A significant policy development out of Washington is drawing attention from the global investment community, including EB-5 investors, regional centers, and sovereign wealth funds that increasingly participate in U.S. real estate capital stacks.
On May 29, 2026, the U.S. Department of the Treasury and the Internal Revenue Service jointly issued additional guidance — IRS IR-2026-69 — addressing proposed regulations under Section 892 of the Internal Revenue Code. Section 892 is the provision that exempts foreign governments, including sovereign wealth funds, from U.S. tax on certain income derived from passive investments in the United States. The new guidance introduces two critical protections that were absent from the original December 2025 proposed regulations: a grandfathering rule and a transition period.
How we got here
The original proposed regulations, issued December 15, 2025, set off alarm bells across the sovereign investor community. Treasury and the IRS had proposed to clarify when a foreign government’s acquisition of debt would constitute “commercial activity” — a designation that strips the tax exemption that makes U.S. passive investments attractive to sovereign wealth funds in the first place. Foreign governments, institutional investors, and their advisors pushed back hard, arguing the proposed rules created uncertainty for capital already deployed in U.S. markets and risked disrupting long-established investment structures.
Treasury and the IRS listened. Today’s guidance responds directly to those concerns with a two-part approach. The grandfathering rule proposes new applicability dates, ensuring that existing foreign government investment interests will not be subject to the final regulations once they take effect. The transition period gives sovereign investors at least 90 days after the publication date, or until the start of the first taxable year following publication, to comply with the final rules.
Treasury Secretary Scott Bessent framed the move squarely within the administration’s economic agenda, saying the guidance is designed to “provide certainty on the treatment of current investments and transitional relief to sovereign investors” and pledging that final regulations will be evaluated to “strengthen the American economy, uphold established market practices, and maintain a stable environment for existing and future sovereign wealth fund investment.”
IRS Chief Executive Officer Frank J. Bisignano echoed that message. “In response to comments on the recent proposed regulations, the IRS heard the concerns of many taxpayers and decided to provide transitional relief,” Bisignano said. “With these changes, the IRS aims to preserve established market practices, drive domestic economic growth, and support current and future sovereign wealth fund investment in the United States.”
Why EB-5 stakeholders should pay attention
While Section 892 governs sovereign governments and their investment vehicles rather than individual EB-5 investors directly, the regulatory climate for foreign capital broadly shapes the EB-5 ecosystem. Sovereign wealth funds and government-affiliated entities from the Gulf states, East Asia, and Europe have become increasingly active participants in the same U.S. real estate and infrastructure asset classes that anchor many EB-5 regional center projects. Stability and predictability in their tax treatment support institutional appetite for these investment structures, and that rising tide benefits EB-5 capital formation.
For individual EB-5 investors, particularly those from countries where family wealth is tied to government-affiliated enterprises or investment vehicles, today’s guidance carries a broader signal: the current administration is actively responsive to stakeholder feedback and is taking deliberate steps to avoid disrupting capital already in motion in the United States.
What happens next
Treasury and the IRS confirmed that they will continue to accept public comments on all aspects of the proposed regulations before issuing final rules. The 90-day transition window begins at the final rule’s publication date. EB-5 stakeholders, regional centers, and developers with sovereign co-investors or government-affiliated capital partners should monitor the comment period closely and consult qualified tax counsel to assess any exposure under the evolving framework.
Comment submission instructions are included in today’s Federal Register guidance.
DISCLAIMER: The views expressed in this article are solely the views of the author and do not necessarily represent the views of the publisher, its employees. or its affiliates. The information found on this website is intended to be general information; it is not legal or financial advice. Specific legal or financial advice can only be given by a licensed professional with full knowledge of all the facts and circumstances of your particular situation. You should seek consultation with legal, immigration, and financial experts prior to participating in the EB-5 program Posting a question on this website does not create an attorney-client relationship. All questions you post will be available to the public; do not include confidential information in your question.
