Public Law 106-58, sec. 643, enacted on September 29, 1999, allows Executive agencies to assist their lower income Federal employees with the costs of child care. Agencies could use “appropriated funds (otherwise available to such agency for salaries) to provide child care, in a Federal or leased facility, or through contract, for civilian employees of such agency.” The Office of Personnel Management issued regulations to implement the new authority, which were published in the Federal Register on March 14, 2000. The law was effective until September 30, 2000.

The current legislation expands the authority by authorizing the use of appropriated funds for expenses, in addition to appropriated funds available for salaries. It also extends the legislation until September 30, 2001.

I certify that these changes will not have a significant economic impact on a substantial number of small entities because the regulations pertain only to Federal employees and agencies.

This rule is issued under Marketing Agreement and Order No. 989 (7 CFR part 989), both as amended, regulating the handling of raisins produced from grapes grown in California, hereinafter referred to as the “order.” The marketing agreement and order are effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (Department) is issuing this rule in conformance with Executive Order 12866.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have retroactive effect. This rule will not preempt any State or local laws, or policies, unless they present an irreconcilable conflict with this rule.

The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with the Secretary a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. Such handler is afforded the opportunity for a hearing on the petition. After the hearing the Secretary would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review the Secretary's ruling on the petition, provided an action is filed not later than 20 days after the date of the entry of the ruling.

This rule reduces the production cap for the 2001 RDP for NS raisins from 2.75 to 2.5 tons per acre. The cap is specified in the order. Under an RDP, producers receive certificates from the RAC for curtailing their production to reduce burdensome supplies. The certificates represent diverted tonnage. Producers sell the certificates to handlers who, in turn, redeem the certificates for reserve raisins from the RAC. The production cap limits the yield per acre that a producer can claim in an RDP. Reducing the cap for the 2001 RDP will bring the figure in line with anticipated 2001 crop yields. This action was recommended by the RAC at a meeting on November 29, 2000.

The order provides authority for volume regulation designed to promote orderly marketing conditions, stabilize prices and supplies, and improve producer returns. When volume regulation is in effect, a certain percentage of the California raisin crop may be sold by handlers to any market (free tonnage) while the remaining percentage must be held by handlers in a reserve pool (reserve) for the account of the RAC. Reserve raisins are disposed of through various programs authorized under the order. For example, reserve raisins may be sold by the RAC to handlers for free use or to replace part of the free tonnage they exported; carried over as a hedge against a short crop the following year; or may be disposed of in other outlets not competitive with those for free tonnage raisins, such as government purchase, distilleries, or animal feed. Net proceeds from sales of reserve raisins are ultimately distributed to producers.

The RDP is another program concerning reserve raisins authorized under the order and may be used as a means for controlling overproduction. Authority for the program is provided in § 989.56 of the order, and additional procedures are specified in § 989.156 of the order's administrative rules and regulations.

Pursuant to these sections, the RAC must meet by November 30 each crop year to review raisin data, including information on production, supplies, market demand, and inventories. If the RAC determines that the available supply of raisins, including those in the reserve pool, exceeds projected market needs, it can decide to implement a diversion program, and announce the amount of tonnage eligible for diversion during the subsequent crop year. Producers who wish to participate in the RDP must submit an application to the RAC. Such producers curtail their production by vine removal or some other means established by the RAC and receive a certificate from the RAC which represents the quantity of raisins diverted. Producers sell these certificates to handlers who pay producers for the free tonnage applicable to the diversion certificate minus the established harvest cost for the diverted tonnage. Handlers redeem the certificates by presenting them to the RAC and paying an amount equal to the established harvest cost plus payment for receiving, storing, fumigating, handling, and inspecting the tonnage represented on the certificate. The RAC then gives the handler raisins from the reserve pool in an amount equal to the tonnage represented on the diversion certificate.

Section 989.56(a) of the order specifies a production cap of 2.75 tons per acre for any production unit of a producer approved for participation in an RDP. When the diversion tonnage is announced, the RAC may recommend, subject to approval by the Secretary, reducing the 2.75 tons per acre production cap. The production cap limits the yield that a producer can claim. Producers who historically produce yields above the production cap can choose to produce a crop rather than participate in the diversion program. No producer is required to participate in an RDP.

Pursuant to § 989.156, producers who wish to participate in a program were to submit an application to the RAC by December 20. Producers must specify, among other things, the raisin production and the acreage covered by the application. RAC staff verifies producers' production claims using handler acquisition reports and other available information. However, a producer could misrepresent production by claiming that some raisins produced on one ranch were produced on another, and use an inflated yield on the RDP application. Thus, the production cap limits the amount of raisins for which a producer participating in an RDP may be credited, and protects the program from overstated yields.

On November 29, 2000, the RAC met and reviewed data relating to the quantity of reserve raisins and anticipated market needs. With a 2000-01 NS crop estimated to be the largest on record at 427,394 tons, and a computed trade demand of 233,344 tons (comparable to market needs), the RAC projects a reserve pool of 194,050 tons of NS raisins. With such a large anticipated reserve, the RAC announced that 25,000 tons of NS raisins would be eligible for diversion under the 2001 RDP.

At the meeting, RAC members evaluated the 2.75 tons per acre production cap. With this year's record crop and high yields per acre, the RAC believes that the grapevines will likely produce a smaller crop next year. In addition, RAC historical data indicates that the production cap under NS raisin diversion programs has averaged 2.24 tons per acre. Thus, the RAC recommended reducing the production cap from 2.75 to 2.5 tons per acre to more accurately reflect next year's anticipated yields. Accordingly, a new paragraph (t) is added to § 989.156 of the order's rules and regulations.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA), the Agricultural Marketing Service (AMS) has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf. Thus, both statutes have small entity orientation and compatibility.

There are approximately 20 handlers of California raisins who are subject to regulation under the order and approximately 4,500 raisin producers in the regulated area. Small agricultural firms are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $5,000,000, and small agricultural producers are defined as those having annual receipts of less than $500,000. Thirteen of the 20 handlers subject to regulation have annual sales estimated to be at least $5,000,000, and the remaining 7 handlers have sales less than $5,000,000, excluding receipts from any other sources. No more than 7 handlers, and a majority of producers, of California raisins may be classified as small entities, excluding receipts from other sources.

This rule adds a new paragraph (t) to § 989.156 of the order's rules and regulations regarding the RDP. Under an RDP, producers receive certificates from the RAC for curtailing their production to reduce burdensome supplies. The certificates represent diverted tonnage. Producers sell the certificates to handlers who, in turn, redeem the certificates for reserve raisins from the RAC. The order specifies a production cap limiting the yield per acre that a producer can claim in an RDP. This rule reduces the cap from 2.75 to 2.5 tons per acre to accurately reflect next year's anticipated yields. Authority for this action is provided in § 989.56(a) of the order.

Regarding the impact of this action on affected entities, producers who participate in the 2001 RDP will have the opportunity to earn some income for not harvesting a 2001-02 crop. Producers will sell the certificates to handlers next fall for the free tonnage applicable to the diversion certificate minus the harvest cost for the diverted tonnage. Applicable harvest costs for the 2001 RDP were established by the RAC at $340 per ton.

Reducing the production cap will have no impact on raisin handlers. Handlers will pay producers for the free tonnage applicable to the diversion certificate minus the $340 per ton harvest cost. Handlers will redeem the certificates for 2000-01 crop NS reserve raisins and pay the RAC the $340 per ton harvest cost plus payment for receiving, storing, fumigating, handling (currently totaling $46 per ton), and inspecting (currently $9.00 per ton) the tonnage represented on the certificate. Reducing the production cap will not impact handler payments for reserve raisins under the 2001 RDP.

Alternatives to the recommended action include leaving the production cap at 2.75 tons per acre or reducing it to another figure besides 2.5 tons per acre. However, the majority of RAC members believe that a cap of 2.5 tons per acre will more accurately reflect next year's yields.

There was some discussion at the RAC's meeting that the 2.5 tons per acre production cap was too low and would discriminate against producers with high yields. In recent years, cultural practices have evolved to where some producers' yield per acre is reportedly as high as 4 tons. However, as previously stated, the program is voluntary and producers whose vines can produce 4 tons per acre have the option to produce a raisin crop rather than apply for the RDP and be subject to the production cap.

This rule imposes no additional reporting or recordkeeping requirements on either small or large raisin handlers. In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection requirement referred to in this rule (i.e., the application) has been approved by the Office of Management and Budget (OMB) under OMB Control No. 0581-0178. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sectors agencies. Finally, the Department has not identified any relevant Federal rules that duplicate, overlap, or conflict with this rule.

Further, the RAC's meeting on November 29, 2000, and the RAC's Administrative Issues Subcommittee meeting on that same day but prior to the RAC meeting where this action was deliberated were public meetings widely publicized throughout the raisin industry. All interested persons were invited to attend the meetings and participate in the industry's deliberations. Finally, all interested persons are invited to submit information on the regulatory and information impact of this action on small businesses.

A small business guide on complying with fruit, vegetable, and specialty crop marketing agreements and orders may be viewed at: http://www.ams.usda.gov/fv/moab.html . Any questions about the compliance guide should be sent to Jay Guerber at the previously mentioned address in the FOR FURTHER INFORMATION CONTACT section.

A 15-day comment period is provided to allow interested persons to respond to this rule. Applications were due to the RAC by December 20, 2000.

After consideration of all relevant material presented, including the information and recommendation submitted by the RAC and other available information, it is hereby found that this rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect, and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) The submission deadline for producer applications for the 2001 RDP was December 20, 2000; (2) producers are aware of this action which was recommended by the RAC at a public meeting; (3) the program is voluntary, and any producer who objects to the reduced production cap can choose to produce a raisin crop for delivery in 2001; and (4) this interim final rule provides a 15-day comment period for written comments and all comments timely received will be considered prior to finalization of this rule.

Title IX prohibits recipients of Federal financial assistance from discriminating on the basis of sex in education programs or activities. Subpart F of the Title IX common rule requires each Federal agency that awards Federal financial assistance to publish in the Federal Register a notice of the different types of Federal financial assistance covered by the Title IX regulations within sixty (60) days after the effective date of the final common rule. The final common rule for the enforcement of Title IX was published in the Federal Register by twenty-one (21) Federal agencies, including NRC, on August 30, 2000 (65 FR 52858-52895). NRC's portion of the final common rule will be codified at 10 CFR Part 5. Specifically, the statute states that “[n]o person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance,” with specific exceptions for various entities, programs, and activities. 20 U.S.C. 1681(a). Title IX and the Title IX common rule prohibit discrimination on the basis of sex in the operation of, and the provision or denial of benefits by, education programs or activities conducted not only by educational institutions but by other entities as well, including, for example, nonprofit organizations.

Because this amendment deals solely with agency practice and procedure, the notice and comment provisions of the Administrative Procedure Act do not apply under 5 U.S.C. 553(b)(A).

The NRC has determined that this final rule is the type of action described in categorical exclusion 10 CFR 51.22(c)(1). Therefore, neither an environmental impact statement nor an environmental assessment has been prepared for this final rule.

The NRC has determined that the backfit rule does not apply to this final rule; and therefore, a backfit analysis is not required for this final rule because these amendments do not involve any provision that would impose backfits as defined in 10 CFR Chapter I.

This final rule contains no information collection requirements and, therefore, is not subject to the requirements of the Paperwork Reduction Act of 1995 (55 U.S.C. 3501 et seq. ).

In accordance with the Small Business Regulatory Enforcement Fairness Act of 1996, the NRC has determined that this action is not a major rule and has verified this determination with the Office of Information and Regulatory Affairs of OMB.

Title XIII of the Housing and Community Development Act of 1992, Public Law No. 102-550, entitled the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, established OFHEO. OFHEO is an independent office within the Department of Housing and Urban Development (HUD) with responsibility for ensuring that Fannie Mae and Freddie Mac (collectively, the Enterprises) are adequately capitalized and operate safely and in conformity to the requirements of applicable laws, rules and regulations, including their respective charter acts. The Enterprises are government-sponsored corporations established under Federal law to effect specific public purposes. 1 These include providing liquidity to the residential mortgage market and promoting the availability of mortgage credit benefiting low- and moderate-income families and areas that are underserved by lending institutions.

The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Debt Collection Improvement Act of 1996 (the Inflation Adjustment Act) 2 requires OFHEO, as well as other Federal agencies with the authority to issue civil money penalties (CMPs), to publish regulations to adjust each CMP authorized by law that the agency has jurisdiction to administer. The purpose of these adjustments is to maintain the deterrent effect of CMPs and promote compliance with the law. The Inflation Adjustment Act required agencies to make an initial adjustment of their CMPs upon the statute's enactment, and further requires agencies to make additional adjustments on an ongoing basis, at least once every four years following the initial adjustment. In 1997, OFHEO made the initial adjustment of its CMPs, 3 with such adjustments being applicable to any violation occurring after October 23, 1996 (the effective date of the Inflation Adjustment Act).

Under the Inflation Adjustment Act, the inflation adjustment for each applicable CMP is determined by increasing the maximum CMP amount per violation by a cost-of-living adjustment. As is described in detail below, the Inflation Adjustment Act provides that this cost-of-living adjustment is to reflect the percentage increase in the Consumer Price Index 4 since the CMPs were last adjusted or established, and rounded in accordance with rules provided in the statute.

This final rule adjusts the amount for each type of CMP that OFHEO has jurisdiction to impose, in accordance with the requirements of the Inflation Adjustment Act. Part 1780 of OFHEO's rules and regulations currently sets out the procedural rules under which OFHEO conducts proceedings to impose a civil money penalty. This final rule amends the table contained in § 1780.80, which identifies the different tiers of penalties provided in 12 U.S.C. 4636—the statute that provides OFHEO with CMP authority—and sets out the new adjusted maximum penalty amount that OFHEO may impose for that tier. The increases in maximum penalty amounts contained in this final rule may not necessarily affect the amount of any CMP that OFHEO may seek for a particular violation; OFHEO would calculate each CMP on a case-by-case basis in light of a variety of factors.

The Inflation Adjustment Act directs federal agencies to calculate each CMP adjustment as the percentage by which the CPI-U for June of the calendar year preceding the adjustment exceeds the CPI-U for June of the calendar year in which the amount of such CMP was last adjusted. Since OFHEO is making this round of adjustments in calendar year 2000, 5 and OFHEO made the last round of adjustments in calendar year 1997, the inflation adjustment amount for each CMP was calculated by comparing the CPI-U for June 1997 (160.3) with the CPI-U for June 1999 (166.2), resulting in an inflation adjustment of 3.7 percent. 6 For each CMP, the product of this inflation adjustment and the previous maximum penalty amount was then rounded in accordance with the specific requirements of the Inflation Adjustment Act, 7 then summed with the previous maximum penalty amount to determine the new adjusted maximum penalty amount. The table below sets out these items accordingly.

Section 1780.81 states that the adjustments made in § 1780.80 apply only to violations that occur after January 4, 2001.

OFHEO finds good cause that notice and an opportunity to comment on this document are unnecessary under the Administrative Procedure Act (APA), and OFHEO is issuing these requirements as a final rule. 5 U.S.C. 553. This rulemaking conforms with and is consistent with the statutory directive set forth in the Inflation Adjustment Act, with no issues of policy discretion, and public comment is impracticable and unnecessary.

In addition, OFHEO finds good cause to make this rule effective upon publication of this document in the Federal Register under the Administrative Procedure Act (APA). 5 U.S.C. 553(d). This final rule does not impose any additional responsibilities on any entity. Instead, it simply adjusts CMPs as dictated by the Inflation Adjustment Act.

This final rule is not classified as a significant rule under Executive Order 12866 because it will not result in an annual effect on the economy of $100 million or more or a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions; or have significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based Enterprises to compete with foreign-based enterprises in domestic or foreign markets. Accordingly, no regulatory impact assessment is required and this final rule has not been submitted to the Office of Management and Budget for review.

This final rule does not include a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year. As a result, the final rule does not warrant the preparation of an assessment statement in accordance with the Unfunded Mandates Reform Act of 1995.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) only applies to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b) (see 5 U.S.C. 601(2)). OFHEO has determined for good cause that the APA does not require a general notice of proposed rulemaking for this regulatory action. The Regulatory Flexibility Act does not apply to this final rule.

These proposed rules contain no information collection requirements that require the approval of the Office of Management and Budget pursuant to the Paperwork Reduction Act, 44 U.S.C. 3501-3520.

Pfizer, Inc., 235 East 42d St., New York, NY 10017-5755, has informed FDA that it has transferred to Phoenix Scientific, Inc., 3915 South 48th St. Terrace, P.O. Box 6457, St. Joseph, MO 64506-0457, ownership of, and all rights and interests in NADA 065-110 for Pro-Pen G (penicillin G procaine) in Aqueous Suspension and NADA 065-498 for Pen BP-48 (penicillin G benzathine/procaine). Accordingly, the agency is amending the regulations in 21 CFR 522.1696a and 522.1696b to reflect the transfer of ownership. The agency is also taking the opportunity to restructure the regulation to reflect current format.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Center for Veterinary Medicine, 21 CFR part 522 is amended as follows:

Schering-Plough Animal Health Corp., 1095 Morris Ave., Union, NJ 07083, filed NADA 141-177 that provides for veterinary prescription use of Mometamax TM gentamicin sulfate/mometasone furoate/clotrimazole) Otic Suspension for the treatment of otitis externa associated with yeast ( Malassezia pachydermatis ) and/or bacteria susceptible to gentamicin in dogs. The NADA is approved as of December 5, 2000, and the regulations are amended in 21 CFR 524 by adding §  524.1044h to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Dockets Management Branch (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C. 360b(c)(2)(F)(ii)), this approval qualifies for 3 years of marketing exclusivity beginning December 5, 2000, because the application contains substantial evidence of effectiveness of the drug involved, or any studies of animal safety, required for approval of the application and conducted or sponsored by the applicant.

The agency has determined under 21 CFR 25.33(d)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

This document contains temporary amendments to the Income Tax Regulations (26 CFR Part 1) under section 1502 of the Internal Revenue Code of 1986 (Code). The amendments provide guidance as to the time for filing an application for a tentative carryback adjustment by a consolidated group. The amendments also extend the time for filing an application for a tentative carryback adjustment by certain corporations for the separate return year created by their becoming new members of a consolidated group.

Section 6411(a) requires that an application for a tentative carryback adjustment be filed on or after the date of filing for the return for the taxable year of the loss (or unused business credit) from which the carryback results and within a period of twelve (12) months after the end of such taxable year. Section 6411(c) provides that if the corporation seeking a tentative carryback adjustment made or was required to make a consolidated return for the year in which the loss or credit arose or for the preceding taxable year affected by such loss or credit, the provisions of Section 6411(a) apply only to such extent and subject to such conditions, limitations and exceptions as the Secretary may by regulations prescribe. Section 1.6411-4 refers taxpayers to the consolidated return regulations, specifically § 1.1502-78, for further rules applicable to consolidated groups filing for a tentative carryback adjustment.

Section 1.1502-78(a) addresses the proper party to file an application for a tentative carryback adjustment. However, there is no provision addressing the time for filing such application. Section 1.1502-78 does not currently alter the statutory rule as to “when” the end of a taxable year occurs for purposes of determining whether the twelve-month rule of section 6411 has been satisfied. Under § 1.1502-76, the due date for the separate return of a new member is generally extended until the due date of the return of the consolidated group. In certain instances, however, such separate return cannot be filed before the expiration of the twelve-month period under section 6411(a). Thus, a new member may be prevented from filing an application for a tentative carryback adjustment.

Section 1.1502-76(b)(1)(i) provides that the consolidated return must include the common parent's items of income, gain, deduction, loss, and credit for the entire consolidated year, and each subsidiary's items for the portion of the year for which it is a member. Items of a corporation for the portion of the year not included in the consolidated return must be included in a separate return (including the consolidated return of another group). Thus, the items of a new member of a consolidated group are included in two returns: first, the consolidated return for the period of time it is a member of the group; and second, a separate return (including the consolidated return of another group) for the pre-affiliation period prior to becoming a member of the consolidated group. This pre-affiliation period is a separate return year as defined in § 1.1502-1(e).

The tax returns for the periods that end and begin upon a corporation becoming (or ceasing to be) a member of a consolidated group are separate taxable years for all Federal income tax purposes. Section 1.1502-76(b)(2)(i). Although these periods are separate taxable years, items of income, gain, deduction, loss, and credit (other than extraordinary items) may be ratably allocated between such years if: (1) The corporation is not required to change its annual accounting period or its method of accounting as a result of its change in status as a member; and (2) a timely ratable allocation election is made. Section 1.1502-76(b)(2)(ii)(A). If a ratable allocation cannot be made (or is not made), the corporation must close its books at the close of the day on which its status as a member changes and its items of income, gain, deduction, loss, and credit for the pre-affiliation period are included in its separate return. Section 1.1502-76(b)(2)(ii).

Section 1.1502-76(c) determines the time for filing the new member's separate return. The provisions of this section apply only to a corporation which, immediately prior to becoming a new member of a group, was the common parent of another consolidated group, or was not required to join in the filing of a consolidated return. Under § 1.1502-76(c), the due date of the new member's separate return is dependent upon the filing of the consolidated group's tax return. If the consolidated return for the group has been filed by the due date for the new member's separate return, then the separate return must be filed no later than the due date of the consolidated group's return, including extensions. If the consolidated return for the group has not been filed by the due date for the new member's separate return, then the separate return must be filed on or before such due date. In each case, the due date for the new member's separate return is determined with regard to extensions of time for filing but without regard to the member's new affiliated status. The close of the new member's separate return year is treated as the close of its normal taxable year. Therefore, § 1.1502-76(c) effectively extends the period of time in which a new member is required to file its separate return because otherwise, the taxable year would end on the date it becomes a member. Section 1.1502-76(b)(2).

While § 1.1502-76(c) extends the due date for filing the new member's separate return, there is no similar provision that extends the due date for filing an application for a tentative carryback adjustment for the separate return year. Neither section 6411(a) nor § 1.1502-78 interprets the close of the new member's separate return year as the close of its normal taxable year. Therefore, an application for a tentative carryback adjustment must be filed: (1) on or after the extended date for filing the return for the taxable year; and (2) within a period of twelve months after the close of such taxable year. Since the separate return year is treated as a separate taxable year for all Federal income tax purposes under § 1.1502-76(b)(2)(i), a new member that chooses to file an application for a tentative carryback adjustment under section 6411 must do so within twelve (12) months after the close of its separate return year (not its normal taxable year).

The practical effect of extending the due date for filing the new member's separate return under § 1.1502-76(c) without extending the time period for filing an application for a tentative carryback adjustment is that a corporation that becomes a member of a consolidated group early in its taxable year may effectively be precluded from filing the application. This results because the twelve-month period for filing the refund application may expire prior to the due date (extended or unextended) for the filing of the new member's separate return.

The problem is illustrated by the following example:

As a practical matter, the separate return of some new members cannot be filed before the group's consolidated return is filed. As previously noted, § 1.1502-76(b)(2) provides, under certain circumstances, that the new member's items of income, gain, deduction, loss, and credit may be ratably allocated between the pre-affiliation and the post-affiliation periods. The new member may not know whether the common parent will elect to ratably allocate its items. Such allocation would alter the income or loss of the new member for its separate return year. The new member also may not know the proper amount of income and loss to report and thus cannot file its separate return or its application for a tentative carryback adjustment until the group's consolidated return has been filed. Furthermore, Rev. Rul. 75-327 (1975-2 C.B. 481) holds that, because the IRS must rely on the information provided by the taxpayer in its application for a tentative carryback adjustment and much of that information (such as NOLs) is based on the return for the loss year, section 6411(a) requires that the return for the loss year be filed before the application for a tentative refund can be filed.

This problem is not generally faced by corporations that become members of a consolidated group in the latter part of their taxable year. For example, if Corporation X had been acquired on October 15, 2000, rather than April 15, 2000, its application for a tentative carryback adjustment would be due on or before October 15, 2001, a month after its separate return is due (with extensions).

The consolidated return regulations do not address the time for filing an application for a tentative carryback adjustment. Rather, the consolidated return regulations rely upon the general provisions of section 6411 for guidance. The amendments to § 1.1502-78 provide a general rule for all consolidated taxpayers stating that the provisions of section 6411(a) shall apply to determine the time for filing an application for a tentative carryback adjustment by a consolidated group.

In addition, the amendments provide a special rule designed to remedy the problem faced by some corporations that become new members of a consolidated group. For such members, the amendments extend the period of time for filing an application for a tentative carryback adjustment resulting from losses or credits arising in the new member's last separate return year. For these purposes, the amendments treat the separate return year as ending on the same date as the end of the current taxable year of the consolidated group.

The special rule of these temporary regulations will apply only to a corporation that, immediately prior to becoming a new member of a group, was the common parent of another consolidated group, or was not required to join in the filing of a consolidated return. The situation not covered involves the acquisition of a member of another consolidated group. In this case, the corporation's items of income, gain, deduction, loss and credit for the period prior to becoming a member of the new consolidated group will be included in the consolidated return of its former group. The due date for the former group's consolidated return is not affected by the acquisition and the due date for its application for a tentative carryback adjustment relates back to the end of the former group's taxable year.

The approach taken attempts to provide consistency between § 1.1502-76(c) and § 1.1502-78. In addition, this approach provides certainty to taxpayers and allows for simplicity of administration by the IRS.

It has been determined that this notice of temporary rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. Because no preceding notice of proposed rulemaking is required for this temporary regulation, the provisions of the Regulatory Flexibility Act do not apply.

This Treasury decision ensures that all new members of consolidated groups have the opportunity to file an application for a tentative carryback adjustment, a benefit currently unavailable to some new members. Issuing this regulation in proposed form would continue the difficulty of filing an application for a tentative carryback adjustment for affected new members. Based on these considerations, it is determined that this temporary regulation will provide taxpayers with the necessary guidance and authority to ensure equitable administration of the tax laws. Therefore, it would be contrary to the public interest to issue this Treasury decision with prior notice under section 553(b) or subject to the effective date limitation of section 553(d) of title 5 of the United States Code.

Pursuant to section 7805(f) of the Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal authors of these temporary regulations are Christopher M. Bass and Frances L. Kelly, Office of the Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.

This document amends sections 708 and 752 of the Income Tax Regulations (26 CFR part 1) regarding partnership mergers and divisions.

On January 11, 2000, a notice of proposed rulemaking and a notice of public hearing (REG-111119-99, 2000-5 I.R.B. 455) were published in the Federal Register (65 FR 1572) regarding sections 708, 743, and 752 of the Internal Revenue Code. No one requested to speak at the public hearing. Accordingly, the public hearing scheduled for May 4, 2000, was canceled in the Federal Register (65 FR 24897) on April 28, 2000. Comments responding to the proposed regulations were received. After consideration of the comments, the proposed regulations are adopted as revised by this Treasury decision.

Section 708(b)(2)(A) provides that in the case of a merger or consolidation of two or more partnerships, the resulting partnership is, for purposes of section 708, considered the continuation of any merging or consolidating partnership whose members own an interest of more than 50 percent in the capital and profits of the resulting partnership. Section 1.708-1(b)(2)(i) of the Income Tax Regulations provides that if the resulting partnership can be considered a continuation of more than one of the merging partnerships, the resulting partnership is the continuation of the partnership that is credited with the contribution of the greatest dollar value of assets to the resulting partnership. If the members of none of the merging partnerships own more than a 50 percent interest in the capital and profits of the resulting partnership, all of the merged partnerships are considered terminated, and a new partnership results. The taxable years of the merging partnerships that are considered terminated are closed under section 706(c).

Section 708(b)(2)(B) provides that, in the case of a division of a partnership into two or more partnerships, the resulting partnerships (other than any resulting partnership the members of which had an interest of 50 percent or less in the capital and profits of the prior partnership) are considered a continuation of the prior partnership. Section 1.708-1(b)(2)(ii) provides that any other resulting partnership is not considered a continuation of the prior partnership but is considered a new partnership. If the members of none of the resulting partnerships owned an interest of more than 50 percent in the capital and profits of the prior partnership, the prior partnership is terminated. Where members of a partnership that has been divided do not become members of a resulting partnership that is considered a continuation of the prior partnership, such members' interests are considered liquidated as of the date of the division.

The proposed regulations provide that the form of a partnership merger or division accomplished under laws of the applicable jurisdiction will be respected if the partnership undertakes the steps of one of two prescribed forms. Generally, for partnership mergers, a terminating partnership contributes its assets and liabilities to the resulting partnership in exchange for interests in the resulting partnership, and immediately thereafter, the terminated partnership distributes interests in the resulting partnership to its partners in liquidation of the terminating partnership (Assets-Over Form). Alternatively, for partnership mergers, the terminating partnership liquidates by distributing its assets and liabilities to its partners who then contribute the assets and liabilities to the resulting partnership (Assets-Up Form). The default rule for partnership mergers is the Assets-Over Form, so that if a transaction is not characterized under the Assets-Up Form, it will be characterized under the Assets-Over Form regardless of whether that form is followed.

In general, for partnership divisions, a prior partnership transfers certain assets and liabilities to a resulting partnership in exchange for interests in the resulting partnership, and immediately thereafter, the prior partnership distributes the resulting partnership interests to partners who are designated to receive interests in the resulting partnership (Assets-Over Form). Alternatively, for partnership divisions, the prior partnership distributes certain assets and liabilities to some or all of its partners who then contribute the assets and liabilities to a resulting partnership in exchange for interests in the resulting partnership (Assets-Up Form). As with partnership mergers, the default rule for partnership divisions is the Assets-Over Form, so that if a transaction is not characterized under the Assets-Up Form, it will be characterized under the Assets-Over Form regardless of whether that form is followed.

One commentator expressed concern that where the assets of an operating business are distributed to the partners as joint owners, and the partners continue to operate the business, the owners of the assets may be considered to remain partners for federal income tax purposes. Under the proposed regulations, it was intended that the Assets-Up Form would be respected where the assets are conveyed to the partners under the laws of the applicable jurisdiction and then reconveyed to the resulting partnership. An example has been added to the final regulations to confirm this result. The example also confirms that a partnership can use the Assets-Up Form for partnership mergers and divisions regardless of whether the partners could otherwise generally hold certain assets, such as undivided interests in goodwill, outside of a partnership.

The same commentator suggested that the Assets-Up Form should be respected if, rather than actually conveying ownership of the assets under applicable jurisdictional law, the partners assign their rights to receive title to the assets in liquidation of the partnership, or direct the partnership to transfer title to the assets to the resulting partnership. In providing that the Assets-Up Form would be respected in accomplishing partnership mergers and divisions, the IRS and Treasury did not intend to establish a regime whereby partners essentially could elect between the Assets-Up Form and the Assets-Over Form by creating different documents that have the same legal effect. The IRS and Treasury believe that if the Assets-Up Form is to be respected, a partnership must actually undertake the steps that are necessary, under the laws of the applicable jurisdiction, to convey ownership of the assets that are distributed to the partners. For most types of assets, this will not require the actual transfer and recording of a deed or certificate of title.

While the IRS and Treasury believe that it should be necessary for a partnership to actually convey ownership of the partnership's assets to its partners in order to follow the Assets-Up Form, it should not be necessary for the partners to actually assume the liabilities of the partnership in order to follow such form. Pursuant to section 752 and the regulations thereunder, a partner essentially is deemed to have directly incurred a share of the partnership's liabilities. Requiring the partners to actually assume debt that they already are deemed to have incurred is unnecessary. Such a requirement also could create a trap for the unwary. If a partner momentarily assumes an amount of the partnership's debt that is less than the partner's share of such debt under section 752 (and other partners momentarily assume an amount of debt in excess of their shares), the partner could inappropriately recognize gain as a result of the deemed distribution.

The proposed regulations provide that the form of a partnership merger or division accomplished under laws of the applicable jurisdiction will be respected if the partnership undertakes the steps of either the Assets-Over Form or the Assets-Up Form. One commentator recommended that a single partnership merger or division be respected if the partnership undertakes the steps of the Assets-Over Form with respect to some assets and the Assets-Up Form with respect to others. For example, in a partnership merger, the terminating partnership could distribute some assets to certain partners who then contribute the assets to the resulting partnership in exchange for interests in the resulting partnership (Assets-Up Form), and simultaneously, the terminating partnership could transfer the remaining assets to the resulting partnership in exchange for interests in the resulting partnership and then distribute the interests to the remaining partners in liquidation of their interests in the terminating partnership (Assets-Over Form).

In the preamble to the proposed regulations, the IRS and Treasury recognized that there are numerous transactions that may be undertaken pursuant to local jurisdictional law to accomplish the result of a partnership merger or division. The rules set forth in the proposed regulations were not intended to provide unlimited flexibility among the various structural alternatives for accomplishing these transactions. Instead, the proposed regulations were intended to provide a set of administrable rules that taxpayers and the IRS could apply in characterizing these transactions.

In view of this purpose, the IRS and Treasury do not believe it is appropriate for a partnership merger to be accomplished using both the Assets-Over Form and the Assets-Up Form when all the assets and liabilities of the terminated partnership are transferred to a single resulting partnership. While a partnership merger may be accomplished by using any number of transactional structures, the result is a single transaction that combines two partnerships. In the two alternatives set forth in the proposed regulations, and adopted in these final regulations, each partner must participate (or will be deemed to participate) in the partnership merger in the same manner (with the exception of those partners who are subject to the buy-out rule). Therefore, if the partners wish for a partnership merger to be characterized under the Assets-Up Form, the terminated partnership must undertake the steps of the Assets-Up Form for all of its assets when it distributes the assets to its partners. Otherwise, the transaction will be characterized under the Assets-Over Form. However, where more than two partnerships are combined, each combination will be viewed as a separate merger so that the characterization of a merger of one partnership into the resulting partnership under the Assets-Over Form will not prevent a simultaneous merger of another partnership into the same resulting partnership from being characterized under the Assets-Up Form.

For the same reasons, with respect to partnership divisions, the IRS and Treasury believe that it is appropriate to require consistency in applying either the Assets-Over Form or the Assets-Up Form to characterize a transfer of assets to a resulting partnership. However, where a single partnership is divided in a transaction that involves a transfer of assets (either actual or deemed) to multiple partnerships, the transfer to each resulting partnership should be viewed separately. As with mergers involving more than two partnerships, it is consistent with the purposes of these regulations, in the context of divisions, to allow the transfer to one resulting partnership to be characterized under the Assets-Over Form while characterizing the transfer to another resulting partnership under the Assets-Up Form. The proposed regulations provided an example that illustrates when such a division accomplished under both the Assets-Over Form and the Assets-Up Form will be respected. The final regulations do not change the example. See § 1.708-1(d)(5) Example 7 of the final regulations. The final regulations also add an example to illustrate when a division accomplished under both the Assets-Over Form and the Assets-Up Form will not be respected.

The proposed regulations contain a special buy-out rule that allows a resulting partnership in a merger to fund the purchase of one or more partners' interests in a terminating partnership without triggering the disguised sale rules, which otherwise would cause all of the partners in the terminating partnership to recognize gain or loss as a result of the purchase. Specifically, the proposed regulations provide that if the merger agreement (or similar document) specifies that the resulting partnership is purchasing the exiting partner's interest in the terminating partnership and the amount paid for the interest, the transaction will be treated as a sale of the exiting partner's interest to the resulting partnership.

Because the transaction described in the proposed regulations is treated as a sale of a partnership interest, the resulting partnership inherits the exiting partner's capital account in the terminating partnership and any section 704(c) liability of the exiting partner. Additionally, if the terminating partnership has an election in effect under section 754 (or makes an election under section 754), the resulting partnership will have a special basis adjustment regarding the terminating partnership's property under section 743. The proposed regulations provide that the resulting partnership's basis adjustments under section 743 must be allocated solely to the partners who were partners in the resulting partnership immediately before the merger.

Commentators questioned whether the exiting partner must be a party to the merger agreement in order to obtain the benefit of the special buy-out rule contained in the proposed regulations. Another commentator asked whether the exiting partner must consent to the sale treatment. The commentator explained that it may be difficult to receive consent from small investors in a large partnership whose interests are being sold to the resulting partnership.

The IRS and Treasury believe that the exiting partner does not have to be a party to the merger agreement in order to obtain the benefit of the special buy-out rule. However, to ensure that all partners to the transaction treat the transaction consistently when filing their returns, the final regulations require that, prior to or contemporaneous with the transfer, the exiting partner must consent to the sale treatment provided in the special rule.

Commentators noted that the resulting partnership's basis adjustments under section 743 should not be allocated solely to the partners who were partners in the resulting partnership immediately before the merger. As indicated in § 1.708-1(c)(4) Example 4 of the proposed regulations, where the resulting partnership has acquired an interest in the terminating partnership in accordance with the special buy-out rule, the terminating partnership, as part of the merger, distributes assets to the resulting partnership in liquidation of the resulting partnership's interest in the terminating partnership. Accordingly, the resulting partnership should take an exchanged basis in the distributed assets under section 732(b), rather than a transferred basis that includes the basis adjustment under section 743(b). In response to these comments, the IRS and Treasury have removed the proposed regulations under section 743 and have clarified the example to indicate that the basis rules under section 732(b) apply.

Commentators also asked whether a partnership termination under section 708(b)(1)(B) occurs immediately before a merger if exiting partners sell 50 percent or more of the total interests in the terminating partnership under the buy-out provision. Although not discussed in the final regulations, it follows from treating the buyout as occurring immediately prior to the merger that, if exiting partners sell 50 percent or more of the total interest in the terminating partnership's capital and profits as part of a merger, then a partnership termination under section 708(b)(1)(B) will occur immediately before the merger.

The proposed regulations provide that the resulting partnership that is regarded as continuing shall file a return for the taxable year of the partnership that has been divided. Commentators requested that the final regulations clarify the tax consequences of a partnership that is regarded as continuing. For instance, commentators asked how a partnership files a return and which partnership retains the prior partnership's employer identification number (EIN) when more than one resulting partnership is considered a continuation of the prior partnership. Additionally, commentators asked whether subsequent elections by one resulting partnership that is regarded as continuing binds all resulting partnerships that are regarded as continuing.

In response to these comments, the final regulations clarify certain tax consequences that follow from a partnership division when more than one resulting partnership is regarded as continuing. Specifically, the final regulations provide that when more than one resulting partnership is regarded as continuing, the resulting partnership that is treated as the divided partnership will file a return for the taxable year of the partnership that has been divided and retain the EIN of the prior partnership. All other resulting partnerships that are regarded as continuing and all new partnerships ( i.e., resulting partnerships that are not considered continuing) will file separate returns for the taxable year beginning on the day after the date of the division with new EINs for each partnership.

The final regulations also provide that all resulting partnerships that are continuing partnerships are subject to preexisting elections that were made by the prior partnership. However, a post-division election that is made by a resulting partnership will not bind any of the other resulting partnerships.

The proposed regulations do not define what constitutes a partnership merger or division. Some commentators have requested that these terms be defined in the final regulations. Other practitioners have stated that the selectivity that would be created by attempting to draw lines in such definitions could lead to planning opportunities that would be adverse to the government's interest. The IRS and Treasury have decided not to provide comprehensive definitions of what is a partnership merger or division in these final regulations.

In addition to requesting guidance as to the general definitions of a partnership merger and division, some commentators have asked more narrowly whether a partnership division can occur when only one partner from the prior partnership is a partner in a resulting partnership. Consider the following example: ABC partnership owns X business and Y business. A and B each own a 20-percent interest, and C owns a 60-percent interest in the ABC partnership. C does not want to continue in the partnership with A and B and would like to operate X business with D. Accordingly, ABC partnership distributes X business to C in liquidation of C's interest in partnership ABC. Subsequently, C forms a partnership with D and contributes X business to the CD partnership. After the distribution and contribution of X business, AB partnership owns Y business and CD partnership owns X business.

The IRS and Treasury believe that the above transaction does not constitute a division. To have a division, at least two members of the prior partnership must be members of each resulting partnership that exists after the transaction. In the above example, C is the only member of the ABC partnership in the CD partnership. Accordingly, this transaction would not be treated as a division for Federal income tax purposes. The final regulations modify the proposed regulations to clarify this result.

In the preamble to the proposed regulations, the IRS and Treasury requested comments as to whether expanded exceptions under sections 704(c)(1)(B) and 737 would be appropriate in the context of partnership divisions. Most commentators agreed that it would not be wise to expand the current exceptions. In a related point, some commentators stated that the contribution of assets in a division should not create new section 704(c) property or section 737 net precontribution gain.

To the extent that a partnership division merely affects a restructuring of the form in which the partners hold property (that is, each partner's overall interest in each partnership property does not change), the IRS and Treasury agree that a partnership division should not create new section 704(c) property or section 737 net precontribution gain. However, it is not clear that this result is necessarily appropriate where a division is non-pro rata as to the partners, where some property is extracted from or added to the partnerships in connection with the division, or where new partners are added to the ownership group in connection with the division. The IRS and Treasury intend to study this issue and request comments in this regard.

The proposed regulations apply to mergers and divisions occurring on or after the date final regulations are published in the Federal Register . Commentators requested that the final regulations allow partnerships to apply the regulations to mergers and divisions occurring on or after January 11, 2000, (the date the proposed regulations were published in the Federal Register ). The commentators explained that the regulations provide needed clarity in an area that has lacked guidance.

The IRS and Treasury believe it is appropriate to allow partnerships to apply the final regulations retroactively to the publication date of the proposed regulations. Therefore, the final regulations apply to mergers and divisions occurring on or after January 4, 2001. However, a partnership may apply the rules in the final regulations for mergers and divisions occurring on or after January 11, 2000.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking that preceded these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal author of these regulations is Mary Beth Collins, Office of Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury participated in their development.

Section 301(b)(2) of the Internal Revenue Code (Code) provides that in a distribution of property made by a corporation to a shareholder with respect to its stock, the amount of the distribution shall be reduced (but now below zero) by (A) the amount of any liability of the corporation assumed by the shareholder in connection with the distribution and (B) the amount of any liability to which the property was subject immediately before, and after, the distribution. See also § 1.301-1(g) of the regulations.

Section 357 of the Code generally provides rules for the treatment of the assumption of liabilities in connection with transfers of property to which section 351 or 361 of the Code applies. Prior to the Miscellaneous Trade and Technical Corrections Act of 1999 (the Act), section 357(a) provided that, except as otherwise provided, in such transfers the assumption of the transferor's liability or acquisition of property subject to a liability is not treated as money or other property, i.e., is not treated as boot received by the transferor.

Prior to the Act, section 357(c) provided that in an exchange to which section 351 applies or section 361 applies by reason of a section 368(a)(1)(D) reorganization, if the sum of the amount of the liabilities assumed plus the amount of the liabilities to which the property transferred is subject exceeds the total of the adjusted basis of the property transferred pursuant to such exchange, then such excess is considered as a gain from the sale or exchange of a capital asset or of property which is not a capital asset, as the case may be.

The Act amended the language in section 357(a) and (c) and added new section 357(d). Under the amendment to section 357(a) and (c), the reference to the acquisition of an asset subject to a liability was eliminated. Section 357(c) gain will be realized only on the excess of the amount of liabilities assumed over the adjusted basis of the property transferred in the transaction. New section 357(d) sets forth the rules for determining the amount of both recourse and nonrecourse liabilities assumed. Section 357(d) states that except as provided in regulations, a recourse liability (or portion thereof) is treated as having been assumed if, based on all the facts and circumstances, the transferee has agreed to, and is expected to, satisfy such liability, whether or not the transferor has been relieved of such liability. A nonrecourse liability is treated as having been assumed by the transferee of any asset subject to such liability, except that the amount of nonrecourse liability treated as having been assumed is reduced by the lesser of (A) the amount of such liability which an owner of other assets not transferred to the transferee and also subject to such liability has agreed with the transferee to, and is expected to, satisfy, or (B) the fair market value of such other assets. Congress provided these clarifications because certain interpretations of the existing law failed to adequately reflect the true economics of many transactions, resulting in inappropriate positions claimed by taxpayers. See S. Rep. No. 106-2, at 75 (1999).

Section 357(d)(3) directs the Secretary to prescribe regulations necessary to carry out the purposes of subsection (d). It also authorizes the Secretary to prescribe regulations which provide that the manner in which a liability is treated as assumed under subsection (d) is applied, where appropriate, elsewhere in the Code.

The Treasury and the IRS have determined that it is appropriate to apply the rules of section 357(d), relating to the manner in which a liability is treated as assumed, to distributions of property under section 301 of the Code. Section 301(b)(2)(A) provides that the amount of the distribution will be reduced if the transferee assumes a liability of the corporation. Section 301(b)(2)(B) provides that the amount of the distribution will be reduced if the transferee receives property subject to a liability. These two sections do not provide specific rules for determining the amount of liabilities assumed, as contained in section 357(d). The lack of specific rules has led to interpretations of existing law that fail to reflect the true economics of certain transactions. For reasons similar to those that motivated the enactment of section 357(d), these interpretations are inappropriate for purposes of section 301. Notice 99-59, 1999-52 I.R.B. 761, illustrates one such case. In the transaction addressed in Notice 99-59, a corporation distributes property subject to a recourse liability, with the expectation that the distributee will take the position that it receives little or no net distribution, even though it is anticipated that the distributor will later satisfy its continuing primary liability on the debt.

This document contains amendments to the Income Tax Regulations (26 CFR part 1) under section 301 relating to liabilities assumed in connection with distributions made by a corporation to shareholders with respect to their stock. The regulations provide that the amount of a distribution under section 301 will be reduced by the amount of any liability that is treated as assumed by the distributee within the meaning of section 357(d)(1) and (2).

The Treasury and the IRS intend to propose regulations under sections 357(d) and 301 clarifying the treatment of the subsequent payment of assumed liabilities. Prior to the issuance of such regulations, the Treasury and the IRS believe that such payments generally should be treated in a manner consistent with the treatment of the liabilities assumed. Thus, in a situation where a liability is treated as assumed by the transferee under the rules of section 357(d), a later payment by the party whose liability was treated as assumed should be treated in accordance with the relationship of the parties ( e.g., a distribution or capital contribution). See, e.g., Enoch v. Commissioner, 57 T.C. 781 (1972), acq. in part, 1974-2 C.B. 2, 4, nonacq., 1984-2 C.B. 5.

The regulations apply generally to distributions occurring after January 4, 2001. The regulations also apply to distributions occurring on or prior to January 4, 2001, if the distribution is made as part of a transaction described in, or substantially similar to, the transaction in Notice 99-59, including transactions designed to reduce gain. Under section 7805(b)(3), the Secretary may provide that any regulation may take effect or apply retroactively to prevent abuse. These regulations are being applied retroactively to prevent the abuse described in Notice 99-59. No inference should be drawn regarding the tax treatment of distributions not covered by these regulations.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. Because no preceding notice of proposed rulemaking is required for this temporary regulation, the provisions of the Regulatory Flexibility Analysis do not apply.

This Treasury decision is issued pursuant to the grants of authority in sections 357(d)(3) and 7805 of the Internal Revenue Code. This Treasury decision provides specific rules for determining the amount by which a distribution under section 301(b) will be reduced, by applying the rules of section 357(d). Section 357(d) was intended to clarify the law because certain interpretations of existing law did not reflect the economics of certain transactions. Issuing the regulation in proposed form would continue the difficulty in ascertaining the appropriate reduction in distributions under section 301(b). Based on these considerations, it is determined that this temporary regulation will provide taxpayers with the necessary guidance and authority to ensure equitable administration of the tax laws. Therefore, it would be contrary to the public interest to issue this Treasury decision with prior notice under section 553(b) or subject to the effective date limitation of section 553(d) of title 5 of the United States Code.

Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

This document contains amendments to the Procedure and Administration Regulations (26 CFR part 301) that reflect changes to section 7430 made by section 3101(e) of the Internal Revenue Service Restructuring and Reform Act of 1998 relating to the circumstances under which taxpayers may recover reasonable administrative and litigation costs in a court proceeding with respect to the determination or refund of any tax, interest or penalty when taxpayers have made a qualified offer.

In general, a prevailing party may recover the reasonable administrative and litigation costs incurred in administrative and court proceedings if the proceedings relate to the determination or refund of any tax, interest or penalty under the Internal Revenue Code. The regulations provide information concerning the circumstances under which the making of a qualified offer will result in the taxpayer being a prevailing party for purposes of a recovery of costs. In general, a taxpayer is a prevailing party by reason of making a qualified offer if the taxpayer's liability under the last qualified offer would equal or exceed the amount of the taxpayer's liability (determined without regard to interest) attributable to the adjustments included in the last qualified offer that were actually determined by the court through litigation, plus the amount of any additional adjustments included in the last qualified offer that were determined by settlements entered into after the making of the last qualified offer. Adjustments raised by any party subsequent to the making of the last qualified offer are disregarded in determining the liability of the taxpayer to be compared with the liability under the last qualified offer. These regulations apply in multiple taxpayer situations, such as joint returns, but do not set forth any special rules regarding the aggregation or segregation of the qualified offer or liability in situations that may present special circumstances, such as claims for innocent spouse relief. After study, further guidance may be issued elaborating on the treatment of such situations under these regulations.

To qualify as a prevailing party under this rule, in addition to the above, taxpayers must also satisfy the net worth requirements of section 7430(c)(4)(A)(ii). Furthermore, to qualify for an award, taxpayers must satisfy the remaining requirements of section 7430, such as not unreasonably protracting the proceedings and, for purposes of an award of litigation costs, exhausting their administrative remedies. On the other hand, a taxpayer qualifying as a prevailing party by reason of having made a qualified offer need not substantially prevail on either the amount in controversy or the most significant issue or set of issues presented. Similarly, whether the positions of the United States in the administrative and litigation proceedings were substantially justified is not relevant for an award under the qualified offer rule. An award based upon the taxpayer having made a qualified offer is limited to those reasonable administrative and litigation costs incurred on or after the date of the last qualified offer, with respect to the adjustments that were included in the last qualified offer, and litigated to a judicial determination. If the taxpayer qualifies as a prevailing party without regard to the qualified offer rule, the reasonable administrative and litigation costs to which the taxpayer is thus entitled may not be awarded again by reason of the taxpayer having made a qualified offer.

A qualified offer is a written offer that: (1) Is made by the taxpayer to the United States during the qualified offer period; (2) establishes the taxpayer's liability (determined without regard to interest) by setting forth the amount of the taxpayer's offer on all adjustments at issue in the proceeding at the time the qualified offer is made; (3) is designated as a qualified offer at the time it is made; and (4) remains open at least until the earliest of the date the offer is rejected, the date the trial begins, or the 90th day after the date the offer is made.

The qualified offer period ends on the date which is thirty days before the date the case is first set for trial. In cases that are pending in the United States Tax Court, cases are placed upon a calendar for trial. Each case appearing on a trial calendar is to be called at the time and place scheduled. In determining when the qualified offer period ends for cases in the Tax Court and other courts of the United States using calendars for trial, a case is considered to be set for trial on the date scheduled for the calendar call. Cases may be removed from a trial calendar at any time. Thus, a case may be removed from a calendar before the date that precedes by thirty days the date scheduled for that calendar. To promote the settlement of such cases, the qualified offer period does not end until the case remains on a calendar for trial on the date that precedes by 30 days the scheduled date of the calendar call for that trial session. The qualified offer period may not be extended, although the period during which a qualified offer remains open may extend beyond the end of the qualified offer period.

A taxpayer cannot qualify as a prevailing party by reason of having made a qualified offer if the determination of the court in the proceeding with respect to the adjustments included in the last qualified offer is entered exclusively pursuant to a settlement. Neither can a taxpayer qualify as a prevailing party by reason of having made a qualified offer in any proceeding in which the amount of tax liability is not in issue, including any declaratory judgment proceeding, any proceeding to enforce or quash any summons issued pursuant to the Internal Revenue Code of 1986, and any action to restrain disclosure under section 6110(f).

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Thomas D. Moffitt, Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and Treasury Department participated in their development.

Throughout this document, “we,” “us” and “our” refer to EPA.

On July 11, 2000 (65 FR 42649), EPA proposed a limited approval and limited disapproval of the following rule that was submitted for incorporation into the Arizona SIP.

We proposed a limited approval because we determined that this rule improves the SIP and is largely consistent with the relevant CAA requirements. We simultaneously proposed a limited disapproval because some rule provisions conflict with section 110 and part D of the Act. These provisions include the following:

• Dangerous materials in paragraph 302.2 not defined.

• Control Officer discretion in paragraphs 302.3 and 302.5.

On July 11, 2000, EPA also proposed a limited approval of the following rule that was submitted for incorporation into the Arizona SIP.

We proposed a limited approval because we determined that this rule improves the SIP and is largely consistent with the relevant CAA requirements. The approval is limited, because some rule provisions conflict with section 110 of the Act, but there is no disapproval. These provisions include the following:

• Control Officer discretion in paragraphs 302.4.

On July 11, 2000, EPA also proposed a full approval of the following rule that was submitted for incorporation into the Arizona SIP.

The rule meets all of the requirements of the Act.

Our proposed action contains more information on the rules and our evaluation.

EPA's proposed action provided a 30-day public comment period. During this period, we did not receive any comments.

As authorized in sections 110(k)(3) and 301(a) of the Act, EPA is finalizing a limited approval of Rule 314. This action incorporates the submitted rule into the Arizona SIP, including those provisions identified as deficient. As authorized under section 110(k)(3), EPA is simultaneously finalizing a limited disapproval of the rule. As a result, sanctions will be imposed unless EPA approves subsequent SIP revisions that correct the rule deficiencies within 18 months of the effective date of this action. These sanctions will be imposed under section 179 of the Act as described in 59 FR 39832 (August 4, 1994). In addition, EPA must promulgate a federal implementation plan (FIP) under section 110(c) unless we approve subsequent SIP revisions that correct the rule deficiencies within 24 months. Note that the submitted rule has been adopted by the MCESD, and EPA's final limited disapproval does not prevent the local agency from enforcing it.

As authorized in sections 110(k)(3) and 301(a) of the Act, EPA is finalizing a limited approval of Rule 312. This action incorporates the submitted rule into the Arizona SIP, including those provisions identified as deficient. Sanctions and FIP requirements are not triggered by this action.

As authorized in sections 110(k)(3) and 301(a) of the Act, EPA is finalizing a full approval of Rule 316.

The Office of Management and Budget (OMB) has exempted this regulatory action from Executive Order (E.O.) 12866, entitled “Regulatory Planning and Review.”

Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be “economically significant” as defined under E.O. 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This rule is not subject to E.O. 13045 because it does not involve decisions intended to mitigate environmental health or safety risks.

Under Executive Order 13084, Consultation and Coordination with Indian Tribal Governments, EPA may not issue a regulation that is not required by statute, that significantly affects or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments. If the mandate is unfunded, EPA must provide to OMB, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, E.O. 13084 requires EPA to develop an effective process permitting elected and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.”

Today's rule does not significantly or uniquely affect the communities of Indian tribal governments. Accordingly, the requirements of section 3(b) of E.O. 13084 do not apply to this rule.

Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999) revokes and replaces Executive Orders 12612, Federalism and 12875, Enhancing the Intergovernmental Partnership. E.O. 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under E.O. 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This rule will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in E.O. 13132, because it merely acts on a state rule implementing a federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

The Regulatory Flexibility Act (RFA) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions.

This final rule will not have a significant impact on a substantial number of small entities because SIP approvals under section 110 and subchapter I, part D of the Clean Air Act do not create any new requirements but simply act on requirements that the State is already imposing. Therefore, because the Federal SIP approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities.

EPA's disapproval of the state request under section 110 and subchapter I, part D of the Clean Air Act does not affect any existing requirements applicable to small entities. Any pre-existing federal requirements remain in place after this disapproval. Federal disapproval of the state submittal does not affect state enforceability. Moreover, EPA's disapproval of the submittal does not impose any new Federal requirements. Therefore, I certify that this action will not have a significant economic impact on a substantial number of small entities.

Moreover, due to the nature of the Federal-State relationship under the Clean Air Act, preparation of flexibility analysis would constitute Federal inquiry into the economic reasonableness of state action. The Clean Air Act forbids EPA to base its actions concerning SIPs on such grounds. Union Electric Co. v. U.S. EPA, 427 U.S. 246, 255-66 (1976); 42 U.S.C. 7410(a)(2).

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated costs to State, local, or tribal governments in the aggregate; or to private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the approval action promulgated does not include a Federal mandate that may result in estimated costs of $100 million or more to either State, local, or tribal governments in the aggregate, or to the private sector. This Federal action acts on pre-existing requirements under State or local law, and imposes no new requirements. Accordingly, no additional costs to State, local, or tribal governments, or to the private sector, result from this action.

Section 12 of the National Technology Transfer and Advancement Act (NTTAA) of 1995 requires Federal agencies to evaluate existing technical standards when developing a new regulation. To comply with NTTAA, EPA must consider and use “voluntary consensus standards” (VCS) if available and applicable when developing programs and policies unless doing so would be inconsistent with applicable law or otherwise impractical.

EPA believes that VCS are inapplicable to today's action because it does not require the public to perform activities conducive to the use of VCS.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This rule is not a “major” rule as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by March 5, 2001. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

On July 26, 2000, U.S. EPA published an immediate final rule granting Indiana authorization for changes to its Resource Conservation and Recovery Act program, listed in section E of that notice, which was subject to public comment. Subsequently we received one adverse comment, and therefore published a withdrawal of the immediate final rule on October 23, 2000. After reviewing the adverse comment, we hereby determine that Indiana's hazardous waste program revisions satisfy all of the requirements necessary to qualify for final authorization.

States which have received final authorization from EPA under RCRA section 3006(b), 42 U.S.C. 6926(b), must maintain a hazardous waste program that is equivalent to, consistent with, and no less stringent than the Federal program. As the Federal program changes, States must change their programs and ask EPA to authorize the changes. Changes to State programs may be necessary when Federal or State statutory or regulatory authority is modified or when certain other changes occur. Most commonly, States must change their programs because of changes to EPA's regulations in 40 Code of Federal Regulations (CFR) parts 124, 260 through 266, 268, 270, 273 and 279.

We conclude that Indiana's application to revise its authorized program meets all of the statutory and regulatory requirements established by RCRA. Therefore, we grant Indiana Final authorization to operate its hazardous waste program with the changes described in the authorization application. Indiana has responsibility for permitting Treatment, Storage, and Disposal Facilities (TSDFs) within its borders and for carrying out the aspects of the RCRA program described in its revised program application, subject to the limitations of the Hazardous and Solid Waste Amendments of 1984 (HSWA). New federal requirements and prohibitions imposed by Federal regulations that EPA promulgates under the authority of HSWA take effect in authorized States before EPA authorizes the State for these requirements. Thus, EPA will implement those requirements and prohibitions in Indiana, including issuing permits, until EPA authorizes the State for these requirements and prohibitions.

The effect of this decision is that a facility in Indiana subject to RCRA will now have to comply with the authorized State requirements instead of the equivalent federal requirements. Indiana has enforcement responsibilities under its state hazardous waste program for violations of such program, but EPA retains its authority under RCRA sections 3007, 3008, 3013, and 7003, which include, among others, authority to:

• Conduct inspections, and require monitoring, tests, analyses or reports;

• Enforce RCRA requirements and suspend or revoke permits;

• Take enforcement actions regardless of whether the State has taken its own actions.

This action does not impose additional requirements on the regulated community because the regulations EPA is authorizing by today's action are already effective, and are not changed by today's action.

On July 26, 2000 (65 FR 45955) EPA published a proposed rule. In that rule we proposed granting authorization of changes to Indiana's hazardous waste program and opened our decision to public comment. The Agency received one comment that stated that granting additional regulatory powers to the State of Indiana could not be supported. The comment criticized Indiana's handling of Clean Water Act and Clean Air Act matters, however. It did not cite any specific RCRA issues, or establish a basis for withholding authorization of a RCRA revision. U.S. EPA annually reviews the RCRA program at which time it may convey any deficiencies to the State agency and make suggestions for improvement. U.S. EPA found Indiana's RCRA program to be satisfactory.

Indiana initially received Final authorization on January 31, 1986, effective January 31, 1986 (51 FR 3955) to implement the RCRA hazardous waste management program. We granted authorization for changes to their program on October 31, 1986, effective December 31, 1986 (51 FR 39752); January 5, 1988, effective January 19, 1988 (53 FR 128); July 13, 1989, effective September 11, 1989 (54 FR 29557); July 23, 1991, effective September 23, 1991 (56 FR 33717); July 24, 1991, effective September 23, 1991 (56 FR 33866); July 29, 1991, effective September 27, 1991 (56 FR 35831); July 30, 1991, effective September 30, 1991 (56 FR 36010); August 20, 1996, effective October 21, 1996 (61 FR 43018); and September 1, 1999, effective November 30, 1999 (64 FR 47692).

On February 24, 2000, Indiana submitted a final complete program revision application, seeking authorization of their changes in accordance with 40 CFR 271.21. We now make a final decision, that Indiana's hazardous waste program revision satisfies all of the requirements necessary to qualify for final authorization. Therefore, we grant Indiana final authorization for the following program changes:

There are no State requirements in this program revision considered to be either more stringent or broader in scope than the Federal requirements.

Indiana will issue permits for all the provisions for which it is authorized and will administer the permits it issues. EPA will continue to administer any RCRA hazardous waste permits or portions of permits which we issued prior to the effective date of this authorization until they expire or are terminated. We will not issue any more new permits or new portions of permits for the provisions listed in the Table above after the effective date of this authorization. EPA will continue to implement and issue permits for HSWA requirements for which Indiana is not yet authorized.

Codification is the process of placing the State's statutes and regulations that comprise the State's authorized hazardous waste program into the Code of Federal Regulations. We do this by referencing the authorized State rules in 40 CFR part 272. The authorized Indiana RCRA program was incorporated by reference into 40 CFR part 272 on August 23, 1989, effective October 23, 1989 (54 FR 34988).

We reserve the amendment of 40 CFR part 272, subpart P for this authorization of Indiana's program changes until a later date.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.

EPA has determined that section 202 and 205 requirements do not apply to today's action because this rule does not contain a Federal mandate that may result in annual expenditures of $100 million or more for State, local, and/or tribal governments in the aggregate, or the private sector. Costs to State, local and/or tribal governments already exist under the Indiana program, and today's action does not impose any additional obligations on regulated entities. In fact, EPA's approval of State programs generally may reduce, not increase, compliance costs for the private sector. Further, as it applies to the State, this action does not impose a Federal intergovernmental mandate because UMRA does not include duties arising from participation in a voluntary federal program.

The requirements of section 203 of UMRA also do not apply to today's action because this rule contains no regulatory requirements that might significantly or uniquely affect small governments. Although small governments may be hazardous waste generators, transporters, or own and/or operate TSDFs, they are already subject to the regulatory requirements under the existing State laws that are being authorized by EPA, and, thus, are not subject to any additional significant or unique requirements by virtue of this program approval.

The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's action on small entities, small entity is defined as: (1) A small business as specified in the Small Business Administration regulations; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of this authorization on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This action does not impose any new requirements on small entities because small entities that are hazardous waste generators, transporters, or that own and/or operate TSDFs are already subject to the regulatory requirements under the State laws which EPA is now authorizing. This action merely authorizes for the purpose of RCRA section 3006 those existing State requirements.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. The EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives and the Comptroller General of the United States prior to publication of the rule in today's Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

The Office of Management and Budget has exempted this rule from the requirements of Executive Order 12866.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

Under section 6 of Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. EPA also may not issue a regulation that has federalism implications and that preempts State law unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This authorization does not have federalism implications. It will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, because this rule affects only one State. This action simply approves Indiana's proposal to be authorized for updated requirements of the hazardous waste program that the State has voluntarily chosen to operate. Further, as a result of this action, newly authorized provisions of the State's program now apply in Indiana in lieu of the equivalent Federal program provisions implemented by EPA under HSWA. Affected parties are subject only to those authorized State program provisions, as opposed to being subject to both Federal and State regulatory requirements. Thus, the requirements of section 6 of the Executive Order do not apply.

Executive Order 13045, “Protection of Children from Environmental Health Risks and Safety Risks,” applies to any rule that: (1) The Office of Management and Budget determines is “economically significant” as defined under Executive Order 12866, and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation. This rule is not subject to Executive Order 13045, because it authorizes a State program.

Under Executive Order 13084, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies with consulting, Executive Order 13084 requires EPA to provide to the Office of Management and Budget, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.”

This rule is not subject to Executive Order 13084 because it does not significantly or uniquely affect the communities of Indian tribal governments. Indiana is not authorized to implement the RCRA hazardous waste program in Indian country. This action has no effect on the hazardous waste program that EPA implements in the Indian country within the State.

Under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. , Federal agencies must consider the paperwork burden imposed by any information request contained in a proposed rule or a final rule. This rule will not impose any information requirements upon the regulated community.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, Section 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards.

This action does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards.

This is a summary of the Memorandum Opinion and Order, MM Docket 91-137, adopted November 17, 2000, and released November 28, 2000. The full text of this Commission decision is available for inspection and copying during normal business hours in the Commission's Reference Information Center (room CY-A257), 445 12th Street, SW., Washington, DC 20554. The complete text of this decision may be also purchased from the Commission's copy contractor, International Transcription Service, 1231 20th Street, NW., Washington, DC 20036, (202) 857-3800.

The Migratory Bird Treaty Act of 1918 (Act) (16 U.S.C. 703-712 and 16 U.S.C. 742 a-j) implements migratory bird treaties between the United States and Great Britain for Canada (1916 and 1996 as amended), Mexico (1936 and 1972 as amended), Japan (1972 and 1974 as amended), and Russia (then the Soviet Union, 1978). These treaties protect certain migratory birds from take, except as permitted under the Act. The Act authorizes the Secretary of the Interior to regulate take of migratory birds in the United States. Under this authority, the Fish and Wildlife Service controls the hunting of migratory game birds through regulations in 50 CFR part 20.

Since the mid-1970s, we have sought to identify shot that does not pose a significant toxicity hazard to migratory birds or other wildlife. Compliance with the use of nontoxic shot has increased over the last few years (Anderson et al. 2000). We believe that it will continue to increase with the approval and availability of other nontoxic shot types. Currently, steel, bismuth-tin, tungsten-iron, tungsten-polymer, and tungsten-matrix shot are permanently approved as nontoxic. We have approved tin shot for the 2000-2001 hunting season (65 FR 76886). The purpose of this rule is to approve the use of TNI shot in the tested formulation (50% tungsten, 35% nickel, and 15% iron by weight) for waterfowl and coot hunting. On October 30, 2000 (65 FR 64650) we proposed to amend 50 CFR 20.21 (j), to include TNI shot on the list of approved nontoxic shot types.

On April 9, 1999 (64 FR 17308), we announced receipt of an application from Standard Resources Corporation (Standard) of Cherry Hill, New Jersey for nontoxic approval of HEVI-METAL shot in the 50% tungsten, 35% nickel, 15% iron formulation. The density of the shot in that formulation is 11.0 grams/cm 3 . The manufacturer believes that the shot does not need a coating because it is sufficiently noncorrosive under neutral pH. It is not chemically or physically altered by firing from a shotgun.

On April 19, 1999 (64 FR 19191), we announced that Standard's application did not provide sufficient information for us to conclude that the candidate shot is not a significant danger to migratory birds. We advised Standard to proceed with additional testing of the candidate shot. Subsequently, development of HEVI-METAL was transferred to ENVIRON-Metal, Inc., of Albany, Oregon (Environ-metal), and the shot was re-named HEVI-SHOT TM .

On August 10, 2000, Environ-metal submitted an application for permanent approval of the tungsten-nickel-iron shot as nontoxic for hunting waterfowl and coots. The application included a description of the shot, results and a toxicological report of a preliminary 30-day dosing study of the toxicity of the shot in game-farm mallards (Ecological Planning and Toxicology, Inc. [EPT] 1999), and results of a more comprehensive 30-day acute toxicity study (Brewer and Fairbrother 2000).

Tungsten may be substituted for molybdenum in enzymes in mammals. Ingested tungsten salts reduce growth, and can cause diarrhea, coma, and death in mammals ( e.g. Bursian et al. 1996, Cohen et al. 1973, Karantassis 1924, Kinard and Van de Erve 1941, National Research Council 1980, Pham-Huu-Chanh 1965), but elemental tungsten is virtually insoluble and therefore essentially nontoxic. In rats, a dietary concentration of 94 parts-per-million (ppm) did not reduce weight gain in growing rats (Wei et al. 1987). Lifetime exposure to 5 ppm tungsten as sodium tungstate in drinking water produced no discernible adverse effects in rats (Schroeder and Mitchener 1975). At 100 ppm tungsten as sodium tungstate in drinking water, rats had decreased enzyme activity after 21 days (Cohen et al. 1973). These studies indicate that tungsten salts are very toxic to mammals.

Chickens given a complete diet showed no adverse effects of 250 ppm sodium tungstate administered for 10 days in the diet. However, 500 ppm in the diet had detrimental effects on day-old chicks (Teekell and Watts 1959). Adult hens had reduced egg production and egg weight on a diet containing 1,000 ppm tungsten (Nell et al. 1981a). EPT (1999) concluded that 250 ppm in the diet would produce no observable adverse effects. Kelly et al. (1998) demonstrated no adverse effects on mallards dosed with tungsten-iron or tungsten-polymer shot according to nontoxic shot test protocols.

Most toxicity tests reviewed were based on soluble tungsten compounds rather than elemental tungsten. As we found in our reviews of other tungsten shot types, we believe that there is no basis for concern about the toxicity of the tungsten in TNI shot to fish, mammals, or birds.

Nickel is a dietary requirement of mammals, with necessary consumption set at 50 to 80 parts per billion for the rat and chick (Nielsen and Sandstead 1974). Though it is necessary for some enzymes, nickel can compete with calcium, magnesium, and zinc for binding sites on many enzymes. Water-soluble nickel salts are poorly absorbed if ingested by rats (Nieboer et al. 1988). Nickel carbonate caused no treatment effects in rats fed 1,000 ppm for 3 to 4 months (Phatak and Patwardhan 1952). Rats fed 1,000 ppm nickel sulfate for 2 years showed reduced body and liver weights, an increase in the number of stillborn pups, and decrease in weanling weights through three generations (Ambrose et al. 1976). Nickel chloride was even more toxic; 1,000 ppm fed to young rats caused weight loss in 13 days (Schnegg and Kirchgessner 1976).

Soluble nickel salts can be classified as very toxic to mammals, with an oral LD 50 of 136 mg/kg in mice, and 350 mg/kg in rats (Fairchild et al. 1977). Nickel catalyst (finely divided nickel in vegetable oil) fed to young rats at 250 ppm for 16 months, however, produced no detrimental effects (Phatak and Patwardhan 1952).

In chicks from hatching to 4 weeks of age, 300 ppm nickel as nickel carbonate or nickel acetate in the diet produced no observed adverse effects. However, concentrations of 500 ppm or more reduced growth (Weber and Reid 1968). A diet containing 200 ppm nickel as nickel sulfate had no observed effects on mallard ducklings from 1 to 90 days of age. Diets of 800 ppm or more caused significant changes in physical condition of the ducklings (Cain and Pafford 1981). Eastin and O'Shea (1981) observed no apparent significant changes in pairs of breeding mallards fed diets containing up to 800 ppm nickel as nickel sulfate for 90 days.

Iron is an essential nutrient, so reported iron toxicosis in mammals is primarily a phenomenon of overdosing of livestock. Maximum recommended dietary levels of iron range from 500 ppm for sheep to 3,000 ppm for pigs (National Research Council [NRC] 1980). Chickens require at least 55 ppm iron in the diet (Morck and Austic 1981). Chickens fed 1,600 ppm iron in an adequate diet displayed no ill effects (McGhee et al. 1965). Turkey poults fed 440 ppm in the diet suffered no adverse effects. The tests in which eight #4 tungsten-iron shot were administered to each mallard in a toxicity study indicated that the 45% iron content of the shot had no adverse effects on the test animals (Kelly et al. 1998).

Elemental tungsten and iron are virtually insoluble in water and do not weather and degrade in the environment. Tungsten is stable in acids and does not easily form compounds with other substances. Preferential uptake by plants in acidic soil suggests uptake of tungsten when it has formed compounds with other substances rather than when it is in its elemental form (Kabata-Pendias and Pendias 1984).

Nickel is common in fresh waters, though usually at concentrations of less than 1 part per billion in locations unaffected by human activities. Pure nickel is not soluble in water. Free nickel may be part of chemical reactions, such as sorption, precipitation, and complexation. Reactions of nickel with anions are unlikely. Complexation with organic agents is poorly understood (U.S. Environmental Protection Agency [EPA] 1980). Water hardness is the dominant factor governing nickel effects on biota (Stokes 1988).

Calculation of the estimated environmental concentration (EEC) of a candidate shot in a terrestrial ecosystem is based on 69,000 shot per hectare (Bellrose 1959, 50 CFR 20.134). Assuming complete dissolution of the shot, the EEC for tungsten in soil is 19.3 mg/kg. The EECs for nickel and iron would be 7.7 and 3.3 mg/kg, respectively. The EEC for nickel (the only one of the three elements with an application limit) is substantially below the U.S. Environmental Protection Agency (EPA) biosolid application limit. The 3.3 mg/kg EEC for nickel also is far below the 16 to 35 mg/kg concentrations suggested as minimum sediment concentrations at which effects of the metal are likely to occur (EPA 1997, Ingersoll et al. 1996, Long and Morgan 1991; MacDonald et al. 2000, Smith et al. 1996). The EEC for tungsten from TNI shot is below that for the already-approved tungsten-matrix shot. The EEC for iron is less than 0.01% of the typical background concentration, and the iron is in an insoluble form.

Calculation of the EEC in an aquatic ecosystem assumes complete erosion of the 69,000 shot/hectare in water 1 foot deep. The EECs for the elements in TNI shot in water are 2,348 μg/L for tungsten, 1,643 μg/L for nickel, and 704 μg/L for iron. We concluded that a tungsten concentration of 10,500 μg/L posed no threat to aquatic biota (62 FR 4877). The EEC for nickel, if the shot were completely dissolved, would exceed the EPA acute water quality criterion of 1,400 μg/L in fresh water, and would greatly exceed the 75 μg/L criterion for salt water. However, tests showed that corrosion of TNI shot is negligible in neutral pH fresh water. Actual tests in water with a pH of 2 showed that the EEC for nickel would be 83.98 μg/L, and in salt water it would be 7.92 μg/L; both are far below the EPA criterion of 160 μg/L for chronic exposure.

Kraabel et al. (1996) surgically embedded tungsten-bismuth-tin shot in the pectoralis muscles of ducks to simulate wounding by gunfire and to test for toxic effects of the shot. The authors found that the shot neither produced toxic effects nor induced adverse systemic effects in the ducks during the 8-week period of their study.

Nell et al. (1981a) fed laying hens (Gallus domesticus) 0.4 or 1.0 g/kg tungsten in a commercial mash for five months to assess reproductive performance. Weekly egg production was normal, and hatchability of fertile eggs was not affected. Exposure of chickens to large doses of tungsten either through injection or by feeding resulted in an increased tissue concentration of tungsten and a decreased concentration of molybdenum (Nell et al. 1981b). The loss of tungsten from the liver occurred in an exponential manner, with a half-life of 27 hours. The alterations in molybdenum metabolism seemed to be associated with tungsten intake rather than molybdenum deficiency. Death due to tungsten occurred when tissue concentrations increased to 25 ppm in the liver. At that concentration, xanthine dehydrogenase activity was zero.

Ringelman et al. (1993) conducted a 32-day acute toxicity study that involved dosing game-farm mallards with a shot alloy which was 39%, 44.5%, and 16.5% by weight, respectively. No dosed birds died during the trial, and behavior was normal. Post-euthanization examination of tissues revealed no toxicity or damage related to shot exposure. Blood calcium differences between dosed and undosed birds were judged to be unrelated to shot exposure. That study indicated that tungsten presented little hazard to waterfowl.

Initial analyses of corrosion of TNI shot in 0.1N HCl and in seawater indicated that it is more corrosion resistant than copper-plated tungsten-iron shot and steel shot, and that it will release tungsten into the environment more slowly than does tungsten-iron shot. In addition, only a portion of the tungsten is soluble, and not all of that is absorbed. Therefore, EPT (1999) suggested that ingested TNI shot should pose minimal risks to migratory birds that might ingest it.

EPT conducted a preliminary 30-day oral toxicity study of TNI shot that followed the general approach outlined for a short-term acute toxicity test (50 CFR 20.134). Eight #4 TNI shot pellets were administered to each of three healthy adult male and three healthy adult female mallards by placing them in a gelatin capsule and placing the capsule in the bird's gizzard. All of the birds retained seven or eight of the pellets for the 30-day test period. During that time the birds behaved normally, and none of them exhibited signs of metal intoxication. Body weights of the birds did not change significantly during the test period.

Upon postmortem examination, all body organs looked normal. Histopathology showed that one of the females had a fatty liver, and also had elevated liver enzymes. Liver abnormalities due to fatty changes (accumulation of glycogen or fat) were considered the likely cause of the problem.

Brewer and Fairbrother (2000) reported on the outcome of more extensive corrosion/erosion testing of TNI shot, and steel and lead shot. Eight #4 TNI shot pellets were administered to each of 20 male mallards and 20 female mallards by placing the shot in a gelatin capsule and placing the capsule in the bird's gizzard. The same procedure was followed for dosing 20 male mallards and 20 female mallards with 8 #4 steel shot, and for dosing 5 males and 5 females with 8 #4 lead shot. The birds had been fasting prior to placement of the gelatin capsules to facilitate movement of the capsule to the gizzard. During the 30-day test period, the researchers monitored loss of shot through the digestive system, and they determined retention of shot in the gizzard upon necropsy. They also carefully monitored food consumption of the test birds and their health.

No mortality occurred in birds treated with TNI shot or steel shot. Nine of the ten birds dosed with lead died during the test period. Therefore, most measures of health and measures of shot erosion were not valid for the lead-dosed group. No significant differences in body weight changes emerged between the steel shot group and the TNI shot group during the test period.

The evaluation focused on corrosion/erosion of the steel shot and the TNI shot, and associated changes in organs and blood chemistry. A total of 134 of the TNI shot pellets and 138 of the steel shot were recovered from the gizzards of the test birds after 30 days. TNI shot pellets recovered from gizzards at the end of the test retained an average of 88.6% of their initial weight; steel pellets retained an average of 49.7% of their weight.

Histopathological examination of kidney tissues from the 41 ducks alive at the end of the test period revealed no significant lesions. Livers also appeared to have been unaffected by steel pellets or TNI shot. Hemoglobin, white blood cell counts, hematocrits, and blood serum chemistry results did not differ between the steel shot test group and the TNI shot test group, with the exception that the mean for plasma protein was significantly higher in the TNI shot-treated ducks.

Analytical chemistry of liver, kidney, and blood samples showed some differences between the steel shot and TNI shot test groups. Mean tungsten concentrations in blood, liver, and kidney tissues were 0.24 ppm in the blood, 0.64 ppm in kidney tissue, and 1.65 ppm in liver tissue. No tungsten was detected in tissues of mallards dosed with steel shot. Mean nickel concentrations in blood (0.03 ppm), liver (0.09 ppm), and kidney (0.44 ppm) tissues were significantly higher in ducks dosed with TNI shot than in those dosed with steel shot. Mean nickel concentrations in blood, liver, and kidney tissues of mallards treated with 800 ppm in the diet for 90 days were 0.139, 0.52, and 1.94 ppm, respectively (Eastin and O'Shea 1991). Those ducks suffered no apparent ill effects from their treatment. Mean iron concentrations in the blood and liver were higher for the ducks dosed with steel shot, but kidney concentrations did not differ.

EPT (1999) calculated that the mallards studied by Eastin and O'Shea (1981) consumed approximately 102 mg of nickel each day during the study. Under the Tier 2 protocol, each test mallard is dosed with 8 #4 shot at 0, 30, 60, and 90 days, which in the case of TNI shot would contain a total of 32 shot, and 2.3 g of nickel per bird. At pH 2, with continual grinding of ingested shot, eight #4 pellets would lose 0.176 mg of nickel per day. The maximum exposure for a mallard under such conditions would be 0.704 mg/day, substantially less than the estimated consumption by mallards in the Eastin and O'Shea study (EPT 1999). We believe, therefore, that consumption of nickel from TNI shot is unlikely to have detrimental effects on waterfowl.

Based on the available information and past reviews of tungsten-based shot, we expect no detrimental effects due to tungsten or iron on animals that might ingest TNI shot. However, we know of no studies of ingestion of nickel by herpetofauna. In the worst case, assuming complete erosion of a #4 TNI shot pellet equal to that found in a mallard gizzard, exposure to a vertebrate would be approximately 0.022 mg of nickel per day if the shot were retained in the animal. The exposure actually would be substantially less because a shot pellet likely would not be retained in most animals that might consume one.

The first condition for nontoxic shot approval is toxicity testing. Based on the results of the toxicological reports and the toxicity tests, we conclude that TNI shot does not pose a significant danger to migratory birds, other wildlife, or their habitats.

The second condition for approval is testing for residual lead levels. Any shot with a lead level of 1% or more will be illegal. We determined that the maximum environmentally acceptable level of lead in shot is 1%, and incorporated this requirement in the nontoxic shot approval process we published on December 1, 1997 (62 FR 63607). ENVIRON-Metal, Inc. has documented that TNI shot meets this requirement.

The third condition for approval involves enforcement. On August 18, 1995 (60 FR 43313), we stated that approval of any nontoxic shot would be contingent upon the development and availability of a noninvasive field testing device. This requirement was incorporated in the nontoxic shot approval process. TNI shotshells can be drawn to a magnet as a simple field detection method.

This final rule will amend 50 CFR 20.21(j) by approving TNI shot as nontoxic for migratory bird hunting. It is based on the toxicological reports, acute toxicity studies, and assessment of the environmental effects of the shot. Those results indicate no deleterious effects of TNI shot to ecosystems or when ingested by waterfowl.

We received one comment on the October 30, 2000 proposed rule to approve TNI shot for hunting waterfowl and coots. That comment supported granting approval for use of the shot.

In compliance with the requirements of section 102(2)(C) of the NEPA and the Council on Environmental Quality's regulation for implementing NEPA (40 CFR 1500), we prepared a final Environmental Assessment (EA) for approval of TNI shot in December 2000. The EA is available to the public at the location indicated in the ADDRESSES section. Based on review and evaluation of the information contained in the EA, we have determined that amending 50 CFR 20.21(j) to approve TNI shot as nontoxic for waterfowl and coot hunting would not be a major Federal action that would significantly affect the quality of the human environment within the meaning of section 102(2)(c) of the National Environmental Policy Act of 1969 (NEPA). Accordingly, the preparation of an Environmental Impact Statement on this action is not required.

Section 7 of the Endangered Species Act (ESA) of 1972, as amended (16 U.S.C. 1531 et seq. ), provides that Federal agencies shall “insure that any action authorized, funded or carried out * * * is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of (critical) habitat * * *.” We completed a Section 7 consultation under the ESA for this rule, which is available to the public at the location indicated in the ADDRESSES section. The Division of Endangered Species concurred with our determination that this rule is “Not Likely to Affect” endangered or threatened species.

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq. ) requires the preparation of flexibility analyses for rules that will have a significant effect on a substantial number of small entities, which includes small businesses, organizations, or governmental jurisdictions. This rule approves an additional type of nontoxic shot that may be sold and used to hunt migratory birds; this rule will add one shot type to those already approved. We have determined, however, that this rule will have no effect on small entities since the approved shot will supplement nontoxic shot already in commerce and available throughout the retail and wholesale distribution systems. We anticipate no dislocation or other local effects, with regard to hunters or others.

This rule has not been reviewed by the Office of Management and Budget (OMB) review under Executive Order 12866. OMB makes the final determination of significance under Executive Order 12866.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. We have examined this regulation under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501) and found it to contain no information collection requirements. We have received OMB approval of continued collection of information from shot manufacturers for the nontoxic shot approval process. For further information see 50 CFR 20.134.

We have determined and certify pursuant to the Unfunded Mandates Reform Act, 2 U.S.C. 1502, et seq. , that this rulemaking will not impose a cost of $100 million or more in any given year on local or State government or private entities.

This rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. It does not have an annual effect on the economy of $100 million or more; nor will it cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions. This rule has the potential for reducing the present cost of nontoxic shot by making additional materials available for consumers. It does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. This rule may provide beneficial effects to competition, employment, investment, productivity, innovation, and the ability of U.S.-based enterprises to compete with foreign-based enterprises.

We, in promulgating this rule, have determined that these regulations meet the applicable standards provided in Sections 3(a) and 3(b)(2) of Executive Order 12988.

In accordance with Executive Order 12630, this rule, authorized by the Migratory Bird Treaty Act, does not have significant takings implications and does not affect any constitutionally protected property rights. This rule will not result in the physical occupancy of property, the physical invasion of property, or the regulatory taking of any property. In fact, this rule will allow hunters to exercise privileges that would be otherwise unavailable; and, therefore, reduces restrictions on the use of private and public property.

Due to the migratory nature of certain species of birds, the Federal Government has been given responsibility over these species by the Migratory Bird Treaty Act. This rule does not have a substantial direct effect on fiscal capacity, change the roles or responsibilities of Federal or State governments, or intrude on State policy or administration. Therefore, in accordance with Executive Order 13132, this regulation does not have significant federalism effects and does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951) and 512 DM 2, we have determined that this rule has no effects on Federally recognized Indian tribes.

Under the APA (5 U.S.C. 551-553) our normal practice is to publish policies with a 30-day delay in effective date. In this case, however, we use the “good cause” exemption under 5 U.S.C. 553(d)(3) to make this rule effective upon publication. This rule relieves a restriction, and it is not in the public interest to delay its effective date. We believe that another nontoxic shot option likely will improve hunter compliance, thereby reducing the amount of lead shot in the environment.

NMFS declared the Bering Sea stock of snow crab ( Chionoecetes opilio ) overfished on September 24, 1999, because the spawning stock biomass was below the minimum stock size threshold defined in the FMP. On September 24, 1999, NMFS notified the Council that the stock was overfished (64 FR 54791, October 8, 1999). The Council then took action to develop a rebuilding plan within 1 year of notification as required by section 304(e)(3) of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).

In June 2000, the Council adopted Amendment 14, the rebuilding plan to accomplish the purposes outlined in the national standard guidelines to rebuild the overfished stock. Amendment 14 specifies a time period for rebuilding the stock that satisfies the requirements of the Magnuson-Stevens Act. Under the rebuilding plan, the Bering Sea snow crab stock is estimated to rebuild, with a 50 percent probability, within 10 years. The stock will be considered “rebuilt” when it attains the maximum sustainable yield stock size level for 2 consecutive years.

The rebuilding plan consists of a framework that references the State of Alaska’s harvest strategy, bycatch control measures, and habitat protection measures. The plan uses the harvest strategy developed by the Alaska Department of Fish and Game. The harvest strategy was reviewed and adopted by the Alaska Board of Fisheries. The FMP defers development of harvest strategies to the State of Alaska, with oversight by NMFS and the Council. The rebuilding harvest strategy should result in more spawning biomass because more large male crab would be conserved and fewer juveniles and females would die due to incidental catch and discard mortality. More spawning biomass would be expected to produce larger year-classes when environmental conditions are favorable. Protection of habitat and reduction of bycatch may reduce mortality of juvenile crabs, thus allowing a higher percentage of each year-class to contribute to spawning and future landings.

The Council prepared an EA for Amendment 14 that describes the management background, the purpose and need for action, the management alternatives, and the environmental and the socio-economic impacts of the alternatives. A copy of the EA can be obtained from NMFS (see ADDRESSES ).

A notice of availability for the proposed Amendment 14 to the FMP, which described the proposed amendment and invited comments from the public, was published in the Federal Register on September 29, 2000 (65 FR 58501). Comments were invited until November 28, 2000. NMFS received two comments.

Comment 1 : The rebuilding plan does not contain meaningful bycatch reduction measures and habitat protection measures. Given the large amount of information that is unknown about the biology of the stock, the amount of bycatch mortality from the various sources, and habitat needs of the stock, it is imperative that NMFS employ a large amount of precaution in this rebuilding plan. The commenter advanced these particular concerns about the rebuilding plan: (1) The discussion in the EA of higher probabilities of rebuilding under the alternatives is insufficient; (2) NMFS should reduce the snow crab bycatch limit in the trawl fisheries and should comprehensively study the bycatch mortality of snow crab captured in trawl gear; (3) NMFS should study snow crab bycatch mortality in the snow crab fishery and the effects of ghost fishing and the impacts of pot gear on snow crab and their habitat; (4) NMFS should determine the bycatch mortality for snow crab in the longline, groundfish pot, and scallop fisheries; (5) NMFS should study the habitat needs of snow crab to best protect essential habitats for the stock and the annual NMFS Eastern Bering Sea trawl survey is inadequate for providing information on snow crab habitat; (6) NMFS should study the current and potential effects of trawling on snow crab habitat; and (7) The preferred alternative for habitat protection does not provide meaningful habitat protection. In light of the uncertainties, NMFS must be precautionary and protect any possible snow crab habitat from adverse impacts. NMFS should consider a seasonal bottom-trawl closure from March to June in areas of highest trawl bycatch to protect snow crab during sensitive life-stages and a permanent bottom-trawl closure north of 58° N lat., protecting 82 percent of female crabs.

Response : NMFS agrees uncertainties exist about the biology of snow crab and that more scientific research needs to be conducted on its habitat, bycatch mortality in all fisheries, and the effects of all types of fishing gear on habitat. The EA highlights all of the areas where more research is needed, including those research needs identified by the commenter. The scientific uncertainties were adequately considered and accounted for in developing alternatives for the rebuilding plan. The rebuilding plan incorporates these uncertainties, provides for protection and rebuilding of the snow crab stock, and provides for a modest fishery.

NMFS has determined that the current rebuilding plan is sufficiently precautionary. The EA identifies all known sources of snow crab mortality, analyzes each one, and examines the most effective measures to rebuild the stock. By far, the largest source of mortality and bycatch of snow crab is in the directed snow crab fishery. In 1999, the directed fishery accounted for approximately 95 percent of the total snow crab bycatch in all fisheries. As the EA illustrates, the rebuilding plan greatly curtails the directed fishery. By comparison, all other sources of bycatch and bycatch mortality are minimal and amount to less than 1 percent of the snow crab population, even when assuming 100 percent mortality. Likewise, existing evidence does not indicate that the decline in snow crab abundance is due to habitat destruction by fishing gear. The vast majority of female and juvenile snow crab live in the northern regions of the Bering Sea where few or no fisheries operate.

Responses to each specific point made by the commenter are as follows: The rebuilding time period satisfies the requirements of section 304(e)(4)(A) of the Magnuson-Stevens Act. The rebuilding plan is estimated to allow snow crab to rebuild, with a 50 percent probability, to the Bmsy level within 10 years. A 50 percent rebuilding probability within 10 years is the estimated probability recommended in the NMFS technical guidance for rebuilding overfished stocks. This probability of rebuilding includes the conservative parameter that the stock will be considered ‘rebuilt’ when the stock size reaches the Bmsy in 2 consecutive years. NMFS and ADF&G stock assessment experts, who developed the model used to estimate the rebuilding times and probabilities, determined that a 50 percent probability best represented reality given the biology of the species and the current level of scientific information.

The EA estimates the rebuilding time of each alternative at a 10 percent, 50 percent, and 90 percent probability. The alternatives range from zero catch (no directed catch and no bycatch in the trawl fisheries) to the traditional harvest rate of 58 percent of males greater than or equal to 4 inches (102 mm). None of the alternatives, including zero catch, would achieve rebuilding at a 90 percent probability within 10 years.

The exercise of estimating rebuilding probabilities provides managers with an idea of the potential outcomes of different alternatives and helps managers predict whether the alternatives will rebuild the stock within 10 years. However, the components of the rebuilding plan were developed, taking into consideration the full breadth and depth of current scientific understanding and not solely based on the results of the models.

The EA analyzes the option of reducing the snow crab bycatch limit in the trawl fisheries. Under the existing program, NMFS closes trawl fisheries when they reach their snow crab bycatch limits. The Council considered the following points when it determined that the existing snow crab bycatch controls for the trawl fisheries are sufficient. First, reductions in bycatch most likely would not result in measurable improvements to snow crab abundance because the 7-year average annual bycatch of snow crab in the trawl fishery is only about 0.1 percent of the total abundance. Second, current bycatch limits provide incentives for the trawl fleet to avoid concentrations of snow crab, thus keeping bycatch rates well below the limit. Finally, reductions in limits would disadvantage specific sectors of the trawl fleet because of the way bycatch limits are apportioned by fishery before the fishing season. Therefore, the Council determined that the very small potential for measurable improvements in snow crab abundance did not justify the disproportional economic disadvantages that would have resulted from bycatch limit reductions.

NMFS concurs that more studies need to be conducted to determine the mortality of snow crab caught as bycatch in the trawl fisheries. Given this lack of information, a very conservative mortality rate of 80 percent was used in the analyses of alternatives. In addition, assuming that all snow crab caught in the trawl fisheries die, crab mortality caused by the trawl fisheries would equal about 0.1 percent of the total abundance of snow crab.

NMFS concurs that additional research is needed on snow crab bycatch in the directed snow crab fishery, the effects of ghost fishing (lost pots that continue to catch crab and other species), and the impacts of pot gear on habitat. As noted by the commenter, State regulations require all pots to have degradable mesh that acts as an escape mechanism to prevent ghost fishing. Also, as noted in the EA, pot loss has greatly diminished since the State established pot limits in the crab fisheries in 1992. The rebuilding plan implements a precautionary harvest strategy that protects the stock at low abundance from the effects of the directed fishery. When abundance is very low, the rebuilding harvest strategy closes the fishery, which stops all snow crab bycatch in the snow crab fishery. Likewise, the harvest strategy provides for harvest at a reduced rate as abundance increases. A reduced harvest rate means a reduction in bycatch. In addition, because the fishing effort is greatly reduced with reductions in harvest levels, so presumably are the effects of the fishing gear on habitat. Further, the State’s gear modification measures adopted under the rebuilding plan will reduce the number of females and small males caught per pot in the directed fishery. So, although scientific uncertainty exists on the effects of bycatch and pot gear on habitat, the rebuilding plan reduces bycatch and the amount of gear deployed by curtailing harvest when stock abundance is low. NMFS concurs that more research should be conducted on bycatch mortality of snow crab in the longline, groundfish pot, and scallop fisheries. However, according to observer data, bycatch of snow crab in these fisheries is minuscule. The 7-year combined average total bycatch for these fisheries is 426,950 crabs, which is 0.013 percent of the 2000 abundance estimate of 3.2 billion snow crabs. The commenter notes the increase in bycatch of snow crab in the scallop fishery. This is due to an expansion in the range of snow crabs into scallop fishery grounds during the mid-1990’s when snow crab abundance was high, rather than to an expansion in the distribution of the scallop fishery. NMFS concurs that more research should be conducted on the habitat needs of snow crab. NMFS plans to conduct additional research on the habitat needs of snow crab as funding is available. NMFS also concurs that the NMFS trawl survey might be inadequate for providing information on snow crab habitat and that the survey does not cover the full extent of snow crab habitat. However, snow crab habitat that exists outside the survey area is not subject to any commercial fishing pressure. Because the survey is designed to estimate abundance of commercially important crab and groundfish species, it is conducted in those areas where commercial fishing occurs and it does not extend beyond the areas used for commercial fishing.

NMFS concurs that additional research is needed on the current and potential effects of trawling on snow crab habitat. NMFS plans to conduct additional research on the effects of trawling on snow crab habitat as funding is available.

NMFS believes the preferred alternative for habitat protection does provide adequate habitat protection. The Council may choose to develop new habitat protection measures in the future to incorporate into the rebuilding plan. However, as explained in the EA, the research conducted to date does not show substantial adverse impacts from trawling on snow crab habitat. The EA reaches this conclusion because (1) trawl effort is low in areas identified as important for females and juvenile snow crab, and (2) current bycatch control measures provide incentive for the trawl fleet to avoid areas of high concentration of snow crab, thus avoiding snow crab habitat.

The Council considered a seasonal bottom-trawl closure from March to June in areas of highest trawl bycatch. It concluded that this closure may have many unintended consequences by displacing trawl effort, including moving trawl effort to areas of sensitive habitat for other crab species, increasing bycatch of other sensitive species like halibut and Tanner crab, and concentrating trawl effort. The reported high bycatch is a function of high trawl effort and not of high snow crab abundance in that area. Further, the Council could not identify measurable benefits of this proposed time/area closure. It would not be in place during the snow crab molting and mating period. The proposed area is a relatively small portion of snow crab habitat and is not an area historically important for snow crab reproduction. The areas identified as important for snow crab reproduction extend north of 58° N lat., where some trawling occurs in limited areas. Thus the predicted benefits of closing this area would be small compared to the predicted consequences.

The EA analyzes a possible bottom-trawl closure north of 58° N lat. The commenter is correct in stating that a closure of the area north of 58° N lat. would protect approximately 82 percent of female crabs. However, less than 2 percent of the trawl effort occurs above 58° N lat. And that trawl effort occurs near the 58° N lat. line. Most of the area above 58° N lat. is not subject to any fishing effort. The Council could not find measurable benefits to moving this small amount of trawl effort to below 58° N lat.

Comment 2 : NMFS should delay approving Amendment 14 until a thorough scientific analysis of the snow crab stock status and the rebuilding plan are complete because the rebuilding plan may be an over-reaction to a flawed definition of overfishing for snow crab. The commenter advanced these particular concerns about the rebuilding plan’s conservative harvest strategy: (1) Snow crab are not “overfished” because fishing did not cause the decline in abundance. Further, the commenter quotes the Council’s Scientific and Statistical Committee’s opinion that NMFS should change the national standard guidelines at 50 CFR 600.310 so that stocks with low abundance are not determined to be “overfished” when fishing had no demonstrable effect; (2) NMFS scientists acknowledge that the time constraints set by the Magnuson-Stevens Act for developing the rebuilding plan did not allow for the new harvest strategy to benefit from a thorough analysis of many aspects of snow crab biology and that a more thorough analysis may justify a less conservative harvest strategy; (3) The traditional harvest rate of 58 percent of males 4 inches (102 mm) or greater is precautionary because the legal size for snow crab is 3.1 inches (79 mm). Thus, sexually mature males have years to fertilize females before they are captured by the fishery (The legal size limit for snow crab is 3.1 inches (79 mm), based on the size at sexual maturity of male snow crab. For market reasons, the industry standard is to only harvest males 4 inches or greater.); (4) The reduction in the harvest rate under the rebuilding plan will only increase recovery time of the stock by 6 months compared to the rebuilding time under the traditional harvest rate, as shown in the rebuilding probability simulation; and (5) The cost of the rebuilding plan, which involves hundreds of millions of pounds of foregone catch, greatly outweighs the benefit of the rebuilding plan, which is a 6-month increase in rebuilding time. Therefore, the commenter concludes that NMFS does not have adequate scientific information to reduce the harvest rate for snow crab.

Response : NMFS has determined that the rebuilding harvest strategy is based on the best scientific information available and is intended to rebuild snow crab to historic levels of abundance. As explained in the EA, existing scientific information supports a reduction in the harvest of snow crab to rebuild the stock.

The commenter assumes that a delay in approving the rebuilding plan would result in a fishery under the traditional harvest rate of 58 percent of males with a carapace width of 4 inches (102 mm) or greater. This is not the case because the harvest strategy in the rebuilding plan was adopted into regulation by the Alaska Board of Fisheries in March of 2000.

Responses to each specific point made by the commenter are as follows: According to the national standard guidelines at 50 CFR 600.310(d)(1)(iii), the term “overfished” is used to describe any stock or stock complex whose size is sufficiently small enough that a change in management practices is required in order to achieve an appropriate level and rate of rebuilding. Thus, NMFS determined snow crab is overfished because snow crab abundance was below the threshold established for the stock. The cause of the decline in snow crab abundance is irrelevant to a determination that a stock or stock complex is sufficiently small that management changes are needed.

The 1-year requirement in section 304(e)(3) of the Magnuson-Stevens Act is intended to assure that action is taken in a timely manner to protect depleted populations and populations vulnerable to overfishing. Notwithstanding the short time period to protect vulnerable populations, all management actions must be based on the best science available at the time of the decision. NMFS determined that the rebuilding plan for snow crab is based on the best available scientific information that shows the population sharply declined between 1998 and 1999, that the snow crab population is aging, and that very few juvenile crab exist to grow into the fishery. In addition, as detailed in the EA, the scientific uncertainties were adequately considered and accounted for in developing alternatives for the rebuilding plan.

The framework structure of the rebuilding plan is designed so that changes can be made to the plan based on analyses conducted by NMFS, the Council, and State scientists. If the results of these analyses indicate that the harvest strategy should be modified, then it will be modified through the Board process and reviewed by NMFS and the Council, as specified in the FMP.

As explained in the EA, the traditional harvest rate of 58 percent of males 4 inches (102 mm)or greater is not precautionary and can result in overfishing during periods of poor recruitment, such as the stock has recently exhibited. Evidence suggests that continuing the previous 58 percent harvest rate on this stock may jeopardize its rebuilding by removing a majority of the largest males and causing high bycatch.

High harvest rates on large mature males may also possibly impact reproductive potential of a stock by reducing the size of males available for breeding. The low stock levels observed for eastern Bering Sea snow crab during the 1999 survey were accompanied by indications of poor reproductive potential. Mature female snow crabs examined during the 1999 survey were barren at higher than normal rates and showed lower than normal rates of full clutches. Circumstantial evidence shows fishery-induced selection for reduced size or age at maturity in males. Any of these conservation concerns related to harvesting of large males would become more acute when stocks are low because of the greater impact of chance events at low stock levels. Thus, the condition and composition of the stock were the primary considerations that lead to the conservative harvest strategy.

The rebuilding harvest strategy reduces the harvest rate because lower harvest rates must be applied to depleted stocks and those with high levels of uncertainty about their productive capacity. This reduction in the harvest rate is not only required, but it is also prudent for stocks with periodic recruitment, like snow crab. A reduced harvest rate also reduces snow crab bycatch in the directed snow crab fishery because the season is shorter and gear is on the grounds for a shorter amount of time.

The commenter is correct in stating that the rebuilding time under the rebuilding harvest strategy is estimated to be 6 months shorter than under the traditional 58 percent harvest rate. This prediction is based on the outcomes of the recruitment models used to estimate the rebuilding times of the alternatives. The EA fully explains the length-based simulation models used and the limits of the model results due to the lack of a stock-recruitment component. For these models, recruitment means the number of crab in cohort that survive from the time they are hatched until they reached 35 to 50 mm, the size at which there are abundance estimates.

The time to rebuild is highly dependent on the model’s assumptions about future recruitments. None of the recruitment models used in the analyses includes any role for the effects of the spawning stock on future reproduction. This is because the relationship between the existing spawning stock size and the number of recruits this stock will produce is not known. From analyzing historic information, variability in recruitment is known to be high. Large spawning stocks are known to produce small numbers of recruits. Likewise, small spawning stocks are known to produce large numbers of recruits. At present, no studies have been performed to identify and model the factors determining or influencing recruitment to the snow crab stock. Physical-oceanographic factors probably have a strong influence on recruitment of snow crab in the eastern Bering Sea. Biological factors that are unrelated to spawning stock size could also be important determinants of the strength of recruitment.

The lack of a stock-recruitment component in the models reflects the inability of the analysts at the current time to specify a model relating spawning stock conditions to future recruitment, rather than any conclusion on the part of the analysts that no such relationship exists.

Due to this lack of a stock-recruitment component, these models do not allow for any feedback from the effects of management measures to future recruitment. The models used here are adequate for modeling the short-term (the next 15 years) recovery of the stock, because the short-term stock dynamics will not be influenced by the present reproductive potential of the stock due to the time lag from spawning to recruiting. On the other hand, the models will not adequately represent any long-term effects due to harvesting mature males.

Important conservation consequences may result from different harvest rates applied to large males. Those consequences are not revealed in the model results. First, given the nature of the recruitment models used, any conservation benefits that may result from preservation of large male crabs within the spawning population through more conservative management, will not be reflected in the model results. The rebuilding simulations were conducted to estimate rebuilding times given the current level of scientific information, not to model all of the possible effects of the alternative harvest strategies.

Second, as shown in the EA, a high harvest rate on a stock with low population levels is risky for the long-term health of the stock. Research suggests that density dependent factors and other risks associated with harvesting a high rate of large males may exist when the stock is declining. Although environmental effects are important in effecting variation in recruitment and the snow crab fishery removes only the larger mature males from the stock, the possible effects on future recruitment due to the fishery should not be discounted.

The assumption that the only benefit of the rebuilding harvest strategy is a savings of 6 months in rebuilding time is incorrect. NMFS expects that the conservative harvest strategy will increase the abundance of snow crab by the preservation of large male crab and the reduction of bycatch of female and sublegal male crab. The primary goal of a rebuilding plan is to rebuild the stock to a biomass level that will produce maximum sustainable yield. Maximum sustainable yield provides the greatest catch and the greatest income to the fishermen and fishery-dependent communities over the long-term. Often, foregone catch in the short-term is necessary to have a high sustainable yield in the future.

The commenter states that the cost of the rebuilding harvest strategy is high levels of foregone catch. The commenter assumes that the snow crab stock would continue to support a fishery at a high harvest rate and that the fishery will rebuild if subject to a high harvest rate. As discussed above and detailed in the EA, scientific evidence shows otherwise. Continuing under the harvest rate of 58 percent runs the risk of causing the further decline of the stock.

The commenter estimates the future foregone catch based on a graph produced by ADF&G. From this graph, the commenter concludes that future harvest of snow crab will be hundreds of millions of pounds less that it would be under the traditional 58 percent harvest rate. The ADF&G graph compares the historic annual guideline harvest levels under the previous harvest rate to estimates of what the guideline harvest levels would have been if managers had applied the rebuilding harvest strategy in those years. As the graph shows, it does not model the potential increase in stock size due to greater carry-over of mature and harvestable stock that would have occurred from year-to-year under a more conservative harvest rate. This carry-over would have resulted in higher stock abundance, higher harvests than shown in the graph, and may have prevented the sharp declines in abundance that we saw under the previous harvest rate. Therefore, the assumption that, once the stock rebuilds, future harvest levels will be dramatically lower under the rebuilding harvest strategy than under the traditional 58 percent harvest rate is not accurate.

The Council has met the requirements of the Magnuson-Stevens Act and complies with the national standard guidelines by creating a rebuilding plan that reduces harvest when the stock is at low levels. The Magnuson-Stevens Act at section 303(a)(10) mandates that when the Secretary determines a stock is overfished, conservation measures to rebuild the fishery must be added to the FMP. These conservation measures are contained in the snow crab rebuilding plan.

NMFS determined that Amendment 14 to the FMP is consistent with the Magnuson-Stevens Act and other applicable laws and approved Amendment 14 on December 28, 2000. Additional information on this action is contained in the September 29, 2000, notice of availability (65 FR 58501).

No regulatory changes are necessary to implement this FMP amendment.