Reg. § 1.892-4 Commercial activities.
(a) Purpose The exemption generally applicable to a foreign government (as defined in ) for income described in and does not apply to income derived from the conduct of commercial activity (whether within or outside the United States), income received by a controlled commercial entity or received (directly or indirectly) from a controlled commercial entity, or income derived from the disposition of any interest in a controlled commercial entity. This section provides rules for determining whether income is derived from the conduct of commercial activity. The rules in this section also apply in determining under and whether an entity is a controlled commercial entity.
(b) In general Except as provided in of this section, all activities (whether conducted within or outside the United States) that are ordinarily conducted for the current or future production of income or gain are commercial activities. Only the nature of the activity, not the purpose or motivation for conducting the activity, is determinative of whether the activity is commercial in character. For purposes of this , activities that constitute a trade or business for purposes of section or constitute (or would constitute if undertaken in the United States) a trade or business in the United States for purposes of section are commercial activities except as otherwise provided in of this section.
(c) Activities that are not commercial
(1) Investments
(i) In general Subject to the provisions of this , the following are not commercial activities: investments in stocks, bonds, and other securities (as defined in ); loans; investments in financial instruments (as defined in ); the holding of partnership equity interests; the holding of net leases on real property; the holding of real property which is not producing income (other than on its sale or from an investment in net leases on real property); and the holding of deposits in any currency in banks. Transferring securities under a loan agreement which meets the requirements of section is an investment for purposes of this . An activity will not cease to be an investment solely because of the volume of transactions of that activity or because of other unrelated activities.
(ii) [Reserved]
(iii) Banking, financing, etc For further guidance, see .
(2) Trading Effecting transactions in stocks, bonds, other securities (as defined in ), partnership equity interests, commodities, or financial instruments (as defined in ) for a foreign government's own account does not constitute commercial activity. Such transactions are not commercial activities regardless of whether they are effected by the foreign government through its employees or through a broker, commission agent, custodian, or other independent agent and regardless of whether or not any such employee or agent has discretionary authority to make decisions in effecting the transactions. Such transactions undertaken as a dealer (as determined under the principles of ), however, constitute commercial activity. For purposes of this , the term commodities means commodities of a kind customarily dealt in on an organized commodity exchange but only if the transaction is of a kind customarily consummated at such place.
(3) Disposition of a U.S. real property interest A disposition (including a deemed disposition under section ) of a U.S. real property interest (as defined in section ), by itself, does not constitute the conduct of commercial activity. As described in , however, gain derived from a disposition of a U.S. real property interest defined in section will not qualify for exemption from tax under section .
(4) Cultural events For further guidance, see .
(5) Non-profit activities For further guidance, see .
(6) Governmental functions For further guidance, see .
(7) Purchasing For further guidance, see .
(d) Applicability date Except as otherwise provided in this , this section applies to taxable years beginning on or after December 15, 2025. See , as contained in 26 CFR in part 1 in effect on April 1, 2025, for the rules that apply to taxable years beginning before December 15, 2025. A taxpayer may choose to apply this section to a taxable year beginning before December 15, 2025, if the period of limitations on assessment of the taxable year is open under section and the taxpayer and entities that are related (within the meaning of section or section ) to the taxpayer apply this section and and in their entirety to the taxable year and all succeeding taxable years beginning before December 15, 2025.
[T.D. 10042, 90 FR 57915, Dec. 15, 2025]