Concerns about Section 899 of the Internal Revenue Code, a tax provision that could stymie foreign investment, have prompted U.S. fund managers to step up lobbying efforts in Washington in recent months. Section 899, which targets "foreign persons" who own U.S. corporations and may be subject to increased reporting requirements and taxation, was introduced as part of larger anti-tax evasion measures. Financial institutions caution that the rule's expansive wording could unintentionally impact passive investors, including holders of mutual funds and foreign pension funds.

This has prompted fears of "collateral damage"—namely, the unintended consequence of driving foreign capital out of U.S. markets. Fund managers argue that foreign investors may reduce their exposure to U.S. equities and bonds to avoid compliance burdens or higher tax liabilities. The United States has long been seen as a stable and attractive destination for global capital, but experts caution that overly aggressive tax policies could erode this advantage.

Lobbyists are urging Congress to amend or clarify Section 899 to exempt passive investors and preserve the competitive appeal of U.S. financial markets. With trillions of dollars at stake, the industry warns that inaction could trigger a significant shift in global capital flows away from the U.S., undermining economic growth and market stability.