[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.892-4T]

[Page 508-509]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.892-4T  Commercial activities (temporary regulations).

    (a) Purpose. The exemption generally applicable to a foreign 
government (as defined in Sec. 1.892-2T) for income described in Sec. 
1.892-3T does not apply to income derived from the conduct of a 
commercial activity or income received by a controlled commercial entity 
or received (directly or indirectly) from a controlled commercial 
entity. This section provides rules for determining whether income is 
derived from the conduct of a commercial activity. These rules also 
apply in determining under Sec. 1.892-5T whether an entity is a 
controlled commercial entity.
    (b) In general. Except as provided in paragraph (c) of this section, 
all activities (whether conducted within or outside the United States) 
which are ordinarily conducted by the taxpayer or by other persons with 
a view towards the current or future production of income or gain are 
commercial activities. An activity may be considered a commercial 
activity even if such activity does not constitute the conduct of a 
trade or business in the United States under section 864(b).
    (c) Activities that are not commercial--(1) Investments--(i) In 
general. Subject to the provisions of paragraphs (ii) and (iii) of this 
paragraph (c)(1), the following are not commercial activities: 
Investments in stocks, bonds, and other securities; loans; investments 
in financial instruments held in the execution of governmental financial 
or monetary policy; the holding of net leases on real property or land 
which is not producing income (other than on its sale or from an 
investment in net leases on real property); and the holding of bank 
deposits in banks. Transferring securities under a loan agreement which 
meets the requirements of section 1058 is an investment for purposes of 
this paragraph (c)(1)(i). 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) Trading. Effecting transactions in stocks, securities, or 
commodities for a foreign government's own account does not constitute a 
commercial activity regardless of whether such activities constitute a 
trade or business for purposes of section 162 or a U.S. trade or 
business for purposes of section 864. 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. An activity undertaken as a 
dealer, however, as defined in Sec. 1.864-2(c)(2)(iv)(a) will not be an 
investment for purposes of this paragraph (c)(1)(i). For purposes of 
this paragraph (c)(1)(ii), 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.
    (iii) Banking, financing, etc. Investments (including loans) made by 
a banking, financing, or similar business constitute commercial 
activities, even if the income derived from such investments is not 
considered to be income effectively connected to the active conduct of a 
banking, financing, or similar business in the U.S. by reason of the 
application of Sec. 1.864-4(c)(5).
    (2) Cultural events. Performances and exhibitions within or outside 
the United States of amateur athletic events and events devoted to the 
promotion of the arts by cultural organizations are not commercial 
activities.
    (3) Non-profit activities. Activities that are not customarily 
attributable to or carried on by private enterprise for profit are not 
commercial activities. The fact that in some instances Federal, State, 
or local governments of the United States also are engaged in the same 
or similar activity does not mean necessarily that it is a non-profit 
activity. For example, even though the

[[Page 509]]

United States Government may be engaged in the activity of operating a 
railroad, operating a railroad is not a non-profit activity.
    (4) Governmental functions. Governmental functions are not 
commercial activities. The term ``governmental functions'' shall be 
determined under U.S. standards. In general, activities performed for 
the general public with respect to the common welfare or which relate to 
the administration of some phase of government will be considered 
governmental functions. For example, the operation of libraries, toll 
bridges, or local transportation services and activities substantially 
equivalent to the Federal Aviation Authority, Interstate Commerce 
Commission, or United States Postal Service will all be considered 
governmental functions for purposes of this section.
    (5) Purchasing. The mere purchasing of goods for the use of a 
foreign government is not a commercial activity.

[T.D. 8211, 53 FR 24063, June 27, 1988]