Section 892 changes would raise borrowing costs for U.S. businesses and harm economic growth
Washington, D.C. — MFA urges 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. MFA warns, in a comment letter, the proposed framework would discourage certain foreign investment funds from investing in U.S. credit and private markets, raising borrowing costs for American businesses and hurting economic growth.
“Foreign capital is vital to U.S. companies, strong markets, and economic growth,” said Bryan Corbett, MFA President and CEO. “We urge the IRS to maintain clear, workable rules that promote the continued flow of capital and support American businesses, jobs and innovation.”
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.
These changes taken together would make investment in the U.S. riskier, more expensive, and harder to predict for some of the world’s largest long-term investors. That means less capital flowing to U.S. businesses, higher borrowing costs and fewer resources for companies to grow, hire, and innovate.
MFA stands ready to work with the IRS and Treasury to ensure its rules preserve well-established market practices, maintain the U.S. as an attractive destination for investment, and support efficient capital formation across public and private markets.
Read the full letter here.
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About the global alternative asset management industry
The global alternative asset management industry — including hedge funds, private credit funds, and hybrid funds — serves thousands of public and private pension funds, charitable endowments, foundations, and other global institutional investors. The industry provides portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets throughout the economic cycle.
About MFA
Managed Funds Association (MFA), based in Washington, D.C., New York City, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest it, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 180 fund manager members, including traditional hedge funds, private credit funds, and hybrid funds, that employ a diverse set of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors diversify their investments, manage risk, and generate attractive returns throughout the economic cycle.
