The regulations in 9 CFR part 94 (referred to below as the regulations) govern the importation of specified animals and animal products to prevent the introduction into the United States of various animal diseases, including rinderpest, foot-and-mouth disease, bovine spongiform encephalopathy, swine vesicular disease, classical swine fever, and African swine fever (ASF). These are dangerous and destructive diseases of ruminants and swine.

Section 94.8 of the regulations lists regions of the world where ASF exists or is reasonably believed to exist and imposes restrictions on the importation of pork and pork products into the United States from those regions.

On August 29, 2007, Armenia reported to the World Organization for Animal Health six outbreaks of ASF in various areas in the northern part of the country. The source of the outbreaks is unknown. Therefore, in order to prevent the introduction of ASF into the United States, we are amending the regulations by adding Armenia to the list of regions in § 94.8 where ASF exists or is reasonably believed to exist. As a result of this action, the importation into the United States of pork and pork products from Armenia will be restricted. We are imposing this restriction retroactively to August 29, 2007, which is the date that the presence of ASF in Armenia was confirmed.

This rulemaking is necessary on an emergency basis to prevent the introduction of ASF into the United States. Under these circumstances, the Administrator has determined that prior notice and opportunity for public comment are contrary to the public interest and that there is good cause under 5 U.S.C. 553 for making this rule effective less than 30 days after publication in the Federal Register .

We will consider comments we receive during the comment period for this interim rule (see DATES above). After the comment period closes, we will publish another document in the Federal Register . The document will include a discussion of any comments we receive and any amendments we are making to the rule.

This interim rule has been reviewed under Executive Order 12866. For this action, the Office of Management and Budget has waived its review under Executive Order 12866.

This interim rule amends the regulations by adding Armenia to the list of regions in which ASF exists. This action is necessary on an emergency basis to prevent the introduction of ASF into the United States.

The rule will restrict the importation of pork and pork products from Armenia. While the United States imported approximately $2.1 million of agricultural products from Armenia between 2002 and 2006, these were largely horticultural products, wine and wine products, and fruit and vegetable products. Pork and pork products are not currently imported from Armenia into the United States. Therefore, it is unlikely that this interim rule will have any substantial effects on trade, or on large or small businesses.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are inconsistent with this rule; (2) has retroactive effect to August 29, 2007; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

This interim rule contains no information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501, et seq. ).

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on October 17, 2007 (72 FR 58774). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a NOTE within the AD.

We estimate that this AD will affect about 1 product of U.S. registry. We also estimate that it will take about 4 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $320, or $320 per product.

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 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 this AD:

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

2. Is not a “significant rule” under the 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.

You may examine the AD docket on the Internet at http://www.regulations.gov ; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Discussion

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that supersedes AD 2006-10-04, amendment 39-14588 (71 FR 27592, May 12, 2006). The existing AD applies to certain Boeing Model 747-200B, 747-200C, 747-200F, 747-300, 747-400, and 747SP series airplanes. That NPRM was published in the Federal Register on August 16, 2007 (72 FR 45973). That NPRM proposed to continue to require doing a detailed inspection of the left and right longeron extension fittings, and corrective action if necessary. That NPRM also proposed to add airplanes to the applicability of the existing AD.

We gave the public the opportunity to participate in developing this AD. We considered the single comment received. Boeing supports the NPRM.

Where paragraphs (h) and (i) of the NPRM referred to “the alert service bulletin” and “the service bulletin,” we have specified the number, revision level and date of those service bulletins for clarity.

We reviewed the relevant data, considered the comment received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

We consider this AD interim action. If final action is later identified, we might consider further rulemaking then.

There are about 876 airplanes of the affected design in the worldwide fleet. This AD affects about 156 airplanes of U.S. registry.

The actions specified by this AD were previously required by AD 2006-10-04, which was applicable to approximately 25 airplanes of U.S. registry. The actions required by that AD take about 1 work hour per airplane. We estimated the cost of the current requirements of that AD on U.S. operators to be $2,000, or $80 per airplane. Some operators of the 25 airplanes subject to AD 2006-10-04 may have already initiated the required actions. This AD adds no new costs associated with those airplanes.

This AD is applicable to approximately 131 additional airplanes of U.S. registry. New actions required by this AD take about 1 work hour per airplane. Based on the current labor rate of $80 per work hour, we estimate the new costs imposed by this AD on U.S. operators to be $10,480, or $80 per airplane. This figure is based on assumptions that no operator of these additional airplanes has yet done any of the requirements of this AD, and that no operator would do those actions in the future if this AD were not adopted.

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.

The FAA proposed to amend 14 CFR part 39 by superseding AD 2004-26-10, Amendment 39-13922 (70 FR 1172, January 6, 2005), with a proposed AD. The proposed AD applies to RRD Tay 611-8, Tay 620-15, Tay 650-15, and Tay 651-54 turbofan engines. We published the proposed AD in the Federal Register on July 6, 2007 (72 FR 36916). That action proposed to require initial and repetitive visual inspections of all ice-impact panels and fillers in the LP compressor case for certain conditions and replacing, as necessary, any or all panels. That action also proposed to provide terminating action to those repetitive actions, and to add the Tay 611-8C turbofan engine to the applicability.

You may examine the AD docket on the Internet at http://www.regulations.gov ; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

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

Two commenters, Rolls-Royce North America Inc. and Gulfstream, request that we extend the Tay 611-8 and 611-8C engine compliance time four more years, from December 31, 2011, to December 31, 2015, to address new engines having the 6-ice-impact panel configuration. The commenters state that so far, 12 engines have incorporated the ice-impact panel retention features, and those engines displayed strong bonding of the ice-impact panels before the panels were removed. The commenters are concerned with potential shop capacity problems, and extra cost if a special in-service repair is necessary.

We do not agree. We coordinated with Rolls-Royce Deutschland Ltd & Co KG in reviewing the request. Rolls-Royce Deutschland Ltd & Co KG re-states that the rework of the LP compressor case and installation of new LP compressor case ice-impact panels with additional retention features must be done before December 31, 2011 in accordance with Alert Service Bulletin No. TAY-72-A1650, dated November 2, 2005.

Rolls-Royce Deutschland Ltd & Co KG requests that we correct some reference errors appearing in the proposed AD, as follows:

• In paragraphs (f)(2) and (f)(3), change “RRD SB No. TAY-72-1638, Revision 2, dated September 21, 2004”, to “RRD SB No. TAY-72-1638, Revision 3, dated February 25, 2005.”

• In paragraphs (h)(2) and (i)(2), change “RRD SB No. TAY-72-1638, Revision 2, dated September 21, 2004”, to “RRD SB No. TAY-72-1639, Revision 2, dated September 21, 2004.”

• In paragraph (h)(3), change “every 1,000 CSLI” to “every 1,000 operating hours.”

• In paragraph (i)(1), change “every 3,000 CSLI” to “every 3,000 operating hours.”

Rolls-Royce Deutschland Ltd & Co KG also requests that we review the proposed AD for missing corrections that were made to AD 2004-26-10, but not carried forward.

We agree. The corrections were inadvertently left out of the proposed AD. We have made those corrections to this AD, which throughout the compliance section changed “paragraph 3.E.” to “paragraphs 3.C. through 3.E.”

We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes 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 estimate that this AD will affect about 1,085 engines installed on airplanes of U.S. registry. We also estimate that it will take about 2.5 work-hours per engine to perform an inspection, and about 12 work-hours to perform a repair. The average labor rate is $80 per work-hour. Required terminating action parts will cost about $7,500 per engine. Based on these figures, for the AD, we estimate:

• The cost of one inspection to the U.S. fleet to be $217,000.

• The cost of a repair to the U.S fleet to be $1,041,600.

• The cost of parts to the U.S. fleet for terminating action to be $8,137,500.

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 summary of the costs to comply with this AD and placed it in the AD docket. You may get a copy of this summary at the address listed under ADDRESSES .

On March 24, 2004, we issued AD 2004-07-22, amendment 39-13566 (69 FR 18250, April 7, 2004). A correction of that AD was published in the Federal Register on May 3, 2004 (69 FR 24063). AD 2004-07-22 applies to all Boeing Model 747 series airplanes. That AD requires that the FAA-approved maintenance inspection program be revised to include inspections that will give no less than the required damage tolerance rating for each structural significant item, and repair of cracked structure. That AD resulted from a report of incidents involving fatigue cracking in transport category airplanes that are approaching or have exceeded their design service objective. We issued that AD to ensure the continued structural integrity of the entire fleet of Model 747 series airplanes.

Since we issued AD 2004-07-22, Boeing has announced the production of additional Model 747 variants. Although they have not yet been certified, the new variants (Model 747-8 and -8F series airplanes) have a certification basis that will alleviate the safety issues addressed by AD 2004-07-22. All of the supplemental structural inspections required by AD 2004-07-22 will be included in the Airworthiness Limitations Section of the Boeing 747-8/8F Maintenance Planning Data Document.

Because AD 2004-07-22 currently applies to “all Boeing Model 747 series airplanes,” these additional Model 747 variants will be required to do the actions mandated by that AD, once they are certified. Therefore, we must clarify the applicability to specify only the airplanes that are affected by this AD.

The unsafe condition described previously is likely to exist or develop on other airplanes of the same type design. For this reason, we are issuing this AD to revise AD 2004-07-22. This new AD retains the requirements of the existing AD. This AD also clarifies the applicability of the existing AD.

Since we issued AD 2004-07-22, the AD format has been revised, and certain paragraphs have been rearranged. As a result, the corresponding paragraph identifiers have changed in this AD, as listed in the following table:

We have also removed Note 1 of AD 2004-07-22 from this AD. The information in that note is now included in the Federal Aviation Regulations (14 CFR part 39) and it is not necessary to include it in this AD. We have re-numbered the notes in AD 2004-07-22 R1 accordingly.

We estimate that this AD affects about 165 airplanes of U.S. registry. The requirements of this AD add no additional economic burden. The current costs for this AD are repeated for the convenience of affected operators, as follows:

We estimate that the actions required by AD 2004-07-22 and retained in this AD take up to 6,825 work-hours per product. The average labor rate is $80 per work hour. Based on these figures, we estimate the cost of this AD to U.S. operators to be up to $90,090,000 or up to $546,000 per product.

The number of work hours, as indicated above, is presented as if the accomplishment of the actions required by AD 2004-07-22 and retained in this AD are to be conducted as “stand alone” actions. However, in actual practice, these actions for the most part will be accomplished coincidentally or in combination with normally scheduled airplane inspections and other maintenance program tasks. Therefore, the actual number of necessary additional work hours will be minimal in many instances. Additionally, any costs associated with special airplane scheduling will be minimal.

No airplane variant that we had previously excluded from the applicability of this AD is currently on the U.S. Register. Therefore, providing notice and opportunity for public comment is unnecessary before this AD is issued, and this AD may be made effective in less than 30 days after it is published in the Federal Register .

This AD is a final rule that involves requirements affecting flight safety, and we did not provide you with notice and an opportunity to provide your comments before it becomes effective. However, we invite you to send any written data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-0411; Directorate Identifier 2007-NM-291-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

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 the regulation:

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

2. Is not a “significant rule” under the 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.

Discussion

On November 5, 1990, we issued AD 90-25-05, amendment 39-6790 (55 FR 49268, November 27, 1990). AD 90-25-05 applies to all Boeing Model 747 series airplanes. That AD requires the implementation of a corrosion prevention and control program. That AD resulted from reports of incidents involving corrosion and cracking in transport category airplanes, which have jeopardized the airworthiness of the affected airplanes. We issued that AD to prevent degradation of the structural capabilities of the affected airplanes.

Since we issued AD 90-25-05, Boeing has announced the production of additional Model 747 variants. Although they have not yet been certified, the new variants (Model 747-8 and -8F series airplanes) have a certification basis that will alleviate the safety issues addressed by AD 90-25-05. All of the inspections required by AD 90-25-05 will be included in the Boeing Model 747-8/8F Maintenance Review Board Report (MRBR) Document and the corresponding Boeing Model 747-8/8F Maintenance Planning Data (MPD) Document.

Because AD 90-25-05 currently applies to “all Boeing Model 747 series airplanes,” these additional Model 747 variants will be required to do the actions mandated by that AD, once they are certified. Therefore, we must clarify the applicability to specify only the airplanes that are affected by this AD.

The unsafe condition described previously is likely to exist or develop on other airplanes of the same type design. For this reason, we are issuing this AD to revise AD 90-25-05. This new AD retains the requirements of the existing AD. This AD also clarifies the applicability of the existing AD.

Since we issued AD 90-25-05, the AD format has been revised, and certain paragraphs have been rearranged. As a result, the corresponding paragraph identifiers have changed in this AD, as listed in the following table:

We have also changed this AD to include numbers on each of the notes in the AD.

We estimate that this AD affects about 165 airplanes of U.S. registry. The requirements of this AD add no additional economic burden. The current costs for this AD are repeated for the convenience of affected operators, as follows:

We estimate that the actions required by AD 90-25-05 and retained in this AD take about 4,720 work-hours per product. The average labor rate is $80 per work-hour. Based on these figures, we estimate the cost of this AD to U.S. operators to be $62,304,000 or $377,600 per product.

The number of work hours, as indicated above, is presented as if the accomplishment of the actions required by AD 90-25-05 and retained in this AD are to be conducted as “stand alone” actions. However, in actual practice, these actions for the most part will be accomplished coincidentally or in combination with normally scheduled airplane inspections and other maintenance program tasks. Therefore, the actual number of necessary additional work hours will be minimal in many instances. Additionally, any costs associated with special airplane scheduling will be minimal.

No airplane variant that we had previously excluded from the applicability of this AD is currently on the U.S. Register. Therefore, providing notice and opportunity for public comment is unnecessary before this AD is issued, and this AD may be made effective in less than 30 days after it is published in the Federal Register .

This AD is a final rule that involves requirements affecting flight safety, and we did not provide you with notice and an opportunity to provide your comments before it becomes effective. However, we invite you to send any written data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2008-0412; Directorate Identifier 2007-NM-290-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

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 the regulation:

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

2. Is not a “significant rule” under the 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.

This document contains amendments to the Regulations on Procedure and Administration (26 CFR Part 301) under section 7216 of the Internal Revenue Code. These regulations strengthen taxpayers' ability to control their tax return information by requiring that tax return preparers give taxpayers specific information, including who will receive the tax return information and the particular items of tax return information that will be disclosed or used, to allow taxpayers to make knowing, informed, and voluntary decisions over the disclosure or use of their tax information by their tax return preparer.

Section 7216 imposes criminal penalties on tax return preparers who knowingly or recklessly make unauthorized disclosures or uses of information furnished to them in connection with the preparation of an income tax return. In addition, tax return preparers are subject to civil penalties under section 6713 for disclosure or use of this information unless an exception under the rules of section 7216(b) applies to the disclosure or use.

Section 7216 was enacted by section 316 of the Revenue Act of 1971, Public Law 92-178 (85 Stat. 529). In 1988, Congress modified the section by limiting the criminal sanction to knowing or reckless, unauthorized disclosures. Public Law 100-647 (102 Stat. 3749). At the same time, Congress enacted the civil penalty that is now found in section 6713. Public Law 100-647, § 6242(a) (102 Stat. 3759). In 1989, Congress further modified section 7216, directing the Treasury Department to issue regulations permitting disclosures of tax return information for quality or peer reviews. Public Law 101-239, § 7739(a) (103 Stat. 3759).

The Treasury Department and the IRS proposed regulations under section 7216 on December 20, 1972 (37 FR 28070). Final regulations were issued on March 29, 1974 (39 FR 11537). These regulations are divided into three parts: § 301.7216-1 for general provisions and definitions; § 301.7216-2 for disclosures and uses that do not require formal taxpayer consent; and § 301.7216-3 for disclosures and uses that require formal taxpayer consent. Since the regulations were adopted in 1974, the Treasury Department and the IRS have amended § 301.7216-2 on occasion, but §§ 301.7216-1 and 301.7216-3 have remained unchanged.

A notice of proposed rulemaking (REG-137243-02) was published in the Federal Register (70 FR 72954) on December 8, 2005. Concurrently with publication of the proposed regulations, the IRS published Notice 2005-93, 2005-52 I.R.B. 1204 (December 07, 2005), setting forth a proposed revenue procedure that would provide guidance to tax return preparers regarding the format and content of consents to disclose and consents to use tax return information under § 301.7216-3.

Written comments were received in response to the notice of proposed rulemaking. A public hearing was held on April 4, 2006. Commentators appeared at the public hearing and commented on the notice of proposed rulemaking.

All comments were considered and are available for public inspection upon request. This preamble summarizes most of the comments received by the IRS and Treasury Department. After consideration of the written comments and the comments provided at the public hearing, the proposed regulations under section 7216 are adopted as revised by this Treasury decision.

Concurrently with publication of these regulations, the IRS is publishing a revenue procedure and an advanced notice of proposed rulemaking. The revenue procedure provides guidance on the format and content of consents to disclose or use tax return information under § 301.7216-3 for taxpayers filing a return in the Form 1040 series, e.g., Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ. The revenue procedure also provides specific guidance for electronic signatures when a taxpayer filing a return in the Form 1040 series executes an electronic consent to the disclosure or use of the taxpayer's tax return information.

The advanced notice of proposed rulemaking requests comments regarding a proposed rule under § 301.7216-3 that a tax return preparer may not obtain a consent to disclose or use tax return information for the purpose of the tax return preparer soliciting, or the taxpayer obtaining, a refund anticipation loan (RAL) or certain other products.

Some commentators recommended that the final regulations specify the existing revenue rulings, notices, and other guidance under section 7216 that continue to have effect under the final regulations. While the final regulations do not identify all guidance that has continuing effect, the section of this Treasury decision entitled “Effect on Other Documents” specifies guidance that Treasury and the IRS have determined as contrary to the regulations.

One commentator requested that the preamble of the regulations clarify whether a tax return preparer may offer for sale an insurance policy that will reimburse the taxpayer additional tax the taxpayer is required to pay under certain circumstances involving errors by the tax return preparer. Section 7216 and the regulations thereunder govern only a tax return preparer's disclosure or use of tax return information. To the extent that a tax return preparer offers a product, such as insurance, where the offer is based on the disclosure of tax return information to a third-party, or where use of such tax return information serves as the basis for making the offer, section 7216 and the regulations thereunder only govern whether use or disclosure of the tax return information requires taxpayer consent.

Some commentators recommended that Treasury and the IRS seek legislative changes to section 7216. More specifically, these commentators recommended that the amount of the section 7216 criminal penalty be increased, that the amount of the section 6713 civil penalty be increased, and that the Code be amended to provide a private right of action against tax return preparers. Another commentator recommended amending section 7216 to provide a means to abate the penalty in cases where reasonable cause and good faith is established. This commentator also recommended that Treasury and the IRS not attempt to regulate the disclosure or use of tax return information in the context of a criminal statute, section 7216, but that only civil penalties should apply.

Requests for statutory changes to sections 7216 and 6713 are outside of the scope of these regulations. Section 7216 expressly provides for Treasury to promulgate regulations to exempt certain disclosures or uses of information from the statute's criminal sanction. Although Treasury and the IRS do not have the regulatory authority to provide for a reasonable cause exception under section 7216, the criminal penalty provided for by that statute is premised on a finding of knowing or reckless conduct.

One commentator requested expanding the definition of tax return preparer to include clerical staff involved in preparation of a tax return. Because the definition of tax return preparer in the regulations already encompasses clerical staff involved in the preparation of a return, no change is needed to address this comment.

While approving of the generally broad scope of the term “tax return preparer,” one commentator expressed concern that the term did not cover employees of tax return preparers who do not personally assist in the preparation of tax returns or the provision of auxiliary services. That commentator recommended that section 7216 should nonetheless apply to any employee. This comment was not adopted. The statute applies only to persons “engaged in the business of preparing, or providing services in connection with the preparation of, returns.” The regulations, however, do not permit disclosure by one employee of a tax return preparer to another employee of the tax return preparer on the basis of employment status alone. See Treas. Reg. § 301.7216-2(c).

Based on recent amendments to section 7701(a)(36) of the Code (which post-amendment applies more generally to tax return preparers other than income tax returns), the final regulations were revised to omit the language in the proposed regulations pertaining to the lack of uniformity of the definition of tax return preparer provided in section 7701(a)(36) and the definition of tax return preparer for purposes of section 7216.

Some commentators expressed concern that the definition of tax return information encompasses an overly broad amount of information. One commentator recommended that a taxpayer's name, address, telephone number, e-mail address, and identification number should not be treated as tax return information. Another commentator recommended that a taxpayer's name, address, and other contact information should be available for a tax return preparer to use to provide the taxpayer with any information that the tax return preparer believes may be of interest to the taxpayer. These recommendations regarding tax return information were not adopted because information revealing the identity of, or how to contact, a person is information central to one's privacy and deserving of treatment as tax return information when submitted for, or in connection with, the preparation of a tax return. Section 301.7216-2(n), however, permits tax return preparers to make limited use of taxpayer's contact information to offer tax information or additional tax return preparation services to previous customers.

One commentator recommended eliminating language from the regulations providing that information maintained in a form that is associated with the tax return preparation becomes tax return information regardless of how the information was initially obtained. The commentator questioned whether non-tax return information could become tax return information as a result of the manner in which it is stored and maintained by the tax return preparer. Treasury and the IRS agree that section 7216 protects only information furnished to a tax return preparer for, or in connection with, the preparation of a return and that information does not become tax return information merely by the method in which the information is stored. The language in the proposed regulations that is the subject of the comment was included to recognize that the protections of section 7216 may extend to information furnished by persons other than the taxpayer, including information furnished by one person within a firm to a tax return preparer employed by the same firm. In that situation, the information in the hands of the tax return preparer would be tax return information even if the person furnishing the information had obtained it other than in connection with the preparation of a tax return. Because this rule is evident from other provisions of the regulations, and the language commented upon may create confusion, the language has been removed from these regulations.

One commentator expressed concern that the proposed regulations improperly expand upon section 7216 by defining “tax return information” to include information derived or generated from tax return information. The commentator commented that section 7216 protects only information furnished to tax return preparers, and data that a tax return preparer derives from that information should not be considered data furnished to the tax return preparer. The commentator, therefore, recommended removing this language from the regulations.

The commentator's recommendation was not adopted. Information that a tax return preparer would typically derive from other information furnished in connection with the preparation of a return could include information on the taxpayer's entitlement to deductions, credits, losses or gains, the amounts thereof, and the amount of tax due. It would frustrate the purpose of the statute not to protect this information when a taxpayer has furnished the tax return preparer the means to derive it.

Similarly, the same commentator stated that the proposed regulations improperly expand upon the statute by defining “tax return information” to include “information received by the tax return preparer from the IRS in connection with the processing of such return.” The commentator recommended eliminating this language from the regulations. This recommendation was not adopted. The statute protects information furnished to a tax return preparer for, or in connection with, preparation of a return and does not require that the taxpayer have furnished the information.

Some commentators approved of the proposed regulations' definition of tax return information, but expressed concern that Example 1 in § 301.7216-1(b)(3)(ii) suggests that information supplied to register tax preparation software is not tax return information unless the tax return preparer states during the registration process that it will provide updates to registrants. These commentators, therefore, recommended deleting that fact from the example. This recommendation was adopted to explicitly provide that all information furnished to register tax return preparation software is tax return information.

Some commentators expressed concern that if information furnished to register tax return preparation software was treated as tax return information, then tax return preparers would be required to obtain consent from taxpayers prior to updating the tax return preparation software. To address this concern, section 301.7216-2(c) of the regulations has been revised.

One commentator stated that the definition of “use” is overly broad. The commentator proposed that the “use” of tax return information should not include tax return preparers informing taxpayers of the availability of products and services that tax return preparers offer that could benefit taxpayers. As an example, the commentator stated that informing a taxpayer about the availability of a refund anticipation loan based on the taxpayer's tax return information should not be a “use” of tax return information. This recommendation was not adopted. The regulations require consents for tax return preparers to use tax return information so that taxpayers themselves determine whether they want additional information regarding products and services that might benefit them. The potential uses of tax return information should be clearly described by tax return preparers and the potential uses must be consented to by taxpayers before such uses occur.

Two commentators recommended that tax return preparers should be responsible for subsequent disclosures or uses of tax return information by third parties to whom tax return preparers made an authorized disclosure of tax return information. This recommendation was not adopted because section 7216 does not apply to third parties who are not tax return preparers.

Section 301.7216-1(b)(2)(iii) of the proposed regulations provides that a person is engaged in the business of providing auxiliary services in connection with the preparation of tax returns as described in paragraph (b)(2)(i)(B) of that section if, in the course of the person's business, the person holds himself out to tax return preparers or to taxpayers as a person who performs auxiliary services, whether or not providing the auxiliary services is the person's sole business activity and whether or not the person charges a fee for the auxiliary services. One commentator recommended broadening the definition of auxiliary services to include analysis of data for purposes of monitoring the tax return preparer's business for fraud prevention and provision of data storage services. These services as well as similar services are typical of the types of auxiliary services that can be provided to tax return preparers as contemplated by § 301.7216-1(b)(2)(iii) and are already covered by the broad definition of auxiliary services in the regulations. The same commentator also recommended broadening the definition of auxiliary services to include the analysis of customer activity to improve services and assistance in connection with preparation for taxpayer audits. These services are already addressed in other parts of the regulations. See §§ 301.7216-2(o) and 301.7216-2(k).

One commentator recommended that the express exclusion under § 301.7216-1(b)(2)(v) of the proposed regulations of certain persons from the definition of tax return preparer should be extended to include persons who provide “a broad range of financial products and services * * * to customers of tax return preparers, including savings, transaction, and retirement accounts.” The commentator's recommendation was not adopted as the regulations do not provide an exhaustive list of the persons identified as excluded from the definition of tax return preparer. To the extent the service providers suggested to be excluded by the commentator provide services only incidentally related to the preparation of the return, these persons would be excluded under the regulation.

One commentator recommended that the regulations should not treat as a disclosure by a tax return preparer the situation where a taxpayer is transferred from the tax return preparer's website to a different website and the taxpayer separately enters information on the different website. This recommendation was not adopted because the regulations already do not treat this fact pattern as a disclosure by the tax return preparer.

Section 301.7216-2(b) of the proposed regulations provides that tax return preparers may disclose to the IRS any tax return information the IRS requests to assist in the administration of electronic filing programs. One commentator requested limiting this rule to “specific necessary purposes, such as compliance by electronic return originators.” This recommendation was not adopted. Return information in the hands of the IRS is already protected from unauthorized disclosure. See, e.g. , section 6103.

Other commentators expressed concern regarding whether § 301.7216-2(b) permitted disclosures of tax return information to the IRS in general. Because the purpose of these regulations is to protect taxpayers from the unauthorized uses and disclosures by tax return preparers, and because tax return information in the hands of the IRS is already protected from unauthorized disclosure, § 301.7216-2(b) has been modified to clarify that return preparers may disclose any tax return information to the IRS for any purpose.

Section 301.7216-2(c)(1) of the final regulations has been revised to provide that if a tax return preparer provides software to a taxpayer that is used in connection with the preparation or filing of a tax return, the tax return preparer may use the taxpayer's tax return information to update the taxpayer's software for the purpose of addressing changes in IRS forms, e-file specifications and administrative, regulatory and legislative guidance or to test and ensure the software's technical capabilities without obtaining the taxpayer's consent under § 301.7216-3.

Section 301.7216-2(c) of the proposed regulations generally provides that an officer, employee, or member of a tax return preparer in the United States may disclose tax return information to another officer, employee, or member of the same tax return preparer located within the United States. Section 301.7216-2(c)(1) of the proposed regulations provides that the taxpayer must give consent under § 301.7216-3 prior to any disclosure of tax return information by an officer, employee, or member of a tax return preparer in the United States to an officer, employee, or member of the same tax return preparer located outside of the United States or any territory or possession of the United States. One commentator expressed concern that this rule was too strict with respect to multinational companies and employees on assignment outside of the United States. This commentator stated that such taxpayers anticipate that their tax return information will be disclosed outside of the United States. This commentator recommended that consent under § 301.7216-3 should not be required with respect to disclosures when the taxpayer is a multinational company or an individual taxpayer employed or on assignment outside of the United States and that an engagement letter explaining potential circumstances involving disclosures overseas ought to be permitted in these situations.

This recommendation was not adopted. As explained in the preamble to the proposed regulations, the Treasury Department and IRS believe that a separate explanation is required under these circumstances in order to advise taxpayers that their tax return information is being disclosed to tax return preparers located outside the United States. The final regulations, however, address the commentator's request for additional flexibility with respect to the form and manner of the consent for taxpayers other than individuals. For tax return preparers providing tax return preparation services to taxpayers who do not file an income tax return in the Form 1040 series, e.g. , Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ, a consent to disclose tax return information outside the United States may be in any format, including an engagement letter to a client, as long as the consent provides sufficient information to enable the taxpayer to provide informed consent. For tax return preparers providing tax return preparation services to taxpayers who file an income tax return in the Form 1040 series, the regulations provide that the Secretary may issue guidance, by publication in the Internal Revenue Bulletin, prescribing the form and manner of the consent to disclose tax return information, including disclosure of return information outside the United States. This rule is consistent with the general rule adopted by these final regulations with respect to a tax return preparer's request for consent to disclose tax return information. See section 301.7216-3(a)(3).

Additionally, one commentator recommended that, rather than provide limitations on the disclosure of tax return information by a tax return preparer within the United States to another tax return preparer of the same firm who is located outside of the United States, the regulations should instead permit such disclosures without consent if the tax return preparer of the same firm outside of the United States consents to adhere to the rules of section 7216. This recommendation was not adopted because it does not inform taxpayers that their tax return information will be disclosed outside of the United States or allow taxpayers to control the decision whether their information is disclosed overseas.

Section 301.7216-2(d) of the proposed regulations provides that disclosures between tax return preparers are authorized when the disclosures (i) assist in the preparation of a return; (ii) the services provided by the recipient of the disclosure are not substantive determinations or advice affecting a taxpayer's reported tax liability; and (iii) the disclosure is to a tax return preparer located in the United States. Two commentators expressed concern that the phrase “substantive determinations or advice” is a vague standard and recommended the use of examples in the regulations that adequately define the phrase. The final regulations clarify the meaning of substantive determinations and provide an example to illustrate the operation of this rule.

One commentator recommended adopting the professional ethics rules of the American Institute of Certified Public Accountants (AICPA) on outsourcing in lieu of § 301.7216-2(d) of the proposed regulations. Rule 102 of the AICPA Code of Professional Conduct requires that, prior to sharing confidential client information (such as a tax return) with a third-party service provider, an AICPA member must inform the client, preferably in writing, that the member may use a third-party service provider when providing professional services to the client. Unlike the rules in the regulations, the AICPA Code of Professional Conduct does not require that the client consent to the disclosure of tax return information when substantive determinations or advice are sought from third parties. Under the AICPA rules, AICPA members who use third-party service providers remain responsible for the work done by the service providers and they must contract with the third-party service provider for the service provider to monitor the confidentiality of the client's information to the third-party Service provider. The commentator's recommendation that the regulations adopt only the protections of the AICPA ethics rules was not adopted. The Treasury Department and the IRS are concerned that taxpayers and tax return information would not be adequately protected if a tax return preparer could disclose tax return information to any third-party service provider without taxpayer consent to that disclosure.

One commentator recommended modifying § 301.7216-2(d) of the proposed regulations to allow disclosures between franchisors and franchisees in the tax return preparation business according to the terms of their franchise agreement. The commentator's recommendation was not adopted because the existence of a written franchise agreement should not affect the confidentiality of a taxpayer's tax return information.

One commentator critiqued § 301.7216-2(d) because it will limit the benefits tax return preparation firms may enjoy from using foreign outsourcing. Foreign outsourcing is not prohibited by the final regulations, which permit the disclosure of tax return information outside of the United States if the taxpayer consents to such disclosure. One commentator recommended that tax return preparers should be allowed to disclose tax return information to third-party service providers subject to the requirements of the privacy provisions of Title V of the Gramm-Leach-Bliley Act, Public Law 106-102 (113 Stat. 1338) (GLBA). Specifically, the commentator proposed that the regulations should permit tax return preparers to: (1) Execute a written contract with a service provider limiting the service provider's disclosure or use of tax return information; (2) select and retain service providers that are capable of safeguarding tax return information; and (3) implement contractual provisions requiring service providers to develop and maintain appropriate information safeguards. This recommendation was not adopted. While the requirements of section 7216 and these regulations do not override any requirements or restrictions of the GLBA, the sensitivity of tax return information justifies affording tax return information stronger protections than other information subject to the GLBA.

One commentator recommended that the title of proposed § 301.7216-2(f) be revised to add the word “request” following the word “demand,” to align the subsection's title with the regulation's language in § 301.7216-2(f)(5). This recommendation was adopted in the final regulation.

One commentator recommended replacing the phrase “professional ethics board” in proposed § 301.7216-2(f) with the phrase “certain professional association ethics committees or boards.” The commentator noted that this change would avoid confusion as to whether the reference to professional ethics boards means governmental entities that control licensing for CPAs or whether the phrase would include professional associations that have boards or committees that discipline their members, such as the AICPA or state and local bar associations. This recommendation was adopted, in part, by changing the phrase “professional ethics board” to “professional association ethics committee or board.” Section 301.7216-2(f)(4)(ii) separately addresses disclosures to government entities charged with licensing, registration, or regulation of tax return preparers.

One commentator recommended permitting disclosure of tax return information without taxpayer consent pursuant to disclosures required by Federal or State laws and administrative rules, but did not identify any specific rule or law that required a disclosure in circumstances contrary to either the preexisting regulations or the proposed regulations. Preexisting regulations already permitted disclosures pursuant to an order of a court or a Federal or State agency. These final regulations permit disclosures pursuant to an order of a court or an administrative order, demand, summons or subpoena that is issued in the performance of its duties by a Federal or State agency, the United States Congress, a professional association ethics committee or board, or the Public Company Accounting Oversight Board. The protections offered by limiting disclosures to responses to specific governmental or quasi-governmental requests provide appropriate protection for taxpayer privacy.

One commentator expressed concern about proposed § 301.7216-2(f)(5) and the safeguarding of tax return information received by a professional association board or committee conducting an ethics investigation. The commentator recommended revising § 301.7216-2(f)(5) to expressly prohibit professional associations from publishing as part of any resulting professional disciplinary determination the tax return information of a taxpayer furnished to them during an ethics investigation of a preparer unless the taxpayer provides consent. This recommendation was not adopted because section 7216 does not provide for penalties against third parties who receive tax return information in this context.

One commentator recommended rewording proposed § 301.7216-2(f)(6) to provide the following: “A written request from the Public Company Accounting Oversight Board (PCAOB) in connection with an inspection under section 104 of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7214, or an investigation under section 105 of such Act, 15 U.S. 7215, for use in accordance with such Act.” The commentator noted that this wording describes more clearly the situations in which disclosures to the PCAOB are permitted, and to permit registered firms and their associated persons to comply with their disclosure obligations under the Act. This recommendation was adopted.

One commentator expressed concern that permitting the disclosure of tax return information pursuant to a subpoena issued by the United States Congress is inconsistent with the rules regarding disclosures by the IRS to Congress under section 6103(f). The commentator stated that the regulations may provide a method to avoid the specific disclosure rules of section 6103(f), which are designed to protect taxpayers and prevent Congressional abuse of returns or return information. Another commentator recommended eliminating the term “demand” in § 301.7216-2(f)(4)(i) because the commentator believes the term is too broad and could permit any Federal agency to simply ask for tax return information even if the agency does not have authority to issue “formal legal orders” compelling the disclosure. These recommendations were not adopted. Both Congress and Federal agencies are presumed to act in accordance with the law and there are other limitations on their abilities to seek tax return information.

Final section 301.7216-2(g) has been revised to confirm that a tax return preparer may disclose tax return information to an attorney for purposes of the preparer securing legal advice.

Section 301.7216-2(h)(1)(ii) provides that a tax return preparer's law or accounting firm does not include any related or affiliated firms. Some commentators expressed concern that this rule reduces the application of the § 301.7216-2 exceptions for tax return preparers that are structured as separate legal entities, but are closely related. One commentator recommended that the regulations be revised to provide that the “same firm” standard be determined in a manner similar to the rules for qualified employee plans for a single employer. This recommendation was not adopted. Taxpayers should have a clear understanding with whom they are dealing. Adopting this recommendation would require that a taxpayer understand complex rules about which separate legal entities are part of the “same firm” as their tax return preparer to be able to understand who might receive their tax return information. Additionally, a tax return preparer has the ability to obtain consent from a taxpayer to disclose tax return information to a related or affiliated firm.

One commentator recommended that a tax return preparer should be permitted to disclose tax return information to another tax return preparer so that the second tax return preparer can provide assistance in connection with the audit of a return under the law of any State or political subdivision thereof, the District of Columbia, or any territory or possession of the United States. This comment was not adopted because § 301.7216-2(k) already permits such disclosures.

Section 301.7216-2(l) provides that a tax return preparer may disclose and use, without the taxpayer's written consent, tax return information that the taxpayer provides to the tax return preparer to pay for tax preparation services to the extent necessary to process the payment. One commentator recommended applying this rule to the collection of payments. This recommendation was adopted. The exception under § 301.7216-2(l) for the collection of payments is subject to the same limitations as the rule for processing payments. Only tax return information that the taxpayer provided to the tax return preparer to pay for tax return preparation services may be used to collect payment. This limitation precludes tax return preparers from using any other tax return information to collect on delinquent payments.

Section 301.7216-2(n) of the proposed regulations provides that a tax return preparer may compile and maintain a separate list containing solely the names, addresses, e-mail addresses, and phone numbers of taxpayers whose tax returns the tax return preparer has prepared or processed. The proposed regulations also state that this list may be used by the compiler solely to contact the taxpayers on the list for the purpose of offering tax information or additional tax return preparation services. One commentator recommended adding that no mention of services or products other than those related to tax preparation services may be made. Treasury and the IRS agree that the prohibition on using the list to solicit business other than tax return preparation services could be strengthened, and have modified § 301.7216-2(n) to address the commentator's concern.

Section 301.7216-2(o) of the proposed regulations permits a tax return preparer to use tax return information to prepare anonymous statistical compilations for limited purposes related to management or support of the tax return preparer's business. Two commentators recommended that the disclosure or use of tax return information in statistical compilations should be limited to “internal management” because “support” might be read to allow a tax return preparer to target specific customers with advertising. This recommendation was not adopted because § 301.7216-2(o) specifically prohibits the disclosure or use of statistical compilations in connection with, or in support of, businesses other than tax return preparation, and use of lists to solicit additional tax return preparation business is specifically governed, and limited, by § 301.7216-2(n).

One commentator recommended that statistical compilations of tax return information that do not identify taxpayers should not be considered “tax return information” for purposes of section 7216. The commentator stated that if statistical information is treated as “tax return information,” such a rule could prevent tax return preparers (especially tax return preparers that are publicly traded) from reporting essential data to financial regulators or to market participants to provide an accurate picture of the tax return preparer's performance and financial condition. In response to the concern raised by the commentator, the final regulation was modified to provide that the compiler of the statistical compilation may not disclose the compilation, or any part thereof, to any other person unless the disclosure of the statistical compilation is made in order to comply with financial accounting or regulatory reporting requirements or occurs in conjunction with the sale or other disposition of the compiler's tax return preparation business.

One commentator recommended that tax return preparers located within the same firm should be permitted, without obtaining consent, to use tax return information for “the management, support or maintenance of the tax return preparer's business.” This recommendation was not adopted. Because the regulations already permit a tax return preparer to use tax return information to prepare statistical compilations for limited purposes related to management or support of the tax return preparer's business, it is unclear how the commentator's recommendation would further aid in the management or support of a tax return preparer's business.

One commentator recommended that the regulations require that “taxpayer identifying” data, such as names and social security numbers, be redacted from statistical information. This recommendation was not adopted. The regulations already require that statistical compilations must be “anonymous.”

Section 301.7216-2(p) of the proposed regulations provides that a quality or peer review may be conducted only by attorneys, certified public accountants, enrolled agents, and enrolled actuaries who are eligible to practice before the Internal Revenue Service. Some commentators recommended that this subsection of the proposed regulations should be revised to permit other professionals to participate in quality or peer reviews. This recommendation was not adopted. The restriction helps to prevent unauthorized disclosures of tax return information by limiting participation in such reviews to those persons subject to Circular 230, 31 CFR Part 10.

One commentator recommended that the use of computer software designed to assist with the preparation of an income tax return should be allowed without consent to “extract” certain tax return information once entered, such as the taxpayer's name and address, and reprint such information in required fields on the same return in order to eliminate repetitive data entry. This comment was not adopted because the regulations do not prohibit such a use of tax return information where the information is being used for the permitted purpose of preparing the taxpayer's tax return.

Some commentators expressed concern that the proposed regulations authorize the IRS to make available for sale to third parties its internal records and data containing tax return information. This concern reflects a fundamental misunderstanding of the proposed regulations. The proposed regulations do not address any disclosure of tax return information by the IRS; the proposed regulations address only the disclosure and use of tax return information by tax return preparers. Separate laws, including section 6103, strictly protect the confidentiality of returns and return information in the hands of IRS employees and others.

Some commentators expressed concern that the proposed regulations would loosen the current rules regarding a tax return preparer's ability to disclose a client's tax return information. This concern is based on a misunderstanding of the purpose and content of the proposed and preexisting regulations. Section 301.7216-3(a)(1) of the proposed regulations provides that, unless section 7216 or § 301.7216-2 authorizes the disclosure of tax return information, a tax return preparer may not disclose a taxpayer's tax return information prior to obtaining consent from the taxpayer. Since 1974, section 301.7216-3(a)(2) has provided that, “[i]f a tax return preparer has obtained from a taxpayer a consent * * *, he may disclose the tax return information of such taxpayer to such third persons as the taxpayer may direct.” Thus, the proposed regulations contained the same substantive rule that has been in place for over 30 years. Throughout the long-standing existence of former § 301.7216-3(a)(2), there has been no objection to the provision that allowed taxpayers to provide informed consent to tax return preparers disclosing tax return information to third parties.

Nonetheless, commentators criticized the proposed rule, stating that it could allow tax return preparers to induce clients into providing unknowing or inadvertent consents to sell or otherwise disclose tax return information. Furthermore, they argue that disclosure to third parties could result in identity theft. Thus, one solution these commentators recommend is to prohibit taxpayers from ever consenting to the disclosure of their tax return information.

The Treasury Department and IRS did not adopt the commentators' recommendation. Rather, the final regulations retain the general rule that has been in place for more than 30 years recognizing that taxpayers should have control over their own tax return information and that taxpayers should, with appropriate limits and safeguards, be able to direct tax return preparers to disclose tax return information as taxpayers see fit. This rule parallels the statutory rule in section 6103(c) that allows taxpayers to consent to the IRS disclosing returns or return information to third parties of the taxpayer's choosing.

In addition, this rule is consistent with the privacy protection regime in the Health Insurance Portability and Accountability Act (HIPAA), Public Law 104-191 (110 Stat. 1936). HIPAA permits health care providers and health plans to disclose information about health status, provision of health care, or payment to a third-party if they have obtained authorization from the individual patient.

While identity theft is a significant concern, Treasury and the IRS do not believe a generalized concern regarding the potential for criminal activity by third parties should preclude taxpayers from being able to direct the disclosure of tax return information to third parties for legitimate reasons of the taxpayer's own choosing, particularly in the absence of any evidence that disclosure of tax return information by tax return preparers has been a source of identity theft problems.

While the idea of a complete prohibition on consent to disclosure was rejected, Treasury and the IRS did revise § 301.7216-3(b)(5), based on several factors. These factors include: (1) The fact that it is not necessary for tax return preparers to disclose certain taxpayer identifying information to other tax return preparers who are assisting them in preparing a return; (2) the important role a social security number (SSN) plays in the tax administration process, and the heightened potential for misuse when an SSN is readily associated with confidential information, such as tax return information; and (3) the heightened concern about the theft of an individual's confidential information resulting from disclosures outside the United States. Section 301.7216-3(b)(4) now provides that a tax return preparer located within the United States, including any territory or possession of the United States, may not obtain consent to disclose a taxpayer's SSN to a tax return preparer located outside of the United States or any territory or possession of the United States. Thus, if a tax return preparer located within the United States obtains consent from a taxpayer to disclose tax return information to another tax return preparer located outside of the United States, as provided under §§ 301.7216-2(c) and 301.7216-2(d), the tax return preparer located in the United States may not disclose the taxpayer's SSN, and the tax return preparer must redact or otherwise mask the taxpayer's SSN before the tax return information is disclosed outside of the United States. If a tax return preparer located within the United States initially receives or obtains a taxpayer's SSN from another tax return preparer located outside of the United States, however, the tax return preparer within the United States may, without consent, retransmit the taxpayer's SSN to the tax return preparer located outside the United States that initially provided the SSN to the tax return preparer located within the United States. Where a taxpayer-client requests that a tax return preparer within the United States transfer the return preparation engagement to a tax return preparer located outside the United States, the preparer must still redact or otherwise mask the taxpayer's SSN before the information is disclosed and, in this situation, it will be incumbent upon the taxpayer to provide the SSN directly to the tax return preparer located abroad.

Some commentators recommended that the regulations provide taxpayers with the ability to informally initiate a request for the disclosure of tax return information from their tax return preparers without formally following the consent rules of § 301.7216-3. This recommendation was not adopted. As a practical matter, it would be difficult to distinguish when a taxpayer informally initiates a request for the disclosure of tax return information and when tax return preparers merely claim that a taxpayer initiated the request for disclosure. Additionally, tax return preparers are always free to provide taxpayers their own returns and taxpayers may disclose tax return information to others directly.

Other commentators recommended that the regulations should prohibit disclosure to third-party solicitors and not allow taxpayers to consent to disclosures for the purpose of receiving solicitations because the risks to the taxpayer of providing consent inadvertently are too great in comparison to the benefit of receiving solicitations from third parties. This recommendation was not adopted because it denies taxpayers the ability to control and direct the disclosure of their own tax return information. If taxpayers do not wish to receive offers or solicitations from third parties, they can simply refuse to provide the consent needed for third parties to receive their tax return information. If a tax return preparer obtains written consent under circumstances that make the consent unknowing or uninformed, the consent would be invalid under the requirements of the regulations.

Section 301.7216-3 of the preexisting regulations provides that a consent to use tax return information does not apply for purposes of facilitating the solicitation of the taxpayer's use of any services or facilities furnished by a person other than the tax return preparer, unless the other person and the tax return preparer are members of the same affiliated group of corporations within the meaning of section 1504. The proposed regulations removed this “affiliated group” limitation because the affiliated group concept has little application in the context of modern return preparation businesses. The proposed regulations also reflected a determination by the IRS and Treasury Department that a taxpayer's ability to consent to a preparer's use of tax return information to solicit additional business should not be limited by arbitrary factors largely beyond the taxpayer's knowledge or control, such as the size, diversity, or organizational structure of the tax return preparer. Some commentators expressed concern that removal of the “affiliated group” limitation would make it easier for tax return preparers to disclose tax return information to third parties for marketing purposes. This comment reflects a misunderstanding of the nature of a consent governing a tax return preparer's use of tax return information. Use consents are limited to what a tax return preparer can do with tax return information in the tax return preparer's own hands; use consents cannot be used in connection with disclosures to third parties. Thus, identity theft or other abuses by third parties could not arise from taxpayers providing use consents to tax return preparers.

Further, prohibiting the commercial use of tax return information outright would result in no longer allowing legitimate uses of tax return information that have evolved over time as standard commercial practices. For example, tax return preparers could not use tax return information to advise taxpayers of strategies that may positively affect the taxpayers' finances such as individual retirement accounts or qualified tuition programs, or of the taxpayers' eligibility to participate in government benefit programs, such as food stamps.

Many commentators recommended prohibiting tax return preparers from disclosing tax return information for any purpose unrelated to the preparation of tax returns. This recommendation was not adopted because there are many legitimate purposes for the disclosure of tax return information identified in § 301.7216-2, such as the disclosure of tax return information for the reporting of a crime or for an ethics investigation. Similarly, there are legitimate purposes, other than tax return preparation, when a taxpayer would choose to consent to the tax return preparer's disclosure of tax return information.

As an alternative, some commentators recommended that the regulations prohibit or greatly restrict the use or disclosure of tax return information for marketing purposes. They specifically recommended banning tax return preparers from disclosing tax return information in association with taxpayers seeking refund anticipation loans (RALs) and similar products. Treasury and the IRS did not adopt this recommendation because it was not contained in the proposed regulations and could have a significant impact on existing business practices. Concurrently with the publication of these final regulations, however, Treasury and the IRS are requesting comments on a proposed rule that, if ultimately adopted as final, would prohibit tax return preparers from using or disclosing tax return information for the purpose of soliciting, or the taxpayer obtaining, a RAL or certain other products.

Commentators also recommended that disclosure of tax return information by tax return preparers should be conditioned upon the existence of an agreement by third parties receiving the information that the tax return information will not be used for any purpose other than the purpose for which the information was provided. This recommendation was not adopted because policing agreements by third parties are outside the scope of section 7216. Section 7216 governs only the actions of tax return preparers.

Some commentators recommended that when the regulations require consent to disclose or use tax return information, tax return preparers should be permitted to obtain such consent from “large taxpayers,” such as large corporations, through an engagement letter. These commentators observed that it is ordinary business practice for tax return preparers and large taxpayers to negotiate and set the terms of the provision of services, including the preparation of income tax returns, in an engagement letter. This recommendation was adopted. Treasury and the IRS agree that requiring multiple, separate consents would impose a significant burden and could frustrate these taxpayers' ability to comply with tax laws and other regulatory and reporting requirements. Section 301.7216-3(a)(3) has been modified to provide a set of requirements regarding the format and content of consents to disclose and use tax return information with respect to taxpayers filing income tax returns in the Form 1040 series, e.g. , Form 1040, Form 1040NR, Form 1040A, or Form 1040EZ, and a separate set of requirements regarding the format and content of consents to disclose and use tax return information with respect to taxpayers filing all other tax returns. Under § 301.7216-3(a)(3)(iii), for tax return preparers providing tax return preparation services to taxpayers who do not file an income tax return in the Form 1040 series, a consent to use or a consent to disclose may be in any format, including an engagement letter to a client, as long as the consent complies with the requirements of § 301.7216-3(a)(3)(i).

Section 301.7216-3(a)(1) provides that a consent to use or disclose tax return information must be knowing and voluntary. Section 301.7216-3(a)(1) has been modified to clarify that to condition the provision of services on the taxpayer's consent will make the consent involuntary and invalid unless § 301.7216-3(a)(2) applies.

Section 301.7216-3(a)(2) provides that a tax return preparer may condition its provision of preparation services upon a taxpayer's consenting to disclosure of the taxpayer's tax return information to another tax return preparer for the purpose of performing services that assist in the preparation of, or provide auxiliary services in connection with the preparation of, the tax return of the taxpayer. One commentator requested a clarification regarding whether a tax return preparer with offices within and outside of the United States is permitted to condition its provision of tax preparation services to a taxpayer outside of the United States on the taxpayer consenting to disclosure. The final regulations permit a tax return preparer with offices within and outside of the United States to condition its provision of tax preparation services to a taxpayer on the taxpayer's consenting to disclosure to a return preparer located outside the United States. An example was added to the final regulations to clarify this rule.

Other commentators recommended that the regulations should prohibit tax return preparers from conditioning the provision of any services upon consent. This recommendation was adopted by inserting the word “any” before “services” in § 301.7216-3(a)(1), to which § 301.7216-3(a)(2) provides the only exception.

Proposed section 301.7216-3(b)(2) provides that a tax return preparer may not request a taxpayer's consent to disclose or use tax return information after the tax return preparer provides a completed tax return to the taxpayer for signature. Commentators suggested that there may be legitimate circumstances where a request to consent is necessary in light of taxpayer preferences and is part of client service provided by the preparer. Specifically, the commentators gave the example of a taxpayer requesting that his or her tax return preparer disclose the past three years of the taxpayer's tax returns to his or her attorney for purposes of preparing the client's estate plan. Under the proposed regulation, a request for consent to disclose would be untimely in this situation, even though the taxpayer requests the disclosure as part of the client service provided by the tax return preparer. As indicated by the provisions regarding solicitation of other business that were included in the previous final regulations, the Treasury Department and IRS believe that taxpayers should not be the subject of repetitive solicitation requests for business made by tax return preparers after the tax preparation engagement has ended. Consistent with previous final regulations, the final regulation in section 301.7216-3(b)(2) has been modified to state that a tax return preparer may not request a taxpayer's consent to disclose or use tax return information for purposes of solicitation of business unrelated to tax return preparation after the tax return preparer provides a completed tax return to the taxpayer for signature. Under the final regulations, the preparer would not be precluded from requesting consent to disclose the past three years of the taxpayer's tax returns to his or her attorney for purposes of preparing the client's estate plan according to the example provided by commentators.

Proposed section 301.7216-3(b)(3) provides that if a taxpayer declines to provide consent to a disclosure or use of tax return information, a tax return preparer cannot make another request for consent. Some commentators recommended that the regulations permit a tax return preparer to clarify the purpose and extent of the consent if necessary after the taxpayer declines to provide consent, and that such a clarification should not be treated as a second request by the tax return preparer to obtain a consent. Another commentator stated that tax return preparers should be permitted to request consent whenever they wish so long as the consent properly describes the nature of, and reasons for, potential disclosures or uses. The commentators' recommendations were based upon the recognition that there may be legitimate reasons for the preparer to more thoroughly explain the request for consent and how the consent relates to the tax preparation engagement. However, Treasury and the IRS are concerned that lack of restrictions regarding multiple requests for consent regarding the same or similar request may cause undue pressure to consent where there are repetitious requests. In light of these concerns, section 301.7216-3(b)(3) has been modified to provide that, for purposes unrelated to a tax preparation engagement, if a taxpayer declines a request for consent to the disclosure or use of tax return information, the tax return preparer may not solicit from the taxpayer another consent for a purpose substantially similar to that of the rejected request. Under this rule, there is no prohibition regarding the taxpayer independently asking the tax return preparer about a disclosure or use of the taxpayer's same tax return information after a declined consent request.

Section 301.7216-3(c)(1) of the proposed regulations provides that a taxpayer may consent to multiple disclosures within the same written document, or multiple uses within the same written document. One commentator recommended permitting taxpayers to consent to multiple disclosures and multiple uses with the same form. Another commentator recommended prohibiting a taxpayer from consenting to multiple disclosures within the same written document, or multiple uses within the same written document, in order to avoid potential taxpayer confusion. These recommendations were not adopted.

The proposed rule was intended to emphasize that disclosure and use are two distinct concepts, and a taxpayer may consider consenting to one and not the other. The comments to the proposed regulations demonstrated that there is potential for confusion regarding the distinction between disclosure and use. Treasury and the IRS believe it is appropriate to require separate consents in situations where there is a probability that the taxpayer could become confused over the distinction between use and disclosure. Section 301-7216-3(c)(1) of the final regulations provides that for taxpayers who are filers of returns in the Form 1040 series, the proposed rule is retained. The rule requiring separate consents is limited to individuals because use or disclosure of that tax return information involves situations where confusion is most likely to occur.

Section 301.7216-3(c)(2) of the proposed regulations provides that a consent authorizing the disclosure of all information contained within a return must set forth an explanation of the reason why a consent authorizing a more limited disclosure of tax return information is unsatisfactory for the purpose of the consent. Some commentators characterized this requirement as burdensome in certain situations and recommended eliminating this requirement. Commentators reasoned that a third party service provider, such as the taxpayer's attorney, may request a copy of the return and the requirement to provide an explanation would interject the preparer between the requirements imposed by the third party service provider and the taxpayer. In light of these concerns, section 301.7216-3(c)(2) of the final regulations modifies this provision to provide that where a consent authorizes the disclosure of a copy of the taxpayer's tax return or all information contained within a return, the consent must provide that the taxpayer has the ability to request a more limited disclosure of tax return information as the taxpayer may direct.

Some commentators concerned with marketing of tax return information recommended that disclosure of the entire tax return should not be permitted under any circumstances. The commentators' rationale was that disclosure of the entire return is never necessary for marketing purposes. This recommendation was not adopted because, in general, taxpayers should have control over their own tax return information and they should be able to direct tax return preparers to disclose tax return information as the taxpayers see fit.

Section 301.7216-3(b)(5) of the proposed regulations provides that no consent to the disclosure or use of tax return information may be effective for a period longer than one year from the date the taxpayer signed the consent. Some commentators expressed concern that the duration of consent may need to be effective for a period greater than one year. One commentator observed that when preparing expatriate tax returns, there may be circumstances when the due date for a foreign tax return or other related document is more than one year after the taxpayer signs the consent. Some commentators recommended that taxpayers should be permitted to establish the duration of consent, and the one-year period should apply only if the taxpayer fails to specify a different duration of consent. This recommendation was adopted in the final regulations.

Some commentators recommended that § 301.7216-3 require that consents be read aloud by audio output. This recommendation was not adopted. This recommendation would impose a burdensome rule that is outside the norm of standard practices for obtaining consent.

Several commentators recommended rejecting all of the provisions of the proposed regulations under section 7216. The recommendations to reject the proposed regulations were not adopted. The proposed regulations were finalized to provide updates relating to uses and disclosures of tax return information in the electronic return preparation context and create an environment that allows taxpayers to make informed decisions regarding the disclosure or use of their tax return information.

The following publication is obsolete on or after January 1, 2009: Rev. Rul. 79-114, 1979-1 C.B. 441 (1979).

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

The principal author of these regulations is Dillon Taylor, formerly of the Office of the Associate Chief Counsel (Procedure and Administration). For further information regarding these regulations contact Lawrence Mack of the Office of the Associate Chief Counsel (Procedure and Administration) at 202-622-4940 (not a toll-free call).

Section 301 of the Veterans Benefits, Health Care, and Information Technology Act of 2006, Public Law 109-461, amended the basic eligibility criteria for dependents' educational assistance (DEA) in 38 U.S.C. 3501(a). Under prior law, spouses and children of servicemembers missing in action, captured in the line of duty by a hostile force, or forcibly detained or interned in the line of duty by a foreign government or power had eligibility for DEA. The amendments expand eligibility, for pursuit of a course of education that occurs after December 22, 2006, to include spouses and children of servicemembers receiving treatment for permanent and total disability incurred in the line of duty and likely to result in discharge or release from service.

VA's DEA regulations, specifically 38 CFR 3.807(a)(5), restate the statutory basic eligibility criteria for spouses and children of servicemembers. Accordingly, we are amending that provision, consistent with the amendments to section 3501(a), to clarify that spouses and children of certain permanently and totally disabled servicemembers are eligible for DEA for pursuit of a course of education that occurs after December 22, 2006.

Substantive changes made by this final rule merely reflect statutory requirements. Accordingly, there is a basis for dispensing with prior notice and comment and a delayed effective date under the provisions of 5 U.S.C. 553. Use of those procedures would be impracticable, unnecessary, and contrary to the public interest.

This document contains no provisions constituting a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).

The Office of Management and Budget (OMB) assigns a control number for each collection of information it approves. VA may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.

In § 3.807 (concerning certification of basic eligibility for dependents' educational assistance), the final rule amends provisions concerning information collection requirements that are currently approved by OMB under the following control numbers: 2900-0049 (VA Form 21-674, Request for Approval of School Attendance), 2900-0098 (VA Form 22-5490, Application for Survivors' and Dependents' Educational Assistance), 2900-0099 (VA Form 22-5495, Request for Change of Program or Place of Training Survivors' and Dependents' Educational Assistance).

The initial and final regulatory flexibility analysis requirements of sections 603 and 604 of the Regulatory Flexibility Act, 5 U.S.C. 601-612, are not applicable to this rule because a notice of proposed rulemaking is not required for this rule. Even so, the Secretary of Veterans Affairs hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act. This final rule would not affect any small entities. Only individual VA beneficiaries would be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is also exempt from the regulatory flexibility analysis requirements of sections 603 and 604.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by OMB unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined not to be a significant regulatory action under Executive Order 12866.

The Unfunded Mandates Reform Act of 1995, codified at 2 U.S.C. 1532, requires agencies to prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any year. This final rule would have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program number and title for this rule is 64.117, Survivors and Dependents Educational Assistance.

This document amends VA regulations set forth in 38 CFR part 21 concerning approval criteria for payment under education programs administered by VA for accredited courses of education. Specifically, it removes a requirement from 38 CFR 21.4253(d)(3) that had mirrored a statutory requirement. On October 9, 1996, section 103(c) of the Veterans' Benefits Improvements Act of 1996 (Pub. L. 104-275) removed the requirement in 38 U.S.C. 3675(b) that had required institutions offering accredited courses to notify VA and the student using VA education benefits of the amount of credit granted for a student's prior education and training.

A similar statutory requirement, in 38 U.S.C. 3676(c)(4), imposing the same reporting requirement for institutions offering non-accredited courses, was not removed by Pub. L. 104-275 and still remains in effect. When Pub. L. 104-275 was enacted, VA had no administratively efficient way to distinguish between the enrollment certifications submitted by institutions offering accredited courses and non-accredited courses. Consequently, retaining in VA regulations the same reporting requirement for educational institutions offering accredited or non-accredited courses assisted VA in being able to monitor compliance by institutions offering non-accredited courses.

However, distinguishing between accredited and non-accredited course enrollments is now administratively feasible for VA. Because we now have the means to make this distinction, we are amending § 21.4253(d)(3) to remove the notification requirements for institutions offering accredited courses.

This document is being published without regard to the notice-and-comment and delayed-effective-date provisions of 5 U.S.C. 553(b) and (d) since it merely changes an interpretive rule to reflect a statutory amendment, by removing language that had mirrored the former statutory requirement.

This final rule contains no provisions constituting a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in an expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any given year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by OMB unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined that it is not a significant regulatory action under the Executive Order because this rule merely reflects a statutory amendment by removing the regulatory requirement that had mirrored the language of the former statutory requirement.

The initial and final regulatory flexibility analysis requirements of sections 603 and 604 of the Regulatory Flexibility Act, 5 U.S.C. 601-612, are not applicable to this rule because a notice of proposed rulemaking is not required for this rule. Even so, the Secretary of Veterans Affairs hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act. Any impact on the educational institutions affected by the rule that may be small entities would be minor for at least the reason that the rule merely removes from the regulations a requirement for reporting information that would still be required to be maintained by such educational institutions. Under 38 U.S.C. 3675(b), educational institutions offering accredited courses are still required to maintain written records of credit for prior education given to students using VA education benefits, with the training period shortened proportionately. This final rule is therefore also exempt pursuant to 5 U.S.C. 605(b) from the regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this rule are 64.120, Post-Vietnam Era Veterans' Educational Assistance; 64.124, All-Volunteer Force Educational Assistance; and 64.117, Survivors and Dependents Educational Assistance.

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

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

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

1. Do inspections, and require monitoring, tests, analyses or reports;

2. Enforce RCRA requirements and suspend or revoke permits; and

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

This action does not impose additional requirements on the regulated community because the regulations for which Michigan is being authorized by today's action are already effective and are not changed by today's action.

On October 9, 2007 (72 FR 57258), EPA published a proposed rule. In that rule we proposed granting authorization of changes to Michigan's hazardous waste program and opened our decision to public comment. The Agency received no comments on this proposal. EPA has found Michigan's RCRA program to be satisfactory.

Michigan initially received final authorization on October 16, 1986, effective October 30, 1986 (51 FR 36804), to implement the RCRA hazardous waste management program. We granted authorization for changes to Michigan's program on November 24, 1989, effective January 23, 1990 (54 FR 48608); on April 23, 1991, effective June 24, 1991 (56 FR 18517); on October 1, 1993, effective November 30, 1993 (58 FR 51244); on January 13, 1995, effective January 13, 1995 (60 FR 3095); on February 8, 1996, effective April 8, 1996 (61 FR 4742); on November 14, 1997, effective November 14, 1997 (62 FR 61175); on March 2, 1999, effective June 1, 1999 (64 FR 10111); on July 31, 2002, effective July 31, 2002 (67 FR 49617); and on March 9, 2006, effective March 9, 2006 (71 FR 12141).

On May 21, 2007, Michigan submitted a complete program revision application, seeking authorization of its changes in accordance with 40 CFR 271.21. We have determined that Michigan's hazardous waste program revision satisfies all of the requirements necessary to qualify for final authorization. Therefore, we are granting Michigan final authorization for the following program changes:

These program revisions do not contain any State requirements that are considered to be more stringent or broader in scope than the analogous Federal requirements.

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

Michigan is not authorized to carry out its hazardous waste program in Indian country within the State, as defined in 18 U.S.C. 1151. This includes:

1. All lands within the exterior boundaries of Indian reservations within the State of Michigan;

2. Any land held in trust by the U.S. for an Indian tribe; and

3. Any other land, whether on or off an Indian reservation that qualifies as Indian country.

EPA will continue to implement and administer the RCRA program in Indian country. It is EPA's long-standing position that the term “Indian lands” used in past Michigan hazardous waste approvals is synonymous with the term “Indian country.” Washington Dep't of Ecology v. U.S. EPA, 752 F.2d 1465, 1467, n.1 (9th Cir. 1985). See 40 CFR 144.3 and 258.2.

Codification is the process of placing the State's statutes and regulations that comprise the State's authorized hazardous waste program into the Code of Federal Regulations. We do this by referencing the authorized State rules in 40 CFR part 272. Michigan's rules, up to and including those revised October 19, 1991, have previously been codified through incorporation-by-reference effective April 24, 1989 (54 FR 7421, February 21, 1989); as amended effective March 31, 1992 (57 FR 3724, January 31, 1992). We reserve the amendment of 40 CFR part 272, subpart X, for the codification of Michigan's program changes until a later date.

This rule only authorizes hazardous waste requirements pursuant to RCRA 3006 and imposes no requirements other than those imposed by State law (see Supplementary Information, Section A. Why are Revisions to State Programs Necessary?). Therefore this rule complies with applicable executive orders and statutory provisions as follows:

The Office of Management and Budget has exempted this rule from its review under Executive Order 12866 (58 FR 51735, October 4, 1993).

This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

After considering the economic impacts of today's rule on small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), I certify that this rule will not have a significant economic impact on a substantial number of small entities.

Because this rule approves pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

Executive Order 13132 (64 FR 43255, August 10, 1999) does not apply to this rule because it will not have federalism implications (i.e., substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government).

Executive Order 13175 (65 FR 67249, November 9, 2000) does not apply to this rule because it will not have tribal implications (i.e., substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.)

This rule is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because it is not economically significant as defined in Executive Order 12866 and because the EPA does not have reason to believe the environmental health or safety risks addressed by this action present a disproportionate risk to children.

This rule is not subject to Executive Order 13211 (66 FR 28355, May 22, 2001), because it is not a significant regulatory action as defined in Executive Order 12866.

EPA approves State programs as long as they meet criteria required by RCRA, so it would be inconsistent with applicable law for EPA, in its review of a State program, to require the use of any particular voluntary consensus standard in place of another standard that meets requirements of RCRA. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply to this rule.

As required by section 3 of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing this rule, EPA has taken the necessary steps to eliminate drafting errors and ambiguity, minimize potential litigation, and provide a clear legal standard for affected conduct.

EPA has complied with Executive Order 12630 (53 FR 8859, March 18, 1988) by examining the takings implications of the rule in accordance with the Attorney General's Supplemental Guidelines for the Evaluation of Risk and Avoidance of Unanticipated Takings issued under the executive order.

Because this rule authorizes pre-existing State rules and imposes no additional requirements beyond those imposed by State law and there are no anticipated significant adverse human health or environmental effects, the rule is not subject to Executive Order 12898 (59 FR 7629, February 16, 1994).

EPA will submit a report containing this rule and other information required by the Congressional Review Act (5 U.S.C. 801 et seq.) to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

This is a summary of the Federal Communications Commission's Report and Order in MB Docket No. 07-51, FCC 07-189, adopted October 31, 2007, and released November 13, 2007. The full text of this document is available for public inspection and copying during regular business hours in the FCC Reference Center, Federal Communications Commission, 445 12th Street, SW., CY-A257, Washington, DC 20554. These documents will also be available via ECFS ( http://www.fcc.gov/cgb/ecfs/ ). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete text may be purchased from the Commission's copy contractor, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an e-mail to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

1. The Notice of Proposed Rulemaking (“ Notice ”) in this proceeding solicited comment on the need to regulate contracts containing clauses granting one multichannel video programming distributor (an “MVPD”) exclusive access for the provision of video services (“exclusivity clauses”) to multiple dwelling units (“MDUs”) and other real estate developments. Exclusive Service Contracts for Provision of Video Services in Multiple Dwelling Units & Other Real Estate Developments, Notice of Proposed Rulemaking, 22 FCC Rcd 5935 (2007). Approximately 30 percent of Americans live in MDUs, and their numbers are growing. In this Report and Order, we find that contractual agreements granting such exclusivity to cable operators harm competition and broadband deployment and that any benefits to consumers are outweighed by the harms of such clauses. Accordingly, we conclude that such clauses are proscribed by section 628 of the Communications Act of 1934, as amended. That section prohibits unfair methods of competition that have the purpose or effect of hindering significantly or preventing MVPDs from providing “satellite cable” and/or “satellite broadcast” programming to subscribers and consumers. Thus, in this Order we prohibit the enforcement of existing exclusivity clauses and the execution of new ones by cable operators and others subject to the relevant statutory provisions. This prohibition will materially advance the Act's goals of enhancing competition and broadband deployment.

2. The record in this proceeding does not contain much information regarding the use of exclusivity clauses by providers of Direct Broadcast Satellite (“DBS”) or other MVPDs that are not cable operators subject to section 628 of the Act. In the interests of developing a fuller record, and in the interests of regulatory parity, we also issue a Further Notice of Proposed Rulemaking (“ Further Notice ”) concerning MVPDs not subject to section 628. In this Further Notice, we also seek comment on whether the Commission should prohibit exclusive marketing and bulk billing arrangements.

3. This section reviews the history of this proceeding and makes several important findings of fact. Among these findings are that a large and growing number of Americans live in MDUs and that a significant number of those MDUs are subject to exclusivity clauses. The beneficiaries of most of those clauses are incumbent cable operators. Although Commission rules ensure that many residents of MDUs and other real estate developments may receive satellite-based video service, exclusivity clauses protect cable operators from competition in MDUs from new entrants into the MVPD business, chiefly incumbent local exchange carriers (“LECs”) and other wire-based MVPDs that bring satellite cable and satellite broadcast programming to their subscribers. We also find that the entry of incumbent LECs into the MVPD business has led incumbent cable operators to increase their use of exclusivity clauses in order to bar or deter the new entrants.

4. These practices are reached primarily by our authority under section 628. That section, in brief, makes it unlawful for cable operators to engage in certain unfair acts and methods of competition. Specifically, section 628(b) prohibits cable operators from engaging in unfair practices that have the purpose or effect of hindering significantly or preventing their competitors from providing satellite cable programming or satellite broadcast programming to subscribers or consumers. Such video programming is made for broadcast or cable systems and is delivered by satellite to MVPDs, who in turn deliver it to their subscribers. Section 628 concerns two kinds of programming in particular. One is “satellite cable programming,” which is video programming (not including satellite broadcast programming) that is transmitted by satellite to cable operators for retransmission to cable subscribers. See 47 U.S.C. 548(i)(1), 605(d)(1). The other is “satellite broadcast programming,” which is broadcast video programming that is retransmitted by satellite by an entity other than the broadcaster or an entity under the broadcaster's control. See 47 U.S.C. 548(i)(3). This programming comprises the substantial majority of programming carried by MVPDs. In section III below, we conclude that clauses that grant cable operators exclusive access to MDUs and other real estate developments fall within the scope of section 628(b), because those clauses effectively prohibit new entrants into the MVPD market from providing satellite-delivered programming to consumers who live in MDUs and other real estate developments.

5. The Commission last considered issues concerning exclusivity clauses in its 2003 Inside Wiring Order. At that time, the Commission decided that exclusivity clauses had both pro-competitive and anti-competitive effects, and that the record before the Commission made it unclear what their net effect was. The Commission therefore decided to take no action regarding exclusivity clauses at that time, but it did not close the door to action if new circumstances arose in which such clauses had new anti-competitive effects. The Notice of March 2007 re-opened the issue and prompted the submission of much new evidence. The Notice raised several questions concerning exclusivity clauses. These included the Commission's legal authority to regulate such clauses; the prevalence of such clauses; the possible increase in their number and scope at the instigation of incumbent cable operators with the impending entry of LECs into the MVPD marketplace; the benefits and harms to competition and consumers of exclusivity clauses; and the extent of any prohibition of such clauses, and other remedial action, that we should impose.

6. The Notice attracted filings from large and small cable operators and LECs, other providers of MVPD services (including so-called private cable operators or “PCOs”), builders and managers of MDUs and other dwellings, elected officials, two state government entities and many local governments, academic institutions, consumer groups, labor unions, and subscribers to MVPD and other services. (PCOs are also known as Satellite Master Antenna Television providers or “SMATVs.” They are video distribution facilities that use closed transmission paths without using any public right-of-way. PCOs acquire video programming and distribute it via terrestrial wiring in urban and suburban MDUs and commercial multiple tenant units such as hotels and office buildings. They are small compared to major incumbent cable operators and incumbent LECs.)

7. For purposes of this Report and Order, we define the term “MDU” to include the kinds of dwellings that we have defined as being MDUs in past decisions implementing the Act. That is, MDUs include apartment, cooperative, and condominium buildings. For purposes of this Report and Order, we adopt this definition but expand it to include other centrally managed real estate developments. Thus, the term MDUs, for purposes of this Report and Order, also includes gated communities, mobile home parks, garden apartments, and other centrally managed residential real estate developments. All of these are collections of private individual households with residents remaining for lengthy, indefinite periods of time, each in a dwelling space that is distinctly separate but shares some common spaces requiring central management. For purposes of this proceeding, MDUs do not include time share units, academic campuses and dormitories, military bases, hotels, rooming houses, jails, prisons, halfway houses, hospitals, nursing and other assisted living places, and other group quarters characterized by institutional living, high transience and, in some cases, a high need for security. These latter institutions do not have most of the key defining attributes of MDUs that we have just described, including voluntary long-term residency and significant control by the resident over uses of the private dwelling space. These attributes give the resident a strong interest in making his or her own choice of a MVPD provider and thus warrant regulatory action to preserve the resident's ability to do so.

8. The record in this proceeding indicates that approximately 30 percent of Americans live in MDUs and that this percentage is growing. The percentage of minorities living in MDUs is larger than that of the general population. The majority of incumbent MVPDs serving MDUs pursuant to exclusivity clauses are incumbent providers of cable television service to the surrounding local community. A few of the incumbent MVPDs that have executed contracts with exclusivity clauses are PCOs or small providers of fiber-based communications services. Some incumbent LECs have requested exclusivity clauses from MDUs. There is no evidence in the record that providers of DBS service use exclusivity clauses.

9. Exclusivity clauses that run in favor of cable operators typically are a complete bar to entry into MDUs by fiber-deploying LECs such as Verizon, AT&T, and Qwest, as well as PCOs. These competitors in the MVPD marketplace receive much of their programming, both cable and broadcast, via satellite for retransmission directly to their subscribers. Although exclusivity clauses do not prevent MDU residents from installing receiving dishes and receiving DBS service where the Commission's “Over the Air Reception Devices” rules apply, they bar new wire-based competitors from MDUs.

10. The record herein reveals that exclusivity clauses are widespread in agreements between MVPDs and MDU owners, and that the overwhelming majority of them grant exclusive access to incumbent cable operators. Exclusivity clauses between MVPDs and MDU owners have the clear effect of barring new entry into MDUs by wire-based MVPDs. The evidence before us shows that this effect occurs on a large scale. Verizon provided examples of exclusivity clauses, most of them in favor of incumbent cable operators, that provoked requests to cease and desist the marketing of its FiOS cable service. Verizon has “repeatedly encountered exclusive access arrangements which have prevented it from providing cable services to significant numbers of residents.” Early in its offering of FiOS, Verizon encountered exclusivity clauses running in favor of incumbent cable operators, which barred it from serving more than 3,000 residential units in the Dallas, Texas, area and many other places, all totaling “tens of thousands of units in five separate states.” Other examples of exclusion, again mostly involving incumbent cable operators, are in the record from would-be MVPDs, a local government, and a MDU owner who agreed to exclusivity clauses in the past and now is prohibited from offering its residents new and improved communications services. AT&T states that “efforts to lock-up MDUs have occurred in California, Texas, and virtually every market where AT&T has begun to enter the video service market”—efforts that are “plainly intended to block competition and * * * not designed to address aesthetics or congestion in a MDU's common areas.” The exclusivity clauses that AT&T has recently encountered typically last between five and 15 years, often with automatic renewal, or are perpetual. Hargray CATV Inc., an affiliate of the incumbent LEC in Hilton Head, South Carolina, began to provide cable service there as a new entrant. It was forced to stop serving or marketing to 20,000 of the 25,000 homes in the community, however, due to exclusivity clauses entered into by real estate developers and the incumbent cable operator (originally Adelphia, whose systems later were acquired by Time Warner), decades ago in some cases.

11. Consumer groups are also concerned about exclusive agreements. As noted by several consumer groups, a disproportionately large number of communities of color live within MDUs. Consumer groups are concerned that these residents are unable to enjoy the benefits of competition in the video marketplace, and ask that the Commission act to ensure that all consumers can reap the benefits of competition.

12. The record indicates that the evidence before us understates the frequency of exclusivity clauses because many MDU owners are unwilling or legally unable to make public the contracts containing them. Also, many exclusivity clauses date from the time when cable operators had a de facto or de jure monopoly on wire-based MVPD service. In those market conditions, a MDU owner might have thought that agreeing to exclusivity was not giving the cable operator anything of significance. Some commenters state that a MDU owner can bargain for good service, low prices, and other concessions in exchange for exclusives. But the owner had no such bargaining power when the first cable operator was “the only game in town.”

13. More recent developments were not part of the record the Commission compiled in the proceeding that culminated in the 2003 Inside Wiring Order. Significantly, LECs and other wire-based providers have begun entering the video service business on a large scale. In this environment, exclusivity clauses executed by incumbent cable operators are causing an important loss of potential competition within MDUs and thereby depriving MDU residents of recognized benefits generated by competition in the form of price and service options. Exclusivity clauses may also be deterring new entry into the MVPD market in many areas because they put a significant number of new customers off limits to new entrants.

14. Moreover, AT&T, Lafayette Utilities in Louisiana, United States Telecom Association, and Verizon report that, with the imminent entry of LECs into the multichannel video marketplace, incumbent cable operators have increased the use of exclusivity clauses in their agreements with MDU owners. As one commenter noted, “[i]ncumbent providers commonly engage in a flurry of activity to lock up MDUs and other real estate developments in exclusive arrangements as soon as it becomes clear that a new entrant will be coming to town.” Sometimes these clauses are inserted in fine print, in “legalese,” and without adequate notice to the MDU owner.

15. In sum, the record demonstrates that exclusivity clauses bar entry into MDUs by new providers of multichannel video service. It also shows that, in reaction to the recent competitive challenge posed by LEC entry into the video marketplace, incumbent providers (chiefly incumbent cable operators) are increasingly using exclusivity clauses in new agreements with MDU owners to bar the entry of their new rivals and potential rivals. These developments constitute a substantial change to the record the Commission compiled in the period leading up to the 2003 Inside Wiring Order.

16. In this section, we first describe the harms and benefits of exclusivity clauses. We conclude that the harms significantly outweigh the benefits in ways they did not at the time of the Commission's 2003 Inside Wiring Order. Specifically, they bar new entry and competition for both MVPD services and the so-called “triple play” of voice, video, and broadband Internet access services. They also discourage the deployment of broadband facilities to American consumers. This, in turn, has the effect of significantly hindering or preventing new MVPDs from providing to MDU residents video programming services that are within the scope of section 628(b). Section 628(b) of the Act makes it unlawful for cable operators and their vertically integrated programmers to engage in certain practices that hinder or prevent MVPDs from providing “satellite cable programming” or “satellite broadcast programming” to subscribers. “Satellite cable programming” is video programming (not including satellite broadcast programming) that is transmitted by satellite to cable operators for retransmission to cable subscribers. “Satellite broadcast programming” is broadcast video programming that is retransmitted by satellite by an entity other than the broadcaster or an entity under the broadcaster's control. We therefore conclude that cable operators' use of exclusivity clauses in contracts for the provision of video services to MDUs constitutes an unfair method of competition or an unfair act or practice proscribed by section 628(b).

17. Harms Caused by Exclusivity Clauses. By far the greatest harm that exclusivity clauses cause residents of MDUs is that they deny those residents another choice of MVPD service and thus deny them the benefits of increased competition. Congress and the Commission have repeatedly found, and few parties dispute here, that entry by LECs and other providers of wire-based video service into various segments of the multichannel video marketplace will produce major benefits for consumers. A significant increase in multichannel competition usually results in lower prices, more channels, and a greater diversity of information and entertainment from more sources. Notably, our most recent Cable Price Survey Reports show that the presence of a second wire-based MVPD competitor clearly holds prices down more effectively than is the case where DBS is the only alternative. The fact that an incumbent cable operator may face competitive pressures on its pricing in a franchise area surrounding or adjacent to a MDU does not mean that the residents of a MDU served by the same cable operator will reap the benefits of such competition, including the option to choose among competitive providers, some of which may provide a reduced-priced bundled package. This is particularly true when incumbent cable operators and MDU owners sign contracts before a competitive provider enters the market, a practice that the record in this proceeding indicates is quite common. Within the MDU, the incumbent, protected by its exclusivity clause from any competition it may face outside the MDU's boundaries, would have no incentive to hold down its prices within the MDU. The MDU's residents would also be denied the benefits of taking service from the new entrant, with potentially lower rates and better features than the incumbent's.

18. In addition, a new provider of MVPD services such as a LEC is likely to bring into a MDU some satellite-delivered cable programming that the incumbent beneficiary of the exclusivity clause does not. Absent the new entrant, the MDU's residents who favor that programming will be denied the programming of their choice. This denial will fall disproportionately on minorities and low-income families (and on programmers specializing in programming oriented to those groups), and all residents will be denied increased competition in programming among MVPD providers. We agree with Consumers Union that we should ensure that the “no segment of the population is denied the benefits of video competition.”

19. LEC entry is also likely to result in increased deployment of fiber to American homes at lower cost per residence, and a new competitor offering the “triple play” bundle of video, voice, and Internet access service. An exclusivity clause in a MDU's agreement with a MVPD denies all these benefits to the MDU's residents. Even if exclusivity clauses do not completely bar new entrants from the MVPD market everywhere, they foreclose new entrants from many millions of households, a significant part of the national marketplace. Such clauses could therefore deter new entrants from attempting to enter the market in many areas. More important, exclusivity clauses deny consumers in a part of the market the benefits that could flow to them, and exclusivity clauses confer few, if any, benefits on those consumers. These harms to consumers are greater than they were several years ago, when new entry by LECs had not begun on a large scale, the recent increase in fiber construction had not yet materialized, and the popularity of the triple play was unproven.

20. The effect of exclusivity clauses on broadband deployment and “triple play” services merits further discussion. We have stated that broadband deployment and entry into the MVPD business are “inextricably linked.” One basis for this observation is the recent emergence of LECs, cable operators, and some other providers offering consumers a “triple play” of voice, MVPD, and broadband Internet access services. The offering of, and competition in, the triple play brings to consumers not just advanced telecommunications capability, but also a simplicity and efficiency that is proving to be highly attractive in the marketplace.

21. In a MDU where an incumbent has the exclusive right to provide MVPD service, no other provider can offer residents the triple play today on its own facilities. Any new entrant that could offer all three parts of the triple play but for the existence of an exclusivity clause, which limits its offerings to voice and broadband Internet access, would find entry less attractive. The new entrant might not enter at all. Or, if the new entrant enters despite that handicap and provides MDU residents with only voice and Internet access services, leaving MVPD service to the beneficiary of an exclusivity clause, the new entrant's wire is inefficiently underutilized. Thus, exclusivity clauses reduce competition in the provision of triple play services and result in inefficient use of communications facilities.

22. Exclusivity clauses can cause other harms to MDU residents. A MDU owner may grant exclusivity to one MVPD based on the available choice of service providers at a given time, and in doing so bar entry into the MDU by a more desirable but later-arriving MVPD. Or, the person who grants exclusivity to one MVPD may be the developer or builder of a MDU, who may grant exclusivity against the long-term interests of the residents and soon thereafter relinquish control of the MDU. In addition, exclusivity clauses can insulate the incumbent MVPD from any need to improve its service; Manatee County, Florida, aptly describes incumbent beneficiaries of exclusivity clauses as “sitting on these ‘fiefdoms.' ”

23. Finally, the record indicates that exclusivity clauses are not always in the best interest of MDUs owners, either. Technologically advanced buildings are important for attracting and retaining residents, and a lack of competition for providing new communications services can negatively affect a residential development. A MDU owner may not see a benefit in an exclusivity clause that bars entry by new providers that were not in the market when the clause was written.

24. Benefits of Exclusivity Clauses. When the Commission last considered issues concerning exclusivity clauses in its 2003 Inside Wiring Order , it determined that exclusivity clauses had some pro-competitive effects. In some cases, exclusivity clauses, or at least those of a limited duration, may help a MVPD to obtain financing to wire an entire building for cable and other services and to recover its investment over the term of exclusivity. Similarly, some commenters claim that exclusivity clauses are especially necessary to attract investment in marginally attractive MDUs.

25. Some commenters argue in support of the use of exclusivity clauses that, with the decline of LECs' and cable operators' traditional duty to serve all homes in an area, an exclusivity clause may be necessary to attract a MVPD into a new real estate development. Other commenters state that a MDU owner, needing to attract buyers or tenants, may be counted on to represent them and will agree to an exclusivity clause only if it is in their interests. The rational owner, these commenters claim, will give exclusive access to the one of several bidding MVPDs that offers the best mix of low price, quality service, promised improvements and in some cases, specialized program offerings. An exclusivity clause, in this view, substitutes competition for the MDU for competition for individual residents, and the resulting benefits may be passed on to the residents. In the same vein, some commenters deny that exclusivity clauses allow MVPDs to become complacent and provide inferior service; these entities believe that the high turnover in MDUs requires building owners to maintain and constantly improve their service so that the building or development will attract new residents who will become its subscribers.

26. Conclusion. We conclude that exclusivity clauses cause significant harm to competition and consumers that the record did not reflect at the time of our 2003 Inside Wiring Order . We further find that although exclusivity clauses may in certain cases be beneficial, at least in the short term, to consumers, the harms of exclusivity clauses outweigh their benefits. The evidence described in the preceding paragraphs demonstrates that exclusivity clauses, especially when used in current market conditions by incumbent cable operators, are a barrier to new entry into the multichannel video marketplace and the provision of triple play offerings. Such exclusivity clauses inhibit competition in these markets and slow the deployment of broadband facilities. In doing so, exclusivity clauses deny MDU residents the benefits of increased competition, including lower prices and the availability of more channels with more diverse content, as well as access to alternative providers of broadband facilities and the triple play of communications services their facilities support. It is also noteworthy that there is no evidence in the record that MDU residents pay higher rates for MVPD services in states whose laws prohibit or limit exclusivity. These harms to consumers are traceable to the incumbent cable operators' practice, increased recently, of using exclusivity clauses, sometimes in fine print and without adequate notice to MDU owners, to forestall competition, particularly when new competitors are about to enter the market. We do not wish to deny MDU residents these benefits based on incumbents' alleged need to be shielded from additional competition, or to subject them to something resembling the exclusive franchises of an earlier era.

27. Moreover, we find that cable operators' use of exclusivity clauses in contracts for the provision of video services to MDUs constitutes an unfair method of competition or an unfair act or practice proscribed by section 628(b). Section 628 is designed to increase “competition and diversity” in the multichannel video marketplace, increase the availability of satellite cable and satellite broadcast programming to persons in “areas not currently able to receive such programming,” and “spur the development of communications technologies.” That provision specifically prohibits cable operators from engaging in unfair methods of competition or unfair acts or practices that have the purpose or effect of hindering significantly or preventing any MVPD from providing satellite cable programming or satellite broadcast programming to consumers. We have found above that a significant percentage of consumers live in MDUs. We also found that, with the increasing entry of wire-based competitors, such as LECs, into the MVPD marketplace, incumbent cable operators have increased their use of exclusivity clauses with MDU owners, particularly when new competitors are on the verge of entering a particular market. The record shows that these exclusivity clauses have the purpose or effect of preventing other MVPDs from providing the kind of programming covered by section 628—satellite cable and/or broadcast programming—to certain consumers; indeed, that is the intended and inevitable effect of exclusivity clauses. Exclusivity clauses prevent new entrant MVPDs from competing with entrenched incumbent providers on the basis of service offerings, including programming, and on price. Foreclosing competition in the MDU market in this way is unfair because it deprives consumers residing in MDUs of the opportunity to choose a MVPD provider. Cable operators' execution of exclusivity clauses, which foreclose the competitive provision of MVPD service, the triple play, broadband deployment, and satellite-delivered programming to MDUs, thus constitutes an unfair method of competition in violation of section 628(b).

28. We reject arguments that exclusivity clauses mostly work to the benefit of MDU owners and residents. First, as explained above, the person signing an exclusivity clause for a MDU may be a builder or manager whose interests do not coincide with those of the MDU's residents, especially after a few years. Second, the cable operator may have induced the MDU owner to accept an exclusivity clause before any wire-based competitor was on the horizon, in which case there was no “competition for the MDU” at the time and no prospect of it in the future. Third, the exclusivity clause may be in “legalese” and in fine print and the MDU owner may be unaware of it. Fourth, the fact that a new entrant wants to serve the MDU undercuts any claim that only one wire-based provider can serve the building profitably—if new entry would be unprofitable, it is unlikely that the new entrant would want to enter. Fifth, there is no evidence in the record, other than generalities and anecdotes, that incumbent MVPD providers couple exclusivity clauses with significant new investments that they do not make elsewhere, such as in states whose laws prohibit exclusivity. Sixth, SureWest states that the triple play, which offers a provider revenue from three services, reduces any need for exclusivity that it may have had in the past, when MVPD revenue was the only way it could recover its investment. Finally, other agreements between incumbent MVPDs and MDU owners, perhaps providing for marketing exclusivity or bulk discounts, can provide benefits similar to those alleged for exclusivity clauses without causing the latter clauses' entry-foreclosing harms to consumers. Therefore, although “competition for the MDU” may have some theoretical advantages in some cases over competition for individual consumers, it may not describe reality in many cases. Even if it does, in general we find that the best results for consumers come from preserving their ability to play an active role in making an individual choice rather than allowing cable operators using exclusivity clauses to foreclose individual choice. In addition, as noted above, exclusivity clauses tend to insulate the incumbent from any need to improve its service. Thus, we conclude that exclusivity clauses generally do not benefit MDU residents.

29. The record contains claims that exclusivity clauses may lead to lower prices. Although we cannot rule out the possibility that those claims may be true in some cases, such assertions are outweighed by the numerous studies showing that a second wire-based MVPD lowers prices. We also reject arguments that “exclusivity is not really a problem” because many MDUs are not subject to exclusivity clauses and such clauses expire. A practice that harms a significant number of households in this country warrants remedial action even if it does not harm everyone.

30. For the reasons set forth above, we prohibit cable operators and other entities that are subject to section 628 from enforcing existing exclusivity clauses and executing contracts containing new ones. These other entities are LECs and open video systems and are discussed in section III below.

31. Specifically, 60 days after publication of this Report and Order in the Federal Register , no cable operator or multichannel video programming distributor subject to section 628 of the Act shall enforce or execute any provision in a contract that grants it the exclusive right to provide any video programming service (alone or in combination with other services) to a MDU. Any such exclusivity clause shall be null and void.

32. We fashion the prohibition pursuant to section 628 for several reasons. First, that provision is a basis of our statutory authority to regulate exclusivity clauses. Second, incumbent cable operators, which are subject to section 628, are the beneficiaries of the vast majority of exclusivity clauses. As described above, incumbent cable operators are primarily responsible for the recent increase in newly executed exclusivity clauses. Also, the evidence in the record indicates that incumbent cable operators are using them to impede the entry of new competitors into the MVPD market in many areas. Incumbent cable operators are still by far the dominant force in the MVPD business, with a market share most recently measured at 67 percent and the ability to impose steadily rising prices. Our prohibition is limited to those MVPDs covered by section 628(b). It does not reach PCOs or DBS providers because we do not have an adequate record on which to decide whether such a prohibition is warranted for non-cable operators. Nevertheless, we are adopting a Further Notice of Proposed Rulemaking in order to develop such a record and, based on it, evaluate whether action is called for.

33. We put no time limit on the prohibition we adopt in the instant order and we do not exempt from it any kind of MDU or any geographic location. We do, however, limit our prohibition to those residential real estate developments that we define as MDUs as discussed above.

34. The rule we adopt in this proceeding is consistent with the longstanding Congressional prohibition of exclusive franchises for cable service and the statement in our most recent Inside Wiring Order that “[n]ew entrants to the video services and telephony markets should not be foreclosed from competing for consumers in multi-unit buildings.”

35. The rule we adopt in this proceeding prohibits both the enforcement of existing exclusivity clauses and the execution of new ones. Both have the same competition- and broadband-deterring effect that harms consumers. A rule that left exclusivity clauses in effect would allow the vast majority of the harms caused by such clauses to continue for years, and we believe that it is strongly in the public interest to prohibit such clauses from being enforced. Those harms would continue indefinitely in the cases of exclusivity clauses that last perpetually or contemplate automatic renewal upon the renewal of the incumbent cable operator's franchise.

36. Our prohibition of the enforcement of existing exclusivity clauses does not disturb legitimate expectations of investors in MDUs and the video service providers affected by this Order. The lawfulness of exclusivity clauses has been under our active scrutiny for a decade, making the parties to them aware that such clauses may be prohibited. Although we have not prohibited enforcement of them until now, we had previously recognized the reasons for doing so but had lacked an adequate record on which to base such a decision. We have prohibited the enforcement of exclusivity clauses for satellite-delivered programming before. For example, the Commission prohibits, with respect to distribution to persons in areas served by cable operators and other MVPDs covered by section 628(b), exclusivity clauses for satellite cable programming and satellite broadcast programming between a cable operator and a vendor of such programming in which a cable operator has an attributable interest, unless the Commission determines that such contracts are in the public interest. Also, in the context of commercial telecommunications services, the Commission has prohibited the execution of exclusive access arrangements in multiple tenant environments and has sought comment on whether to prohibit the enforcement of existing exclusive access provisions. We recognize that the Commission has yet to address the issue raised in the Competitive Networks Further Notice of Proposed Rulemaking regarding the enforceability of exclusivity clauses for telecommunications services in residential MDUs. In light of the competitive parity implications, we will resolve that issue within the next two months. Some states have given some or all MVPD providers rights of access to MDUs.

37. Moreover, incumbent cable operators will still be able to use their equipment in MDUs to provide service to residents who wish to continue to subscribe to their services. Finally, we note that the rule we adopt today does not require that any new entrant be given access to any MDU. A MDU owner still retains the rights it has under relevant state law to deny a particular provider the right to provide service to its property. We merely prohibit the enforcement of existing exclusivity clauses and the execution of new ones by cable operators. While this Order prohibits the enforcement of existing exclusivity clauses, it does not, on its own terms, purport to affect other provisions in contracts containing exclusivity clauses.

38. We reject proposals that we should exempt contracts with exclusivity clauses from this prohibition on a case-by-case basis or that we should allow exclusivity clauses for small cable operators, cable operators in rural areas, MVPDs that are found to lack “market power,” MVPDs other than incumbent cable operators, “planned communities,” and new real estate developments. We are reluctant to deny any large class of MDU residents the benefits of increased competition or to allow any cable operator to engage in future harmful conduct. Finally, we wish to avoid the burden that would be imposed by numerous individual adjudications about whether market power or some other undesirable condition exists in an individual MDU or community, or whether a particular entity in an allegedly unique situation is exempted from the prohibition. In addition, as discussed in section III below, restrictions adopted pursuant to section 628(b) apply automatically to certain categories of MVPDs pursuant to sections 602(7), 628(j), and 653(c)(1)(A).

39. Some commenters have suggested that we allow exclusivity clauses for a period of years or that we put a time limit on our prohibition of them, such as a specific term of years, the end of the current franchise of the incumbent cable operator, until “effective competition” is found to exist in an area, or until some other measure of competition is shown. We decline these suggestions. We are reluctant to grant any communications companies an artificial period of immunity from pro-competitive regulation during which the recovery of their investment is guaranteed; companies in communications markets regularly invest billions of dollars without any such guarantees. Chiefly, we wish to avoid the burden of individualized adjudications and measurements because we believe that they would burden us and the industry, and we believe that the limited benefits that such clauses confer are outweighed by their deleterious long-term effects on the provision of competitive services to consumers.

40. Several sources afford the Commission ample authority to prohibit exclusivity clauses in contracts between cable operators and owners of MDUs. First, consistent with our tentative conclusion in the Notice , we conclude that we have authority under section 628(b) of the Act to adopt rules prohibiting cable operators from enforcing or executing contracts that give them the exclusive right to provide video programming services (alone or in combination with other services) to MDUs. Moreover, we conclude that pursuant to the Act the same prohibition will apply to common carriers or their affiliates that provide video programming directly to subscribers under section 628(j) of the Act and to operators of open video systems under section 653(c)(1). Finally, we conclude that, even in the absence of this explicit statutory authority, we have ancillary authority to prohibit incumbent cable operators from entering into contracts that are for the provision of video services to MDUs and that contain exclusivity clauses.

41. Turning first to cable operators, the plain language of the statute provides a solid legal foundation for the rule adopted today. Section 628(b) broadly states that:

42. Section 628(c)(1), in turn, directs the Commission, “in order to promote the public interest, convenience, and necessity by increasing competition and diversity in the multichannel video programming market and the continuing development of communications technologies,” to promulgate rules specifying the conduct prohibited by section 628(b).

43. The plain language of section 628(b) encompasses the conduct at issue here. First, although we have never specifically defined what constitutes an “unfair method of competition” or “unfair * * * act or practice” beyond that conduct specifically proscribed in section 628(c)(2), we have recognized that there is additional conduct that could be proscribed under section 628(b). As discussed above, the use of an exclusivity clause by a cable operator to “lock up” a MDU owner is an unfair method of competition or unfair act or practice because it can be used to impede the entry of competitors into the market and foreclose competition based on the quality and price of competing service offerings. Moreover, as we have shown above, such a contract clearly has the effect of preventing a MVPD from providing satellite programming to consumers. Indeed, by its very nature, such an exclusivity clause prevents other MVPDs from providing service to the consumers who live in the MDU.

44. We reject Advance/Newhouse Communications's suggestion that this interpretation of section 628(b) suffers a logical flaw—why would Congress only focus on “satellite” programming if it sought to vest the Commission with the authority to “curb unfair practices in the cable industry generally.” First, we are not finding that section 628(b) vests the Commission with some unlimited authority to limit unfair practices in the cable industry. Rather, we are finding that the language of section 628(b) prohibits unfair methods of competition with the purpose or effect of hindering significantly or preventing MVPDs from providing satellite cable and broadcast programming to consumers. Moreover, we acknowledge that section 628 was primarily, but not exclusively, concerned about the vertical integration of cable operators and satellite programming vendors, and thus section 628 significantly focuses on those relationships. In addition, we note that our decision to prohibit exclusivity clauses for the provision of video services to MDU owners is consistent with the focus on satellite programming because most programming is delivered via satellite. Thus, we have explicit authority under section 628(b) to prohibit cable operators from entering into exclusivity clauses with MDU owners.

45. We note that the New Jersey Division of Rate Counsel raises a number of issues, including the argument that the Commission's regulation of exclusivity clauses for MDUs violates the Tenth Amendment of the U.S. Constitution, that hinge on its view that the Commission lacks any authority to adopt the prohibition on exclusivity clauses described herein. We need not address these tangential issues because, as explained herein, we find that we have specific statutory authority to adopt the prohibition.

46. Contrary to commenters' suggestions, the Commission's authority under section 628(b) is not restricted to unfair methods of competition or unfair or deceptive practices that deny MVPDs access to programming. Section 628(b) is not so narrowly drawn. Anticompetitive practices can hinder or prevent MVPDs from providing programming to consumers either by blocking their access to programming or by blocking their access to consumers, and there is nothing in section 628(b) that suggests that the Commission's authority is limited to the former. Although NCTA argues that the language “from providing satellite cable programming or satellite broadcast programming to subscribers or consumers” indicates that section 628(b) was “squarely directed at practices that unfairly denied MVPDs access to programming ,” the better reading is the one based on the clear and complete terms of the provision: any practices that unfairly deny MVPDs the ability to provide such programming to consumers are prohibited. Had Congress wanted section 628(b) to proscribe only practices denying MVPDs access to programming, it could easily have done so by focusing that provision explicitly on conduct that impairs MVPDs' access to programming. Congress knew how to draft narrowly drawn provisions of that kind as evidenced by another subsection, section 628(c)(2), which proscribes specific conduct hindering MVPDs' access to programming. Thus, we believe that our interpretation of section 628(b) gives meaning to the broad, plain language of the statutory provision.

47. We recognize, as commenters point out, that much of section 628's legislative history focuses on MVPDs' access to programming. However, the legislative history indicates that a primary concern underlying section 628 was fostering competition among cable operators and enhancing consumer choice. For example, the Conference Report on section 628 reflects a concern that is broader than MVPDs' access to programming:

48. Our adoption of a rule prohibiting exclusivity clauses addresses the Congressional concerns underlying section 628(b). The rule will prohibit the continuation and proliferation of an anticompetitive cable practice that has erected a barrier to the provision of competitive video services. It also will promote the development of new technologies that will provide facilities-based competition to existing cable operators, and thus serves the purposes set forth in section 628(a) (as well as other provisions of law, such as section 706 of the Telecommunications Act of 1996). As Verizon points out, fiber optic services and interactive video are new facilities-based technologies that competitors seek to deploy. Exclusivity clauses prevent competitive MVPDs from providing satellite cable and broadcast programming to consumers by means of such new technologies. SureWest similarly argues that, because the deployment of broadband networks and the provision of video service are intrinsically linked, exclusivity clauses that prevent it from providing video services compromise its ability to deploy other advanced telecommunications services, by inhibiting its ability to market a package of services that consumers demand and reducing the revenues it needs to support investment in new and innovative services.

49. More broadly, prohibiting exclusivity clauses for the provision of video services will further the purposes of the 1992 Cable Act and the 1934 Act. As several commenters point out, the 1992 Cable Act sought to promote competition and consumer choice in cable communications. In addition, the purpose of the Communications Act of 1934, as amended, is “to make available, so far as possible, to all the people of the United States * * * a rapid, efficient, Nation-wide and world-wide wire and radio communication service with adequate facilities at reasonable charges.” Moreover, section 706 of the Telecommunications Act of 1996 directs the Commission to “encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans * * * ”. Removing barriers to allow access to a broad segment of consumers in the multichannel video programming distribution market by prohibiting exclusivity clauses for the provision of video services will further these statutory purposes. As Verizon notes, once a MDU owner is “locked” into an exclusivity clause, “residents are prevented from choosing alternative services that they might prefer—on the basis of price, quality, and innovative and technologically advanced service offerings.” Thus, contrary to some commenters' arguments, our interpretation of section 628(b) to prohibit exclusivity clauses for the provision of video services is not only consistent with the plain language of that statutory provision and confirmed by that provision's legislative history, but also furthers the broader purposes of the Act. We also find that Congress's failure in 1984 to include a provision that would have mandated access to MDUs for cable service has no bearing on our interpretation of the subsequent legislation that became the 1992 Cable Act, particularly since there is no evidence that Congress's failure to act in 1984 is at all related to the action it did take in adopting section 628(b) in 1992.

50. We disagree with those commenters who argue that the regulatory requirements outlined in section 628(c) circumscribe the Commission's authority to prohibit exclusivity clauses for the provision of video services. For example, Real Access Alliance (“RAA”) states that the specific provisions of sections 628(c)(2)(A), (B), (C), and (D) establish the full scope of the Commission's authority under section 628. However, nothing in these provisions indicates that they were intended to establish the outer limits of the Commission's authority under section 628(b). In fact, the very title of section 628(c)(2), “Minimum Contents of Regulations,” strongly suggests that the rules the Commission was required to implement had to cover the conduct described in sections 628(c)(2) at the least , but that the Commission's authority under section 628(b) was broader. The term “minimum” indicates that more could be covered since it is defined as “the least quantity assignable, admissible, or possible.” (Webster's New Collegiate Dictionary (1977).) This interpretation is confirmed by section 628(c)(1), which grants the Commission wide latitude to “specify particular conduct that is prohibited by [section 628(b)].” Other commenters' suggestions along the same lines are unconvincing for the same reasons.

51. As pointed out by several commenters, the Commission's implementation of this provision to date has focused on ensuring MVPD access to the programming they need to provide a viable and competitive multichannel alternative to consumers, i.e. , on the regulations adopted pursuant to section 628(c)(2). In the decision initially implementing section 628, the Commission described the provision as “intended to increase competition and diversity in the multichannel video programming market, as well as to foster the development of competition to traditional cable systems, by prescribing regulations that govern the access by competing multichannel systems to cable programming services.” Nevertheless, the Commission stated:

52. The Commission has authority to delineate by rule conduct prohibited under section 628(b) in order to promote the public interest through increased competition and diversity in the MVPD market and continued development of communications technologies. We have explained how a rule prohibiting exclusivity clauses for the provision of video services promotes the public interest here because it will likely increase competition in the MVPD market and promote continued development of communications technologies. Thus, we find that we may by rule prohibit cable operators from executing exclusivity clauses for the provision of video services to MDUs.

53. This prohibition necessarily also applies to common carriers and open video systems. Although section 628(b) extends only to cable operators, section 628(j) explicitly states that “[a]ny provision that applies to a cable operator under this section shall apply to a common carrier or its affiliate that provides video programming by any means directly to subscribers.” In addition, section 653(c)(1)(A) provides that “[a]ny provision that applies to a cable operator under (A) section[ ] * * * 628 * * * of this title shall apply * * * to any operator of an open video system.” Thus, pursuant to sections 628(j) and 653(c)(1)(A), our prohibition on exclusivity clauses for the provision of video services applies to both any common carrier or its affiliate and also to OVS operators to the extent that these entities provide video programming to subscribers or consumers.

54. Although we believe that we have specific statutory authority to adopt this prohibition, as described above, we note that our ancillary authority, under titles I and III of the 1934 Act, also provides a sufficient basis to prohibit cable operators from enforcing or executing exclusivity clauses for the provision of video service to MDUs. Courts have long recognized that, even in the absence of explicit statutory authority, the Commission has authority to promulgate regulations to effectuate the goals and provisions of the Act if the regulations are “reasonably ancillary to the effective performance of the Commission's various responsibilities” under the Act. The Supreme Court has established a two-part ancillary jurisdiction test: (1) The regulation must cover interstate or foreign communication by wire or radio; and (2) the regulation must be reasonably ancillary to the Commission's statutory responsibilities. The prohibition we adopt here applies to “interstate and foreign communication by wire or radio,” advances the purposes of both the 1992 Cable Act and section 706 of the 1996 Telecommunications Act, and serves the public interest.

55. Title I confers on the Commission regulatory jurisdiction over all interstate radio and wire communication. The multichannel video services provided by cable operators are interstate in nature and are covered by the Act's definitions of “radio communications” and “wire communication.” In addition, these services fall within the definition of “cable service.” Thus, cable services are within the scope of our subject matter jurisdiction granted in Title I.

56. In addition, we find that applying the prohibition against exclusivity clauses for the provision of video services to cable operators is reasonably ancillary to our statutory responsibilities under the Act. As we have explained, prohibiting exclusivity clauses for the provision of video services to MDUs will prohibit an anticompetitive cable practice that has erected a barrier to the provision of competitive video services. It also will promote the development of new technologies that will provide facilities-based competition to existing cable operators, and thus serves the purposes set forth in section 628(a). In addition, for the same reasons explained above, applying this prohibition to cable operators will ensure the furtherance of the broad goals of the 1992 Cable Act and the 1934 Act generally.

57. Because several commenters raise concerns about the treatment of exclusivity clauses in existing MDU contracts, we take particular care to observe that the law affords us wide authority to prohibit the enforcement of such clauses where, as here, the public interest so requires. Indeed, as the Commission has previously stated, “Congress intended that rules promulgated pursuant to implement section 628 should be applied prospectively to existing contracts, except as specifically provided for in section 628(h).” In addition, the Fifth Amendment's Takings Clause presents no obstacle to prohibiting the enforcement of existing exclusivity clauses. To begin with, such a step obviously does not involve the permanent condemnation of physical property and thus does not constitute a per se taking.

58. Nor does the proposed rule represent a regulatory taking. The Supreme Court has outlined the framework for evaluating regulatory takings claims as follows: “In all of these cases, we have eschewed the development of any set formula for identifying a `taking' forbidden by the Fifth Amendment, and have relied instead on ad hoc, factual inquiries into the circumstances of each particular case. To aid in this determination, however, we have identified three factors which have particular significance: (1) The economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with distinct investment-backed expectations; and (3) the character of the governmental action.” None of these factors counsels in favor of finding a regulatory taking here.

59. First, prohibiting the enforcement of exclusivity clauses will have minimal adverse economic impact on affected MVPDs. Nothing in the rule precludes MVPDs from utilizing the wires they own to provide services to MDUs or requires them to jettison capitalized investments. Neither does it prohibit the enforcement of other types of agreements between MDUs or MVPDs, such as exclusive marketing agreements. The rule merely prohibits clauses that serve as a bar to other MVPDs that seek to provide services to a MDU. The record in this proceeding demonstrates that in some cases, exclusivity clauses in existing MDU contracts impose adverse and absolute impacts upon would-be competitors who are otherwise ready and able to provide customers the benefits of increased competition.

60. Second, the rule does not improperly interfere with investment-backed expectations. As previously stated, exclusivity clauses in MDU contracts have been under active scrutiny for over a decade, and the Commission has prohibited the enforcement of such clauses in similar contexts. States have also taken action to prohibit such clauses. Moreover, to the extent that MVPDs have used exclusivity clauses to “lock up” MDUs in anticipation of competitive entry or to obstruct competition, as described above, any underlying investment-backed expectations are not sufficiently longstanding or pro-competitive in nature to warrant immunity from regulation.

61. Finally, with respect to the character of governmental action, the rule's prohibition of the enforcement of exclusivity clauses in existing MDU contracts substantially advances the legitimate governmental interest in protecting consumers of programming from “unfair methods of competition or unfair acts or practices”—an interest Congress explicitly has recognized and protected by statute, see 47 U.S.C. 628(b), and commanded the Commission to vindicate by adopting appropriate regulations, see id. section 628(c)(1). The rule we adopt today is based upon the Commission's detailed analysis of the harms and benefits of exclusive MDU contracts, discussed above in section II, and is carefully calibrated to promote this interest. In short, the rule at issue here does not invoke Justice Holmes' observation that “if regulation goes too far it will be recognized as a taking.”

62. Because the prohibition that we adopt today applies only to cable operators, common carriers or their affiliates that provide video programming directly to subscribers, and operators of open video systems, and does not require MDU owners to provide access to all MVPDs, we do not address comments raising concerns about the Commission's authority to mandate such access. However, we reject arguments suggesting that the Commission has no authority to regulate such entities' contractual conduct because of the tangential effect of such regulation on MDU owners. As explained above, sections 628(b), 628(j), and our ancillary jurisdiction provide ample bases for regulating these specific MVPDs. Moreover, sections 4(i), 201(b), and 303(r) supply the Commission with strong authority to enforce the full scope of the Cable Act prohibition at issue.

63. The Report and Order found that further inquiry and analysis was needed before the Commission would decide how, if at all, to regulate building exclusivity clauses that give exclusivity to DBS service providers and PCOs. The Commission also refrained, in the Report and Order, from regulating exclusive marketing arrangements (which allow one MVPD into a MDU or real estate development but constrain the ability of competitive MVPDs to market their services directly to MDU residents) and bulk billing arrangements (which may be exclusive but do not prohibit MDU residents from selecting a competitive MVPD provider). The Commission commenced a further rulemaking to inquire into these as-yet unresolved matters, and states that it would conclude this rulemaking and release an order within six months of publication of this Order.

64. Pursuant to the Regulatory Flexibility Act of 1980, as amended, the Commission has prepared a Final Regulatory Flexibility Analysis (“FRFA”) of the possible significant economic impact on small entities of the policies and rules addressed in this document. The FRFA is set forth in Appendix B to the Report and Order.

65. The Report and Order does not contain new or modified information collection requirements subject to the paperwork Reduction Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does not contain any new or modified “information collection burdens for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

66. The Commission has sent a copy of the Report and Order, including the FRFA, in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act. In addition, the Commission has sent a copy of the Report and Order, including the FRFA, to the Chief Counsel for Advocacy of the Small Business Administration.

67. For additional information on this proceeding, please contact John W. Berresford, (202) 418-1886, or Holly Saurer, (202) 418-7283, both of the Policy Division, Media Bureau.

68. Accordingly, it is ordered that, pursuant to the authority contained in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6), 628(b,c), and 653(c)(1) of the Communications Act of 1934, as amended; 47 U.S.C. 151, 152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c), and 573(c)(1), this Report and Order is adopted.

69. It is further ordered that, pursuant to the authority contained in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6), 628(b,c), and 653(c)(1) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c), and 573(c)(1), 47 CFR part 76.2000 of the Commission's rules is amended, as set forth below. It is our intention in adopting these rule changes that, if any provision of the rules is held invalid by any court of competent jurisdiction, the remaining provisions shall remain in effect to the fullest extent permitted by law.

70. It is further ordered that the following documents shall be made part of the record in this proceeding: (a) Letter from Leora Hochstein, Executive Director, Federal Regulatory, Verizon, to Marlene H. Dortch, Commission Secretary, MB Docket No. 05-311 (Aug. 9, 2006); (b) Letter from Ms. Hochstein to Ms. Dortch, MB Docket No. 05-311 (July 6, 2006); (c) Comments of SureWest Communications in MM Docket No. 06-189; (d) Comments of Manatee County, Florida, in MB Docket No. 05-311; and (e) the Comments of Cablevision and Comcast in MB Docket No. 07-29.

71. It is further ordered that the rule contained herein shall become effective 60 days after publication of this report and order in the Federal Register .

I. Background

Section 306(a) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA; 42 U.S.C. 9601-9675), as amended by section 202 of the Superfund Amendments and Reauthorization Act of 1986 (SARA; 42 U.S.C 11011 et seq. ), requires the Secretary of Transportation to regulate hazardous substances listed or designated under Section 101(14) of CERCLA, 42 U.S.C. 9601(14), as hazardous materials under the Federal hazardous materials transportation law (49 U.S.C. 5101-5128). PHMSA carries out the rulemaking responsibilities of the Secretary of Transportation under the Federal hazardous materials transportation law, 49 CFR 1.53(b). This final rule is necessary to comply with 42 U.S.C. 9656(a), as amended by Section 202 of SARA.

In carrying out the statutory mandate, PHMSA has no discretion to determine what is or is not a hazardous substance or the appropriate reportable quantity (RQ) for materials designated as hazardous substances. This authority is vested in EPA. In accordance with CERCLA requirements, EPA must issue final rules amending the list of CERCLA hazardous substances, including adjusting RQs, before PHMSA can amend the list of hazardous substances in the HMR. PHMSA periodically revises the list of hazardous substances and RQs in the HMR (49 CFR Parts 171-180) as adjustments are made by EPA.

This final rule revises the “List of Hazardous Substances and Reportable Quantities” that appears in Table 1 of Appendix A to § 172.101 to be consistent with EPA's List of Hazardous Substances and Reportable Quantities in 40 CFR 302.4 (Table 302.4). The changes made in this final rule are based on several EPA final rules that added, corrected, or deleted (removed) entries to Table 302.4. In addition, this final rule revises the “List of Hazardous Substances and Reportable Quantities” to correct typographical errors or insert inadvertent omissions from previous PHMSA rulemakings that revised the list based on previous EPA rule changes.

This final rule will enable shippers and carriers to identify CERCLA hazardous substances, comply with all applicable HMR and EPA requirements, and make required notifications if a release of a hazardous substance occurs. In addition to the reporting requirements of the HMR found in §§ 171.15 and 171.16, a release of a hazardous substance is subject to EPA notification requirements under 40 CFR 302.6 and may be subject to the reporting requirements of the U.S. Coast Guard under 33 CFR 153.203.

This final rule revises the “List of Hazardous Substances and Reportable Quantities” that appears in Table 1 of Appendix A to § 172.101 to be consistent with revisions made in recent EPA rules that followed our last reprint of Table 1. The EPA changes to Table 302.4 are discussed as follows. (See the tables below for a listing of hazardous substances added and deleted by the EPA rules discussed below.)

On July 9, 2002, EPA issued a direct final rule (67 FR 45314) correcting errors and removing obsolete or redundant language in its Table 302.4. The majority of the errors were either typographical or the result of inadvertent omissions. Specifically, errors included unintentional discrepancies between an individual hazardous substance name appearing in Table 302.4 and the same name as it appears in other statutes ( i.e. , Resource Conservation and Recovery Act (RCRA) section 3001, Clean Water Act (CWA) sections 307 and 311, and Clean Air Act (CAA) section 112) and their implementing regulations. EPA made corrections to the names of a number of hazardous substances to make them consistent with names that appear in these other regulatory lists. Many of these corrections are simple and involve, for example, the deletion of an unnecessary hyphen or the addition of parentheses. EPA added synonyms for six hazardous substances to Table 302.4 to be consistent with a February 9, 1995 final rule (60 FR 7824) that added a number of synonyms to RCRA regulations for those same substances. The hazardous substances and the respective synonyms that were added are “Carbaryl; (1-Napthalenol, methylcarbamate)”, “Carbofuran; (7-Benzofuranol, 2,3-dihydro-2,2-dimethyl-, methylcarbamate)”, “Mercaptodimethur; (Phenol, (3,5-dimethyl-4-(methylthio)-, methylcarbamate)”, “Mexacarbate; (Phenol, 4-(dimethylamino)-3,5-dimethyl-, methylcarbamate (ester))”, “Propoxur (Baygon); (Phenol, 2-(1-methylethoxy)-, methylcarbamate)”, and “Triethylamine; (Ethanamine, N,N-diethyl-).” EPA also added the entries “Bis(chloromethyl) ether” and “Bromomethane” as synonyms to be consistent with substances listed in section 112 of the CAA. Additionally, EPA removed a number of hazardous substances from Table 302.4 in the interest of avoiding duplicative entries and deleted a number of synonyms of hazardous substances because the synonyms are not listed in RCRA, CWA, CAA, or their implementing regulations. Please refer to the July 9, 2002 Federal Register noted above for a complete explanation of the additions and deletions. This rule revises the entries in Table 1 of Appendix A to § 172.101 of the HMR for consistency with the revisions in EPA's July 9, 2002 final rule. However, we are retaining the entry for “Methyl chloroformate” and adding the footnote “@” because “Methyl chloroformate” is also listed as a proper shipping name in the Hazardous Materials Table (HMT). The footnote “@” signifies that the entry is added by PHMSA because it is a synonym for a listed hazardous substance and appears in the HMT as a proper shipping name.

On February 24, 2005, EPA issued a final rule (70 FR 9138) that added an entry for the K181 waste code (nonwastewaters from the production of dyes and/or pigments) to Table 302.4 and assigned the waste a statutory one-pound RQ. This rule adds K181 to the “List of Hazardous Substances and Reportable Quantities.”

On August 16, 2006, EPA issued a final rule (71 FR 47106) that adjusted the RQs for 34 hazardous substances from their statutory one-pound RQs. Specifically, the rule adjusted RQs for 28 individual carbamates, five carbamate-related waste codes (K156, K157, K158, K159, and K161), and the K178 waste code (inorganic manufacturing process waste). With the exception of K156, K157, K158, and K178, these materials have not been previously listed in the HMR as hazardous substances. This rule adds the 30 previously unlisted hazardous substances to the HMR and adjusts the RQs for consistency with EPA Table 302.4.

The following tables identify hazardous substances added or deleted in this final rule as well as a Federal Register reference to the EPA rule each revision is based upon:

A. Hazardous Substances Added to Table 1 of Appendix A to § 172.101

This final rule also makes corrections to the “List of Hazardous Substances and Reportable Quantities” appearing in Table 1 of Appendix A to § 172.101 to be consistent with revisions made in past EPA final rules that pre-date the rules discussed in section II. The corrections to the “List of Hazardous Substances and Reportable Quantities” are explained as follows:

(1) “Acetic acid, (2,4,5-trichlorophenoxy)-” and “Carbamodithioic acid, 1,2-ethanediylbis-, salts & esters” were added to EPA Table 302.4 as new names for previously listed hazardous substances by a December 27, 1989 EPA final rule (54 FR 53057) but were inadvertently not added into the HMR. This rule adds “Acetic acid, (2,4,5-trichlorophenoxy)-” and “Carbamodithioic acid, 1,2-ethanediylbis-, salts & esters” to the HMR.

(2) “Diamine” and “1,2,3,4,10-10-Hexachloro-1,4,4a,5,8,8a-hexahydro-1,4:5,8-endo,exo-dimethanonaphthalene” were no longer listed in Table 302.4 as synonyms for hazardous substances by an August 14, 1989 EPA final rule (54 FR 33425) but inadvertently remained in the HMR. This rule deletes “Diamine” and “1,2,3,4,10-10-Hexachloro-1,4,4a,5,8,8a-hexahydro-1,4:5,8-endo,exo-dimethanonaphthalene” from the HMR.

(3) “3,4-Benzacridine”, “Carbamide, thio-”, “Carbamimidoselenoic acid”, “Carbon bisulfide“, “Ethanoyl chloride”, “Ethylenebisdithiocarbamic acid“, “Methanoic acid”, and “Methylene oxide” were deleted from Table 302.4 as synonyms by a December 27, 1989 EPA final rule (54 FR 53057) but inadvertently remained in the HMR. This rule deletes the synonyms from the HMR.

(4) “Methiocarb” was added to Table 302.4 as a synonym by a February 9, 1995 EPA final rule (60 FR 7824) but was inadvertently not added into the HMR. This rule adds “Methiocarb” to the HMR.

(5) “Aroclors”, “Chlorinated Camphene”, “DEHP”, “Dibromoethane”, “Hexone”, “Iodomethane”, “Lindane (all isomers)”, “PCBs”, “PCNB”, “Quinone”, “Quintobenzene”, “TCDD”, “2,4-Toluene diamine”, “2,4-Toluene diisocyanate”, and “Urethane” were added to Table 302.4 as synonyms by a June 12, 1995 EPA final rule (60 FR 30926) but were inadvertently not added into the HMR. This rule adds the synonyms to the HMR.

(6) “beta-Propiolactone” was added as a new entry to Table 302.4 by a June 12, 1995 EPA final rule (60 FR 30926) but was inadvertently not added into the HMR. This rule adds “beta-Propiolactone” to the HMR.

(7) The entry for “1,4-Diethylenedioxide” was corrected by adding “1,4-Diethyleneoxide” as a synonym to Table 302.4 by July 12, 1995 Federal Register corrections (60 FR 35991) but “1,4-Diethyleneoxide” was inadvertently not added into the HMR. This rule adds “1,4-Diethyleneoxide” to the HMR.

This final rule makes several non-substantive changes to the “List of Hazardous Substances and Reportable Quantities” that appears in Table 1 of Appendix A to § 172.101 of the HMR. Most of the changes correct typographical errors (i.e., incorrect RQs) and insert inadvertent omissions from printings of previous PHMSA rulemakings and the CFR. The changes include the removal of descriptive language for waste codes found in Table 1 as well as the removal of the entry “Tetrachloroethane @” because it does not also appear in the HMT as a proper shipping name. The waste code descriptions are readily available in EPA's List of Hazardous Substances and Reportable Quantities in 40 CFR 302.4. In the interest of relieving the burden of tracking EPA revisions to waste code descriptions for consistency purposes, limiting the potential for errors in the text when printing the descriptions, and space savings, we believe the waste code descriptions do not need to be duplicated in the HMR.

Several hazardous substances in Table 1 are listed with an incorrect RQ and are being corrected by this final rule. The changes are discussed as follows:

(1) The RQ for “[1,1′-Biphenyl]-4,4′-diamine, 3,3′-dimethoxy-” (and its synonym “3,3′-Dimethoxybenzidine”) was incorrectly changed from 1 to 10 pounds rather than to 100 pounds in the August 21, 1989 PHMSA final rule (HM-145G; 54 FR 34666). This rule corrects the RQ for “[1,1′-Biphenyl]-4,4′-diamine,3,3′-dimethoxy-” and its synonym to 100 pounds.

(2) The RQ for “Diethylamine” was incorrectly changed to 1000 in the November 7, 1990 PHMSA final rule (HM-145I; 55 FR 46794). This rule corrects the RQ for “Diethylamine” to 100 pounds.

(3) The F004 waste code is based on two solvents: “Cresols/Cresylic Acid” and “Nitrobenzene.” The August 2, 1995 PHMSA final rule (HM-145K; 60 FR 39608) inadvertently revised the RQ for “Nitrobenzene” from 1000 to 100 pounds rather than for “Cresols/Cresylic Acid.” This final rule corrects the RQ for “Cresols/Cresylic Acid” from 1000 to 100 pounds and the RQ for “Nitrobenzene” to 1000 pounds.

(4) The RQs for “Acetic acid, thallium(1+) salt” and “1-Acetyl-2-thiourea” were incorrectly printed starting with the 1996 edition of the CFR. This rule corrects the RQs to 100 and 1000 pounds, respectively.

(5) The RQ for “Methyl chloromethyl ether @” was inadvertently not revised to 10 pounds in the March 5, 2002 PHMSA final rule (HM-145M; 67 FR 9926). The RQs for synonyms “Chloromethyl methyl ether” and “Methane, chloromethoxy-” were revised without revising the RQ for “Methyl chloromethyl ether @.” This rule corrects the RQ for “Methyl chloromethyl ether @” to 10 pounds.

Several hazardous substances were inadvertently omitted from Table 1. The omissions as well as other corrections to Table 1 are explained as follows:

(1) “1-Chloro-2,3-epoxypropane”, “Dimethyl aminoazobenzene”, “2,6-Dinitrophenol”, “2-Methyl aziridine”, and “m-Nitrophenol” were inadvertently omitted from the HMR through reprintings of the list in previous PHMSA rulemakings. This rule returns these entries to the HMR.

(2) The entry for “DDE” (and its RQ of 5000 pounds) was inadvertently omitted from the HMR starting with the 2000 edition of the CFR. This rule returns “DDE” and its RQ of 5000 pounds to the HMR. In addition, to provide clarification that there should be two listings of “DDE” with different RQs, CAS numbers are being added to the respective “DDE” entries. Also, the footnote “#” is added to the end of Table 1 of Appendix A to § 172.101 to provide a reference to the EPA rationale for having two entries with different RQs for the hazardous substance “DDE.”

(3) “1-Naphthalenamine” and “2-Naphthalenamine” were inadvertently omitted from the HMR by including their respective synonyms, “1-Naphthylamine” and “2-Naphthylamine”, instead. This rule adds “1-Naphthalenamine” and “2-Naphthalenamine” to the HMR and deletes “1-Naphthylamine” and “2-Naphthylamine” from the HMR.

Because this rulemaking makes numerous changes to the “List of Hazardous Substances and Reportable Quantities” found in Table 1 of Appendix A to § 172.101, we are reprinting it in its entirety.

This final rule is not considered a significant regulatory action under section 3(f) of Executive Order 12866 and, therefore, was not reviewed by the Office of Management and Budget. The rule is not considered significant under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). The economic impact associated with this final rule should be minimal for shippers and carriers for several reasons: (1) This rule does not impose new requirements on shippers or carriers of hazardous substances, but merely lists and makes corrections to hazardous substances already subject to regulation by EPA; (2) to the extent that new hazardous substances are added to the HMR requiring compliance with regulations pertaining to transport of the hazardous substances, most of the new entries already meet an existing hazard class definition and are currently subject to the HMR. For example, carbamates are widely used as ingredients in pesticides. Shippers and carriers would incur some increased costs from additional hazard communication requirements (e.g., “RQ” on shipping papers and marking of packages) but minimal compared to costs of compliance with regulations for a hazardous substance that previously had not been regulated and; (3) additional hazardous substances added into the HMR in this final rule were inadvertent omissions or are synonyms of hazardous substances already subject to the requirements.

In consideration of the changes to the RQs for several hazardous substances in this rule, we reviewed the “Economic Impact Analysis (EIA) of Proposed Reportable Quantity Adjustments for Carbamates Added as RCRA Hazardous Wastes and CERCLA Hazardous Substances, Volume VII,” dated December 2002 prepared by the Environmental Protection Agency (EPA) in support of its related final rule. A copy of that document is available for review in the EPA docket (EPA-HQ-SFUND-2002-0010-0052).

According to the EPA EIA, upward RQ adjustments for hazardous substances reduce the required telephone notification of releases and reduce government and industry time spent on recordkeeping. The effects of these actions taken together can be categorized as “cost savings.” Conversely, downward RQ adjustments would produce increases in these same actions and therefore result in additional costs. Likewise, from an HMR compliance cost perspective, upward RQ adjustments are expected to reduce costs by reducing the number of shipments subject to the hazard communication requirements for RQs or subject to the HMR in general (by being a hazardous material based solely on being defined as a hazardous substance) while downward RQ adjustments are expected to increase costs. The majority of the RQ adjustments (based on EPA adjustments) in this rule are upwards adjustments leading to an overall cost savings.

This final rule will also enhance transportation safety and environmental protection because shippers, carriers, and emergency response personnel will be able to identify specific hazardous substances and take appropriate actions to comply with the applicable packaging and hazard communication requirements and to respond to transportation incidents involving hazardous substances.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This final rule preempts State, local and Indian tribe requirements but does not adopt any regulation that has substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Federal hazardous material transportation law, 49 U.S.C. 5101-5128, contains an express preemption provision (49 U.S.C. 5125(b)) that preempts State, local, and Indian tribe requirements on certain covered subjects. Covered subjects are:

(1) The designation, description, and classification of hazardous material;

(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous material;

(3) The preparation, execution, and use of shipping documents related to hazardous materials and requirements related to the number, contents, and placement of those documents;

(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; or

(5) The design, manufacture, fabrication, inspection, marking, maintenance, reconditioning, repair, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.

This final rule addresses covered subject items (1), (2), and (3) above and would preempt State, local, and Indian tribe requirements not meeting the “substantively the same” standard. This rule is required by statute. Federal hazardous materials transportation law provides at Sec. 5125(b)(2) that, if PHMSA issues a regulation concerning any of the covered subjects, PHMSA must determine and publish in the Federal Register the effective date of Federal preemption. The effective date may not be earlier than the 90th day following the date of issuance of the final rule and not later than two years after the date of issuance. The effective date of Federal preemption for these requirements is April 7, 2008.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not have tribal implications, does not impose substantial direct compliance costs, and is required by statute, the funding and consultation requirements of Executive Order 13175 do not apply.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires an agency to review regulations to assess their impact on small entities unless the agency determines that a rule is not expected to have a significant impact on a substantial number of small entities. The Regulatory Flexibility Act applies only to final rules that are preceded by notices of proposed rulemaking (NPRM). Because this rule was not preceded by an NPRM, no assessment is required. EPA addressed the Regulatory Flexibility Act when it made the hazardous substances designation reflected in this rule.

This final rule does not impose any new information collection burden.

A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.

This final rule imposes no mandates and, thus, does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $120.7 million or more to either State, local or tribal governments, in the aggregate, or to the private sector, and is the least burdensome alternative that achieves the objective of the rule.

The National Environmental Policy Act of 1969 (NEPA), as amended (42 U.S.C. 4321-4347) requires Federal agencies to consider the consequences of major Federal actions and prepare a detailed statement on actions significantly affecting the quality of the human environment.

Releases of hazardous substances (e.g., carbamates) have the potential to cause damage to the human environment. Releases can occur during any stage of transportation (i.e., loading, transport, unloading, etc.). When a release occurs, it may result in increased risk to public health and the environment such as increased human exposure to carcinogens or adverse impacts to vegetation and wildlife surrounding the location of the release.

Revisions made to the “List of Hazardous Substances and Reportable Quantities” found in Table 1 of Appendix A to § 172.101 in this final rule enhance environmental protection. Listing of hazardous substances in the HMR and the correct RQs promotes better identification of these materials, leading to greater compliance with the reporting requirements and effective emergency response to incidents involving these materials, thereby lessening the potential for damage to the human environment. Further, the adjustment of an RQ should not have any significant influence on the number of releases that occur for that substance. EPA considers inherent substance-specific risks as part of its RQ adjustment methodology. It is assumed that releases of hazardous substances below an (adjusted) RQ, under most release circumstances, would not pose a sufficient risk to the human environment to warrant a government response. We conclude there are no significant environmental impacts associated with this final rule.