IRS Proposes New Rules on Foreign Government Investments

Officials say existing investments won't be impacted when regulations are finalized.

Published on Feb. 25, 2026

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The Internal Revenue Service (IRS) is proposing new rules regarding tax exemptions for foreign government investments in the United States. IRS officials stated that the proposed regulations are not intended to penalize existing market practices and that they are working to ensure the rules, once finalized, will not have a retroactive effect on existing investments.

Why it matters

These proposed regulations could have significant implications for foreign governments and their investment strategies in the U.S. market. By clarifying that existing investments will not be impacted, the IRS is aiming to provide certainty and stability for foreign investors.

The details

The new rules are focused on the U.S. tax exemptions available for foreign government investments. IRS officials, including Mallory Mendrala, acting deputy associate chief counsel at the Office of Associate Chief Counsel (International), and Peter Blessing, associate chief counsel, stated that the regulations are not meant to penalize existing market practices. They are working to ensure the rules, once finalized, will not have a retroactive effect on existing foreign government investments.

  • The IRS proposed the new regulations on February 25, 2026.

The players

Mallory Mendrala

Acting deputy associate chief counsel at the Office of Associate Chief Counsel (International) at the IRS.

Peter Blessing

Associate chief counsel at the IRS.

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What they’re saying

“The new rules aren't meant to penalize existing market practices.”

— Mallory Mendrala, Acting deputy associate chief counsel at the Office of Associate Chief Counsel (International) (Bloomberg Tax)

“Officials are working to make sure the regulations, to the extent they are finalized, won't have a retroactive effect.”

— Mallory Mendrala, Acting deputy associate chief counsel at the Office of Associate Chief Counsel (International) (Bloomberg Tax)

What’s next

The proposed regulations will be open for public comment before the IRS finalizes the rules.

The takeaway

The IRS is aiming to provide clarity and stability for foreign government investors in the U.S. by ensuring that existing investments will not be impacted by the new regulations once they are finalized.