MFA submits letter urging IRS to reconsider 892 proposal

MFA submitted a letter urging the Internal Revenue Service (IRS) to reconsider key elements of its proposed regulations under Section 892, which would upset established practices and reduce investment in U.S. businesses.

The letter emphasizes two main concerns:

• Debt Investments
  • Current Treasury rules treat loans, bonds, and other debt investments as non-commercial activity that is exempt from U.S. tax. The IRS proposal would reverse this framework and subject certain funds to U.S. taxes by presuming any debt investments are a commercial activity-unless the investment fits within narrow safe harbors. The change is contrary to century-long policy of encouraging inbound capital and would force funds to sharply reduce their participation in U.S. private credit markets.
• Effective Control Definition
  • Section 892 exempts income from U.S. taxes, but does not apply to income received by or from a commercial entity that an investor controls. The IRS proposal would significantly restrict this exemption because it adopts an overly broad definition of "effective control." Specifically, it treats routine investor protections-like the ability to block or influence major decisions or weigh in on basic "investor level" matters-as evidence of control. This approach would dramatically reduce investment into private credit funds and U.S. companies.