Reg. § 1.892-3T Income of foreign governments (temporary regulations).
(a) Types of income exempt
(1) In general Subject to the exceptions contained in and for income derived from the conduct of a commercial activity or received from or by a controlled commercial entity, the following types of income derived by a foreign government (as defined in ) are not included in gross income and are exempt:
(i) Income from investments in the United States in stocks, bonds, or other securities;
(ii) Income from investments in the United States in financial instruments held in the execution of governmental financial or monetary policy; and
(iii) Interest on deposits in banks in the United States of moneys belonging to such foreign government.
Income derived from sources other than described in this paragraph (such as income earned from a U.S. real property interest described in section ) is not exempt from taxation under section . Furthermore, any gain derived from the disposition a U.S. real property interest defined in section shall in no event qualify for exemption under section .
(2) Income from investments For purposes of of this section, income from investments in stocks, bonds or other securities includes gain from their disposition and income earned from engaging in section securities lending transactions. Gain on the disposition of an interest in a partnership or a trust is not exempt from taxation under section .
(3) Securities For purposes of of this section, the term “other securities” includes any note or other evidence of indebtedness. Thus, an annuity contract, a mortgage, a banker's acceptance or a loan are securities for purposes of this section.
However, the term “other securities” does not include partnership interests (with the exception of publicly traded partnerships within the meaning of section ) or trust interests. The term also does not include commodity forward or futures contracts and commodity options unless they constitute securities for purposes of section .
(4) Financial instrument For further guidance, see .
(5) Execution of financial or monetary policy
(i) Rule A financial instrument shall be deemed held in the execution of governmental financial or monetary policy if the primary purpose for holding the instrument is to implement or effectuate such policy.
(ii) Illustration The following example illustrates the application of this .
Example. In order to ensure sufficient currency reserves, the monetary authority of foreign country FC issues short-term government obligations. The amount received from the obligations is invested in U.S. financial instruments. Since the primary purpose for obtaining the U.S. financial instruments is to implement FC's monetary policy, the income received from the financial instruments is exempt from taxation under section .
(b) Illustrations The principles of of this section may be illustrated by the following examples.
Example 1. X, a foreign corporation not engaged in commercial activity anywhere in the world, is a controlled entity of a foreign sovereign within the meaning of . X is not a Central bank of issue as defined in . In 1987, X received the following items of income from investments in the United States:
(i) Dividends from a portfolio of publicly traded stocks in U.S. corporations in which X owns less than 50 percent of the stock;
(ii) dividends from BTB Corporation, an automobile manufacturer, in which X owns 50 percent of the stock;
(iii) interest from bonds issued by noncontrolled entities and from interest-bearing bank deposits in noncontrolled entities;
(iv) rents from a net lease on real property;
(v) gains from silver futures contracts;
(vi) gains from wheat futures contracts;
(vii) gains from spot sales of nonfunctional foreign currency in X's possession;
(viii) gains from the disposition of a publicly traded partnership interest, and
(ix) gains from the disposition of the stock of Z Corporation, a United States real property holding company as defined in section , of which X owns 12 percent of the stock. Only income derived from sources described in of this section is treated as income of a foreign government eligible for exemption from taxation. Accordingly, only income received by X from items (i), (iii), (v) provided that the silver futures contracts are held in the execution of governmental financial or monetary policy, and (ix) is exempt from taxation under section .
Example 2. The facts are the same as in Example 1, except that X is also a central bank of issue within the meaning of section . Since physical possession of nonfunctional foreign currency when held by a central bank of issue is considered a financial instrument, the item (vii) gains from spot sales of nonfunctional foreign currency are exempt from taxation under of this section, if physical possession of the currency was an essential part of X's reserve policy in the execution of its governmental financial or monetary policy.
Example 3. State Concert Bureau, an integral part of a foreign sovereign within the meaning of , entered into an agreement with a U.S. corporation engaged in the business of promoting international cultural programs. Under the agreement the State Concert Bureau agreed to send a ballet troupe on tour for 5 weeks in the United States. The Bureau received approximately $60,000 from the performances. Regardless of whether the performances themselves constitute commercial activities under , the income received by the Bureau is not exempt from taxation under section since the income is from sources other than described in of this section.
[T.D. 8211, 53 FR 24062, June 27, 1988, as amended by T.D. 10042, 90 FR 57915, Dec. 15, 2025]