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On December 12, 2025, US Treasury and the IRS issued long-anticipated final regulations under section 892 ("Final Regulations") and new proposed regulations under section 892 ("Proposed Regulations"). The Final Regulations clarify (i) the framework for determining when non-US government investors are engaged in commercial activity, and (ii) when entities are treated as controlled commercial entities (CCEs). The Final Regulations finalize proposed regulations issued in 2011 and 2022, with important modifications affecting non-US governments, sovereign wealth funds, central banks, certain foreign pension funds, and other similar investors ("Section 892 Investors") in private equity, private credit, infrastructure, and real estate investment structures. The Proposed Regulations provide guidance on determining (i) when the acquisition of debt rises to the level of commercial activity, and (ii) when an investor has effective control of an entity.
The Final Regulations will take effect when published in the Federal Register and can, at the taxpayer’s election, be applied retroactively for prior years for which the assessment limitation period has not yet closed. The Proposed Regulations would take effect when finalized and published in the Federal Register. Once finalized, those regulations, at the taxpayer’s election, may be applied retroactively for prior years for which the assessment limitation period has not yet closed.
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