IRS Issues Proposed, Final Regs on Foreign-Government Income (1)

The Treasury Department and the IRS issued proposed and final regulations that clarify and revamp how foreign governments’ income from US investments is treated for tax purposes.

The proposed (REG-101952-24; RIN 1545-BR10) and final (TD 10042; RIN 1545-BG08) regulations, all under Section 982, were issued Friday.

Certain foreign-government income is generally exempt from US taxation, but that exemption doesn’t apply to income derived from commercial activity. The two sets of regulations deal with how that’s applied, with implications for partnerships, lending, and foreign pension funds.

The proposed rules clarify that partnerships wouldn’t be considered entities controlled ...