Group Seeks Clarity From IRS on Foreign-Government Income Regs

New York State Bar Association's Tax Section raises concerns over recent IRS rules

Published on Feb. 19, 2026

Got story updates? Submit your updates here. ›

The IRS and the Treasury Department should broaden safe harbors and provide more clarity on key concepts included in rules on how foreign governments' income from US investments is treated for tax purposes, according to a letter from the New York State Bar Association's Tax Section. The group says the final and proposed regulations under Section 892, issued in December, 'can be viewed as departures from current conservative market practices' in several areas, raising concerns for foreign sovereign investors and their advisers.

Why it matters

The tax treatment of foreign governments' income from US investments is an important issue, as it impacts the ability of these governments to invest in the US market. The bar group's letter suggests the new IRS regulations may create uncertainty and depart from established practices, which could discourage foreign investment.

The details

The Section 892 regulations determine how income earned by foreign governments from US investments is treated for tax purposes. The bar group says the new rules raise concerns in several areas, including the scope of the safe harbor provisions and the definitions of key concepts like 'control' and 'commercial activity'. They argue the IRS should provide more clarity and broaden the safe harbors to align with current market practices.

  • The final and proposed Section 892 regulations were issued by the IRS in December 2025.
  • The New York State Bar Association's Tax Section submitted their letter to the IRS on February 17, 2026.

The players

New York State Bar Association's Tax Section

A group representing tax law experts and professionals in New York state, which submitted a letter to the IRS regarding the new Section 892 regulations.

Internal Revenue Service (IRS)

The U.S. federal agency responsible for administering and enforcing federal tax laws, which issued the final and proposed Section 892 regulations in December 2025.

U.S. Department of the Treasury

The federal executive department responsible for economic and financial management, which worked with the IRS to develop the Section 892 regulations.

Got photos? Submit your photos here. ›

What they’re saying

“The final and proposed regulations under Section 892, issued in December, 'can be viewed as departures from current conservative market practices' in several areas, and that's raised concerns for foreign sovereign investors and their advisers.”

— New York State Bar Association's Tax Section (bloomberglaw.com)

What’s next

The IRS and Treasury Department will likely review the concerns raised by the New York State Bar Association's Tax Section and determine if any clarifications or revisions to the Section 892 regulations are warranted.

The takeaway

The new IRS regulations on the tax treatment of foreign governments' US investment income have created uncertainty for foreign sovereign investors and their advisers, prompting a call for more clarity and alignment with established market practices. This highlights the ongoing challenge of balancing tax policy objectives with the need to maintain an attractive investment climate for foreign capital.