[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: 26CFR1.895-1]

[Page 527-528]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.895-1  Income derived by a foreign central bank of issue, or by 

Bank for International Settlements, from obligations of the United States 
or from bank deposits.

    (a) In general. Income derived by a foreign central bank of issue 
from obligations of the United States or of any agency or 
instrumentality thereof, or from interest on deposits with persons 
carrying on the banking business, is excluded from the gross income of 
such bank and is exempt from income tax if the bank is the owner of the 
obligations or deposits and does not hold the obligations or deposits 
for, or use them in connection with, the conduct of a commercial banking 
function or other commercial activity by such bank. For purposes of this 
section and paragraph (i) of Sec. 1.1441-4, obligations of the United 
States or of any agency or instrumentality thereof include beneficial 
interests, participations, and other instruments issued under section 
302(c) of the Federal National Mortgage Association Charter Act (12 
U.S.C. 1717). See 24 CFR part 1600 et seq.
    (b) Foreign central bank of issue. (1) A foreign central bank of 
issue is a bank which is by law or government sanction the principal 
authority, other than the government itself, issuing instruments 
intended to circulate as currency. Such a bank is generally the 
custodian of the banking reserves of the country under whose law it is 
organized. See also paragraph (b)(5) of Sec. 1.861-2.
    (2) The exclusion granted by section 895 applies to an 
instrumentality that is separate from a foreign government, whether or 
not owned in whole or in part by a foreign government. For example, 
foreign banks organized along the lines of, and performing functions 
similar to, the Federal Reserve System qualify as foreign central banks 
of issue for purposes of this section.
    (3) The Bank for International Settlements shall be treated as 
though it were a foreign central bank of issue for purposes of obtaining 
the exclusion granted by section 895.
    (c) Ownership of United States obligations or bank deposits. The 
exclusion does not apply if the obligations or bank deposits from which 
the income is derived are not owned by the foreign central bank of 
issue. Obligations held, or deposits made, by a foreign central bank of 
issue as agent, custodian, trustee, or in any other fiduciary capacity, 
shall be considered as not owned by such bank for purposes of this 
section.
    (d) Commercial banking function or other commercial activity. The 
exclusion applies only to obligations of the

[[Page 528]]

United States or of any agency or instrumentality thereof, or to bank 
deposits, held for, or used in connection with, the conduct of a central 
banking function and not to obligations or deposits held for, or used in 
connection with, the conduct of commercial banking functions or other 
commercial activities by the foreign central bank.
    (e) Other exclusions. See section 861(a)(1) (A) and (E) and Sec. 
1.861-2(b) (1) and (4), for special rules relating to interest paid or 
credited before January 1, 1977, on deposits and on similar amounts and 
for rules on interest derived from bankers' acceptances. For exemption 
from withholding under Sec. 1.1441-1 on income derived by a foreign 
central bank of issue, or by the Bank of International Settlements, from 
obligations of the United States or of any agency or instrumentality 
thereof, or from bank deposits, see Sec. 1.1441-4(i).
    (f) Effective date. This section shall apply with respect to taxable 
years beginning after December 31, 1966. For corresponding rules 
applicable to taxable years beginning before January 1, 1967, see 26 CFR 
1.85-1 (Revised as of January 1, 1972).

[T.D. 7378, 40 FR 45435, Oct. 2, 1975; 40 FR 48508, Oct. 16, 1975]