I. Background

The Home Mortgage Disclosure Act of 1975, as amended (HMDA; 12 U.S.C. 2801 et seq. ) requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity. Annually, lenders must report those data to the appropriate Federal agencies and make the data available to the public. Historically, HMDA has been implemented by Regulation C of the Board of Governors of the Federal Reserve System (Board), 12 CFR Part 203.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)  1 amended a number of consumer financial protection laws, including HMDA. In addition to various substantive amendments, the Dodd-Frank Act transferred rulemaking authority for HMDA to the Bureau of Consumer Financial Protection (Bureau), effective July 21, 2011. See sections 1061 and 1094 of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act and HMDA, as amended, the Bureau is publishing for public comment an interim final rule establishing a new Regulation C (Home Mortgage Disclosure), 12 CFR Part 1003, implementing HMDA.

The interim final rule substantially duplicates the Board's Regulation C as the Bureau's new Regulation C, 12 CFR Part 1003, making only certain non-substantive, technical, formatting, and stylistic changes. To minimize any potential confusion, the Bureau is preserving the past numbering of the Board's Regulation C, other than the new part number and the enumeration of the individual definitions in § 1003.2. While this interim final rule generally incorporates the Board's existing regulatory text, appendices (including model forms and clauses), and supplements, the rule has been edited as necessary to reflect nomenclature and other technical amendments required by the Dodd-Frank Act. Notably, this interim final rule does not impose any new substantive obligations on regulated entities. In future rulemakings, the Bureau expects to amend Regulation C to implement certain changes to HMDA made by the Dodd-Frank Act.

The rule has been changed to effect technical, non-substantive changes to the Board's existing regulatory text of Regulation C. References to the Board and its administrative structure have been replaced with references to the Bureau. Conforming edits have been made to internal cross-references and addresses for filing documentation. Paragraph lettering for definitions has been removed. Conforming edits have been made to reflect the scope of the Bureau's authority pursuant to HMDA, as amended by the Dodd-Frank Act. Historical references that are no longer applicable, and references to effective dates that have passed, have been removed.

Conforming edits have also been made to reflect new Office of Management and Budget (OMB) control numbers issued for information collections required by Regulation C. Specifically, Form FR HMDA-LAR, the Loan/Application Register Transmittal Sheet, has been edited to add OMB control numbers for the Bureau of Consumer Financial Protection and the National Credit Union Administration and to remove the control number formerly used by the Office of Thrift Supervision.

This interim final rule modifies the current regulatory text by including the Bureau of Consumer Financial Protection as an appropriate Federal agency for receiving reports and removes the Office of Thrift Supervision as an entity to whom financial institutions may be required to report data under HMDA. The Bureau is issuing guidance concurrently with the issuance of this interim rule regarding the appropriate Federal agency to which each financial institution should report 2011 data pursuant to HMDA.

The Dodd-Frank Act amended HMDA to require covered financial institutions to report data with respect to, among other things, the age of mortgagors and mortgage applicants, points and fees payable at origination in connection with a mortgage, the difference between the annual percentage rate associated with a loan and a benchmark rates or rates for all loans, the term in months of any prepayment penalty or other fee or charge payable on repayment of some portion of principal or the entire principal in advance of scheduled payment, the value of the real property pledged or proposed to be pledged as collateral, the actual or proposed term in months of any introductory period after which the rates of interest may change for a loan, the presence of contractual terms or proposed contract terms that would allow the mortgagor or applicant to make payments other than fully amortizing payments during any portion of the loan term, the actual or proposed term in months of the mortgage, the channel through which the mortgage application was made, and the credit score of mortgage applicants and mortgagors. 2 A change to the regulatory text to require collection of additional data pursuant to the Dodd-Frank Act is a substantive change that is beyond the scope of this interim final rule. Therefore, the Bureau will address those substantive amendments to the HMDA data elements in a future rulemaking.

Institutions are not required to report additional data required by section 304(b)(5) and (6) of HMDA, as amended, “before the first January 1 that occurs after the end of the 9-month period beginning on the date on which regulations are issued by the Bureau in final form with respect to such disclosures.”  3 Further, financial institutions are unable to comply with the obligation to report data regarding the age of mortgagors and mortgage applicants, which is required pursuant to section 304(b)(4) of HMDA, until the Bureau provides the necessary guidance on the manner of such reporting, including modification of the HMDA Loan/Application Register (HMDA-LAR) form to accommodate the reporting of age data. Therefore, the Bureau believes that the requirements to report all of the new data elements under HMDA section 304(b)(4)-(6) cannot be effective until the Bureau completes a future rulemaking with respect to the reporting of such data.

The Bureau is issuing this interim final rule pursuant to its authority under HMDA and the Dodd-Frank Act. Effective July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies. The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”  4 The HMDA is a Federal consumer financial law. 5 Accordingly, effective July 21, 2011, the authority of the Board to issue regulations pursuant to HMDA transferred to the Bureau. 6

The Administrative Procedure Act (APA)  7 generally requires public notice and an opportunity to comment before promulgation of regulations. 8 The APA provides exceptions to notice-and-comment procedures, however, where an agency for good cause finds that such procedures are impracticable, unnecessary, or contrary to the public interest or when a rulemaking relates to agency organization, procedure, and practice. 9 The Bureau finds that there is good cause to conclude that providing notice and opportunity for comment would be unnecessary and contrary to the public interest under these circumstances. In addition, substantially all the changes made by this interim final rule, which were necessitated by the Dodd-Frank Act's transfer of HMDA authority from the Board to the Bureau, relate to agency organization, procedure, and practice and are thus exempt from the APA's notice-and-comment requirements.

The Bureau's good cause findings are based on the following considerations. As an initial matter, the Board's existing regulation was a result of notice-and-comment rulemaking to the extent required. Moreover, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Rather, the interim final rule makes only non-substantive, technical changes to the existing text of the regulation, such as renumbering, changing internal cross-references, replacing appropriate nomenclature to reflect the transfer of authority to the Bureau, and changing the addresses for filing applications and notices. Given the technical nature of these changes, and the fact that the interim final rule does not impose any additional substantive requirements on covered entities, an opportunity for prior public comment is unnecessary. In addition, recodifying the Board's regulations to reflect the transfer of authority to the Bureau will help facilitate compliance with HMDA and its implementing regulations, and the new regulations will help reduce uncertainty regarding the applicable regulatory framework. Using notice-and-comment procedures would delay this process and thus be contrary to the public interest.

The APA generally requires that rules be published not less than 30 days before their effective dates. See 5 U.S.C. 553(d). As with the notice and comment requirement, however, the APA allows an exception when “otherwise provided by the agency for good cause found and published with the rule.” 5 U.S.C. 553(d)(3). The Bureau finds that there is good cause for providing less than 30 days notice here. A delayed effective date would harm consumers and regulated entities by needlessly perpetuating discrepancies between the amended statutory text and the implementing regulation, thereby hindering compliance and prolonging uncertainty regarding the applicable regulatory framework. 10

In addition, delaying the effective date of the interim final rule for 30 days would provide no practical benefit to regulated entities in this context and in fact could operate to their detriment. As discussed above, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Instead, the rule makes only non-substantive, technical changes to the existing text of the regulation. Thus, regulated entities that are already in compliance with the existing rules will not need to modify business practices as a result of this rule. To the extent that one-time modifications to forms are required, the Bureau has provided an ample implementation period to allow appropriate advance notice and facilitate compliance without suspending the benefits of the interim final rule during the intervening period.

In developing the interim final rule, the Bureau has conducted an analysis of potential benefits, costs, and impacts. 11 The Bureau believes that the interim final rule will benefit consumers and covered persons by updating and recodifying Regulation C to reflect the transfer of authority to the Bureau and certain other changes mandated by the Dodd-Frank Act. This will help facilitate compliance with HMDA and its implementing regulations and help reduce any uncertainty regarding the applicable regulatory framework. The interim final rule will not impose any new substantive obligations on consumers or covered persons and is not expected to have any impact on consumers' access to consumer financial products and services.

Although not required by the interim final rule, financial institutions may incur some costs in updating compliance manuals and related materials to reflect the new numbering and other technical changes reflected in the new Regulation C. The Bureau has worked to reduce any such burden by preserving the existing numbering to the extent possible and believes that such costs will likely be minimal. These changes could be handled in the short term by providing a short, standalone summary alerting users to the changes and in the long term could be combined with other updates at the creditor's convenience. The Bureau intends to continue investigating the possible costs to affected entities of updating manuals and related materials to reflect these changes and solicits comments on this and other issues discussed in this section.

The interim final rule will have no unique impact on depository institutions or credit unions with $10 billion or less in assets as described in section 1026(a) of the Dodd-Frank Act. Also, the interim final rule will have no unique impact on rural consumers.

In undertaking the process of recodifying Regulation C, as well as regulations implementing thirteen other existing consumer financial laws, 12 the Bureau consulted the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Department of Housing and Urban Development, including with respect to consistency with any prudential, market, or systemic objectives that may be administered by such agencies. 13 The Bureau also has consulted with the Office of Management and Budget for technical assistance. The Bureau expects to have further consultations with the appropriate Federal agencies during the comment period.

Although notice and comment rulemaking procedures are not required, the Bureau invites comments on this notice. Commenters are specifically encouraged to identify any technical issues raised by the rule. The Bureau is also seeking comment in response to a notice published at 76 FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities for streamlining regulations that it has inherited from other Federal agencies to address provisions that are outdated, unduly burdensome, or unnecessary.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities including small businesses, small governmental units, and small not-for-profit organizations. 14 The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. 15 The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives regarding any rule for which an IRFA is required. 16

The IRFA and FRFA requirements described above apply only where a notice of proposed rulemaking is required, 17 and the panel requirement applies only when a rulemaking requires an IRFA. 18 As discussed above in Part III, a notice of proposed rulemaking is not required for this rulemaking.

In addition, as discussed above, this interim final rule has only a minor impact on entities subject to Regulation C. The rule imposes no new, substantive obligations on covered entities. Accordingly, the undersigned certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities.

The Bureau may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. This rule contains information collection requirements under the Paperwork Reduction Act (PRA), which have been previously approved by OMB, and the ongoing PRA burden for which is unchanged by this rule. There are no new information collection requirements in this interim final rule. The Bureau's OMB control number for this information collection is: 3170-0008.

For the reasons set forth above, the Bureau of Consumer Financial Protection adds Part 1003 to Chapter X in Title 12 of the Code of Federal Regulations to read as follows:

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (S.A.F.E. Act) provides for the licensing and/or registration of mortgage loan originators. The S.A.F.E. Act requires employees of depository institutions, employees of subsidiaries that are owned and controlled by a depository institution and regulated by a Federal banking agency, or employees of institutions regulated by the Farm Credit Administration who act as residential mortgage loan originators to register with the Nationwide Mortgage Licensing System and Registry, obtain a unique identifier, and maintain this registration. The S.A.F.E. Act further requires states to adopt minimum standards for licensing residential mortgage loan originators.

Historically, the Federal registration requirements of the S.A.F.E. Act have been implemented through a coordinated rulemaking of the Federal banking agencies and the Farm Credit Administration with authority over Federal registration requirements under the S.A.F.E. Act (collectively, the Federal registry agencies). 1 Further, prior to July 21, 2011, the S.A.F.E. Act charged the Department of Housing and Urban Development (HUD) with evaluation of states' compliance with the S.A.F.E. Act and with establishing and maintaining a licensing and registration system for a state or territory that does not have a system in place for licensing loan originators that meets the requirements of the S.A.F.E. Act.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)  2 amended a number of consumer financial protection laws, including the S.A.F.E. Act. In addition to minor amendments, the Dodd-Frank Act transferred rulemaking authority for the S.A.F.E. Act from the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the National Credit Union Administration, the Federal Deposit Insurance Corporation, and the Department of Housing and Urban Development to the Bureau of Consumer Financial Protection (Bureau), effective July 21, 2011. 3 See sections 1061 and 1100 of the Dodd-Frank Act. The Dodd-Frank Act also granted the Bureau rulemaking authority pursuant to the S.A.F.E. Act with respect to employees of institutions regulated by the Farm Credit Administration. See section 1100 of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act and the S.A.F.E. Act, as amended, the Bureau is publishing for public comment an interim final rule establishing a new Regulation G, S.A.F.E. Mortgage Licensing Act—Federal Registration of Residential Mortgage Loan Originators, 12 CFR part 1007, implementing the Federal registration requirements of the S.A.F.E. Act and a new Regulation H, S.A.F.E. Mortgage Licensing Act—State Compliance and Bureau Registration System, 12 CFR Part 1008, implementing the requirements with respect to states' compliance with the S.A.F.E. Act and the maintenance of a licensing and registration system for a state or territory that does not have a system in place for licensing loan originators that meets the requirements of the S.A.F.E. Act.

The interim final rule substantially duplicates the Federal registry agencies' largely identical coordinated rules as the Bureau's new Regulation G, 12 CFR part 1007, making only certain non-substantive, technical, formatting, and stylistic changes. The interim final rule also substantially duplicates HUD's rule as the Bureau's new Regulation H, 12 CFR part 1008. To minimize any potential confusion, the Bureau is preserving the past numbering systems of the Federal registry agencies and HUD, other than the new part numbers and, with respect to Regulation G, the enumeration of the individual definitions in section 1007.102. While this interim final rule generally incorporates and consolidates the largely identical rules of the Federal registry agencies and HUD, the rule has been edited as necessary to reflect nomenclature and other technical amendments required by the Dodd-Frank Act. Notably, this interim final rule does not impose any new substantive obligations on regulated entities. Regulated entities and their employees that were registered with the Nationwide Mortgage Licensing System and Registry and had obtained unique identifiers pursuant to the regulations of the Federal registry agencies as of the effective date of this Regulation G will be considered by the Bureau to have registered pursuant to the new Regulation G.

The new Regulation G consolidates the regulations of the Office of the Comptroller of the Currency (12 CFR part 34); the Federal Reserve System (12 CFR parts 208 and 211); the Federal Deposit Insurance Corporation (12 CFR part 365); the Office of Thrift Supervision (12 CFR part 563); the Farm Credit Administration (12 CFR part 610); and the National Credit Union Administration (12 CFR parts 741 and 761) pursuant to the conforming changes in section 1100 of the Dodd-Frank Act. Further, the new Regulation H has been changed to effect technical, non-substantive changes to HUD's existing regulatory text of 24 CFR part 3400.

For both Regulations G and H, references to the respective banking agencies and HUD have been replaced with references to the Bureau in the new regulations. Conforming edits have been made to internal cross-references. Conforming edits have also been made to reflect the scope of the Bureau's authority pursuant to the requirements of the S.A.F.E. Act, as amended by the Dodd-Frank Act. For example, references to the Federal registry agencies and HUD and their respective administrative structures have been replaced with references to the Bureau and its administrative structure. Conforming edits have been made to internal cross-references and addresses. Historical references that are no longer applicable, and references to effective dates that have passed, have been removed.

The Bureau is issuing this interim final rule pursuant to its authority under the S.A.F.E. Act and the Dodd-Frank Act. 4 Effective July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies. The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”  5 The S.A.F.E. Act is a “Federal consumer financial law.”  6 Additionally, section 1061 transferred to the Bureau all of the HUD Secretary's consumer protection functions relating to the S.A.F.E. Act, which includes rulemaking authority. The Dodd-Frank Act also granted the Bureau rulemaking authority pursuant to the S.A.F.E. Act with respect to employees of institutions regulated by the Farm Credit Administration. 7 Accordingly, effective July 21, 2011, the Bureau has rulemaking authority for the S.A.F.E. Act. 8

The S.A.F.E. Act, as amended, authorizes the Bureau to “develop and maintain a system for registering employees of a depository institution, employees of a subsidiary that is owned and controlled by a depository institution and regulated by a Federal banking agency, or employees of an institution regulated by the Farm Credit Administration, as registered loan originators with the Nationwide Mortgage Licensing System and Registry.”  9 The S.A.F.E. Act also authorizes the Bureau to make such de minimis exceptions to the registration requirements as may be appropriate. 10 Further, under the S.A.F.E. Act, if the Bureau determines that a state's loan origination licensing system does not meet the minimum requirements of the S.A.F.E. Act, the Bureau is charged with establishing and implementing a system for all loan originators in that state. Additionally, if at any time the Bureau determines that the nationwide mortgage licensing system and registry is failing to meet the S.A.F.E. Act's requirements, the Bureau is charged with establishing and maintaining a licensing and registry database for loan originators. 11 Regulations G and H are issued in accordance with these authorities.

The Administrative Procedure Act (APA)  12 generally requires public notice and an opportunity to comment before promulgation of regulations. 13 The APA provides exceptions to notice-and-comment procedures, however, where an agency for good cause finds that such procedures are impracticable, unnecessary, or contrary to the public interest or when a rulemaking relates to agency organization, procedure, and practice. 14 The Bureau finds that there is good cause to conclude that providing notice and opportunity for comment would be unnecessary and contrary to the public interest under these circumstances. In addition, substantially all the changes made by this interim final rule, which were necessitated by the Dodd-Frank Act's transfer of S.A.F.E. Act authority to the Bureau, relate to agency organization, procedure, and practice and are thus exempt from the APA's notice-and-comment requirements.

The Bureau's good cause findings are based on the following considerations. As an initial matter, the Federal registry agencies and HUD's existing regulations were a result of notice-and-comment rulemaking to the extent required. Moreover, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Rather, the interim final rule makes only non-substantive, technical changes to the existing text of the regulations, such as renumbering, changing internal cross-references, replacing appropriate nomenclature to reflect the transfer of authority to the bureau, and updating to reflect the expiration of certain deadlines. Given the technical nature of these changes, and the fact that the interim final rule does not impose any additional substantive requirements on covered entities, an opportunity for prior public comment is unnecessary. In addition, recodifying the Federal registry agencies' and HUD's regulations to reflect the transfer of authority to the Bureau will help facilitate compliance with the S.A.F.E. Act and its implementing regulations, and the new regulations will help reduce uncertainty regarding the applicable regulatory framework. Using notice-and-comment procedures would delay this process and thus be contrary to the public interest.

The APA generally requires that rules be published not less than 30 days before their effective dates. See 5 U.S.C. 553(d). As with the notice and comment requirement, however, the APA allows an exception when “otherwise provided by the agency for good cause found and published with the rule.” 5 U.S.C. 553(d)(3). The Bureau finds that there is good cause for providing less than 30 days notice here. A delayed effective date would harm consumers and regulated entities by needlessly perpetuating discrepancies between the amended statutory text and the implementing regulation, thereby hindering compliance and prolonging uncertainty regarding the applicable regulatory framework. 15

In addition, delaying the effective date of the interim final rule for 30 days would provide no practical benefit to regulated entities in this context and in fact could operate to their detriment. As discussed above, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Instead, the rule makes only non-substantive, technical changes to the existing text of the regulation. Thus, regulated entities that are already in compliance with the existing rules will not need to modify business practices as a result of this rule.

In developing the interim final rule, the Bureau has conducted an analysis of potential benefits, costs, and impacts. 16 The Bureau believes that the interim final rule will benefit consumers and covered persons by updating and recodifying in Regulations G and H the Federal registry agencies' and HUD's S.A.F.E. Act regulations to reflect the transfer of authority to the Bureau and certain other changes mandated by the Dodd-Frank Act. This will help facilitate compliance with the S.A.F.E. Act and its implementing regulations and help reduce any uncertainty regarding the applicable regulatory framework. The interim final rule will not impose any new substantive obligations on consumers or covered persons and is not expected to have any impact on consumers' access to consumer financial products and services.

Although not required by the interim final rule, covered entities may incur some costs in updating compliance manuals and related materials to reflect the new numbering and other technical changes reflected in the new Regulations G and H. The Bureau has worked to reduce any such burden by preserving the existing numbering to the extent possible and believes that such costs will likely be minimal. These changes could be handled in the short term by providing a short, standalone summary alerting users to the changes and in the long term could be combined with other updates at the covered entities' convenience. The Bureau intends to continue investigating the possible costs to affected entities of updating manuals and related materials to reflect these changes and solicits comments on this and other issues discussed in this section.

The interim final rule will have no unique impact on depository institutions or credit unions with $10 billion or less in assets described in section 1026(a) of the Dodd-Frank Act. Also, the interim final rule will have no unique impact on rural consumers.

In undertaking the process of updating and recodifying in Regulations G and H the Federal registry agencies' and HUD's S.A.F.E. Act regulations, as well as regulations implementing thirteen other existing consumer financial laws, 17 the Bureau consulted the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Department of Housing and Urban Development, including with respect to consistency with any prudential, market, or systemic objectives that may be administered by such agencies. 18 The Bureau also consulted the Farm Credit Administration regarding the recodification of Regulation G and consulted with the Office of Management and Budget for technical assistance. The Bureau expects to have further consultations with the appropriate Federal agencies during the comment period.

Although notice and comment rulemaking procedures are not required, the Bureau invites comments on this notice. Commenters are specifically encouraged to identify any technical issues raised by the rule. The Bureau is also seeking comment in response to a notice published at 76 FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities for streamlining regulations that it has inherited from other Federal agencies to address provisions that are outdated, unduly burdensome, or unnecessary.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations. 19 The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. 20 The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required. 21

The IRFA and FRFA requirements described above apply only where a notice of proposed rulemaking is required, 22 and the panel requirement applies only when a rulemaking requires an IRFA. 23 As discussed above in part III, a notice of proposed rulemaking is not required for this rulemaking.

In addition, as discussed above, this interim final rule has only a minor impact on entities subject to Regulations G and H. The rule imposes no new, substantive obligations on covered entities. Accordingly, the undersigned certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities.

The Bureau may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. Regulation G contains information collection requirements under the Paperwork Reduction Act (PRA), which have been previously approved by OMB, and the ongoing PRA burden for which is unchanged by this rule. There are no new information collection requirements in this interim final rule. The Bureau's OMB control number for this information collection is 3170-0005.

For the reasons set forth above, the Bureau of Consumer Financial Protection adds Parts 1007 and 1008 to Chapter X in Title 12 of the Code of Federal Regulations to read as follows:

The Consumer Leasing Act (CLA), 15 U.S.C. 1667-1667e, was enacted in 1976 as an amendment to the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. The purpose of the CLA is to ensure meaningful and accurate disclosure of the terms of personal property leases for personal, family, or household use. The CLA and Regulation M require lessors to provide consumers with uniform cost and other disclosures about consumer lease transactions. The statute and the regulation generally apply to consumer leases for the use of personal property in which the contractual obligation has a term of more than four months and the lessee's total contractual obligation under the lease exceeds a specified dollar threshold. Historically, the CLA has been implemented in Regulation M of the Board of Governors of the Federal Reserve System (Board), 12 CFR Part 213. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)  1 amended a number of consumer financial protection laws, including the CLA. In addition to various substantive amendments, the Dodd-Frank Act transferred rulemaking authority for the CLA to the Bureau of Consumer Financial Protection (Bureau), effective July 21, 2011. 2   See sections 1061, 1100A, and 1100E of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act and the CLA, as amended, the Bureau is publishing for public comment an interim final rule establishing a new Regulation M (Consumer Leasing), 12 CFR Part 1013, implementing the CLA (except with respect to persons excluded from the Bureau's rulemaking authority by section 1029 of the Dodd-Frank Act).

The interim final rule substantially duplicates the Board's Regulation M as the Bureau's new Regulation M, 12 CFR Part 1013, making only certain non-substantive, technical, formatting, and stylistic changes. To minimize any potential confusion, the Bureau is preserving the numbering of the Board's Regulation M, other than the new part number. While this interim final rule generally incorporates the Board's existing regulatory text, appendices (including model forms and clauses), and supplements, as amended, 3 the rule has been edited as necessary to reflect nomenclature and other technical amendments required by the Dodd-Frank Act. Notably, this interim final rule does not impose any new substantive obligations on regulated entities.

The Bureau has made certain nomenclature and other non-substantive changes consistently throughout Regulation M. References to the Board and its administrative structure have been replaced with references to the Bureau. Conforming edits have been made to internal cross-references and to reflect the scope of the Bureau's authority pursuant to the CLA, as amended by the Dodd-Frank Act. Appendix B, entitled “Federal Enforcement Agencies,” has been eliminated, because it was designed to be informational only and is unnecessary for purposes of implementing the CLA, as amended. Historical references that are no longer applicable, and references to effective dates that have passed, have been removed as appropriate.

The Bureau is issuing this interim final rule pursuant to its authority under the CLA and the Dodd-Frank Act. Effective July 21, 2011, section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies. The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”  4 The CLA is a Federal consumer financial law. 5 Accordingly, effective July 21, 2011, except with respect to persons excluded from the Bureau's rulemaking authority by section 1029 of the Dodd-Frank Act, the authority of the Board to issue regulations pursuant to the CLA transferred to the Bureau. 6

The CLA, as amended, authorizes the Bureau to prescribe regulations to update and clarify the requirements and definitions applicable to lease disclosures and contracts, and any other issues specifically related to consumer leasing, to the extent the Bureau determines such action necessary to carry out the purposes, prevent the circumvention, or facilitate compliance with the requirements of the CLA. 7 These regulations may contain such classifications and differentiations, or provide for such adjustments and exceptions for any class of transactions, that the Bureau considers appropriate. 8 The CLA also directs the Bureau to establish and publish model forms to facilitate compliance with the disclosure requirements of the CLA and to aid consumers in understanding the transactions to which the disclosure forms relate. 9 Section 1100E of the Dodd-Frank Act directs the Bureau to adjust the dollar threshold for covered consumer lease transactions annually for inflation by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as published by the Bureau of Labor Statistics. 10 In its existing regulation, the Board used its CLA authority to establish rules to promote meaningful and accurate disclosure in consumer lease transactions. 11

The Administrative Procedure Act (APA)  12 generally requires public notice and an opportunity to comment before promulgation of regulations. 13 The APA provides exceptions to notice-and-comment procedures, however, where an agency for good cause finds that such procedures are impracticable, unnecessary, or contrary to the public interest or when a rulemaking relates to agency organization, procedure, and practice. 14 The Bureau finds that there is good cause to conclude that providing notice and opportunity for comment would be unnecessary and contrary to the public interest under these circumstances. In addition, substantially all the changes made by this interim final rule, which were necessitated by the Dodd-Frank Act's transfer of CLA authority from the Board to the Bureau, relate to agency organization, procedure, and practice and are thus exempt from the APA's notice-and-comment requirements.

The Bureau's good cause findings are based on the following considerations. As an initial matter, the Board's existing regulation was a result of notice-and-comment rulemaking to the extent required. Moreover, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Rather, the interim final rule makes only non-substantive, technical changes to the existing text of the regulation, such as renumbering, changing internal cross-references, and replacing appropriate nomenclature to reflect the transfer of authority to the Bureau. Given the technical nature of these changes, and the fact that the interim final rule does not impose any additional substantive requirements on covered entities, an opportunity for prior public comment is unnecessary. In addition, recodifying the Board's regulation to reflect the transfer of authority to the Bureau will help facilitate compliance with the CLA and its implementing regulation, and will help reduce uncertainty regarding the applicable regulatory framework. Using notice-and-comment procedures would delay this process and thus be contrary to the public interest.

The APA generally requires that rules be published not less than 30 days before their effective dates. See 5 U.S.C. 553(d). As with the notice and comment requirement, however, the APA allows an exception when “otherwise provided by the agency for good cause found and published with the rule.” 5 U.S.C. 553(d)(3). The Bureau finds that there is good cause for providing less than 30 days notice here. A delayed effective date would harm consumers and regulated entities by needlessly perpetuating discrepancies between the amended statutory text and the implementing regulation, thereby hindering compliance and prolonging uncertainty regarding the applicable regulatory framework. 15

In addition, delaying the effective date of the interim final rule for 30 days would provide no practical benefit to regulated entities in this context and in fact could operate to their detriment. As discussed above, the interim final rule published today does not impose any new, substantive obligations on regulated entities. Instead, the rule makes only non-substantive, technical changes to the existing text of the regulation. Thus, regulated entities that are already in compliance with the existing rules will not need to modify business practices as a result of this rule.

In developing the interim final rule, the Bureau has conducted an analysis of potential benefits, costs, and impacts. 16 The Bureau believes that the interim final rule will benefit consumers and covered persons by updating and recodifying Regulation M to reflect the transfer of authority to the Bureau and certain other changes mandated by the Dodd-Frank Act. This will help facilitate compliance with the CLA and its implementing regulations and help reduce any uncertainty regarding the applicable regulatory framework. As discussed below, the interim final rule will not impose any new substantive obligations on consumers or covered persons and is not expected to have any impact on consumers' access to consumer financial products and services.

Although not required by the interim final rule, covered persons may incur some costs in updating compliance manuals and related materials to reflect the new numbering and other technical changes reflected in the new Regulation M. The Bureau has worked to reduce any such burden by preserving the existing numbering to the extent possible and believes that such costs will likely be minimal. These changes could be handled in the short term by providing a short, standalone summary alerting users to the changes and in the long term could be combined with other updates at the firm's convenience. The Bureau intends to continue investigating the possible costs to affected entities of updating manuals and related materials to reflect these changes and solicits comments on this and other issues discussed in this section.

The interim final rule will have no unique impact on depository institutions or credit unions with $10 billion or less in assets as described in section 1026(a) of the Dodd-Frank Act. Also, the interim final rule will have no unique impact on rural consumers.

In undertaking the process of recodifying Regulation M, as well as regulations implementing thirteen other existing consumer financial laws, 17 the Bureau consulted the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Board of Governors of the Federal Reserve System, the Federal Trade Commission, and the Department of Housing and Urban Development, including with respect to consistency with any prudential, market, or systemic objectives that may be administered by such agencies. 18 The Bureau also has consulted with the Office of Management and Budget for technical assistance. The Bureau expects to have further consultations with the appropriate Federal agencies during the comment period.

Although notice and comment rulemaking procedures are not required, the Bureau invites comments on this notice. Commenters are specifically encouraged to identify any technical issues raised by the rule. The Bureau is also seeking comment in response to a notice published at 76 FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities for streamlining regulations that it has inherited from other Federal agencies to address provisions that are outdated, unduly burdensome, or unnecessary.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996, requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not-for-profit organizations. 19 The RFA generally requires an agency to conduct an initial regulatory flexibility analysis (IRFA) and a final regulatory flexibility analysis (FRFA) of any rule subject to notice-and-comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. 20 The Bureau also is subject to certain additional procedures under the RFA involving the convening of a panel to consult with small business representatives prior to proposing a rule for which an IRFA is required. 21

The IRFA and FRFA requirements described above apply only where a notice of proposed rulemaking is required, 22 and the panel requirement applies only when a rulemaking requires an IRFA. 23 As discussed above in part III, a notice of proposed rulemaking is not required for this rulemaking.

In addition, as discussed above, this interim final rule has only a minor impact on entities subject to Regulation M. The rule imposes no new, substantive obligations on covered entities. Accordingly, the undersigned certifies that this interim final rule will not have a significant economic impact on a substantial number of small entities.

The Bureau may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. This rule contains information collection requirements under the Paperwork Reduction Act (PRA), which have been previously approved by OMB, and the ongoing PRA burden for which is unchanged by this rule. There are no new information collection requirements in this interim final rule. The Bureau's OMB control number for this information collection is: 3170-0006.

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 published in the Federal Register on July 8, 2011 (76 FR 40291). That NPRM proposed to require revising the maintenance program to incorporate life limits for the MLG actuator end cap.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (76 FR 40291, July 8, 2011) or on the determination of the cost to the public.

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

We estimate that this AD affects 351 airplanes of U.S. registry. We estimate the following costs to comply with 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.

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),

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

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 September 7, 2011 (76 FR 55296), and proposed to supersede AD 2010-26-13, Amendment 39-16553 (75 FR 81420, December 28, 2010). That NPRM proposed to revise the existing compliance time to include a 33,000 total flight hours compliance time. That NPRM proposed to correct an unsafe condition for the specified products. You may obtain further information by examining the MCAI in the AD docket.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (76 FR 55296, September 7, 2011) 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 13 products of U.S. registry.

The actions that are required by AD 2010-26-13, Amendment 39-16553 (75 FR 81420, December 28, 2010), and retained in this AD take about 72 work-hours per product, at an average labor rate of $85 per work-hour. Required parts cost about $1,080 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, the estimated cost of the currently required actions is $93,600, or $7,200 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 (76 FR 55296, September 7, 2011), 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

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 September 14, 2011 (76 FR 56680). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

You may obtain further information by examining the MCAI in the AD docket.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (76 FR 56680, September 14, 2011) or on the determination of the cost to the public.

We reviewed the relevant 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 58 products of U.S. registry. We also estimate that it will take about 1 work-hour per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $0 per product. Replacement parts may be provided free of charge by the manufacturer. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $4,930, or $85 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 (76 FR 56680, September 14, 2011), 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.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

Discussion

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to revise AD 2011-06-06, Amendment 39-16631 (76 FR 13078, March 10, 2011). That AD applies to the specified products. The NPRM published in the Federal Register on October 13, 2011 (76 FR 63571). That NPRM proposed to retain all requirements of AD 2011-06-06, clarify the engine applicability, and allow the option of incorporating Pratt & Whitney Canada Service Bulletin P&WC S.B. No. 60077, dated June 1, 2011, to terminate the operating limitations set in AD 2011-06-06 and restore the original certificated altitude of 41,000 feet.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (76 FR 63571, October 13, 2011) or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM (76 FR 63571, October 13, 2011) for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We estimate that this AD affects 259 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

The cost presented above is a cost estimate only. A person holding at least a private pilot certificate as authorized by section 43.7 of the Federal Aviation Regulations (14 CFR 43.7) may insert the AFM change.

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.

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),

(3) Will not affect intrastate aviation in Alaska, and

(4) 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.

History

On September 7, 2011, the FAA published in the Federal Register a notice of proposed rulemaking (NPRM) to establish Class D and E airspace and amend existing Class E airspace at Brooksville, FL, to accommodate a new air traffic control tower at Hernando County Airport (76 FR 55298). Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class D and E airspace designations are published in Paragraphs 5000, 6002, and 6005, respectively, of FAA Order 7400.9V dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR 71.1. The Class D and E airspace designations listed in this document will be published subsequently in the Order.

This amendment to Title 14, Code of Federal Regulations (14 CFR) part 71 establishes Class D airspace extending upward from the surface to and including 1,500 feet MSL within a 5.1-mile radius of Hernando County Airport, Brooksville, FL, and Class E surface area airspace within a 5.1-mile radius of the airport. This action also amends Class E airspace extending upward from 700 feet above the surface within a 7.6-mile radius of the airport. Additional controlled airspace is necessary to support the new air traffic control tower and new standard instrument approach procedures developed for continued safety and management of IFR operations at Hernando County Airport. Also, the geographic coordinates of the airport are adjusted to be in concert with the FAAs aeronautical database.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore, (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) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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.

This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes and amends controlled airspace at Hernando County Airport, Brooksville, FL.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

I. Background

In the Federal Register of October 18, 2007 (72 FR 58993), we (FDA) issued a final rule to revise our postmarketing reporting requirements to implement section 506C of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 356c). Section 506C of the Federal Food, Drug, and Cosmetic Act (section 506C) requires manufacturers who are the sole manufacturers of certain drug products to notify us at least 6 months before discontinuance of manufacture of the products. Section 506C applies to sole manufacturers of products that meet the following three criteria:

1. The products are life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition;

2. The products are approved under section 505(b) or (j) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(b) or (j)); and

3. The products are not originally derived from human tissue and replaced by a recombinant product.

These three criteria are statutory requirements. FDA assesses whether a drug is “life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition” on a case-by-case basis, but intends to provide further guidance on this issue in the near future.

Section 506C also requires us to distribute certain information about covered discontinuances to appropriate physician and patient organizations. Under section 506C, FDA may reduce the 6-month notification period if we find good cause exists for the reduction.

Recent experience with drug shortages in the United States has shown the serious and immediate impacts they can have on patients and healthcare providers, particularly those shortages involving drugs that are manufactured by a small number of firms and for which there are no good therapeutic substitutes available. The number of drug shortages annually has tripled from 61 in 2005 to 178 in 2010. Some shortages delay or deny needed care for patients, because they involve critical drugs used to treat cancer, to provide required parenteral nutrition, or to address other serious medical conditions. Other shortages can result in providers prescribing second-line alternatives, which may be less effective and higher risk than first-line therapies. A survey of 1,800 health practitioners conducted by the Institute for Safe Medication Practices (ISMP) concluded that drug shortages could lead to medication errors and poor patient outcomes because shortages can result in the use of secondary alternative therapies (Ref. 1).

In light of increasing concerns about the impact of drug shortages on health care in the United States, on October 31, 2011, the President issued Executive Order 13588 directing the FDA to “take steps that will help to prevent and reduce current and future disruptions in the supply of lifesaving medicines” and noting that “one important step is ensuring that the FDA and the public receive adequate advance notice of shortages whenever possible” (Ref. 2). In response to the Executive Order's directive to address the growing drug shortage problem, this rule modifies the regulation at § 314.81(b)(3)(iii) (21 CFR 314.81(b)(3)(iii)), which, in addition to § 314.91 (21 CFR 314.91), implements section 506C of the Federal Food, Drug, and Cosmetic Act.

This interim final rule adds two definitions to § 314.81(b)(3)(iii)—a definition of “discontinuance” and a definition of “sole manufacturer.” Although these terms were discussed in the preamble to the final rule issuing § 314.81(b)(3)(iii) published on October 18, 2007 (72 FR 58993) (2007 Preamble), and have been used in various documents informally expressing the Agency's interpretation of section 506C and its implementing regulations (see, for example, the Center for Drug Evaluation and Research (CDER) Manual of Policies and Procedures 6003.1, Drug Shortage Management (Ref. 3)), these terms were not defined in the regulation. Given the serious and growing threat to public health due to drug shortages, the Agency believes it is appropriate at this time to codify definitions of these terms. This modification and clarification of our existing regulations will further the public health objective of the Federal Food, Drug, and Cosmetic Act as a whole, and section 506C specifically by increasing the scope of information that FDA receives regarding discontinuances. This will enable the Agency to: (1) Expand collection and distribution of information on the discontinuance of certain drugs to appropriate physician and patient organizations as required by section 506C(c); and (2) work with manufacturers and other stakeholders to implement appropriate strategies to reduce, to the greatest extent possible, the public health impact of discontinuances of products that can lead to drug shortages. We believe that clarification of terminology will also improve statutory compliance.

The Agency is revising an earlier policy position and defining the term “discontinuance” in the regulation to include both permanent and temporary interruptions in the manufacturing of a drug product, if the interruption could lead to a disruption in supply of the product. This interpretation of the statutory language best achieves the public health purpose of section 506C and the Federal Food, Drug, and Cosmetic Act as a whole.

Under section 506C, sole manufacturers are required to notify FDA of a “discontinuance” of a drug product subject to section 506C. In the 2007 Preamble, in response to a comment on the meaning of the term discontinuance, we indicated that a discontinuance did not include planned or unplanned temporary manufacturing cessations (72 FR 58993 at 58995, response to comment 4). At that time, we stated that only manufacturers who intended to permanently discontinue manufacture and marketing of the drug product were subject to mandatory reporting requirements under section 506C. In our response to the comment in the 2007 Preamble, however, we did request that manufacturers who experience an unplanned temporary manufacturing cessation keep the Agency informed of the status of the shutdown because “the duration of an unplanned shutdown may be unpredictable and could affect the availability of needed therapy for patients.”

FDA no longer believes that this narrow policy position regarding the term “discontinuance” serves the public health need that the Federal Food, Drug, and Cosmetic Act was intended to address. In 2007, the Agency believed that the supply of drug product available to patients during a temporary manufacturing cessation, particularly one that was planned, would not be greatly affected during the interruption in manufacturing. However, subsequent experience has shown that even temporary discontinuances of manufacturing can have a significant impact on patient access to drug products. For example, if an equipment failure necessitates an unexpected temporary interruption in manufacturing of a drug product subject to section 506C, this discontinuance could have serious implications for patient access to the product. Notification to FDA of such discontinuances will expand FDA's ability to distribute information on the discontinuance of certain drugs to physician and patient organizations and enable FDA to work with manufacturers and other stakeholders to respond to potential drug shortages.

The interim final rule therefore adds § 314.81(b)(3)(iii)( d ) to provide that “discontinuance” means “any interruption of manufacturing of a drug product described in paragraph (b)(3)(iii)( a ) for sale in the United States that could lead to a potential disruption in supply of the drug product, whether the interruption is intended to be temporary or permanent.” Thus the term “discontinuance” now includes both temporary and permanent interruptions in manufacturing, if the interruption could lead to a disruption in supply of the product. This interpretation of “discontinuance” is consistent with Webster's Third New International Dictionary, which defines the term to mean “cessation, shutdown, closure; interruption” (Ref. 4). The dictionary definition indicates that a discontinuance can be interpreted to include both situations that are permanent (cessation, shutdown, closure) and those that are temporary (interruption).

Any permanent discontinuance of manufacturing by a sole manufacturer will lead, per se, to a disruption in supply of the product; thus, all permanent discontinuances must continue to be reported. Temporary discontinuances must be reported to the Agency under this interim final rule only if the discontinuance could lead to a disruption in supply of the product.

We understand that a manufacturer may be unable to report some temporary discontinuances 6 months before the discontinuance, as required by statute. When notification at least 6 months prior to the discontinuance is impossible because it was unforeseen, the manufacturer must notify the Agency as soon as possible after it knows that a discontinuance will occur. For example, if a contamination problem requires immediate shut down of a manufacturing plant for a drug product subject to section 506C, the manufacturer will not be able to provide the FDA with 6 months prior notification, but would be required to notify FDA as soon as the manufacturer becomes aware that the contamination necessitates a temporary discontinuance of manufacture of the product.

Other circumstances that would trigger notification to the FDA of a discontinuance of a drug product subject to section 506C include:

• A business decision to permanently discontinue manufacture of a drug product;

• A delay in acquiring active pharmaceutical ingredients or inactive ingredients that leads to, or could lead to, a temporary interruption in manufacturing of a drug product while alternative suppliers are located;

• Equipment failure or contamination affecting the quality of a drug product that necessitates an interruption in manufacturing while the equipment is repaired or the contamination issue is addressed;

• Manufacturing shut-downs for maintenance or other routine matters, if the shut-down extends for longer than anticipated or otherwise could disrupt supply of a drug product;

Conversely, a manufacturer is not required to notify FDA if a discontinuance is part of the normal manufacturing schedule and is not expected to lead to a disruption in supply of a drug product subject to 506C. For example, FDA need not be notified in the following circumstances:

• The manufacturer uses the same manufacturing plant to manufacture two drug products, one of which (Product A) is subject to section 506C. From January to June of each year the manufacturer uses the plant to produce Product A. From July to December of each year the manufacturer uses the plant to produce Product B. Although this could be considered a temporary discontinuance of Product A from July to December, because this is the usual manufacturing schedule and should not therefore result in a disruption in the supply of Product A, the manufacturer need not notify the Agency of the annual, temporary discontinuance of Product A.

• A manufacturer of a drug product implements a scheduled shutdown of its manufacturing facility each year for routine maintenance. The annual shutdown is anticipated and planned for in advance; therefore, it is not expected to disrupt supply of a drug product subject to 506C. The shutdown does not need to be reported to the Agency under section 506C.

• A manufacturer of a drug product subject to 506C experiences an unexpected power outage that results in an unscheduled interruption in manufacturing. The manufacturer expects to resume normal operations within a relatively short timeframe and does not expect a disruption in the supply of the drug product. The shutdown does not need to be reported to the Agency under section 506C.

If any of the circumstances described above do lead to a disruption in supply of the drug product, even if unanticipated, then it becomes a reportable discontinuance under this rule and the manufacturer would be required to notify FDA of a discontinuance of the product.

In addition to revising the definition of “discontinuance,” this interim final rule makes a minor conforming change by striking the phrase “discontinuing manufacture” in the first sentence of § 314.81(b)(3)(iii)( a ) and replacing it with the phrase “discontinuance of manufacture.” This change ensures that the regulations contain an appropriate cross-reference to the revised definition of discontinuance.

The interim final rule also makes a minor change to the procedures in § 314.81(b)(3)(iii)( b ) for reporting notices of discontinuances to the Agency. The interim final rule requires manufacturers to report a notice of a discontinuance to FDA either electronically or by telephone according to instructions on the FDA's Drug Shortages Web site at http://www.fda.gov/Drugs/DrugSafety/DrugShortages. Products regulated by CDER must be reported to the CDER Drug Shortages Coordinator. Products regulated by the Center for Biologics Evaluation and Research (CBER) must be reported to the CBER Products Shortage Coordinator. This change ensures that the appropriate offices are timely notified of all relevant discontinuances. It also reflects existing practice for submitting notices of discontinuance, and reduces the burden on industry to submit multiple copies of the notification.

To best achieve the public health purposes of the Federal Food, Drug, and Cosmetic Act, and section 506C, the Agency is clarifying the term sole manufacturer to ensure that we receive timely reports of all discontinuances of drug products subject to section 506C, including where other strengths, dosage forms, or routes of administration of the same drug product are marketed. The clarification is intended to improve statutory compliance and to minimize instances where manufacturers fail to make reports to the Agency as required by section 506C. This clarification of the statutory language best achieves the purpose of section 506C and the Federal Food, Drug, and Cosmetic Act as a whole.

Section 314.81(b)(3)(iii) currently does not include a definition of the term “sole manufacturer.” In the 2007 Preamble, we rejected a suggestion to rely on the “Orange Book” (FDA's publication on “Approved Drug Products with Therapeutic Equivalence Evaluations”) as the source for determining whether an entity is a sole manufacturer (72 FR 58993 at 58995, comment 3). The comment to the proposed rule had expressed concern that, although the Orange Book lists all drug products with approved new drug applications (NDA) and abbreviated new drug applications (ANDA), it is not possible to determine whether the listed approved products are, in fact, being manufactured. The comment requested that we define sole manufacturer as “an applicant listed in the Orange Book who is the holder of the only listed approved application under section 505(b) or (j) of the [FD&C] Act.” We declined to accept this definition of sole manufacturer, and reliance on the Orange Book, to determine whether an applicant was a sole manufacturer for several reasons in 2007, including the following: (1) There may be delays in updating the Orange Book, rendering it temporarily inaccurate; (2) the suggested definition could create potential confusion because some drugs are approved but not marketed and are therefore placed in the “discontinued” section of the Orange Book; and (3) there are other generally reliable sources for obtaining commercial manufacturing information to assist in determining whether an applicant is a sole manufacturer.

We continue to believe that reference to the Orange Book is not the appropriate way to identify a “sole manufacturer” for purposes of implementing section 506C. In addition, we believe there has been some confusion as to the scope of the term. Accordingly, the interim final rule adds § 314.81(b)(3)(iii)( d ) to define “sole manufacturer” in the regulation to mean “an applicant that is the only entity currently manufacturing a drug product of a specific strength, dosage form, or route of administration for sale in the United States, whether the product is manufactured by the applicant or for the applicant under contract with one or more different entities.”

The definition in this interim final rule is intended to clarify that a sole manufacturer means the only applicant currently supplying the U.S. market with the drug product. It does not mean sole NDA or ANDA holder. A manufacturer is considered a sole manufacturer even if other manufacturers hold an approved NDA or ANDA for the same product, if the other applicants are no longer manufacturing (or have never manufactured) the product for sale in the United States. For example, Company A holds an NDA for a drug product subject to section 506C and manufactures and sells that product in the United States. Company B holds an ANDA for the drug product, but does not manufacture or sell the product in the United States. Company A would be considered a sole manufacturer of the drug product for purposes of reporting a discontinuance of the drug product under section 506C. If Company B began manufacturing and selling the drug product in the United States, then Company A would no longer be considered a sole manufacturer. A manufacturer is responsible for determining if it is a sole manufacturer under this regulation. There is commercial information available to help with this determination. If an applicant is unsure if it is a sole manufacturer of a drug product subject to section 506C, FDA's drugs shortages staff may be able to work with it to help it determine whether it is or is not the sole manufacturer of the drug.

The interim final rule also clarifies that the specific strength, dosage form, and route of administration of the product are critical in determining if a manufacturer is a sole manufacturer. For example, if a company manufacturers for sale in the United States an injectable dosage form of a drug product subject to section 506C, that company is considered a sole manufacturer of that drug product, even if a second company manufactures and sells in the United States an oral dosage form of the same drug product for the same indication. In this example, if the second company was the only applicant manufacturing and selling the oral dosage form in the United States, both companies would be considered sole manufacturers for purposes of section 506C.

It is important that an entity currently manufacturing a drug product of a specific strength, dosage form, or route of administration for sale in the United States report a discontinuance to FDA because that specific strength, dosage form, or route of administration may be critical for the targeted needs of particular patients. To enable the Agency to fully distribute information under section 506C(c), and to work most effectively with manufacturers and other stakeholders to implement appropriate strategies to reduce, to the greatest extent possible, the public health impact of drug shortages, discontinuances of a specific strength, dosage form, or route of administration of drug products subject to section 506C must be reported to us. Moreover, recent experience has shown that discontinuances of a specific strength, dosage form, or route of administration of a drug product may lead to a shortage of another strength, dosage form, or route of administration of the product, compounding patient difficulties in obtaining the drug product.

Finally, the new definition in the interim final rule clarifies who bears the responsibility for reporting to FDA a discontinuance of a drug product subject to section 506C. The inclusion of “whether the product is manufactured by the applicant or for the applicant under contract with one or more different entities” in the definition makes clear that the application holder must report a discontinuance to FDA. For purposes of section 506C, an application holder will be considered a “manufacturer” even if the application holder contracts that function out to another entity. The application holder is responsible for establishing a process with any relevant contract manufacturer that ensures the application holder's compliance with this rule. This could include contractual terms between the application holder and the contract manufacturer, as well as monitoring. For example, Company X holds an NDA for a drug product subject to section 506C. Company X contracts with Company Y to manufacture the drug product for the purposes of marketing and selling the drug product in the United States. Company X would be considered the “sole manufacturer” in the above situation, and is required to establish a process with Company Y that ensures Company X's ability to report a discontinuance of the drug product to FDA.

FDA is amending its postmarketing reporting regulations implementing section 506C of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 356c). Section 506C requires manufacturers who are the sole manufacturers of certain drug products to notify us at least 6 months before discontinuance of manufacture of the drug products. This interim final rule modifies the term “discontinuance” and clarifies the term “sole manufacturer” with respect to section 506C notification requirements. FDA's authority for this rule also derives from section 701(a) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 371(a)).

The Administrative Procedure Act permits an agency to promulgate a rule without notice and comment procedures when an agency for “good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest” (5 U.S.C. 553(b); 21 CFR 10.40(e)). FDA has determined that good cause exists for this interim final rule and that notice and comment procedures are contrary to the public interest given the serious and growing threat to public health due to drug shortages.

Recent experience with drug shortages in the United States has shown serious and immediate impacts on patients and healthcare providers, particularly those shortages involving drugs that are manufactured by a small number of firms and for which there are no good therapeutic substitutes available. Some shortages delay or deny needed care for patients, because they involve critical drugs used to treat cancer, to provide required parenteral nutrition, or to address other serious medical conditions. Other shortages can result in providers prescribing second-line alternatives, which may be less effective and higher risk than first-line therapies. The number of drug shortages annually has tripled from 61 in 2005 to 178 in 2010. New shortages are occurring at the present time.

The scope of information FDA receives under the current regulations has not adequately enabled the Agency to distribute information on the discontinuance of certain drugs to physician and patient organizations as required by section 506C(c) and to work with manufacturers and other stakeholders to respond to potential drug shortages. There are significant non-quantifiable benefits of reporting information about discontinuances to FDA, including better enabling the Agency, manufacturers, healthcare providers, and patients to monitor and evaluate these discontinuances to mitigate or prevent potential drug shortages that can arise as a result of these discontinuances and that could otherwise lead to serious and widespread adverse health consequences. Any delay in the implementation of this rule would limit the ability of healthcare providers to respond to potential and actual shortages, and would reduce the ability of FDA to work with manufacturers and other stakeholders to prevent and mitigate drug shortages. In this instance, FDA has determined that an interim final rule is legally permissible and in the public's interest.

FDA has examined the impacts of the interim final rule under Executive Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct 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). This interim final rule is a significant regulatory action as defined by Executive Order 12866 and accordingly has been reviewed by the Office of Management and Budget.

The Regulatory Flexibility Act requires agencies to analyze regulatory options that would minimize any significant impact of a rule on small entities. The Agency projects that the interim final rule will not likely have a significant economic impact on a substantial number of small entities, but seeks comments on its analysis below.

Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires that Agencies prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $136 million, using the most current (2010) Implicit Price Deflator for the Gross Domestic Product. FDA does not expect this interim final rule to result in any 1-year expenditure that would meet or exceed this amount.

The interim final rule modifies the term “discontinuance” and clarifies the term “sole manufacturer” with respect to notifications of discontinuance of products that are life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition. The interim final rule will impose annual reporting costs of up to $15,064 in total. Non-quantifiable benefits include the value of the reported information about discontinuances in helping FDA, manufacturers, healthcare providers, and patients to monitor and evaluate these discontinuances to mitigate or prevent potential drug shortages that can arise as a result of these discontinuances and that could otherwise lead to serious and widespread adverse health consequences.

Current regulations require that a sole manufacturer of a drug product that is: (1) Life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition; (2) approved under section 505(b) or 505(j) of the Federal Food, Drug, and Cosmetic Act; and (3) not a product that was originally derived from human tissue and was replaced by a recombinant product report permanent discontinuances to FDA at least 6 months prior to the discontinuance. FDA can reduce the 6-month notification period if the applicant submits a certification of good cause, and the Agency finds good cause.

The purpose of the interim final rule is to define the terms “discontinuance” and “sole manufacturer.” In the interim final rule, “discontinuance” is defined as “any interruption in manufacturing of a drug product described in paragraph (b)(3)(iii)( a ) for sale in the United States that could lead to a potential disruption in supply of the drug product, whether the interruption is intended to be temporary or permanent.” “Sole manufacturer” is defined as “an applicant that is the only entity currently manufacturing a drug product of a specific strength, dosage form, or route of administration for sale in the United States, whether the product is manufactured by the applicant or for the applicant under contract with one or more different entities.” These definitions will require additional manufacturers to report to FDA a wider range of discontinuances that could potentially lead to a drug shortage than under the current, existing regulations.

While existing regulations require that only permanent discontinuances be reported to FDA, in practice, some manufacturers voluntarily notify FDA about temporary discontinuances. In the past 2 years, such notifications have enabled FDA to prevent 233 drug shortages by expediting review of new manufacturing sites, new suppliers, and specification changes. Nonetheless, recent data from FDA's Drug Shortages Program (DSP) indicate that the number of drug shortages has tripled from 2005 to 2010 (see figure 1 below, Ref. 5).

A survey conducted by the American Hospital Association (AHA) concluded that drug shortages are experienced by hospitals. For example, almost 100 percent of the 820 hospitals surveyed had experienced at least one drug shortage in the 6 months preceding the survey (Ref. 6). Another survey of 1,800 health practitioners conducted by the ISMP suggested that because drug shortages often result in the need for physicians to prescribe alternative therapies which may be less effective and higher risk than first-line treatments, drug shortages can lead to the potential for medication errors and poor patient outcomes as well as higher costs (Refs. 1 and 7).

The interim final rule is intended to increase the scope of information that FDA receives, enabling the Agency to: (1) Expand distribution of information on the discontinuance of certain drugs to appropriate physician and patient organizations as required by section 506C(c); and (2) work with manufacturers and other stakeholders to implement appropriate strategies to reduce, to the greatest extent possible, the public health impact of discontinuances of products that can lead to drug shortages. The public health purpose of section 506C and the Federal Food, Drug, and Cosmetic Act as a whole are best achieved with this modification to our existing regulations. Currently it appears that some manufacturers may lack sufficient incentives to either take steps to prevent certain shortages or to notify FDA early enough for the Agency to act (Ref. 7). By providing clear definitions, the interim final rule will address this concern and require all applicants to report appropriate information to the Agency in a timely manner.

The interim final rule modifies the term “discontinuance” and clarifies the term “sole manufacturer” with respect to postmarketing reporting requirements of products subject to section 506C. The clarification in terminology captures additional manufacturers as “sole manufacturers” by explicitly linking the definition of sole manufacturer to a specific strength, dosage form, or route of administration of a drug product. Requiring notification of temporary discontinuances and clarifying the term sole manufacturer will result in FDA receiving better and more timely information on a wider range of discontinuances. This increased reporting will enable FDA to distribute information on discontinuances to appropriate physician and patient organizations and to work with manufactures and other stakeholders to try to prevent a discontinuance from leading to a drug shortage, or to mitigate the impacts of an unavoidable drug shortage on patients and healthcare providers.

There is evidence that the negative impact of drug shortages could be significant. For instance, the American Society of Health System Pharmacists (ASHP) reported that annual labor costs to manage drug shortages are approximately $216 million in the United States (Ref. 7). Moreover, drugs in several major therapeutic classes are in shortage, including oncology products, antibiotics, and electrolyte/nutrition products. For example, statistics indicate that cancer alone affects more than 11 million people in the United States (Ref. 8). Therefore, the potential benefits of the interim final rule as a result of prevention or mitigation of these drug shortages could be substantial from both an economic and public health viewpoint. Because the shortage of even one critical drug can impact a large number of patients and healthcare providers, the potential benefits could be substantial even if the interim final rule only results in a small number of additional notifications of discontinuances to the Agency.

Currently, FDA receives one mandatory notification that meets the statutory and regulatory criteria of a section 506C discontinuance per year and zero certifications of good cause. In addition, there are several dozen voluntary submissions of information to FDA that are related to section 506C discontinuances but do not meet the applicable statutory criteria, as implemented by the current regulation. We note that as a result of FDA's letter to industry (Ref. 10), FDA has experienced a significant increase in the number of notifications. We estimate that the total number of manufacturers who would be required to notify us of a discontinuance under the interim final rule would be 80 per year. 1 However, the impact of the interim final rule represents the incremental impact, which is the difference between the total number of reports required by the interim final rule and the baseline, i.e., the estimated number of reports that we would receive without the interim final rule. We estimate that as a result of the interim final rule, we will receive an additional 9 to 24 notifications of section 506C discontinuances (both temporary and permanent discontinuances) and 2 to 5 associated certifications of good cause. In the 2007 Preamble, we estimated that it would take two hours to prepare a notification of discontinuance and 16 hours to prepare a certification of good cause (72 FR 58993 at 58999). Since neither the format nor the content of these submissions will change as a result of the interim final rule, we continue to estimate that it will take two hours to prepare a notification of discontinuance and 16 hours to prepare a certification of good cause. We estimate that it will take longer to prepare a certification of good cause than a notification of discontinuance because preparing a certification of good cause requires a detailed narrative justifying a reduction in the notification period, which is more labor intensive than the simpler notification of discontinuance.

Notifications are generally prepared and submitted by a regulatory affairs manager. Thus, labor hours are valued using the median hourly wage for Management Occupations (occupation code 11-0000) in Pharmaceutical and Medicine Manufacturing (North American Industry Notification, NAICS, code 325400) as reported by the Bureau of Labor Statistics 2010 Employment Occupational Statistics (Ref. 9). The median hourly wage is $117, which is adjusted for benefits and overhead.

The estimated cost is $234 ($117 × 2 hours) per notification of discontinuance, and $1,872 ($117 × 16 hours) per certification of good cause. In table 1 below we present the estimated costs. The estimated annual cost of the interim final rule is between $5,850 and $15,064.

The interim final rule will result in the submission of additional notifications to FDA of a discontinuance of a drug product subject to section 506C. As noted in FDA's recent report on medical product shortages (Ref. 5), any system that increases reporting must ensure that, in the pursuit of more “signal,” FDA is not overwhelmed with “noise.” We welcome comments on how the notifications can be designed in line with this principle. Such an approach is consistent with Section 4 of Executive Order 13563, which calls upon agencies “to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public.” FDA identified the following alternatives to the interim final rule: (1) No change in regulation; and (2) publish guidance that encourages sole manufacturers (including manufacturers of specific strengths, dosage forms, and routes of administration) to notify FDA about temporary discontinuances of drug products subject to the rule, and (3) provide incentives for voluntary reporting.

A simple alternative would be to leave the current regulation unchanged. While this alternative may not impose additional costs on sole manufacturers of drug products subject to section 506C, the benefits of this option would be uncertain and would not provide any additional tools to reduce the number of product shortages.

FDA could draft additional guidance to encourage voluntary notification of upcoming discontinuances. A recent example is a FDA's letter to industry (Ref. 10). However, such communications and guidance cannot impose new regulatory requirements. Without this regulation defining which manufacturers are required to notify FDA about both temporary and permanent discontinuances of drug products subject to section 506C, FDA may not have adequate information to distribute to physician and patient organizations and to work effectively with manufacturers and other stakeholders to better prevent and mitigate drug shortages.

It may be possible to develop a system of incentives to encourage increased reporting on a voluntary basis. FDA welcomes comments from the public on how such a system could be implemented, including the types of incentives that would advance the FDA's mission to protect the public health while encouraging additional reporting.

FDA has examined the economic implications of the interim final rule as required by the Regulatory Flexibility Act. The Agency projects that the interim final rule will not likely have a significant economic impact on a substantial number of small entities, but seeks comment on its analysis below.

The Small Business Administration (SBA) uses different definitions of what a small entity is for different industries. Using SBA standard size definitions, a firm categorized in NAICS code 315412 (Pharmaceutical Preparations) or NAICS code 325414 (Biological Products) is considered small if it employs fewer than 750 or 500 people, respectively (Ref. 11). The most currently available data from the 2007 Economic Census (Ref. 12) show that at least 92 percent of these establishments would be considered small by SBA standards. 2 We note that using data at the establishment level implicitly assumes that the typical manufacturing establishment is roughly equivalent to the typical small manufacturing firm.

We estimate that the cost per response as a percent of average sales for manufacturers in NAICS code 325412 could represent up to 0.002 percent of sales. The greatest impact is on establishments hiring fewer than 10 employees, where the cost per response as a percent of average sales ranges from 0.029 percent to 0.235 percent. The analysis of the effect on small versus large entities for NAICS 312314 is limited by data restrictions imposed to safeguard the confidentially of some establishments. Consequently, for NAICS code 312314 the average value of shipments is only presented for all establishments. We estimate that the cost per response as a percent of average sales in this industry is between 0.001 percent and 0.004 percent (see table 2). Therefore, the Agency concludes that this rule will not likely have a significant impact on a substantial number of small entities, but we request comments on our analysis.

In this section, we identify alternatives that would present reductions in costs to small entities.

Alternative 1: Exempt Small-sized Entities: Exempting small-sized businesses from the interim final rule would reduce the economic impact to small businesses by up to 0.235 percent of average sales. However, not imposing these notification requirements on drug products subject to section 506C could exacerbate the increasing trend in drug shortages that affect a substantial number of patients and healthcare providers. Moreover, these reporting requirements enable FDA to distribute information to physician and patient organizations, to assess potential drug shortages, and to evaluate mitigation strategies. Thus, exempting small business entities may in the long-term lead to high social costs associated with outcomes such as worsening of conditions for patients for whom these products are necessary.

Alternative 2: Extend the Compliance Period for Small Businesses: An alternative to reduce costs would be to extend the compliance period for small-sized entities. While a longer compliance period may enable small businesses to reduce labor costs, it would delay FDA's receipt of notices of discontinuance and limit the Agency's ability to distribute information to physician and patient organizations as required by section 506C(c), to assess potential drug shortages, and to work with manufacturers and other stakeholders to prevent or mitigate shortages.

This interim final rule contains information collection provisions that are subject to review by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (the PRA). The title, description, and respondent description of these provisions are shown below with an estimate of the annual reporting burden. Included in the estimate is the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing each collection of information.

FDA invites comments on: (1) Whether the proposed collections of information are necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collections of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information to be collected; and (4) ways to minimize the burden of the collections of information on respondents, including through the use of automated collection techniques, when appropriate, or other forms of information technology.

Title: Applications for Food and Drug Administration Approval to Market a New Drug; Revision of Postmarketing Reporting Requirements—Discontinuance.

Description: Sections 314.81(b)(3)(iii) and 314.91 of FDA's regulations (“§ 314.81(b)(3)(iii)” and “§ 314.91”, respectively) implement section 506C. Section 314.81(b)(3)(iii) requires entities who are the sole manufacturers of certain drug products to notify us at least 6 months before discontinuance of manufacture of the product. For the regulations to apply, a product must meet the following three criteria:

1. The product must be life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition;

2. The product must have been approved by FDA under section 505(b) or 505(j) of the Federal Food, Drug, and Cosmetic Act; and

3. The product must not have been originally derived from human tissue and replaced by a recombinant product.

Under § 314.81(b)(3)(iii)( c ), we will publicly disclose information about drug products subject to section 506C that are to be discontinued. Section 314.91 allows us to reduce the 6-month notification period if we find that good cause exists for the reduction. A manufacturer may request that we reduce the notification period by certifying that good cause for the reduction exists.

In the October 18, 2007 final rule (72 FR 58993), we added §§ 314.81(b)(3)(iii) and 314.91 to our regulations. Sections 314.81(b)(3)(iii) and 314.91 require two new reporting requirements to FDA that are subject to OMB approval under the PRA: Notification of Discontinuance and Certification of Good Cause. The interim final rule adds two new definitions to § 314.81(b)(3)(iii): “discontinuance” and “sole manufacturer.” The interim final rule clarifies the scope of manufacturers required to report and expands the range of circumstances required to be reported to the Agency under § 314.81(b)(3)(iii), but does not change the substantive content of the reports required to be submitted to the Agency. This PRA analysis covers the information collection resulting from the October 18, 2007 final rule and also includes our estimates of how the number of Notifications of Discontinuance and Certifications of Good Cause may increase as a result of this interim final rule. Accordingly, the estimates included in the Analysis of Impacts will not directly match the estimates in the PRA analysis because the PRA analysis represents an estimate of the total reporting burden under §§ 314.81(b)(3)(iii) and 314.91, while the Analysis of Impacts examines only the increased costs and benefits as a result of the interim final rule.

Under § 314.81(b)(3)(iii), at least 6 months before a sole manufacturer intends to discontinue manufacture of a drug product subject to section 506C, the manufacturer must send us notification of the discontinuance. The notification of discontinuance generally contains the name of the manufacturer, the name of the product to be discontinued, the reason for the discontinuance, and the date of discontinuance. We will work with relevant manufacturers during the 6-month notification period to help minimize the effect of the discontinuance on patients and health care providers, and to distribute appropriate information about the discontinuance to physician and patient organizations. The interim final rule adds definitions of “discontinuance” and “sole manufacturer” to § 314.81(b)(3)(iii). The inclusion of these definitions expands notification requirements under § 314.81(b)(3)(iii) to additional discontinuance circumstances and clarifies the scope of manufacturers who must report discontinuances. The interim final rule also requires that notifications of discontinuance be submitted either electronically or by telephone according to instructions on FDA's Drug Shortage Web site at http://www.fda.gov/Drugs/DrugSafety/DrugShortages. This change ensures that the appropriate offices are timely notified of all relevant discontinuances. It also reflects existing practice for submitting notices of discontinuance, and reduces the burden on industry to submit multiple copies of the notification.

We may reduce the 6-month notification period if we find good cause for the reduction. As described in § 314.91, a manufacturer can request a reduction in the notification period by submitting written certification that good cause exists to the following designated offices: (1) The CDER Drug Shortage Coordinator at the address of the Director of CDER; (2) the CDER Drug Registration and Listing Team, Division of Compliance Risk Management and Surveillance in CDER; and (3) the director of either the CDER division or the CBER office that is responsible for reviewing the application. The following circumstances may establish good cause:

• A public health problem may result from continuation of manufacturing for the 6-month period (§ 314.91(d)(1));

• A biomaterials shortage prevents the continuation of manufacturing for the 6-month period (§ 314.91(d)(2));

• A liability problem may exist for the manufacturer if the manufacturing is continued for the 6-month period (§ 314.91(d)(3));

• Continuation of the manufacturing for the 6-month period may cause substantial economic hardship for the manufacturer (§ 314.91(d)(4));

• The manufacturer has filed for bankruptcy under chapter 7 or 11 of title 11, United States Code (§ 314.91(d)(5));

• The manufacturer can stop making the product but still distribute it to satisfy existing market need for 6 months (§ 314.91(d)(6)); or

• Other good cause exists for a reduction in the notification period (§ 314.91(d)(7)).

With each certification described previously, the manufacturer must describe in detail the basis for its conclusion that such circumstances exist. We require that the written certification that good cause exists be submitted to the offices identified previously to ensure that our efforts to address the discontinuance take place in a timely manner. The interim final rule makes no changes to the requirements or process for certification of good cause.

Description of Respondents: An applicant that is the sole manufacturer and who is discontinuing manufacture of a drug product that meets the following criteria: (1) Is life supporting, life sustaining, or intended for use in the prevention of a debilitating disease or condition; (2) was approved by FDA under section 505(b) or (j) of the Federal Food, Drug, and Cosmetic Act; and (3) was not originally derived from human tissue and replaced by a recombinant product.

Burden Estimate: Table 3 of this document provides an estimate of the annual reporting burden for notification of a product discontinuance and certification of good cause under §§ 314.81(b)(3)(iii) and 314.91, as amended by this interim final rule.

Notification of Discontinuance: Based on data collected from the CDER Drug Shortage Coordinator since December 17, 2007, when §§ 314.81(b)(3)(iii) and 314.91 went into effect, one manufacturer during each year reported to FDA a discontinuance of one drug product meeting the criteria of section 506C and its implementing regulations ( i.e., the drug product was approved under section 505(b) or (j) of the Federal Food, Drug, and Cosmetic Act, the drug product was “life-supporting, life-sustaining or intended for use in the prevention of a debilitating disease or condition,” the drug product was produced by a sole manufacturer, and the drug product was permanently discontinued). CDER's Drug Shortages Coordinator tracked 220 drug shortages between January and October of 2011. The Agency estimates that 30 percent (66) of these shortages would relate to discontinuances subject to mandatory reporting under section 506C as a result of the interim final rule. Adjusting to include an additional two months of reporting (November and December), we estimate that FDA will receive a total of 80 notifications of a discontinuance per year under section 506C, as amended by the interim final rule. Based on experience, a manufacturer submits only one notification of a discontinuance per year, thus the total number of manufacturers who would be required to notify us of a discontinuance would be 80. Therefore, the number of respondents is estimated to be 80. The hours per response is the estimated number of hours that a respondent would spend preparing the information to be submitted with a notification of product discontinuance, including the time it takes to gather and copy the statement. Based on experience in working with manufacturers to submit notifications under § 314.81(b)(3)(iii), we estimate that approximately 2 hours on average are needed per response. We do not expect the changes in the interim final rule to affect the number of hours per response. Therefore, we estimate that respondents will spend 160 hours per year notifying us of a product discontinuance under these regulations.

Certification of Good Cause: Based on data collected from the CDER drug shortage coordinator since 2007, one manufacturer each year reported a discontinuance of one drug product under section 506C and its implementing regulations. Each manufacturer has the opportunity under § 314.91 to request a reduction in the 6-month notification period by certifying to us that good cause exists for the reduction. The Agency has received no certifications of good cause since 2007. Although we expect we will receive an increase in the number of reports of discontinuances as a result of the changes in the interim final rule, because of the limited circumstances under which good cause can be requested or would be appropriately granted, we do not expect a correspondingly large increase in the number of manufacturers requesting a certification of good cause. We estimate that only 5 manufacturers will request a certification of good cause each year. Therefore, the number of respondents is estimated to be 5. The total annual responses are the total number of certifications of good cause that are expected to be submitted to us in a year. We estimate that the total annual responses will remain small, averaging one response per respondent. The hours per response is the estimated number of hours that a respondent spends preparing the detailed information certifying that good cause exists for a reduction in the notification period, including the time it takes to gather and copy the documents. We estimate that approximately 16 hours on average are needed per response. Therefore, we estimate that 80 hours will be spent per year by respondents certifying that good cause exists for a reduction in the 6- month notification period under § 314.91.

The Internal Revenue Code of 1986 (Code) provides for general non-recognition treatment for reorganizations described in section 368 of the Code. In addition to satisfying the statutory requirements of a reorganization, a transaction also must satisfy certain non-statutory requirements, such as continuity of interest (COI). COI requires that, in substance, a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization. A proprietary interest in the target corporation is preserved if, in a potential reorganization, it is exchanged for a proprietary interest in the issuing corporation, it is exchanged by the acquiring corporation for a direct interest in the target corporation enterprise, or it otherwise continues as a proprietary interest in the target corporation. See § 1.368-1(e)(1)(i).

On August 10, 2004, the IRS and the Treasury Department published a notice of proposed rulemaking (REG-129706-04, 2004-2 CB 479) in the Federal Register (69 FR 48429) (2004 proposed regulations) identifying certain circumstances in which the determination of whether a proprietary interest in the target corporation is preserved would be made by reference to the value of the issuing corporation's stock on the day before there is an agreement to effect the potential reorganization. Specifically, the 2004 proposed regulations provided that, in determining whether a proprietary interest in the target corporation is preserved, the consideration to be exchanged for the proprietary interests in the target corporation pursuant to a contract to effect the potential reorganization is valued on the last business day before the first date such contract is a binding contract (the Pre-Signing Date), if such consideration was fixed at the signing date (the signing date rule). On September 16, 2005, the IRS and the Treasury Department published final regulations (TD 9225, 2005-2 CB 716) in the Federal Register (70 FR 54631) (2005 final regulations) that retained the general framework of the 2004 proposed regulations but made several modifications in response to comments received regarding the proposed regulations. After consideration of comments relating to the 2005 final regulations, the IRS and the Treasury Department published temporary (TD 9316, 2007-1 CB 962) and proposed (REG-146247-06, 2007-1 CB 977) regulations in the Federal Register (72 FR 12974 and 72 FR 13058 respectively) (the 2007 temporary regulations). The 2007 temporary regulations generally narrowed the definition of fixed consideration, and accordingly, limited the application of the signing date rule. The preamble explained that the signing date rule is based on the principle that, where a binding contract provides for fixed consideration, the target corporation shareholders can generally be viewed as being subject to the economic fortunes of the issuing corporation as of the signing date. However, if the contract does not provide for fixed consideration, the signing date value of the issuing corporation stock is not relevant for purposes of determining the extent to which a proprietary interest in the target corporation is preserved.

On March 17, 2010, the IRS released Notice 2010-25 (the Notice), 2010-1 CB 527. Notice 2010-25 acknowledged that the 2007 temporary regulations would, as required by sunset provisions of section 7805(e)(2), expire on March 19, 2010. It also noted that proposed regulations (REG-146247-06, 2007-1 CB 977) previously published in the Federal Register (72 FR 13058) had the same text as the expiring temporary regulations and would remain outstanding after that expiration. The Notice provided that, until the issuance of new regulations, taxpayers could choose, as long as a specified condition of consistency among parties was satisfied, to apply the rules in the proposed regulations. The ability of taxpayers to elect to apply the rules of the proposed regulations, as provided in the Notice, is incorporated into § 1.368-1(e)(9)(ii), the effective/applicability date of these final regulations. See § 601.601(d)(2)(ii)( b ).

These final regulations adopt the 2007 temporary regulations with only minor changes. First, questions were raised concerning whether a contract can provide for fixed consideration under the general definition of fixed consideration if the contract provides for a shareholder election. These final regulations clarify that a shareholder election does not prevent a contract from satisfying the general definition of fixed consideration if that requirement is otherwise met. Second, Example 9 is modified to address a more typical fact pattern.

In response to comments regarding the application of the signing date rule and after further consideration of the purpose and operation of that rule, the IRS and the Treasury Department have proposed a regulation, published elsewhere in this issue of the Federal Register , under which application of the signing date principles would be expanded. That notice of proposed rulemaking (REG-124627-11) also requests comments regarding the propriety of applying signing date principles more generally to transactions in which the target corporation shareholders, pursuant to a binding contract to effect a potential reorganization, become subject to the economic fortunes of issuing corporation consideration between the signing date and the closing date. In these cases, a more liberal application of signing date principles may result in valuing issuing corporation consideration at one or more dates between the signing date and the closing date.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13565. 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 this regulation and, because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

The principal author of these final regulations is Richard Starke of the Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and the Treasury Department participated in their development.

Background

On February 28, 2008, the IRS and the Treasury Department published a notice of proposed rulemaking in the Federal Register (REG-124590-07, 2008-16 IRB 801, 73 FR 10716, as corrected at 73 FR 20201), which proposed amendments to § 1.954-3, including rules that addressed the application of the section 954(d)(2) branch rules under the foreign base company sales income (FBCSI) rules. Written comments were received in response to the notice of proposed rulemaking, and a public hearing on the proposed regulations was held on July 29, 2008. On December 29, 2008, the IRS and the Treasury Department published final and temporary regulations under section 954(d) (TD 9438, 73 FR 79334-01, as corrected at 74 FR 11843-01) in the Federal Register . On the same date, the IRS and the Treasury Department published a notice of proposed rulemaking (REG-150066-08, 2009-5 IRB 423, 73 FR 79421-01) in the Federal Register cross-referencing the temporary regulations. The temporary and proposed regulations address the treatment under the FBCSI rules of the sale by a CFC of personal property that is purchased, sold, manufactured, produced, constructed, grown or extracted by one or more branches of the CFC. Written comments were received, and are available at www.regulations.gov or upon request. A public hearing was not requested and none was held. This Treasury decision adopts the proposed regulation with the changes described below as a final regulation and removes the corresponding temporary regulations.

These regulations amend the provisions of § 1.954-3(b) that address the application of the FBCSI rules to CFCs with branches or similar establishments (branches), and, in particular manufacturing branches.

Section 954(d)(1) defines FBCSI to mean income derived by a CFC in connection with: (i) The purchase of personal property from a related person and its sale to any person; (ii) the sale of personal property to any person on behalf of a related person; (iii) the purchase of personal property from any person and its sale to a related person; or (iv) the purchase of personal property from any person on behalf of a related person, provided (in all of these cases) that the property is manufactured, produced, grown or extracted outside of the CFC's country of organization and is sold for use, consumption or disposition outside of such country. There are certain exceptions to the FBCSI rules, including an exception that applies if a CFC sells personal property that it manufactured, produced, constructed, grew or extracted. See section 954(d)(1)(A), § 1.954-3(a)(4).

Section 954(d)(2) applies the FBCSI rules to a CFC that has a branch outside the CFC's country of incorporation (branch rule). The branch rule applies if the CFC carries on purchasing, selling, manufacturing, producing, constructing, growing or extracting activities by or through the branch, and the carrying on of such activities has substantially the same tax effect as if the branch were a wholly-owned subsidiary of the CFC, as provided in regulations. If so, the branch and the remainder of the CFC will be treated as separate corporations for purposes of determining FBCSI of such CFC.

The “substantially same tax effect” determination is made pursuant to a tax rate disparity test set forth in § 1.954-3(b)(1)(i)( b ) and § 1.954-3(b)(1)(ii)( b ). With respect to a sales or purchase branch, the tax rate disparity test is applied by comparing the rate of tax imposed on the income derived from the purchasing or selling activities of the branch with the rate of tax that would apply if the income were earned by the remainder of the CFC. With respect to a manufacturing branch, the tax rate disparity test is applied by comparing the rate of tax imposed on the income derived from the purchasing and selling activities of the CFC with the rate of tax that would apply to such income under the laws of the country in which the manufacturing branch is located.

These final regulations provide guidance on the application of the branch rule, in particular with respect to a CFC that has multiple branches. For example, the regulations set forth rules on how to determine whether a CFC earns FBCSI if purchase and sales activities are conducted by multiple branches and if multiple branches are involved in the manufacture of either a single or multiple items of personal property that is sold by the CFC.

Section 1.954-3T(b)(1)(ii)( c )( 3 )( iii ) provides that if none of the branches or the remainder of a CFC independently satisfies the substantial contribution test, but the CFC as a whole made a substantial contribution, then for purposes of applying the tax rate disparity test, the location of manufacture, production or construction is the “tested manufacturing location” unless the “tested sales location” provided a “demonstrably greater” contribution. Comments were received seeking clarification on the meaning of the word “demonstrably” and expressing concern that it could be interpreted to provide an evidentiary rule regarding the standard of proof required with respect to the determination of the location of manufacture of an item pursuant to § 1.954-3T(b)(1)(ii)( c )( 3 )( iii ). The IRS and the Treasury Department did not intend the word “demonstrably” to refer to an elevated standard of proof. In order to eliminate uncertainty, the word “demonstrably” has been deleted from § 1.954-3(b)(1)(ii)( c )( 3 )( iii ).

Comments sought clarification of the rule in § 1.954-3T(b)(2)(ii)( a ) that generally provides for the grouping of branches that do not have tax rate disparity with a purchasing or selling branch, or with the remainder of the CFC treated as purchasing or selling on behalf of a manufacturing branch. This grouping rule applies for purposes of § 1.954-3T(b)(2)(ii), which sets forth the rules that apply after it has been determined that a branch and the remainder of a CFC will be treated as separate corporations. Comments suggested that this grouping rule could be interpreted to group not only the activities of the branches but also the income of those branches and recommended that the rule be clarified by specifically stating that the rule groups the “activities” of the relevant branches.

The rules in § 1.954-3T(b)(2)(ii) apply to determine whether the income of a branch or remainder of a CFC is FBCSI rather than to determine the amount of the income of the branch or remainder of the CFC. The purpose of this grouping rule is to allow a CFC to aggregate the activities of branches that do not have tax rate disparity with a sales or purchasing branch (or remainder) when applying the separate corporation analysis to determine whether the sales income of the sales or purchase branch (or remainder) is FBCSI. § 1.954-3(b)(1)(ii)( c )( 3 )( v ), Example 1. The IRS and the Treasury Department believe that the grouping rule in § 1.954-3T(b)(2)(ii)( a ) properly aggregates the activities of the relevant branches (or remainder). However, for clarity, the phrase “the activities of” was added to § 1.954-3(b)(2)(ii)( a ).

The final regulations delete paragraph ( d ) of § 1.954-3(b)(2)(ii), which provided that income that is FBCSI as a result of the application of § 1.954-3(b)(1)(i) (purchasing or selling branch rules) is not again classified as FBCSI as a result of the application of § 1.954-3(b)(1)(ii) (manufacturing branch rules). This paragraph is no longer needed as a result of the addition of the rule in § 1.954-3(b)(1)(ii)(c)(1), which provides that if one or more sales or purchasing branches are used in addition to a manufacturing branch, then only the manufacturing branch rules apply.

The IRS and the Treasury Department continue to study additional FBCSI issues, and are considering whether to issue additional guidance, including guidance regarding when a branch should be treated as a separate corporation under section 954(d)(2), and the scope of, and relationship between, FBCSI and foreign base company services income. The IRS and the Treasury Department welcome comments on these issues.

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. In addition, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply because the regulations do not impose a collection of information on small entities. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these final and temporary 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 Barbara E. Rasch of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

Paperwork Reduction Act

These temporary regulations are being issued without prior notice and public comment pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this reason, the collection of information contained in these regulations has been reviewed and pending receipt and evaluation of public comments, approved by the Office of Management and Budget under Control Number 1545-2195. Responses to this collection of information are mandatory.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The collection of information contained in these regulations is satisfied by filing Form 8938, “Statement of Specified Foreign Financial Assets,” OMB No. 1545-2195, with the respondent's income tax return.

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

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

This document contains amendments to the Income Tax Regulations (26 CFR part 1) for reporting specified foreign financial assets under section 6038D of the Internal Revenue Code (Code).

Section 6038D was enacted by section 511 of the HIRE Act. Section 6038D(a) requires an individual who holds any interest in a specified foreign financial asset during the taxable year to attach a statement to that individual's return of tax imposed by subtitle A of the Code to report the information identified in section 6038D(c), if the aggregate value of the specified foreign financial assets in which the individual holds an interest exceeds $50,000 for the taxable year, or such higher dollar amount as the Secretary may prescribe.

Section 6038D(b) defines specified foreign financial assets. For purposes of section 6038D, a specified foreign financial asset is any financial account maintained by a foreign financial institution and, to the extent not held in an account at a financial institution: (i) Any stock or security issued by any person other than a United States person; (ii) any financial instrument or contract held for investment that has an issuer or counterparty that is not a United States person; and (iii) any interest in a foreign entity.

Section 6038D(c) sets forth the information an individual must include on the statement reporting specified foreign financial assets. For a financial account, the name and address of the financial institution in which the account is maintained must be reported, as well as the account number. For any stock or security, the name and address of the non-U.S. issuer, as well as information necessary to identify the class or issue of which the stock or security is a part, must be reported. In the case of any other instrument, contract, or interest, the names and addresses of all issuers and counterparties must be reported, together with the information necessary to identify the instrument, contract, or interest. The maximum value of each specified foreign financial asset during the taxable year also must be reported.

An individual who fails to disclose the information required to be reported by section 6038D(c) is subject to a $10,000 penalty under section 6038D(d)(1). Section 6038D(d)(2) provides that if the failure to comply continues for more than 90 days after the day on which the Secretary mails notice of the failure to the individual, the individual must pay an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure to disclose continues after the expiration of the 90-day period. This continuation penalty is not to exceed $50,000 with respect to any such failure.

Under section 6038D(e), the aggregate value of any specified foreign financial assets in which an individual has an interest is presumed to exceed the reporting thresholds set forth in section 6038D(a) if the Secretary determines that the individual has an interest in one or more specified foreign financial assets and has not provided sufficient information to demonstrate the aggregate value of the assets. This presumption applies for purposes of assessing the penalties imposed under section 6038D.

Section 6038D(f) authorizes the Secretary to issue regulations or other guidance applying the provisions of section 6038D to any domestic entity as if the domestic entity were an individual, if the domestic entity is formed or availed of for the purposes of holding, directly or indirectly, specified foreign financial assets.

Section 6038D(g) provides that no penalty will be imposed by section 6038D for any failure to report that is shown to be due to reasonable cause and not due to willful neglect. A foreign law restriction, whether civil or criminal, on disclosing the information required to be reported is not reasonable cause.

Section 6038D(h) authorizes the Secretary to issue regulations or other guidance as may be necessary or appropriate to carry out the purposes of section 6038D. This guidance may include appropriate exceptions from reporting for nonresident aliens, bona fide residents of U.S. possessions, and classes of assets identified by the Secretary, such as assets subject to duplicative reporting requirements. The term “U.S. possession” means American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands, each of which is generally referred to as a U.S. territory in this explanation.

Section 6038D is effective for taxable years beginning after March 18, 2010 (the date of enactment of the HIRE Act). Notice 2011-55, 2011-29 IRB 53 (July 18, 2011), provides that an individual that has a taxable year that begins after March 18, 2010, and is required to attach a statement of specified foreign financial assets to an annual return to be filed prior to the issuance of Form 8938, “Statement of Specified Foreign Financial Assets,” is to satisfy his or her obligation under section 6038D for such taxable year by attaching Form 8938 for such taxable year to his or her next annual return required to be filed after the issuance of Form 8938. See § 601.601(d)(2)(ii)(b) of this chapter.

Section 1.6038D-1T sets forth the definitions of certain terms for purposes of section 6038D and the regulations. Section 1.6038D-2T provides rules for determining if a specified individual (as defined in § 1.6038D-1T(a)(2)) or a specified domestic entity (collectively referred to as a specified person) must file a Form 8938 with the specified person's annual return (as defined in § 1.6038D-1T(a)(11)).

For purposes of section 6038D, a specified person's annual return includes an annual federal income tax return of a specified individual or an annual federal income tax return or information return of a specified domestic entity filed with the Internal Revenue Service under section 876, 6011, 6012, 6013, 6031, or 6037, and the regulations . For example, a partnership that is a specified domestic entity is required to attach Form 8938 to its Form 1065, “U.S. Return of Partnership Income,” for the taxable year.

A specified person must file Form 8938 if the person has an interest in one or more specified foreign financial assets and those assets have an aggregate fair market value exceeding either $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year. Married specified individuals filing a joint annual return are not required to file Form 8938 unless the aggregate value of all of the specified foreign financial assets in which either spouse has an interest exceeds $100,000 on the last day of the taxable year or $150,000 at any time during the taxable year.

An individual residing outside the United States can reasonably be expected to have a greater amount of specified foreign financial assets for reasons unrelated to the policies underlying section 6038D. Accordingly, the regulations increase the reporting threshold of section 6038D(a) in the case of a specified individual who is a qualified individual under section 911(d)(1). The regulations provide that such a specified individual is not required to file Form 8938 unless the aggregate value of the specified foreign financial assets in which the specified individual has an interest exceeds $200,000 on the last day of the taxable year or $300,000 at any time during the taxable year. If married specified individuals file a joint annual return and either spouse is a qualified individual under section 911(d)(1), the regulations provide that they are not required to file Form 8938 unless the aggregate value of all of the specified foreign financial assets in which either spouse has an interest exceeds $400,000 on the last day of the taxable year or $600,000 at any time during the taxable year.

As discussed in section 6 of this explanation, certain specified foreign financial assets are excepted from the reporting obligations imposed under section 6038D. Assets reported by a specified person on certain other forms timely filed with the Internal Revenue Service are not required to be separately identified on Form 8938, but if a specified person is required to file Form 8938, the number of such other forms filed with the Internal Revenue Service must be reported on Form 8938. In addition, the value of specified foreign financial assets that qualify for this exception is included for purposes of determining whether the aggregate value of specified foreign financial assets in which a specified individual has an interest exceeds the applicable reporting threshold.

Another category of assets excepted from reporting are assets considered owned by a specified person that is treated as the owner of certain trusts. Additionally, certain assets held by a specified individual who is a bona fide resident of a U.S. territory are also excepted from reporting. Specified foreign financial assets that qualify for either of these two exceptions are not included for purposes of determining whether the aggregate value of specified foreign financial assets in which a specified person has an interest exceeds the applicable reporting threshold.

The Form 8938 reporting period is the taxable year for a specified individual who is a U.S. citizen, a resident alien, or a bona fide resident of a U.S. territory for the entire taxable year. The Form 8938 reporting period for a specified domestic entity is the entity's taxable year. The Form 8938 reporting period for a specified individual who is a U.S. citizen or resident alien for less than the entire taxable year is the portion of the taxable year for which the specified individual is a U.S. citizen or resident alien. The Form 8938 reporting period for a specified individual who is bona fide resident of Puerto Rico for less than the entire taxable year under § 1.937-1(f)(2)(ii) is the portion of the taxable year for which the specified individual is a U.S. citizen.

A specified person is not required to file Form 8938 for any taxable year for which the specified person is not required to file an annual return (for example, a Form 1040, “U.S. Individual Income Tax Return,” Form 1041, “U.S. Income Tax Return for Estates and Trusts,” Form 1120, “U.S. Corporation Income Tax Return,” Form 1120-S, “U.S. Income Tax Return for an S Corporation,” or Form 1065, “U.S. Return of Partnership Income”) with the Internal Revenue Service.

If a specified domestic entity is a member of an affiliated group of corporations that files a consolidated return, the Form 8938 of the specified domestic entity must be filed with the consolidated federal income tax return of the affiliated group.

For section 6038D purposes, a specified individual is a U.S. citizen, a resident alien of the United States (as determined under section 7701(b) and §§ 301.7701(b)-1 through 301.7701(b)-9 of this chapter), or a nonresident alien who has elected under section 6013(g) or (h) to be taxed as a U.S. resident. A resident alien who elects to be taxed as a resident of a foreign country pursuant to a U.S. income tax treaty's residency tie-breaker rules is a specified individual for purposes of section 6038D and the regulations.

In addition, certain nonresident aliens who are treated as residents under other sections of the Code are specified individuals for the purposes of section 6038D and the regulations . Under section 876 and § 1.876-1, nonresident alien individuals of the United States under section 7701(b) who are bona fide residents of Puerto Rico or a section 931 possession (as defined in § 1.931-1(c)(1)) are subject to tax under sections 1 and 55 in generally the same manner as a U.S. resident. Therefore, the rules under section 6038D apply to a nonresident alien who is a bona fide resident of Puerto Rico or American Samoa in the same manner as they apply to a U.S. citizen or resident.

As noted in this preamble, a specified person is not required to file Form 8938 if the specified person is not required to file an annual return with the Internal Revenue Service. With respect to bona fide residents of U.S. territories, this rule means that a bona fide resident of a U.S. territory has a filing requirement under section 6038D and the regulations only if he or she is required to file a federal income tax return for the taxable year. In general, bona fide residents of the U.S. Virgin Islands and U.S. territories to which section 935 applies (currently, Guam and the Northern Mariana Islands) are not required to file a federal income tax return provided they correctly report and pay tax on their worldwide income to their U.S. territory taxing authority. Bona fide residents of Puerto Rico or a section 931 possession (currently, American Samoa) generally are required to file a federal income tax return with the Internal Revenue Service only if they have income from sources without the relevant U.S. territory, because sections 931(a) and 933 generally exclude from gross income any income derived from sources within the relevant U.S. territory. Section 6038D and these regulations generally require only bona fide residents of Puerto Rico or a section 931 possession that are required to file a federal income tax return with the Internal Revenue Service to file a Form 8938 with the Internal Revenue Service.

For section 6038D purposes, a specified person is generally considered to have an interest in a specified foreign financial asset if any income, gains, losses, deductions, credits, gross proceeds, or distributions attributable to the holding or disposition of the asset are or would be required to be reported, included, or otherwise reflected on the specified person's annual return filed with the Internal Revenue Service (even if no income, gains, losses, deductions, credits, gross proceeds, or distributions are attributable to the asset for a particular taxable year).

For purposes of section 6038D and the regulations, a parent that makes an election under section 1(g)(7) to include certain unearned income of a child in the parent's gross income required to be reported for the taxable year has an interest in any specified foreign financial asset held by the child.

A specified person that is the owner of an entity disregarded as an entity separate from its owner (as provided in § 301.7701-2(c)(2)(i) of this chapter) (disregarded entity) is treated as having an interest in any specified foreign financial assets held by the disregarded entity. A specified person that is treated as the owner of a trust or any portion of a trust under sections 671 through 679 is treated as having an interest in any specified foreign financial assets held by the trust or by the portion of the trust that the specified person owns, except as described in section 6(B) of this explanation. A specified person is not treated as having an interest in any specified foreign financial assets held by a partnership, corporation, trust (except as described in this explanation), or estate solely as a result of the specified person's status as a partner, shareholder, or beneficiary.

A joint interest in a specified foreign financial asset is subject to reporting under section 6038D and § 1.6038D-2T(a) by each specified person that is a joint owner of the asset. In general, each joint owner includes the full value of the jointly owned asset for purposes of determining whether the aggregate value of all specified foreign financial assets in which the joint owner has an interest exceeds the reporting thresholds set forth in § 1.6038D-2T(a).

1. Married individuals filing jointly.

Married specified individuals who file a joint annual return for the taxable year must fulfill their reporting requirements under section 6038D and § 1.6038D-2T(a) by filing a single Form 8938 that reports all of the specified foreign financial assets in which either married specified individual has an interest. A specified foreign financial asset that is jointly owned by married specified individuals or a specified foreign financial asset held by a child for which the married specified individuals have made an election under section 1(g)(7) is reported once on the single Form 8938. Married specified individuals who file a joint annual return include the value of a specified foreign financial asset that they jointly own together or a specified foreign financial asset held by a child for which they have made an election under section 1(g)(7) only once in determining whether the aggregate value of all of the specified foreign financial assets in which either married specified individual has an interest exceeds the appropriate reporting threshold set forth in § 1.6038D-2T(a).

2. Married individuals filing separately.

A married specified individual who files a separate annual return for the taxable year must fulfill the reporting requirements under section 6038D and § 1.6038D-2T(a) by filing a separate Form 8938 that reports all of the specified foreign financial assets in which the married specified individual has an interest, including assets jointly owned with the married specified individual's spouse. A married specified individual that files a separate annual return and whose spouse is a specified person includes only one-half of the value of a specified foreign financial asset that the married specified individual jointly owns with his or her spouse in determining whether the married specified individual has an interest in specified foreign financial assets the aggregate value of which exceeds the appropriate reporting threshold set forth in § 1.6038D-2T(a).

For purposes of section 6038D, specified foreign financial assets include financial accounts maintained by foreign financial institutions, as well as certain other foreign financial assets or instruments. An asset or instrument may be a specified foreign financial asset subject to reporting under section 6038D and the regulations even if the asset or instrument does not have a positive value.

For purposes of section 6038D, a financial account is defined by reference to section 1471(d)(2) and the regulations.

A foreign financial institution is defined by reference to section 1471(d)(4). For this purpose, a foreign financial institution is a financial institution (as determined under section 1471(d)(5)) that is a foreign entity (as determined under section 1473(5)). Under section 1471(d)(5), a financial institution is any entity that—

(1) Accepts deposits in the ordinary course of a banking or similar business;

(2) Holds financial assets for the account of others as a substantial portion of its business; or

(3) Is engaged, or holds itself out as being engaged, primarily in the business of investing, reinvesting, or trading in securities (as defined in section 475(c)(2) without regard to the last sentence thereof), partnership interests, commodities (as defined in section 475(e)(2)), or any interest (including a futures or forward contract or option) in such securities, partnership interests, or commodities.

Notwithstanding that a financial institution organized under the laws of a U.S. territory is not generally a foreign financial institution for purposes of section 1471(d)(4), for purposes of section 6038D and the regulations, a specified foreign financial asset includes a financial account maintained by a financial institution organized under the laws of a U.S. territory. Accordingly, such an account must be reported, except when owned by a bona fide resident of the relevant U.S. territory.

A financial account maintained by a U.S. payor as defined in § 1.6049-5(c)(5)(i) (including assets held in such an account) is not a specified foreign financial asset for purposes of section 6038D and the regulations thereunder. For example, a specified person is not required to report a financial account maintained by a U.S. branch of a foreign financial institution described in § 1.1441-1(b)(2)(iv).

An asset held in a financial account maintained by a foreign financial institution is not required to be reported on Form 8938 separately from the reported financial account in which the asset is held. The value of an asset held in a financial account maintained by a foreign financial institution is included in determining the maximum value of that account.

Under § 1.6038D-3T(b), specified foreign financial assets also include certain assets that are held outside of a financial account maintained by a financial institution. Specifically, a specified foreign financial asset includes any asset that is held for investment and is described in one or more of the following three categories: Stock or securities issued by a person other than a U.S. person; a financial instrument or contract issued by a person other than a U.S. person or that has a counterparty that is a person other than a U.S. person; and any interest in a foreign entity. For these purposes, a U.S. person is defined under section 7701(a)(30). Whether an entity is a foreign entity is determined under section 1473(5). These three categories are broad and overlap in certain cases such that an asset not held in a financial account may be within more than one of the statutory categories of section 6038D(b)(2). For example, stock issued by a foreign corporation is stock that is issued by a person other than a U.S. person, and is also an interest in a foreign entity.

An asset not held in an account maintained by a financial institution is held for investment for purposes of section 6038D and the regulations if the asset is not used or held for use in the specified person's trade or business. For purposes of determining whether an asset is used or held for use in the specified person's trade or business, the regulations apply principles based on the asset-use test of § 1.864-4(c)(2), with certain modifications. The regulations provide that stock is never considered to be used or held for use in a trade or business in applying the trade or business exception. The Department of the Treasury and the Internal Revenue Service believe this rule is appropriate given the broad exception for section 475 mark-to-market accounting discussed in section 2(D) of this explanation, and the exception from reporting for stock held in a financial account maintained by a foreign financial institution (provided the financial account is reported on Form 8938). The Department of the Treasury and the Internal Revenue Service request comments that concern the treatment of stock under these regulations and, more generally, what refinements, if any, to the regulation's trade or business standard would facilitate the implementation of the trade or business reporting exception.

A beneficial interest in a foreign trust or a foreign estate is not a specified foreign financial asset of a specified person unless the specified person knows or has reason to know based on readily accessible information of the interest. Receipt of a distribution from the foreign trust or foreign estate is deemed for this purpose to be actual knowledge of the interest.

The following assets are not specified foreign financial assets—

(1) An asset for which a specified person uses mark-to-market accounting under section 475;

(2) A financial account maintained by a foreign financial institution for which the specified person uses mark-to-market accounting under section 475 for all of the holdings in the account; and

(3) An interest in a social security, social insurance, or other similar program of a foreign government.

A specified person required to report on Form 8938 must provide the following information with regard to each specified foreign financial asset:

(A) In the case of a financial account maintained by a foreign financial institution, the name and address of the foreign financial institution and the account number of the account;

(B) In the case of stock or a security, the name and address of the issuer, and information that identifies the class or issue of which the stock or security is a part;

(C) In the case of a financial instrument or contract held for investment, information that identifies the financial instrument or contract, including the names and addresses of all issuers and counterparties;

(D) In the case of an interest in a foreign entity, information that identifies the interest, including the name and address of the entity;

(E) The maximum value of the specified foreign financial asset during the portion of the taxable year in which the specified person has an interest in the asset;

(F) In the case of a financial account that is a depository or custodial account under section 1471(d)(2), whether such financial account was opened or closed during the taxable year;

(G) The date, if any, on which the specified foreign financial asset, other than a financial account that is a depository or custodial account under section 1471(d)(2), was either acquired or disposed of (or both) during the taxable year;

(H) The amount of any income, gain, loss, deduction, or credit recognized for the taxable year with respect to the reported specified foreign financial asset, and the schedule, form, or return filed with the Internal Revenue Service on which the income, gain, loss, deduction, or credit, if any, is reported or included by the specified person;

(I) The foreign currency exchange rate and, if the source of such rate is other than as described in § 1.6038D-5T(d)(1), the source of the rate used to determine the specified foreign financial asset's U.S. dollar value, including maximum value; and

(J) For a specified foreign financial asset excepted from reporting on Form 8938 under § 1.6038D-7T(a), the specified person must report the number of each type of form on which the asset is reported directly (for example, Form 3520, “Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,” Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner,” Form 5471, “Information Return of U.S. Persons With Respect To Certain Foreign Corporations,” Form 8621, “Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund,” Form 8865, “Return of U.S. Persons With Respect To Certain Foreign Partnerships,” or Form 8891, “U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans.”)

The value of a specified foreign financial asset must be determined both for purposes of determining if the aggregate value of the specified foreign financial assets in which a specified person holds an interest exceeds the reporting thresholds set forth in § 1.6038D-2T(a) and for purposes of reporting the maximum value of a specified foreign financial asset on Form 8938 as required by § 1.6038D-4T(a)(5). Under § 1.6038D-5T, the value of a specified foreign financial asset for both of these purposes generally is the asset's fair market value. The maximum value of a specified foreign financial asset is the asset's highest fair market value during the taxable year, except as otherwise provided in § 1.6038D-5T, and must be reported on Form 8938 in U.S. dollars. If the maximum value of a specified foreign financial asset is less than zero, the value of the specified foreign financial asset is treated as zero for the purposes of determining the aggregate value of specified foreign financial assets in which a specified person has an interest and determining the maximum value of a specified foreign financial asset required to be reported on Form 8938.

If a specified foreign financial asset is denominated in a foreign currency, the value of the asset for purposes of determining both the aggregate value of specified foreign financial assets in which a specified person holds an interest and the maximum value of the specified foreign financial asset is first determined in the foreign currency prior to conversion into U.S. dollars (that is, independently of exchange rate fluctuations during the year). The asset's foreign currency value is then converted into U.S. dollars at the taxable year-end spot rate for converting the foreign currency into U.S. dollars (that is, the rate to purchase U.S. dollars). The U.S. Treasury Department's Financial Management Service foreign currency exchange rate is to be used to convert the value of a specified foreign financial asset into U.S. dollars. If no U.S. Treasury Department Financial Management Service foreign currency exchange rate is available, another publicly available foreign currency exchange rate may be used to determine an asset's maximum value, but the use of such rate must be disclosed on Form 8938.

The maximum value of a financial account means a reasonable estimate of the maximum value of the holdings of the financial account at any time during the taxable year. Periodic account statements provided at least annually may be relied upon for reporting a financial account's maximum value absent actual knowledge or reason to know based on readily accessible information that the statements do not reflect a reasonable estimate of the maximum account value during the taxable year.

Except as described in sections 5(D) and 5(E) of this explanation, for purposes of determining the maximum value of a specified foreign financial asset other than a financial account maintained with a foreign financial institution, a specified person may treat the asset's fair market value on the last day during the taxable year on which the specified person has an interest in the asset as the maximum value of the asset. The specified person may not use this valuation approach if the specified person has actual knowledge or reason to know based on readily accessible information that the fair market value determined as of such date does not reflect a reasonable estimate of the maximum value of the asset during the year (for example, because there is a reason to know that the asset's value declined significantly during the year).

A specified person may determine the fair market value of a specified foreign financial asset based on information publicly available from reliable financial information sources or from other verifiable sources. Even if there is no information from reliable financial information sources regarding the fair market value of a reported asset, the regulations do not require a specified person to obtain an appraisal by a third party in order to reasonably estimate the asset's fair market value.

If a specified person is a beneficiary of a foreign trust, the maximum value of the specified person's interest in the trust is the sum of the fair market value, determined as of the last day of the taxable year, of all of the currency or other property distributed from the foreign trust during the taxable year to the specified person, plus the value as of the last day of the taxable year of the specified person's right as a beneficiary to receive mandatory distributions from the foreign trust as determined under section 7520.

For purposes of determining the aggregate value of specified foreign financial assets in which a specified person has an interest, if the specified person does not know or have reason to know based on readily accessible information the fair market value of the person's interest in a foreign trust during the taxable year, the value to be included in determining the aggregate value of the specified foreign financial assets is the maximum value of the specified person's interest in the foreign trust.

The maximum value of a specified person's interest in a foreign estate, foreign pension plan, or a foreign deferred compensation plan is the fair market value, determined as of the last day of the taxable year, of the specified person's beneficial interest in the assets of the foreign estate, foreign pension plan, or foreign deferred compensation plan. If the specified person does not know or have reason to know based on readily accessible information such fair market value, the maximum value to be reported is the fair market value, determined as of the last day of the taxable year, of the currency and other property distributed during the taxable year to the specified person as a beneficiary or participant.

For purposes of determining the aggregate value of specified foreign financial assets in which a specified person has an interest, if the specified person does not know or have reason to know based on readily accessible information the fair market value of the person's interest in a foreign estate, foreign pension plan, or foreign deferred compensation plan during the taxable year, the value to be included in determining the aggregate value of the specified foreign financial assets is the fair market value, determined as of the last day of the taxable year, of the currency and other property distributed during the taxable year to the specified person as a beneficiary or participant.

Except for certain married specified individuals who jointly own a specified foreign financial asset with a spouse, a specified person that jointly owns a specified foreign financial asset must use the value of the entire asset, and not the value of the specified person's separate interest, for purposes of determining whether the reporting thresholds set forth in § 1.6038D-2T(a) are exceeded. A specified person, including a married specified individual, that jointly owns a specified foreign financial asset must report the maximum value of the entire asset during the portion of the taxable year that the specified person has an interest in the asset. Married specified individuals that jointly own a specified foreign financial asset and that file a joint annual income return tax are only required to report the asset once on the single Form 8938 filed with their return.

The notice of proposed rulemaking accompanying these regulations (REG-130302-10) includes Prop. Reg. § 1.6038D-6, which applies section 6038D to certain domestic entities that are formed or availed of for purposes of holding, directly or indirectly, specified foreign financial assets. The Department of the Treasury and the Internal Revenue Service anticipate that Prop. Reg. § 1.6038D-6 will be issued as a final regulation during 2012 and will apply to taxable years beginning after December 31, 2011. Until Prop. Reg. § 1.6038D-6 is issued as a final regulation, no domestic entity is required to file Form 8938 to report specified foreign financial assets with its annual return.

A specified person required to file Form 8938 with the Internal Revenue Service is not required to report a specified foreign financial asset on Form 8938 if the asset is reported or reflected on a Form 3520 (in the case of a specified person who is the beneficiary of a foreign trust), Form 5471, Form 8621, Form 8865, or Form 8891 timely filed with the Internal Revenue Service by the specified person for the taxable year, and the Form 8938 indicates the filing of the form on which the asset is reported.

A specified person required to file Form 8938 that is treated as an owner of a foreign trust or any portion of such a trust under sections 671 through 679 is not required to report any specified foreign financial asset held by the trust on Form 8938 provided the specified person reports the trust on a Form 3520 timely filed with the Internal Revenue Service for the taxable year, the trust timely files Form 3520-A with the Internal Revenue Service for the taxable year, and the Form 8938 filed by the specified person for the taxable year indicates the filing of the Form 3520 and the Form 3520-A.

A specified person that is treated as an owner of a domestic liquidating trust described in § 301.7701-4(d) of this chapter created pursuant to a court order issued in a bankruptcy under Chapter 7 (11 U.S.C. 701 et seq. ) or a confirmed plan under Chapter 11 (11 U.S.C. 1101 et seq. ) of the Bankruptcy Code, a domestic widely held fixed investment trust under § 1.671-5, or any portion of such a trust under sections 671 through 679 is not required to file Form 8938 to report any specified foreign financial asset held by the trust.

As described in section 1(A) of this explanation, bona fide residents of the U.S. Virgin Islands and U.S. territories to which section 935 applies (currently, Guam and the Northern Mariana Islands) generally are not required to file a federal income tax return and, therefore, generally would not be required to file a Form 8938 with the Internal Revenue Service. By contrast, certain bona fide residents of Puerto Rico or a section 931 possession as defined in § 1.931-1(c)(1) (currently, American Samoa) who have income from sources outside their U.S. territory of residence may be required to file a federal income tax return; thus, the reporting requirements of section 6038D and the regulations may apply to such persons.

No reporting is required by a bona fide resident of a U.S. territory with respect to certain specified foreign financial assets that have certain connections to the U.S. territory of which the individual is a bona fide resident. Reporting is not required with respect to a financial account maintained by a financial institution organized under the laws of the U.S. territory of which the specified person is a bona fide resident. Reporting also is not required with respect to a financial account maintained by a branch of a financial institution not organized under the laws of the U.S. territory of which the specified person is a bona fide resident, if the branch is subject to the same income tax and information reporting requirements applicable to a financial institution organized under the laws of the U.S. territory.

Reporting is also not required with respect to stock or securities or any other interest in an entity organized under the laws of the U.S. territory of which the specified person is a bona fide resident. Similarly, reporting is not required with respect to a financial instrument or contract held for investment if the issuer or counterparty is: (i) An entity organized under the laws of the U.S. territory of which the specified person is a bona fide resident; or (ii) a bona fide resident of the U.S. territory of which the specified person is a bona fide resident.

These reporting exceptions for certain U.S. territory-connected assets do not apply to assets held by a U.S. citizen or resident who is not a bona fide resident of any U.S. territory or an individual who is a bona fide resident of a U.S. territory other than the one to which the assets are connected.

Reporting on Form TD F 90-22.1 is required under Title 31 (31 U.S.C. 5314) for other law enforcement purposes in addition to tax administration. As a consequence, different policy considerations apply to Form 8938 and FBAR reporting. These are reflected in the different categories of persons required to file Form 8938 and the FBAR, the different filing thresholds for Form 8938 and FBAR reporting, and the different assets (and accompanying information) required to be reported on each form. Although certain information may be reported on both Form 8938 and the FBAR, the information required by the forms is not identical in all cases, and reflects the different rules, key definitions (for example, “financial account”), and reporting requirements applicable to Form 8938 and FBAR reporting.

These differing policy considerations were recognized during the passage of the HIRE Act and the enactment of section 6038D, and the intention to retain FBAR reporting notwithstanding the enactment of section 6038D was specifically noted in the Technical Explanation Of The Revenue Provisions Contained In Senate Amendment 3310, The “Hiring Incentives To Restore Employment Act,” Under Consideration by the Senate (Staff of the Joint Comm. on Taxation, JCX-4-10 (February 23, 2010)) (Technical Explanation) accompanying the HIRE Act. The Technical Explanation states that “[n]othing in this provision [section 511 of the HIRE Act enacting section 6038D] is intended as a substitute for compliance with the FBAR reporting requirements, which are unchanged by this provision.” (Technical Explanation at p. 60). Against this background, reporting on Form 8938 and the FBAR is not duplicative and both forms must be filed, if required.

If a specified person fails to file a Form 8938 that includes the information required by section 6038D(c) and § 1.6038D-4T with respect to any taxable year at the time and in the manner described in section 6038D(a) and § 1.6038D-2T, a penalty of $10,000 will apply to that specified person under section 6038D(d) and § 1.6038D-8T. If any such failure continues for more than 90 days after the day on which the Commissioner or his delegate mails a notice of the failure to the specified person required to file the Form 8938, the specified person is subject to an additional penalty of $10,000 for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. The additional (or continuation) penalty is limited to a maximum of $50,000 for each such failure.

Married specified individuals who file a joint annual return and fail to file a required Form 8938, “Statement of Specified Foreign Financial Assets,” that includes the information required by section 6038D(c) and § 1.6038D-4T with respect to any taxable year at the time and in the manner described in section 6038D(a) and § 1.6038D-2T are subject to penalties under section 6038D(d) and § 1.6038D-8T as if the married specified individuals are a single specified person. The liability of married specified individuals who file a joint annual return with respect to penalties under this section is joint and several.

For the purpose of assessing the penalties for failure to disclose, if the Commissioner or his delegate determines that a specified person has an interest in one or more specified foreign financial assets, and the specified person has not provided sufficient information to demonstrate the aggregate value of the assets upon request by the Secretary, then the aggregate value of the assets is treated as being in excess of the applicable reporting threshold set forth in § 1.6038D-2T(a).

If a specified person shows that the failure to report the information required under section 6038D and § 1.6038D-4T is due to reasonable cause and not due to willful neglect, no penalty will be imposed under section 6038D(d) or § 1.6038D-8T. To show that the failure to report is due to reasonable cause and not due to willful neglect, the specified person must make an affirmative showing of all the facts alleged as reasonable cause for the failure to report.

The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances. For this purpose, the fact that a foreign jurisdiction would impose a civil or criminal penalty on the specified person (or any other person) for disclosing the required information is not reasonable cause.

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. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to the Special Analyses section of the preamble to the cross-referenced notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register . Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Joseph S. Henderson, Office of Associate Chief Counsel (International). However, other personnel from the Internal Revenue Service and the Treasury Department participated in the development of the regulations.

Accordingly, 26 CFR part 1 is amended as follows:

Under the procedure set forth in this final rule, once the application is accorded special status after the filing of a request for continued examination it will be placed on the examiner's special docket throughout its entire course of continued prosecution before the examiner until a final disposition is reached in the application. The goal for handling applications under prioritized examination for request for continued examination is to, on average, provide a final disposition within twelve months of prioritized status being granted. For purposes of the twelve-month goal, “final disposition” can be any of the following: (1) Mailing of a notice of allowance; (2) mailing of a final Office action; (3) filing of a notice of appeal; (4) completion of examination as defined in 37 CFR 41.102; (5) filing of a subsequent request for continued examination; or (6) abandonment of the application. An application under prioritized examination, however, would not be accorded special status throughout its entire course of appeal or interference before the BPAI, or after the filing of a subsequent request for continued examination.

Filing an amendment to the application which results in more than four independent claims, more than thirty total claims, or a multiple dependent claim will terminate the prioritized examination. Upon termination of prioritized examination, the application will be removed from the examiner's special docket and placed on the examiner's regular docket in accordance with its stage of prosecution. As the termination of prioritized examination does not cause the prioritized examination fee to have been paid by mistake or in an amount in excess of that required, the termination of prioritized examination will not entitle the applicant to a refund of the prioritized examination fee. See 35 U.S.C. 42(d) and § 1.26(a) (permits refunds only for fees “paid by mistake or any amount paid in excess of that required”).

As discussed previously, the submission of an amendment resulting in more than four independent claims or more than thirty total claims is not prohibited, but simply terminates the prioritized examination. Thus, upon mailing of a final rejection (at which point prioritized examination is terminated), applicants may amend the claims to place them in independent form where dependent claims were found allowable, or add new claims, subject only to the limitations applicable to any application under final rejection. See 37 CFR 1.116. Similarly, upon mailing of a notice of allowance, applicants may submit amendments to the claims, again subject only to the limitations applicable to any application that has been allowed. See 37 CFR 1.312.

The requirements for requesting prioritized examination after the filing of a request for continued examination are summarized below. A patent application may be granted prioritized examination status under the following conditions:

(1) The request for continued examination must be in an original utility or plant nonprovisional application filed under 35 U.S.C. 111(a) or that has entered the national stage under 35 U.S.C. 371.

(2) The request for prioritized examination must be filed via the Office's electronic filing system (EFS-Web), except in a plant application for which the request must be filed in paper (MPEP 502.05(II)(B)) prior to the mailing of a first Office action after the filing of the request for continued examination under 37 CFR 1.114. The request for prioritized examination may either be filed concurrently with, or subsequently to, the filing of a request for continued examination.

(3) At the time of the request for prioritized examination, the application must contain or be amended to contain no more than four independent claims and no more than thirty total claims. In addition, the application must not contain any multiple dependent claims. If an amendment is filed in an application that has been granted prioritized examination that results in more than four independent claims or thirty total claims, or a multiple dependent claim, then prioritized examination will be terminated.

(4) The request for prioritized examination must be accompanied by the prioritized examination fee set forth in 37 CFR 1.17(c), the processing fee set forth in 37 CFR 1.17(i), and if not previously paid, the publication fee set forth in 37 CFR 1.18(d). Applicants are advised to use the certification and request form PTO/SB/424 which is available on EFS-Web.

(5) The Leahy-Smith America Invents Act currently limits the number of requests for prioritized examination under § 1.102(e) that the Office may accept to a maximum of 10,000 per fiscal year. This includes both requests for prioritized examination for initial examination (37 CFR 1.102(e)(1)) and requests for prioritized examination after filing of a request for continued examination (37 CFR 1.102(e)(2)).

Title 37 of the Code of Federal Regulations, Part 1, is proposed to be amended as follows:

Section 1.102: Section 1.102(e) is revised to set out the general requirements for prioritized examination and the specific requirements for prioritized examination for initial examination (Track I) (37 CFR 1.102(e)(1)) and for prioritized examination after the filing of a request for continued examination (37 CFR 1.102(e)(2)).

Section 1.102(e) provides that a request for prioritized examination under § 1.102(e) must comply with the requirements of § 1.102(e) and be accompanied by the prioritized examination fee set forth in § 1.17(c), the processing fee set forth in § 1.17(i), and the publication fee set forth in § 1.18(d). Section 1.102(e) also provides that an application for which prioritized examination has been requested may not contain or be amended to contain more than four independent claims, more than thirty total claims, or any multiple dependent claim. Section 1.102(e) also provides that prioritized examination under this paragraph will not be accorded to international applications that have not entered the national stage under 35 U.S.C. 371, design applications, reissue applications, provisional applications, or reexamination proceedings. Finally, § 1.102(e) provides that a request for prioritized examination must also comply with the requirements of § 1.102(e)(1) or § 1.102(e)(2).

Section 1.102(e)(1) provides that a request for prioritized examination may be filed with an original utility or plant nonprovisional application under 35 U.S.C. 111(a) that is complete as defined by § 1.51(b), with any fees due under § 1.16 paid on filing. If the application is a utility application, it must be filed via the Office's electronic filing system (EFS-Web). The request for prioritized examination in compliance with § 1.102(e)(1) must be present upon filing. The discussion in the final rule to implement prioritized examination for initial examination (Track I) ( Changes to Implement the Prioritized Examination Track (Track I) of the Enhanced Examination Timing Control Procedures under the Leahy-Smith America Invents Act, 76 FR 59050 (Sept. 23, 2011)) remains applicable to request for prioritized examination under § 1.102(e)(1).

Section 1.102(e)(2) provides that a request for prioritized examination may be filed with or after a request for continued examination in compliance with § 1.114. Only a single such request for prioritized examination under § 1.102(e)(2) may be granted in an application. If the application is a utility application, the request must be filed via the Office's electronic filing system (EFS-Web). The request must be filed before the mailing of the first Office action after the filing of the request for continued examination under § 1.114. The request must be accompanied by the prioritized examination fee set forth in § 1.17(c), the processing fee set forth in § 1.17(i), and if not already paid, the publication fee set forth in § 1.18(d).

This final rule implements prioritized examination for applications after the filing of a request for continued examination under 35 U.S.C. 132(b) and 37 CFR 1.114. The changes in this final rule that implement the fee for prioritized examination and requirements specified in section 11(h) of the Leahy-Smith America Invents Act are merely interpretative. See Gray Panthers Advocacy Comm. v. Sullivan, 936 F.2d 1284, 1291-1292 (DC Cir. 1991) (regulation that reiterates statutory language does not require notice and comment procedures); See Nat'l Org. of Veterans' Advocates v. Sec'y of Veterans Affairs, 260 F.3d 1365, 1375 (Fed. Cir. 2001). The additional requirements ( e.g., filing via the Office's electronic filing system (EFS-Web)) merely specify the procedures that apply to applications for which an applicant has requested prioritized examination and are thus procedural and not substantive. See JEM Broad. Co. v. FCC, 22 F.3d 320, 326 (DC Cir. 1994) (“[T]he critical feature of the procedural exception [in 5 U.S.C. 553(b)(A)] is that it covers agency actions that do not themselves alter the rights or interests of parties, although [they] may alter the manner in which the parties present themselves or their viewpoints to the agency”) (quoting Batterton v. Marshall, 648 F.2d 694, 707 (DC Cir. 1980)). Specifying the procedures for according prioritized examination for an application in which a request for continued examination has been made concerns only the manner in which applicants interact with the Office and does not change the substantive rights (condition of patentability) of any patent applicant. See Bachow Communications, Inc. v. F.C.C., 237 F.3d 683 (DC Cir. 2001) (rule permitting or suspending amendments to applications was procedural).

Accordingly, prior notice and an opportunity for public comment are not required pursuant to 5 U.S.C. 553(b)(A) or any other law. See Cooper Techs. Co. v. Dudas, 536 F.3d 1330, 1336-37 (Fed. Cir. 2008) (stating that 5 U.S.C. 553, and thus 35 U.S.C. 2(b)(2)(B), do not require notice and comment rule making for “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.”) (quoting 5 U.S.C. 553(b)(A)). In addition, thirty-day advance publication is not required pursuant to 5 U.S.C. 553(d) or any other law. See 5 U.S.C. 553(d) (requiring thirty-day advance publication for substantive rules).

As prior notice and an opportunity for public comment are not required pursuant to 5 U.S.C. 553 or any other law, neither a regulatory flexibility analysis nor a certification under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) is required. See 5 U.S.C. 603.

This rule making has been determined to be not significant for purposes of Executive Order 12866 (Sept. 30, 1993).

The Office has complied with Executive Order 13563 (Jan. 18, 2011). Specifically, the Office has, to the extent feasible and applicable: (1) Made a reasoned determination that the benefits justify the costs of the rule; (2) tailored the rule to impose the least burden on society consistent with obtaining the regulatory objectives; (3) selected a regulatory approach that maximizes net benefits; (4) specified performance objectives; (5) identified and assessed available alternatives; (6) involved the public in an open exchange of information and perspectives among experts in relevant disciplines, affected stakeholders in the private sector and the public as a whole, and provided on-line access to the rule making docket; (7) attempted to promote coordination, simplification and harmonization across government agencies and identified goals designed to promote innovation; (8) considered approaches that reduce burdens and maintain flexibility and freedom of choice for the public; and (9) ensured the objectivity of scientific and technological information and processes.

This rule making does not contain policies with federalism implications sufficient to warrant preparation of a Federalism Assessment under Executive Order 13132 (Aug. 4, 1999).

This rule making will not: (1) Have substantial direct effects on one or more Indian tribes; (2) impose substantial direct compliance costs on Indian tribal governments; or (3) preempt tribal law. Therefore, a tribal summary impact statement is not required under Executive Order 13175 (Nov. 6, 2000).

This rule making is not a significant energy action under Executive Order 13211 because this rule making is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Therefore, a Statement of Energy Effects is not required under Executive Order 13211 (May 18, 2001).

This rule making meets applicable standards to minimize litigation, eliminate ambiguity, and reduce burden as set forth in sections 3(a) and 3(b)(2) of Executive Order 12988 (Feb. 5, 1996).

This rule making does not concern an environmental risk to health or safety that may disproportionately affect children under Executive Order 13045 (Apr. 21, 1997).

This rule making will not effect a taking of private property or otherwise have taking implications under Executive Order 12630 (Mar. 15, 1988).

Under the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq. ), prior to issuing any final rule, the United States Patent and Trademark Office will submit a report containing the final rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the Government Accountability Office. The changes in this notice are not expected to result in an annual effect on the economy of 100 million dollars or more, a major increase in costs or prices, or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets. Therefore, this notice is not expected to result in a “major rule” as defined in 5 U.S.C. 804(2).

The changes set forth in this notice do not involve a Federal intergovernmental mandate that will result in the expenditure by State, local, and tribal governments, in the aggregate, of 100 million dollars (as adjusted) or more in any one year, or a Federal private sector mandate that will result in the expenditure by the private sector of 100 million dollars (as adjusted) or more in any one year, and will not significantly or uniquely affect small governments. Therefore, no actions are necessary under the provisions of the Unfunded Mandates Reform Act of 1995. See 2 U.S.C. 1501 et seq.

This rule making will not have any effect on the quality of the environment and is thus categorically excluded from review under the National Environmental Policy Act of 1969. See 42 U.S.C. 4321 et seq.

The requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) are not applicable because this rule making does not contain provisions which involve the use of technical standards.

This rule making implements a prioritized examination process. The primary impact on the public of this change is that applicants will have the option to request prioritized examination by paying appropriate fees, filing a request via the Office's electronic filing system (EFS-Web), and limiting their applications to four independent claims and thirty total claims with no multiple dependent claims.

An applicant who wishes to participate in the program must submit a certification and request to participate in the prioritized examination program, preferably by using Form PTO/SB/424. The Office of Management and Budget (OMB) has determined that, under 5 CFR 1320.3(h), Form PTO/SB/424 does not collect “information” within the meaning of the Paperwork Reduction Act of 1995. Therefore, this rule making does not impose additional collection requirements under the Paperwork Reduction Act which are subject to further review by OMB.

Notwithstanding any other provision of law, no person is required to respond to, nor shall a person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a currently valid OMB control number.

For the reasons set forth in the preamble, 37 CFR part 1 is amended as follows:

On May 5, 2010, the President signed into law the Caregivers and Veterans Omnibus Health Services Act of 2010, Public Law 111-163. Section 206 of the public law, codified at 38 U.S.C. 1786, authorizes VA to “furnish health care services * * * to a newborn child of a woman veteran who is receiving maternity care furnished by [VA] for not more than seven days after the birth of the child if the veteran delivered the child in—(1) a [VA] facility * * *; or (2) another facility pursuant to a [VA] contract for services relating to such delivery.” We note that the statutory authority does not extend to newborn children of female partners or relatives of veterans who are not veterans receiving maternity care from VA. In other words, this benefit is exclusive to newborn children of female veterans who themselves have been receiving maternity care from VA prior to the birth of the child and who otherwise meet the requirements of the law. We recognize that in some cases a newborn child of a woman veteran may be placed for adoption at the time of birth or shortly thereafter, or may be abandoned. Notwithstanding that the birth mother may not be willing or able to raise the child following birth, VA will provide newborn care for the date of birth and the first seven calendar days of life to any child delivered by a woman veteran who is receiving care under § 17.38(a)(1)(xiii). This is the broadest reasonable interpretation of the statutory authorization to provide care to the newborn child of a woman veteran, because the statute does not clearly require that the woman veteran be, or continue to be, the child's legal parent or guardian after birth.

We interpret section 1786 to mean that newborn care is one of the health care services authorized by Congress in 38 U.S.C. 1710. This rulemaking implements this interpretation of section 1786. We note that we have been providing this care since the effective date of the statute, May 5, 2010.

VA implemented section 1710 in current 38 CFR 17.38, which prescribes the types of medical care that are included in what is known as the VA “medical benefits package.” This rulemaking amends § 17.38(a) to include newborn care as a service provided under the medical benefits package. Pursuant to current § 17.38(b), care “will be provided to individuals only if it is determined by appropriate healthcare professionals that the care is needed to promote, preserve, or restore the health of the individual and is in accord with generally accepted standards of medical practice.”

For the above reasons, we amend 38 CFR 17.38(a)(1) consistent with section 1786 to provide: Newborn care, post delivery, for a newborn child for the date of birth plus seven calendar days after the birth of the child when the birth mother is a woman veteran enrolled in VA health care and receiving maternity care furnished by VA or under authorization from VA and the child is delivered either in a VA facility, or in another facility pursuant to a VA authorization for maternity care at VA expense. VA will cover all medically necessary care for the newborn(s) for the date of birth plus the first seven calendar days after birth, beginning on the day after the child is born and ending at midnight on the seventh full calendar day thereafter. This is the broadest reasonable interpretation of the statute, which authorizes needed care “for not more than seven days after the birth of the child.” 38 U.S.C. 1786(a). The newborn care will include post-delivery care, including newborn care, determined by appropriate healthcare professionals necessary to promote, preserve or restore the health of the child in accordance with generally accepted standards of medical practice (§ 17.38(b)).

Finally, for clarity and continuity, we are renumbering current § 17.38(a)(1)(xiv), which addresses the completion of forms, to § 17.38(a)(1)(xv) and inserting newborn care at § 17.38(a)(1)(xiv) to follow pregnancy and delivery services at § 17.38(a)(1)(xiii).

Title 38 of the Code of Federal Regulations, as revised by this final rulemaking, represents VA's implementation of its legal authority on this subject. Other than future amendments to this regulation or governing statutes, no contrary guidance or procedures on this subject are authorized. All VA guidance must be read to conform with this rulemaking if possible or, if not possible, such guidance is superseded by this rulemaking.

This rulemaking is VA's interpretive regulatory guidance on a statutory amendment to 38 U.S.C. 1786. This rule does not create any new rights or duties. Accordingly, this rule is being published as a final rule pursuant to 5 U.S.C. 553(b)(A), which exempts interpretive rules from the notice-and-comment requirements of 5 U.S.C. 553. Because this rule merely interprets a statute, it is effective as of the date of the statute it interprets, i.e., May 5, 2010, pursuant to 5 U.S.C. 553(d)(2), which exempts interpretive rules from the delayed effective date requirements of 5 U.S.C. 553.

Executive Orders 12866 and 13563 direct 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 effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. Executive Order 12866 (Regulatory Planning and Review) defines a “significant regulatory action,” which requires review by the Office of Management and Budget (OMB) 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 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 the expenditure by State, local, or 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, or tribal governments, or on the private sector.

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

The initial and final regulatory flexibility analyses 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 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 will not directly affect any small entities. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

The Catalog of Federal Domestic Assistance numbers and titles for the programs affected by this final rule are Veterans Medical Care Benefits; 64.010.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. John R. Gingrich, Chief of Staff, Department of Veterans Affairs, approved this document on November 4, 2011, for publication.

For the reasons stated in the preamble, VA amends 38 CFR Part 17 as follows:

Throughout this document whenever “we,” “us,” or “our” is used, we mean the EPA. Information is organized as follows:

On May 6, 2010 (75 FR 24844), EPA proposed to approve the State of Oregon's State Implementation Plan (SIP) revision that establishes a maintenance plan for ozone in the Portland portion of the Portland/Vancouver Air Quality Maintenance Area (Pdx/Van AQMA) and the Salem-Keizer Area Transportation Study Air Quality Area (SKATS). This plan provides measures that enable continued attainment of the 8-hour ozone NAAQS for at least 10 years after designation, and includes a 2002 base-year emissions inventory. EPA also proposed approval of SIP revisions submitted by Oregon Department of Environmental Quality (ODEQ) that phase out the State's VIP enhanced BAR-31 test, and eliminate the Gas Cap Pressure Test and the Evaporative Purge Tests. No comments were received on the proposed approval of this plan. EPA is, accordingly, taking final action in this notice to approve the plan as discussed in the proposed action without change.

EPA is approving the section 110(a)(1) maintenance plan and supporting rules for Portland and Salem, Oregon submitted on May 22, 2007, and described further in the Technical Support document, as revisions to the Oregon SIP. EPA is approving the maintenance plan and supporting rules for the Portland Portion of the Pdx/Van AQMA and SKATS. EPA is also taking final action to approve revisions to the Oregon SIP pertaining to motor vehicle testing provisions (Oregon SIP: Volume 2—section 5.4.7—Test Procedures and Standards and supporting rules). These revisions will not interfere with the attainment or maintenance of the current CO or ozone NAAQS and meet the requirements of section 110(a)(1) and section 110(l) of the CAA.

EPA will retain the tables in 40 CFR part 81 that identify the 1-hour ozone designation and classification status of each area as of the effective date of the 8-hour designations. (See 70 FR 44471.) Therefore, although the SKATS area is a State maintenance area for the 1-hour ozone standard, 40 CFR part 81 will retain the nonattainment designation for the SKATS area. EPA believes that the CAA does not require a separate 110(l) analysis to replace 1-hour nonattainment NSR with PSD once an area has been redesignated to attainment for the 1997 8-hour ozone standard, or has an approved 110(a)(1) maintenance plan for that standard. (See 75 FR 64677). In sum, EPA does not require the continued application of 1-hour anti-backsliding nonattainment NSR in the SKATS area as long as Oregon interprets its SIP as applying PSD to this area.

EPA is incorporating by reference the revisions submitted by the State to the Oregon Administrative Rules, Chapter 340 as identified below. Certain other provisions of the Oregon SIP are addressed and approved by this action but are not being incorporated by reference into 40 CFR Part 52 to avoid potential conflict with EPA's independent authorities. See also 68 FR 2891, 2900-2901 (January 22, 2003) for a discussion of Oregon's underlying statutory authority.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• 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);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

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

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 17, 2012. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows: