court proceedings on
or before December 15, 2025, see this sec-
tion as in effect and contained in 26 CFR
part 301, revised as of April 1, 2025.
Par. 5. Section 301.7430-2 is amended
by revising paragraph (c)(2) and adding
paragraph (f) to read as follows:
§301.7430-2 Requirements and
procedures for recovery of reasonable
administrative costs.
* * * * *
(c) * * *
(2) Where request must be filed. A
request required by paragraph (c)(1) of
this section must be filed with the Inter-
nal Revenue Service personnel who have
jurisdiction over the tax matter underlying
the claim for costs, except that requests
with respect to administrative proceed-
ings defined by § 301.7430-8(c) should
be made to the Centralized Insolvency
Operation. However, if those persons
are unknown to the taxpayer making the
request, the taxpayer may send the request
to the Internal Revenue Service office that
considered the underlying matter.
* * * * *
(f) Applicability date. This section
applies on or after December 15, 2025. For
periods before December 165, 2025, see
this section as in effect and contained in 26
CFR part 301, revised as of April 1, 2025.
Par. 6. Section 301.7433-1 is amended
by revising paragraphs (e)(1) and (i) to
read as follows.

January 12, 2026 358 Bulletin No. 2026–3
§301.7433-1 Civil cause of action for
certain unauthorized collection actions.
* * * * *
(e) * * *
(1) Manner. An administrative claim
for the lesser of $1,000,000 ($100,000 in
the case of negligence) or actual, direct
economic damages as defined in para-
graph (b) of this section shall be sent in
writing to the Collection Advisory Group
of the area in which the taxpayer currently
resides.
* * * * *
(i) Applicability dates. This section
applies on or after December 15, 2025.
For periods before December 15, 2025,
see this section as in effect and contained
in 26 CFR part 301, revised as of April 1,
2025.
Par. 7. Section 301.7433-2 is amended
by revising paragraphs (a)(2), (e)(1), and
(i) to read as follows.
§ 301.7433-2 Civil cause of action for
violation of section 362 or 524 of the
Bankruptcy Code.
(a) * * *
(2) An action under this section con-
stitutes the exclusive remedy under the
Internal Revenue Code for violations of
sections 362 and 524 of title 11, United
States Code (Bankruptcy Code). In
addition, taxpayers injured by violations
of section 362 of the Bankruptcy Code
may maintain actions under section
362(k) (formerly section 362(h)) of the
Bankruptcy Code (relating to an indi-
vidual injured by a willful violation of
the stay). However, any administrative
or litigation costs in connection with an
action under section 362(k) (formerly
section 362(h)) may be awarded, if at
all, only under section 7430 of the Inter-
nal Revenue Code.
* * * * *
(e) * * * (1) Manner. An administra-
tive claim for the lesser of $1,000,000
or actual, direct economic damages as
defined in paragraph (b) of this section
shall be sent in writing to the Centralized
Insolvency Operation.
* * * * *
(i) Applicability date. This section
is applicable to actions taken by Inter-
nal Revenue Service officials after
December 15, 2025. For actions taken
by Internal Revenue Service officials
on or before December 15, 2025, see
this section as in effect and contained
in 26 CFR part 301, revised as of April
1, 2025.
PART 70 – PROCEDURE AND
ADMINISTRATION
Par. 8. The authority citation for 27
CFR part 70 continues to read in part as
follows:
Authority: 5 U.S.C. 301 and 552; 26
U.S.C. 4181, 4182, 5123, 5203, 5207,
5275, 5367, 5415, 5504, 5555, 5684(a),
5741, 5761(b), 5802, 6020, 6021, 6064,
6102, 6109, 6155, 6159, 6201, 6203,
6204, 6301, 6303, 6311, 6313, 6314,
6321, 6323, 6325, 6326, 6331-6343,
6401-6404, 6407, 6416, 6423, 6501-6503,
6511, 6513, 6514, 6532, 6601, 6602,
6611, 6621, 6622, 6651, 6653, 6656-6658,
6665, 6671, 6672, 6701, 6723, 6801,
6862, 6863, 6901, 7011, 7101, 7102,
7121, 7122, 7207, 7209, 7214, 7304,
7401, 7403, 7406, 7423, 7424, 7425,
7426, 7429, 7430, 7432, 7502, 7503,
7505, 7506, 7513, 7601-7606, 7608-7610,
7622, 7623, 7653, 7805.
Par. 9. Section 70.123 is amended by
revising paragraph (e)(2) to read as fol-
lows:
§ 70.123 Claims for credit or refund.
* * * * *
(e) * * *
(2) Checks in payment of claims which
have either been reduced to judgment or
settled in the course or as a result of litiga-
tion will be drawn in the name of the per-
son or persons entitled to the money and
will be sent to the Assistant Attorney Gen-
eral for the Civil Division of the Depart-
ment of Justice, or such person’s designee,
for delivery to the taxpayer or the counsel
of record in the court proceeding.
Frank J. Bisignano,
Chief Executive Officer.
Approved: October 14, 2025
Kenneth J. Kies,
Assistant Secretary of the Treasury
(Tax Policy).
(Filed by the Office of the Federal Register Decem-
ber 12, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 15, 2025, 90
FR 57937)
Notice of Proposed
Rulemaking
Relief From Joint and
Several Liability
REG-132251-11;
REG-134219-08
AGENCY: Internal Revenue Service
(IRS), Treasury
ACTION: Withdrawal of notices of pro-
posed rulemaking.
SUMMARY: This document withdraws
two notices of proposed rulemaking
regarding relief from joint and several tax
liability and relief from Federal income
tax liability resulting from the operation
of State community property laws. The
proposed regulations would have affected
married individuals who filed joint returns
and later seek relief from joint and several
liability.
DATES: As of December 15, 2025, the
notices of proposed rulemaking that
were published in the Federal Register
on August 13, 2013 (78 FR 49242) and
November 20, 2015 (80 FR 72649), are
withdrawn.
FOR FURTHER INFORMATION
CONTACT: Mark Shurtliff at (202) 317–
6845 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On August 13, 2013, the Department
of the Treasury (Treasury Department)
and the IRS published a notice of pro-
posed rulemaking (REG-132251-11)
in the Federal Register (78 FR 49242)
that proposed guidance for taxpayers on
when and how to request relief from joint

Bulletin No. 2026–3 359 January 12, 2026
and several liability under section 6015
of the Internal Revenue Code (Code) and
relief from the operation of State com-
munity property law under section 66 of
the Code (2013 proposed regulations).
In addition, on November 20, 2015, the
Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(REG-134219-08) in the Federal Regis-
ter (80 FR 72649) that reflected changes
to section 6015 made by the Tax Relief
and Health Care Act of 2006, Public Law
109-432, 120 Stat. 2922, 3061 (Decem-
ber 20, 2006), as well as changes in the
law arising from litigation (2015 pro-
posed regulations).
The Treasury Department and the IRS
have determined it appropriate to with-
draw the 2013 proposed regulations and
the 2015 proposed regulations at this time
to focus time and resources on other mat-
ters. Additionally, in light of the volume
and breadth of scope of the comments
received in response to the 2013 proposed
regulations and the 2015 proposed regu-
lations, the Treasury Department and the
IRS have determined that further consid-
eration of the proposed rules contained
in the notices of proposed rulemaking is
warranted. Moreover, due to the amount
of time that has passed since the notices
of proposed rulemaking were published,
the Treasury Department and the IRS
do not intend to publish final rules with-
out again providing additional notice of
the proposed rules and requesting public
comments. For these reasons, the Treasury
Department and the IRS are withdrawing
the 2013 proposed regulations and the
2015 proposed regulations.
The withdrawal of the 2013 proposed
regulations and the 2015 proposed regula-
tions does not limit the ability of the Trea-
sury Department and the IRS to publish
new regulatory proposals regarding the
areas addressed by the withdrawn notices
of proposed rulemaking, including new
proposals that may be substantially iden-
tical or similar to those described therein,
and the Treasury Department and the IRS
may propose new rules in this regard in
a future rulemaking, as appropriate. In
addition, the withdrawal of these notices
of proposed rulemaking does not affect
the ongoing application of existing stat-
utory and regulatory requirements or the
responsibility to faithfully administer the
statutory requirements the proposed rules
would have implemented if finalized.
Finally, should the Treasury Department
and the IRS decide in the future to move
forward with rulemaking in this area, such
rulemaking would take into account statu-
tory changes that have been made, as well
as changes in the law arising from litiga-
tion, since the 2013 proposed regulations
and the 2015 proposed regulations were
published.
Drafting Information
The principal author of this notice
is Mark Shurtliff of the Office of Asso-
ciate Chief Counsel (Procedure and
Administration). However, other per-
sonnel from the Treasury Department
and the IRS participated in its develop-
ment.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and record-
keeping requirements.
Withdrawal of Proposed Amendments
to the Regulations
Under the authority of 26 U.S.C.
7805, the notice of proposed rulemaking
(REG-132251-11) that was published in
the Federal Register on August 13, 2013
(78 FR 49242), and the notice of pro-
posed rulemaking (REG-134219-08) that
was published in the Federal Register on
November 20, 2015 (80 FR 72649), are
withdrawn.
Frank J. Bisignano,
Chief Executive Officer.
(Filed by the Office of the Federal Register Decem-
ber 12, 2025, 8:45 a.m., and published in the issue
of the Federal Register for December 15, 2025, 90
FR 57937)

Bulletin No. 2026–3 i January 12, 2026
Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transactions.
This term is most commonly used in a ruling
that lists previously published rulings that
are obsoleted because of changes in laws or
regulations. A ruling may also be obsoleted
because the substance has been included in
regulations subsequently adopted.
Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a
period of time in separate rulings. If the
new ruling does more than restate the sub-
stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.
Suspended is used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current
use and formerly used will appear in
material published in the Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.
—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.

January 12, 2026 ii Bulletin No. 2026–3
Numerical Finding List
1
Bulletin 2026–3
Notices:
2026-2, 2026-02 I.R.B. 304
2026-3, 2026-02 I.R.B. 307
2026-5, 2026-02 I.R.B. 309
2026-6, 2026-02 I.R.B. 313
Proposed Regulations:
REG-101952-24, 2026-03 I.R.B. 345
REG-110519-25, 2026-03 I.R.B. 353
REG-132251-11; REG-134219-08,
2026-03 I.R.B. 358
Revenue Procedures:
2026-1, 2026-01 I.R.B. 1
2026-2, 2026-01 I.R.B. 119
2026-3, 2026-01 I.R.B. 143
2026-4, 2026-01 I.R.B. 160
2026-5, 2026-01 I.R.B. 258
2026-6, 2026-02 I.R.B. 314
2026-7, 2026-02 I.R.B. 316
Revenue Rulings:
2026-1, 2026-02 I.R.B. 299
2026-2, 2026-03 I.R.B. 342
Treasury Decisions:
10042, 2026-03 I.R.B. 320
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2024–52, dated December 22, 2024.

Bulletin No. 2026–3 iii January 12, 2026
Finding List of Current Actions on
Previously Published Items
1
Bulletin 2026–3
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2025–27 through 2025–52 is in Internal Revenue Bulletin
2024–52, dated December 22, 2024.

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