The Office of Personnel Management (OPM) issued an interim regulation containing most of the substantive changes of this final regulation on July 22, 1996, at 61 FR 37807. This regulation is an up-dated plain language version of 61 FR 37807. On June 16, 2006, OPM published this plain language rewrite as a proposed regulation at 71 FR 34849. We received no comment on the proposed regulation. There have been no changes to the regulation from its proposed version.

This final rule does not impose information collection and recordkeeping requirements that meet the definition of the Paperwork Reduction Act of 1995's term “collection of information” which means obtaining, causing to be obtained, soliciting, or requiring the disclosure to third parties or the public, of facts or opinions by or for an agency, regardless of form or format, calling for either answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on ten or more persons, other than agencies, instrumentalities, or employees of the United States; or answers to questions posed to agencies, instrumentalities, or employees of the United States which are to be used for general statistical purposes. Consequently, it need not be reviewed by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Regulatory Flexibility Act (RFA) requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and government agencies with revenues of $11.5 million or less in any one year. This rulemaking affects FEHB Program enrollment practices which do not impact the dollar threshold. Therefore, I certify that this regulation will not have a significant economic impact on a substantial number of small entities.

We have examined the impact of this final rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the RFA (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995, (Pub. L. 104-4), and Executive Order 13132. Executive Order 12866 (as amended by Executive Order 13258, which merely assigns responsibility of duties) directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any one year). This rule is not considered a major rule, as defined in section 804(2) of title 5, United States Code, because we estimate it will only affect Federal Government employment offices. Any resulting economic impact would not be expected to exceed the dollar threshold.

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

This rule has been determined to be not significant and was not reviewed by the Office of Management and Budget (OMB) under Executive Order 12866.

In accordance with the Paperwork Reduction of 1995, the information collection requirements contained in this regulation have been approved by OMB under control number 0575-0172.

The Agency is committed to complying with the E-Government Act, to promote the use of Internet and other information technologies to provided increased opportunities for citizen access to Government information and services, and for other purposes.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. In accordance with that Executive Order: (1) All State and local laws and regulations that are in conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule; and (3) administrative proceedings in accordance with the regulations of the National Appeals Division of USDA at 7 CFR part 11 must be exhausted before bringing suit in court challenging action taken under this rule unless those regulations specifically allow bringing suit at an earlier time.

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, 2 U.S.C. 1532, RHS 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, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires RHS to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local and tribal Governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The programs affected by this proposed rule are 10.410, Low to Moderate Income Housing Loans and 10.417, Very Low-Income Housing Repair Loans and Grants.

For the reasons set forth in the final rule related Notice to 7 CFR part 3015, subpart V, these programs are not subject to Executive Order 12372 which requires intergovernmental consultation with State and local officials.

This document has been reviewed in accordance with 7 CFR part 1940, subpart G, “Environmental Program.” It is the determination of RHS that this action does not constitute a major Federal action significantly affecting the quality of the human environment, and in accordance with the National Environmental Policy Act of 1969, Public Law 91-190, an Environmental Impact Statement is not required.

This rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature of this document that this rule will not have a significant economic impact on a substantial number of small entities. This rule imposes a new requirement on Agency applicants and borrowers; however, the new requirement of homeownership education will apply solely to the individual applicants and borrowers of Section 502 Direct Single Family Housing financing, not to small entities. There will be no significant information collection, or regulatory requirements imposed on small entities under this proposed rule.

The policies contained in this rule do not have any 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. Nor does this rule impose a substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

On March 6, 2006 the Agency published a proposed rule (71 FR 11167-9) with a 60 day comment period that would add homeowner education as a requirement for first time homebuyers that use Section 502 Direct loan funds to purchase a home. We received a total of 52 comments in response to the proposed rule. Overall the comments expressed support for the addition of the homeownership education requirement and generally agreed that homeowner education was necessary and beneficial. Many comments did have a recommendation or suggest a revision to the proposed rule. The comments are highlighted into significant issue areas and discussed below.

The Agency received 5 comments stating that mandating homeowner education would create a barrier for families to access Section 502 loans for home purchase. The comments suggested the following as possible barriers for families:

• Availability of homeowner education classes;

• Perception of an additional requirement that could discourage applicants, realtors and sellers from participating in the program,

• The travel time, distance and cost to the applicant(s), and

• Lack of certified counselors in some areas.

The Agency does not believe that these are insurmountable barriers. In fact, based on the overall comments received, the Agency has determined that the general consensus is that making homeowner education a requirement results in greater benefit to the borrowers than any perceived detrimental effect to the home buying process. While the agency has established some preferences under § 3550.11 for formats in training based on their effectiveness, adequate flexibility has been included to address the possible barriers raised.

In addition, although the Agency does not expect the exception provision to be liberally used, it will be available. The State Director may grant an exception to borrowers on a case-by-case basis where the applicant documents a special need, such as a disability, that would impede completing the homeownership course, or where homeownership education is not reasonably available in the local area as further discussed below. Therefore, these comments have not been adopted.

The Agency received 9 comments indicating that the waiver provision should not be routinely exercised, and 3 comments indicating the waiver provision was needed but that flexibility should be built into the rule in exercising the waiver. The State/Local RD office will do an area by area assessment of the availability of homeowner education in the following forms, before requesting an exception for an individual from the State Director: Classroom, one-on-one counseling, interactive video conference, interactive home-study, interactive telephone counseling, and on-line counseling. Exception requests will be reviewed and granted on an individual case-by-case basis. The State Director will consider whether access to such homeownership counseling is “reasonably available” before granting an exception to the homeowner education requirement to an individual. Factors that will be taken into consideration regarding availability of homeowner education to borrowers in areas served by field offices include, but are not limited to: Distance, travel time, geographic obstacles and cost. The intent of the exception provision is to ensure that the homeowner education requirement is not a barrier to an applicant in securing a loan; however, it is not the intent of the Agency to have liberal use of the exception provision. The exception provision is intended to be used only in those rare instances where it is demonstrated that a borrower would not be able to access any form of homeowner education without undue hardship[m1].

The Agency received 1 comment stating that readily available counseling should be defined in the rule. Informal investigation indicated that in some states applicants traveled up to one hour to attend a homeowner education class, after work and on the weekends, if necessary. Other comments were received that indicated an applicant would have to travel to another county to receive counseling. Distances vary from state to state and the willingness of an applicant to attend a class will vary. Given the many differences from state to state, what is “ readily available” in this rule is better addressed by the State Director during the assessment of available homeowner education resources in the respective States. Factors that will be taken into consideration regarding availability of homeowner education to borrowers in areas served by field offices include, but are not limited to: distance, travel time, geographic obstacles and cost.

The Agency received 7 comments regarding sources of funds to pay for homeowner education on behalf of very-low and low-income borrowers. Some commenters believe that the Agency should assist in paying for the required homeowner education. This issue will be addressed, in part, by the RD State Offices when they assess the availability of homeowner education throughout their respective states and compile, an annually updated resource list of certified organizations and trainers that provide homeowner education. Where there is a fee charged to the borrower for homeowner education, the States will also assess sources of funding for the borrower to pay for their homeowner education, for example, organizations that provide free homeowner education will be identified, and borrowers will be referred to the free training first in all states. The Agency research revealed that many organizations charge only a nominal fee to cover the cost of materials for homeowner education. If qualified, these providers will be identified, and borrowers will be referred to these classes if free classes are unavailable. In addition, the borrower will have the option of financing reasonable costs of the training, as determined by the State Director, by including the amount in the loan amount at loan closing. Inclusion of such costs will not substantially increase the monthly Section 502 borrower loan payments.

The Agency believes that the overall benefit of homeownership education outweighs the burdens involved. The cost of homeowner education will be another allowed expense that can be added to the cost of home purchase, if requested.

The Agency received 10 comments regarding reasonable fees to charge for homeowner education and suggesting that the Agency to set parameters for homeownership education fees as a guideline for the RD State Directors. RD does not believe it is appropriate to set or regulate the appropriate fee for providers. This should be determined based on local market conditions. Based on the comments received, the Agency will allow the State Directors to determine what is a reasonable fee to be charged for homeowner education based on the results of statewide assessments within their respective states. The Agency anticipates fees charged to borrowers based on the comments received to range from free to $400.

The Agency received 3 comments indicating that the fee for homeowner education counseling should be allowed in the loan amount in excess of the appraised value of the house. In response, the Agency will allow reasonable homeowner education fees to be added to the loan amount in excess of the appraised value of the house and area loan limits under § 3550.63 in cases where the borrower requests to pay for the cost of the homeowner education by adding it to the loan amount. The Agency anticipates that such amounts will be insignificant portions of the loan.

The Agency received 4 comments stating that RD staff should deliver the homeowner education training. Staff capacity and, qualification to deliver training vary from state to state. State Directors have the flexibility within their States to determine the feasibility of offering this training using staff resources given other program demands. RD staff would have to be trained and certified to provide homeowner education as required under this rule.

The Agency received 18 comments stating that certification of housing counselors should be allowed on the state-level, either by the State Housing Financing Agencies or other state-level certification processes, 4 comments stating the certification should model the HUD standard or one of the national organizations referenced in the proposed rule, and 1 commenting regarding certification of culturally appropriate training for Native American communities, especially Native Americans that reside on rural reservations. The Agency agrees that state-level certification and certification of culturally appropriate training for Native Americans should be included. It is addressed in the final rule by § 3550.11 permitting state-level certification by the State Housing Finance Agency or other state-level certification approved by the State Director, and certification by the National American Indian Housing Council, provided the required topics are included in their curriculum. The State Director will confirm that the housing counseling agencies that are not certified by a national agency identified in the final rule are certified by an approved state agency during the RD State Office assessment of available certified housing counseling agencies in their respective states.

The Agency received 4 comments regarding the requirement for the borrower to have a certificate of completion or letter of completion from the housing counseling provider to document that the course was successfully completed. The main concern of these comments was that there should not be a testing component in order for the provider to issue a letter or certificate of completion to the participants. Since the language in the proposed rule lets the provider determine successful completion of their course, the Agency has determined that there is sufficient flexibility for each provider to make an appropriate individual assessment and; therefore, the language will remain the same in the final rule.

The Agency received 8 comments regarding when during the home purchase process should the borrower complete homeowner education. Homeowner education must be completed by the borrower prior to closing their loan. When the borrowers receive their certificate of eligibility for a loan they will be advised that by accepting the certificate of eligibility they agree to submit documentation of homeowner education completion before loan closing and that they understand that it is a condition of loan closing. Language to this effect will be added to the Agency's certificate of eligibility document. At that time, the Agency will provide referrals to certified housing counselors to the borrower and discuss with the borrower where and when they will complete the homeowner education class.

Generally, the comments stated that the earlier in the process the homeownership education is taken the greater it would benefit the borrower. It would be ideal if the borrowers would complete an homeowner education course before submitting a loan application and certainly before signing a purchase and sale agreement; however, realistically, as some comments indicated this may not be practicable in all cases. Many borrowers are unlikely to incur the expense of taking a homeowner education course if they have no confidence that they will be approved for a loan to buy a house. In recognition of these realities, the Agency also will offer some flexibility to providers in tailoring the curriculum to the attendee. For example, when the attendee has already located a dwelling to purchase, they need not be required to take that portion of the training dealing with shopping for a home. The provider could determine that the applicant already has satisfactory knowledge in this area.

The Agency received 2 comments regarding whether Self-Help families would have to comply with the homeowner education requirement. If the Self-Help families are applying for Section 502 loans, then this rule requiring homeowner education as set forth would apply.

The Agency received 8 comments regarding additional topics that should be included in the required homeowner education. The Agency recognizes the value of these additional topics, therefore, the final rule will add them as recommended: Budgeting—Pre-& Post-Purchase; Credit Counseling; Lender Differences—especially predatory lending; and Post-Occupancy Education to include delinquency and foreclosure prevention.

A proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an airworthiness directive (AD) that is applicable to Airbus Model A300 airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F series airplanes (collectively called A300-600 series airplanes); and Model A310 airplanes was published as a supplemental notice of proposed rulemaking (NPRM) in the Federal Register on May 9, 2006 (71 FR 26884). That action proposed to require revising the FAA-approved maintenance program to include a new airplane maintenance manual task that specifies a detailed inspection after each ram air turbine (RAT) extension. That action also proposed to require a one-time inspection to detect breaks in the bottom flange fitting of the RAT and corrective actions, if necessary; for certain airplanes, an adjustment of the ejection jack; and, for certain other airplanes, replacement of the aluminum part with an improved steel part.

Interested persons have been afforded an opportunity to participate in the making of this amendment. Due consideration has been given to the comments received.

Airbus requests that we remove Model A300 airplanes from the “effectivity” of paragraph (a) of the supplemental NPRM, which specifies a detailed inspection for breaks of the bottom flange fitting of the yoke fitting for the RAT swivel coupling, and replacement if necessary. Airbus states that all Model A300-B2 and -B4 airplanes are equipped with Dowty RATs that have swivel coupling yoke fittings. The Dowty fittings are to be replaced in accordance with Airbus Service Bulletin A300-57-0244, dated March 4, 2005. That action is specified in paragraph (b) of the Supplemental NPRM. Airbus states that the FAA should specify that these airplanes are to use the up-to-date requirements of French airworthiness directives F-2005-089, dated June 8, 2005; and F-2005-090 R1, dated July 6, 2005.

We agree with removing Model A300 airplanes from paragraph (a) of the AD. Airbus and the European Aviation Safety Agency (EASA) have assessed the risk based on worldwide fleet reports and decided that the necessary actions are those in Airbus Service Bulletin A300-57-0244, which specifies replacing the RAT swivel fitting. We have revised the AD by removing the reference to Model A300 airplanes in paragraph (a), deleting sub-paragraph (a)(1), and re-numbering the subsequent sub-paragraphs accordingly.

Airbus also points out that the revision to the FAA-approved maintenance program to specify an inspection for breaks of the bottom flange of the RAT swivel coupling yoke fitting after each RAT extension that is specified in the supplemental NPRM should instead specify an inspection after each RAT retraction. Airbus states that changing the wording in the supplemental NPRM would be consistent with Airbus and EASA documentation.

We agree with the request to change “extension” to “retraction” in the AD. The inspection should be done after the extension-retraction cycle rather than after each RAT extension. We have revised paragraph (c) and the Summary of the AD accordingly.

Airbus also requests that we remove the reference to French airworthiness directive F-2003-149 R1, dated June 8, 2005, which is included in Note 5 of the supplemental NPRM. Airbus states that the one-time inspection in French airworthiness directive F-2003-149 R1 is completed, and this AD should mandate the up-to-date requirements by following the actions in French airworthiness directives F-2005-089 and F-2005-090 R1. These airworthiness directives refer to the airplane maintenance manual (AMM) sections for inspections following each retraction.

We agree with the request to remove the reference to French airworthiness directive F-2003-149 R1. Based on the fleet results obtained by Airbus and EASA in response to that airworthiness directive, the necessary corrective actions have been decided and are mandated through French airworthiness directives F-2005-089 and F-2005-090 R1. We have changed Note 4 of this AD to remove the reference to French airworthiness directive F-2003-149 R1.

Airbus also requests that we change paragraph (d) of the supplemental NPRM, “Credit for Actions Accomplished Previously,” regarding credit. Paragraph (d) states that actions done in accordance with Airbus All Operator's Telexes (AOTs) 57A6096 and 57A2085, both dated March 6, 2003, are acceptable for compliance with the corresponding actions in paragraph (a) of the supplemental NPRM. Airbus points out that only Revision 01 of the same AOTs (both dated April 11, 2005) are acceptable because only those revisions take into account the complementary investigations that identify the RAT swivel fitting failure and the corresponding corrective actions.

We agree that only Revisions 01 of Airbus A300-600 AOT 57A6096 and Airbus A310 AOT 57A2085 take into account the complementary investigations that identify the RAT swivel fitting failure and the corresponding corrective actions. Operators that did the actions in the original issues of the AOTs must verify the adjustment of the ejection jack and correct the adjustment, as applicable, in accordance with Revision 01 of the AOTs. Therefore, we have removed paragraph (d) of the supplemental NPRM, and re-lettered the subsequent paragraphs in the AD accordingly.

TradeWinds Airlines states that paragraph (c)(3) of the supplemental NPRM should not specify Airbus Temporary Revision (TR) 29-015, dated April 12, 2005, but instead should refer to Airbus A300 AMM Chapter 29-25-00, Page Block 301, dated March 1, 2006. TradeWinds states that TR 29-015 contains instructions only for certain Model A300 airplanes. For other Model A300 airplanes, the instructions are in a different TR. Therefore, TradeWinds requests that we refer to Airbus A300 AMM Chapter 29-25-00 in paragraph (c)(3) of the supplemental NPRM, and that we also remove Note 3 of the supplemental NPRM, which refers to TR 29-015.

We agree with the request to revise paragraph (c)(3) of this AD and remove Note 3 of the supplemental NPRM. Airbus confirms that the TR references are assigned within a given code to a specific operator; therefore, the TR number may vary for different operators. Therefore, we have revised this AD as follows: We changed paragraph (c)(3) of the AD to refer to Airbus A300 AMM Chapter 29-25-00, Page Block 301, dated March 1, 2006; revised paragraph (c) to remove the reference to the TR; removed Note 3; and renumbered the subsequent notes accordingly.

TradeWinds Airlines also requests that we change paragraph (c) of the supplemental NPRM to specify replacing the RAT swivel coupling yoke fitting with a new steel part rather than with a new aluminum part. TradeWinds points out that paragraph (b) of the supplemental NPRM mandates replacing the aluminum fitting with a steel fitting.

We partially agree with TradeWinds. We agree that the paragraph should refer to the steel fitting. We disagree with removing the reference to the aluminum fitting. Paragraph (c) of this AD applies to airplanes with either a Dowty or a Hamilton Sundstrand RAT. Paragraph (b) of this AD applies only to airplanes with Dowty RATs. Discrepant Hamilton Sundstrand RATs can be replaced with either an aluminum part or a steel part. Therefore, we have revised paragraph (c) of the AD to specify replacing the part with a new aluminum or steel part, as applicable.

Paragraph (c) of the supplemental NPRM specifies making repairs using a method approved by either the FAA or the Direction GOrale de l'Aviation Civile (DGAC) (or its delegated agent). The European Aviation Safety Agency (EASA) has assumed responsibility for the airplane models subject to this AD. Therefore, we have revised paragraph (c) of this AD to specify making repairs using a method approved by the FAA, the DGAC (or its delegated agent), or the EASA (or its delegated agent).

We have clarified the applicability to include the words “all” in the following statement: “Applicability: All Model A300 airplanes; Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F airplanes; and Model A310 airplanes; certificated in any category.”

After careful review of the available data, including the comments noted above, the FAA has determined that air safety and the public interest require the adoption of the rule with the changes described previously. The FAA has determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

The following table provides the estimated costs for U.S. operators to comply with this AD. There are approximately 165 airplanes of U.S. registry that are affected by this AD.

The cost impact figure discussed above is based on assumptions that no operator has yet accomplished any of the requirements of this AD action, and that no operator would accomplish those actions in the future if this AD were not adopted. The cost impact figures discussed in AD rulemaking actions represent only the time necessary to perform the specific actions actually required by the AD. These figures typically do not include incidental costs, such as the time required to gain access and close up, planning time, or time necessitated by other administrative actions.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The regulations adopted herein will not have a substantial direct effect 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. Therefore, it is determined that this final rule does not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this action (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A final evaluation has been prepared for this action and it is contained in the Rules Docket. A copy of it may be obtained from the Rules Docket at the location provided under the caption ADDRESSES .

You may examine the AD docket on the Internet at http://dms.dot.gov or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section.

The FAA issued a supplemental notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to all Airbus Model A300 airplanes; A300 B4-600, B4-600R, and F4-600R series airplanes, and Model A300 C4-605R Variant F airplanes (collectively called A300-600 series airplanes); and A310 airplanes. That supplemental NPRM was published in the Federal Register on September 11, 2006 (71 FR 53341). That supplemental NPRM proposed to require the actions in the original NPRM, which were improving the routing of certain electrical wire bundles in certain airplane zones, as applicable to the airplane model. That supplemental NPRM also revised the original NPRM by removing certain proposed requirements, and extending the compliance time for a certain replacement. That supplemental NPRM also specified that the actions are considered interim until a terminating action for the removed proposed requirements is approved and available.

Since we issued the supplemental NPRM, we have reviewed and approved the service bulletins listed in the following table. We referred to earlier revisions of these service bulletins as appropriate sources of service information for accomplishing certain actions in the supplemental NPRM. We have changed paragraphs (f)(2), (g), (h)(1), and (h)(2), and Table 1 of this AD to include references to these new revisions, and to give credit for accomplishment of previous revisions. The changes in the service information do not change the scope of the AD.

We provided the public the opportunity to participate in the development of this AD. We have considered the comment received.

The Modification and Replacement Parts Association (MARPA) states that, typically, airworthiness directives are based on service information originating with the type certificate holder or its suppliers. MARPA adds that manufacturer service documents are privately authored instruments generally having copyright protection against duplication and distribution. MARPA notes that when a service document is incorporated by reference into a public document, such as an airworthiness directive, it loses its private, protected status and becomes a public document. MARPA adds that if a service document is used as a mandatory element of compliance, it should not simply be referenced, but should be incorporated into the regulatory document; by definition, public laws must be public, which means they cannot rely upon private writings. MARPA is concerned that the failure to incorporate essential service information could result in a court decision invalidating the AD.

MARPA adds that incorporated by reference service documents should be made available to the public by publication in the Docket Management System (DMS), keyed to the action that incorporates them. MARPA notes that the stated purpose of the incorporation by reference method is brevity, to keep from expanding the Federal Register needlessly by publishing documents already in the hands of the affected individuals; traditionally, “affected individuals” means aircraft owners and operators, who are generally provided service information by the manufacturer. MARPA adds that a new class of affected individuals has emerged, since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. MARPA notes that this new class includes maintenance and repair organizations, component servicing and repair shops, parts purveyors and distributors, and organizations manufacturing or servicing alternatively certified parts under part 21 of the Federal Aviation Regulations (14 CFR part 21), § 21.303 (parts manufacturer approval) (PMA). MARPA adds that the concept of brevity is now nearly archaic as documents exist more frequently in electronic format than on paper. Therefore, MARPA asks that the service documents deemed essential to the accomplishment of the NPRM be incorporated by reference into the regulatory instrument, and published in the DMS.

We understand MARPAs comment concerning incorporation by reference. The Office of the Federal Register (OFR) requires that documents that are necessary to accomplish the requirements of the AD be incorporated by reference during the final rule phase of rulemaking. This final rule incorporates by reference the document necessary for the accomplishment of the requirements mandated by this AD. Further, we point out that while documents that are incorporated by reference do become public information, they do not lose their copyright protection. For that reason, we advise the public to contact the manufacturer to obtain copies of the referenced service information.

Additionally, we do not publish service documents in DMS. We are currently reviewing our practice of publishing proprietary service information. Once we have thoroughly examined all aspects of this issue, and have made a final determination, we will consider whether our current practice needs to be revised. However, we consider that to delay this AD action for that reason would be inappropriate, since we have determined that an unsafe condition exists and that the requirements in this AD must be accomplished to ensure continued safety. Therefore, we have not changed the AD in this regard.

We have clarified paragraph (f)(2) of this AD to specify the intended paragraph identifier referenced in that paragraph.

We have carefully reviewed the available data, including the comment received, and determined that air safety and the public interest require adopting the AD with the change described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

We consider this AD interim action. The EASA, which is the airworthiness authority for the European Union, has informed us that the manufacturer is currently developing an additional modification that will address the unsafe condition identified in this AD. Once this modification is developed, approved, and available, we may consider additional rulemaking.

The following table provides the estimated costs for U.S. operators to comply with this AD.

This AD affects about 169 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD. The average labor rate is $80 per work hour.

Based on these figures, the estimated cost of the AD for U.S. operators is up to $2,939,924, or up to $17,396 per airplane.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

You may examine the airworthiness directive (AD) docket on the Internet at http://dms.dot.gov or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone (800) 647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to certain Bombardier Model CL-600-2B19 (Regional Jet Series 100 & 440) airplanes. That NPRM was published in the Federal Register on October 12, 2006 (71 FR 60083). That NPRM proposed to require inspecting for discrepancies of the activation mechanism of certain chemical oxygen generators, and corrective action if necessary.

We provided the public the opportunity to participate in the development of this AD. We have considered the comments received.

The Modification and Replacement of Parts Association (MARPA) states that frequently ADs are derived from service information originating with the type certificate holder or its suppliers. MARPA also states that manufacturer's service documents are privately authored instruments generally enjoying copyright protection against duplication and distribution. MARPA contends that when a service document is incorporated by reference pursuant to 5 U.S.C. 552(a) and 1 CFR part 51 into a public document such as an AD, it loses its private, protected status and becomes itself a public document. MARPA explains that if a service document is used as a mandatory element of compliance it should not simply be referenced, but should be incorporated into the regulatory document. MARPA states that public laws by definition must be public, which means they cannot rely for compliance upon private writings, especially when the writings originate in a foreign country. MARPA adds that the interpretation of a document is not a question of fact, but of law, bound by the figurative four corners of the document; therefore, unless the service document is incorporated by reference, a court of law will not consider it when interpreting the AD. MARPA is concerned that failure to incorporate-by-reference the relevant service information could result in a court decision invalidating the AD.

MARPA advises that it was informed that service documents are usually not incorporated into proposed actions (NPRMs), but only into final actions. MARPA notes that there is no indication in the NPRM that the FAA intends to incorporate by reference the necessary service information; in addition, there is no indication of which service documents are mandatory and which are merely sources of additional service information; therefore, the reader is unsure of the FAA's intent. MARPA asks that future proposed actions indicate the FAA intent by including the following, or a similar statement: “We intend to incorporate by reference the following publications.”

MARPA also states that incorporation by reference service documents should be made available to the public by publication in the Docket Management System (DMS) keyed to the action that incorporates them. MARPA adds that, under the aforementioned authorities, incorporation by reference is a technique used to reduce the size of the Federal Register when the information is already available to the affected individuals. MARPA notes that, traditionally, “affected individuals” has meant aircraft owners and operators who are generally provided service information by the manufacturer. MARPA states that a new class of affected individuals has emerged since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. MARPA adds that this new class includes maintenance and repair organizations (MRO), component servicing and repair shops, parts purveyors and distributors and organizations manufacturing or servicing alternatively certified parts under section 21.303 (“Replacement and modification parts”) of the Federal Aviation Regulations (14 CFR 21.303). Further, MARPA notes that the concept of brevity is now nearly archaic as documents exist more frequently in electronic format than on paper. Therefore, MARPA asks that the service documents deemed essential to the accomplishment of the NPRM be incorporated by reference into the regulatory instrument, and published in DMS prior to release of the AD.

We understand MARPA's comment concerning incorporation by reference. The Office of the Federal Register (OFR) requires that documents that are necessary to accomplish the requirements of the AD be incorporated by reference during the final rule phase of rulemaking. This final rule incorporates by reference the documents necessary for the accomplishment of the requirements mandated by this AD. Further, we point out that while documents that are incorporated by reference do become public information, they do not lose their copyright protection. For that reason, we advise the public to contact the manufacturer to obtain copies of the referenced service information.

The FAA does not concur with the commenter's request to indicate in an NPRM our intent to incorporate service information by reference. When we propose that actions be accomplished in accordance with certain service information in an NPRM, the public may assume we intend to IBR that service information, as requested by the Office of the Federal Register. Service information that is cited in the proposed AD as a source of additional information is not presented as a requirement, and the public may assume we do not intend to IBR that service information. No change to this final rule is necessary in regard to the commenter's request.

In regard to MARPA's request to post service bulletins on the Department of Transportation's DMS, we are currently in the process of reviewing issues surrounding the posting of service bulletins on the DMS as part of an AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. No change to the final rule is necessary in response to this comment.

We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD as proposed.

This AD affects about 145 airplanes of U.S. registry.

The inspection in Bombardier Alert Service Bulletin A601R-35-014 takes about 3 work hours per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of this inspection for U.S. operators is $34,800, or $240 per airplane.

The inspection in Bombardier Service Bulletin 601R-35-016 takes about 1 work hour per airplane, at an average labor rate of $80 per work hour. Based on these figures, the estimated cost of this inspection for U.S. operators is $11,600, or $80 per airplane.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

In the November 16, 2006 Federal Register , 71 FR 66706, BEA published a notice of proposed rulemaking setting forth reporting requirements for the BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons. No comments were received on the proposed rule. Thus, the proposed rule is adopted without change. This final rule amends 15 CFR Part 801.9 to replace the reporting requirements for the BE-85, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Unaffiliated Foreign Persons, with requirements for the BE-185, Quarterly Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons.

The BE-185 survey is a mandatory survey and will be conducted, beginning with transactions for the first quarter of 2007, by BEA under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101—3108). For the initial quarter of coverage, BEA will send the survey to potential respondents in March of 2007; responses will be due by May 15, 2007.

The BE-185 will collect all the same information as the BE-85 but will also include financial services transactions with affiliated parties (i.e., with foreign affiliates, foreign parents, and foreign affiliates of foreign parents). BEA is currently collecting these transactions on its quarterly direct investment surveys (the BE-577, Direct Transactions of U.S. Reporter with Foreign Affiliate, the BE-605, Transactions of U.S. Affiliate, except a U.S. Banking Affiliate, with Foreign Parent, and the BE-605 Bank, Transactions of U.S. Banking Affiliate with Foreign Parent). These transactions with affiliated parties that are collected on BEA(s quarterly direct investment surveys will now be collected on the BE-185 instead. In addition, the BE-185 will bifurcate the category for brokerage services into two categories, by collecting information on services related to equities transactions separately from other brokerage services.

The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, will conduct the BE-185 survey under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act” and Section 5408 of the Omnibus Trade and Competitiveness Act of 1988 (Pub. L. 100-418, 15 U.S.C. 4908(b)). Section 4(a) of the Act (22 U.S.C. 3103(a)) provides that the President shall, to the extent he deems necessary and feasible, conduct a regular data collection program to secure current information related to international investment and trade in services and publish for the use of the general public and United States Government agencies periodic, regular, and comprehensive statistical information collected pursuant to this subsection.

In Section 3 of Executive Order 11961, as amended by Executive Orders 12318 and 12518, the President delegated the responsibilities under the Act for performing functions concerning international trade in services to the Secretary of Commerce, who has redelegated them to BEA. The survey will provide a basis for updating estimates of the universe of financial services transactions between U.S. and foreign persons. The data are needed to monitor trade in financial services; analyze its impact on the U.S. and foreign economies; compile and improve the U.S. international transactions, national income and product, and input-output accounts; support U.S. commercial policy on financial services; assess and promote U.S. competitiveness in international trade in services; and improve the ability of U.S. businesses to identify and evaluate market opportunities.

This final rule has been determined to be not significant for purposes of E.O. 12866.

This final rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federal assessment under E.O. 13132.

The collection-of-information in this final rule has been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act.

Notwithstanding any other provisions of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection displays a currently valid Office of Management and Budget Control Number. The OMB control number for the BE-185 is 0608-0065; the collection will display this number.

The BE-185 quarterly survey is expected to result in the filing of reports containing mandatory data from approximately 175 respondents on a quarterly basis, or 700 annually. The respondent burden for this collection of information will vary from one respondent to another, but is estimated to average 10 hours per response (40 hours annually), including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Thus, the total respondent burden for the BE-185 survey is estimated at 7,000 hours, compared to 5,000 hours estimated for the previous BE-85 survey. The increase in burden is a result of the inclusion of transactions with affiliated foreign persons.

Comments regarding this burden estimate or any other aspect of this collection of information should be addressed to: Director, Bureau of Economic Analysis (BE-1), U.S. Department of Commerce, Washington, DC 20230, fax: 202-606-5311; and the Office of Management and Budget, O.I.R.A., Paperwork Reduction Project 0608-0065, Attention PRA Desk Officer for BEA, via e-mail at pbugg@omb.eop.gov or by fax at 202-395-7245.

The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under provisions of the Regulatory Flexibility Act (5 U.S.C. 605(b)), that this rule will not have a significant economic impact on a substantial number of small entities. The factual basis for this certification was published with the proposed rule. No comments were received regarding the economic impact of this rule. As a result, no final regulatory flexibility analysis was prepared.

In the November 20, 2006 Federal Register , 71 FR 67086, BEA published a notice of proposed rulemaking setting forth reporting requirements for the BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons. No comments were received on the proposed rule. Thus, the proposed rule is adopted without change. This final rule amends 15 CFR 801.9 to replace the reporting requirements for the BE-25, Quarterly Survey of Transactions with Unaffiliated Foreign Persons in Selected Services and in Intangible Assets, with requirements for the BE-125, Quarterly Survey of Transactions in Selected Services and Intangible Assets with Foreign Persons.

The BE-125 survey is a mandatory survey and will be conducted, beginning with transactions for the first quarter of 2007, by BEA under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” For the initial quarter of coverage, BEA will send the survey to potential respondents in March of 2007; responses will be due by May 15, 2007.

The BE-125 will collect information now reported on the BE-25, Quarterly Survey of Transactions Between U.S. and Unaffiliated Foreign Persons in Selected Services and in Intangible Assets, and will also include services transactions that BEA is currently collecting on the BE-22, Annual Survey of Selected Services Transactions Between U.S. and Unaffiliated Foreign Persons, and services transactions with affiliated parties (i.e., with foreign affiliates, foreign parents, and foreign affiliates of foreign parents). In addition to discontinuing the BE-25, BEA also will discontinue the BE-22 at the time the BE-125 is implemented. BEA is currently collecting information on the transactions with affiliated parties on its quarterly direct investment surveys (the BE-577, Direct Transactions of U.S. Reporter with Foreign Affiliate, the BE-605, Transactions of U.S. Affiliate, except a U.S. Banking Affiliate, with Foreign Parent, and the BE-605 Bank, Transactions of U.S. Banking Affiliate with Foreign Parent). These transactions with affiliated parties that are collected on BEA's quarterly direct investment surveys will now be collected on the BE-125 instead. In addition, the BE-125 will combine several services into one “other selected services” category, which includes any services not individually covered by the survey or available from other sources.

The Bureau of Economic Analysis (BEA), U.S. Department of Commerce, will conduct the survey under the International Investment and Trade in Services Survey Act (22 U.S.C. 3101-3108), hereinafter, “the Act.” Section 4(a) of the Act (22 U.S.C. 3103(a)) provides that the President shall, to the extent he deems necessary and feasible, conduct a regular data collection program to secure current information related to international investment and trade in services and publish for the use of the general public and United States Government agencies periodic, regular, and comprehensive statistical information collected pursuant to this subsection.

In Section 3 of Executive Order 11961, as amended by Executive Orders 12318 and 12518, the President delegated the responsibilities under the Act for performing functions concerning international trade in services to the Secretary of Commerce, who has redelegated them to BEA. The survey will provide a basis for updating estimates of the universe of transactions between U.S. and foreign persons in selected services and intangible assets. The data are needed to monitor trade in services and intangible assets; analyze its impact on the U.S. and foreign economies; compile and improve the U.S. international transactions, national income and product, and input-output accounts; support U.S. commercial policy on services and intangible assets; assess and promote U.S. competitiveness in international trade in services; and improve the ability of U.S. businesses to identify and evaluate market opportunities.

This final rule has been determined to be not significant for purposes of E.O. 12866.

This final rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federal assessment under E.O. 13132.

The collection-of-information in this final rule has been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act.

Notwithstanding any other provisions of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection displays a currently valid Office of Management and Budget Control Number. The OMB control number for the BE-125 is 0608-0067; the collection will display this number.

The BE-125 quarterly survey is expected to result in the filing of reports containing mandatory data from approximately 1,000 respondents on a quarterly basis, or 4,000 annually. The respondent burden for this collection of information will vary from one respondent to another, but is estimated to average 16 hours per response (64 hours annually), including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Thus, the total respondent burden for the BE-125 survey is estimated at 64,000 hours, compared to 35,200 hours estimated for the previous BE-25 survey. The increase in burden is a result of three factors: More U.S. persons with transactions in international services, the addition of selected services transactions that were previously covered by the BE-22, annual survey of selected services transactions (9,200 burden hours), and the inclusion of transactions with affiliated foreign persons.

Comments regarding this burden estimate or any other aspect of this collection of information should be addressed to: Director, Bureau of Economic Analysis (BE-1), U.S. Department of Commerce, Washington, DC 20230, fax: 202-606-5311; and the Office of Management and Budget, O.I.R.A., Paperwork Reduction Project 0608-0067, Attention PRA Desk Officer for BEA, via e-mail at * * * or by fax at 202-395-7245.

The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under provisions of the Regulatory Flexibility Act (5 U.S.C. 605(b)), that this rule will not have a significant economic impact on a substantial number of small entities. The factual basis for this certification was published with the proposed rule. No comments were received regarding the economic impact of this rule. As a result, no final regulatory flexibility analysis was prepared.

Before Commissioners: Joseph T. Kelliher, Chairman; Suedeen G. Kelly, Marc Spitzer, Philip D. Moeller, and Jon Wellinghoff.

1. The Federal Energy Regulatory Commission (Commission) is amending 18 CFR Parts 35, 366, and 375 to revise its regulations governing delegations of authority to the Directors of the Office of Enforcement (OE)  1 and the Office of Energy Markets and Reliability (OEMR), as well as to the Commission's Chief Accountant. 2 These amendments will eliminate regulatory uncertainty and provide clarity regarding the authority delegated to the Office of Enforcement and the Chief Accountant.

2. The Commission has broad statutory authority to perform acts and make rules that are necessary or appropriate to carry out its statutory functions. 3 This includes the delegation of its statutory authority to staff members on routine matters, “which in many cases represent nothing more than a ministerial judgment by the office director concerning procedural matters,” to allow the Commission to focus on more complex and controversial tasks. 4 The Commission has delegated certain of its authority in a series of orders beginning in 1978. 5

3. When the Office of Market Oversight and Investigations (OMOI), the predecessor to OE, was created in 2003, the Commission issued Order No. 632, 6 which promulgated OMOI's original delegations of authority. In Order No. 632, the Commission stated that certain delegations to the General Counsel and to the Director of the Office of Markets, Tariffs, and Rates (OMTR, now known as the Office of Energy Markets and Reliability or OEMR), were being duplicated in OMOI's delegations.

4. The following year, in Order No. 650, 7 the Commission revised the delegations promulgated in Order No. 632 to reflect the move of the Division of Regulatory Audits (renamed the Division of Financial Audits) from the Office of the Executive Director (OED) to OMOI. In Order No. 650, the relevant delegation provisions were added to the OMOI delegations and deleted from the OED delegations. In 2005, pursuant to another reorganization, the Regulatory Accounting policy function, as well as the Chief Accountant, were moved from OMTR to OMOI.

5. On April 17, 2006, the reorganization and renaming of OMOI as OE became effective. OE includes an administrative branch and four divisions—Investigations, Audits, Financial Regulation (for which the Chief Accountant also serves as the Division Director), and Energy Market Oversight.

6. Part 375, Subpart C, of the Commission's rules and regulations sets out delegations of authority to the various office directors, such as the Directors of OMOI (now called OE)  8 and OMTR (now called OEMR), 9 as well as to statutory officers such as the Chief Accountant. 10 The regulations in Part 375 which are amended by this rule are found in §§ 375.303, 375.307, and 375.314, and are discussed below.

7. Section 375.314  11 includes the delegations of authority to the Director of OMOI (now OE). Amendments to this section are made to replace the former office title of Office of Market Oversight and Investigations with the title Office of Enforcement and occur in the title to § 375.314, and in the text of § 375.314(b), (c), and (d). 12

8. Sections 375.314(i), (j), and (k)  13 of the current delegations to the Director of OMOI (now OE) concern auditing matters and essentially duplicate delegations formerly made to the Director of OMTR (now OEMR) at a time when auditing matters were handled in OMTR. These matters fall solely within the purview of the Director of OE. Accordingly, this rule removes § 375.307(a), (c), and (d)  14 from the delegations to the Director of OMTR (now OEMR).

9. The remaining amendments to the regulations, as discussed below, reflect changes in the responsibilities of the Chief Accountant which occurred when the Regulatory Accounting policy function was moved to OMOI (now OE), discussed above, as well as through delegations made by the Commission in Order Nos. 667  15 and 679. 16 When the Regulatory Accounting policy function was moved to OMOI (now OE), responsibility for administering Annual Reports (FERC Form Nos. 1, 1-F, 2, 2-A, and 6)  17 and Electric Quarterly Reports (EQRs)  18 were transferred to the Chief Accountant. These, as well as all other forms, data collections, and reports administered by the Chief Accountant, assist the Commission in its review and approval of cost-based rates. The data contained in these forms, data collections, and reports serve other purposes as well.

10. In Order No. 679, among other things, the Commission created FERC-730 (report of transmission investment activity)  19 and delegated to the Chief Accountant the authority to act on motions for extensions of time to file the newly-created FERC-730, or motions to waive the requirements applicable to those filings. However, that recent delegation is not reflected in the Chief Accountant's delegations in 18 CFR 375.303. Instead, the delegatory language was codified as part of § 35.35(h), which comprises the regulations describing the report and the filing requirements for that report. In order to centralize all delegations to the Chief Accountant, this rule amends the regulations to add this delegation to 18 CFR 375.303, and revises § 35.35(h)(3) to remove the delegatory language therein.

11. In Order Nos. 667, among other things, the Commission created FERC Form No. 60 (Annual Report of Centralized Service Companies). 20 In Order No. 667-A, the Commission created FERC-61 (narrative description of service company functions). 21 In Order No. 667-A, the Commission delegated to the Chief Accountant the authority to act on motions for extensions of time to file and requests for waiver of the requirements of FERC Form No. 60 and FERC-61. 22 In Order No. 684, §§ 375.303(f) and (g) were amended to include those delegations also. 23 In order to centralize all delegations to the Chief Accountant, this rule amends 18 CFR 375.303, and revises § 366.23(a)(3) to remove the delegatory language therein.

12. To summarize, currently, the Chief Accountant is authorized to: (1) Act on motions for extension of time to file Form No. 60, FERC-61, and FERC-730; (2) act on requests for waiver of the requirements of Form Nos. 3-Q and 6-Q, 24 Form No. 60, FERC-61, and FERC-730; and (3) issue deficiency letters regarding Form Nos. 3-Q and 6-Q. The rule amends the regulations to uniformly authorize the Chief Accountant to: (1) Act on motions for extensions of time to file, (2) act on requests for waiver of the requirements of, and (3) issue deficiency letters regarding, each of the above-discussed forms, data collections, and reports (Form Nos. 1, 1-F, 2, 2-A, 6, 3-Q, 6-Q, 60; FERC-61, FERC-730; and EQRs), so that the delegated authority applicable to these forms, data collections, and reports is consistent. To effectuate this delegation, the rule amends § 375.303 by replacing existing paragraphs (f) and (g) to provide that the Chief Accountant may deny or grant, in whole or in part, motions for extension of time to file, or requests for waiver of the requirements of Annual Reports (Form Nos. 1, 1-F, 2, 2-A, and 6); Quarterly Reports (Form Nos. 3-Q and 6-Q); Annual Report of Centralized Service Companies (Form No. 60); Narrative Description of Service Company Functions (FERC-61); Report of Transmission Investment Activity (FERC-730); and EQRs, as well as, where required, the electronic filing of such information, and provide notification if one of those forms, data collections, or reports is submitted and fails to comply with applicable statutory requirements, and with all applicable Commission rules, regulations or notify a party that a submission is acceptable.

13. Further, to centralize the authority delegated to the Chief Accountant and to avoid confusion as to the responsibility for the forms, data collections, and reports discussed herein, the delegations of authority to the Director of OMTR (now OEMR) are revised by removing the parenthetical phrase in 18 CFR 375.307(h)(3) which references Form Nos. 1, 1-F, 2, 2-A, and 6, and by removing in its entirety 18 CFR 375.307(i)(8), which also references Form No. 1.

14. Review by the Office of Management and Budget, 25 pursuant to section 3507(d) of the Paperwork Reduction Act of 1995, 26 is not required since this final rule does not contain new or modified information collection or recordkeeping requirements.

15. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment. 27 Part 380 of the Commission's regulations exempts certain actions from the requirement that an Environmental Analysis or Environmental Impact Statement be prepared. Included is an exemption for procedural, ministerial, or internal administrative actions. 28 As this Final Rule falls within that exemption, issuance of the Rule does not represent a major federal action having a significant adverse effect on the human environment under the Commission's regulations implementing the National Environmental Policy Act, and, thus, does not require an Environmental Analysis or Environmental Impact Statement. 29

16. The Regulatory Flexibility Act of 1980 (RFA)  30 generally requires a description and analysis of Final Rules that will have significant economic impact on a substantial number of small entities. Rules that are exempt from the notice and comment requirements of section 553(b) of the Administrative Procedure Act are exempt from the RFA requirements. This Final Rule concerns matters of internal agency procedure and, therefore, an analysis under the RFA is not required.

17. In addition to publishing the full text of this document in the Federal Register, the Commission provides all interested persons an opportunity to view and/or print the contents of this document via the Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's Public Reference Room during normal business hours (8:30 a.m. to 5 p.m. Eastern time) at 888 First Street, NE., Room 2A, Washington DC 20426.

18. From FERC's Home Page on the Internet, this information is available in eLibrary. The full text of this document is available in eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.

19. User assistance is available for eLibrary and the FERC's Web site during normal business hours from our Help line at (202) 502-8222 or the Public Reference Room at (202) 502-8371 Press 0, TTY (202) 502-8659. E-Mail the Public Reference Room at public.referenceroom@ferc.gov .

20. These regulations are effective on issuance. While the Administrative Procedure Act generally mandates that an opportunity for comment be provided when an agency promulgates regulations, notice and comment are not required where a rule, as here, relates to agency personnel or agency organization, procedure, or practice. 31 Since these regulations only concern internal agency procedure and will not affect regulated entities or the general public, notice and comment are not required.

21. The Small Business Regulatory Enforcement Fairness Act of 1996  32 requires agencies to report to Congress on the promulgation of certain Final Rules prior to their effective dates. Rules of agency procedure and practice are excluded from this notification requirement. 33 Therefore, this Final Rule will not be submitted to Congress.

These temporary regulations are being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collections of information contained in these regulations have been reviewed and pending receipt and evaluation of public comments, approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2056. Response to these collections of information is mandatory.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection of information displays a valid control number.

For further information concerning this collection of information, and where to submit comments on the collection of information and the accuracy of the estimated burden, and suggestions for reducing the burden, please refer to the preamble to the cross-referencing notice of proposed rulemaking published elsewhere in the Proposed Rules section of this issue of the Federal Register .

Books and records relating to these collections of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Section 367(a)(1) provides that if, in connection with any exchange described in section 332, 351, 354, 356, or 361, a United States person (U.S. transferor) transfers property to a foreign corporation (transferee foreign corporation), such foreign corporation shall not, for purposes of determining the extent to which gain shall be recognized on such transfer, be considered to be a corporation. Section 367(a)(2), (3) and (6) provides exceptions to this general rule and grants regulatory authority to provide additional exceptions and to limit the statutory exceptions.

Exceptions to the general rule of section 367(a)(1) for certain transfers by a U.S. transferor of the stock or securities of a corporation (transferred corporation) to a transferee foreign corporation are provided in § 1.367(a)-3 (initial transfer). In some cases, these exceptions require, among other things, that the U.S. transferor file a gain recognition agreement (GRA), as provided in § 1.367(a)-8. Section 1.367(a)-3(b)(1)(ii) and (c)(1)(iii)(B). Pursuant to a GRA, the U.S. transferor agrees, among other things, to include in income the gain realized, but not recognized, on the initial transfer of the stock or securities, and pay any applicable interest, upon certain events (triggering events) that occur before the close of the fifth full taxable year following the year of the initial transfer. Section 1.367(a)-8(b)(1)(iii) and (3)(i).

Section 1.367(a)-8(e)(1) and (2) provides that dispositions of the stock or securities of the transferred corporation are generally triggering events. Similarly, § 1.367(a)-8(e)(3) provides that dispositions of substantially all (within the meaning of section 368(a)(1)(C)) of the assets of the transferred corporation are generally treated as deemed dispositions of the stock or securities of the transferred corporation and therefore are also triggering events. Finally, dispositions of stock of the transferee foreign corporation can also be triggering events. See § 1.367(a)-8(f)(2)(ii).

Notwithstanding these rules, § 1.367(a)-8 provides that various nonrecognition transactions are not triggering events if certain requirements are satisfied. For example, § 1.367(a)-8(g) provides exceptions for certain transactions involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. Although these exceptions clearly contemplate some nonrecognition transactions, the current regulations are unclear whether, and if so how, the exceptions apply to various asset reorganizations involving section 361 exchanges by the U.S. transferor, the transferee foreign corporation, and the transferred corporation.

Section 1.367(a)-8 also provides that certain nonrecognition transactions are not triggering events because the GRA is terminated without further effect. For example, § 1.367(a)-8(h)(3) lists certain nonrecognition transactions that terminate the GRA, provided that immediately after the transaction the basis in the transferred stock is not greater than the U.S. transferor's basis in the stock that, immediately before the initial transfer, necessitated the GRA.

On September 28, 2005, the IRS and the Treasury Department issued Notice 2005-74 (2005-42 IRB 726), see § 601.601(d)(2), which announced the intention to amend the regulations under section 367(a) to address the effect on GRAs of certain asset reorganizations involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. The notice was issued in response to comments that the current regulations do not adequately address various asset reorganizations involving the U.S. transferor, the transferee foreign corporation, and the transferred corporation. Notice 2005-74 addressed the most common of these reorganizations and requested comments on other transactions (for example, certain upstream and downstream reorganizations).

Notice 2005-74 generally provided that, if particular requirements are satisfied, certain asset reorganizations of the U.S. transferor, the transferee foreign corporation, or the transferred corporation will not constitute triggering events. A key premise of the notice was that the covered transactions involved situations where the ability to collect tax is sufficiently preserved in the event of a subsequent trigger of the GRA (that is, the obligor under the GRA remains unchanged as a result of the asset reorganization). In light of taxpayer comments and further study, however, the IRS and Treasury Department have determined that there are additional instances where the ability to collect tax after these asset reorganizations and certain other nonrecognition transactions (as defined in section 7701(a)(45)) is sufficiently preserved so that these transactions also should not constitute a triggering event if particular requirements are met. The IRS and Treasury Department also have concluded that other portions of the current section 367(a) regulations addressing GRAs should be revised.

The temporary regulations adopt the rules announced in Notice 2005-74, with a number of modifications discussed below. Notice 2005-74 only provided guidance on a particular range of transactions, namely certain asset reorganizations, that are insufficiently addressed in the current regulations. The temporary regulations respond to comments and provide guidance on the effect on GRAs of transactions that are not addressed in the current regulation or Notice 2005-74. The temporary regulations also make additional changes to the existing regulations. For example, the temporary regulations modify and clarify procedural requirements attendant to entering into GRAs. Finally, the temporary regulations reorganize the current regulation so that distinct paragraphs address triggering events, exceptions to triggering events, and events that terminate a GRA. The IRS and Treasury Department continue to consider issuing additional public guidance that further revises § 1.367(a)-8.

Notice 2005-74 provided that if, in a section 361 transaction, a U.S. transferor transfers all or a portion of the stock or securities of the transferee foreign corporation to an acquiring domestic corporation (successor U.S. transferor) pursuant to certain asset reorganizations, the exchanges made pursuant to the asset reorganization will trigger the gain recognition agreement, unless various conditions are satisfied. These conditions are: (1) The U.S. transferor must have been a member of a consolidated group (original consolidated group) at the time of the initial transfer and the common parent of such group (original common parent) entered into the original GRA; (2) immediately after the asset reorganization, the successor U.S. transferor is a member of the original consolidated group (consolidation continuity requirement); and (3) the original common parent enters into a new GRA with respect to the transfer subject to the original GRA, modified by substituting the successor U.S. transferor for the original U.S. transferor. A notice of the asset reorganization also must be provided with the successor U.S. transferor's next annual certification.

For this purpose, an asset reorganization is defined as a reorganization described in section 368(a)(1) involving the transfer of assets by a corporation to another corporation pursuant to section 361, except that such term shall include reorganizations described in section 368(a)(1)(D) or (G) only if the requirements of section 354(b)(1)(A) and (B) are met.

The IRS and Treasury Department received several comments that the consolidation continuity requirement was unduly restrictive because it focused on maintaining the same obligor for a GRA following the asset reorganization. Commentators asserted that an equal or better ability to collect the tax due as a result of a triggering event subsequent to such a reorganization may be preserved in certain instances where the consolidation continuity requirement would not be satisfied. However, these same commentators noted that if there were no consolidation continuity requirement, such that a U.S. transferor that is a member of a consolidated group at the time of the initial transfer could be acquired in a later asset reorganization by a corporation (successor corporation) that is not a member of such group without triggering the GRA, the actions of the successor corporation could inappropriately affect the liability of the original consolidated group under the GRA. As a result, the commentators requested that the consolidation continuity requirement be curtailed or eliminated, while at the same time not inappropriately exposing the original consolidated group to the liabilities arising from the actions of the successor corporation.

The IRS and Treasury Department generally agree with these views. Therefore, the temporary regulations eliminate the consolidation continuity requirement and address concerns about the liability of a consolidated group that disposes of a U.S. transferor subject to a GRA.

Specifically, the temporary regulations provide that when a U.S. transferor transfers all or a portion of the stock of the transferee foreign corporation to an acquiring corporation in an asset reorganization, the exchanges made pursuant to the reorganization will not be triggering events and the GRA will terminate without further effect, but only if certain requirements are satisfied. These requirements ensure that the ability to collect tax is sufficiently preserved and that the terms of the GRA are administrable.

First, the acquiring corporation (successor U.S. transferor) must be a domestic corporation, and the successor U.S. transferor or the common parent of the consolidated group of which the successor U.S. transferor is a member (as applicable) must enter into a new GRA to recognize gain with respect to the initial transfer during the remaining term of the original GRA (with certain modifications).

Second, with its next certification, the successor U.S. transferor must provide to the IRS the new GRA, notice of the transaction, and Form 8838 (Consent to Extend Time to Assess Tax Under Section 367) to extend the period of assessment of tax on the initial transfer.

Third, unless the successor U.S. transferor is a member of the same consolidated group of which the U.S. transferor was a member immediately before the asset reorganization, the person entering into the new GRA must elect that, if the new GRA is triggered in whole or in part, the person will include the required amount in the year of the triggering event (as opposed to the year of the initial transfer). Requiring an inclusion in these circumstances only in the year of a subsequent triggering event when the U.S. transferor is no longer owned by the same consolidated group is necessary, among other reasons, because the successor U.S. transferor may not have existed in the year of the initial transfer. In such a case, the successor U.S. transferor would not be able to amend a return for the year of the initial transfer to include any tax due as a result of a subsequent triggering event. Moreover, the requirement is appropriate even if the successor U.S. transferor did exist in the year of the initial transfer because its tax year for the year of the initial transfer may be closed. In sum, this requirement assures the GRA rules are administrable and that the ability to collect tax is sufficiently preserved. If these requirements are met, the original GRA will terminate without further effect.

The IRS and Treasury Department have decided to eliminate the consolidation continuity requirement because these three requirements adequately address the government's concern in this area by, among other things, preserving the ability to collect the tax due as a result of a triggering event subsequent to a covered asset reorganization. In many asset reorganizations, the successor U.S. transferor will have an equal or greater ability to pay the tax due in the case of a subsequent triggering event than would the original U.S. transferor. Furthermore, the current regulations generally do not impose any financial or other requirements on the ability of a U.S. transferor to enter into a GRA. But see § 1.367(a)-8(d) (imposing a security requirement in certain situations). Consequently, the IRS and Treasury Department believe that even if in some circumstances an acquisition of a U.S. transferor may affect the ability to collect the tax due as a result of a subsequent triggering event (for example, the U.S. transferor is acquired from a consolidated group by another consolidated group whose value is less than that of the original consolidated group), the requirements above nonetheless sufficiently preserve the ability to collect the tax that would be due if the new GRA were triggered and ensure that the terms of the GRA are administrable.

As described in this section, the temporary regulations require that the acquirer be a domestic corporation because, among other reasons, the IRS and Treasury Department are concerned that if a foreign acquirer is allowed to enter into a new GRA, it may be difficult for the IRS to collect any tax due in the event of a subsequent trigger of the GRA. However, the IRS and Treasury Department continue to study whether it would be appropriate to allow a domestic corporate shareholder of the U.S. transferor to enter into a new GRA when a U.S. transferor is acquired by a foreign corporation in an asset reorganization under conditions similar to those provided in § 1.367(a)-3T(e). The IRS and Treasury Department welcome more detailed comments on specific approaches that could extend these rules to foreign acquisitions of the U.S. transferor.

The current regulations provide that, if a corporate U.S. transferor liquidates in a transaction that qualifies under sections 332 and 337, the GRA is triggered unless (1) The U.S. transferor filed a consolidated income tax return with a U.S. parent corporation both in the year of the initial transfer and the year of the liquidation, and (2) the common parent enters into a new GRA, with certain modifications. Section 1.367(a)-8(f)(2)(ii).

The temporary regulations provide a similar rule. However, the temporary regulations eliminate the consolidation continuity requirement, so the U.S. transferor is no longer required to be a member of the same consolidated group in the year of the initial transfer and the year of the liquidation. Consequently, the temporary regulations provide that where a U.S. transferor disposes of the stock of the foreign transferee corporation in a liquidation that qualifies under sections 332 and 337, the disposition will not constitute a triggering event provided that: (1) The distributee (successor U.S. transferor) is a domestic corporation described in section 332(b)(1); (2) the successor U.S. transferor or, if the successor U.S. transferor is a member of a consolidated group, the common parent of the successor U.S. transferor's group, enters into a new GRA covering the remaining term of the original GRA (with certain modifications); (3) where the successor U.S. transferor is not a member of the original consolidated group immediately after the liquidation, the person entering into the GRA agrees that if there is a subsequent triggering event, the taxpayer will recognize the gain in the year of the triggering event (as opposed to the year of the initial transfer); and (4) the successor U.S. transferor provides, with its next annual certification, Form 8838 to extend the period of assessment of the tax on the initial transfer. If these conditions are satisfied, the original GRA will terminate without further effect.

For reasons similar to those discussed above in the context of asset reorganizations involving the U.S. transferor, the IRS and Treasury Department believe that the temporary regulations sufficiently address the government's concerns in this area, including preserving the ability to collect tax due as a result of a subsequent triggering event. As a result, it is not necessary for the U.S. transferor to be a member of the same consolidated group in the year of the transfer and the year of the liquidation. In addition, the IRS and Treasury Department believe that it is appropriate to require an inclusion in the year of a subsequent triggering event if the successor U.S. transferor was not a member of a consolidated group with the U.S. transferor immediately before the liquidation for reasons similar to those discussed regarding asset reorganizations involving the U.S. transferor.

Notice 2005-74 provided that if, in a section 361 transaction, a transferee foreign corporation transfers stock or securities of a transferred corporation to a foreign acquiring corporation in an asset reorganization, the exchanges made pursuant to the reorganization will be a triggering event, unless certain conditions are met. These conditions require that the U.S. transferor, common parent, or new common parent corporation, as applicable, enter into a new GRA, with certain modifications. In addition, the U.S. transferor also is required to provide the new GRA and a notice of the asset reorganization with its next annual certification.

For purposes of this rule, Notice 2005-74 retained the same definition of asset reorganization as used for the provision dealing with transfers of transferee corporation stock, with certain modifications. Specifically, Notice 2005-74 excludes the following asset reorganizations: (1) Triangular asset reorganizations described in § 1.358-6(b); and (2) asset reorganizations where, after the reorganization, the same corporation is both the transferee foreign corporation (or successor transferee foreign corporation, as applicable) and the transferred corporation (or the successor transferred corporation, as applicable).

The temporary regulations generally incorporate these rules and provide that if the above conditions are satisfied the original GRA will terminate without further effect. However, even if these conditions are satisfied, the temporary regulations provide specific gain recognition rules if the transferee foreign corporation transfers stock or securities of the transferred corporation in an asset reorganization and the U.S. transferor recognizes gain under section 356(a)(1). See section C of this preamble.

As noted in this preamble, Notice 2005-74 excluded from the definition of the term asset reorganization any triangular asset reorganizations of the transferee foreign corporation and transferred corporation and certain upstream and downstream reorganizations. In response to comments and upon further study by the IRS and Treasury Department, the temporary regulations address the treatment of triangular asset reorganizations of the transferee foreign corporation and certain upstream and downstream reorganizations. See sections G and H of this preamble.

Notice 2005-74 provides that if a transferred corporation transfers substantially all its assets in an asset reorganization, the exchanges made pursuant to the reorganization will be a triggering event, unless certain conditions are met. These conditions require that the U.S. transferor, U.S. parent corporation or new U.S. parent corporation, as applicable, enters into a new GRA, with certain modifications. The U.S. transferor also is required to provide the new GRA and the notice of the asset reorganization with its next annual certification. The definition of asset reorganization is the same as that used in asset reorganizations involving the transferee foreign corporation.

The temporary regulations generally incorporate these rules and provide that if these conditions are met, the original GRA will terminate without further effect. However, even if these conditions are satisfied, the temporary regulations provide specific gain recognition rules (described in section C of this preamble) if the transferred corporation transfers substantially all of its assets in an asset reorganization and the transferee foreign corporation recognizes gain under section 356(a)(1). In addition, although the definition of asset reorganization excludes triangular asset reorganizations and downstream mergers of the transferee foreign corporation, the temporary regulations address the tax treatment of these transactions. See sections G and H of this preamble.

The current regulations provide that certain nonrecognition transactions are not triggering events if particular requirements are satisfied. However, commentators have stated that the current regulations provide that certain nonrecognition transactions at the transferee foreign corporation or transferred corporation level in which any money or other property (as described in sections 351(b) or 356(a)) is received in exchange are triggering events without exception. These commentators assert that it is not appropriate to trigger an entire GRA as a result of receiving a relatively minor amount of “boot” in the nonrecognition transaction. These commentators also note that the current regulations do not address clearly the treatment of transfers of transferee foreign corporation stock by a U.S. transferor in a nonrecognition transaction in which the U.S. transferor receives boot.

The IRS and Treasury Department agree that the receipt of boot under section 351(b) or 356(a)(1) in connection with the disposition of transferred corporation stock or securities, or substantially all of a transferred corporation's assets, should not automatically trigger all the gain under a GRA. Accordingly, the temporary regulations provide that if certain conditions are met, the entire GRA will not be triggered when a transferee foreign corporation disposes of transferred corporation stock or securities in a nonrecognition transaction simply because the transferee foreign corporation receives boot.

However, the IRS and Treasury Department believe that the GRA should be triggered to the extent that gain would be recognized in such a transaction by a transferee foreign corporation or a transferred corporation, before taking into account basis increases that may apply to the stock or securities disposed of as a result of triggering the GRA. The current, as well as the temporary regulations, provide that if a U.S. transferor is required to recognize gain because of a triggering event, then certain basis increases are allowed as of the date of the initial transfer. Therefore, in determining the amount of gain that is recognized under the GRA in such a transaction, the temporary regulations provide that the U.S. transferor first must recognize that amount of gain that the transferee foreign corporation or transferred corporation would have recognized under 351(b) or 356(a)(1), before taking into account the basis increases that are allowed under the regulations as of the date of the initial transfer. Second, if the U.S. transferor has not recognized all the gain realized, but not recognized, on the initial transfer, then its new GRA will reflect any remaining unrecognized gain on the initial transfer. Third, after the consequences of the transaction are determined under the temporary regulations, then the taxpayer must determine the amount of gain, if any, that the transferee foreign corporation or transferred corporation must recognize under 351(b) or 356(a)(1). In determining the amount to be recognized, the basis of the stock disposed of shall reflect the basis increase allowed as a result of the gain recognized under the GRA by the U.S. transferor.

This special rule limiting recognition of gain in otherwise nonrecognition transactions involving boot applies only if the U.S. transferor complies with the otherwise applicable requirements of the exception to recognizing all of the gain subject to the GRA when there is a triggering event. This special rule is intended to require the U.S. transferor to recognize only an appropriate amount of income, without automatically triggering the entire GRA.

The IRS and Treasury Department also believe that additional guidance is needed on the treatment of transfers of transferee foreign corporation stock by a U.S. transferor in a nonrecognition exchange in which the U.S. transferor receives boot. Therefore, the temporary regulations treat the disposition of transferee foreign corporation stock in a nonrecognition transaction by the U.S. transferor when the U.S. transferor receives money or other property as described in section 351(b) or 356(a) as a termination of the GRA in whole or in part. Consequently, if a new GRA is filed, then the U.S. transferor will recognize gain under the new GRA in the event of a subsequent triggering event in the amount of the gain realized, but not recognized, in the initial transfer less any gain recognized by the U.S. transferor under section 351(b) and 356(a)(1) in connection with the nonrecognition transaction. If, however, a new GRA is not filed in connection with the nonrecognition transaction, then the original GRA is triggered, and the U.S. transferor must recognize the gain that was realized, but not recognized, on the initial transfer less any gain recognized by the U.S. transferor under section 351(b) or 356(a)(1) in connection with the nonrecognition transaction.

Commentators noted that the current regulation does not adequately address the effect on GRAs of certain transactions involving consolidated groups. For example, the commentators noted that it is not clear what effect a U.S. transferor becoming a member of a consolidated group has on an existing GRA. The current regulations do provide, however, that if a U.S. transferor is a member of a consolidated group at the time of the initial transfer and ceases to be a member of the group during the term of the GRA, the common parent of such group that entered into the GRA continues to be liable under the original GRA. Section 1.367(a)-8(b)(5)(ii). Several commentators have raised concerns that such a result is not appropriate because the actions of an acquirer could unilaterally affect the liability of the original consolidated group under the GRA.

The IRS and Treasury Department agree that the effect of these transactions needs to be clarified and rationalized. Accordingly, in response to these concerns, the temporary regulations provide specific rules addressing these transactions. In particular, the IRS and Treasury Department believe that the U.S. parent corporation of a consolidated group should not continue to be liable under a GRA with respect to a U.S. transferor that is no longer a member of such group.

The temporary regulations provide that when a U.S. transferor becomes a member of a consolidated group (including a transaction where it joins such a group after being a member of another consolidated group) the transaction is a triggering event unless certain conditions are met. If these conditions are satisfied, the original GRA is terminated without further effect. These conditions require the U.S. parent corporation of the consolidated group that the U.S. transferor joins (1) To enter into a new GRA for the remaining term of the original GRA and (2) to elect to recognize gain in the taxable year of any subsequent triggering event (as opposed to the year of the initial transfer). A notice of the consolidation transaction must also be filed with the next annual certification. The IRS and Treasury Department believe that these requirements ensure that a GRA remains in effect after a U.S. transferor joins a consolidated group. These requirements are also consistent with § 1.1502-77(a), which provides that the common parent is the sole agent for each member of the consolidated group.

In addition, the temporary regulations also cover situations in which a U.S. transferor ceases to be a member of a consolidated group and does not become a member of a new consolidated group. In these cases, the transaction is a triggering event, unless certain conditions are met. If these conditions are satisfied, the original GRA is terminated without further effect. These conditions require the U.S. transferor (1) To enter into a new GRA for the remaining term of the original gain recognition agreement and (2) to elect that in the event of a subsequent triggering event the U.S. transferor will recognize gain in the year of the triggering event. The U.S. transferor must also provide notice of the deconsolidation with the next annual certification.

The current regulation provides that when a U.S. transferor goes out of existence in a transaction giving rise to a GRA, gain generally qualifies for nonrecognition treatment only if the U.S. transferor is owned by a single U.S. parent corporation, the U.S. transferor and its parent corporation file a consolidated Federal income tax return for the taxable year that includes the transfer, and the parent of the consolidated group enters into a GRA. Section 1.367(a)-8(f)(2)(i). The current regulation provides that a U.S. transferor that is controlled by five or fewer domestic corporations may request a ruling that the transaction qualifies for nonrecognition treatment. Section 1.367(a)-8(f)(2)(i).

Notice 2005-74, in turn, provides a rule that treats all members of the U.S. parent's consolidated group for the taxable year that includes the transfer as a single corporation for purposes of § 1.367(a)-8(f)(2)(i). Thus, a U.S. transferor that is not directly owned by a single U.S. parent corporation may still qualify for nonrecognition, without requesting a ruling, when the U.S. transferor goes out of existence in a transaction giving rise to a GRA, if it is indirectly wholly owned by members of a consolidated group.

The IRS and Treasury Department believe it is necessary to provide additional guidance on how GRAs are entered into when a U.S. transferor is controlled by multiple corporate shareholders with which the U.S. transferor does not join in filing a consolidated return. Moreover, the IRS and Treasury Department believe that in this area a single rule should apply both in consolidated and nonconsolidated situations. As a result, the temporary regulations provide unified rules, replacing both the current regulations and Notice 2005-74, in situations in which a U.S. transferor goes out of existence in a transaction giving rise to a GRA.

The temporary regulations generally provide that when a U.S. transferor goes out of existence in a transaction giving rise to a GRA, the gain may qualify for nonrecognition treatment if (1) The requirements of section 367(a)(5) and any regulations under that paragraph are satisfied such that five or fewer domestic corporations control the U.S. transferor and appropriate basis adjustments are made, (2) the requirements of § 1.367(a)-3(c)(1) are satisfied if the transferred corporation is domestic, (3) all domestic corporate shareholders of the U.S. transferor that own at least five percent of either the total voting power or the total fair market value of the stock of the transferee foreign corporation immediately after the transaction enter into GRAs with respect to their pro rata share of the gain in the transferred stock or securities that designate such domestic corporate shareholders as U.S. transferors for purposes of §§ 1.367(a)-3(b) and (c) and 1.367(a)-8T, and (4) all domestic corporate shareholders that enter into GRAs elect to recognize any gain upon a subsequent trigger of the GRA in the year of the triggering event.

The temporary regulations eliminate the current regulation's option to request a private letter ruling because guidance is now provided on how GRAs are entered into by five or fewer domestic corporations that control a U.S. transferor satisfying section 367(a)(5). In addition, the temporary regulations clarify that the terms of section 367(a)(5) must be satisfied (along with other requirements) to avoid gain recognition on the U.S. transferor's section 361 transfer of stock or securities to a foreign acquiring corporation. Therefore, the rule in Notice 2005-74 treating consolidated group members as a single corporation is incorporated by reference to section 367(a)(5), which provides that all members of the same affiliated group are treated as one corporation. Lastly, because these rules address how gain recognition may be avoided under section 367(a)(1) on the initial transfer itself, rather than the effect of subsequent transactions on existing GRAs, these rules have been removed from § 1.367(a)-8 and included instead in § 1.367(a)-3T(e).

Under the current regulations, dispositions of substantially all of the assets of the transferred corporation (within the meaning of section 368(a)(1)(C)) are generally treated as deemed dispositions of the stock or securities of the transferred corporation and therefore are triggering events. Section 1.367(a)-8(e)(3). In Revenue Ruling 57-518 (1957-2 CB 253), see § 601.601(d)(2), the IRS stated that what constitutes “substantially all of the properties” as the term is used in section 368(a)(1)(C) “will depend upon the facts and circumstances in each case rather than upon any particular percentage.” However, Revenue Procedure 77-37 (1977-2 CB 586), see § 601.601(d)(2), provides that for ruling purposes, the transfer by a corporation of 70 percent of its gross assets or 90 percent of its assets net of liabilities will generally be deemed to be a transfer of substantially all of the assets of a corporation.

Commentators have noted that defining substantially all by reference to section 368(a)(1)(C) may not be appropriate in the context of the GRA rules. The IRS and Treasury Department, however, generally believe that defining “substantially all” for these purposes by reference to the definition of the term under section 368(a)(1)(C) is appropriate. Nonetheless, the IRS and Treasury Department believe that it is important to clarify the scope of the term “substantially all,” as used in the current regulation and the temporary regulations. One commentator suggested that if a transferred corporation disposes of less than 70 percent of its gross assets or 90 percent of its assets net of liabilities, the transfer will not be treated as a disposition of substantially all of the assets of the transferred corporation for purposes of § 1.367(a)-8(e)(3), and thus, such a disposition would not trigger a GRA. This suggestion is not correct. If, upon considering the facts and circumstances, a transferred corporation has disposed of substantially all its assets, such a transaction is a triggering event, even if the transferred corporation disposes of less than 70 percent of a corporation's gross assets or 90 percent of its assets net of liabilities. The “substantially all” safe harbor provided in Revenue Procedure 77-37 is intentionally high so that the IRS does not need to engage in a factually detailed analysis before issuing a letter ruling. As a result, in the context of GRAs, the Revenue Procedure's threshold does not mean that a disposition of substantially all the assets does not occur upon the disposition of a lesser amount of assets. Therefore, the temporary regulations provide that whether a transferred corporation has disposed of substantially all of its assets is determined under all the facts and circumstances.

Section 1.367(a)-8(h)(1) provides that a GRA will terminate, in whole or in part, as a result of certain taxable dispositions of the transferee foreign corporation stock by the U.S. transferor. A key premise for this termination rule is that the basis in the transferee foreign corporation stock received by the U.S. transferor in the initial transfer is assumed to reflect the basis in the transferred stock or securities.

The IRS and Treasury Department continue to believe this termination rule is appropriate. As a result, the temporary regulations generally retain this rule. However, the temporary regulations modify the termination rule to ensure that a GRA terminates only when the transferee foreign corporation stock disposed of in fact reflects the basis of the transferred stock or securities. This termination rule only applies to transferee foreign corporation stock that is received (or deemed received) in the initial transfer. The IRS and Treasury Department understand that in some cases, taxpayers may take the position that the basis in the transferee foreign corporation stock does not reflect the basis of the transferred stock or securities. For example, taxpayers may take the position that the basis in such transferee foreign corporation stock received also reflects the basis of other property that had a built-in loss when it was transferred to the transferee foreign corporation. Thus, the termination rule in the temporary regulations will apply only when the basis of the transferee foreign corporation stock received (or deemed received) in the initial transfer properly reflects the sum of the aggregate basis of the transferred stock or securities immediately before the initial transfer, plus any increase in the basis of such stock or securities as a result of recognizing gain on the transfer. In addition, for purposes of this basis determination, basis increases to the transferee foreign corporation stock as a result of income inclusions (for example, pursuant to section 961) shall not be taken into account.

In cases where the basis of the relevant transferee foreign corporation stock exceeds the basis of the transferred stock or securities, however, the temporary regulations allow the U.S. transferor to take advantage of this termination rule if it elects to reduce its basis in the transferee foreign corporation stock such that it does not exceed the basis it had in the transferred stock or securities. If the U.S. transferor makes this election, the basis reduction will be effective immediately before the taxable disposition that terminates the GRA. In addition, if the U.S. transferor makes this election, it may increase its basis in other stock of the transferee foreign corporation it holds, if any, by a corresponding amount but not above the fair market value of such stock.

Similar rules apply in the case of partial dispositions of transferee foreign corporation stock and dispositions of transferee foreign corporation stock in nonrecognition transactions in which a portion of the realized gain is recognized.

Section 1.367(a)-8(h)(3) provides that a distribution of the transferred stock in a transaction qualifying under section 355 or sections 332 and 337 will terminate the GRA if the U.S. transferor's basis in the transferred stock or securities that it receives in the section 355 or 332 and 337 transaction does not exceed the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. In response to comments, however, the temporary regulations allow the U.S. transferor to take advantage of this termination rule if it elects to reduce the basis of the transferred stock or securities if the basis exceeds the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. For purposes of this basis determination, basis increases to the transferred stock as a result of income inclusions (for example, pursuant to section 961) shall not be taken into account. If the U.S. transferor elects to reduce basis in the transferred stock or securities it receives, the U.S. transferor shall increase its basis in other transferee foreign corporation stock (if any) by a corresponding amount but not above the fair market value of such stock.

Although the temporary regulations generally provide that a GRA terminates in certain section 332 liquidations of the transferee foreign corporation, the IRS and Treasury Department are studying to what extent this rule should apply when the transferee foreign corporation has a minority shareholder and therefore recognizes gain under section 336 in connection with the section 332 liquidation. As noted in the request for comments, although the IRS and Treasury Department generally believe it is appropriate to terminate entirely the GRA in a section 332 liquidation, in other circumstances it may not be appropriate. For example, if after an initial transfer, a wholly-owned transferee foreign corporation issues a minority interest to a foreign shareholder, completely terminating the GRA upon a section 332 liquidation of the transferee foreign corporation does not account for the fact that the U.S. transferor has indirectly disposed of up to 20 percent of its interest in the transferred stock or securities. Therefore, when the temporary regulations are finalized, the IRS and Treasury Department may address the effect that section 336 gain has on a gain recognition agreement when a transferee foreign corporation with a minority shareholder liquidates under section 332.

The temporary regulations expand the current rule to terminate GRAs when certain U.S. persons other than the original U.S. transferor receive the stock or securities that was transferred in the initial transfer. For example, if the transferred corporation is distributed to a domestic corporation or U.S. individual other than the U.S. transferor in a section 355 “split off,” the GRA would terminate if the domestic corporation or U.S. individual receives the transferred stock or securities with a basis that is not greater than the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer.

Finally, and in response to comments requested in Notice 2005-74, the temporary regulations also expand the current rule to provide that the GRA will terminate in additional transactions where the U.S. transferor or a domestic corporation receives the transferred stock or securities with a basis that is not greater than the basis the U.S. transferor had in the transferred stock or securities immediately before the initial transfer. These transactions are upstream asset reorganizations where the U.S. transferor acquires the assets of the transferee foreign corporation, downstream asset reorganizations where the transferred corporation acquires the assets of the transferee foreign corporation, and certain other asset reorganizations where a domestic corporation acquires the assets of the transferee foreign corporation. Consequently, the temporary regulations generally provide that the GRA terminates in particular circumstances when the transferred stock or securities are held with the correct basis by certain U.S. persons, even if the U.S. person is not the original U.S. transferor.

However, the IRS and Treasury Department believe that it is not appropriate for the GRA to terminate when the transferred stock or securities may then be disposed of, directly or indirectly, by a foreign shareholder without being subject to U.S. tax. Therefore, this termination rule is limited to section 332 liquidations, section 355 distributions, and asset reorganizations where the domestic corporation that holds the transferred stock or securities after the transaction is either the U.S. transferor or a member of the same consolidated group of which the U.S. transferor is then a member. The IRS and Treasury Department continue to study whether it would be appropriate to expand the scope of the rule to transactions where the acquirer is not a member of the same consolidated group of which the U.S. transferor is then a member and request comments regarding such a rule.

Notice 2005-74 provides rules that allow a U.S. transferor to avoid gain recognition on certain asset reorganizations of the transferee foreign corporation and transferred corporation. However, Notice 2005-74 restricts the definition of “asset reorganization” to exclude triangular asset reorganizations of the transferee foreign corporation and transferred corporation.

In response to comments and after further study, the temporary regulations address the treatment of certain triangular asset reorganizations. Specifically, they provide that if the transferee foreign corporation or transferred corporation is acquired in a triangular asset reorganization, the exchanges made pursuant to the reorganization will not be triggering events if certain requirements are satisfied. For purposes of this rule, a triangular asset reorganization is limited to a transaction in which the acquiring subsidiary is foreign. The additional requirements are as follows. First, the U.S. transferor or common parent must enter into a new GRA to recognize gain with respect to the initial transfer during the remaining term of the original GRA, with certain modifications. In the case of a triangular asset reorganization of the transferee foreign corporation, the U.S. transferor also must make certain designations depending on whether the parent corporation of the foreign acquiring subsidiary is foreign or domestic and depending on the type of triangular asset reorganization. Finally, the U.S. transferor must provide notice of the transaction with its next annual certification.

The current regulations refer to “stock of the transferred corporation” in some paragraphs but refer to “stock or securities of the transferred corporation” in other paragraphs. The temporary regulations refer to “stock or securities of the transferred corporation” because either stock or securities, or both, may be subject to a GRA when transferred to a transferee foreign corporation by a U.S. person. In contrast, the temporary regulations generally refer only to stock, and not securities, of the transferee foreign corporation. The rules applying to a disposition of the transferee foreign corporation are concerned primarily with transactions in which the U.S. transferor loses or decreases its control of the transferee foreign corporation, which does not occur when a U.S. transferor disposes of securities of the transferee foreign corporation.

The current regulation provides a reasonable cause exception to triggering a GRA when the person required to file the GRA fails to comply in any material respect with the terms of a GRA, or when the person fails to meet the timeliness requirement for submitting a GRA. The temporary regulations retain this reasonable cause exception but provide additional guidance on how the person should submit a request for reasonable cause relief. The temporary regulations also provide that the Area Director or Director of Field Operations, as applicable, shall notify the person in writing within 120 days of the filing if the person will be granted reasonable cause relief or if additional time is required to make the determination. The 120-day period runs from the date that the IRS notifies the person that its request has been received. Once this period begins, the person shall be deemed to have established reasonable cause if it is not again notified within 120 days.

With the exception of the special boot rules described in section C of this preamble, these temporary regulations apply to GRAs filed with respect to transfers of stock or securities occurring on or after March 7, 2007. The boot rules described in section C of this preamble apply to GRAs filed with respect to transfers of stock or securities occurring on or after 180 days after February 5, 2007. However, GRAs that are filed after March 7, 2007 in connection with transactions entered into pursuant to a contract that was binding before February 5, 2007 are not subject to these regulations, but taxpayers may elect to apply the rules of these regulations to such a GRA. For all open years, taxpayers may apply rules of these regulations that were not already effective under § 1.367(a)-8 to GRAs filed before March 7, 2007. Similar effective date rules are provided for those transfers discussed in section E of this preamble (regarding a U.S. transferor that goes out of existence in a transaction giving rise to a GRA).

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 has also been determined that 5 U.S.C. 553(b) and (d) do not apply to these regulations. For applicability of the Regulatory Flexibility Act, please refer to the cross-referenced notice of proposed rulemaking published elsewhere in this Federal Register . Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The IRS and Treasury Department are considering issuing subsequent public guidance to address additional issues under section 367(a). Accordingly, comments are requested regarding the application of § 1.367(a)-8, including whether other transactions should be excepted from being treated as triggering events pursuant to rules similar to those contained in the temporary regulations. For example, comments are requested as to the most appropriate treatment of divisive reorganizations qualifying under section 368(a)(1)(D) or (G), involving the U.S. transferor corporation, the transferee foreign corporation, and the transferred corporation. Comments also are requested on how a GRA is affected by a subsequent transaction to which section 304 applies involving transferee foreign corporation stock or transferred corporation stock. The IRS and Treasury Department believe that the rules in the temporary regulations generally deal with many transactions to which section 304 applies but request specific comments on any issues raised.

In addition, the IRS and Treasury Department request comments on the rule in § 1.367(a)-8T(b)(3)(iii), which imposes interest on the additional tax, if any, that is required to be paid as a result of a triggering event. Specifically, comments are requested on whether interest should be imposed even when no additional tax is ultimately due as a result of a triggering event because, for example, a taxpayer has sufficient net operating losses to offset the tax that would otherwise be due as a result of a triggering event. If an interest charge is not required in such a case, a taxpayer may be viewed as inappropriately benefiting from deferring the realized but unrecognized gain on the initial transfer until a later year. However, there are other instances where the current regulations clearly permit such a benefit (for example, under § 1.367(a)-8(h)(1)(i) in certain taxable dispositions of the stock of the transferee foreign corporation).

As described in section B.1.a of this preamble, comments are requested on whether a GRA should not be triggered, if certain conditions similar to those provided in § 1.367(a)-3T(e) are met, when a U.S. transferor is acquired by a foreign corporation in an asset reorganization. Specifically, the IRS and Treasury Department request comments on how to reconcile the terms of the GRA that would be filed pursuant to § 1.367(a)-3T(e) with the terms of a new GRA that would be filed to avoid triggering the original GRA. For example, the transferee foreign corporation under the outstanding GRA (and under the new GRA filed to avoid triggering the outstanding GRA) would be the transferred corporation with respect to the GRA filed pursuant to § 1.367(a)-3T(e).

Finally, and as described in section G.2 of this preamble, the IRS and Treasury Department are studying to what extent the GRA termination rule should apply when the transferee foreign corporation liquidates in a transaction described in section 332 but also recognizes gain under section 336 because of a minority shareholder. Comments are requested on how the termination rule should address such a transaction, taking into consideration potentially different results depending on whether the minority shareholder is also subject to a GRA or is, for example, instead a foreign person who was issued transferee foreign corporation stock after the initial transfer.

For information on how to submit comments or request a public heading, see the section “Comments and Requests for a Public Hearing,” set forth in the notice of proposed rulemaking published elsewhere in this issue of the Federal Register .

The principal author of these temporary regulations is Daniel McCall of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

The Federal Emergency Management Agency (FEMA) makes the final determinations listed below for the modified BFEs for each community listed. These modified elevations have been published in newspapers of local circulation and ninety (90) days have elapsed since that publication. The Mitigation Division Director of FEMA has resolved any appeals resulting from this notification.

This final rule is issued in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR part 67. FEMA has developed criteria for floodplain management in floodprone areas in accordance with 44 CFR part 60.

Interested lessees and owners of real property are encouraged to review the proof Flood Insurance Study and FIRM available at the address cited below for each community. The BFEs and modified BFEs are made final in the communities listed below. Elevations at selected locations in each community are shown.

National Environmental Policy Act. This final rule is categorically excluded from the requirements of 44 CFR part 10, Environmental Consideration. An environmental impact assessment has not been prepared.

Regulatory Flexibility Act. As flood elevation determinations are not within the scope of the Regulatory Flexibility Act, 5 U.S.C. 601-612, a regulatory flexibility analysis is not required.

Regulatory Classification. This final rule is not a significant regulatory action under the criteria of section 3(f) of Executive Order 12866 of September 30, 1993, Regulatory Planning and Review, 58 FR 51735.

Executive Order 13132, Federalism. This final rule involves no policies that have federalism implications under Executive Order 13132.

Executive Order 12988, Civil Justice Reform. This final rule meets the applicable standards of Executive Order 12988.

Several of the background documents for the ALWTRP and the take reduction planning process can be downloaded from the ALWTRP web site at http://www.nero.noaa.gov/whaletrp/ .

The ALWTRP was developed pursuant to section 118 of the Marine Mammal Protection Act (MMPA) to reduce the incidental mortality and serious injury of three endangered species of whales (right, fin, and humpback) due to incidental interaction with commercial fishing activities. In addition, the measures identified in the ALWTRP would provide conservation benefits to a fourth species (minke), which are neither listed as endangered nor threatened under the Endangered Species Act (ESA). The ALWTRP, implemented through regulations codified at 50 CFR 229.32, relies on a combination of fishing gear modifications and time/area closures to reduce the risk of whales becoming entangled in commercial fishing gear (and potentially suffering serious injury or mortality as a result).

On January 9, 2002, NMFS published the final rule to implement the ALWTRP's DAM program (67 FR 1133). On August 26, 2003, NMFS amended the regulations by publishing a final rule, which specifically identified gear modifications that may be allowed in a DAM zone (68 FR 51195). The DAM program provides specific authority for NMFS to restrict temporarily on an expedited basis the use of lobster trap/pot and anchored gillnet fishing gear in areas north of 40° N. lat. to protect right whales. Under the DAM program, NMFS may: (1) require the removal of all lobster trap/pot and anchored gillnet fishing gear for a 15-day period; (2) allow lobster trap/pot and anchored gillnet fishing within a DAM zone with gear modifications determined by NMFS to sufficiently reduce the risk of entanglement; and/or (3) issue an alert to fishermen requesting the voluntary removal of all lobster trap/pot and anchored gillnet gear for a 15-day period and asking fishermen not to set any additional gear in the DAM zone during the 15-day period.

A DAM zone is triggered when NMFS receives a reliable report from a qualified individual of three or more right whales sighted within an area (75 nm 2 (139 km 2 )) such that right whale density is equal to or greater than 0.04 right whales per nm 2 (1.85 km 2 ). A qualified individual is an individual ascertained by NMFS to be reasonably able, through training or experience, to identify a right whale. Such individuals include, but are not limited to, NMFS staff, U.S. Coast Guard and Navy personnel trained in whale identification, scientific research survey personnel, whale watch operators and naturalists, and mariners trained in whale species identification through disentanglement training or some other training program deemed adequate by NMFS. A reliable report would be a credible right whale sighting.

On January 24, 2007, an aerial survey reported a sighting of seventeen right whales in the proximity 42° 57′ N. lat. and 70° 04′ W. long. This position lies east of Portsmouth, NH. After conducting an investigation, NMFS ascertained that the report came from a qualified individual and determined that the report was reliable. Thus, NMFS has received a reliable report from a qualified individual of the requisite right whale density to trigger the DAM provisions of the ALWTRP.

Once a DAM zone is triggered, NMFS determines whether to impose restrictions on fishing and/or fishing gear in the zone. This determination is based on the following factors, including but not limited to: the location of the DAM zone with respect to other fishery closure areas, weather conditions as they relate to the safety of human life at sea, the type and amount of gear already present in the area, and a review of recent right whale entanglement and mortality data.

NMFS has reviewed the factors and management options noted above relative to the DAM under consideration. As a result of this review, NMFS prohibits lobster trap/pot and anchored gillnet gear in this area during the 15-day restricted period unless it is modified in the manner described in this temporary rule.

The DAM Zone is bound by the following coordinates:

43° 19′ N., 70° 38′ W. (NW Corner)

43° 19′ N., 69° 35′ W.

42° 31′ N., 69° 35′ W.

42° 31′ N., 70° 38′ W.

42° 37′ N., 70° 38′ W. and follow the coastline north to

42° 39′ N., 70° 38′ W.

43° 09′ N., 70° 38′ W. and follow the coastline north to

43° 19′ N., 70° 38′ W. (NW Corner)

In addition to those gear modifications currently implemented under the ALWTRP at 50 CFR 229.32, the following gear modifications are required in the DAM zone. If the requirements and exceptions for gear modification in the DAM zone, as described below, differ from other ALWTRP requirements for any overlapping areas and times, then the more restrictive requirements will apply in the DAM zone. Special note for gillnet fisherman: A portion of this DAM zone overlaps the year-round Western Gulf of Maine Closure Area for Northeast Multispecies found at 50 CFR 648.81(e). Due to this closure, sink gillnet gear is prohibited from this portion of the DAM zone.

Fishermen utilizing lobster trap/pot gear within the portion of the Northern Inshore State Lobster Waters, Northern Nearshore Lobster Waters and Stellwagen Bank/Jeffreys Ledge that overlap with the DAM zone are required to utilize all of the following gear modifications while the DAM zone is in effect:

1. Groundlines must be made of either sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. All buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. Fishermen are allowed to use two buoy lines per trawl; and

4. A weak link with a maximum breaking strength of 600 lb (272.4 kg) must be placed at all buoys.

Fishermen utilizing lobster trap/pot gear within the portion of the Offshore Lobster Waters Area that overlap with the DAM zone are required to utilize all of the following gear modifications while the DAM zone is in effect:

1. Groundlines must be made of either sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. All buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. Fishermen are allowed to use two buoy lines per trawl; and

4. A weak link with a maximum breaking strength of 1,500 lb (680.4 kg) must be placed at all buoys.

Fishermen utilizing anchored gillnet gear within the portions of the Other Northeast Gillnet Waters Area and Stellwagen Bank/Jeffreys Ledge Restricted Area that overlap with the DAM zone are required to utilize all the following gear modifications while the DAM zone is in effect:

1. Groundlines must be made of either sinking or neutrally buoyant line. Floating groundlines are prohibited;

2. All buoy lines must be made of either sinking or neutrally buoyant line, except the bottom portion of the line, which may be a section of floating line not to exceed one-third the overall length of the buoy line;

3. Fishermen are allowed to use two buoy lines per string;

4. Each net panel must have a total of five weak links with a maximum breaking strength of 1,100 lb (498.8 kg). Net panels are typically 50 fathoms (91.4 m) in length, but the weak link requirements would apply to all variations in panel size. These weak links must include three floatline weak links. The placement of the weak links on the floatline must be: one at the center of the net panel and one each as close as possible to each of the bridle ends of the net panel. The remaining two weak links must be placed in the center of each of the up and down lines at the panel ends;

5. A weak link with a maximum breaking strength of 1,100 lb (498.8 kg) must be placed at all buoys; and

6. All anchored gillnets, regardless of the number of net panels, must be securely anchored with the holding power of at least a 22 lb (10.0 kg) Danforth-style anchor at each end of the net string.

The restrictions will be in effect beginning at 0001 hours February 7, 2007, through 2400 hours February 21, 2007, unless terminated sooner or extended by NMFS through another notification in the Federal Register .

The restrictions will be announced to state officials, fishermen, ALWTRT members, and other interested parties through e-mail, phone contact, NOAA website, and other appropriate media immediately upon issuance of the rule by the AA.

In accordance with section 118(f)(9) of the MMPA, the Assistant Administrator (AA) for Fisheries has determined that this action is necessary to implement a take reduction plan to protect North Atlantic right whales.

Environmental Assessments for the DAM program were prepared on December 28, 2001, and August 6, 2003. This action falls within the scope of the analyses of these EAs, which are available from the agency upon request.

NMFS provided prior notice and an opportunity for public comment on the regulations establishing the criteria and procedures for implementing a DAM zone. Providing prior notice and opportunity for comment on this action, pursuant to those regulations, would be impracticable because it would prevent NMFS from executing its functions to protect and reduce serious injury and mortality of endangered right whales. The regulations establishing the DAM program are designed to enable the agency to help protect unexpected concentrations of right whales. In order to meet the goals of the DAM program, the agency needs to be able to create a DAM zone and implement restrictions on fishing gear as soon as possible once the criteria are triggered and NMFS determines that a DAM restricted zone is appropriate. If NMFS were to provide prior notice and an opportunity for public comment upon the creation of a DAM restricted zone, the aggregated right whales would be vulnerable to entanglement which could result in serious injury and mortality. Additionally, the right whales would most likely move on to another location before NMFS could implement the restrictions designed to protect them, thereby rendering the action obsolete. Therefore, pursuant to 5 U.S.C. 553(b)(B), the AA finds that good cause exists to waive prior notice and an opportunity to comment on this action to implement a DAM restricted zone to reduce the risk of entanglement of endangered right whales in commercial lobster trap/pot and anchored gillnet gear as such procedures would be impracticable.

For the same reasons, the AA finds that, under 5 U.S.C. 553(d)(3), good cause exists to waive the 30-day delay in effective date. If NMFS were to delay for 30 days the effective date of this action, the aggregated right whales would be vulnerable to entanglement, which could cause serious injury and mortality. Additionally, right whales would likely move to another location between the time NMFS approved the action creating the DAM restricted zone and the time it went into effect, thereby rendering the action obsolete and ineffective. Nevertheless, NMFS recognizes the need for fishermen to have time to either modify or remove (if not in compliance with the required restrictions) their gear from a DAM zone once one is approved. Thus, NMFS makes this action effective 2 days after the date of publication of this document in the Federal Register . NMFS will also endeavor to provide notice of this action to fishermen through other means upon issuance of the rule by the AA, thereby providing approximately 3 additional days of notice while the Office of the Federal Register processes the document for publication.

NMFS determined that the regulations establishing the DAM program and actions such as this one taken pursuant to those regulations are consistent to the maximum extent practicable with the enforceable policies of the approved coastal management program of the U.S. Atlantic coastal states. This determination was submitted for review by the responsible state agencies under section 307 of the Coastal Zone Management Act. Following state review of the regulations creating the DAM program, no state disagreed with NMFS' conclusion that the DAM program is consistent to the maximum extent practicable with the enforceable policies of the approved coastal management program for that state.

The DAM program under which NMFS is taking this action contains policies with federalism implications warranting preparation of a federalism assessment under Executive Order 13132. Accordingly, in October 2001 and March 2003, the Assistant Secretary for Intergovernmental and Legislative Affairs, Department of Commerce, provided notice of the DAM program and its amendments to the appropriate elected officials in states to be affected by actions taken pursuant to the DAM program. Federalism issues raised by state officials were addressed in the final rules implementing the DAM program. A copy of the federalism Summary Impact Statement for the final rules is available upon request ( ADDRESSES ).

The rule implementing the DAM program has been determined to be not significant under Executive Order 12866.