The Bureau of Consumer Financial Protection (Bureau) published a final rule in the Federal Register of October 31, 2012 (77 FR 65775) amending 12 CFR part 1090 by adding a new section to define larger participants of a market for consumer debt collection. The final rule contained four typographical errors, which this document corrects. Three of these errors were incorrect cross-references. The other error was an omission of a subheading designation.

The Bureau finds that there is good cause to publish these corrections without seeking public comment. See 5 U.S.C. 553(b)(B). Public comment is unnecessary because the Bureau is correcting inadvertent, technical errors about which there is minimal, if any, basis for substantive disagreement.

Accordingly, in FR Doc. 2012-26467 published on October 31, 2012 (77 FR 65775), make the following corrections:

1. On page 65798, in the second column, in § 1090.105, in paragraph (iii)(C) of the definition of Annual receipts, remove the first reference to “(iii)(B)” and add “(ii)” in its place.

2. On page 65798, in the second column, in § 1090.105, in paragraph (iii)(C) of the definition of Annual receipts, remove the second reference to “(iii)(B)” and add “(ii)(B)” in its place.

3. On page 65798, in the second column, in § 1090.105, in paragraph (iii)(D) of the definition of Annual receipts, remove “(iii)(B)” and add “(ii)” in its place.

4. On page 65798, in the third column, add the paragraph designation “(b)” before “ Test to define larger participants”.

Discussion

On May 11, 2012, at 77 FR 27661, the Federal Register published our notice of proposed rulemaking (NPRM), which proposed to amend 14 CFR part 39 to include an AD that would apply to all Eurocopter Deutschland GmbH (ECD) model EC135 helicopters, except the EC 135 P2+ and T2+. That NPRM proposed to require repetitively inspecting the bearings and replacing the swashplate assembly if a bearing is not correctly positioned. The NPRM also provided that replacing the swashplate assembly terminated the proposed inspection requirements. The proposed requirements were intended to detect shifting of a bearing, which could limit the movement of the collective control and result in loss of control of the helicopter.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued AD No. 2009-0272, dated December 18, 2009 (AD 2009-0272), to correct an unsafe condition for Eurocopter Model EC 135 and EC 635 helicopters. EASA advises that during two separate pre-flight checks on Model EC 135 helicopters in 2005, it was detected that one of the bearings of the sliding sleeve had moved to the outside of the sliding sleeve. EASA states that this condition, if not detected and corrected, could lead to a complete shift of the bearing to the inside or outside, creating the possibility of a limited movement of the collective, which could result in reduced control of the helicopter.

We gave the public the opportunity to participate in developing this AD, but we received no comments on the NPRM (77 FR 27661, May 11, 2012).

These helicopters have been approved by the aviation authority of Germany and are approved for operation in the United States. Pursuant to our bilateral agreement with Germany, EASA, its technical representative, has notified us of the unsafe condition described in the EASA AD. We are issuing this AD because we evaluated all information provided by EASA and determined the unsafe condition exists and is likely to exist or develop on other helicopters of these same type designs and that air safety and the public interest require adopting the AD requirements as proposed.

This AD differs from the EASA AD as follows:

• This AD requires the visual inspection to be performed by a mechanic, and repeated every 5 hours TIS. The EASA AD allows the visual inspection to be accomplished by a pilot during a preflight inspection.

• This AD does not require contacting ECD customer service for corrective actions.

• This AD provides terminating action for the inspection requirements for the bearings by replacing the swashplate assembly with a later-design swashplate assembly, part number L623M2005103.

• The EASA AD applies to ECD model EC635 aircraft, and this AD does not because the EC635 does not have an FAA issued type-certificate.

We reviewed Eurocopter Alert Service Bulletin (ASB) EC135-62A-021, dated June 23, 2005 (EC135-62A-021). EC135-62A-021 describes procedures for visually checking the bearings of the sliding sleeve during preflight. EASA classified this ASB as mandatory and issued AD 2009-0272 to ensure the continued airworthiness of these helicopters.

We estimate that this AD will affect 218 helicopters of U.S. registry and that operators will incur the following costs to comply with this AD:

• Inspecting the bearings requires about 15 minutes at an average labor rate of $85 per hour, for a cost per helicopter of about $22 and a total cost to the U.S. operator fleet of $4,796 per inspection cycle.

• If required, replacing the swashplate assembly will take about 8 work hours at an average labor rate of $85 per hour, and required parts will cost about $38,586, for a total cost per helicopter of $39,266.

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 helicopters 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 to the extent that it justifies making a regulatory distinction; 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.

We prepared an economic evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

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

The Federal Civil Penalties Inflation Adjustment Act of 1990 (Pub. L. 101-410) provided for the regular evaluation of CMPs to ensure that they continue to maintain their deterrent value and that penalty amounts due to the Federal Government are properly accounted for and collected. On April 26, 1996, the Federal Civil Penalties Inflation Adjustment Act of 1990 was amended by the Debt Collection Improvement Act of 1996 (Pub. L. 104-134) to require each agency to issue regulations to adjust its CMPs for inflation at least every four years. The amendment further provided that any resulting increases in a CMP due to the inflation adjustment should apply only to the violations that occur subsequent to the date of the publication in the Federal Register of the increased amount of the CMP. The first inflation adjustment of any penalty shall not exceed ten percent of such penalty.

On October 24, 1996, November 1, 2000, December 14, 2004, and December 11, 2008, the Department published in the Federal Register a schedule of CMPs adjusted for inflation as required by law. By this publication, CMPs are again being adjusted for inflation as prescribed by law.

A civil monetary penalty is defined as any penalty, fine, or other sanction that:

1. Is for a specific monetary amount as provided by Federal law, or has a maximum amount provided for by Federal law; and,

2. Is assessed or enforced by an agency pursuant to Federal law; and,

3. Is assessed or enforced pursuant to an administrative proceeding or a civil action in the Federal courts.

This regulation adjusts the CMPs that are established by law and assessed or enforced by the Department.

The actual penalty assessed for a particular violation is dependent upon a variety of factors. For example, the National Oceanic and Atmospheric Administration's (NOAA) Policy for the Assessment of Civil Administrative Penalties and Permit Sanctions (Penalty Policy), a compilation of internal guidelines that are used when assessing penalties for violations for most of the statutes NOAA enforces, will be interpreted in a manner consistent with this regulation to maintain the deterrent effect of the penalties recommended therein. The penalty ranges in the Penalty Policy are intended to aid enforcement attorneys in determining the appropriate penalty to assess for a particular violation. The Penalty Policy is maintained and made available to the public on the NOAA Office of the General Counsel, Enforcement Section Web site at: http://www.gc.noaa.gov/documents/031611_penalty_policy.pdf.

The inflation adjustments were determined pursuant to the methodology prescribed by Public Law 101-410, which requires the maximum CMP, or the minimum and maximum CMP, as applicable, to be increased by the cost-of-living adjustment. The term “cost-of-living adjustment” was defined in Public Law 104-134 to mean the percentage for each CMP by which the Consumer Price Index (CPI) for June of the calendar year preceding the adjustment exceeds the CPI for the month of June of the calendar year in which the amount of such CMP was last set or adjusted pursuant to law. For the purpose of computing the inflation adjustments, the CPI for June of the calendar year preceding the adjustment means the CPI for June of 2011.

Public Law 101-410 requires each rounded increase to be added to the minimum or maximum penalty amount being adjusted, and the total is the amount of such penalty, as adjusted, subject to the ten percent limitation provided by Public Law 104-134 for the first adjustment.

It has been determined that this rule is not significant for purposes of Executive Order 12866.

The Department for good cause finds that notice and opportunity for comment is unnecessary for this rulemaking pursuant to 5 U.S.C. 553(b)(B). It is unnecessary to ask for notice and comment because Public Law 104-134 requires the head of each agency to adjust its civil monetary penalties no later than October 23, 1996, and at least every four years thereafter, and Public Law 101-410, as amended by Public Law 104-134, states how to calculate the inflation adjustments, making such adjustments wholly non-discretionary. This rule merely adjusts the Department's CMP according to the statutory requirements. For the same reasons, there exists good cause to waive the thirty day delay in effectiveness of the rule, pursuant to 5 U.S.C. 553(d)(3).

Because notice and opportunity for comment are not required by 5 U.S.C. 553, or any other law, a Regulatory Flexibility Analysis is not required and none was prepared. This rule does not contain information collection requirements for purposes of the Paperwork Reduction Act.

For the reasons set forth in the preamble, subtitle A of Title 15 of the Code of Federal Regulations is amended as follows:

This final rule updates seven categories of the Commerce Control List (CCL) to correct spelling and typographical errors and inaccurate internal references, and to provide a complete and more accurate description of controls and the related items on the CCL.

ECCN 0A018.c is amended to correct an error in a final rule published by BIS on March 30, 2004 (69 FR 16478, 16480). The March 20, 2004, rule contained duplicative language and did not include the word ECCN prior to a reference to a related ECCN. To correct these errors, this rule removes the phrase “that were not specifically designed for hunting or sporting purposes” and adds the word “ECCN” before the word “0A984” in the Note to 0A018.c.

ECCN 0B001.g.2 is amended to correct an error in a final rule published by BIS on January 15, 1998 (63 FR 2452, 2462). The January 15, 1998, rule included an unnecessary apostrophe in the word “alloys”. To correct this error, the rule deletes the apostrophe from the word “alloy's” in ECCN 0B001.g.2.

ECCN 1B999.a and 1C999.f are amended to correct typographical errors in a final rule published by BIS on June 19, 2000 (65 FR 38148, 38162). The June 19, 2000, rule misspelled “fluorine” in these two ECCNs. To correct these errors, this rule removes the word “flourine” from these two ECCNs and inserts the word “fluorine” in its place.

ECCN 1C350 is amended to update the mailing address for the Quarterly Report requirement to the Bureau of Industry and Security. The BIS mailroom is no longer Room 2705. Mail for BIS should now be directed to Room 2099B. Consistent with this room change, this rule changes the references to the “Room 2705” in paragraph (e) of the License Requirements Notes 1 to the “Room 2099B”.

The final paragraph of Category 1, describing the designation EAR99, is amended to correct an error in a final rule published by BIS on January 15, 1998 (63 FR 2452, 2484). The January 15, 1998, rule changed the language of the EAR99 paragraph in Categories 1 and 2 only to “Items subject to the EAR that are not elsewhere controlled by this CCL Category or in any other category in the CCL are designated by the number EAR99.” To correct this error, this rule removes the language “controlled by” and inserts “specified in” in its place.

The final paragraph of Category 2, describing the designation EAR99, is amended to correct an error in a final rule published by BIS on January 15, 1998 (63 FR 2452, 2484). The January 15, 1998, rule changed the language of the EAR99 paragraph in Categories 1 and 2 only to “Items subject to the EAR that are not elsewhere controlled by this CCL Category or in any other category in the CCL are designated by the number EAR99.” To correct this error, this rule removes the language “controlled by” and inserts “specified in” in its place.

ECCN 3A991 is amended by revising the technical standard in items paragraph .j.2 from an energy density of 250 Wh/kg or less at 293 K to an energy density of 300 Wh/kg or less at 293 K. A final rule published on July 2, 2012 (77 FR 39354), changed the technical standard in ECCN 3A001, items paragraph .e.1.b, from an energy density exceeding 250 Wh/kg at 293 K to an energy density exceeding 300 Wh/kg at 293 K. When a multilateral regime control standard is modified, the standard practice is to retain the AT control by increasing the technical standard in the corresponding AT-only control. The July 2, 2012 rule did not change the corresponding control in 3A991.j.2. This rule implements that change by increasing the technical standard in items paragraph .j.2 to an energy density of 300 Wh/kg or less at 293 K.

ECCN 4D994 is amended by revising the heading to remove the references to ECCN 4B994 and ECCN 4C994. A final rule published by BIS on June 28, 2010, removed ECCNs 4B994 and 4C994 and reserved Category 4B and 4C in their entirety. The heading of ECCN 4D994 refers to both ECCNs 4B994 and 4C994. It creates confusion to reference ECCNs that no longer exist. To resolve this confusion, this rule removes the phrase “4B994, and materials controlled by 4C994.”

The Title to this Category is amended by modifying the numbering of the subsections to Category 5. “I. Telecommunications” is changed to “Part 1—Telecommunications” and “II. `Information Security'” is changed to “Part 2—`Information Security' ” to remain consistent with the Wassenaar Arrangement and to make these headings conform to the many references in the regulatory language of the EAR.

ECCN 5A101 is amended to correct an error in a final rule published by BIS on May 4, 2004 (69 FR 24508, 24510). The May 4, 2004, rule included the word “Item” at the beginning of a note to ECCN 5A101. This rule corrects the error by removing the word “Item” from the beginning of the final note to ECCN 5A101.

ECCN 5A991 is amended:

a. By adding ECCN 5E001.c to the Related Controls paragraph. The reference is appropriate to identify potentially applicable controls of technology under ECCN 5E001.c for the “development” and “production” of commodities controlled under 5A991. This change will improve the ability of users of the Export Administration Regulations to correctly identify the classification of the technologies related to these commodities.

b. To correct an error in a final rule published by BIS on December 10, 2003 (68 FR 68976, 68989). The December 10, 2003, rule moved the note to 5A991.c.10 to before 5A991.c.10. To correct this error, this rule removes the language “Note: 5A991.c.10 does not control packet switches or routers with ports or lines not exceeding the limits in 5A991.c.10.” from before 5A991.c.10 and inserts it before 5A991.c.11.

ECCN 6A005.f.3 is amended to correct an error in a final rule published by BIS on May 26, 2011 (76 FR 30538, 30539). The May 26, 2011, rule used the word “lambda” in place of the symbol “λ” at 6A005.f.3. To correct this error, this rule removes the word “lambda” and inserts the symbol “λ” in its place.

ECCN 8A992.b is amended to correct an error in a final rule published by BIS on March 5, 1999 (64 FR 18052, 10869). The March 5, 1999 rule used the incorrect spelling of “autofocusing,” “focusing,” and “format.” To correct the error, this rule removes the words “autofocussing”, “focussing”, and “formate” and inserts “autofocusing”, “focusing”, and “format” in the respective places in 8A992.b.

ECCN 9B116 is amended to correct an error in a final rule published by BIS on November 21, 2002 (67 FR 70157, 70158). The November 21, 2002, rule inserted a reference in the Related Controls paragraph to “the `production equipment' controlled in this entry” while 9B116 controls only “production facilities.” There was also a semicolon in place of a comma in the list of related controls. To correct this error, the rule removes the phrase “production equipment” and inserts “production facilities” in its place and removes the semicolon and inserts a comma in its place. This rule also removes the word “is” and inserts the word “are” in its place to create subject verb agreement.

Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as extended by the Notice of August 15, 2012, 77 FR 49699 (August 16, 2012), has continued the EAR in effect under the International Emergency Economic Powers Act. BIS continues to carry out the provisions of the Export Administration Act, as appropriate and to the extent permitted by law, pursuant to Executive Order 13222.

1. Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This rule has been determined to be not significant for purposes of Executive Order 12866.

2. Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information, subject to the requirements of Paperwork Reduction Act, unless that collection of information displays a currently valid Office of Management and Budget Control Number. This rule does not affect any paperwork collection. This rule does not contain policies with Federalism implications as that term is defined under E.O. 13132.

3. The Department of Commerce finds that there is good cause under 5 U.S.C. 553(b)(3)(B) to waive the provisions of the Administrative Procedure Act otherwise requiring prior notice and the opportunity for public comment because they are unnecessary. All of the revisions made by this rule, except the modification of the technical standard in ECCN 3A991, are administrative in nature and do not affect the privileges and obligations of the public. Because these revisions are not substantive changes to the EAR, the 30-day delay in effectiveness otherwise required by 5 U.S.C. 553(d) is not applicable. The modification of the technical standard in ECCN 3A991 is to correct an oversight in a final rule published on July 2, 2012 (77 FR 39353), which was published without requiring notice of proposed rulemaking, the opportunity for public participation, or a delay in effective date, as a military and foreign affairs function of the United States (5 U.S.C. 553(a)(1)). As the modification of the technical standard was intended to be included in that final rule, immediate implementation of this correction to the amendments in the July 2, 2012 (77 FR 39353), rule fulfills the United States' international obligation to the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies. No other law requires that a notice of proposed rulemaking and opportunity for public comment be given for this rule. The analytical requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et. seq. ) are not applicable.

Accordingly, Part 774 of the EAR (15 CFR Parts 730-774) is amended as follows:

FHA's Section 232 program insures mortgage loans to facilitate the construction, substantial rehabilitation, purchase, and refinancing of nursing homes, intermediate care facilities, board and care homes, and assisted-living facilities. A project may include more than one type of facility and financing, and a combination of these uses is acceptable. The Section 232 program is authorized under the National Housing Act (12 U.S.C. 1715w). HUD's regulations for the Section 232 program are codified in 24 CFR part 232. While many aspects of HUD's healthcare facility operations, including the basic contract and eligibility requirements, are governed by the regulations applicable to HUD's multifamily mortgage insurance programs, separate healthcare regulations have been adopted to address program operations specific to healthcare facilities, such as state licensing requirements. 1

One process well-established and long used in HUD's multifamily housing programs is acceptance of partial payment of claims (PPCs). The regulations implementing the statutory authority to accept PPCs, which FHA adopted in 1985, and which are codified in 24 CFR 207.258b, specifically excluded FHA's Section 232 program from the multifamily PPC process. (See 24 CFR 232.251(a).)

Congress specifically authorized PPCs for the Section 232 program in 1997. (See 12 U.S.C. 1735 f-19.) However, as the regulatory provisions governing the multifamily programs, which predated the 1997 statutory amendments, were not revised to reflect the statutory authority to use PPCs for healthcare facilities, HUD proposed revisions specifically to address PPCs.

On July 9, 2012, HUD published a proposed rule at 77 FR 40301, in which it submitted for public comment a proposed revision to the Section 232 program regulations to provide, in regulation, the procedures and criteria for FHA to determine when PPCs should be considered and paid for healthcare facilities.

The proposed regulations governing PPCs in the Section 232 program used the current multifamily program regulations governing PPCs, codified at 24 CFR 207.258b, as a baseline. Those PPC regulations were modified based on FHA's experience in implementing the PPC process in its multifamily housing programs, and in utilizing PPCs in the Section 232 program on a periodic and temporary basis.

The proposed rule added a new § 232.882, entitled “Partial Payment of Claims,” to the Section 232 program regulations in 24 CFR part 232 to provide that if the mortgagee elects to assign a mortgage to the FHA Commissioner, under certain circumstances the Commissioner may request the mortgagee to accept a partial payment of the claim. That proposed PPC regulation for the Section 232 program differed from the regulations establishing the PPC process for the multifamily programs primarily because the focus of the Section 232 program is on healthcare facilities.

As stated in the proposed rule preamble and emphasized here in this preamble to the final rule, FHA's partial payment of claim is made pursuant to the contract of mortgage insurance between FHA and the mortgage lender, which are the only parties to the contract. Borrowers and operators are neither parties to the contract of insurance, nor are they third-party beneficiaries, and thus they do not have any rights or expectations in regard to any decision made by FHA to accept or reject a mortgagee's request for a partial payment of claim.

By establishing a standard process and criteria for acceptance and payment of PPCs in the Section 232 program, partial payment of claims can occur more frequently than they do now in the Section 232 program, not only resulting in savings to the FHA insurance fund, but helping to restore a project to financial stability.

The public comment period for the July 9, 2012, proposed rule closed on September 7, 2012, and HUD received one public comment through the www.regulations.gov Web site. The commenter, an association of healthcare finance bankers and healthcare consultants, expressed strong support for the proposed PPC change, as it would make the Section 232 program stronger by allowing appropriate use of the partial-payment-of-claim option and provide another tool to help struggling projects. The commenter offered no suggested changes, and urged HUD to implement the final rule as quickly as possible.

In this final rule, HUD adopts the proposed rule without substantive change, but makes an organizational change and makes certain citation revisions as a result of the organizational change. In this final rule, HUD is adding the PPC provisions to subpart B, entitled Contract Rights and Obligations. In the proposed rule, these changes were proposed to be added to subpart D, which is also titled Contract Rights and Obligations, but subpart D follows subpart C, Supplemental Loans to Finance Purchase and Install Fire Safety Equipment, and focuses on payments and claims related to loans to finance the purchase and installation of fire safety equipment. Relocating the PPC provisions to part 232 subpart B, which addresses contract rights and obligations generally under the Section 232 program, was determined to be a more appropriate fit. Further, HUD has made several minor revisions in the final rule stage to conform the references in this rule to the relevant sections describing the claims process to reflect the change from subpart D.

The President's Executive Order (EO) 13563, entitled “Improving Regulation and Regulatory Review,” was signed by the President on January 18, 2011, and published on January 21, 2011, at 76 FR 3821. This EO requires executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” Section 4 of the EO, entitled “Flexible Approaches,” provides, in relevant part, that where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. As this rule will include guidance for PPCs in the Code of Federal Regulations, HUD submits that the changes by this rule to the Section 232 regulations are consistent with the EO's directions. The existing Section 232 regulations provide insufficient guidance to the public on PPCs for the Section 232 program. These changes will reduce risk to the FHA insurance fund by establishing the criteria and process by which FHA will accept and pay a partial payment of the claim under the FHA mortgage insurance contract, as an alternative to the lender assigning the entire mortgage to HUD. It therefore strengthens the Section 232 program, and helps to ensure that healthcare facilities remain financially viable.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities.

This rule is directed to strengthening HUD's Section 232 program by establishing a process and criteria by which the FHA may allow partial payment of claims for Section 232 projects. As noted under the discussion of EO 13563, establishment of this process also opens up another means by which healthcare project owners can restore troubled projects to financial stability. Acceptance of PPCs helps healthcare project owners and operators to lower project debt, and continue to provide valued healthcare services to the communities they serve. This established process for acceptance of PPCs will help all healthcare project owners, large and small. Additionally, by clarifying and codifying existing requirements, the rule makes it easier for borrowers and operators to comply with their legal obligations. Accordingly, the undersigned certifies that this rule will not have a significant economic impact on a substantial number of small entities.

The information collection requirements contained in this rule were reviewed by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), and assigned OMB Control Numbers 2502-0418.

In accordance with the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid OMB control number.

The docket file is available for public inspection.

A Finding of No Significant Impact with respect to the environment for this rule was made at the proposed rule stage in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). That Finding of No Significant Impact remains applicable to this final rule and is available for public inspection between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street SW., Room 10276, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the finding by calling the Regulations Division at 202-402-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at 800-877-8339.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on state and local governments and is not required by statute, or the rule preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule will not have federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and on the private sector. This rule does not impose any federal mandates on any state, local, or tribal governments, or on the private sector, within the meaning of UMRA.

The Catalogue of Federal Domestic Assistance Number for the Mortgage Insurance Nursing Homes, Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities program is 14.129.

Accordingly, for the reasons cited in the preamble, HUD amends part 232 of title 24 of the Code of Federal Regulations as follows:

Background

This document contains final regulations that amend 26 CFR part 1 to reflect amendments made to section 181 of the Internal Revenue Code of 1986 (Code) by section 502 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, Public Law 110-343 (122 Stat. 3765) (October 3, 2008).

On October 19, 2011, the IRS and the Treasury Department published in the Federal Register (TD 9552, 76 FR 64816) temporary regulations amending the rules under section 181 for deductions relating to the cost of producing qualified film and television productions to reflect section 502 of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008. A notice of proposed rulemaking (REG-146297-09) cross-referencing the temporary regulations was published in the Federal Register (76 FR 64879) on the same day. No comments were received from the public in response to the notice of proposed rulemaking. No public hearing was requested or held. The proposed regulations under section 181 are adopted by this Treasury decision and the corresponding temporary regulations are removed.

These final regulations apply to qualified film and television productions to which section 181 is applicable and for which the first day of principal photography or in-between animation occurs on or after December 7, 2012. The owner of a qualified film or television production may apply the final regulations to productions to which section 181 applies and for which principal photography or, for an animated production, in-between animation commenced before December 7, 2012.

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 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received.

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

Accordingly, 26 CFR part 1 is amended as follows:

Background

This document contains final regulations that provide guidance on the excise tax imposed on the sale of certain medical devices under section 4191 (the medical device excise tax) of the Internal Revenue Code (Code), enacted by section 1405 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), in conjunction with the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (jointly, the ACA).

On February 7, 2012, the IRS and the Treasury Department published a notice of proposed rulemaking (REG-113770-10) (the proposed regulations) in the Federal Register (77 FR 6028). The IRS and the Treasury Department received numerous written comments from the public in response to the proposed regulations. A public hearing was held on May 16, 2012. After consideration of the public written comments and hearing comments, the IRS and the Treasury Department are finalizing the proposed regulations with the changes described in this preamble.

Public comments on the proposed regulations identified two issues that the IRS and the Treasury Department will study further and on which the IRS and the Treasury Department have requested additional comments. Those issues are discussed later in this preamble. Comments with regard to those issues should be submitted in writing and can be mailed to the Office of Associate Chief Counsel (Passthroughs and Special Industries), Re: REG-113770-10, CC:PSI:B7, Room 5314, 1111 Constitution Avenue NW., Washington, DC 20224. All comments received will be available for public inspection at http://www.regulations.gov (IRS REG-113770-10).

Section 4191(b)(1) provides that, in general, a “taxable medical device” is any device, as defined in section 201(h) of the Federal Food, Drug & Cosmetic Act (FFDCA) (codified as amended at 21 U.S.C. 301 et seq. (2006)) that is intended for humans.

The proposed regulations provide that for purposes of the medical device excise tax, a device defined in section 201(h) of the FFDCA that is intended for humans means a device that is listed as a device with the Food and Drug Administration (FDA) under section 510(j) of the FFDCA and 21 CFR part 807, pursuant to FDA requirements. The proposed regulations further provide that if a device is not listed with the FDA, but the FDA later determines that the device should have been listed as a device, the device will be deemed to have been listed as a device with the FDA as of the date the FDA notifies the manufacturer or importer in writing that corrective action with respect to listing is required.

One commenter suggested that the listing rule is overbroad because it includes virtually all types of medical devices in the tax base. The commenter requested that the final regulations narrow the definition of a taxable medical device so that the excise tax is imposed only on devices that Congress specifically intended to subject to the tax.

The final regulations do not adopt this suggestion. Congress linked the definition of a taxable medical device to the definition of a “device” under section 201(h) of the FFDCA. In general, the FDA requires a device defined in section 201(h) of the FFDCA that is intended for humans to be listed as device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807, subject to certain limited exceptions. The final regulations track this FDA requirement by defining a taxable medical device as a device that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807. This provides taxpayers with greater certainty as to which devices are subject to the tax.

Several commenters requested that the final regulations clarify that the definition of a taxable medical device does not include the category of products reviewed as devices by the FDA Center for Biologics Evaluation and Research (CBER).

In general, CBER licenses biologics, such as in vitro diagnostic tests for blood donor screening, after the filing of a Biologics License Application (BLA) under the Public Health Service Act. Biologics are listed with the FDA under 21 CFR part 607.

Under the final regulations a taxable medical device is a device that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807, pursuant to FDA requirements. Therefore, devices that CBER regulates that are listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807 are taxable medical devices. Devices that CBER regulates that are not listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807, such as biologics that are listed under 21 CFR part 607, are not taxable medical devices.

A number of commenters suggested that certain devices, such as sterilization process indicators, software, and containers used to hold or transport medical products and specimens, should be excluded from the definition of a taxable medical device on the basis that they are not “intended for humans.” Commenters argued that even if the FDA requires certain such devices to be listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807, the devices should not be taxable medical devices because they are not used in the direct treatment, diagnosis, or monitoring of a patient.

Section 4191 links the definition of a taxable medical device to the definition of a device in section 201(h) of the FFDCA. Section 201(h) of the FFDCA provides generally that the term “device” means an instrument, apparatus, etc., that is intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or intended to affect the structure or any function of the body of man or other animals, and that does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and that is not dependent upon being metabolized for the achievement of its primary intended purposes. Section 201(h) of the FFDCA includes devices intended for “man” and devices intended for “other animals.” Thus, the phrase “intended for humans” included in section 4191(b) limits the definition of a taxable medical device to the devices defined in section 201(h) of the FFDCA that are intended for “man” (intended for humans) and excludes from the section 201(h) definition the devices that are intended for “other animals.”

There is no support in the statute, or in either the legislative history or the Joint Committee on Taxation's General Explanation (Joint Committee on Taxation General Explanation of Tax Legislation Enacted in the 111th Congress (JCS-2-11), March 2011, at 365-367) (JCT General Explanation) for the proposition that Congress included the statutory phrase “intended for humans” in section 4191(b) to distinguish between devices defined in section 201(h) of the FFDCA that are intended for use directly on patients or directly in patient care from other devices defined in section 201(h) of the FFDCA that are otherwise used in human medicine. Accordingly, the final regulations do not adopt this suggestion.

One commenter stated that the listing requirement is insufficient to distinguish medical devices for human use from those intended for use in veterinary medicine for purposes of applying the medical device excise tax. The commenter suggested that subjecting devices to the medical device excise tax because the device is listed with the FDA under section 510(j) of the FFDCA disadvantages certain manufacturers. Specifically, the commenter noted that medical device manufacturers selling devices for both human use and veterinary use must pay the excise tax on sales into the veterinary market. The commenter requested that the final regulations provide that devices that are labeled “not for human use” or “veterinary use only” are not taxable medical devices.

The definition of a device in section 201(h) of the FFDCA includes devices used in veterinary medicine. Section 4191 limits the definition of a taxable medical device to devices described in section 201(h) of the FFDCA that are intended for humans, but does not provide that the device must be intended exclusively for humans. Under existing FDA regulations, a device intended for use exclusively in veterinary medicine is not required to be listed as a device with the FDA, whereas a device intended for use in human medicine is required to be listed as a device with the FDA even if the device may also be used in veterinary medicine. Thus, the FDA's listing requirement effectively tracks those devices that are intended for humans within the meaning of section 4191. Accordingly, the final regulations retain the definition of a taxable medical device from the proposed regulations. Therefore, a device defined in section 201(h) of the FFDCA that is intended for humans means a device that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807, pursuant to FDA requirements. Because devices that are intended for use exclusively in veterinary medicine are not listed as devices under section 510(j) of the FFDCA and 21 CFR part 807, they are not taxable medical devices within the meaning of section 4191.

The IRS and the Treasury Department received public comments and several informal inquiries on dual use devices. These comments suggested that the sale of a device defined in section 201(h) of the FFDCA that is listed as a device with the FDA under 21 CFR part 807 but that is used for a non-medical purpose should not be subject to the medical device excise tax. One commenter recommended that the sale of a taxable medical device be exempt where the manufacturer or importer can provide evidence that the product was purchased specifically for use in non-medical applications.

One commenter noted that because it sells directly to the end user and installs its devices at the end user's facilities, it can easily identify when it sells a device for a non-medical purpose, as opposed to a medical purpose. The commenter also noted that it must list a device with the FDA even if it makes only some sales of that device for a medical purpose. Accordingly, all of the commenter's sales will be subject to tax, while sales of the same device by competitors who sell the device only for non-medical purposes, and thus do not have to list their devices with the FDA, will not be subject to tax.

The final regulations do not adopt the commenters' suggestions. The language of section 4191 does not limit the definition of a taxable medical device to a device that is intended exclusively for medical purposes. Whether or not a given device is a taxable medical device depends upon whether it is a device defined in section 201(h) of the FFDCA. Although section 4191 provides a number of exemptions, the statute does not provide an exemption based on whether a given end user intends to use a particular device for a medical purpose or a non-medical purpose.

One commenter asked that the final regulations clarify that Humanitarian Use Devices (HUDs) for which the FDA has approved a Humanitarian Device Exemption (HDE) are exempt from the medical device excise tax.

A HUD is a device within the meaning of section 201(h) of the FFDCA that is intended to benefit patients by treating or diagnosing a disease or condition that affects or is manifested in fewer than 4,000 individuals in the United States per year. 21 CFR 814.3(n). A manufacturer must obtain an approved HDE from the FDA to market a HUD. HUDs that are marketed under an HDE exemption are not exempt from the FDA's listing requirements.

There is no statutory basis for excluding HUDs from the definition of taxable medical device. Therefore, the final regulations do not distinguish HUDs from other taxable medical devices, and a HUD that is marketed under an HDE exemption is a taxable medical device unless it falls within one of the statutory exemptions to the tax in section 4191(b)(2), such as the retail exemption.

Two commenters asked that the final regulations provide that sales of software upgrades are not taxable. One commenter noted that software upgrades should not be subject to the medical device excise tax where the software itself is not listed but is merely a component part of a listed device. A second commenter suggested that the final regulations should differentiate between a listed software product and software updates.

Under the final regulations, a taxable medical device is a device that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807. Accordingly, software and software updates that are not required to be separately listed with the FDA do not fall within the definition of a taxable medical device, and sales of such software and software updates are not subject to the tax.

Two commenters objected to the rule in the proposed regulations that deems a device to have been listed on the date the FDA provides written notice to the manufacturer or importer that corrective action with respect to listing is required. One commenter suggested that the rule be clarified so that a device is not deemed to be listed until the FDA delivers final written notice to the manufacturer or importer that corrective action with respect to listing is required.

The final regulations do not adopt this suggestion. If the FDA initially notifies a manufacturer that corrective action with respect to listing is required but later determines that the device is not required to be listed, a credit or refund may be available for tax paid on sales of the device during the intervening period. See section 6416(a) and the regulations under section 6416(a) for rules regarding the requirements for filing a claim for credit or refund.

The IRS received several informal inquiries on the tax consequences of listing a product as a device with the FDA when the FDA does not require the product to be listed.

If a manufacturer lists a device with the FDA, but the device was not required to be listed, a credit or refund may be available for tax paid on sales of the device once the device has been de-listed. See section 6416(a) and the regulations under section 6416(a) for rules regarding the requirements for filing a claim for credit or refund.

Section 4191(b)(2) provides that the term taxable medical device does not include eyeglasses, contact lenses, hearing aids, and any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use (the retail exemption).

The proposed regulations provide a facts and circumstances approach to evaluating whether a medical device is of a type that is generally purchased by the general public at retail for individual use. Under the proposed regulations, a device is considered to be of a type generally purchased by the general public at retail for individual use if (i) the device is regularly available for purchase and use by individual consumers who are not medical professionals, and (ii) the device's design demonstrates that it is not primarily intended for use in a medical institution or office, or by medical professionals.

The proposed regulations provide a non-exclusive list of factors to be considered in determining whether a device is regularly available for purchase and use by individual consumers who are not medical professionals. Those factors are (i) whether consumers who are not medical professionals can purchase the device through retail businesses that also sell items other than medical devices, including drug stores, supermarkets, and similar vendors; (ii) whether consumers who are not medical professionals can safely and effectively use the device for its intended medical purpose with minimal or no training from a medical professional; and (iii) whether the device is classified by the FDA under Subpart D of 21 CFR part 890 (Physical Medicine Devices) (referred to collectively herein as the “positive factors”).

The proposed regulations also provide a non-exclusive list of factors to be considered in determining whether the design of a device demonstrates that it is primarily intended for use in a medical institution or office, or by medical professionals, and therefore not intended for purchase and use by individual consumers. The factors are (i) whether the device generally must be implanted, inserted, operated, or otherwise administered by a medical professional; (ii) whether the cost to acquire, maintain, and/or use the device requires a large initial investment and/or ongoing expenditure that is not affordable for the average consumer; (iii) whether the device is a Class III device under the FDA system of classification; (iv) whether the device is classified by the FDA under certain enumerated parts or subparts of 21 CFR; and (v) whether the device qualifies as durable medical equipment (DME), prosthetics, orthotics, and supplies (collectively, DMEPOS) for which payment is available exclusively on a rental basis under the Medicare Part B payment rules and is an “item requiring frequent and substantial servicing” as defined in 42 CFR 414.222 (referred to collectively herein as the “negative factors”).

To provide greater certainty, the proposed regulations also include a safe harbor provision that identifies certain categories of medical devices that the IRS and the Treasury Department have determined fall within the retail exemption. The safe harbor includes (i) devices that are identified in the FDA's IVD Home Use Lab Tests (Over-the-Counter Tests) database, available at http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfIVD/Search.cfm; (ii) devices described as “OTC” or “over the counter” devices in the relevant FDA classification regulation heading; and (iii) devices that are described as “OTC” or “over the counter” devices in the FDA's product code name, the FDA's device classification name, or the “classification name” field in the FDA's device registration and listing database, available at http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/cfrl/rl.cfm. The safe harbor also includes devices that qualify as DMEPOS (as described in Subpart C of 42 CFR part 414 (Parenteral and Enteral Nutrition) and Subpart D of 42 CFR part 414 (Durable Medical Equipment and Prosthetic and Orthotic Devices)) for which payment is available on a purchase basis under Medicare Part B payment rules (in accordance with the fee schedule published by Centers for Medicare and Medicaid Services (CMS)), and are (i) “prosthetic and orthotic devices,” as defined in 42 CFR 414.202, that do not require implantation or insertion by a medical professional; (ii) “parenteral and enteral nutrients, equipment, and supplies” as defined in 42 CFR 411.351 and described in 42 CFR 414.102(b); (iii) “customized items” as described in 42 CFR 414.224; (iv) “therapeutic shoes,” as described in 42 CFR 414.228(c); or (v) supplies necessary for the effective use of DME, as described in section 110.3 of chapter 15 of the Medicare Benefit Policy Manual (Centers for Medicare and Medicaid Studies Publication 100-02).

One commenter asked that the regulations clarify that the mere fact that a particular device is sold for use in medical offices and institutions is not determinative of whether the device falls within the retail exemption.

As the regulations make clear, whether or not a device falls within the retail exemption is based on all relevant facts and circumstances. Therefore, the mere fact that an individual device is sold for use in a professional setting is not determinative of whether that type of device falls within the retail exemption.

Several commenters requested that the final regulations confirm that the factors enumerated in the facts and circumstances test for the retail exemption are non-exclusive, and that other factors may also be relevant in determining whether a particular device qualifies for the retail exemption. Commenters also asked for clarification that a device need not meet every positive factor, and that the fact that a device meets a negative factor is not determinative of whether a device qualifies for the retail exemption.

The final regulations retain the facts and circumstances approach to determining whether a particular device falls within the retail exemption. The facts and circumstances approach requires a balancing of factors enumerated in § 48.4191-2(b)(2). No one factor is determinative. Thus, a device may qualify for the retail exemption without meeting all of the positive factors listed under paragraph § 48.4191-2(b)(2)(i). Additionally, a device may qualify for the retail exemption even if it meets one or more negative factors under paragraph § 48.4191-2(b)(2)(ii).

Accordingly, the final regulations state that there may be facts and circumstances that are relevant in evaluating whether a device is of a type generally purchased by the general public at retail for individual use in addition to those described as factors in § 48.4191-2(b)(2)(i) and (ii). In addition, the final regulations include seven additional examples that illustrate the process for determining whether a device falls within the retail exemption, including examples that illustrate the balancing of different factors for a particular device.

Several commenters suggested that Internet sales should be included in the factor described in § 48.4191-2(b)(2)(i)(A) that looks to whether consumers who are not medical professionals can purchase the device at certain retail businesses. Other commenters suggested that the fact that consumers who are not medical professionals can purchase a device over the Internet should be a factor that indicates that a device is “regularly available for purchase and use by individual consumers,” regardless of whether the Internet site is associated with a bricks and mortar store.

Several commenters also suggested that retail sales should include those made over the telephone.

In addition, several commenters suggested that the retail businesses identified in § 48.4191-2(b)(2)(i)(A) should explicitly include medical supply stores and retailers that primarily sell medical devices (for example, specialty medical stores).

The final regulations adopt all of these suggestions. Under the final regulations, the factor in § 48.4191-2(b)(2)(i)(A) provides that consumers who are not medical professionals can purchase the device in person, over the telephone, or over the Internet, through retail businesses such as drug stores, supermarkets, or medical supply stores and retailers that primarily sell medical devices (for example, specialty medical stores, DMEPOS suppliers, and similar vendors).

One commenter requested that final regulations remove the factor that looks to whether consumers who are not medical professionals can use the device safely and effectively for its intended medical purpose with minimal or no training from a medical professional. The commenter reasoned that many taxable medical devices that would otherwise qualify for the retail exemption require at least some basic level of training. The commenter then noted that the suggestion that training would cause a taxable medical device to no longer qualify for the retail exemption is not appropriate.

The final regulations do not adopt the commenter's suggestion. The IRS and the Treasury Department believe that whether more than minimal training from a medical professional is required to safely and effectively use a device is a relevant consideration. At the same time, however, the factor that considers training is only one of many factors to be considered in determining whether a device falls within the retail exemption, and it is possible that a device could qualify for the retail exemption even if it does not satisfy this factor.

One commenter requested clarification that the phrase “administered by a medical professional” in the factor described in § 48.4191-2(b)(2)(ii)(A) does not include the initial and periodic fitting or adjustment with respect to an orthotic or prosthetic device that is not implanted.

The final regulations provide a safe harbor for certain devices that fall under the retail exemption. Prosthetic and orthotic devices, as defined in 42 CFR 414.202, that do not require implantation or insertion by a medical professional, fall under the retail exemption safe harbor described in § 48.4191-2(b)(2)(iii)(D)( 1 ). Accordingly, prosthetic and orthotic devices within the meaning of 42 CFR 414.202 that do not require implantation or insertion by a medical professional are considered to be of a type generally purchased by the general public at retail for individual use, without regard to whether they require initial or periodic fitting or adjustment.

A prosthetic or orthotic device that is not in the safe harbor may qualify for the retail exemption based on an application of the facts and circumstances test. The final regulations include an example of a prosthetic device that falls within the retail exemption.

Two commenters suggested that the factor enumerated in § 48.4191-2(b)(2)(ii)(B) that considers a device's cost should not be included in the final regulations. One commenter stated that whether or not a device is affordable depends on the consumer's insurance coverage and cost alternatives.

The final regulations do not adopt this suggestion. The final regulations take a facts and circumstances approach to the retail exemption. The facts and circumstances test is comprised of a number of non-exclusive factors; each factor is one of several to be considered in determining whether a device falls within the retail exemption. Devices used in hospitals, doctors offices and other medical institutions, such as x-ray machines, magnetic resonance imaging (MRI) systems, and computed tomography (CT scan) or computed axial tomography (CAT scan) equipment, would likely be prohibitively expensive for an average individual user. Accordingly, the factor that considers cost is meaningful in determining whether a type of device is primarily for use in a medical institution or office or by a medical professional.

Several commenters requested that the final regulations not include classification as a Class III device as a factor, because the JCT General Explanation noted that the retail exemption is not limited by device class.

The final regulations do not adopt this suggestion. Although the JCT General Explanation notes that the retail exemption is not limited by device class, it does not state that classification in Class I, Class II, or Class III is irrelevant to the determination of whether a device falls within the retail exemption. The IRS and the Treasury Department, in consultation with FDA, have determined that the vast majority of Class III types of devices are not devices that are of a type generally purchased by the general public at retail for individual use. Accordingly, the factor that considers whether a device is a Class III type of device is meaningful in determining whether a type of device is primarily for use in a medical institution or office or by a medical professional.

Two commenters suggested that 21 CFR part 868 (Anesthesiology Devices) should not be included in the list of FDA classification categories in § 48.4191-2(b)(2)(ii)(D) that suggest that a device is primarily for use in a medical institution or office or by a medical professional. The commenters noted that certain portable oxygen systems are classified in 21 CFR part 868.

One commenter requested that 21 CFR part 876 (Gastroenterology-Urology Devices) be removed from the list of FDA classification categories in § 48.4191-2(b)(2)(ii)(D) because 21 CFR part 876 contains many devices, such as ostomy supplies, that would otherwise fall within the retail exemption.

The final regulations do not remove any FDA classification categories from those enumerated in § 48.4191-2(b)(2)(ii)(D). The IRS and the Treasury Department have determined, after consultation with the FDA, that the overwhelming majority of devices that fall within these regulatory categories are not of a type generally purchased by the general public at retail for individual use. Further, classification in one of the enumerated parts or subparts is not determinative of whether a device falls within the retail exemption. Devices in these categories must be evaluated in light of all relevant facts and circumstances.

The final regulations include an example that weighs the facts and circumstances with respect to a portable oxygen concentrator, including the fact that it is a device under 21 CFR part 868, and concludes that the portable oxygen concentrator falls within the retail exemption. The final regulations also include an example that illustrates that a urinary ileostomy bag, which is a device under 21 CFR part 876, is included in the safe harbor set forth in § 48.4191-2(b)(2)(iii)(D)( 1 ).

Several commenters suggested that the final regulations include a factor that considers whether a device's packaging and labeling suggests that the device is intended for use by individuals who are not medical professionals. One commenter noted that product labeling that is easy for someone who is not a medical or health care professional to understand suggests that the device is regularly available for purchase and use by individual consumers who are not medical professionals.

The final regulations do not adopt this suggestion. Device manufacturers determine the packaging and labeling of a device. Manufacturers may package and label a device in a consumer-friendly manner, even if the device is of a type that is primarily intended for use in a medical institution or office, or by medical professionals. Therefore, the IRS and the Treasury Department have determined that a device's packaging and labeling are not instructive as to whether a device is generally purchased by the general public at retail for individual use.

One commenter requested that the final regulations include a factor that looks to whether documents submitted to the FDA, such as a Premarket Notification (510(k)) or application for Premarket Approval (PMA), state that the device is intended for individual use.

The final regulations do not adopt this suggestion. After consultation with the FDA, the IRS and the Treasury Department have determined that documents submitted to the FDA, such as 510(k) documents and PMA applications, are not consistently reliable indicators of whether a device is of a type that is generally purchased by the general public for individual use.

One commenter suggested that the retail exemption safe harbor defined in § 48.4191-2(b)(2)(iii)(D) be expanded to include all devices that fall under the definition of DMEPOS in 42 CFR 414.202.

The final regulations do not adopt this suggestion. However, devices that fall within the definition of DMEPOS that are not included in the retail exemption safe harbor in § 48.4191-2(b)(2)(iii)(D), such as oxygen equipment and other rental durable medical equipment devices, may qualify for the retail exemption by application of the facts and circumstances test. The final regulations provide an example that evaluates whether a portable oxygen concentrator falls within the retail exemption based upon an evaluation of such a device under the facts and circumstances test.

One commenter suggested that the safe harbor defined in § 48.4191-2(b)(2)(iii)(D) be expanded to include “capped rental” devices, within the meaning of 42 CFR 414.229, for which title transfers to the individual user (the Medicare beneficiary) at the end of the rental term.

The category of capped rental DME consists of DME that is not subject to the payment provisions set forth in 42 CFR 414.220 through 42 CFR 414.228. Medicare pays for capped rental DME other than complex rehabilitation power-driven wheelchairs on a rental basis. See 42 CFR 414.229. Payment is made on a rental basis, not to exceed a period of continuous use of longer than 13 months. On the first day after 13 continuous rental months during which payment is made, the supplier must transfer title to the equipment to the Medicare beneficiary. See 42 CFR 414.229(f)(2). Medicare also pays for complex rehabilitation power-driven wheelchairs on a capped rental or lump-sum purchase basis. The supplier of the complex rehabilitation power-driven wheelchair must offer Medicare beneficiaries the option to purchase the complex rehabilitation power-driven wheelchair at the time the equipment is initially furnished. See 42 CFR 414.229(h). If the beneficiary does not elect to purchase the complex rehabilitation power-driven wheelchair, payment is made on a capped rental basis in accordance with the rules described above for other capped rental DME. See 42 CFR 414.229(f).

The IRS and the Treasury Department, in consultation with the Center for Medicare and Medicaid Services (CMS), have determined that, in most instances, the rental period of a capped rental device terminates before the transfer of title. Further, information on the capped rental devices for which title has transferred to the individual user does not suggest a pattern of title transfer for specific types of devices. Accordingly, capped rental devices cannot be categorically said to qualify as devices that are generally purchased by the general public at retail for individual use. They may, however, qualify for the retail exemption by an application of the facts and circumstances test. Therefore, safe harbor treatment is not appropriate for capped rental devices, and the final regulations do not adopt the commenter's suggestion.

One commenter noted that 42 CFR 414.202 excludes from the definition of prosthetic and orthotic devices medical supplies such as catheters, catheter supplies, ostomy bags, and supplies related to ostomy care that are furnished by a Home Health Agency (HHA) as part of home health services under 42 CFR 409.40(e). The commenter asked that the final regulations address the significance, if any, of the exclusion of products furnished by an HHA on the breadth of the safe harbor in § 48.4191-2(b)(2)(iii)(D)( 1 ) for prosthetic and orthotic devices as defined in 42 CFR 414.202.

The IRS and the Treasury Department, in consultation with CMS, have determined that the HHA language in 42 CFR 414.202 is a provision that clarifies that when individual devices are furnished by an HHA, they are payable as home health services under 42 CFR 409 subpart E. The HHA language in 42 CFR 414.202 does not exclude any type of device from the definition of prosthetic and orthotic devices and, therefore, has no impact on the retail exemption safe harbor in § 48.4191-2(b)(2)(iii)(D).

Section 4191(b)(2) provides that the term taxable medical device does not include eyeglasses, contact lenses, hearing aids, and any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use. Several commenters requested that final regulations define a “type” of device to include all devices that are categorized in the same FDA product code.

The final regulations do not adopt this suggestion. In consultation with the FDA, the IRS and the Treasury Department determined that the breadth and variety of devices within a particular product code and across product codes can vary greatly. Therefore, the product code designation is generally too broad to be useful in determining which devices fall within the retail exemption.

One commenter noted that the FDA requires some components of devices to be separately listed as devices. The commenter suggested that the final regulations exempt listed components that are ultimately used as component parts of a device that is exempt under section 4191(b) and § 48.4191-2(b), such as component parts of certain completed prosthetic or orthotic devices.

The safe harbor provision in § 48.4191-2(b)(2)(iii)(D) includes some components of prosthetic and orthotic devices. The IRS and the Treasury Department request public comments to help identify listed components of devices that are exempt under section 4191(b) and § 48.4191-2(b) that are not included in a safe harbor or that do not otherwise fall within the retail exemption by an application of the facts and circumstances test.

Several commenters suggested that dental devices that are customized for an individual patient, such as crowns, bridges, and braces, should qualify for the retail exemption because they are sold directly to individual consumers. Further, one commenter noted that the factor described in § 48.4191-2(b)(2)(ii)(A), which considers whether a device “generally must be implanted, inserted, operated, or otherwise administered by a medical professional,” creates an unnecessary distinction between devices that an individual can insert and remove, and devices that a dentist must embed or affix within the patient's mouth.

The final regulations do not create a special rule for dental devices. The final regulations take a facts and circumstances approach to the retail exemption. The facts and circumstances test is comprised of a number of non-exclusive factors. A customized dental device will qualify for the retail exemption if, based on the totality of the facts and circumstances, the device is of a type that is generally purchased by the general public at retail for individual use.

Combination products are therapeutic and diagnostic products that combine drugs, devices, and/or biological products. See 21 CFR 3.2(e). The proposed regulations tie the definition of taxable medical device to the FDA's listing requirements for devices. Therefore, under the proposed regulations, a combination product that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807 and that does not fall under a statutory exemption, such as the retail exemption, is subject to the medical device excise tax.

Several commenters requested that the final regulations provide that a manufacturer will not be required to pay the medical device excise tax on a combination product that is taken into account in computing the branded prescription drug (BPD) fee enacted under section 9008 of the ACA.

The final regulations do not adopt this suggestion. The ACA enacted both the medical device excise tax and the BPD fee, but provided no coordination between the provisions. Therefore, there is no statutory basis for providing an exclusion from the tax under section 4191 for a combination product with both a device component and a drug component, even if the combination product is taken into account for purposes of computing the BPD fee. Moreover, the comments did not raise any likely scenarios in which both the BPD fee and the medical device excise tax apply to the same product. Based on consultation with the FDA, the IRS and the Treasury Department anticipate that few, if any, combination products will be subject to both the medical device excise tax and the BPD fee. Accordingly, under the final regulations, a combination product that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807 is a taxable medical device.

The ACA added section 4191 to chapter 32, subtitle D of the Code, which relates to taxes imposed on the sales of taxable articles by manufacturers, producers, and importers (commonly referred to as “manufacturers excise taxes”). Accordingly, the preamble to the proposed regulations states that the existing chapter 32 rules apply to the medical device excise tax.

One commenter requested that the final regulations include a presumption that a manufacturer who lists a device with the FDA is the manufacturer of the device for excise tax purposes.

The final regulations do not adopt this suggestion. There are longstanding rules with respect to the definition of “manufacturer” or “importer” for chapter 32 purposes. These rules are contained in statutory and regulatory provisions, and they have been developed further through other published guidance and case law. Therefore, the definitions of manufacturer and importer under chapter 32 apply to section 4191; whether a person is considered a manufacturer or importer for FDA purposes is not relevant.

Numerous commenters suggested that the IRS apply the constructive sale price rules with flexibility and sensitivity to data limitations that medical device companies face. The IRS and the Treasury Department recognize that the medical device industry will likely face some implementation issues when the medical device excise tax goes into effect on January 1, 2013, and the IRS intends to work with stakeholders on compliance-related issues, such as the determination of price.

Numerous commenters requested that the final regulations extend the principle of Revenue Ruling 80-273 (1980-2 CB 315) to taxable medical devices. Rev. Rul. 80-273 holds that when a manufacturer or importer sells a taxable article directly to an unrelated end user at retail, the excise tax may be based on a sale price of 75 percent of the retail sale price, after any adjustments under section 4216(a), such as for containers, packing, and transportation charges. The holding applies only to the excise taxes imposed under the Code sections explicitly listed in the revenue ruling. Commenters also requested that the final regulations clarify that sales “at retail” in the medical device context include sales to hospitals and other medical service providers. Although the final regulations do not adopt this suggestion, the IRS and the Treasury Department will issue separate interim guidance along with these regulations to address sale price issues and have considered these comments in the context of such guidance.

One commenter requested that the final regulations provide that taxpayers can use transfer pricing under section 482 to determine the taxable sale price of a taxable medical device.

The final regulations do not adopt the commenter's suggestion. Because the standards are not the same under the section 482 regulations and section 4216, an arm's length result determined under section 482 is not an appropriate proxy for the constructive sale price or fair market price under section 4216. While in certain circumstances facts used to support a transfer price for purposes of section 482 may be relevant to determining the sale price under section 4216, transfer pricing documentation or studies developed for purposes of section 482 or section 6662(e) will not be conclusive.

Finally, the IRS received several informal inquiries about whether the 2.3% medical device excise tax may be excluded from the sale price upon which the medical device excise tax is imposed. Section 4216(a) provides that in determining the price for which an article is sold there should be excluded the amount of tax imposed, whether or not stated as a separate charge. See section 4216(a) and § 48.4216(a)-2(a) of the Manufacturers and Retailers Excise Tax Regulations for the rules regarding the exclusion of tax from sale price.

Several commenters requested transition relief for installment sales and leases of taxable medical devices where the contract is entered into prior to the effective date of the tax on January 1, 2013.

The final regulations do not provide transition relief for all contracts entered into prior to January 1, 2013. However, the final regulations do provide transition relief for contracts entered into prior to March 30, 2010, the date the ACA was enacted. More specifically, the final regulations provide that payments made on or after January 1, 2013, pursuant to a written binding contract for the lease, installment sale, or sale on credit of a taxable medical device that was in effect prior to March 30, 2010, are not subject to tax under section 4191 unless the contract is materially modified on or after March 30, 2010. For purposes of this transition relief, a material modification includes only a modification that materially affects the property to be provided under the contract, the terms of payment under the contract, or the amount payable under the contract. A material modification does not include a modification to the contract required by applicable Federal, State, or local law.

Payments made pursuant to a contract that was entered into on or after March 30, 2010, are subject to tax under section 4191 and the existing provisions of sections 4216(c) and 4217, and §§ 48.4216(c)-1 and 48.4217-2 apply.

Several commenters requested that the final regulations specifically provide that the following are not taxable uses where the manufacturer receives no direct benefit in the form of money, services, or other property: (i) Demonstration products used for health care professionals and product awareness, such as samples used to demonstrate the type of device to be implanted in a patient; (ii) evaluation products provided to help health care professionals determine whether and when to use, order, purchase, or recommend the device; (iii) loaned devices to facilitate procedures utilizing a sold taxable medical device, such as instruments specifically designed to implant a particular orthopedic joint; (iv) testing and development products; and (v) product donations and charitable contributions.

The final regulations do not adopt this suggestion because it is necessary to have consistent rules for all manufacturers excise taxes. Section 4218 generally imposes a tax on certain uses of an article by the article's manufacturer. In general, under § 48.4218-1(b), if the manufacturer of a taxable article uses the article for any purpose other than in the manufacture of another taxable article, then the manufacturer is liable for tax on the article as if the manufacturer had sold it.

With regard to demonstration products, the provision or use of a taxable medical device as a demonstration product may constitute a taxable use, depending on the facts and circumstances of the arrangement. See Rev. Rul. 60-290 (160-2 CB 331) and Rev. Rul. 72-563 (1972-1 CB 568).

With regard to evaluation and testing products, Rev. Rul. 76-119 (1976-1 CB 345) holds that if a manufacturer uses a taxable article in the testing of another article of its own manufacture, the use of the taxable article is not a taxable use.

The existing chapter 32 rules do not specifically address whether a donation of a taxable article to charity constitutes a taxable use under section 4218. However, the IRS and the Treasury Department will issue separate interim guidance along with these regulations to address donations of taxable medical devices.

Several commenters requested that the final regulations provide manufacturers with the option of excluding from the sale price a reasonable estimate of purchase price adjustments for rebates, with a later true-up based on the actual rebate amounts. These commenters suggest that manufacturers have reliable historical data on past rebate performance, so they are able to project rebate amounts with reasonable certainty.

The final regulations do not adopt this suggestion. Section 48.4216(a)-3(c) provides that a manufacturer may take a rebate into account in determining sale price only to the extent the rebate is made prior to the close of the quarter during which the sale associated with the rebate is made. In addition, if the manufacturer subsequently allows a rebate for taxable articles on which tax has been paid, the manufacturer may make a claim for credit or refund of that portion of the tax that is proportionate to the part of the price that is rebated.

One commenter requested clarification with respect to the taxability of software that is sold together with services and/or maintenance contracts.

Section 48.4216(a)-1(e) provides that where a taxable article and a nontaxable article are sold by the manufacturer as a unit, the tax attaches to that portion of the manufacturer's sale price of the unit that is properly allocable to the taxable article. Because the definition of a taxable medical device is tied to the FDA's device listing requirements, if the software and service bundle is not listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807 (in other words, if the entire bundle is not a taxable medical device), the medical device excise tax attaches only to the sale of the devices within the bundle that are listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807.

Several commenters requested guidance on how the medical device excise tax will apply to sales of refurbished and remanufactured medical devices. One commenter requested that the definition of manufacturer in § 48.0-2(a)(4) be clarified to ensure that repairing, refurbishing, or rebuilding an already taxed medical device does not create another taxable medical device and is not considered manufacturing.

The final regulations do not adopt these suggestions. Under existing chapter 32 rules, remanufacturing or refurbishing constitutes manufacture if the remanufacturing or refurbishing process produces a new and different taxable article. See Rev. Rul. 86-130 (1986-2 CB 179), Rev. Rul. 83-149 (1983-2 CB 186), Rev. Rul. 68-40 (1968-1 CB 452), Rev. Rul. 64-202 (1964-2 CB 431), and Rev. Rul. 58-586 (1958-2 CB 806). If a remanufacturer or refurbisher produces a new and different taxable article, the tax is imposed upon the sale or use of the remanufactured or refurbished article.

Two commenters suggested that parts used to replace an existing part or component in a taxable medical device should not be subject to the tax, even if the part or component is listed separately as a device with the FDA.

The final regulations do not adopt this suggestion. Under existing law, if a taxable article is returned to the manufacturer under a warranty and the manufacturer provides a replacement article free or at a reduced price, the tax on the replacement article is computed on the actual amount, if any, paid to the manufacturer for the replacement article. See § 48.4216(a)-3(b) and Rev. Rul. 75-272 (1975-2 CB 421).

With regard to replacements that are not made under warranty, replacement parts that are listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807 are taxable medical devices, and their sale by the manufacturer is generally subject to tax.

One commenter requested clarification on whether the licensing of software that is a taxable medical device is a taxable event.

Under existing chapter 32 rules, the manufacturers excise tax generally attaches upon the sale or use of a taxable article by the manufacturer. The lease of a taxable article by the manufacturer is considered a sale. Neither the existing chapter 32 rules nor the final regulations address the issue of whether the licensing of a taxable article is a taxable event. However, the IRS and the Treasury Department will issue separate interim guidance along with these regulations to address this issue.

The medical device excise tax is reported on Form 720, Quarterly Federal Excise Tax Return. Several commenters requested that the IRS and the Treasury Department permit manufacturers and importers of taxable medical devices who are members of a affiliated group for income tax purposes to file Form 720 on a consolidated basis.

The final regulations do not adopt this suggestion. Section 1501 provides generally that an affiliated group of corporations shall have the privilege of making a consolidated return with respect to the income tax imposed by chapter 1 for the taxable year in lieu of separate returns. There is no similar provision that applies to excise tax. Thus, the privilege to file consolidated returns applies only to income tax returns and not to excise tax returns. Accordingly, for excise tax purposes, each business unit that has or is required to have a separate employer identification number is treated as a separate person with separate tax liability, and each such business unit must file a separate Form 720.

Registration through the Form 637 application process is necessary to effectuate tax-free sales. Several commenters requested that final regulations allow one entity in an affiliated group to register on behalf of the group with respect to intra-group sales.

The final regulations do not adopt this suggestion. The IRS and the Treasury Department have determined that it is necessary in the interest of effective tax administration to require each entity with a separate employer identification number to apply for registration under Application for Registration (For Certain Excise Tax Activities) (Form 637) to verify the activity for which the entity seeks registration. Once an entity is registered for a particular activity, the registration does not expire. Therefore, for most entities, the initial application process is the extent of the entity's obligation with respect to registration.

One commenter suggested that the quarterly reporting requirement is unduly burdensome on small medical device manufacturers. The commenter suggested that the final regulations initially require only annual reporting for small medical device manufacturers to enable those taxpayers to become familiar with the excise tax rules and implement the proper accounting practices and procedures.

The final regulations do not adopt this suggestion. The ACA added section 4191 to chapter 32. Therefore, the existing rules governing chapter 32 apply. Manufacturers excise taxes, including the medical device excise tax, are reported on Form 720. In general, Form 720 must be filed on a quarterly basis. For more information about reporting requirements, see § 40.6011(a)-1(a).

Several commenters suggested that the semimonthly deposit requirements under section 6302 are burdensome to medical device manufacturers because device manufacturers have little or no experience with returning and paying federal excise taxes and because manufacturers need time to develop their systems to implement these final regulations. Some of those commenters requested that final regulations specifically carve out taxable medical devices from the deposit rules set forth in section 6302 and the regulations thereunder. Other commenters requested that the IRS and the Treasury Department waive on a reasonable cause basis any tax penalty applicable to the failure to deposit the correct amount of tax.

The final regulations do not carve taxable medical devices out of the semimonthly deposit rules. Therefore, medical device manufacturers will generally be required to make semimonthly deposits of tax unless the manufacturer's net tax liability does not exceed $2,500 for the quarter. See section 6302 and the regulations thereunder for the rules regarding semimonthly deposits.

The IRS and the Treasury Department recognize that the application of the manufacturers excise tax rules, particularly with regard to sale price, may present certain challenges. The IRS and the Treasury Department further recognize that manufacturers and importers in the medical device industry may not have prior experience complying with the rules regarding semimonthly deposits. Given that the tax goes into effect on January 1, 2013, the IRS and the Treasury Department will issue separate interim guidance along with these regulations that addresses penalties under section 6656.

One commenter requested that the IRS and the Treasury Department amend the regulations under section 7701 to allow entities that are disregarded as separate from their owners for income tax purposes to be similarly disregarded for excise tax purposes.

The final regulations do not adopt this suggestion because it is necessary to have a consistent rule for all excise taxes. Specifically, § 1.1361-4(a)(8) and § 301.7701-2(c)(2)(v) treat a qualified subchapter S subsidiary and a single-owner eligible entity that is disregarded as an entity separate from its owner under § 301.7701-2 as a separate entity for purposes of excise taxes imposed by chapter 32 of the Code. These rules were adopted because of the difficulties that arise from the interaction of the disregarded entity rules and the federal excise tax rules. For example, the manufacturers excise tax rules rely on state law, rather than Federal law, to determine attachment of a tax. See § 48.0-2(b) (providing that excise taxes attach when title to an article passes to the purchaser, which is based on the laws of the local jurisdiction where the sale is made in the absence of express intention of the parties to the sale). Accordingly, a Form 720 reporting the medical device excise tax imposed on sales of taxable medical devices by the manufacturer or importer after December 31, 2012, must be filed under the name and employer identification number of the entity rather than under the name and EIN of the disregarded entity's owner.

Several commenters highlighted the compliance challenges associated with implementation of the medical device excise tax. These commenters requested that the IRS and the Treasury Department temporarily waive all tax penalties relating to the filing of Form 720.

The final regulations do not adopt this suggestion. Section 6651(a) imposes penalties for failure to file any return required under subchapter A of chapter 61 and for failure to pay the amount shown as tax on any such return, unless it is shown that the failure is due to reasonable cause and not willful neglect. Under § 301.6651-1(c), a taxpayer may avoid penalties under section 6651 for the failure to file a tax return or pay tax if the taxpayer makes an affirmative showing of all facts necessary to establish a reasonable cause for the taxpayer's failure to file a return or pay tax on time. If the taxpayer exercised ordinary business care and prudence but was nevertheless unable to file the return within the prescribed time, then the delay is due to a reasonable cause. A failure to pay will be considered to be due to a reasonable cause to the extent the taxpayer has made a satisfactory showing that the taxpayer exercised ordinary business care and prudence in providing for payment of the taxpayer's tax liability and was nevertheless either unable to pay the tax or would suffer an undue hardship (as described in § 1.6161-1(b)) if the taxpayer paid on the due date.

Section 6662 imposes an accuracy-related penalty for, among other things, negligence or disregard of the rules or regulations. Under section 6662(c), the term “negligence” includes any failure to make a reasonable attempt to comply with the provisions of the Code, and the term “disregard” includes any careless, reckless, or intentional disregard.

The IRS and the Treasury Department recognize that the application of the manufacturers excise tax rules may present certain implementation challenges. The IRS and the Treasury Department also recognize that manufacturers and importers in the medical device industry may not have prior experience with filing a Form 720. However, the IRS and the Treasury Department believe that the existing reasonable cause provisions under section 6651(a) and § 301.6651-1(c) and the negligence standard in section 6662 provide taxpayers with an appropriate mechanism for relief. If a penalty is assessed under section 6651 or section 6662, the IRS encourages taxpayers to call the telephone number on the penalty notice to discuss abatement options.

Under the proposed regulations, a taxable medical device is a device that is listed as a device with the FDA under section 510(j) of the FFDCA and 21 CFR part 807. Therefore, under the proposed regulations, a listed kit is a taxable medical device. The proposed regulations define a “kit” as a set of two or more articles packaged in a single bag, tray, or box for the convenience of the end user. In addition, the proposed regulations provide that if a kit is a taxable medical device, then the use of other taxable medical devices in the assembly of the kit constitutes “further manufacture” within the meaning of section 4221(a)(1) of the Code by the person who produces the kit.

The IRS and the Department of Treasury received numerous public comments regarding kits. Several commenters noted that taxing the kit will result in taxing items contained in the kit that, standing alone, are not taxable medical devices.

Some public comments pointed to certain FDA rules governing kits as evidence that kits should receive a different tax treatment than other devices that are listed with the FDA under section 510(j) of the FFDCA and 21 CFR part 807. The commenters suggested that kits should receive special tax treatment because many kits are not subject to FDA premarket notification requirements.

Additionally, several commenters suggested that the producer of a kit is not a “manufacturer” within the meaning of section 48.0-2(a)(4)(i). Other commenters requested that the final regulations exclude kits from the definition of “further manufacture” within the meaning of section 4221(a)(1), so that the sale of a kit is not subject to the medical device excise tax.

The final regulations do not explicitly provide that the use of other taxable medical devices in the assembly of the kit constitutes further manufacture, within the meaning of section 4221(a)(1), by the person who produces the kit. The IRS and the Treasury Department will issue separate interim guidance along with these regulations on the treatment of kits for purposes of the medical device excise tax.

Several commentators requested that the final regulations confirm that the use of a kit by a hospital or medical institution that produced the kit is not a taxable use within the meaning of section 4218.

Hospitals or medical institutions that produce kits for their own use are known as self-kitters. Self-kitters are exempt from the FDA's registration and listing requirements. See 21 CFR 807.65(f). Therefore, under the definition of a taxable medical device in both the proposed regulations and the final regulations, a kit produced by a hospital or medical institution for its own use would not be a “taxable medical device.” Accordingly, the use of the self-produced kits by the hospital or medical institution would not be a taxable use under the rules of section 4218.

The IRS final regulations and revenue rulings cited in this preamble are published in the Internal Revenue Cumulative Bulletin and are available from the Superintendent of Documents, P.O. Box 979050, St. Louis, MO 63197-9000.

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 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. No comments were received.

The principal authors of these regulations are Natalie Payne and Stephanie Bland, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development.

Accordingly, 26 CFR part 48 is amended as follows:

Background TTB Authority

Chapter 51 of the Internal Revenue Code of 1986 (IRC), pertains to the taxation of distilled spirits, wines, and beer (see title 26 of the United State Code (U.S.C.), chapter 51 (26 U.S.C. chapter 51)). With regard to beer, IRC section 5051 (26 U.S.C. 5051) imposes a Federal excise tax on all beer brewed or produced for consumption or sale within the United States or imported into the United States. The rate of the Federal excise tax on beer is $18 for every barrel containing not more than 31 gallons, and a like rate for any other quantity or for fractional parts of a barrel, with an exception that the rate of tax is $7 a barrel for the first 60,000 barrels of beer for a domestic brewer that does not produce more than 2 million barrels in a calendar year. Section 5054 (26 U.S.C. 5054) provides that, in general, the tax imposed on beer under section 5051 shall be determined at the time the beer is removed for consumption or sale, and shall be paid by the brewer in accordance with section 5061 (26 U.S.C. 5061).

IRC section 5061 pertains to the time and method for filing tax returns and payment of the applicable excise taxes. Section 5061 states that Federal excise taxes on distilled spirits, wines, and beer shall be collected on the basis of a return, and that the Secretary of the Treasury (the Secretary) shall by regulation prescribe the period or event for which such return shall be filed.

Section 5061(d)(1) generally requires that the taxes owed on alcohol beverages, including beer, withdrawn under bond, be paid no later than the 14th day after the last day of the semimonthly period during which the withdrawal occurs. Under a special rule, September has three return periods (Section 5061(d)(5)), resulting in a total of 25 returns due each year. Section 5061(d)(4) provides an exception to the semimonthly rule for taxpayers who reasonably expect to be liable for not more than $50,000 in taxes with respect to beer imposed by 26 U.S.C. 5051 and 7652 in a given calendar year and who had an excise tax liability of not more than $50,000 the previous calendar year. Under this provision, such taxpayers may pay the excise taxes on alcohol beverages withdrawn under bond on a quarterly basis.

Throughout this preamble, TTB may refer to brewers who are eligible to file excise tax returns on a quarterly basis as “small brewers.” While there is no specific statutory or regulatory definition as to who is a “small brewer,” TTB believes that section 5061(d)(4) of the IRC, which provides an exception to the semimonthly rule for taxpayers whose annual alcohol excise tax liability is not expected to be more than $50,000, and who were liable for not more than $50,000 in such taxes in the preceding calendar year, provides a reasonable standard for determining when a brewer may be considered “small”.

Section 5401(b) of the IRC (26 U.S.C. 5401(b)) provides that all brewers shall obtain a bond to insure the payment of any taxes owed. The amount of such bond shall be “in such reasonable penal sum” as prescribed by the Secretary in regulations “as necessary to protect and insure collection of the revenue.”

The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers chapter 51 of the IRC and its implementing regulations pursuant to section 1111(d) of the Homeland Security Act of 2002, codified at 6 U.S.C. 531(d). The Secretary has delegated various authorities through Treasury Department Order 120-01 (Revised), dated January 21, 2003, to the TTB Administrator to perform the functions and duties in administration and enforcement of these laws. The TTB regulations that implement the provisions of sections 5051, 5054, 5061, and 5401, of the IRC as they relate to beer, are set forth in part 25 of title 27 of the Code of Federal Regulations (CFR).

Penal sum amounts of the brewer's bond are set forth in 27 CFR 25.93. For brewers filing tax returns and paying tax semimonthly, the penal sum of the bond must be equal to 10 percent of the maximum amount of tax that the brewer will become liable to pay during the calendar year. For brewers filing tax returns and paying tax quarterly, the penal sum of the bond must be equal to 29 percent of the maximum amount of tax which the brewer will become liable to pay during the calendar year. Under § 25.93(c), the minimum bond amount is set at $1,000 and the maximum bond amount is $500,000.

TTB explained the rationale for the bond amount for quarterly taxpayers in a temporary rule, T.D. TTB-41, published in the Federal Register on February 2, 2006 (71 FR 5598), which implemented the quarterly tax payment procedures of section 5061(d)(4) of the IRC. TTB permanently added the temporary rule to the regulations in T.D. TTB-94, published on August 24, 2011 (76 FR 52862). In T.D. TTB-41, TTB stated that due to the longer deferral period between the accrual of the tax liability and the actual payment of tax, the 10 percent bond coverage provided for semimonthly filers would be inadequate for small brewers who were eligible and opted to pay taxes quarterly.

In recent meetings, beer industry groups and individual brewers have informed TTB that, for small brewers, the increase of the penal sum amount to 29 percent of the brewer's expected maximum tax liability for the year has deterred such brewers from filing returns on a quarterly basis. A review of TTB's records provides data that support this conclusion. At the end of 2011, 2,026 brewers submitted tax returns to TTB, and 1,846 of those brewers paid less than $50,000 in excise tax annually and were eligible to file returns quarterly. Further, the majority of those 1,846 brewers paid much less than $50,000 in excise tax, given that 1,616 of those brewers (87.5 percent) paid annual taxes of $7,000 or less. TTB's records also show that of these 1,616 brewers, 841 (52 percent) filed semimonthly rather than quarterly tax returns.

The effect of § 25.93 is that a brewer who files returns quarterly instead of semimonthly may have to increase its bond coverage. For example, a small brewer with an annual Federal excise tax liability of $40,000 per year who files returns semimonthly must obtain bond coverage of $4,000 (10 percent of $40,000). If the same small brewer opts to file its tax returns quarterly rather than semimonthly, the brewer must increase its bond coverage to 29 percent of its maximum annual tax liability, which would result in a bond amount of $11,600.

The effect of § 25.93 also may mean that small brewers who want to file quarterly would be more than likely ineligible to obtain the minimum bond coverage under § 25.93(c). For example, a small brewer with an annual Federal excise tax liability of $7,000 would have a semimonthly tax liability of less than $300 and would need to obtain only the minimum bond coverage of $1,000. If the same brewer opted to file returns quarterly rather than semimonthly, the quarterly tax liability would be $1,750, making the brewer ineligible for the minimum bond. Instead, the brewer must increase its bond coverage to 29 percent of its maximum annual tax liability, which would be $2,030.

In the case of brewers who are eligible to file quarterly returns, TTB has revisited the issue of whether requiring a penal sum of at least 29 percent of a small brewer's maximum annual tax liability is necessary to establish a “reasonable penal sum” that adequately protects and insures collection of the revenue. TTB's tax return statistics reveal that the total sum of Federal excise tax collected from brewers who are liable for not more than $50,000 in taxes annually represents a small amount of the total sum of excise tax collected on beer each year. Small brewers paid approximately $11.5 million, or just over six percent, of the $177.8 million in Federal excise tax on beer collected in 2011. Similar collections occurred in 2010, with small brewers paying approximately $10.15 million, or 5.6 percent, of the $180.6 million in excise tax collected that year.

After discussions with beer industry members and a review of excise tax return data, TTB believes that given the relatively low risk to the revenue, a penal sum of $1,000 for bonds obtained by small brewers is reasonably sufficient to protect and insure collection of the revenue. TTB also believes that amending the regulatory requirements regarding the penal sum of brewers bonds may result in an increase in quarterly filings and tax payments. In addition, TTB believes an increase in quarterly filings and tax payments will lessen costs and increase efficiencies for both TTB and industry members.

To encourage a greater number of eligible small brewers to file excise tax returns and pay taxes quarterly rather than semimonthly, this temporary rule amends 27 CFR 25.93(a) to add a three-year exception to the current penal sum of the brewer's bond. During this three-year period, for brewers who are eligible to and choose to file their tax returns quarterly, the penal sum of the brewer's bond will be a flat $1,000. The temporary rule's three-year period will allow TTB to determine if the adjustment to the bond amount results in increased quarterly tax filing and payment by eligible brewers, and also will allow TTB to confirm the presumption that a $1,000 penal sum of the bond is sufficient to protect and insure collection of the revenue. This temporary rule does not prohibit brewers who are eligible to file quarterly from filing semimonthly or maintaining their current bond amounts.

To submit comments on these regulations, please refer to Notice No. 131, the notice of proposed rulemaking on this subject published in the Proposed Rules section of this issue of the Federal Register .

Because this regulation does not impose a collection of information on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) do not apply. Pursuant to section 7805(f) of the Internal Revenue Code, TTB will submit this temporary rule to the Chief Counsel for Advocacy of the Small Business Administration for comment on the impact of the temporary regulations.

It has been determined that this temporary rule is not a significant regulatory action as defined in E.O. 12866. Therefore, a regulatory assessment is not necessary.

There is no new collection of information imposed by this Treasury decision. There is no change in the reporting or recordkeeping burden resulting from a reduced penal sum for certain small taxpayers.

TTB is issuing this temporary final rule without prior notice and comment pursuant to authority under section 4(a) of the Administrative Procedure Act (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” We believe prior notice and comment is unnecessary because we expect the affected public will benefit immediately from a reduced bond amount and be encouraged to lessen their reporting burdens. TTB does not believe there will be any objection to this rule since it is optional and reduces regulatory burdens.

Pursuant to the provisions of 5 U.S.C. 553(d)(1) and (d)(3), TTB is issuing this regulatory amendment without a delayed effective date. As provided for in section 553(d)(1), this amendment lowers the bond requirement for small brewers, thereby relieving a restriction which may have prevented such brewers from choosing to pay their taxes quarterly. TTB also has determined that good cause exists to provide industry members with immediate relief from the penal sum requirements under the existing regulations, in accordance with section 553(d)(3).

Gerald M. Isenberg and Ramona Hupp of the Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, drafted this document.

Accordingly, for the reasons set forth in the preamble, TTB amends 27 CFR, chapter I, part 25 as set forth below.

This final rule implements Voluntary Education Programs for Military Service members. This rule includes educational programs that enable Service members to earn a degree on their off-duty time. Congress has held that men and women serving in the Armed Forces should have at least the same opportunity to advance academically as do civilians who remain outside the military.

Funding for Voluntary Education Programs is authorized by law and is subject to the availability of funds from each Service. Voluntary education programs include tuition assistance (TA) (per 10 U.S.C. 2007), which is administered uniformly across the Services. Subject to appropriations, each Service pays no more than $250.00 per semester-unit for tuition and fees combined. Each Service member participating in off-duty, voluntary education is eligible for up to $4,500.00, in aggregate, for each fiscal year. TA can only be used for courses offered by postsecondary institutions accredited by a national or regional accrediting body recognized by the U.S. Department of Education.

A March 2011 Government Accountability Office report on the DoD TA program recommended the Department take steps to enhance its oversight of schools receiving TA funds. As a result, a DoD Memorandum of Understanding (MOU) requirement was included in this rule, which is designated not only to improve Departmental oversight but also to account for our Service members' unique lifestyle requirements. The purpose of the DoD MOU is to establish a partnership between the Department and institutions to improve educational opportunities while protecting the integrity of each institution's core educational values. This partnership serves to ensure a quality, viable program exists that provides for our Service members to realize their educational goals, while allowing for judicious oversight of taxpayer dollars.

The Department of Defense published a proposed rule on August 6, 2010 (75 FR 47504-47514). Twenty six submissions were received which contained a total of 110 comments that were reviewed and considered. However, a substantial number of the 110 comments were duplicative, resulting in 35 actual comments. These 35 comments were grouped into just 9 topics and addressed below.

Comment: We received a comment which recommended the document recognize the potential for adjudications to arise, and that a long-term point of contact be specified to address adjudication; this should include, name, phone number and email address of the contact office.

Response: For tracking purposes, a “feedback button” was developed on the DoD Voluntary Education Partnership MOU Web page to specifically address questions and concerns from Service members, education centers, and institutions. The homepage for DoD Voluntary Education ( http://apps.mhf.dod.mil/voled ) also contains a link where personnel can register their voluntary education concerns. Every entry received through the automated feedback button will be recorded, tracked, and resolved by the appropriate DoD official. For general information concerning DoD Voluntary Education Programs, personnel can send a written inquiry to Ms. Kerrie Tucker, at the Office of the Under Secretary of Defense (Personnel & Readiness), Military Community & Family Policy, State Liaison and Educational Opportunities, 4800 Mark Center Drive, Suite 14E08, Alexandria, Virginia, 22350-2300 or email: kerrie.tucker@osd.mil.

Comment: Several commenters addressed concerns about the new requirement for schools to agree to participate in a `third party review' process that will evaluate voluntary education programs and the delivery of their educational opportunities to Service members. One commenter requested additional information concerning a waiver to this review. Since this review process will be contracted to a company outside DoD, the selected contractor will be responsible for the procedures connected with the actual review process which could include a possible waiver process. Another commenter suggested the DoD contracted `third party' evaluator(s) accompany the Distance Education and Training Committee (DETC) accreditation committees since the vast majority of DETC accredited distance education institutions are very small with small enrollments of Service members. In the long run, this may help to conserve DoD resources, give DoD a broader view of the institution, and help institutions keep their tuitions low.

Response: The comments received have been noted; however the final decision will be made by the selected DoD contractor for the complete `third party review' process.

Comment: A commenter stated that the responsibilities on page 47508: under 68.5, section (g)(2), were not in concert with the earlier section (d)(6), which states the Director of DANTES will serve “as the Executive Secretary at the Interservice Voluntary Education Board meeting convened annually to review DANTES' programs * * *” Since the DANTES Director does not serve as the Executive Secretary at the other quarterly meetings of the Interservice Voluntary Education Board, the commenter suggested section (g)(2) be rewritten as noted in (d)(6) so that the DANTES Director's Executive Secretary responsibilities do not expand beyond the annual Board meeting convened to review the DANTES mission and programs.

Response: This comment was accepted and the appropriate changes were made, which included deleting section (g)(2) and keeping section (d)(6) as is. However, the final rule lists the operational procedures relating to DANTES in section 68.6

Comment: Multiple comments were received with alternative language for the provision on tuition assistance and how it should be applied with regards to various fees as stated on page 47508, under 68.6, Procedures, section (a)(2)(ii)(D).

Response: Several recommended language alternatives were submitted and a combination statement was developed. This section now includes the following additional statement to the last sentence: “* * *are charged to all students and 100 percent refundable.”

Comment: The majority of the comments received focused on Appendix A to part 68, section 4.a. on page 47512 on the `One Single Rate to TA' and questions relating to the actual implementation, especially with schools operating in several different states.

Response: The term ‘one single rate tuition rate' pertains to the institution at a specific geographic location, not nationwide. The intent of this paragraph is to ensure that all Service members (i.e., Soldiers, Airmen, Sailors, or Marines) attending the same institution, at the same location, enrolled in the same course, be charged the same amount of tuition assistance without regard to their Service component. Additionally, if an institution has more than one mode of delivery for their courses, the ‘one single tuition rate' will be the same for all participating Service members without regard to their Service component within each mode of delivery. Institutions with more than one campus will sign one DoD Voluntary Education Partnership MOU from their home, main, or parent campus, if that home, main, or parent campus signatory is responsible of all of the campuses. A listing of the specific campus locations will be included in the DoD MOU and provided by the home, main, or parent campus signatory. However, if each campus operates as a separate business entity for purposes such as handling third-party payments, then each campus signatory will sign a separate DoD MOU.

Comment: A commenter questioned the verbiage in Appendix A to Part 68 (Paragraph 5b. (7)) concerning class cancellations. It currently states: The institution will: “Inform the installation education advisor about class cancellations for classroom-based courses on military installations no later than seven calendar days prior to the beginning of the term.” At the commenter's school, approximately 40% of the registrations occur the week before the beginning of the term and during the week the term starts. The proposed rule would result in cancelling classes that, in their experience, the majority of which would gain sufficient enrollment prior to class start. In view of the above, suggest that the installation education advisor have the flexibility to set the class cancellation policy based on the situation at that installation.

Response: Suggestion to change the verbiage for this paragraph was accepted and reads as follows: “Inform the installation education advisor about cancellations for classroom-based classes on military installations per the guidelines set forth in the separate installation MOU.”

Comment: A commenter requested clarification on the needs assessment requirement stated in section 68.6, subsection (b)(1)(v) and (b)(3)(v). As stated, it was unclear to the commenter who was ultimately responsible for the administration of the needs assessment.

Response: The comment was accepted and clarification was added to the referenced paragraphs which includes: * * *periodic needs assessments conducted by the appropriate installation official (normally the Education Services Officer) for programs provided on the installation. The installation needs assessment process is used to determine such items as staffing requirements, course offerings, size of facilities, funding, or other standards for delivery of educational programs.”

Comment: Several comments were received concerning the Service-specific addendums. One commenter submitted a correction to the Navy addendum for the address to mail an official transcript. Another commenter suggested the Navy addendum be reworded concerning the response time.

Response: The Navy address was corrected in Appendix E to Part 68, 2.c.(7) and paragraph 2.c.(5) now reads: “Institutions will strive to respond to email messages from students within a reasonable period of time—generally within two workdays, unless extenuating circumstances would justify additional time.”

Comment: Multiple narrative comments were received from the general public which contained opinions, ideas, and observations, with no concrete recommendations for valid changes. However, one commenter stated, “Recognition that any required indemnification by public educational institutions in the MOU(s) may be limited by state and governing board limits.”

Response: A new paragraph was added to section 68.6, Procedures, paragraph (a)(16) which reads: “To the extent that any provision of the standard language of the DoD Voluntary Education Partnership MOU template in appendices A, B, C, D, and E to this part, results from DoD policy that conflicts with a state law or regulation, the DASD(MCFP) may authorize amending the standard language of the DoD Voluntary Education Partnership MOU template on a case-by-case basis to the extent permissible by Federal law or regulation.”

Additional clarifications were made in the final rule based on comments received from the Institutions during the implementation process of the DoD Voluntary Education Partnership Memorandum of Understanding (MOU). DoD received several concerns and apprehensions in signing the DoD MOU from institutions of higher learning (IHLs). DoD decided to work with the public stakeholders (American Council on Education, IHLs, and key veteran and military service organizations) to address these concerns by providing additional clarification to the terminology contained in the DoD MOU. These clarifications use IHL terminology instead of DoD language in the DoD MOU and definition of terms in section 68.3.

The IHLs concerns included the following key provisions in the DoD MOU contained in Appendix A to Part 68:

• Adhering to the Servicemembers Opportunity Colleges (SOC) Consortium Principles, Criteria, and Military Student Bill of Rights (sections 3.e. and f.);

• Waiving degree residency requirements (sections 3.e. and f.);

• Recognizing, accepting, and awarding military training and education where appropriate (sections 3.e. and f.); and

• Providing an evaluated education plan to military students (section 4.c.); DoD extended the deadline for IHLs to sign the DoD MOU to 60 days following the publication of this final rule in the Federal Register to provide the IHLs with sufficient time to reassess the agreed-upon terminology. All of the concerns from the IHLs were addressed, however the DoD MOU is voluntary and as such, DoD cannot mandate that a postsecondary institution sign. If there are institutions that choose not to participate in the Military Tuition Assistance Program, the Military Services will assist Service members to find schools that have the same program and will transfer credits the Service members have already earned. They will also provide counseling to assist them in identifying additional or alternative funding.

The changes listed below are contained in the final rule and include the following main recommendations:

• The addition of paragraph (b) in section 68.1, Purpose. Although the content for this paragraph was already stated in section 68.6, Procedures, paragraph (a)(15), it was not stated in the `Purpose' of this part. In the final rule, paragraph (b) in section 68.1 of this part states the new policy, which requires a signed DoD MOU from educational institutions providing education programs through the DoD TA Program.

• To increase clarity connected with the duties relating to the Interservice Voluntary Education Board and DANTES, the operational procedures listed for both topics were moved from section 68.5, “Responsibilities” and consolidated into section 68.6, “Procedures”. Previously, the proposed rule included operational procedures for the Board and DANTES in sections 68.5 and 68.6 of this part, which caused confusion to the reader.

• DoD received recommendations to include an implementation statement for the DoD MOU since the initial effective date of January 1, 2012, has passed. DoD also received requests to provide educational institutions with sufficient time to coordinate the DoD MOU through their legal and supervisory channels. The final rule now states a signed MOU with DoD from participating educational institutions will be effective 60 days following the publication of this final rule on the Federal Register .

• The U.S. Air Force and the U.S. Navy requested to delete their indemnification paragraphs contained in Appendix B and Appendix E to Part 68, due to conflicts with state laws for all of the public institutions wanting to participate in the military TA program.

It has been certified that 32 CFR part 68 is an economically significant regulatory action. The rule has an annual effect on the economy of $100 million or more.

The rule does not:

• Adversely affect in a material way the economy; a section of the economy; productivity; competition; jobs; the environment; public health or safety; or State, local, or tribal governments or communities;

• Create a serious inconsistency or otherwise interfere with an action taken or planned by another Agency;

• Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or

• Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in these Executive Orders.

Funding for Voluntary Education Programs is authorized by law and is subject to the availability of funds from each Service. Voluntary education programs include tuition assistance (per section 2007 of title 10, United States Code), which is administered uniformly across the Services. As per the National Defense Authorization Act (NDAA) FY08, each of the Services may also provide TA to activated Service members of the Selected Reserves and Individual Ready Reserve. For Fiscal Year 2010 (FY10), the Services executed approximately $800 million for Off-Duty and Voluntary Education Programs. This total amount included tuition assistance costs of approximately $542M. The Services have currently budgeted the same amount for FY11 tuition assistance costs.

It has been certified that 32 CFR part 68 does not contain a Federal mandate that may result in expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.

It has been certified that 32 CFR part 68 is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. The rule updates policy and procedures for the voluntary education programs within DoD for Service members and their adult eligible family members. Guidance on voluntary education programs is available through the Education Centers located on military installations.

It has been certified that 32 CFR part 68 does not impose reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995.

It has been certified that 32 CFR part 68 does not have federalism implications, as set forth in Executive Order 13132. This rule does not have substantial direct effects on:

• The States;

• The relationship between the National Government and the States; or

• The distribution of power and responsibilities among the various levels of Government.

Accordingly, 32 CFR part 68 is added to read as follows:

The Coast Guard will enforce the special local regulations in 33 CFR 100.1101 in support of the San Diego Parade of Lights (Item 5 on Table 1 of 33 CFR 100.1101). The Coast Guard will enforce the special local regulations between the northern portion of the San Diego Bay ship channel from Seaport Village to the Shelter Island Basin on December 09 and on December 16, 2012 from 5:30 p.m. until 8:30 p.m. each day. The event consists of approximately eighty paddle, powerboats, and sailboats, ranging from ten to eighty feet in length outfitted with Christmas lights. The participating vessels will start near the west side of Shelter Island, proceed to the Coronado Bay Bridge, cross the main shipping channel, and finish in the vicinity of the USN Carrier Basin.

Under the provisions of 33 CFR 100.1101, persons and vessels are prohibited from entering into, transiting through, or anchoring within this safety zone unless authorized by the Captain of the Port, or his designated representative. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 100.1101 and 5 U.S.C. 552(a). In addition to this notice in the Federal Register , the Coast Guard will provide the maritime community with extensive advance notification of this enforcement period via the Local Notice to Mariners, Broadcast Notice to Mariners, state, or local agencies.

The Coast Guard will enforce the special local regulations in 33 CFR 100.1101 in support of the annual Mission Bay Parade of Lights (Item 6 on Table 1 of 33 CFR 100.1101). The Coast Guard will enforce the special local regulations in the main entrance of the channel, in Sail Bay and in the vicinity of the southern tip of Fiesta Island on December 08, 2012 from 6 p.m. to 8 p.m.

Under the provisions of 33 CFR 100.1101, persons and vessels are prohibited from entering into, transiting through, or anchoring within this special local regulation unless authorized by the Captain of the Port, or his designated representative. The Coast Guard may be assisted by other Federal, State, or local law enforcement agencies in enforcing this regulation.

This notice is issued under authority of 33 CFR 100.1101 and 5 U.S.C. 552 (a). In addition to this notice in the Federal Register , the Coast Guard will provide the maritime community with extensive advance notification of this enforcement period via the Local Notice to Mariners, state, or local agencies.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because doing so would be impracticable and contrary to the public interest. The final details for this event were not known to the Coast Guard until there was insufficient time remaining before the event to publish an NPRM. Thus, delaying the effective date of this rule to wait for a comment period to run would be both impracticable and contrary to the public interest because it would inhibit the Coast Guard's ability to protect vessels from the hazards associated with the demolition project on the Cline Avenue bridge, which are discussed further below.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . For the same reasons discussed in the preceding paragraph, waiting for a 30 day notice period to run would be impracticable and contrary to the public interest.

The legal basis for the rule is the Coast Guard's authority to establish regulated navigation areas and limited access areas: 33 U.S.C. 1231; 46 U.S.C. chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Public Law 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1.

On December 2nd and 8th, 2012, Walsh Construction Company will be conducting demolition on portions of the Cline Avenue bridge in East Chicago, IN. The Captain of the Port, Sector Lake Michigan, has determined that this demolition project will pose a significant risk to public safety and property. Such hazards include loss of life and property in the proximity of explosives, and collisions among vessels and contractors involved in the demolition project.

The Coast Guard had established the same safety zone for October 27 and November 10, again for November 3 and 10, and once again for December 1, 2012. However, as a result of scheduling changes and the setback from the discovery of steel beams at the demo site, the planned demolition date was postponed twice. Walsh Construction Company has requested another postponement because of unexpected delays associated with the removal of the steel beams. Considering the delicate nature of explosive work on a transportation structure, this rule was written to accommodate the Construction Company's need to properly prepare the bridge for demolition on a later date.

With the aforementioned hazards in mind, the Captain of the Port, Sector Lake Michigan, has determined that this temporary safety zone is necessary to ensure the safety of persons and vessels during the demolition project on the Cline Avenue Bridge. This zone is effective from 12 p.m. on December 2, 2012 until 3 p.m. on December 8, 2012. This zone will be enforced from 12:00 p.m. until 5:00 p.m. on December 2, 2012 and from 8:00 a.m. until 3:00 p.m. on December 8, 2012.

The safety zone will encompass all waters of the Indiana Harbor Canal in the vicinity of the Cline Avenue Bridge at approximate position 41°39′ 4.3″ N and 87°27′ 54.3″ W (NAD 83).

Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port, Sector Lake Michigan, or his designated on-scene representative. The Captain of the Port or his designated on-scene representative may be contacted via VHF Channel 16.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be small and enforced for a limited duration of time on only two days. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor in a portion of Indiana Harbor Canal on December 2 and 8, 2012.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This safety zone would be effective and thus subject to enforcement, for a limited duration of time on only two days. Traffic may be allowed to pass through the zone with the permission of the Captain of the Port. The Captain of the Port can be reached via VHF channel 16. Before the activation of the zone, we will issue local Broadcast Notice to Mariners.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section above.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has 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. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

This action is not a “significant energy action” under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone and, therefore it is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination are available in the docket where indicated under ADDRESSES . We seek any comments or information that may lead to the discovery of a significant environmental impact from this rule.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

Background

Section 482(c) of the Higher Education Act of 1965, as amended (HEA), requires that regulations affecting programs under title IV of the HEA be published in final form by November 1 prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier and the conditions for early implementation.

On November 1, 2012, the Department issued final regulations in 34 CFR part 685 for the Pay As You Earn repayment plan (77 FR 66087). In the preamble to the final regulations, the Secretary announced the Department's intent to implement the new Direct Loan program regulations establishing the Pay As You Earn repayment plan as soon as possible.

The Secretary is exercising the authority under section 482(c) of the HEA to designate the following amended regulations in 34 CFR part 685 for early implementation beginning on December 21, 2012, at the discretion of individual borrowers:

(1) § 685.208(k)(1).

(2) § 685.209(a).

If a borrower elects to implement the Pay As You Earn repayment plan early in accordance with this notice, the borrower will have the rights and be subject to the obligations under both §§ 685.208(k)(1) and 685.209(a). To implement the Pay As You Earn Plan early, a Direct Loan borrower must request to repay his or her eligible loans under that plan.

Accessible Format: Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or compact disc) on request to one of the contact persons listed under FOR FURTHER INFORMATION CONTACT .

Electronic Access to This Document: The official version of this document is the document published in the Federal Register . Free Internet access to the official edition of the Federal Register and the Code of Federal Regulations is available via the Federal Digital System at: www.gpo.gov/fdsys. At this site you can view this document, as well as all other documents of this Department published in the Federal Register , in text or Adobe Portable Document Format (PDF). To use PDF you must have Adobe Acrobat Reader, which is available free at the site.

You may also access documents of the Department published in the Federal Register by using the article search feature at: www.federalregister.gov. Specifically, through the advanced search feature at this site, you can limit your search to documents published by the Department.

On October 23, 2012, the USPS TM published a proposed rule in the Federal Register (77 FR 64768) with changes to Mailing Standards of the United States Postal Service, International Mail Manual (IMM®).

Prices will be available under Docket Number R2013-1 on the Postal Regulatory Commission's Web site at www.prc.gov.

We received comments from 93 respondents on various aspects of the proposed changes. The comments and responses are included in the applicable subject matter sections below.

Two respondents were in favor of the price adjustment, stating the overall increase was modest and will increase Postal Service revenue.

Three respondents were in favor of the Global Forever® stamp, stating this concept will benefit mailers by having one stamp for all international destinations for letter-size mailpieces, and may be used regardless of future increases.

Three respondents supported the discontinuance of outbound international restricted delivery service stating the Postal Service should “streamline” their product offering of low volume items.

Three respondents supported the discontinuance of selling international reply coupons, stating the Postal Service should “streamline” their product offering of low volume items.

Ninety-one respondents opposed the discontinuance of international reply coupons. Of these, 63 respondents identified themselves as U.S. amateur radio operators who rely on international reply coupons to confirm radio contacts through the exchange of “QSL cards” and who stated that no other practical way exists for this kind of exchange. Some of the other comments from the group of 91 included the following statements: (1) “In many countries, it's either illegal to possess or mail foreign currency, or currency is routinely stolen from the mail;” (2) “In many countries the amateur radio operators do not have funds available to answer QSL requests as their income is much lower than we consider average in the United States;” (3) “There is no alternative mechanism to supply foreign correspondents with return postage;” and (4) “As a minimum, the USPS should continue to sell IRC's at the www.usps.com store or through a few dispersed Post Offices that would sell them by mail to people beyond reasonable driving distance.”

As prescribed in the Postal Regulatory Commission's (PRC) Order No. 1541, the PRC approved the Postal Service's proposal to discontinue outbound international reply coupons, while retaining inbound international reply coupon service. The PRC determined that the proposal to discontinue outbound international reply coupons was not inconsistent with the statute, and acknowledged that the small number of consumers, such as amateur radio operators, who purchase international outbound reply coupons, will no longer be able to do so, but they will still have options. For countries to which money orders may be sent, once the U.S. sender ascertains (or estimates) the cost of sending the QSL card from the foreign country to the U.S., the U.S. sender can obtain and send a money order in that amount. Finally, senders and recipients may find it more convenient and less costly to use an online payment service to transmit the cost of mailing a QSL card.

The Postal Service hereby adopts the following changes to Mailing Standards of the United States Postal Service, International Mail Manual (IMM), which is incorporated by reference in the Code of Federal Regulations. See 39 CFR 20.1.

Accordingly, 39 CFR part 20 is amended as follows:

I. Background

On September 26, 2012 (77 FR 59156), EPA published a notice of proposed rulemaking (NPR) for the State of Maryland. The NPR proposed approval of the 2002 base year emissions inventory portion of the Maryland SIP revision. The formal SIP revision was submitted by the State of Maryland on June 6, 2008 (Revision #08-05).

The 2002 base year emissions inventory submitted by MDE on June 6, 2008 includes emissions estimates that cover the general source categories of point sources, non-road mobile sources, area sources, on-road mobile sources, and biogenic sources. The pollutants that comprise the inventory are nitrogen oxides (NO X ), volatile organic compounds (VOCs), PM 2.5 , coarse particles (PM 10 ), ammonia (NH 3 ), and sulfur dioxide (SO 2 ). EPA has reviewed the results, procedures and methodologies for the base year emissions inventory submitted by MDE. The year 2002 was selected by MDE as the base year for the emissions inventory per 40 CFR 51.1008(b). A discussion of the emissions inventory development as well as the emissions inventory can be found in the June 6, 2008 SIP submittal and in the NPR. Specific requirements of the base year inventory and the rationale for EPA's action are explained in the NPR and will not be restated here. No public comments were received on the NPR.

EPA is approving the 2002 base year PM 2.5 emissions inventory as a revision to the Maryland SIP.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA 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 CAA. 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 CAA; 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 CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 5, 2013. 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 pertaining to the PM 2.5 2002 base year emissions inventory portion of the Maryland SIP may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

40 CFR part 52 is amended as follows:

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

Table 1 lists the rules we are approving with the dates that they were adopted by the local air agencies and submitted by the California Air Resources Board (CARB).

On August 25, 2010, EPA determined that the submittal for ICAPCD Rule 116 met the completeness criteria in 40 CFR Part 51 Appendix V, which must be met before formal EPA review. On January 13, 2011, and October 24, 2011, respectively, the submittals of PCAPCD Rule 503 and VCAPCD Rule 2 were determined to meet the completeness criteria.

There are no previous versions of ICAPCD Rule 116 and PCAPCD Rule 503 in the SIP. We approved an earlier version of VCAPCD Rule 2 into the SIP on March 7, 2011 (76 FR 12280).

Section 110(a) of the CAA requires states to submit regulations that control volatile organic compounds, oxides of nitrogen, particulate matter, and other air pollutants which harm human health and the environment. These rules were developed as part of the local agency's program to control these pollutants.

ICAPCD Rule 116 will require owners and/or operators of stationary sources emitting VOC or NO X emissions to provide the ICAPCD with an annual statement of actual emissions of these pollutants certified by a responsible official of the company.

PCAPCD Rule 503 details how every stationary source permitted by the District with actual or potential emissions in excess of 10 tons per year or more of NO X or VOC report their actual emissions. The rule describes the District's current emissions reporting system using the Renewal Information Request.

VCAPCD Rule 2 is being amended by adding new definitions and revisions to existing definitions.

EPA's technical support documents (TSD) have more information about these rules.

These rules describe administrative provisions and definitions that support emission controls found in other local agency requirements. In combination with the other requirements, these rules must be enforceable (see section 110(a) of the Act) and must not relax existing requirements (see sections 110(l) and 193). EPA policy that we used to evaluate enforceability requirements consistently includes the Bluebook (“Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,” EPA, May 25, 1988) and the Little Bluebook (“Guidance Document for Correcting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001).

We believe these rules are consistent with the relevant policy and guidance regarding enforceability and SIP relaxations. The TSDs have more information on our evaluation.

As authorized in section 110(k)(3) of the Act, EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of this Federal Register , we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by January 7, 2013, we will publish a timely withdrawal in the Federal Register to notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on February 5, 2013. This will incorporate these rules into the federally enforceable SIP.

Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

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 disproportionate human health or environmental effects with practical, appropriate, 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 5, 2013. 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. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the Proposed Rules section of today's Federal Register , rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. 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:

I. General Information A. Applicability

This action does not impose requirements on any entity. The action clarifies the status of stormwater discharges from logging roads. Those with an interest in such discharges may be interested in this action. If you have questions regarding the applicability of this rule, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

This document is available for download at http://www.epa.gov/npdes/stormwater/forestroads or under docket EPA-HQ-OW-2012-0195.

The EPA is promulgating this final rule to address the stormwater discharges identified under Northwest Environmental Defense Center v. Brown, 640 F.3d 1063 (9th Cir. 2011) ( NEDC ).

The final rule clarifies that, for the purposes of assessing whether stormwater discharges are “associated with industrial activity,” the only facilities under SIC code 2411 that are “industrial” are: rock crushing, gravel washing, log sorting, and log storage. This clarifies, contrary to the Ninth Circuit's decision in NEDC, that discharges of stormwater from silviculture facilities other than the four specifically named silviculture facilities identified above do not require an NPDES permit. 1

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site at http://www.ecfr.gov/cgi-bin/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2010-0472 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before February 5, 2013. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA-HQ-OPP-2010-0472, by one of the following methods:

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the online instructions for submitting comments. Do not submit electronically any information you consider to be CBI or other information whose disclosure is restricted by statute.

• Mail: OPP Docket, Environmental Protection Agency Docket Center (EPA/DC), (28221T), 1200 Pennsylvania Ave. NW., Washington, DC 20460-0001.

• Hand Delivery: To make special arrangements for hand delivery or delivery of boxed information, please follow the instructions at http://www.epa.gov/dockets/contacts.htm.

Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at http://www.epa.gov/dockets.

In the Federal Register issue of August 4, 2010 (75 FR 46924) (FRL-8834-9), EPA issued a document pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 0E7717) by the IR-4 Project, Rutgers, The State University of New Jersey, 500 College Rd. East, Suite 201 W, Princeton, NJ 08540. The petition requested that 40 CFR 180.418 be amended by establishing tolerances for residues of the insecticide zeta-cypermethrin, in or on pistachio at 0.05 parts per million (ppm), artichoke, globe at 0.80 ppm; barley, grain at 1.7 ppm; barley, hay at 5.0 ppm; barley, straw at 19.0 ppm; buckwheat, grain at 1.7 ppm; buckwheat, hay at 5.0 ppm; buckwheat, straw at 19.0 ppm; oat, grain at 1.7 ppm; oat, hay at 5.0 ppm; oat, straw at 19.0 ppm; rye, grain at 1.7 ppm; rye, hay at 5.0 ppm; and rye, straw at 19.0 ppm. That document referenced a summary of the petition prepared by FMC, the registrant, which is available in the docket, http://www.regulations.gov. A comment was received on the notice of filing. EPA's response to this comment is discussed in Unit IV.C.

In the Federal Register issue of February 25, 2011 (76 FR 10584) (FRL-8863-3), EPA issued a document pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 0E7804) by the IR-4 Project, Rutgers, The State University of New Jersey, 500 College Rd. East, Suite 201 W, Princeton, NJ 08540. The petition requested that 40 CFR 180.418 be amended by establishing tolerances for residues of the insecticide zeta-cypermethrin, ( S -cyano(3-phenoxyphenyl) methyl (±))(cis-trans 3-(2,2-dichloroethenyl)-2,2 dimethylcyclopropanecarboxylate and its inactive R -isomers, in or on avocado, black sapote, canistel, mamey sapote, mango, papaya, sapodilla, and star apple at 0.45 ppm. That document referenced a summary of the petition prepared by FMC, the registrant, which is available in the docket, http://www.regulations.gov. There were no comments received in response to the notice of filing.

Based upon review of the data supporting the petitions, EPA has modified the levels for which tolerances are being established for some commodities. The reason for these changes is explained in Unit IV.D.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue * * *.”

Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for zeta-cypermethrin including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with zeta-cypermethrin follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.

The petitions for registration of these new uses of zeta-cypermethrin rely on zeta-cypermethrin data, as well as previously submitted data for the related registered insecticide cypermethrin, and the pending new active ingredient alpha-cypermethrin. Alpha-cypermethrin, cypermethrin, and zeta-cypermethrin are all pyrethroid insecticides and are isomer mixtures of the same chemical. Cypermethrin consists of a mixture of eight isomers (four diastereoisomeric pairs). Zeta-cypermethrin is composed of four of the eight isomers of cypermethrin, and also contains one of the isomers in alpha-cypermethrin. Alpha-cypermethrin consists of two of the four cis-isomers of cypermethrin.

Alpha-cypermethrin, cypermethrin, and zeta-cypermethrin have been evaluated for a variety of toxic effects in experimental toxicity studies. Behavioral changes commonly seen with type II pyrethroids were consistently noted in the toxicology database. These included tremors, gait abnormalities, limb conditions, ataxia, and hypersensitivity. Additionally, body weight changes were routinely observed and mortality was seen in a few studies in rats and dogs. Clinical signs were also noted in all acute neurotoxicity studies. Decreased activity, gait abnormalities, tremors, limb conditions, and hypersensitivity were observed at the mid and high doses. Additionally, slight nerve degeneration was seen in the acute neurotoxicity study with alpha- cypermethrin at the high dose. In the subchronic neurotoxicity studies with cypermethrin and zeta-cypermethrin, similar behavioral effects were seen along with decreased food consumption, body weight, and body weight gain.

Dermal toxicity studies are available for zeta-cypermethrin (rat) and cypermethrin (rabbit), in which local irritation was observed in rats and rabbits at the highest doses tested. No systemic effects were observed in the 21-day dermal study in the rat conducted with zeta-cypermethrin at dose levels up to 1,000 milligram/kilogram/day (mg/kg/day). In the dermal toxicity study in rabbits with cypermethrin, systemic effects were observed (focal necrosis of the liver, decreased testicular weights, and decreased body weight in females). However, these observations in the rabbit were not used for risk assessment because the testing method (i.e., abraded skin) does not simulate actual exposure and results in compromised test conditions. Additionally, there would be physiological differences between abraded and non-abraded animals, further undermining the relevance of these results for risk assessment.

Developmental toxicity and reproduction studies are available for the cypermethrins. In the developmental toxicity studies in rats with cypermethrin and zeta-cypermethrin, there was no evidence of developmental toxicity up to the highest doses tested. Maternal toxicity included decreased body weight gain and food consumption in both chemicals. Splayed limbs, spasms, and hypersensitivity to noise and convulsions were seen with cypermethrin, and ataxia, urine-stained abdominal fur, and fecal-stained fur were seen with zeta-cypermethrin. In the developmental toxicity study in rats with alpha-cypermethrin, offspring effects were limited to decreased fetal body weight. Maternal effects observed in the study were unsteady gait, piloerection, limb splay, and hypersensitivity to sound and touch at the same dose. In the developmental toxicity studies in rabbits with alpha-cypermethrin, cypermethrin, and zeta-cypermethrin, there was no evidence of developmental toxicity up to the highest dose tested. Maternal effects seen with cypermethrin included decreased body weight gain, anorexia, abdomino-genital staining, decreased feces, and red or pink material in the pan. With alpha-cypermethrin, maternal effects were body weight loss and decreased food consumption. Multi-generation reproduction studies in rats are available for cypermethrin and zeta-cypermethrin. In the reproduction study with cypermethrin, decreased body weight gain was observed in adult animals and decreased body weight was seen in offspring animals at the highest dose tested. In the reproduction study with zeta-cypermethrin, decreased body weight gain and mortality were observed in offspring animals in the presence of mortality, increased brain weights, decreased body weights, and neurotoxicity in maternal animals.

No effects were observed in an immunotoxicity study in rats with alpha-cypermethrin up to the limit dose.

Cypermethrin is classified as a Group C “Possible human carcinogen,” based on an increased incidence of lung adenomas and adenomas plus carcinomas combined in females in a mouse carcinogenicity study. The presence of common benign tumors (lung adenomas), in one species (mice) and one sex (female), with no increase in the proportion of malignant tumors or decrease in the time-to-tumor occurrence, together with the lack of mutagenic activity, was not considered strong enough to warrant a linear or no-threshold approach to quantitation of human cancer risk. Quantification of risk using a non-linear approach (i.e., acute population adjusted dose (aPAD), acute reference dose (aRfD)) will adequately account for all chronic toxicity, including carcinogenicity that could result from exposure to cypermethrin. While the Agency would typically use a chronic population adjusted dose (cPAD) to protect for cancer concerns, use of the aPAD is protective because increasing toxicity with increasing duration of exposure is not demonstrated for the cypermethrins. The no-observed-adverse-effect-level (NOAEL) observed in the mouse cancer study in which tumors were observed is 14 mg/kg/day, 2-fold higher than the point of departure (POD) used for acute risk assessment. The lowest-observed-adverse-effect-level (LOAEL) in the mouse cancer study is 57 mg/kg/day based on liver effects, not tumor formation. The tumors were seen at 229 mg/kg/day. The acute POD of 7.16 mg/kg/day selected for risk assessment is 32-fold lower than the dose that induced lung tumors in mice. Only the mouse study with cypermethrin resulted in tumor formation, no evidence of carcinogenicity was observed in cancer studies in rats with cypermethrin or mice with alpha-cypermethrin.

Acute lethality studies conducted with alpha-cypermethrin, cypermethrin, and zeta-cypermethrin indicate moderate acute toxicity via the oral route and low toxicity via the acute dermal or inhalation routes. Additionally, mild irritation was seen in primary eye and skin irritation studies but no dermal sensitization was observed.

Specific information on the studies received and the nature of the adverse effects caused by zeta-cypermethrin as well as the NOAEL and the LOAEL from the toxicity studies can be found at http://www.regulations.gov on pp. 60-67 of the document entitled “Zeta-Cypermethrin—Human Health Risk Assessment for New Poultry House Use and Agricultural Uses on Tropical Fruit, Artichoke, Barley, Oat, Rye, Buckwheat, and Pistachio” in docket ID number EPA-HQ-OPP-2010-0472.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological PODs and levels of concern (LOCs) to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. The PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm.

A summary of the toxicological endpoints for zeta-cypermethrin used for human risk assessment is shown in Table 1 of this unit.

1. Dietary exposure from food and feed uses. In evaluating dietary exposure to zeta-cypermethrin, EPA considered exposure under the petitioned-for tolerances as well as all existing zeta-cypermethrin tolerances in 40 CFR 180.418. EPA assessed dietary exposures from zeta-cypermethrin in food as follows:

i. Acute exposure. Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

Such effects were identified for zeta-cypermethrin. In estimating acute dietary exposure, EPA used food consumption information from the United States Department of Agriculture (USDA) 1994-1996 and 1998 Nationwide Continuing Surveys of Food Intake by Individuals (CSFII). As to residue levels in food, EPA conducted a partially refined (probabilistic) dietary exposure assessment to determine the exposure and risk estimates which result from all the existing uses of cypermethrin and zeta-cypermethrin, as well as proposed new uses of alpha-cypermethrin and zeta-cypermethrin. Anticipated residues from USDA Pesticide Data Program (PDP) monitoring data, field trial data, and empirical processing factors were used where appropriate. Percent crop treated (PCT) estimates were used for some commodities.

ii. Chronic exposure. Based on the data summarized in Unit III.A., there is no increase in hazard from repeated exposures to zeta-cypermethrin; the acute dietary exposure assessment is protective for chronic dietary exposures because acute exposure levels are higher than chronic exposure levels. Accordingly, a dietary exposure assessment for the purpose of assessing chronic dietary risk was not conducted.

iii. Cancer. EPA determines whether quantitative cancer exposure and risk assessments are appropriate for a food-use pesticide based on the weight of the evidence from cancer studies and other relevant data. Cancer risk is quantified using a linear or non-linear approach. If sufficient information on the carcinogenic mode of action is available, a threshold or non-linear approach is used and a cancer RfD is calculated based on an earlier non-cancer key event. If carcinogenic mode of action data are not available, or if the mode of action data determines a mutagenic mode of action, a default linear cancer slope factor approach is utilized. As noted in Unit III.A., the Agency has determined that quantification of risk using a non-linear approach (i.e., aPAD) will adequately account for all chronic toxicity, including carcinogenicity that could result from exposure to zeta-cypermethrin. Additionally, because an assessment of cancer risk would estimate exposure based on average residue levels and the acute assessment used high-end residue levels, the acute dietary assessment will be protective of any cancer effects resulting from consumption of zeta-cypermethrin residues in foods.

iv. Anticipated residue and percent crop treated (PCT) information. Section 408(b)(2)(E) of FFDCA authorizes EPA to use available data and information on the anticipated residue levels of pesticide residues in food and the actual levels of pesticide residues that have been measured in food. If EPA relies on such information, EPA must require pursuant to FFDCA section 408(f)(1) that data be provided 5 years after the tolerance is established, modified, or left in effect, demonstrating that the levels in food are not above the levels anticipated. For the present action, EPA will issue such data call-ins as are required by FFDCA section 408(b)(2)(E) and authorized under FFDCA section 408(f)(1). Data will be required to be submitted no later than 5 years from the date of issuance of these tolerances.

Section 408(b)(2)(F) of FFDCA states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if:

• Condition a: The data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain the pesticide residue.

• Condition b: The exposure estimate does not underestimate exposure for any significant subpopulation group.

• Condition c: Data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area.

In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of PCT as required by FFDCA section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

The following maximum PCT estimates were used in the acute dietary risk assessment for the following crops that are currently registered for zeta-cypermethrin/cypermethrin: Almonds, 2.5%; apples, 2.5%; broccoli, 30%; cabbage, 30%; carrot, 10%; cauliflower, 25%; celery, 60%; cherries, 5%; grapefruit, 50%; green beans, 20%; green peas, 15%; lemon, 2.5%; lettuce, 65%; orange, 45%; peach, 5%; peppers, 30%; potato, 5%; spinach, 45%; sweet corn, 20%; tomato, 10%; and watermelon, 10%.

The following average PCT estimates were used to calculate average dietary exposures in order to assess short-term aggregate risk to the cypermethrins for the following crops that are currently registered for cypermethrin/zeta-cypermethrin: Almonds, 1%; apples, 1%; broccoli, 20%; cabbage, 15%; carrot, 2.5%; cauliflower, 15%; celery, 35%; cherries, 5%; grapefruit, 35%; green beans, 15%; green peas, 10%; lemon, 1%; lettuce, 55%; orange, 35%; peach, 2.5%; peppers, 15%; potato, 1%; spinach, 30%; sweet corn, 15%; tomato, 5%; and watermelon, 2.5%.

In most cases, EPA uses available data from the United States Department of Agriculture/National Agricultural Statistics Service (USDA/NASS), proprietary market surveys, and the National Pesticide Use Database for the chemical/crop combination for the most recent 6-7 years. EPA uses an average PCT for chronic dietary risk analysis. The average PCT figure for each existing use is derived by combining available public and private market survey data for that use, averaging across all observations, and rounding to the nearest 5%, except for those situations in which the average PCT is less than one. In those cases, 1% is used as the average PCT and 2.5% is used as the maximum PCT. EPA uses a maximum PCT for acute dietary risk analysis. The maximum PCT figure is the highest observed maximum value reported within the recent 6 years of available public and private market survey data for the existing use and rounded up to the nearest multiple of 5%.

The Agency believes that the three conditions discussed in Unit III.C.1.iv. have been met. With respect to Condition a, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions b and c, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available reliable information on the regional consumption of food to which zeta-cypermethrin may be applied in a particular area.

2. Dietary exposure from drinking water. The Agency used screening level water exposure models in the dietary exposure analysis and risk assessment for zeta-cypermethrin in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of zeta-cypermethrin. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at http://www.epa.gov/oppefed1/models/water/index.htm.

Based on the First Index Reservoir Screening Tool (FIRST) and Screening Concentration in Ground Water (SCI-GROW) models, the estimated drinking water concentrations (EDWCs) of zeta-cypermethrin for acute exposures are estimated to be 3.77 parts per billion (ppb) for surface water and 0.0036 ppb for ground water. The annual average typically used for chronic exposures are estimated to be 0.066 ppb for surface water and 0.0036 ppb for ground water.

Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For acute dietary risk assessment, the water concentration value of 3.77 ppb was used to assess the contribution to drinking water. For the purpose of assessing short-term aggregate risk (i.e., food, drinking water, and residential exposures) the chronic water concentration value of 0.066 ppb was used to assess the contribution to drinking water.

3. From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets). Cypermethrin and zeta-cypermethrin are registered for use on a variety of indoor and outdoor residential environments including: Lawns, gardens, pets, and indoor surfaces and spaces.

EPA assessed residential exposure using the following assumptions: The quantitative exposure/risk assessment developed for residential handlers is based on the following scenarios:

• Mixer/loader/applicator using hose-end sprayer on turf.

• Mixer/loader/applicator using backpack on turf and gardens.

• Mixer/loader/applicator using manually pressurized handwand for indoor surfaces.

• Application via aerosol can for indoor surfaces and space.

Since a dermal endpoint was not identified, only a quantitative inhalation handler exposure assessment was performed. Residential handler inhalation exposure estimates were calculated based on a human equivalent concentration and human equivalent dose which reflect 24 hours of exposure. Since handler exposure is expected to be significantly less than 24 hours, the inhalation exposure estimates are sufficiently protective of all scenarios (turf, gardens, and indoor surface space). Although there is potential inhalation exposure resulting from the application of dog tags and spot-on products for pets, inhalation exposure is considered negligible for these scenarios and therefore a quantitative assessment was not performed for these uses.

There is the potential for post-application exposure for individuals as a result of being in an environment that has been previously treated with cypermethrin or zeta-cypermethrin. Post-application inhalation exposure resulting from activities on or around previously treated turf is generally not assessed; the combination of low vapor pressure for chemicals typically used as active ingredients in outdoor residential pesticide products and dilution in outdoor air is likely to result in minimal inhalation exposure. Therefore, a quantitative post-application inhalation exposure assessment for cypermethrin turf uses was not conducted. Since a dermal endpoint was not identified, and indoor post-application inhalation exposure resulting from aerosol space sprays, foggers, and pet (i.e., dog tag, spot-on) uses is negligible, the only potential post-application exposure pathways of concern are incidental oral for children, and post-application inhalation exposure for adults and children resulting from indoor crack and crevice applications made with a manually pressurized handwand. The quantitative exposure/risk assessment for residential post-application exposures is based on the following scenarios:

• Incidental oral (hand-to-mouth, object-to-mouth, and soil ingestion) exposure from turf for children.

• Incidental oral (hand-to-mouth and object-to-mouth) exposure from indoor foggers for children.

• Incidental oral (hand-to-mouth and object-to-mouth) exposure from pets for children.

• Inhalation exposure for adults and children resulting from crack and crevice application to an indoor surface.

• Incidental oral (hand-to-mouth and object-to-mouth) exposure for children from indoor surface applications.

Risk estimates resulting from different exposure routes may be combined when it is likely that they can occur simultaneously based on the use pattern and when the toxicological effects across different routes of exposure are the same. Although, in the case of children, inhalation and incidental oral exposure routes share a common toxicological endpoint, risk estimates were not combined for those routes for turf, indoor fogger, and pet since post-application inhalation exposure is considered negligible. However, inhalation and incidental oral exposures were combined for post-application risk assessment associated with the indoor crack and crevice use. Inhalation and incidental oral routes have different LOCs. Therefore, in order to combine exposure from the various routes the aggregate risk index (ARI) approach is used to estimate exposure and risk. When this approach is used, aggregate risks are not of concern provided the calculated ARI is greater than one.

The incidental oral scenarios from indoor exposure following crack and crevice applications and outdoor exposure from turf were not combined, not only because they are not likely to co-occur, but also because combining these scenarios would be overly conservative due to the conservative nature of each of the individual assessments.

Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at http://www.epa.gov/pesticides/trac/science/trac6a05.pdf.

4. Cumulative effects from substances with a common mechanism of toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

The Agency is required to consider the cumulative risks of chemicals sharing a common mechanism of toxicity. The Agency has determined that the pyrethroids and pyrethrins, including zeta-cypermethrin, share a common mechanism of toxicity. The members of this group share the ability to interact with voltage-gated sodium channels, ultimately leading to neurotoxicity. The cumulative risk assessment for the pyrethroids/pyrethrins was published in the Federal Register issue of November 9, 2011 (76 FR 69726) (FRL-8888-9), and is available at http://www.regulations.gov in the docket, EPA-HQ-OPP-2011-0746. Further information about the determination that pyrethroids and pyrethrins share a common mechanism of toxicity may be found in document ID number EPA-HQ-OPP-2008-0489-0006.

The cypermethrins were included in a recent cumulative risk assessment for pyrethrins and pyrethroids. The proposed new uses of zeta-cypermethrin will not significantly impact the cumulative assessment because, in the cumulative assessment, residential exposure was the greatest contributor to the total exposure. As there are no new residential uses for the cypermethrins, the proposed new uses will have no impact on the residential component of the cumulative risk estimates.

Dietary exposures make a minor contribution to total pyrethroid exposure. The dietary exposure assessment performed in support of the pyrethroid cumulative was much more highly refined than that performed for the single chemical. The dietary exposure assessment for the single chemical included conservative assumptions, using field trial data for many commodities, including the proposed new uses with the assumption of 100 PCT, and the most sensitive apical endpoint in the cypermethrins hazard database was selected to derive the POD. Additionally, the POD selected for zeta-cypermethrin is specific to the cypermethrins, whereas the POD selected for the cumulative assessment was based on common mechanism of action data that are appropriate for all 20 pyrethroids included in the cumulative assessment.

For information regarding EPA's efforts to evaluate the risk of exposure to pyrethroids, refer to http://www.epa.gov/oppsrrd1/reevaluation/pyrethroids-pyrethrins.html.

1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional 10-fold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the Food Quality Protection Act Safety Factor (FQPA SF). In applying this provision, EPA either retains the default value of 10X, or uses a different additional safety factor when reliable data available to EPA support the choice of a different factor.

2. Prenatal and postnatal sensitivity. In guideline developmental and reproduction studies with the cypermethrins, there was no evidence of increased qualitative or quantitative susceptibility in rats or rabbits.

In a guideline Developmental Neurotoxicity (DNT) study with zeta-cypermethrin, there was increased sensitivity in the offspring based on body weight changes in pups (5-10%) in the absence of treatment-related effects in maternal animals. Although, there was a 5-8% decrease in maternal body weight in this study, a body weight decrease of <10% is generally not considered adverse in adults, as this is considered to be within the range of variability because the magnitude of body weight per se is typically small (as an example, a 3 gram (g) decrease in body weight from a 338 g rat), and adults are no longer in the growth/development phase. In contrast, the offspring are at a stage of growth and development and are therefore expected to be gaining rather than losing weight. Thus, a smaller percent decrease in body weight is considered adverse in the young relative to adults. In the case of zeta-cypermethrin, the decrease in body weight of the young is comparable to adults; however, it was considered adverse in the young but not in the adults. This disparity in interpretation leads to an apparent increase in sensitivity in the young; however, concern is reduced since the magnitude of body weight decrements was similar in adult and young animals. The results from the DNT study are very similar to results observed in the reproduction studies where body weight changes (decreased body weight gain) were seen in maternal and offspring animals at doses similar to those in the DNT study, with no indication of increased susceptibility. Therefore, there is no residual concern for effects observed in the study. Additionally, there are well characterized dose responses with clear NOAELs and LOAELs for effects seen in the DNT and reproduction studies and the endpoints and PODs selected for risk assessment are protective.

High-dose LD 50 studies (studies assessing what dose results in lethality to 50% of the tested population) in the scientific literature indicate that pyrethroids can result in increased quantitative sensitivity in the young, specifically in the form of neurotoxicity. Examination of pharmacokinetic and pharmacodynamic data indicates that the sensitivity observed at high doses is related to pyrethroid age-dependent pharmacokinetics—the activity of enzymes associated with the metabolism of pyrethroids. With otherwise equivalent administered doses for adults and juveniles, predictive pharmacokinetic models indicate that the differential adult-juvenile pharmacokinetics will result in a 3X greater dose at the target organ in juveniles compared to adults. No evidence of increased quantitative or qualitative susceptibility was seen in the pyrethroid scientific literature related to pharmacodynamics (the effect of pyrethroids at the target tissue) both with regard to inter-species differences between rats and humans and to differences between juveniles and adults. Specifically, there are in vitro pharmacodynamic data and in vivo data indicating similar responses between adult and juvenile rats at low doses and data indicating that the rat is a conservative model compared to the human based on species-specific pharmacodynamics of homologous sodium channel isoforms in rats and humans.

3. Conclusion. EPA is reducing the FQPA SF to 3X for infants and children less than 6 years of age. For the general population, including children greater than 6 years of age, EPA is reducing the FQPA SF to 1X. The decisions regarding the FQPA SFs being used are based on the following considerations:

i. The toxicology database for the cypermethrins is not complete. While the database is considered to be complete with respect to the guideline toxicity studies for zeta-cypermethrin, EPA lacks additional data to fully characterize the potential for juvenile sensitivity to neurotoxic effects of pyrethroids. In light of the literature studies indicating a possibility of increased sensitivity in juvenile rats at high doses, EPA has requested proposals for study protocols which could identify and quantify potential juvenile sensitivity. However, when evaluated together, the toxicity studies for alpha-cypermethrin, cypermethrin, and zeta-cypermethrin can be used to characterize toxic effects including potential developmental and reproductive toxicity, immunotoxicity, and neurotoxicity. Acceptable developmental toxicity studies in rats and rabbits, reproduction studies in rats, neurotoxicity studies (Acute Neurotoxicity (ACN), Subchronic Neurotoxicity (SCN), and DNT) in rats, and immunotoxicity studies in rats are available. In addition, route-specific dermal and inhalation studies are available.

ii. After reviewing the extensive body of data and peer-reviewed literature on pyrethroids, the Agency has reached a number of conclusions regarding fetal and juvenile sensitivity for pyrethroids, including the following:

• Based on an evaluation of over 70 guideline toxicity studies for 24 pyrethroids submitted to the Agency, including prenatal developmental toxicity studies in rats and rabbits, and pre- and postnatal multi-generation reproduction toxicity studies and DNTs in rats in support of pyrethroid registrations, there is no evidence that pyrethroids directly impact developing fetuses. None of the studies show any indications of fetal toxicity at doses that do not cause maternal toxicity.

• Increased susceptibility was seen in offspring animals in the DNT study with zeta-cypermethrin (decreased pup body weights) and DNT and reproduction studies with beta-cyfluthrin (decreased body weights and tremors). However, the reductions in body weight and the other non-specific effects occur at higher doses than neurotoxicity, the effect of concern for pyrethroids. The available developmental and reproduction guideline studies in rats with zeta-cypermethrin did not show increased sensitivity in the young to neurotoxic effects. Overall, findings of increased sensitivity in juvenile animals in pyrethroid studies are rare. Therefore, the residual concern for the postnatal effects is reduced.

• High-dose LD 50 studies (studies assessing what dose results in lethality to 50% of the tested population) in the scientific literature indicate that pyrethroids can result in increased quantitative sensitivity to juvenile animals. Examination of pharmacokinetic and pharmacodynamic data indicates that the sensitivity observed at high doses is related to pyrethroid age-dependent pharmacokinetics—the activity of enzymes associated with the metabolism of pyrethroids. Furthermore, a rat physiologically-based pharmacokinetic (PBPK) model predicts a three-fold increase of pyrethroid concentration in juvenile brain compared to adults at high doses.

• In vitro pharmacodynamic data and in vivo data indicate that adult and juvenile rats have similar responses to pyrethroids at low doses and therefore juvenile sensitivity is not expected at relevant environmental exposures. Further, data also show that the rat is a conservative model compared to the human based on species-specific pharmacodynamics of homologous sodium channel isoforms.

iii. There are no residual uncertainties with regard to dietary and residential exposure. The dietary exposure assessments are based on high-end health protective residue levels (that account for parent and metabolites of concern), processing factors, and PCT assumptions. Furthermore, conservative, upper-bound assumptions were used to determine exposure through drinking water and residential sources, such that these exposures have not been underestimated.

Taking all of this information into account, EPA has reduced the FQPA SF for women of child-bearing age and children over 6 to 1X because there is no evidence in the over 70 guideline toxicity studies submitted to the Agency, including prenatal developmental toxicity studies in rats and rabbits, and multi-generation reproduction toxicity studies and DNTs in rats, that pyrethroids directly impact developing fetuses. Additionally, none of the studies show any indications of fetal toxicity at doses that do not cause maternal toxicity. Because there remains some uncertainty as to juvenile sensitivity due to the findings in the high-dose LD 50 studies, EPA is retaining a FQPA SF for infants and children less than 6 years of age. By age 6, the metabolic system is expected to be at or near adult levels thus reducing concerns for potential age-dependant sensitivity related to pharmacokinetics. EPA is seeking additional data to further characterize the potential neurotoxicity for pyrethroids. However, EPA has reliable data that show that reducing the FQPA SF to 3X will protect the safety of infants and children. These data include:

• Data from guideline studies with zeta-cypermethrin at relatively high doses that show no sensitivity with regard to neurotoxic effects (the most sensitive effect for the pyrethroids) and no residual concern regarding overall juvenile sensitivity (i.e., sensitivity seen in body weight changes occurred at doses above the level chosen for the POD).

• Data showing that the potential sensitivity at high doses is likely due to pharmacokinetics.

• A rat PBPK model predicting a three-fold increase of pyrethroid concentration in juvenile brain compared to adults at high doses due to age-dependent pharmacokinetics.

• Data indicating that the rat is a conservative model compared to the human based on species-specific pharmacodynamics of homologous sodium channel isoforms.

For several reasons, EPA concludes these data show that a 3X factor is protective of the safety of infants and children. First, it is likely that the extensive guideline studies with zeta-cypermethrin showing no neurotoxicity sensitivity between adults and juveniles better characterize the potential sensitivity of juvenile animals than the LD 50 studies. The high doses that produced juvenile sensitivity in the literature studies are well above normal dietary or residential exposure levels of pyrethroids to juveniles and lower levels of exposure anticipated from dietary and residential uses are not expected to overwhelm the juvenile's ability to metabolize pyrethroids, as occurred with the high doses used in the literature studies. The fact that a greater sensitivity to the neurotoxicity of pyrethroids is not found in guideline studies following in utero exposures (based on 76 studies for 24 pyrethroids) supports this conclusion, despite the relatively high doses used in the studies. Second, in vitro and in vivo data indicate similar pharmacodynamic response to pyrethroids between juvenile and adult rats. Finally, as indicated, pharmacokinetic modeling only predicts a 3X difference between juveniles and adults. Therefore, the FQPA SF of 3X is protective of potential juvenile sensitivity.

The portion of the uncertainty factor that accounts for potential pharmacodynamic differences between animals and rats (i.e., the inter-species extrapolation factor) are likely to overstate the risk of zeta-cypermethrin given the data showing similarities in pharmacodynamics between animals and humans. For the inter-species factor, the pharmacodynamic portion of the factor is generally considered to be 3X, however for pyrethroids the actual difference is likely to be lower than 3X. In addition, there are data that show that there are no lifestage pharmacodynamic differences between young and adult rats. Standard uncertainty factors, such as those used in the zeta-cypermethrin risk assessment, assume that there will be such differences. Finally, as indicated, pharmacokinetic modeling only predicts a 3X difference between juveniles and adults. Thus, even if there is increased juvenile neurotoxic sensitivity and even if the existing inter-species factor does not provide extra protection due to the conservative nature of their pharmacodynamic components for pyrethroids, the 3X additional factor will protect the young.

EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the aPAD and cPAD. For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

1. Acute risk. Using the exposure assumptions discussed in this unit for acute exposure, the acute dietary exposure from food and water to alpha-cypermethrin, cypermethrin, and zeta-cypermethrin will occupy 87% of the aPAD for all infants less than 1 year old and children 1-2 years old, the population groups receiving the greatest exposure.

2. Chronic risk. Based on the data summarized in Unit III.A., there is no increase in hazard with increasing dosing duration. Furthermore, chronic dietary exposures will be lower than acute exposures. Therefore, the acute aggregate assessment is protective of potential chronic aggregate exposures.

3. Short-term risk. Short-term aggregate exposure takes into account short-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

Cypermethrin and zeta-cypermethrin are currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to cypermethrin and zeta-cypermethrin.

For assessing short-term aggregate risk, the average dietary exposure estimate was used since it represents a background exposure level from food and drinking water that may co-occur with residential exposures. Dietary, inhalation, and incidental oral (hand to mouth) risks for children, and dietary and inhalation risks for adults were combined in this assessment, since the toxicological endpoints were the same. However, the LOC values for children younger than 6 years old were different for oral and inhalation exposure, with an incidental oral LOC of 300, and an inhalation LOC of 100. Likewise, the inhalation and dietary LOCs for adults were different, with an inhalation LOC of 30 and a dietary LOC of 100. Therefore, the respective risk estimates are combined using the ARI approach. When this approach is used, aggregate risks are not of concern provided the calculated ARI is greater than 1. The ARI for adults was calculated to be 56 and the ARI for children was 2.3. Because these ARIs are greater than 1, the risk estimates are not of concern.

4. Intermediate-term risk. Intermediate-term aggregate exposure takes into account intermediate-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level). An intermediate-term aggregate risk assessment was not conducted because zeta-cypermethrin is acutely toxic and does not increase in potency with repeated dosing. Because the neurotoxicity POD used for acute risk assessment is lower (more protective) than PODs for longer durations of exposure and acute and short-term exposure levels are higher than longer term exposure levels, the acute and short-term aggregate assessments are protective for intermediate-term aggregate risks anticipated from cypermethrin and zeta-cypermethrin exposure.

5. Aggregate cancer risk for U.S. population. For the reasons discussed in Unit III.A. (cancer effects are non-linear and appear at higher doses than acute effects) and Unit III.E.2. (chronic exposures are lower than acute exposures), the acute aggregate assessment is protective of potential cancer risk.

6. Determination of safety. Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population or to infants and children from aggregate exposure to alpha-cypermethrin, cypermethrin, and zeta-cypermethrin residues.

Adequate tolerance-enforcement methods are available in “PAM Volume II” for determining residues of alpha-cypermethrin, cypermethrin, and zeta-cypermethrin in plant (Method I) and livestock (Method II) commodities. Both methods are gas chromatographic methods with electron-capture detection (GC/ECD), and have undergone successful Agency petition method validations (PMVs). Method I has a limit of detection (LOD) of 0.01 ppm, and Method II has LODs of 0.005 ppm in milk, and 0.01 ppm in livestock tissues. These methods are not stereospecific; thus no distinction is made between residues of cypermethrin (all 8 stereoisomers), zeta-cypermethrin (enriched in 4 isomers) and alpha-cypermethrin (2 isomers).

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint United Nations Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.

There are multiple Codex MRLs for zeta-cypermethrin, but all are in conjunction with MRLs for total cypermethrin isomers (no MRLs have been established solely for zeta-cypermethrin). However, although the definitions of the covered isomers in the Codex MRLs and U.S. tolerances differ formally, they are effectively harmonized since the tolerance enforcement methods are not stereo-specific, and thus do not distinguish between residues of alpha-cypermethrin, cypermethrin, and zeta-cypermethrin. For enforcement purposes, the same moiety is being regulated. These tolerances will result in harmonized MRLs between EPA and Codex for mango (at 0.7 ppm) and papaya (at 0.5 ppm). The tolerances for artichoke, barley, buckwheat, oats, and rye will not be harmonized with Codex for the following reasons. In the case of artichoke, Codex has set a lower MRL of 0.1 ppm based on field trials conducted with alpha-cypermethrin with a different use pattern, including a lower use rate and longer pre-harvest interval (PHI). The Agency's tolerance for artichoke of 0.6 ppm is supported by the submitted residue data, with a higher use rate and shorter PHI. In addition, for grains (barley, oats, buckwheat, and rye), the Codex MRLs assume a post-harvest treatment whereas the proposed use pattern in the United States is for pre-harvest treatment.

A comment was received that objected to the proposed tolerances primarily because of the amounts of pesticides already consumed and carried by the American population.

The Agency understands the commenter's concerns and recognizes that some individuals believe that pesticides should be banned completely. However, under the existing legal framework provided by FFDCA section 408, EPA is authorized to establish pesticide tolerances or exemptions where persons seeking such tolerances or exemptions have demonstrated that the pesticide meets the safety standard imposed by that statute. This citizen's comment appears to be directed at the underlying statute and not EPA's implementation of it; the citizen has made no contention that EPA has acted in violation of the statutory framework.

The Agency has modified the levels for which tolerances are being established for artichoke, globe (0.80 to 0.60 ppm); barley, grain (1.7 to 3.0 ppm); barley, hay (5.0 to 6.0 ppm); barley, straw (19.0 to 20 ppm); buckwheat, grain (1.7 to 3.0 ppm); buckwheat, hay (5.0 to 6.0 ppm); buckwheat, straw (19.0 to 20.0 ppm); oat, grain (1.7 to 3.0 ppm); oat, hay (5.0 to 6.0 ppm); oat, straw (19.0 to 20.0 ppm); rye, grain (1.7 to 3.0 ppm); rye, hay (5.0 to 6.0 ppm); rye, straw (19.0 to 20.0 ppm); mango (0.45 to 0.70 ppm); and avocado; canistel; papaya; sapodilla; sapote, black; sapote, mamey; and star apple (0.45 to 0.50 ppm). These revisions are due to either EPA's use of the Organization for Economic Cooperation and Development (OECD) tolerance calculation procedures or to harmonize with Codex MRLs.

Also, EPA has revised the tolerance expression to clarify:

1. That, as provided in FFDCA section 408(a)(3), the tolerance covers metabolites and degradates of zeta-cypermethrin not specifically mentioned.

2. That compliance with the specified tolerance levels is to be determined by measuring only the specific compounds mentioned in the tolerance expression.

Therefore, tolerances are established for residues of the insecticide, zeta-cypermethrin, ( S -cyano(3-phenoxyphenyl) methyl (±))(cis-trans 3-(2,2-dichloroethenyl)-2,2 dimethylcyclopropanecarboxylate), including its metabolites and degradates in or on pistachio at 0.05 ppm; artichoke, globe at 0.60 ppm; barley, grain at 3.0 ppm; barley, hay at 6.0 ppm; barley, straw at 20 ppm; buckwheat, grain at 3.0 ppm; buckwheat, hay at 6.0 ppm; buckwheat, straw at 20.0 ppm; oat, grain at 3.0 ppm; oat, hay at 6.0 ppm; oat, straw at 20.0 ppm; rye, grain at 3.0 ppm; rye, hay at 6.0 ppm; rye, straw at 20.0 ppm; mango at 0.70 ppm; and avocado; canistel; papaya; sapodilla; sapote, black; sapote, mamey; and star apple at 0.50 ppm.

This final rule establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ), nor does it require any special considerations under Executive Order 12898, entitled “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq. ).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA) (15 U.S.C. 272 note).

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

Therefore, 40 CFR chapter I is amended as follows:

The Agency included in the final rule a list of those who may be potentially affected by this action.

The preamble for FR Doc. 2012-25548 published in the Federal Register issue of Wednesday, October 17, 2012 (77 FR 63745) (FRL-9364-9) is corrected as follows: On page 63750, third column, under Unit IV. D., Revisions to Petitoned-for Tolerances, in the second paragraph, correct the last word in the paragraph, which now reads “Logan” to read “Longan.”

Section 553 of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)(3)(B)) provides that, when an agency for good cause finds that notice and public procedure are impracticable, unnecessary, or contrary to the public interest, the agency may issue a final rule without providing notice and an opportunity for public comment. EPA has determined that there is good cause for making this technical correction final without prior proposal and opportunity for comment, because it is a typographical error only. EPA finds that this constitutes good cause under 5 U.S.C. 553(b)(3)(B).

This technical correction only revises the spelling of one commodity and does not otherwise change the original final rule. As a technical correction, this action is not subject to the statutory and executive order review requirements. For information about the statutory and executive order review requirements as they relate to the final rule, see Unit VI. in the Federal Register of October 17, 2012 (77 FR 63745) (FRL-9364-9).

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

Therefore, 40 CFR part 180 is corrected as follows:

The snapper-grouper fishery of the South Atlantic is managed under the FMP. The FMP was prepared by the Council and is implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).

On August 22, 2012, NMFS published a notice of availability for the Rebsubmittal and requested public comments (77 FR 50672). On September 10, 2012, NMFS published a proposed rule and requested public comments (77 FR 55448). The rationale for the actions in this final rule can be found in the proposed rule, Amendment 18A, and the Resubmittal, and are not repeated here. The Resubmittal was approved by the Secretary on November 20, 2012.

This rule allows transfer of a black sea bass pot endorsement to an individual or entity that holds or simultaneously obtains a valid South Atlantic Unlimited Snapper-Grouper Permit. In order to be transferred, a black sea bass pot endorsement must be valid or renewable. Black sea bass pot endorsements may be transferred independently from the South Atlantic Unlimited Snapper-Grouper Permit with which it is associated. Landings history will not be transferred with the endorsement. NMFS will attribute black sea bass landings to the associated South Atlantic Unlimited Snapper-Grouper Permit regardless of whether the landings occurred before or after the endorsement was issued. Black sea bass pot endorsements will not be renewed automatically with the South Atlantic Snapper-Grouper Unlimited Permit with which it is associated. The endorsement must be renewed separately from the permit on the Federal Permit Application for Vessels Fishing in the Exclusive Economic Zone (EEZ).

This rule also revises codified text in § 622.40, regarding issuance of the identification tags for black sea bass pots. Endorsement holders order identification tags through NMFS and a supplier issues the identification tags. Endorsement holders must apply for new tags each permit year at the same time they renew their permit and endorsement. Finally, this rule removes and reserves paragraph (a)(2) in § 622.43, thereby removing obsolete quota closure provisions for South Atlantic octocorals.

NMFS received four comments on the Resubmittal and the proposed rule, from three snapper-grouper fishery participants. One commenter opposed allowing the transfer of black sea bass pot endorsements and two commenters supported the action.

Comment 1: One commenter preferred that black sea bass pot endorsements retire with fishermen, or that black sea bass pots be phased out by not allowing black sea bass pot endorsements to be transferred, which could slowly shift the entire commercial sector to a strictly hook-and-line fishery.

Response: The Council considered not allowing black sea bass pot endorsements to be transferred, which would have allowed the endorsement to retire with the fisherman. However, the Council chose to allow black sea bass pot endorsements to be transferred in order to maintain a consistent level of participation in the black sea bass pot segment of the snapper-grouper fishery and promote the harvest of black sea bass at optimum yield.

Comment 2: Two commenters suggested allowing fishermen who did not qualify for an endorsement to reenter the black sea bass pot segment of the snapper-grouper fishery as the quota (ACL) increases.

Response: This issue is outside the scope of this rulemaking, which implements a transferability provision for black sea bass pot endorsements. The Council did not consider and this rule does not address allowing increased participation in the black sea bass pot segment of the snapper-grouper fishery.

Comment 3: One commenter recommended removing the black sea bass size limits, or reverting the size limit back to 8 inches (20.3 cm) in order to reduce regulatory discards and give poor people access to lower priced small black sea bass while allowing fishermen to harvest more of the ACL.

Response: The Council considered the issue of minimum size limits for black sea bass in Amendment 18A; however, minimum size limits were not considered in the Resubmittal, and are outside the scope of this rulemaking.

Comment 4: Two commenters supported allowing black sea bass pot endorsements to be transferred.

Response: NMFS agrees. Allowing black sea bass pot endorsements to be transferred will maintain a consistent level of participation in the black sea bass pot segment of the snapper-grouper fishery and promote the harvest of black sea bass at optimum yield.

The proposed rule made editorial changes to the first sentence in the codified text at 50 CFR 622.4(a)(2)(xv). After further consideration, NMFS has determined that these changes are unnecessary. The codified text at § 622.4(a)(2)(xv), which established the South Atlantic black sea bass pot endorsement, should remain consistent with the codified text at 50 CFR § 622.4(a)(2)(xiv), which established the Eastern Gulf reef fish bottom longline endorsement. Thus, the proposed changes to the first sentence of § 622.4(a)(2)(xv) will not be implemented in the final rule.

The Regional Administrator, Southeast Region, NMFS has determined that the actions contained in this final rule are necessary for the conservation and management of the snapper-grouper fishery in the South Atlantic and that they are consistent with the FMP, the Resubmittal, other provisions of the Magnuson-Stevens Act, and other applicable law.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. NMFS did not receive any comments or other new information concerning this certification. As a result, no Final Regulatory Flexibility Analysis is required and none has been prepared.

For the reasons set out in the preamble, 50 CFR part 622 is amended as follows:

Background

On June 28, 2011 (76 FR 37750), NMFS published a proposed rule that would among other things, require electronic dealer reporting for all federal Atlantic HMS dealers. On August 8, 2012 (77 FR 47303), the final rule for electronic dealer reporting was published, with a delayed implementation of January 1, 2013. On June 22, 2012 (77 FR 37647), NMFS published a proposed rule that would implement the International Commission for the Conservation of Atlantic Tunas (ICCAT) Recommendation 11-08, which prohibits retaining, transshipping, or landing silky sharks caught in association with ICAAT fisheries. On October 4, 2012 (77 FR 60632), NMFS published a final rule that implemented these silky shark management measures, with an effective date of November 5, 2012.

Both the silky shark rule and the electronic dealer reporting rule made changes to regulatory text at § 635.31(c)(6). This document corrects the final electronic dealer reporting rule by revising the first sentence of § 635.31(c)(6) to make it consistent with amendments made to that section in the shark rule. The shark rule became effective on November 5, 2012, after publication, but prior to the effective date, of the electronic dealer final rule. Without this technical amendment, when the electronic dealer rule becomes effective on January 1, 2013, it would inadvertently undo the dealer prohibition on purchasing (first receiving) silky sharks contained in the shark rule and codified in § 635.31(c)(6). All other information remains unchanged and will not be repeated in this correction.

In the final rule that published in the Federal Register Wednesday, August 8, 2012 (77 FR 47303), the following correction is made. On page 47317, in column 3, in § 635.31, paragraph (c)(6) is correctly revised to read as follows:

Background

On June 10, 2005, the U.S. Food and Drug Administration (FDA) requested that NMFS close an area of Federal waters off the coasts of New Hampshire and Massachusetts to fishing for bivalve shellfish intended for human consumption due to the presence in those waters of toxins (saxotoxins) that cause PSP. These toxins are produced by the alga Alexandrium fundyense, which can form blooms commonly referred to as red tides. Red tide blooms, also known as harmful algal blooms (HABs), can produce toxins that accumulate in filter-feeding shellfish. Shellfish contaminated with the toxin, if eaten in large enough quantity, can cause illness or death from PSP.

On June 16, 2005, NMFS published an emergency rule (70 FR 35047) closing the area recommended by the FDA (i.e., the Temporary PSP Closure Area). Since 2005, the closure has been extended several times and the area has been expanded and divided into northern and southern components. The Northern Temporary PSP Closure Area remained closed to the harvest of all bivalve molluscan shellfish, while the Southern Temporary PSP Closure Area was reopened to the harvest of Atlantic surfclams, ocean quahogs, and sea scallop adductor muscles harvested and shucked at sea. The current closure will expire on December 31, 2012, and this action extends this closure for 1 additional year, through December 31, 2013.

The boundaries of the northern component of the Temporary PSP Closure Area comprise Federal waters bounded by the following coordinates specified in Table 1 below. Under this emergency rule, this area remains closed to the harvest of Atlantic surfclams, ocean quahogs, and whole or roe-on scallops.

The boundaries of the southern component of the Temporary PSP Closure Area comprise Federal waters bound by the following coordinates specified in Table 2. Under this emergency rule, the Southern Temporary PSP Closure Area remains closed only to the harvest of whole or roe-on scallops.

This action is issued pursuant to section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), 16 U.S.C. 1855(c). Pursuant to section 5 U.S.C. 553(b)(B) of the Administrative Procedure Act, the Assistant Administrator for Fisheries finds there is good cause to waive prior notice and an opportunity for public comment on this action as notice and comment would be impracticable and contrary to the public interest due to a public health emergency, and public comment has been solicited concurrently with each of the extensions of this action, as detailed and responded to below. In addition, under section 553(d)(3) there is good cause to waive the 30-day delay in effectiveness due to a public health emergency. The original emergency closure was in response to a public health emergency. Toxic algal blooms are responsible for the marine toxin that causes PSP in persons consuming affected shellfish. People have become seriously ill and some have died from consuming affected shellfish under similar circumstances. Pursuant to section 305(c)(3)(C) of the Magnuson-Stevens Act, the closure to the harvest of shellfish, as modified on September 9, 2005, and re-instated on October 18, 2005, may remain in effect until the circumstances that created the emergency no longer exist, provided the public has had an opportunity to comment after the regulation was published, and, in the case of a public health emergency, the Secretary of Health and Human Services concurs with the Commerce Secretary's action. During the initial comment period, June 16, 2005, through August 1, 2005, no comments were received. Two comments have been received after the re-opening of the southern component of the Temporary PSP Closure Area on September 9, 2005. One commenter described the overall poor quality of water in Boston Harbor, but provided no evidence to back these claims. The other commenter expressed reluctance to re-opening a portion of the closure area without seeing the results of the FDA tests. Data used to make determinations regarding closing and opening of areas to certain types of fishing activity are collected from Federal, state, and private laboratories. NOAA maintains a Red Tide Information Center ( http://oceanservice.noaa.gov/redtide/ ), which can be accessed directly or through the Web site listed in the ADDRESSES section. Information on test results, modeling of algal bloom movement, and general background on red tide can be accessed through this information center. While NMFS is the agency with the authority to promulgate the emergency regulations, it modified the regulations on September 9, 2005, at the request of the FDA, after the FDA determined that the results of its tests warranted such action. If necessary, the regulations may be terminated at an earlier date, pursuant to section 305(c)(3)(D) of the Magnuson-Stevens Act, by publication in the Federal Register of a notice of termination, or extended further to ensure the safety of human health.

This emergency action is exempt from the procedures of the Regulatory Flexibility Act because the rule is issued without opportunity for prior notice and opportunity for public comment.

This rule is not significant for the purposes of Executive Order 12866.

For the reasons set out in the preamble, 50 CFR part 648 is amended to read as follows:

NMFS manages the groundfish fishery in the (BSAI) exclusive economic zone according to the Fishery Management Plan for Groundfish of the Bering Sea and Aleutian Islands Management Area (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2012 initial total allowable catch (ITAC) of Bering Sea (BS) Pacific ocean perch in the BSAI was established as 4,854 metric tons (mt), the 2012 ITAC of Aleutian Islands (AI) other rockfish was established as 485 mt, the 2012 ITAC of BSAI other flatfish was established as 3,200 mt, the 2012 ITAC of BSAI sculpin was established as 5,200 mt, and the 2012 ITAC of BSAI squid was established as 425 mt by the final 2012 and 2013 harvest specifications for groundfish of the BSAI (77 FR 10669, February 23, 2012). This includes apportionments of the non-specified reserve to BSAI other flatfish and BSAI squid in two separate actions (77 FR 46641, August 6, 2012 and 77 FR 44172, July 27, 2012, respectively). In accordance with § 679.20(a)(3) the Regional Administrator, Alaska Region, NMFS, has reviewed the most current available data and finds that the ITACs for BS Pacific ocean perch, AI other rockfish, BSAI other flatfish, BSAI sculpin, and BSAI squid in the BSAI need to be supplemented from the non-specified reserve in order to promote efficiency in the utilization of fishery resources in the BSAI and allow fishing operations to continue.

Therefore, in accordance with § 679.20(b)(3), NMFS apportions from the non-specified reserve of groundfish 856 mt to the BS Pacific ocean perch ITAC, 85 mt to the AI other rockfish ITAC, 400 mt to the BSAI other flatfish ITAC, 550 mt to the BSAI sculpin ITAC, and 275 mt to the BSAI squid ITAC in the BSAI. These apportionments are consistent with § 679.20(b)(1)(i) and do not result in overfishing of any target species because the revised ITACs are equal to or less than the specifications of the acceptable biological catch in the final 2012 and 2013 harvest specifications for groundfish in the BSAI (77 FR 10669, February 23, 2012).

The harvest specification for the 2012 ITACs included in the harvest specifications for groundfish in the BSAI are revised as follows: 5,710 mt for BS Pacific ocean perch, 570 mt for AI other rockfish, 3,600 mt for BSAI other flatfish, 5,750 mt for BSAI sculpin, and 700 mt for BSAI squid.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA, (AA) finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) and § 679.20(b)(3)(iii)(A) as such a requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the apportionment of the non-specified reserves of groundfish to the BS Pacific ocean perch, AI other rockfish, BSAI other flatfish, BSAI sculpin, and BSAI squid fisheries in the BSAI. Immediate notification is necessary to allow for the orderly conduct and efficient operation of this fishery, to allow the industry to plan for the fishing season, and to avoid potential disruption to the fishing fleet and processors. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of November 30, 2012.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

Under § 679.20(b)(3)(iii), interested persons are invited to submit written comments on this action (see ADDRESSES ) until December 19, 2012.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.