This rule is issued under Marketing Order No. 985 (7 CFR part 985), as amended, regulating the handling of spearmint oil produced in the Far West (Washington, Idaho, Oregon, and designated parts of Nevada and Utah), hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

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

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. Under the provisions of the marketing order now in effect, salable quantities and allotment percentages may be established for classes of spearmint oil produced in the Far West. This rule increases the quantity of Scotch and Native spearmint oil produced in the Far West that handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year, which began on June 1, 2012, and ends on May 31, 2013.

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

This rule revises the quantity of Scotch and Native spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year under the Far West spearmint oil marketing order. This rule increases the Scotch spearmint oil salable quantity from 782,413 pounds to 2,622,115 pounds, and the allotment percentage from 38 percent to 128 percent. In addition, this rule increases the Native spearmint oil salable quantity from 1,162,473 pounds to 1,348,270 pounds, and the allotment percentage from 50 percent to 58 percent.

Under the volume regulation provisions of the order, the Committee meets each year to adopt a marketing policy for the ensuing year. When the Committee's marketing policy considerations indicate a need for limiting the quantity of spearmint oil available to the market to establish or maintain orderly marketing conditions, the Committee submits a recommendation to the Secretary for volume regulation.

Volume regulation under the order is effectuated through the establishment of a salable quantity and allotment percentage applicable to each class of spearmint oil handled in the production area during a marketing year. The salable quantity is the total quantity of each class of oil that handlers may purchase from, or handle on behalf of, producers during a given marketing year. The allotment percentage for each class of oil is derived by dividing the salable quantity by the total industry allotment base for that same class of oil. The total industry allotment base is the aggregate of all allotment base held individually by producers. Producer allotment base is the quantity of each class of spearmint oil that the Committee has determined is representative of a producer's spearmint oil production. Each producer is allotted a pro rata share of the total salable quantity of each class of spearmint oil each marketing year. Each producer's annual allotment is determined by applying the allotment percentage to the producer's individual allotment base for each applicable class of spearmint oil.

Salable oil held over and carried into the ensuing marketing year is accounted for by the Committee as salable carry-in when it considers its marketing policy. Producers who produce spearmint oil in excess of their annual allotment must identify such excess oil to the Committee. After identification, excess oil must be either transferred to another producer to fill a deficiency in that producer's annual allotment or be held in reserve for future sale in accordance with the provisions of the order. Transfers of oil between producers to fill deficiencies must be completed prior to October 31 of each marketing year. Section 985.56(b) specifies that before November 1, or such other date as the Committee, with the approval of the Secretary, may establish, excess oil, not used to fill another producer's deficiency, shall be delivered to the Committee or its designees for storage. Section 985.57(a) provides that on November 1, or such other date as the Committee, with the approval of the Secretary may establish, the Committee shall pool identified excess oil as reserve oil in such manner as to accurately account for its receipt, storage, and disposition.

The full Committee met on October 12, 2011, to consider its marketing policy for the ensuing year. At that meeting, the Committee determined that marketing conditions indicated a need for volume regulation of both classes of spearmint oil for the 2012-2013 marketing year. The Committee recommended salable quantities of 782,413 pounds and 1,162,473 pounds, and allotment percentages of 38 percent and 50 percent, respectively, for Scotch and Native spearmint oil. A proposed rule to that effect was published in the Federal Register on March 5, 2012 (77 FR 13019). Comments on the proposed rule were solicited from interested persons until April 4, 2012. No comments were received. Subsequently, a final rule establishing the salable quantities and allotment percentages for Scotch and Native spearmint oil for the 2012-2013 marketing year was published in the Federal Register on June 5, 2012 (77 FR 33076).

Pursuant to authority contained in §§ 985.50, 985.51, and 985.52 of the order, the full eight member Committee met again on October 17, 2012, to consider pertinent market information on the current supply, demand, and price of spearmint oil. The Committee, in two separate motions, recommended that the 2012-2013 marketing year Scotch and Native spearmint oil allotment percentages be increased by 90 percent and 8 percent, respectively. The motion to increase the allotment percentage for Scotch was unanimous, and the motion to increase the allotment percentage for Native passed with six members in favor and two members opposed. The members opposed to the motion agreed that an increase was necessary for the industry to respond to increasing demand, but based their votes on the opinion that an 8 percent increase was not high enough to adequately respond to the current marketing environment.

Thus, taking into consideration the following discussion, this rule increases the 2012-2013 marketing year salable quantities and allotment percentages for Scotch and Native spearmint oil to 2,622,115 pounds and 128 percent, and 1,348,270 pounds and 58 percent, respectively.

The total industry allotment base for Scotch spearmint oil for the 2012-2013 marketing year was estimated by the Committee at the October 12, 2011, meeting at 2,058,981 pounds. This was later revised at the beginning of the 2012-2013 marketing year to 2,048,527 pounds to reflect the loss of 10,454 pounds of base due to non-production of some producers' total annual allotments during the 2011-2012 marketing year.

Section 985.53(e) of the order requires that producers make a bona fide effort to produce their entire respective allotment base each year. Failure to do so results in a reduction in the producer's allotment base equivalent to such unproduced portion. The 10,454 pound reduction in allotment base for Scotch spearmint oil reflects the total base surrendered by all producers due to the non-production of those producers' total annual allotments during the 2011-2012 marketing year.

When the revised total Scotch allotment base of 2,048,527 pounds is applied to the originally established allotment percentage of 38 percent, the initially established 2012-2013 marketing year salable quantity of 782,413 pounds is effectively modified to 778,440 pounds.

The same situation applies to Native spearmint oil. The Committee estimated at the October 12, 2011, meeting that the total industry allotment base for Native spearmint oil for the 2012-2013 marketing year was 2,324,945 pounds. That number was later revised at the beginning of the 2012-2013 marketing year to 2,324,604 pounds to reflect the bona fide effort reduction of 341 pounds. Just as with Scotch spearmint oil, the 341 pound reduction in Native allotment base reflects the total base surrendered by all producers due to the non-production of such producers' total annual allotments during the 2011-2012 marketing year.

When the revised total Native allotment base of 2,324,604 pounds is applied to the originally established allotment percentage of 50 percent, the initially established 2012-2013 marketing year Native salable quantity of 1,162,473 pounds is effectively modified to 1,162,302 pounds.

This rule makes additional amounts of Scotch and Native spearmint oil available to the market by increasing the salable quantity and allotment percentage of each class of oil. Such additional oil may come from spearmint oil produced in the current marketing year or by releasing oil held in the reserve pool. As of May 31, 2012, the Scotch reserve pool contained 215,350 pounds of spearmint oil and the Native reserve pool contained 451,302 pounds of spearmint oil.

The 90 percent increase in the Scotch spearmint oil allotment percentage established by this rule will result in a 2012-2013 marketing year salable quantity of 2,622,115 pounds. Likewise, the 8 percent increase in the Native spearmint oil allotment percentage established by this rule will result in a 2012-2013 marketing year salable quantity of 1,348,270 pounds. Theoretically, this reflects an additional 1,843,665 pounds of Scotch spearmint oil and 185,968 pounds of Native spearmint oil being made available to the market by this rule. However, due to the limited amount of spearmint oil held in reserve by individual producers, the Committee expects that only an additional 197,350 pounds of Scotch spearmint oil and 120,254 pounds of Native spearmint oil will be available to the spearmint oil market as a result of this rule.

The following is a detailed discussion of the Committee recommendations:

The 2012-2013 marketing year began on June 1, 2012, with an estimated carry-in of 149,740 pounds of salable Scotch spearmint oil. When the estimated carry-in is added to the revised 2012-2013 salable quantity of 778,440 pounds, the result is a theoretical total available supply of Scotch spearmint oil for the 2012-2013 marketing year of 928,180 pounds. However, the Committee estimates that Scotch spearmint oil producers do not have sufficient production to fill approximately 138,960 pounds of their respective 2012-2013 marketing year annual allotment. In addition, as the October 31 transfer deadline has passed, the anticipated deficiency experienced by some producers can no longer be filled from another producer's excess oil. As such, the Committee estimates that the total actual supply of Scotch spearmint oil available to the market prior to the issuance of this rule is 789,220 pounds, not the 928,180 pounds as previously calculated. Of this amount, the Committee estimates that 727,993 pounds of Scotch spearmint oil have already been sold or committed to be sold as of the October 17, 2012, meeting date. This leaves just 61,227 pounds of uncommitted salable Scotch spearmint oil available for sale for the remainder of the 2012-2013 marketing year. The Committee believes that maintaining such a small amount of salable Scotch spearmint oil would be detrimental to the industry.

In making the recommendation to increase the available supply of Scotch spearmint oil, the Committee considered all currently available information on price, supply, and demand. The Committee also considered reports and other information from handlers and producers in attendance at the meeting and reports presented by the Committee manager that were provided by handlers and producers who were not in attendance.

Increasing the 2012-2013 marketing year Scotch spearmint oil allotment percentage by 90 percent will increase the salable quantity by 1,843,674 pounds, to a total of 2,622,115 pounds. However, as mentioned previously, the net effect of the increase will be much less than the calculated increase due to the amount of actual oil individual producers have available from the unused portion of their annual allotment and from their reserve inventory. This action will make an estimated additional 197,350 pounds available to the market, which is the estimated total amount of Scotch spearmint oil held in reserve by producers as of the October 17, 2012, meeting. That amount, combined with the 61,227 pounds of salable Scotch spearmint oil currently available, will make a total of 258,577 pounds available to the market and bring the total available supply of Scotch spearmint oil for the marketing year to 986,570 pounds. The Committee expects that this action will completely deplete reserve stocks of Scotch spearmint oil during the course of the 2012-2013 marketing year.

When the original 2012-2013 marketing policy statement was drafted, handlers estimated the demand for Scotch spearmint oil for the 2012-2013 marketing year at 825,000 pounds. Thus, the Committee's recommendation for the establishment of the Scotch spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year was based on these estimates and did not anticipate the increase in demand for Scotch spearmint oil that the market is currently experiencing. The Committee believes that the supply of Scotch spearmint oil available to the market, without an increase in the salable quantity, would be insufficient to satisfy the current level of demand for oil at reasonable price levels. It is the opinion of the Committee and the spearmint oil industry that this action is essential to ensuring an adequate supply of Scotch spearmint oil to the market.

As previously stated, this action will make all of the Scotch spearmint oil held by the industry available for marketing, including the entire pool of reserve oil. Accordingly, to achieve the desired net effect under the current supply conditions in the industry, the salable quantity and allotment percentage established under the volume regulation provisions of the order must be set at the established high levels.

The Committee records show that not every producer holds Scotch spearmint oil in reserve. Conversely, a few producers hold a large quantity of oil in reserve relative to their allotment base. Given the process by which volume regulation is effectuated under the order, those producers with large amounts of reserve oil are only able to market their entire inventory of reserve oil when the allotment percentage is set very high. Likewise, producers that do not hold Scotch spearmint oil in reserve do not have oil inventory to market, regardless of the level of increase. As such, the Committee expects that establishing a high salable quantity and allotment percentage for Scotch spearmint oil will translate into a large amount of the increased salable quantity going unmarketed, as many producers have little or no reserve oil available to sell.

As an example, assume Producer A has 2,000 pounds of Scotch spearmint oil allotment base. In addition, assume that during the 2012-2013 marketing year Producer A produced 760 pounds of Scotch spearmint oil and currently holds 1,800 pounds in reserve from production in prior years. Given that the initial 2012-2013 marketing year allotment percentage was established at 38 percent, Producer A would be able to use all 760 pounds of the current year production (38 percent × 2,000 pounds). Without an increase in the allotment percentage, however, the producer would not be able to use any reserve oil. For Producer A to use all 1,800 pounds of the producer's reserve oil, the allotment percentage would need to be increased by 90 percent, to a total of 128 percent (90 percent × 2,000 pounds = 1,800 pounds). An increase in the allotment percentage of anything less than 90 percent would fail to release all of the Scotch spearmint oil he holds in reserve.

In contrast, assume that another producer, Producer B, likewise has 2,000 pounds of Scotch spearmint oil allotment base and produced 760 pounds of Scotch spearmint oil during the 2012-2013 marketing year. Unlike Producer A, however, Producer B has no oil held in reserve. As in the first case, Producer B would be able to use all of the producer's current year production under the initial allotment percentage of 38 percent. However, a subsequent increase in the allotment percentage of 90 percent would have no impact on Producer B, as there is no reserve oil for the producer to use. As a result, the theoretical 1,800 pounds of additional annual allotment allocated to Producer B after a 90 percent increase in the allotment percentage would go unfilled.

As mentioned previously, the Committee estimated at the October 17 meeting that producers hold just 197,350 pounds of Scotch spearmint oil in reserve. The Committee estimates that a 90 percent increase in the allotment percentage is required to release the entire Scotch spearmint oil reserve pool to the market. The Committee acknowledges that the high allotment percentage will create a large theoretical salable quantity for which no Scotch spearmint oil actually exists. Accordingly, the Committee expects that a large portion of the recommended 1,843,674 pound increase in salable quantity will go unfilled.

The Committee's stated intent in the use of marketing order volume control regulation for Scotch spearmint oil is to keep adequate supplies available to meet market needs and establish orderly marketing conditions. With that in mind, the Committee developed its recommendation for increasing the Scotch spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year based on the information discussed above, as well as the summary data outlined below.

(A) Estimated 2012-2013 Scotch Allotment Base—2,058,981 pounds. This is the estimate on which the original 2012-2013 salable quantity and allotment percentage was based.

(B) Revised 2012-2013 Scotch Allotment Base—2,048,527 pounds. This is 10,454 pounds less than the estimated allotment base of 2,058,981 pounds. The difference is the result of some producers failing to produce all of their 2011-2012 allotment.

(C) Original 2012-2013 Scotch Allotment Percentage—38 percent. This was unanimously recommended by the Committee on October 12, 2011.

(D) Original 2012-2013 Scotch Salable Quantity—782,413 pounds. This figure is 38 percent of the estimated 2012-2013 allotment base of 2,058,981 pounds.

(E) Adjusted 2012-2013 Scotch Salable Quantity—778,440 pounds. This figure reflects the salable quantity actually available at the beginning of the 2012-2013 marketing year. This quantity is derived by applying the 38 percent allotment percentage to the revised allotment base of 2,048,527.

(F) Current Revision to the 2012-2013 Scotch Salable Quantity and Allotment Percentage:

(1) Increase in Scotch Allotment Percentage—90 percent. The Committee recommended a 90 percent increase at its October 17, 2012, meeting.

(2) 2012-2013 Scotch Allotment Percentage—128 percent. This figure is derived by adding the increase of 90 percent to the original 2012-2013 allotment percentage of 38 percent.

(3) Calculated Revised 2012-2013 Scotch Salable Quantity—2,622,115 pounds. This figure is 128 percent of the revised 2012-2013 allotment base of 2,048,527 pounds.

(4) Computed Increase in the 2012-2013 Scotch Salable Quantity—1,843,674 pounds. This figure is 90 percent of the revised 2012-2013 allotment base of 2,048,527 pounds.

(5) Expected Actual Increase in the 2012-2013 Scotch Spearmint Oil Available to the Market—197,350 pounds. This figure is based on the Committee's calculation of oil actually held by producers that may enter the market as a result of this rule.

The 2012-2013 marketing year for Native spearmint oil began on June 1, 2012, with an estimated carry-in of 135,855 pounds of salable oil. When the estimated carry-in is added to the revised 2012-2013 salable quantity of 1,162,302 pounds, the result is a total available supply of Native spearmint oil for the 2012-2013 marketing year of 1,298,157 pounds. Of this amount, the Committee estimates that 1,185,965 pounds of Native spearmint oil have already been sold or are committed to be sold as of the October 17, 2012, meeting date. This leaves just 112,192 pounds available for sale for the remainder of the 2012-2013 marketing year. The Committee believes that this is a relatively small amount of salable oil and maintaining available stocks at this level at this point in the marketing year would be detrimental to the industry. As a result, the Committee initiated this rulemaking action.

In making this recommendation to increase the available supply of Native spearmint oil, the Committee considered all available information on price, supply, and demand. The Committee also considered reports and other information from handlers and producers in attendance at the meeting and reports presented by the Committee manager that were provided by handlers and producers who were not in attendance.

Increasing the 2012-2013 Native spearmint oil allotment percentage by 8 percent will increase the salable quantity by 185,968 pounds, to a total of 1,348,270 pounds. However, the net effect of the increase will be less than the calculated increase due to the amount of actual oil producers have available from the unused portion of their annual allotment or in reserve. The Committee estimates that this action will make an additional 120,254 pounds available to the market. This amount, combined with the 112,192 pounds of salable Native spearmint oil currently available, will make a total of 232,446 pounds available to the market and bring the total available supply of Native spearmint oil for the marketing year to 1,418,411 pounds.

When the original 2012-2013 marketing policy statement was drafted, handlers estimated the demand for Native spearmint oil for the 2012-2013 marketing year at 1,300,000 pounds. Thus, the Committee's recommendation for the establishment of the Native spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year was based on these estimates and did not anticipate the increase in demand for Native spearmint oil that the market is currently experiencing. The Committee believes that the supply of Native spearmint oil available to the market, without an increase in the salable quantity, will be insufficient to satisfy the current demand for oil at reasonable price levels. It is the opinion of the Committee and the spearmint oil industry that this action is essential to ensuring an adequate supply of Native spearmint oil to the market.

As previously stated, this action will make an additional 120,254 pounds of Native spearmint oil available to the market. Similar to the situation with Scotch spearmint oil, the salable quantity and allotment percentage has to be set relatively high to create the net effect desired. According to the Committee's calculations, the Native spearmint oil salable quantity and allotment percentage need to be increased 8 percent and 185,968 pounds, respectively, to release all of the 120,254 pounds that the Committee believes is necessary to adequately supply the market. The discrepancy between the calculated 185,968 pound increase in the salable quantity and the expected actual 120,254 pound increase in the amount of Native spearmint oil made available to the market is attributed to salable quantity being allocated to producers that do not have Native spearmint oil available to market. Accordingly, the Committee expects that 65,714 pounds of the recommended increase in the Native spearmint oil salable quantity will go unfilled.

The Committee's stated intent in the use of marketing order volume control regulation for Native spearmint oil is to keep adequate supplies available to meet market needs and establish orderly marketing conditions. As such, the Committee developed its recommendation for increasing the Native spearmint oil salable quantity and allotment percentage for the 2012-2013 marketing year based on the information discussed above, as well as the summary data outlined below.

(A) Estimated 2012-2013 Native Allotment Base—2,324,945 pounds. This is the estimate on which the original 2012-2013 Native spearmint oil salable quantity and allotment percentage was based.

(B) Revised 2012-2013 Native Allotment Base—2,324,604 pounds. This is 341 pounds less than the estimated allotment base of 2,324,945 pounds. The difference is the result of some producers failing to produce all of their 2011-2012 allotment.

(C) Original 2012-2013 Native Allotment Percentage—50 percent. This percentage was recommended by the Committee at its October 12, 2011, meeting.

(D) Original 2012-2013 Native Salable Quantity—1,162,473 pounds. This figure is 50 percent of the estimated 2012-2013 allotment base of 2,324,945.

(E) Adjusted 2012-2013 Native Salable Quantity—1,162,302 pounds. This figure reflects the salable quantity actually available at the beginning of the 2012-2013 marketing year. This quantity is derived by applying the 50 percent allotment percentage to the revised allotment base of 2,324,604.

(F) Current Revision to the 2012-2013 Native Salable Quantity and Allotment Percentage:

(1) Increase in Native Allotment Percentage—8 percent. The Committee recommended an 8 percent increase at its October 17, 2012, meeting.

(2) 2012-2013 Native Allotment Percentage—58 percent. This figure is derived by adding the increase of 8 percent to the original 2012-2013 allotment percentage of 50 percent.

(3) Calculated Revised 2012-2013 Native Salable Quantity—1,162,302 pounds. This figure is 58 percent of the revised 2012-2013 allotment base of 2,324,604 pounds.

(4) Computed Increase in the 2012-2013 Native Salable Quantity—185,968 pounds. This figure is 8 percent of the revised 2012-2013 allotment base of 2,324,604 pounds.

(5) Expected Actual Increase in the 2012-2013 Native Spearmint Oil Available to the Market—120,254 pounds. This figure is based on the Committee's calculation of oil actually held by producers that may enter the market as a result of this rule.

Based on its analysis of available information, USDA has determined that the salable quantity and allotment percentage for Scotch spearmint oil for the 2012-2013 marketing year should be increased to 2,622,115 pounds and 128 percent, respectively. In addition, USDA has determined that the salable quantity and allotment percentage for Native spearmint oil for the 2012-2013 marketing year should be increased to 1,348,270 pounds and 58 percent, respectively.

This rule relaxes the regulation of Scotch and Native spearmint oil and will allow producers to meet market demand while improving producer returns. In conjunction with the issuance of this rule, the Committee's revised marketing policy statement for the 2012-2013 marketing year has been reviewed by USDA. The Committee's marketing policy statement, a requirement whenever the Committee recommends implementing volume regulations or recommends revisions to existing volume regulations, meets the intent of § 985.50 of the order. During its discussion of revising the 2012-2013 salable quantities and allotment percentages, the Committee considered: (1) The estimated quantity of salable oil of each class held by producers and handlers; (2) the estimated demand for each class of oil; (3) prospective production of each class of oil; (4) total of allotment bases of each class of oil for the current marketing year and the estimated total of allotment bases of each class for the ensuing marketing year; (5) the quantity of reserve oil, by class, in storage; (6) producer prices of oil, including prices for each class of oil; and (7) general market conditions for each class of oil, including whether the estimated season average price to producers is likely to exceed parity. Conformity with USDA's “Guidelines for Fruit, Vegetable, and Specialty Crop Marketing Orders” has also been reviewed and confirmed.

The increases in the Scotch and Native spearmint oil salable quantity and allotment percentage allow for anticipated market needs for both classes of oil. In determining anticipated market needs, consideration by the Committee was given to historical sales and changes and trends in production and demand.

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

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

There are 8 spearmint oil handlers subject to regulation under the order, and approximately 32 producers of Scotch spearmint oil and approximately 88 producers of Native spearmint oil in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (SBA) (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

Based on the SBA's definition of small entities, the Committee estimates that two of the eight handlers regulated by the order could be considered small entities. Most of the handlers are large corporations involved in the international trading of essential oils and the products of essential oils. In addition, the Committee estimates that 8 of the 32 Scotch spearmint oil producers and 22 of the 88 Native spearmint oil producers could be classified as small entities under the SBA definition. Thus, a majority of handlers and producers of Far West spearmint oil may not be classified as small entities.

The use of volume control regulation allows the industry to fully supply spearmint oil markets while avoiding the negative consequences of over-supplying these markets. Without volume control, the spearmint oil market would likely fluctuate widely. Periods of oversupply could result in low producer prices and a large volume of oil stored and carried over to future crop years. Periods of undersupply could lead to excessive price spikes and could drive end users to source flavoring needs from other markets, potentially causing long-term economic damage to the domestic spearmint oil industry. The marketing order's volume control provisions have been successfully implemented in the domestic spearmint oil industry since 1980 and provide benefits for producers, handlers, manufacturers, and consumers.

This rule increases the quantity of Scotch and Native spearmint oil that handlers may purchase from, or handle on behalf of, producers during the 2012-2013 marketing year, which ends on May 31, 2013. The 2012-2013 Scotch and Native spearmint oil salable quantities were initially established at 782,413 pounds and 1,162,473 pounds, respectively, through publication in the Federal Register on June 5, 2012 (77 FR 33076). This rule increases the Scotch spearmint oil salable quantity to 2,622,115 pounds and the allotment percentage from 38 percent to 128 percent. Additionally, this rule increases the Native spearmint oil salable quantity to 1,348,270 pounds and the allotment percentage from 50 percent to 58 percent.

Based on the information and projections available at the October 17, 2012, meeting, the Committee considered a number of alternatives to this increase. The Committee not only considered leaving the salable quantity and allotment percentage unchanged, but also considered other potential levels of increase. The Committee reached its recommendation to increase the salable quantity and allotment percentage for both Scotch and Native spearmint oil after careful consideration of all available information and input from all interested industry participants, and believes that the levels recommended will achieve the objectives sought. Without the increase, the Committee believes the industry would not be able to satisfactorily meet market demand.

In accordance with the Paperwork Reduction Act of 1995, (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178, Vegetable and Specialty Crop Marketing Orders. No changes in those requirements as a result of this action are necessary. Should any changes become necessary, they would be submitted to OMB for approval.

This rule will not impose any additional reporting or recordkeeping requirements on either small or large spearmint oil handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

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

In addition, USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

Further, the Committee's meeting was widely publicized throughout the spearmint oil industry and all interested persons were invited to attend the meeting and participate in Committee deliberations. Like all Committee meetings, the October 17, 2012, meeting was a public meeting and all entities, both large and small, were able to express their views on this issue. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses.

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

This rule invites comments on a change to the salable quantity and allotment percentage for both Scotch and Native spearmint oil for the 2012-2013 marketing year. Any comments received will be considered prior to finalization of this rule.

After consideration of all relevant material presented, including the Committee's recommendation, and other information, it is found that this interim rule, as hereinafter set forth, will tend to effectuate the declared policy of the Act.

Pursuant to 5 U.S.C. 553, it is also found and determined upon good cause that it is impracticable, unnecessary, and contrary to the public interest to give preliminary notice prior to putting this rule into effect and that good cause exists for not postponing the effective date of this rule until 30 days after publication in the Federal Register because: (1) This rule increases the quantity of Scotch and Native spearmint oil that may be marketed during the marketing year, which ends on May 31, 2013; (2) the current quantity of Scotch and Native spearmint oil may be inadequate to meet demand for the 2012-2013 marketing year, thus making the additional oil available as soon as is practicable will be beneficial to both handlers and producers; (3) the Committee recommended these changes at a public meeting and interested parties had an opportunity to provide input; and (4) this rule provides a 60-day comment period and any comments received will be considered prior to finalization of this rule.

This rule establishes a border crossing in Big Bend National Park called Boquillas and designates it as a Customs station for customs purposes and a Class B port of entry for immigration purposes.

In 2010, the Presidents of the United States and Mexico issued a joint statement supporting the designation of a region of protected areas on both sides of the Rio Grande, including Big Bend National Park, as a region of binational interest. In support of this, CBP began working with the National Park Service to establish a border crossing to allow authorized travel between the areas in the United States and Mexico. On October 28, 2011, CBP published a Notice of Proposed Rulemaking (NPRM) in the Federal Register (76 FR 66862), which solicited public comment. The NPRM proposed to establish a Class B port of entry/Customs station in Big Bend National Park called Boquillas. Boquillas was proposed to be a Class B port of entry for immigration purposes under 8 CFR 100.4 and a Customs station for customs purposes in 19 CFR 101.4. In the NPRM and in this final rule, the Class B port of entry/Customs station is referred to as a border crossing. The NPRM also proposed to update the description of a Class B port of entry in 8 CFR 101.4 to reflect current border crossing document requirements. The Boquillas border crossing will service only pedestrians visiting Big Bend National Park and Mexican Protected Areas; CBP will not process cargo, commercial entries, or vehicles at Boquillas.

CBP received 47 comments in response to the NPRM, 36 of which favored the opening of the border crossing. Although some commenters were opposed to the opening of a new crossing in this area of the southwest border, saying that it will decrease the security of the border, other commenters thought that the Boquillas crossing would increase security in the region and facilitate legitimate travel. Many commenters were of the view that the Boquillas border crossing would benefit the region, including Big Bend National Park and its visitors, as well as the inhabitants of the village of Boquillas. CBP did not receive any comments regarding the proposed revised Class B port of entry description.

After review of the comments, CBP has concluded that the establishment of the Boquillas border crossing is consistent with the designation of the area as a region of binational interest and that the Boquillas border crossing is needed to fill the long stretch of border between Presidio and Del Rio where there is currently no authorized international border crossing. CBP has also concluded that the addition of a legal crossing facility at the site will enhance security in the area by providing a way for legitimate travelers to identify themselves to CBP and comply with U.S. regulations. Therefore, this final rule establishes the Boquillas border crossing in Big Bend National Park and revises the description of a Class B port of entry. This final rule addresses the relevant comments CBP received regarding the proposed crossing.

On May 19, 2010, President Obama and President Calderón of Mexico issued a joint statement recognizing that the Big Bend National Park and Rio Grande Wild and Scenic River in the United States, along with the Protected Areas of Maderas del Carmen, Cañon de Santa Elena, Ocampo, and Río Bravo del Norte in Mexico together comprise one of the largest and most significant ecological systems in North America. The Presidents expressed their support for the designation of the region as a natural area of binational interest, and encouraged an increased level of cooperation between the two countries. Based on this joint Presidential statement, the Commissioner of CBP announced plans to establish a border crossing in Big Bend National Park.

NPS, within the U.S. Department of the Interior, has been working with CBP on the border crossing. Efforts to establish this new border crossing were set in motion by discussions between the White House, the U.S. Department of Interior, and the U.S. Department of Homeland Security. NPS planned to construct a facility that could be used by NPS as a visitor center and would accommodate the infrastructure necessary to operate a border crossing.

On October 28, 2011, CBP published a notice of proposed rulemaking (NPRM) in the Federal Register (76 FR 66862) proposing to establish a border crossing in Big Bend National Park where U.S. citizens and certain aliens would be able to cross into the United States. Before 2002, a border crossing, called Boquillas, was open in the national park. The NPRM stated that the new border crossing would be located at the site of the historic crossing and would also be called the Boquillas border crossing. The NPRM proposed to designate the Boquillas border crossing as a Class B port of entry and a Customs station under the supervisory port of entry of Presidio, Texas. Presidio, Texas is a Customs port of entry listed in section 101.3 of the CBP regulations (19 CFR 101.3). For ease of reference, the NPRM referred to the proposed Boquillas port of entry/Customs station in this document as a border crossing; this final rule does likewise. For additional background information, please see the preamble to the NPRM.

As described in the NPRM, the Boquillas border crossing will service only pedestrians visiting Big Bend National Park and Mexican Protected Areas—not import business. Therefore, CBP will not process cargo, commercial entries, or vehicles at Boquillas. Persons using the Boquillas border crossing will only be permitted to bring limited merchandise into the United States; CBP will only process items exempt from duties and taxes under 19 CFR 10.151. This provision generally covers importations that do not exceed $200 in value. 1 All such items must comply with all applicable regulations, including all relevant Animal and Plant Health Inspection Service restrictions. Persons using the Boquillas crossing must also comply with Federal wildlife protection laws and U.S. Fish and Wildlife Service wildlife import/export regulations.

The NPRM provided a 60-day public comment period, which closed on December 27, 2011. CBP received 47 comments in response to the proposed rule. Thirty-six of these submissions were in support of the proposal, and included submissions from many individuals who live in the vicinity of Big Bend National Park as well as a submission from an environmental conservation association on behalf of over 300,000 members. Eleven of the submissions were opposed to the proposal, and also included submissions from individuals familiar with the park, including a former superintendent of Big Bend National Park. The following section groups the relevant comments, along with CBP's responses, by issue.

Several commenters are opposed to the opening of a new crossing in this area of the southwest border, saying that it will decrease the security of the border. One commenter, who was the superintendent of Big Bend National Park from 1994 to 1999 and was familiar with the crossing when it was open, said that, while the crossing served its purpose, illegal activity also took place. The commenter is concerned that due to the increase in illegal activity along the southern border in recent years, drug cartels will view the crossing as a “back-door” to the United States. Another commenter stated that illegal immigration and smuggling of contraband is at an all-time high in the Border Patrol's Big Bend Sector. Finally, one commenter stated that the new border crossing will present a risk to park visitors and NPS rangers.

However, many commenters who support opening the border crossing are of the view that the border crossing will maintain the security of the border while providing a legal access point between the United States and Mexico. Many commenters believe that due to the remoteness of the area, the Big Bend region does not have the same security risks as other parts of the southern border. Several commenters believe that the re-opening of the border crossing with new security measures is likely to increase security in the park, as those participating in illegal activity along the border are unlikely to attempt to enter the United States at a monitored border crossing. These commenters believe that those seeking to cross illegally are more likely to use any point along the many miles of unmonitored border.

CBP disagrees that opening the Boquillas border crossing will decrease security in the area. The proposal to open the Boquillas border crossing was made after extensive CBP analysis and consultation with our Mexican counterparts. CBP firmly believes that the addition of a legal crossing facility at the site will enhance security in the area by providing a way for legitimate travelers to identify themselves to CBP and comply with U.S. regulations. CBP concurs with commenters who believe that the border crossing will support security efforts in Big Bend National Park in that the enhanced security focus at the border crossing will discourage illegal activity in the vicinity of the Boquillas border crossing.

Security concerns are of the utmost importance, and CBP will take all appropriate security measures at the Boquillas border crossing and surrounding areas. CBP continues to take steps to increase security in the area, as we have done all along our borders. CBP already has a strong security presence in place in the Border Patrol's Big Bend Sector, and there are many layers of border security in place to secure the Big Bend region. CBP Border Patrol agents are assigned to the park; NPS enforcement rangers patrol the park; Border Patrol checkpoints are staffed 24 hours per day, 7 days a week, on all public roads leading from the park; and Border Patrol agents patrol the areas around the checkpoints and highways leading from the area. The audio and video surveillance at the new border crossing will further enhance security at this locale.

Regarding the statement that illegal activity is at an all-time high, the commenter does not reference specific data, and CBP data does not support this statement. According to CBP data, the number of apprehensions in the Big Bend Sector was the highest in the year 2000. Since 2001, CBP has increased the number of Border Patrol agents in the area, and there has been a decrease in the number of apprehensions for illegal activity in the area every year since then.

One commenter is opposed to providing more opportunities for travelers from Mexico to enter the United States, and for this reason, objects to the opening of the crossing. Other commenters supporting the opening of the Boquillas border crossing stated that the border crossing will only benefit law-abiding nationals of Mexico and the United States.

The Boquillas border crossing does not provide any greater opportunity to enter the United States than any other current Port of Entry. Most of the travelers who would use the Boquillas border crossing would be U.S. tourists that visit the Park within the United States, go over to Mexico to visit, and then return to the United States. All Mexican nationals seeking admission to the United States at the Boquillas border crossing will be required to meet all admissibility and document requirements and comply with all relevant U.S. laws and regulations.

CBP supports facilitating legitimate travel between the United States and Mexico. CBP agrees that the border crossing will only benefit law-abiding travelers, including nationals of Mexico, carrying proper documentation.

Several commenters are concerned that the use of remote technology does not provide adequate security at the border. Some of these commenters expressed concern that opening a crossing that is not staffed will provide free access to anyone seeking to enter the country and will cause an increase in the number of illegal entries into the country. One commenter stated that scanning documents is insufficient to keep terrorists, criminals, drugs, or other contraband out of the country.

On the other hand, a few commenters noted that CBP has used remote technology to successfully secure portions of the U.S.-Canada border. Some commenters noted that those using the Boquillas border crossing will be required to present certain border crossing documents and that state of the art technology will be used to verify the identities of travelers.

CBP believes that the technology solution to be used at the Boquillas border crossing will provide adequate security. All travelers seeking admission at the Boquillas border crossing will be required to be admissible to the United States and be in possession of a travel document that complies with the Western Hemisphere Travel Initiative (WHTI). The WHTI document requirements were implemented to enhance security efforts at the borders and to facilitate the movement of legitimate travel within the Western Hemisphere. 2 Since the full implementation of WHTI in June 2009, CBP has the ability to validate, in real time, a traveler's documents to determine the traveler's true identity and citizenship. The Boquillas border crossing will provide a way for legitimate travelers to identify themselves to CBP and access this area.

As explained in the preamble of the NPRM, CBP intends to use a combination of staffing and technology solutions to operate the border crossing. Remote technology will assist CBP in maintaining security and verifying the identity of those entering the United States, while also ensuring that they possess proper documentation to do so. Kiosks electronically connected to the El Paso port of entry will enable CBP officers in El Paso to remotely process travelers at the Boquillas border crossing. 3 CBP officers in El Paso will be in contact with Border Patrol agents within the park, who will respond when a physical inspection is required. CBP officers will assist onsite as operational needs dictate. CBP will process and clear all persons who use the Boquillas border crossing to enter the United States. CBP will install a 24-hour surveillance camera at the Boquillas crossing to monitor activity. The cameras will be monitored 24 hours a day at CBP's Combined Area Security Center and at the Alpine Border Patrol Station. CBP Border Patrol agents or NPS enforcement rangers stationed in the area will be available to take any necessary law enforcement measures. The 24/7 surveillance at the Boquillas crossing will further enhance security at this locale. Additionally, the Boquillas POE will only be open during daylight hours. While open, the Boquillas facility will also serve as a Park Service visitor's center and will be staffed by the Park Service.

In addition, there are already many layers of border security in place to secure the Big Bend region: the CBP Border Patrol agents assigned to the Big Bend National Park Substation; the NPS Enforcement Rangers who patrol the park; Border Patrol checkpoints staffed 24/7 on all public roads leading from Big Bend National Park; and Border Patrol agents from the Alpine station who patrol the areas around the checkpoints and highways leading away from the area. The 24/7 surveillance at the Boquillas border crossing will further enhance security in this locale. Also, it is important to emphasize that the Boquillas border crossing is intended for pedestrian use only, as there are no roads or bridges that cross the international line at this location. Security concerns related to vehicles entering the United States will not apply at the Boquillas border crossing.

CBP agrees fully with those commenters who noted the successful use of remote technology along the U.S.-Canada border. CBP uses remote technology at several northern border crossings. This technology has been very effective in verifying the identity and citizenship of travelers and securing the border.

Several commenters believe that NPS rangers are not equipped to pursue those who might use an unmanned border crossing to enter the United States illegally once they are in the country. These commenters noted that the terrain in the area is rugged, provides cover, and is difficult to patrol. Other commenters are concerned that Border Patrol agents will not be able to apprehend those who might use the border crossing to enter the United States illegally. Finally, one commenter suggested that it is inappropriate to open a border crossing utilizing remote technology in an area that has seen increased Border Patrol presence over the past five years.

A few commenters writing in support of the new border crossing noted that there is a good working relationship between CBP and NPS, and that Border Patrol agents stationed in the park work together with the NPS Enforcement Rangers for the security of the park. These commenters are of the view that re-opening the border crossing would facilitate communication between Mexican residents and law enforcement and U.S. law enforcement, which will increase security in the region.

As mentioned above, CBP does not believe the Boquillas border crossing will cause an increase in the number of illegal entries into the United States. The security in place in Big Bend National Park is already strong, and includes CBP Border Patrol agents and NPS enforcement rangers who patrol the park and are familiar with the terrain. To further combat the threat of illegal immigration and smuggling of contraband, CBP, in collaboration with NPS, is in the process of constructing new residences in Big Bend National Park so that CBP may assign Border Patrol agents to permanently work and live in the park. Upon completion and staffing of these homes, Border Patrol will have the largest contingent of agents ever assigned to Big Bend National Park.

CBP does not agree with the comment that the opening of a border crossing in an area where there has been an increased CBP presence is inappropriate. To the contrary, CBP is of the view that the increased CBP Border Patrol presence has enhanced the security of the area.

CBP agrees that there is a good working relationship between Border Patrol agents and NPS enforcement rangers in the park. CBP also agrees that facilitating communication between and with law enforcement personnel enhances security in the area.

One commenter objects to the opening of an unstaffed crossing, because there is a staffed crossing in Presidio, Texas, which the commenter stated is not far away.

Conversely, comments submitted in support of the border crossing noted that after the crossing was closed, the closest legal border crossing was more than 100 miles from the village of Boquillas, Mexico. One commenter stated that travel to the closest border crossing from the Mexican side required hours of travel on substandard roads, and, as a result, families have become disconnected and the local Texas economy has been negatively affected. Another commenter stated that someone making a living selling inexpensive crafts, as many of the residents of the village of Boquillas do, cannot afford to make a nearly 300 mile roundtrip journey to the nearest legal border crossing.

The closest legal border crossing west of the site of the Boquillas border crossing is Presidio, Texas. Presidio is more than 150 miles from the Boquillas site by river and more than 120 miles by road on the U.S. side. On the Mexican side, the town of Boquillas is very isolated. By road, a traveler would have to travel hundreds of miles south to the interior of Mexico to connect to a highway that would bring the traveler back northwest to Presidio, Texas. To the east of the Boquillas border crossing site, the closest legal border crossing is Del Rio, Texas. Del Rio is more than 250 miles from the Boquillas site by river and more than 260 miles by road on the U.S. side. On the Mexican side, by road, a traveler would have to travel hundreds of miles from the town of Boquillas south into the interior of Mexico to connect to a highway that would bring the traveler back northeast to Del Rio, Texas. Thus, CBP believes the Boquillas border crossing is needed to fill the long stretch of border between Presidio and Del Rio where there is currently no authorized international border crossing.

A few commenters are opposed to opening a border crossing in a national park. One commenter said that there is little in the village of Boquillas to attract park visitors and little in Big Bend National Park to attract the residents of Boquillas, Mexico. Several commenters suggested that increasing commerce to a small Mexican village is an insufficient reason to open a new border crossing.

However, many other commenters are of the view the Boquillas border crossing will benefit Big Bend National Park and its visitors, as well as the inhabitants of the village of Boquillas. Some commenters noted that the resources that make Big Bend National Park worthy of protection are not confined solely within the bounds of the National Park, but include surrounding parks and protected areas in both the United States and Mexico. They are of the view that the legal crossing will allow conservationists to collaborate across the Rio Grande, permitting greater protection efforts for plants and wildlife. One commenter stated that closing the crossing in 2002 had an adverse impact on the ability to protect natural resources, because the long distances to the closest legal border crossing have complicated cross-border cooperation on issues ranging from firefighting to removal of invasive species.

Some commenters noted that the history and culture of the United States and Mexico are deeply intertwined in this area, and, to fully appreciate this, a visitor to the park needs to be able to interact with those on the other side of the border. Many commenters who are familiar with the Boquillas border crossing before it was closed in 2002 anticipate that the new border crossing will open up many opportunities for residents and travelers in the area. For example, one commenter supports reuniting the protected areas on either side of the Rio Grande for such purposes as observing nature and photography. Another enjoyed crossing into Mexico prior to the closing of the historic crossing to paint landscapes. Other commenters enjoyed visiting the village of Boquillas for the cross-cultural experience. A few commenters also noted that when the crossing was previously open, residents of the village of Boquillas used the crossing to trade goods, buy food, and visit relatives. One commenter estimated that 40 percent of the Rio Grande Village store's revenue, which lies within Big Bend National Park, came from the residents of Boquillas, Mexico, who crossed the river to buy staples unavailable in their village.

A few commenters suggested that allowing for more legal, viable sources of revenue for the residents of Boquillas, who once depended heavily on tourism and trade of handicrafts, will increase security in the region around the Boquillas border crossing. One commenter stated that the border crossing will allow the re-establishment of commercial and cultural ties, providing opportunities for people across the border who currently have no stake in the security of the border, and creating an incentive to keep the crossing legal and open. Additionally, a few commenters believe that with a legal border crossing, Border Patrol agents will no longer need to spend time and resources pursuing those who may now be crossing illegally merely to buy provisions to take home or those who may have purchased a handicraft made by the residents of Boquillas, Mexico.

CBP believes that the Boquillas border crossing will benefit both sides of the border, not only the village of Boquillas. According to the U.S. Department of the Interior, the opening of the Boquillas border crossing will allow for the development of a model of binational cooperation for the conservation and enjoyment of shared ecosystems for current and future generations. With more than 268 river miles and 3 million acres of contiguous parks and protected area on both sides of the border, the border crossing should facilitate research and conservation along the Rio Grande within Big Bend National Park and the Mexican Protected Areas.

NPS anticipates an increase in visitors to Big Bend National Park due to the new border crossing. NPS also anticipates that visitors are likely to increase the length of their stays in the Big Bend region in order to take advantage of the crossing. New visitors and visitors staying longer will have a positive impact on the local economy on the U.S. side. Additionally, there are also a number of river outfitters on the U.S. side who can benefit from the new border crossing by expanding their services and businesses to include trips not only down the Rio Grande but also into Mexico. With the opening of the Boquillas border crossing, river outfitters will be able to lead tours into Mexico and report back to CBP within the park.

One commenter is concerned that there will not be a bridge or other infrastructure crossing the Rio Grande at this site. The commenter stated that when the border crossing was open previously, those crossing the Rio Grande did so in leaky rowboats, which presented a potential hazard to individuals as well as potential liability to the park and the federal government.

According to NPS, numerous river outfitters and travelers with their own boats, such as kayaks or canoes, already float the Rio Grande within Big Bend National Park each year. All river outfitters coming into the park are required to meet safety standards and training standards for employees. All commercial boat operations at the Boquillas border crossing will be required to meet the same training and safety standards as the current river outfitters. Additionally, NPS requires that all travelers with their own boats register at park headquarters prior to floating the river.

One commenter is concerned that there is insufficient maintenance staff in the park to maintain this new structure along with the many other existing structures in the park.

NPS does not anticipate any issues with maintenance of the facility. The opening of the Boquillas border crossing requires the construction of a small facility and the installation of hardware that meets the technical specifications for land border crossings. NPS is constructing a facility large enough to house both a small visitor center and the CBP inspection stations. The small facility is designed to be both energy efficient and low maintenance and will have minimal impact on park maintenance operations.

One commenter is of the view that the opportunity CBP provided for public comment was too late, as the project was already underway. The commenter also stated that the project is already behind schedule and over budget.

Even though there had been discussions about establishing a border crossing in Big Bend National Park after President Obama and President Calderón issued their joint statement in 2010, CBP had not made a final determination to proceed with the project until an environmental assessment was completed and public comment was sought and reviewed. CBP has carefully considered all the comments received before reaching any conclusions about whether to open the border crossing. NPS has not indicated any issues with funding the construction of the facility.

One commenter is concerned about the cost of the project. The commenter believes federal spending should be reduced, and is concerned that this project will increase the U.S. debt level.

The costs and benefits of this rule are discussed in the section entitled, “Executive Order 12866 (Regulatory Planning and Review) and 13563 (Improving Regulations and Regulatory Review)” and elsewhere in this document. CBP is of the view that the societal benefits of this rule outweigh the costs.

In the NPRM, CBP also proposed to update the description of a Class B port of entry to reflect current border crossing document requirements. The Boquillas border crossing would fit within the proposed new description of a Class B port of entry. CBP received no comments regarding the proposed revision to the Class B port of entry description. For a full explanation of the Class B description amendment, please see the section entitled “Proposed Revision of Class B Port of Entry Description” in the NPRM.

In view of the foregoing, and after consideration of the comments received, CBP has determined to adopt as final, the proposed rule published in the Federal Register , which establishes the Boquillas border crossing and revises the description of a Class B port of entry.

These regulations are being amended pursuant to 5 U.S.C. 301, 6 U.S.C. 112, 203 and 211, 8 U.S.C. 1103, 8 U.S.C. 1185 note (section 7209 of Pub. L. 108-458), and 19 U.S.C. 1, 58b, 66 and 1624.

This final rule is not an “economically significant” rulemaking action under Executive Order 12866, as supplemented by Executive Order 13563, because it will not result in the expenditure of more than $100 million in any one year. This final rule, however, is a significant regulatory action under Executive Order 12866; therefore, the Office of Management and Budget has reviewed this rule.

The opening of the Boquillas border crossing will entail constructing a small inspection facility and installing hardware that meets the technical specifications for land ports of entry. NPS is constructing a building large enough to house both a small visitor center and the CBP inspection station. This construction is being funded entirely by NPS and is expected to cost $2.1 million, 4 which accounts for special construction needed to address the remoteness of the facility. CBP will be responsible for procuring and installing all equipment needed for its operation, which includes inspection kiosks, surveillance equipment, and an agricultural waste disposal system. This equipment will cost $1,577,000 the first year, which includes installation, hardware, connectivity, and security. 5 We estimate that the facility will cost $200,000 each year for operation and maintenance; an estimated $195,000 will be incurred by CBP and $5,000 by NPS. 6 NPS will also staff the facility with a combination of paid seasonal and volunteer personnel. NPS estimates that 0.5 paid Full-Time Equivalents (FTEs) will be needed to staff the new facility at a cost of approximately $17,800 per year. 7 The total cost of opening the Boquillas border crossing is estimated to be $3.7 million in the first year and $217,800 in subsequent years, all of which will be incurred by the U.S. government.

NPS anticipates that 15,000 to 20,000 people will use the Boquillas border crossing in the first year. 8 Most of this traffic is expected to be U.S. citizens who will benefit from visiting the town of Boquillas del Carmen on the Mexican side of the border for food, souvenirs, and a unique cultural experience. The number of border crossers may grow over time as NPS continues to work with the Mexican government to develop ecotourism and sports and recreational opportunities. Because of the absence of data on the number of future border crossers and their willingness to pay for these experiences, we are not able to quantify the benefit of the availability of these experiences to the U.S. economy.

In addition to opening a new border crossing at Boquillas, this final rule will revise the definition of a Class B port of entry to make the admissibility documents allowed at a Class B port of entry consistent with WHTI. The costs and benefits of obtaining WHTI-compliant documents were included in the final rule establishing WHTI. 9 This final rule will not result in any additional costs or benefits.

This section examines the impact of the final rule on small entities as required by the Regulatory Flexibility Act (5 U.S.C. 603), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996. A small entity may be a small business (defined as any independently owned and operated business not dominant in its field that qualifies as a small business per the Small Business Act); a small not-for-profit organization; or a small governmental jurisdiction (locality with fewer than 50,000 people).

This final rule does not directly impact small entities, because individuals will be affected by the final rule and individuals are not considered small entities. In the NPRM, we stated that we did not believe the rule would have a significant economic impact on a substantial number of small entities and requested comments regarding that assessment. As we did not receive any comments with information that shows that the rule will have a significant economic impact on a substantial number of small entities, CBP certifies that this final rule will not have a significant economic impact on a substantial number of small entities.

The final rule will not have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, this final rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

DHS and CBP, in consultation with NPS within the U.S. Department of Interior, have been reviewing the potential environmental and other impacts of this proposed rule in accordance with the National Environmental Policy Act (NEPA) of 1969 (42 U.S.C. 4321 et seq. ), the regulations of the Council on Environmental Quality (40 CFR part 1500), and DHS Management Directive 023-01, Environmental Planning Program of April 19, 2006.

NPS prepared an environmental assessment (EA) that examines the effects on the natural and human environment associated with the proposed construction and operation of a visitor station and establishment of a Class B port of entry on the Rio Grande between the United States and Mexico within Big Bend National Park. The NPS EA encompasses all components of the Boquillas border crossing, including CBP operations of the port of entry. On June 28, 2011, NPS issued a Finding of No Significant Impact (FONSI) concluding that the proposed activities would not result in a significant impact to the human and natural environment.

In accordance with NEPA, CBP has carefully reviewed the EA developed by NPS and has determined that it considers all potential impacts of the project accurately. Therefore, CBP is adopting the EA developed by NPS and is issuing a FONSI. These documents will be posted on the CBP Web site at www.cbp.gov and in the docket for this rulemaking at http://www.regulations.gov.

The signing authority for amending title 19 of the Code of Federal Regulations falls under 19 CFR 0.2(a), because the establishment of this Customs station is not within the bounds of those regulations for which the Secretary of the Treasury has retained sole authority. Accordingly, this final rule may be signed by the Secretary of Homeland Security (or her delegate).

For the reasons stated in the preamble, we amend 8 CFR part 100 and 19 CFR part 101 as set forth below.

I. Background and Summary

The Final Rule specifies how the Bureau issues rules and when rules are considered issued. In the future, the Bureau may issue further rules on procedures for rulemaking.

Part 1074.1 establishes that the Bureau's rules are deemed issued upon the earlier of: (1) When the final rule is posted on the Bureau's Web site, or (2) when the final rule is published in the Federal Register . The Bureau's Web site is www.consumerfinance.gov.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)  1 and other statutes authorize the Bureau to issue rules. Ordinarily, a rule may be considered issued at least when the rulemaking document containing the final rule has been placed on public inspection by the Office of the Federal Register or published in the Federal Register . However, an agency may treat other events as constituting the issuance of a rule. 2 The key prerequisite for issuing a rule appears to be providing public notice of the rule's content.

It is beneficial for regulated entities to know what constitutes issuance of an agency's rules. 3 Pursuant to a commitment to using modern technology to facilitate the Bureau's performance of its functions, the Bureau regularly posts final rules on its Web site. Typically on the same day, the Bureau will submit the document to the Office of the Federal Register. After a period of time that depends on the length of the document and other factors, the Office of the Federal Register will then make the document available for public inspection and then publish it in the Federal Register . The Bureau does not believe that delaying issuance until the rule is published in the Federal Register is necessary or in the public interest. Accordingly, today's rule provides that when a final rule  4 is posted on the Bureau's Web site before it is published in the Federal Register , the posting on the Web site shall constitute the official issuance of the rule.

Clarifying what constitutes issuance of a rule is beneficial because in some cases the date of issuance of a rule has legal consequences. 5 For example, under section 1400(c)(3) of the Dodd-Frank Act, certain provisions of title XIV will go into effect on the date that is 18 months after the designated transfer date, 6 unless relevant regulations are “issued” by that date. Given the Bureau's practice of posting rules on its Web site before the Office of the Federal Register makes the rules available for public inspection or publishes the rules in the Federal Register , uncertainty could arise regarding the date on which such rules were issued. The Final Rule eliminates uncertainty by clarifying when the Bureau's rules are deemed issued.

The Bureau generally intends to issue rules by posting them on its Web site, but, as a precaution, the Final Rule provides that a rule will be considered issued upon publication in the Federal Register if by inadvertence or for some other reason the rule is not posted on the Web site or is published in the Federal Register before it is posted on the Web site.

Section 1022(b) of the Dodd-Frank Act authorizes the Bureau to prescribe rules as may be necessary and appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions of those laws. In addition, section 1012(a) of the Dodd-Frank Act authorizes the Bureau “to establish the general policies of the Bureau with respect to all executive and administrative functions, including—(1) the establishment of rules for conducting the general business of the Bureau, in a manner not inconsistent with this title * * * .”

The Final Rule is procedural and not substantive and, thus, is not subject to the 30-day delay in effective date required by 5 U.S.C. 553(d). The Bureau is making the Final Rule effective immediately upon publication in the Federal Register .

In developing the Final Rule, the Bureau has considered the potential benefits, costs, and impacts, and the Bureau has consulted or offered to consult with the prudential regulators and the Federal Trade Commission, including with regard to consistency with any prudential, market, or systemic objectives administered by such agencies. 7

Certainty about the timing of issuance of the Bureau's rules will likely benefit consumers and covered persons. The Bureau is not aware of costs to consumers or covered persons, including the potential reduction of access by consumers to consumer financial products or services, that can be predicted to result from treating rules as issued when the Bureau has posted them on its Web site.

Further, the Bureau is not aware of any unique impact the Final Rule might have on insured depository institutions or insured credit unions with total assets of $10 billion or less as described in section 1026(a) of the Dodd-Frank Act, or on rural consumers.

The Final Rule relates solely to agency procedure and practice and, thus, is not subject to the notice and comment requirements of the Administrative Procedure Act, 5 U.S.C. 553(b). Because no notice of proposed rulemaking is required, this rule does not require an initial or a final regulatory flexibility analysis pursuant to the Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq.

For the reasons set forth in the preamble, the Bureau adds part 1074 to Chapter X in Title 12 of the Code of Federal Regulations to read as follows:

On November 6, 2012, the OCC published a final rule that revised the charts set forth at 12 CFR 19.240(a) and at 12 CFR 109.103(c), to adjust the maximum amount of the CMPs the OCC administers to account for inflation. 1 77 FR 66529 (Nov. 6, 2012). These inflation adjustments were made pursuant to the Inflation Adjustment Act, 28 U.S.C. 2461 note, which requires the OCC, as well as other Federal agencies with CMP authority, periodically to evaluate and publish by regulation the inflation-adjusted maximum assessment for each CMP authorized by a law that the agency has jurisdiction to administer.

The charts set forth at 12 CFR 19.240(a) and 109.103(c) also reflected the new maximum CMP prescribed by section 100208 of the Biggert-Waters Flood Insurance Reform Act of 2012, 2 42 U.S.C. 4012a(f)(5), which increased the maximum amount for each violation of certain provisions of the National Flood Insurance Act to $2,000 and eliminated the $135,000 cap on the total amount of penalties for these violations that could be assessed against a single regulated lender in any calendar year.

The effective date of the final rule was described as December 6, 2012. Moreover, §§ 19.240(b) and 109.103(c) stated that all of the adjustments in the revised charts would apply to violations that occurred after December 6, 2012.

The effective date of the final rule published on November 6, 2012 was described as December 6, 2012. This technical correction amends §§ 19.240(b) and 109.103(c) to clarify that the inflation adjustments to the maximum amount of the OCC's CMPs made pursuant to the Inflation Adjustment Act apply to violations that occurred both on or after December 6, 2012, consistent with the effective date of the rule.

This technical correction also clarifies the effective date of the changes to the flood insurance CMP described in the revised charts set forth at §§ 19.240(a) and 109.103(c), published on November 6, 2012. The OCC amended these CMP charts to incorporate the statutory changes to the flood insurance CMP at the same time it amended these charts to account for inflation. The effective date of the final rule was described as December 6, 2012, and the rule did not specifically provide a different effective date for the changes to the flood insurance CMP mandated by section 100208 of the Biggert-Waters Flood Insurance Reform Act, 42 U.S.C. 4012a(f)(5), which were effective upon enactment, i.e., July 6, 2012. Accordingly, the OCC is amending 12 CFR parts 19 and 109 to clarify that the changes to the flood insurance CMP prescribed by 42 U.S.C. 4012a(f)(5), incorporated into its CMP charts, apply to violations that occurred both on or after July 6, 2012, consistent with the effective date of section 100208 of the Biggert-Waters Flood Insurance Reform Act.

Under the Administrative Procedure Act (APA), the requirement to provide public notice and an opportunity for comment does not apply if the agency finds, for good cause, that these procedural requirements are impracticable, unnecessary, or contrary to the public interest. See 5 U.S.C. 553(b)(B). As described above, this final rule is a technical correction that merely clarifies the effective date of the inflation adjustments to the OCC's CMPs and changes the effective date of the flood insurance CMP in parts 19 and 109 to confirm with that mandated by Congress. It is in the public interest to clarify these effective dates and eliminate any potential confusion as quickly as possible. For this reason, the OCC has concluded that notice and comment procedures are unnecessary and contrary to the public interest and that good cause exists for dispensing with them.

The APA generally requires an agency to publish a substantive rule 30 days prior to its effective date. See 5 U.S.C. 553(d). As described above, this final rule merely clarifies the effective date of the inflation adjustments to the OCC's CMPs and the changes to the flood insurance CMP that were mandated by Congress. It is in the public interest to clarify the effective date as quickly as possible. Accordingly, the OCC finds that good cause exists to dispense with a delayed effective date.

The Riegle Community Development and Regulatory Improvement Act of 1994 (RCDRIA) requires that the effective date of new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on insured depository institutions shall be the first day of a calendar quarter that begins on or after the date the regulations are published in final form. See 12 U.S.C. 4802(b)(1). The RCDRIA does not apply to this final rule because the rule does not impose any additional reporting, disclosures, or other new requirements. Accordingly, the OCC finds good cause for an immediate effective date.

The Regulatory Flexibility Act applies only to rules for which an agency publishes a general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b). See 5 U.S.C. 601(2). Because the OCC has determined for good cause that the APA does not require public notice and comment on this final rule, we are not publishing a general notice of proposed rulemaking. Thus, the Regulatory Flexibility Act does not apply to this final rule.

Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532, requires an agency to prepare a budgetary impact statement before promulgating any rule likely to result in a Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector of $100 million or more, as adjusted for inflation, in any one year. The Unfunded Mandates Reform Act applies only when an agency issues a general notice of proposed rulemaking. Because we are not publishing a notice of proposed rulemaking, this final rule is not subject to section 202 of the Unfunded Mandates Reform Act.

For the reasons set out in the preamble, parts 19 and 109 of chapter I of title 12 of the Code of Federal Regulations are amended as follows:

Order No. 771 Final Rule Table of Contents     Paragraph No. I. Background 3 II. Discussion 10 A. Legal Authority to Require E-Tag Access 10 1. E-Tag NOPR 10 2. Comments 11 3. Commission Determination 14 B. Need for Commission Access to E-Tag Information 22 1. E-Tag NOPR 22 2. Comments 23 3. Commission Determination 28 C. Implementing the Commission's E-Tag Access 34 1. E-Tag NOPR 34 2. Comments 35 3. Commission Determination 40 D. Providing E-Tag Access to MMUs, RTOs and ISOs 43 1. E-Tag NOPR 43 2. Comments 44 3. Commission Determination 53 E. Confidentiality of Data 56 1. E-Tag NOPR 56 2. Comments 57 3. Commission Determination 59 III. Information Collection Statement 61 IV. Regulatory Flexibility Act 69 V. Document Availability 71 VI. Effective Date and Congressional Notification 74 Before Commissioners: Jon Wellinghoff, Chairman; Philip D. Moeller, John R. Norris, Cheryl A. LaFleur, and Tony T. Clark. Issued December 20, 2012.

1. In this Final Rule, the Federal Energy Regulatory Commission (Commission) is amending its regulations, pursuant to sections 222 and 307(a) of the Federal Power Act (FPA), 1 to grant the Commission access, on a non-public and ongoing basis, to the complete electronic tags (e-Tags)  2 used to schedule the transmission of electric power interchange transactions in wholesale markets. This Final Rule will require e-Tag Authors  3 (through their Agent Service  4 ) and Balancing Authorities  5 (through their Authority Service  6 ) to take appropriate steps to ensure Commission access to the e-Tags covered by this Final Rule by designating the Commission as an addressee on the e-Tags. 7 After the Commission is designated as an addressee, the Commission will access the e-Tags by contracting with a commercial vendor. The commercial vendor will provide data management services and receive e-Tags addressed to the Commission. E-Tag Authors and Balancing Authorities will be required to ensure Commission access to e-Tag data under this Final Rule by no later than March 15, 2013.

2. In addition, this Final Rule requires that Regional Transmission Organizations (RTOs), Independent System Operators (ISOs) and their Market Monitoring Units (MMUs) shall be afforded access to complete e-Tags, upon request to e-Tag Authors and Authority Services, subject to their entering into appropriate confidentiality agreements.

3. E-Tags, also known as Requests for Interchange, are used to schedule interchange transactions  8 in wholesale markets. E-Tags document the movement of energy across an interchange over prescribed physical paths, for a given duration, and for a given energy profile(s), and include information about those entities with financial responsibilities for the receipt and delivery of the energy. E-Tags may contain information about the different types of entities involved in moving power across interchanges, including generators, transmission system operators, energy traders, and Load Serving Entities. E-Tags are delivered to the Interchange Distribution Calculator (IDC) and webSAS, which are used in the TLR procedure IRO-006-4.1 and WECC Unscheduled Flow Standard IRO-STD-006-0 for the Eastern and Western Interconnection, respectively. Currently, the North American Electric Reliability Corporation (NERC) and the Western Electricity Coordinating Council (WECC) receive all e-Tag data in the Eastern and Western Interconnections, respectively, in near real-time, to assist Reliability Coordinators in identifying transactions that may need to be curtailed to relieve overloads when transmission constraints occur. At present, NERC and WECC contract with OATI, a commercial vendor, for data management services related to IDC and webSAS. E-Tags are also included in the business practice standards adopted by the North American Energy Standards Board (NAESB)  9 and incorporated by reference into the Commission's regulations and public utility tariffs.

4. E-Tagging was first implemented by NERC on September 22, 1999, as a process to improve the speed and efficiency of the tagging process, which had previously been accomplished by email, facsimile, and telephone exchanges. 10 E-Tags require that, prior to scheduling transactions, one of the market participants involved in a transaction must submit certain transaction-specific information, such as the source and sink control areas (now referred to as Balancing Authority Areas) and control areas along the contract path, as well as the transaction's level of priority and transmission reservation Open Access Same-Time Information System (OASIS) reference numbers, to control area operators and transmission operators on the contract path. 11

5. Communication, submission, assessment, and approval of an e-Tag must be completed before the interchange transaction is implemented. 12 The Interchange Scheduling and Coordination (INT) group of NERC Reliability Standards sets forth requirements for implementing interchange transactions through e-Tags. E-Tags are submitted pursuant to the business practices set forth by NAESB. Those business practices incorporate the protocols enumerated in the NAESB Electronic Tagging Functional Specifications for communicating and processing e-Tags. NAESB business practice standards for the wholesale electric industry are mandatory when they have been incorporated by reference by the Commission into its regulations. 13 Several of the incorporated business practice standards require processing e- Tags in accordance with these specifications. 14

6. In reviewing the data that currently are available to the Commission and its staff and necessary for conducting effective market surveillance and analysis, the Commission has determined that gaining access to the complete e-Tags used for interchange transactions will enhance the Commission's efforts to detect and prevent market manipulation and monitor market developments.

7. The need to gain access to e-Tag data led the Commission to issue a Notice of Proposed Rulemaking on April 21, 2011, proposing to require NERC to make the complete e-Tags used to schedule the transmission of electric power in wholesale markets available to Commission staff on an ongoing, non-public basis. 15 The E-Tag NOPR also invited comments on whether the Commission should require that complete e-Tags be made available to MMUs.

8. In response to the E-Tag NOPR, comments were filed by 14 commenters. 16 The comments expressed a variety of views, some supporting the Commission's proposal to require Commission access to complete e-Tag information used to schedule interchange transactions for market monitoring purposes, 17 and others opposing the Commission's proposal. 18 Some comments focused on whether NERC is the appropriate entity to provide access to the e-Tags and whether their data would serve market monitoring or reliability purposes. The Pa Commission points out that “any regulatory provision, adopted by the [Commission], that allows it to better perform its statutory function of preventing anti-competitive and/or market manipulative behavior at the wholesale level may have beneficial effects for state commissions, tasked with protecting their residents from such practices, at the retail level.”  19 NERC commented that it has not owned or operated an e-Tag system and that it will not extend its contract with OATI for IDC operation services (which includes e-Tag information) after the current term expires in March 2013. 20 The commenters were split as to whether they supported allowing MMUs for RTOs and ISOs to have access to complete e-Tag information, including access to e-Tags for transactions outside of the markets the MMUs monitor and whether such access would raise confidentiality issues. 21 Other commenters urged the Commission to grant access to e-Tags to the staffs of ISOs and RTOs. 22 Some commenters emphasized that market monitoring via e-Tags will be a complex and challenging enterprise. 23 In addition, some comments stated that, if the Commission proceeds with the proposal in the E-Tag NOPR, it would need to enlist the services of an outside contractor to provide database services to accomplish the creation and collection of e-Tag data as market participants usually only have access to data related to their own transactions. 24 Trade Associations disagreed with the burden estimate included in the E-Tag NOPR, arguing that it is understated. 25 Finally, several commenters argued that it would be helpful for the Commission to convene a technical conference or notice of inquiry before taking final action. 26

9. The Commission also invited reply comments, so that interested persons would have an opportunity to comment on the ideas and proposals expressed in the comments that may not have been included as part of the proposals in the E-Tag NOPR. 27 Reply comments were filed by Trade Associations and NAESB. Trade Associations reiterated many of the arguments it raised in its initial comments. In its reply comments, NAESB stated that it does not take a position on the E-Tag NOPR, but notes that existing e-Tag mechanisms with some modification can support the distribution of e-Tag information to the Commission.

10. In the E-Tag NOPR, the Commission proposed to require NERC to provide Commission staff with ongoing access to the e-Tags used to schedule interchange transactions in wholesale markets on a non-public basis. The E-Tag NOPR stated that e-Tag information would help the Commission in its efforts to monitor markets, prevent market manipulation, assure just and reasonable rates, and ensure compliance with certain business practice standards adopted by NAESB and incorporated by reference into the Commission's regulations and the filed tariffs of public utilities. 28 In the E-Tag NOPR, the Commission stated that it has authority over public utilities that make wholesale power sales or that provide wholesale transmission service to report the details of their transactions, including complete e-Tag data. 29 The E-Tag NOPR also stated that, under FPA section 307(a), the Commission has, among its powers, authority to investigate any facts, conditions, practices, or matters it may deem necessary or proper to determine whether any person, electric utility, transmitting utility or other entity may have violated or might violate the FPA or the Commission's regulations, or to aid in the enforcement of the FPA or the Commission's regulations, or to obtain information about wholesale power sales or the transmission of power in interstate commerce. 30 Furthermore, the E-Tag NOPR stated that requiring NERC, rather than individual market participants, to provide access to e-Tag data would avoid burdening market participants with a requirement to file the same data with both NERC and the Commission and avoid burdening the Commission with developing and maintaining a new system to capture such data from individual market participants. 31

11. Many commenters focused on whether the Commission could use its reliability-related authority under FPA section 215 to require NERC to provide the Commission with access to e-Tags. In particular, NERC, MID, Trade Associations, and WECC assert that the Commission may not use its reliability-related jurisdiction over NERC (derived from NERC's status as the Commission-approved Electric Reliability Organization (ERO) under FPA section 215) to pursue market oversight matters that fall outside the scope of section 215. 32 NERC questions whether it should be implicated in subjects and activities that are outside the confines of section 215. 33 WECC states that it accesses e-Tag data sought by the Commission for the Western Interconnection pursuant to its authorities and responsibilities as a Regional Entity under section 215. 34 WECC recognizes that NERC and the Commission may request e-Tag data from WECC under FPA section 215, because the WECC Interchange Tool is an activity funded in accordance with section 215, but WECC does not support the Commission's proposal to require NERC or WECC to provide e-Tag data for purposes other than those authorized in section 215. 35

12. NERC states it is not clear that its involvement will be limited without additional information about how the Commission will collect and use e-Tag data. 36 MID contends that the proposal would allow the ERO to engage in activities not related to reliability standards, thereby “stepping onto a slippery slope of later being tasked with other, potential activity outside of the ERO's statutory mandate.”  37 MID also indicates concern that the Commission's request for data may result in a greater amount of work on the part of the ERO than anticipated and distract the ERO from ensuring reliability of the grid. 38

13. In addition, Trade Associations argue that FPA section 307(a) does not provide a sufficient basis for the Commission's proposal. 39 Trade Associations assert that section 307 is not a general grant of authority to collect information that may be interesting or potentially useful to the Commission. 40 Rather, contend Trade Associations, FPA section 307 pertains to the collection of information, such as through subpoenas or other processes, related to the investigation of particular matters. 41 According to Trade Associations, unless the Commission seeks access to e-Tags in the context of a “lawfully initiated investigation under the FPA,”  42 section 307 is not a separate or independent grant of information collection authority that may be used for general market oversight purposes by the Commission. In reply comments, Trade Associations state that, if the Commission decides to collect or access e-Tag data, the Commission should do so selectively, on an as-needed basis for particular power flows, where the Commission has questions that only e-Tag data may help answer. Similarly, Southern contends that, if the Commission seeks e-Tag data, it should submit targeted requests to appropriate entities. 43

14. At the outset, the Commission notes that neither the E-Tag NOPR nor the Final Rule in this proceeding relies on the Commission's reliability authority under FPA section 215 to gain access to e-Tags. Therefore, any comments founded on concerns about the Commission's authority (or lack of authority) under FPA section 215 are off point. Rather, as discussed below, the Commission's anti-manipulation authority under FPA section 222, taken together with its investigative authority under FPA section 307(a), provides the basis for accessing e-Tag information related to wholesale electricity market transactions.

15. As part of the Energy Policy Act of 2005 (EPAct 2005), 44 Congress granted the Commission authority over the prohibition of market manipulation in connection with the purchase or sale of electric energy and transmission subject to the Commission's jurisdiction in FPA section 222. In addition, FPA section 222 prohibits energy market manipulation by “any entity,” including entities exempted from the Commission's rate-related jurisdiction by FPA section 201(f). 45 The application of this provision to “any entity” and not solely to public utilities is further evidenced by section 201(b)(2) of the FPA, which explicitly states that certain provisions, including section 222, shall apply to entities that fall within the scope of FPA section 201(f). 46 Commission access to the information contained in e-Tags will help the Commission determine whether market manipulation is taking place and, absent these data, the Commission will be more limited in its ability to perform this function.

16. In turn, FPA section 307(a) grants the Commission authority to “obtain[] information about the sale of electric energy at wholesale in interstate commerce and the transmission of electric energy in interstate commerce.” E-Tag data unquestionably provides “information about the sale of electric energy at wholesale in interstate commerce and the transmission of electric energy in interstate commerce.” Moreover, as discussed below with regard to the Commission's need for e-Tag data, this information will help the Commission ascertain whether “any person, electric utility, transmitting utility, or other entity has violated or is about to violate any provisions of this Act or any rule, regulation, or order thereunder.” Thus, we conclude that obtaining e-Tag data from market participants or other entities is within the Commission's authority under FPA section 307(a). And the Commission's surveillance efforts are encompassed within its broad investigative authority as they are precisely what section 307 is designed to permit—i.e., “to determine whether any person [or entity] * * * has violated or is about to violate any provisions of the [FPA] * * * or in obtaining information about the sale of electric energy at wholesale in interstate commerce and the transmission of electric energy in interstate commerce.”

17. Contrary to Trade Associations' assertion that the Commission's investigative authority under FPA section 307 is limited solely to investigations of particular matters, FPA section 307(a) allows the Commission to investigate more broadly, i.e., to obtain information about the activities of entities participating in wholesale energy markets. 47 Moreover, the cases cited by the Trade Associations do not support their contention that section 307 only pertains to collecting information, such as through subpoenas or other process, in connection with investigating particular matters. Specifically, in FPC v. Metropolitan Edison and Mississippi Power & Light v. FPC, the issue before the courts was whether the courts could review orders issued by the Federal Power Commission, pursuant to its authority under FPA section 307 to institute investigations that required the production of company records and the examination of witnesses. In both cases, the courts allowed the Commission's investigations to go forward. 48 Trade Associations also cite to an order in which the Commission noted that compliance with a survey may be compelled by subpoenas issued under FPA section 307. 49 Although FPA section 307(b) enables the Commission to use subpoenas (or other formal processes) when necessary in connection with an investigation, it does not follow that all Commission investigations initiated under section 307(a) are limited to particular matters and cannot be used to collect information more broadly.

18. The Supreme Court has also recognized that an administrative agency's investigative authority is not limited to a particular case. For example, in referring to investigations conducted by the Federal Trade Commission (FTC), the Court held in Morton Salt that, when an administrative agency is given investigative duties by Congress, the agency has the power to obtain information not only within the context of a particular case or controversy, but to “investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”  50 The same principle applies here with respect to the investigative powers that Congress has given the Commission under FPA section 307.

19. Furthermore, we disagree with Trade Associations' suggestion that an investigation initiated by the Commission under FPA section 307(a) must follow the procedures set forth in Part 1b of the Commission's regulations  51 in order to be considered “lawful.” FPA section 307(a) permits the Commission to investigate to obtain information about the wholesale sale and transmission of electric energy, but this provision does not prescribe the manner in which the Commission must obtain such information, and the Commission has not previously applied its Part 1b regulations to every proceeding instituted under FPA section 307(a). 52 Furthermore, we note that section 307(a) of the FPA was initially enacted in 1935, well before the enactment of Part 1b of the Commission's regulations, and section 307(a) makes no reference to Part 1b. In response to Trade Associations' comment that the Commission should limit its e-Tag access to particular power flows, we note that limiting Commission access in such a way will not provide the Commission with sufficient data to properly understand the transactional activity taking place in wholesale electric markets and will impede its efforts to perform effective market surveillance and analysis.

20. Finally, in the Order No. 676 series of orders, 53 the Commission incorporated by reference into its regulations, at 18 CFR 38.2, business practice standards applicable to public utilities and certain non-public utilities. By incorporating these business practice standards by reference, the Commission made these standards mandatory and enforceable. Given that the use and format of e-Tags is governed by the NAESB business practice standards and by e-Tag protocols and specifications referenced in those standards, Commission access to this information is necessary to determine whether these requirements are being met. 54

21. In the E-Tag NOPR, the Commission stated that obtaining access to complete e-Tag data will help the Commission to detect anti-competitive or manipulative behavior or ineffective market rules, monitor the efficiency of the markets, and better inform Commission policies and decision-making. 55 The E-Tag NOPR explained that, by using e-Tag data in coordination with other data, the Commission will be better able to identify interchange schedules that appear anomalous or inconsistent with rational economic behavior. 56 The E-Tag NOPR stated that access to e-Tag data would allow the Commission's staff to examine more effectively situations where interchange schedules are absent, even when transmission capacity is available and pricing differences between the two locations ought to be sufficient to encourage transactions between those locations, thereby signaling a market issue or other problem. 57 The E-Tag NOPR also noted that, in cases where e-Tags are relevant, access to e-Tags would provide the Commission with more complete information for use in conducting audits or investigations. 58

22. Some commenters support the Commission's proposal to require Commission access to complete e-Tag information used to schedule interchange transactions for market monitoring purposes. 59 Other commenters oppose the Commission's proposal. 60 Trade Associations argue that it is unclear why the Commission believes e-Tag information would enhance the Commission's efforts to monitor market developments and prevent market manipulation, assure just and reasonable rates, and monitor compliance with certain NAESB business practices. 61 Trade Associations argue that the data collected cannot be translated into useful information without detailed explanations of each transaction that an e-Tag relates to and that providing these explanations would be burdensome. 62 In particular, Trade Associations state that many power sales do not have e-Tags; e-Tags often include multiple transactions; power sales are often recorded across multiple e-Tags; e-Tags get revised and replaced on a regular basis; and a single e-Tag can represent multiple transactions among numerous parties.

These final regulations contain amendments to the Income Tax Regulations (26 CFR Part 1) under section 704 of the Internal Revenue Code (Code). On October 25, 2011, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-109564-10) (the proposed regulations) in the Federal Register to remove the de minimis rule in § 1.704-1(b)(2)(iii)( e ) (the de minimis partner rule). The proposed regulations provide that the final regulations are effective on the date they are published in the Federal Register .

The Treasury Department and the IRS did not hold a public hearing because there were no requests to speak at a hearing. However, the Treasury Department and the IRS received comments in response to the proposed regulations.

After consideration of the comments, the final regulations adopt the proposed regulations as modified by this Treasury decision. The comments are discussed in this preamble.

Commenters generally agreed that the current de minimis partner rule is too broad, is easily abused, and/or is inconsistent with sound tax policy. The Treasury Department and the IRS agree with these commenters that the current de minimis partner rule should no longer be applicable.

The preamble to the proposed regulations requests comments on “how to reduce the burden of complying with the substantial economic effect rules, with respect to look-through partners, without diminishing the safeguards the rules provide.” In response to this request, some of the commenters requested that future guidance in regulations amend the current de minimis partner rule, and other commenters suggested alternative approaches for de minimis partners and look-through partners. These alternative approaches are discussed in Part 2.a through 2.e of this preamble.

A commenter suggested amending the current de minimis partner rule by providing that the de minimis partner rule applies only if: (i) de minimis partners own less than a specified aggregate percentage (for example, 25 percent, 50 percent, or 80 percent) of the partnership; and (ii) the partnership has at least two non-de minimis partners.

One commenter suggested adopting a “reasonable assumptions rule” for de minimis partners and indirect partners. This commenter noted that a partnership must know the tax attributes of its partners in order to determine whether a partnership's allocations are substantial. However, this commenter also explained that many partnerships are comprised of partners that are passthrough entities and it is difficult for these partnerships to obtain information about the tax attributes of their ultimate partners. Thus, this commenter recommended that the Treasury Department and the IRS permit a partnership to make reasonable assumptions about: (1) The tax attributes of any partner that owns (directly, indirectly, and through attribution) not more than a 5 percent interest in the capital or profits of the partnership (each, a de minimis partner); and (2) the identity and tax attributes of any person that owns an interest in the partnership indirectly through one or more “look-through entities” (within the meaning of § 1.704-1(b)(2)(iii)( d )( 2 )) other than disregarded entities (each, an indirect partner). Under this approach, if a partnership makes reasonable inquiries regarding the tax attributes of all de minimis partners and indirect partners but is unable to obtain the necessary information, then the partnership would be permitted to make reasonable assumptions about the tax attributes of those partners, but only if, in the aggregate, those de minimis partners and indirect partners do not own more than a 30 percent interest in the profits and capital of the partnership.

This commenter further explained that, provided the partnership's assumptions are reasonable, allocations that would be substantial on the basis of those reasonable assumptions would be respected even if those assumptions later are determined to have been incorrect. According to this commenter, whether a partnership's assumptions are reasonable should be determined based on all of the facts and circumstances. This commenter provided several examples of reasonable and unreasonable assumptions (for example, if a partner is identifiable (by its name or otherwise) as a charitable organization or educational institution, it would be unreasonable for a partnership to assume that the partner is a fully taxable individual or corporation).

Similarly, another commenter suggested that the IRS establish “reasonable presumptions” as to the tax attributes of the owners of certain look-through entity partners. According to this commenter, these presumptions should be limited to situations in which the partnership does not know or have reason to know of the tax attributes of the owner of the look-through entity partner.

Another commenter recommended that the Treasury Department and the IRS establish safe harbor presumptions for the tax attributes of de minimis partners that do not qualify for the de minimis partner rule and partners that own, directly or indirectly, through a look-through entity, less than 10 percent of the capital and profits of the partnership and are allocated less than 10 percent of each partnership item. The commenter proposed several safe harbor presumptions regarding the relevant tax attributes of such a partner based on the type of partner (for example, if the partner is a nonresident alien) and the type of income the partnership earns (for example, if the partnership earns effectively connected income).

Another commenter suggested amending the section 704(b) regulations to provide that in a limited number of situations, the partnership would be deemed to satisfy the partnership allocation regulations. According to this commenter, deemed satisfaction would apply to partnerships that qualify, for the current tax year and all prior tax years, as pro rata partnerships, de minimis service partnerships, or de minimis partnerships with de minimis partners. A partnership would be considered a pro rata partnership if all contributions to the partnership are cash; all items of partnership income, gain, loss, deduction, and credit are allocated pro rata based on the partners' relative contributions; all partnership liabilities are shared pro rata based on the partners' relative contributions; and all partnership distributions are made pro rata based on the partners' relative contributions. A partnership would qualify as a de minimis service partnership if the partnership has gross receipts of $5 million or less in each taxable year, 95 percent of the partnership's gross receipts is derived from services, and all partners are individuals who materially participate in the services of the partnership within the meaning of section 469(h). A partnership would be considered a de minimis partnership with de minimis partners if the aggregate fair market value (net of partnership liabilities) or tax basis of partnership property is $5 million or less at all times during the partnership taxable year, the partnership has gross receipts of $5 million or less in each taxable year, and no partner is allocated more than 10 percent of any partnership item.

Commenters offered other alternative approaches, including lowering the de minimis percentage interest threshold and the income allocation threshold; providing a limitation or threshold on the amount of net taxable income that is reasonably expected to be earned by the partnership or allocated to the de minimis partner each year; prohibiting reliance on the de minimis partner rule if the partnership knows (or has reason to know) of the relevant tax attributes of the de minimis partner and such attributes would cause the allocations not to have substantial economic effect; or promulgating separate de minimis partner rules for large and small partnerships.

The Treasury Department and the IRS believe that the alternative approaches to reduce the burden of complying with the substantial economic effect rules described in Part 2.a through 2.e of this preamble require further consideration due to the issues raised by the complexity of the substantiality rules. Although commenters suggested that removal of the de minimis rule without providing other administrative relief would result in undue burden, the Treasury Department and the IRS have determined that tax administration is best served by providing in the final regulations that the current de minimis rule will no longer be applicable. The Treasury Department and the IRS may address alternative approaches in future guidance, and will consider the comments on alternative approaches at that time.

Whether an allocation is considered to be substantial is generally determined at the time the allocation becomes part of the partnership agreement. The final regulations provide that the de minimis partner rule does not apply to allocations that become part of the partnership agreement on or after December 28, 2012.

With respect to existing allocations, one commenter suggested that the de minimis partner rule was sufficiently flawed that it should be promptly removed, and that it should not continue to apply to allocations that became part of the partnership agreement prior to its removal. The Treasury Department and the IRS agree with this comment. Accordingly, these final regulations are effective, and therefore the de minimis partner rule of § 1.704-1(b)(2)(iii)( e ) is no longer applicable, for all partnership taxable years beginning on or after December 28, 2012, regardless of when the allocation became part of the partnership agreement. Thus, the substantiality of all partnership allocations, regardless of when they became part of the partnership agreement, must be retested without the benefit of the de minimis partner rule. For allocations in existing partnership agreements, the retest has to be as of the first day of the first partnership taxable year beginning on or after December 28, 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 has also 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 the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have been 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 final regulations is Michala Irons, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR part 1 is amended as follows:

The collection of information contained in the final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2157. The collection of information in the final regulations is in § 1.509(a)-4(i)(2) and § 1.509(a)-4(i)(6)(v). The collection of information under § 1.509(a)-4(i)(2) flows from section 509(f)(1)(A) of the Internal Revenue Code (Code), which requires a Type III supporting organization to provide to each of its supported organizations such information as the Secretary may require to ensure that the Type III supporting organization is responsive to the needs or demands of its supported organization(s). The collection of information under § 1.509(a)-4(i)(6)(v) is required only if a Type III supporting organization that is not functionally integrated wishes for certain amounts set aside for a specific project to count toward the distribution requirement imposed by § 1.509(a)-4(i)(5)(ii). The likely recordkeepers are Type III supporting organizations and certain of their supported organizations.

Estimated total annual reporting burden: 15,122 hours.

Estimated average annual burden hours per recordkeeper: 2 hours.

Estimated number of recordkeepers: 7,556.

Estimated frequency of collection of such information: Annual.

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

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

This document contains amendments to the Income Tax Regulations (26 CFR part 1) and Foundation Excise Tax Regulations (26 CFR part 53) regarding organizations described in section 509(a)(3) of the Code. An organization described in section 501(c)(3) of the Code is classified as either a private foundation or a public charity. To be classified as a public charity, an organization must meet the requirements of section 509(a)(1), (2), (3), or (4). Organizations described in section 509(a)(3) are known as supporting organizations. Supporting organizations achieve their public charity status by providing support to one or more organizations described in section 509(a)(1) or (2), which in this context are referred to as supported organizations.

To meet the requirements of section 509(a)(3), an organization must satisfy an organizational test, an operational test, a relationship test, and a disqualified person control test. The organizational and operational tests require that the supporting organization be organized and at all times thereafter operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more supported organizations. The relationship test requires the supporting organization to establish one of three types of relationships with one or more supported organizations. Finally, the disqualified person control test requires that the supporting organization not be controlled directly or indirectly by certain disqualified persons. Although each of these tests is a necessary requirement for an organization to establish that it qualifies as a supporting organization, these final regulations and temporary regulations focus primarily on one of the relationship tests: the test for supporting organizations that are “operated in connection with” their supported organization(s), otherwise known as “Type III” supporting organizations. Specifically, the temporary regulations address the amount that Type III supporting organizations that are not “functionally integrated” must annually distribute and explain how assets are valued for purposes of this distribution requirement. The final regulations describe all of the other requirements of the relationship test for Type III supporting organizations.

To meet the requirements of section 509(a)(3), a supporting organization must satisfy one of three relationship tests with respect to its supported organization(s). A supporting organization that is operated, supervised or controlled by one or more supported organizations is commonly known as a Type I supporting organization. The relationship of a Type I supporting organization with its supported organization(s) is comparable to that of a corporate parent-subsidiary relationship. A supporting organization that is supervised or controlled in connection with one or more supported organizations is commonly known as a Type II supporting organization. The relationship of a Type II supporting organization with its supported organization(s) involves common supervision or control by the persons supervising or controlling both the supporting organization and the supported organizations. A supporting organization that is operated in connection with one or more supported organizations is commonly known as a Type III supporting organization.

Prior to the enactment of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780 (2006)) (PPA), the regulations under section 509(a)(3) (hereinafter referred to as the “existing” regulations) generally provided that an organization is “operated in connection with” one or more supported organizations if it meets a “responsiveness test” and an “integral part test.”

Existing § 1.509(a)-4(i)(2)(i) provides that an organization meets the responsiveness test if the organization is responsive to the needs or demands of its supported organizations. Existing § 1.509(a)-4(i)(2)(ii) (hereinafter referred to as the “significant voice responsiveness test”) provides that a supporting organization can demonstrate responsiveness to a supported organization if the relationship between the supporting and supported organization meets one of the following three criteria: (1) The supported organization appoints or elects one or more of the officers, directors, or trustees of the supporting organization; (2) one or more members of the governing body of the supported organization serve as officers, directors, or trustees of, or hold other important offices in, the supporting organization; or (3) the officers, directors, or trustees of the supporting organization maintain a close continuous working relationship with the officers, directors, or trustees of the supported organization. In addition, as a result of one of these three criteria being satisfied, the supported organization has to have a “significant voice” in the investment policies of the supporting organization, the timing and the manner of making grants, the selection of the grant recipients of the supporting organization, and in otherwise directing the use of the income or assets of the supporting organization.

The existing regulations also provide an alternative means for charitable trusts to satisfy the responsiveness test. Under existing § 1.509(a)-4(i)(2)(iii), a supporting organization is responsive if: (1) It is a charitable trust under State law; (2) each specified supported organization is a named beneficiary under the charitable trust's governing instrument; and (3) each beneficiary organization has the power to enforce the trust and compel an accounting under State law.

In the case of an organization that is supporting one or more supported organizations before November 20, 1970, existing § 1.509(a)-4(i)(1)(ii) provides that additional facts and circumstances, such as a historic and continuing relationship between the supporting organization and its supported organization(s), also can be taken into account to establish compliance with the responsiveness test.

The integral part test under existing § 1.509(a)-4(i)(3)(i) requires a supporting organization to maintain a significant involvement in the operations of one or more supported organizations that are dependent upon the supporting organization for the type of support that it provides. Under the existing regulations, there are two alternative ways to meet the integral part test: (1) the “but for” test under existing § 1.509(a)-4(i)(3)(ii); or (2) the payout test under existing § 1.509(a)-4(i)(3)(iii).

Under existing § 1.509(a)-4(i)(3)(ii), the “but for” test is satisfied if the activities engaged in by the supporting organization for or on behalf of the supported organizations are activities to perform the functions of, or to carry out the purposes of, such organizations, and, but for the involvement of the supporting organization, would normally be engaged in by the supported organizations themselves.

The payout test under existing § 1.509(a)-4(i)(3)(iii) requires a supporting organization to: (1) Make payments of substantially all of its income to or for the use of one or more supported organizations; (2) provide enough support to one or more supported organizations to ensure the attentiveness of such organization(s) to the operations of the supporting organization; and (3) pay a substantial amount of the total support of the supporting organization to those supported organizations that meet the attentiveness requirement. The phrase “substantially all of its income” in existing § 1.509(a)-4(i)(3)(iii) has been interpreted to mean at least 85 percent of adjusted net income. See Rev. Rul. 76-208, 1976-1 CB 161.

The PPA made five changes to the requirements an organization must meet to qualify as a Type III supporting organization:

(1) It removed the ability to rely solely on the alternative test for charitable trusts as a means of meeting the responsiveness test;

(2) To ensure that a “significant amount” is paid to supported organizations, it directed the Secretary of the Treasury to establish a new payout requirement for Type III supporting organizations that are not “functionally integrated” (with the term “functionally integrated” referring to Type III supporting organizations that are not required to meet a payout requirement due to their activities related to performing the functions of, or carrying out the purposes of, their supported organization(s));

(3) It required a Type III supporting organization to annually provide to each of its supported organizations such information as the Secretary may require to ensure that the supporting organization is responsive to the needs or demands of its supported organization(s);

(4) It prohibited a Type III supporting organization from supporting any supported organization not organized in the United States; and

(5) It prohibited a Type I or Type III supporting organization from accepting a gift or contribution from a person who, alone or together with certain related persons, directly or indirectly controls the governing body of a supported organization of the Type I or Type III supporting organization.

On August 2, 2007, the Treasury Department and the IRS published in the Federal Register (72 FR 42335) an advanced notice of proposed rulemaking (ANPRM) (REG-155929-06). The ANPRM described proposed rules to implement the PPA changes to the Type III supporting organization requirements and solicited comments regarding those proposed rules. Forty comments were received in response to the ANPRM and were considered in drafting the notice of proposed rulemaking and these final and temporary regulations. No public hearing was requested or held.

On September 24, 2009, the Treasury Department and the IRS published in the Federal Register (74 FR 48672) a notice of proposed rulemaking (NPRM) (REG-155929-06). The NPRM contained proposed regulations (the “2009 proposed regulations”) setting forth the requirements to qualify as a Type III supporting organization under the PPA. The IRS received more than 30 comments in response to the NPRM. These comments were considered in drafting these final and temporary regulations and are available for public inspection at www.regulations.gov or upon request. No public hearing was requested or held.

After reviewing all comments received, the Treasury Department and the IRS believe that certain topics require further consideration. The Treasury Department and the IRS will continue to study these topics and will request comments on these topics in a separate notice of proposed rulemaking. Nonetheless, the Treasury Department and the IRS believe that immediate effective guidance is needed for Type III supporting organizations. Accordingly, the Treasury Department and the IRS are issuing both final regulations and temporary regulations. The provisions in the 2009 proposed regulations regarding the amount that non-functionally integrated Type III supporting organizations must annually distribute have been significantly revised in response to comments. As a result, these provisions (as well as provisions related to how assets are valued for purposes of this distribution requirement) are being issued as temporary and proposed regulations, to permit additional opportunity for comment. The other provisions of the 2009 proposed regulations are being issued as final regulations, which are substantially similar to the 2009 proposed regulations but reflect certain revisions that were made based on comments received. The comments and revisions are discussed in the following section.

Based largely on comments received from commenters, the final and temporary regulations make revisions to various provisions in the 2009 proposed regulations, including (1) the definition of “supported organization” in § 1.509(a)-4(a)(6); (2) the prohibition on receiving gifts or contributions from persons that control the governing body of a supported organization set forth in § 1.509(a)-4(f)(5); (3) the notification requirement set forth in § 1.509(a)-4(i)(2); (4) the responsiveness test set forth in § 1.509(a)-4(i)(3); (5) the requirements to qualify as a functionally integrated Type III supporting organization set forth in § 1.509(a)-4(i)(4); (6) the requirements to qualify as a non-functionally integrated (NFI) Type III supporting organization set forth in § 1.509(a)-4(i)(5); and (7) the transition rules provided in § 1.509(a)-4(i)(11).

Section 1.509(a)-4(a)(5) defines a “publicly supported organization” as “an organization described in section 509(a)(1) or (2).” This defined term is used throughout § 1.509(a)-4. The 2009 proposed regulations proposed removing the term “publicly supported organization” wherever it appears in § 1.509(a)-4 and replacing it with a new defined term, “supported organization.” The new defined term “supported organization” was narrower than the term “publicly supported organization” because it was limited to those organizations described in section 509(a)(1) or (2) that the supporting organization was organized and operated to support. As a result, the new defined term does not necessarily work in every instance in § 1.509(a)-4 in which the term “publicly supported organization” is used. Accordingly, the final regulations maintain the term “publicly supported organization” and continue to use it in every paragraph of § 1.509(a)-4 other than § 1.509(a)-4(i).

The final regulations also revise the definition of “supported organization” in the 2009 proposed regulations and apply the term only in newly amended § 1.509(a)-4(i). While the definition of supported organization provided in the 2009 proposed regulations tracked the language of section 509(f)(3), the final regulations clarify the definition of supported organization by cross-referencing the previously-existing § 1.509(a)-4(d)(4) and § 1.509(a)-4(d)(2)(iv). Thus, for purposes of § 1.509(a)-4(i), a supported organization of a Type III supporting organization is defined as any publicly supported organization designated by name in the supporting organization's articles of organization. In addition, a supported organization of a Type III supporting organization can include a publicly supported organization that is not designated by name in the supporting organization's articles if there has been a historic and continuing relationship between the supporting organization and the publicly supported organization and, by reason of such relationship, there has developed a substantial identity of interests between such organizations.

Like the 2009 proposed regulations, the final regulations prohibit a Type I or Type III supporting organization from accepting a gift or contribution from a person who, alone or together with certain related persons, directly or indirectly controls the governing body of a supported organization of the Type I or Type III supporting organization, or from persons related to a person possessing such control. For these purposes, related persons include family members and 35-percent controlled entities within the meaning of section 4958(f).

One commenter requested a definition of “control” for purposes of this provision. The Treasury Department and the IRS agree that a definition of “control” for these purposes would be beneficial and intend to issue proposed regulations in the near future that will provide such a definition.

Like the 2009 proposed regulations, these final regulations require that, for each taxable year, a Type III supporting organization must provide to each of its supported organizations: (1) A written notice addressed to a principal officer of the supported organization describing the amount and type of support provided to the supported organization; (2) a copy of the supporting organization's most recently filed Form 990, “Return of Organization Exempt from Income Tax,” or other annual information return required to be filed under section 6033; and (3) a copy of the supporting organization's governing documents, including any amendments. The required notification documents must be postmarked or electronically transmitted by the last day of the fifth calendar month following the close of the supporting organization's taxable year.

Several commenters suggested that the due date for the required notification be amended to correspond to the Form 990 due date, with extensions. Alternatively, some commenters requested clarification that the “most recently filed Form 990” can be a Form 990 filed in a prior year.

The Form 990 is due by the 15th day of the fifth calendar month following the close of the filing organization's taxable year. However, an organization required to file a Form 990 can request two three-month extensions (the first of which is granted automatically) by filing a Form 8868, “Application for Extension of Time to File an Exempt Organization Return.” As a result, if the due date for the required notification were the same as the Form 990 due date, with extensions, a supported organization might not receive its notification from a supporting organization until almost a year after the close of the supporting organization's preceding taxable year. In such cases, a supported organization would have little or no opportunity to use the information in the notification to make recommendations regarding the amount and type of support it wishes to receive from the supporting organization during the taxable year it receives the notification. In addition, if the due date for the notification were the same as the due date for the Form 990, with extensions, a supported organization would not know when to expect or request a notification from a supporting organization unless it knew whether or not a supporting organization requested extensions in any given year. For these reasons, the final regulations retain the due date of the last day of the fifth calendar month following the close of the supporting organization's taxable year.

However, the Treasury Department and the IRS agree with commenters that if an organization has not filed a Form 990 for a taxable year by the last day of the fifth calendar month following the close of the taxable year (because, for example, it has received an extension), the organization's “most recently filed” Form 990 as of that last day of the fifth calendar month is the Form 990 for the supporting organization's immediately preceding taxable year. As a result, the final regulations clarify the relationship between the filing date of the Form 990 and the date notification is provided by referring to the Form 990 “that was most recently filed as of the date the notification is provided” rather than simply the “most recently filed Form 990.” Thus, for example, if a Type III supporting organization reporting on a calendar year basis has not filed its 2013 Form 990 by May 31, 2014, because it requested an extension, it can satisfy the Form 990 portion of its notification requirement for 2013 (which it needs to meet by May 31, 2014) by providing a copy of the 2012 Form 990 that it filed in 2013.

In addition, the Treasury Department and the IRS recognize that some Type III supporting organizations that request extensions to file their Forms 990 may need additional time to prepare their first notification. As a result, as described further in section 8.a. of this preamble, the final regulations provide transition relief for supporting organizations in existence on the effective date of these final and temporary regulations under which the due date for a Type III supporting organization's first required notification is the later of the last day of the fifth calendar month following the close of the supporting organization's taxable year or the due date for the Form 990 for that taxable year, including extensions.

One commenter requested clarification that the required written notice must describe the amount and type of support the supporting organization provided to the supported organization in the supporting organization's “immediately preceding taxable year,” rather than “in the past year,” as provided in the 2009 proposed regulations. The final regulations clarify that the written notice must describe the support provided in the supporting organization's taxable year ending immediately before the taxable year in which the written notice is provided. Thus, for example, if a Type III supporting organization operating on a calendar year provided the required notification for 2013 on May 31, 2014, the written notice would describe the support the supporting organization provided in 2013.

Another commenter stated that the term “principal officer” as used in the 2009 proposed regulations is ambiguous and requested that the regulations expressly designate the treasurer or chief financial officer (CFO) as the principal officer to whom notification should be given. The final regulations make clear that a person who, regardless of title, has ultimate responsibility for managing the finances of a supported organization (which could include a CFO or treasurer) can be a principal officer of that organization for purposes of the notification requirement. In addition, the final regulations provide that a principal officer can include a person who, regardless of title, has ultimate responsibility for implementing the decisions of the supported organization's governing body or for supervising the management, administration, or operation of the supported organization.

One commenter recommended that a supporting organization be permitted to send the required written notice to the supported organization's general address rather than to its principal officer. The Treasury Department and the IRS have concluded that the notification should be sent to a principal officer of the supported organization to ensure receipt by a person with sufficient responsibility over the organization. Accordingly, the final and temporary regulations do not adopt this comment.

The same commenter asked that supporting organizations be allowed to satisfy the notification requirement by sending supported organizations an internet link to the Form 990. Like the 2009 proposed regulations, the final regulations provide that the notification requirement may be satisfied by electronic media, which can include a working internet link. However, because all components of the notification requirement must be satisfied, providing only an internet link to the Form 990 would not be sufficient.

One commenter recommended that a Type III supporting organization that is included in a group exemption and supports not only the central organization in the group exemption but also the other subordinate organizations that are part of the group exemption should only be required to provide notice to the central organization, not to all of the other subordinate organizations. Another commenter stated that notification is unnecessary if the principal officer of the supported organization is also the principal officer of the supporting organization. Because section 509(f)(1)(A) of the Code provides that Type III supporting organizations must provide the required notification “to each supported organization,” the Treasury Department and the IRS have concluded that a Type III supporting organization must provide notice to all of the organizations it is organized to support. Accordingly, the final and temporary regulations do not adopt these comments.

Finally, because section 6104(d)(3)(A) of the Code and § 301.6104(d)-1(b)(4)(ii) except the name and address of contributors from the general requirement that tax-exempt organizations disclose their annual information returns, the final regulations clarify that a supporting organization may redact the name and address of any contributor to the organization from the Form 990 (or other annual information return) it is required to provide to the supported organization(s) as part of the notification requirement.

Like the 2009 proposed regulations, in implementing section 1241(c) of the PPA, the final regulations remove the alternative responsiveness test for charitable trusts contained in existing § 1.509(a)-4(i)(2)(iii). Accordingly, the final regulations provide that all Type III supporting organizations must satisfy the “significant voice” responsiveness test by (1) demonstrating one of three necessary relationships between their officers, directors, or trustees and those of their supported organization(s), and (2) showing that this relationship results in the officers, directors, or trustees of the supported organization having a significant voice in directing the use of the income and assets of the supporting organization.

Numerous commenters suggested that Example 1 of § 1.509(a)-4(i)(3)(iv) of the 2009 proposed regulations, which illustrates how a charitable trust may satisfy the significant voice responsiveness test, imposes too onerous of a requirement for meeting the responsiveness test by describing “quarterly face-to face-meetings” between a bank trustee's representative and an officer of the supported organization. However, Example 1 does not impose specific requirements on charitable trusts seeking to satisfy the responsiveness test; rather, the example merely illustrates one way the officers, directors, or trustees of a supported organization could maintain a close and continuous relationship with the officers, directors, or trustees of a supporting organization organized as a trust and thereby have a significant voice in directing the use of the income or assets of that supporting organization. In order to better illustrate options for satisfying the significant voice responsiveness test, Example 1 has been amended in the final regulations to refer to “quarterly face-to-face or telephonic meetings” rather than only face-to-face meetings. As a general matter, the Treasury Department and the IRS anticipate that charitable trusts will be able to demonstrate that they satisfy the responsiveness test in a variety of ways, and whether a supported organization has a close and continuous relationship with, or a significant voice in directing the use of the income or assets of, a supporting organization will be determined based on all the relevant facts and circumstances.

A few commenters requested additional examples of how Type III supporting organizations can satisfy the responsiveness test. The final and temporary regulations do not provide any such additional examples, but these comments will continue to be considered. The Treasury Department and the IRS intend to issue proposed regulations in the near future that amend the responsiveness test by clarifying that Type III supporting organizations must be responsive to all of their supported organizations. In the preamble to those proposed regulations, the Treasury Department and the IRS intend to request additional comments regarding examples of how to satisfy the responsiveness test.

Several commenters requested clarification that the responsiveness test does not require a supporting organization to follow all of the directions or recommendations of a supported organization's officers, directors, or trustees and that the latter's role can be only advisory. The Treasury Department and the IRS have concluded that the term “significant voice” makes clear that the responsiveness test requires only that the officers, directors, or trustees of a supported organization have the ability to influence the supporting organization's decisions regarding the supporting organization's use of its income or assets—not that the officers, directors, or trustees of the supported organization have control over such decisions.

One commenter noted that some trust instruments specify the recipients, timing, manner, and amount of grants and requested that the regulations provide that a supported organization can still be deemed to have a significant voice over these matters if its supporting organization has such a governing instrument. The Treasury Department and the IRS are continuing to consider the best approach for supporting organizations with such trust instruments and intend to issue proposed regulations in the near future that will provide further clarification on this issue.

Finally, the 2009 proposed regulations stated that a supporting organization is responsive to the needs or demands of a supported organization if it satisfies the requirements of § 1.509(a)-4(i)(3)(ii) and (iii). In order to conform more closely to existing § 1.509(a)-4(i)(2)(i), the final regulations amend this language to state that a supporting organization must satisfy the requirements of § 1.509(a)-4(i)(3)(ii) and (iii) in order to satisfy the responsiveness test.

Like the 2009 proposed regulations, the final regulations provide that a Type III supporting organization is functionally integrated, and thus not subject to a distribution requirement, if it either: (1) Engages in activities substantially all of which directly further the exempt purposes of the supported organization(s) to which it is responsive by performing the functions of, or carrying out the purposes of, such supported organization(s) and which, but for the involvement of the supporting organization, would normally be engaged in by the supported organization(s); or (2) is the parent of each of its supported organizations. In addition, the final regulations reserve a provision for a special rule for supporting organizations that support a governmental supported organization.

With respect to the test to qualify as functionally integrated by engaging in activities substantially all of which directly further the exempt purposes of the supported organization(s), one commenter recommended that the term “directly further the exempt purposes” be defined with reference to the phrase “directly for the active conduct of activities constituting” the exempt purposes, as used in the definition of a private operating foundation under section 4942(j)(3) and the accompanying regulations at § 53.4942(b)-1(b)(1). The same commenter noted that § 53.4942(b)-1(b)(2) treats certain grants, scholarships, or other payments made or awarded by a private operating foundation to individual beneficiaries as qualifying distributions made directly for the active conduct of exempt activities as long as those payments are to support active programs in which the operating foundation maintains significant involvement. This commenter recommended that similar grants, scholarships, or other payments made or awarded by Type III supporting organizations should be treated as activities that directly further the exempt purposes of a supported organization (“direct furtherance activities”).

The Treasury Department and the IRS agree that the meaning of the phrase “directly further the exempt purposes,” as used in the functionally integrated test, is similar to the meaning of the phrase “directly for the active conduct of activities constituting” the exempt purposes, as used in the definition of a private operating foundation and as described in detail in § 53.4942(b)-1(b)(1). Consequently, in defining direct furtherance activities, the final regulations use language similar to that used in § 53.4942(b)-1(b)(1) by clarifying that direct furtherance activities are activities conducted by the supporting organization itself, rather than by a supported organization. However, most of the remaining language in § 53.4942(b)-1(b)(1) used to define “directly for the active conduct of activities” is not used in the definition of direct furtherance activities in the final regulations because the former definition is based only on expenditures while the latter concept is based more broadly on the activities of a Type III supporting organization. As a result, the definition of direct furtherance activities in the final regulations is otherwise the same as the definition contained in the 2009 proposed regulations.

The final regulations also provide that certain payments to individual beneficiaries similar to those that would qualify as “directly for the active conduct of activities constituting” a private operating foundation's exempt purposes under § 53.4942(b)-1(b)(2) will be treated as direct furtherance activities under the Type III supporting organization functionally integrated test. Similar to the payments to individual beneficiaries described in § 53.4942(b)-1(b)(2), the final regulations provide that making or awarding grants, scholarships, or other payments to individual beneficiaries will be treated as an activity that directly furthers the exempt purposes of a supported organization only if the making or awarding of such payments is part of an active program of the supporting organization that directly furthers the exempt purposes of the supported organization(s) and in which the supporting organization maintains significant involvement (as defined in § 53.4942(b)-1(b)(2)(ii)). However, unlike distributions directly for the active conduct of activities constituting a private operating foundation's exempt purposes, the direct furtherance activities of a functionally integrated Type III supporting organization must directly further the exempt purposes of one or more supported organizations. As a result, the final regulations impose three additional requirements that a supporting organization's grants, scholarships, or other payments to individual beneficiaries must satisfy in order to be considered direct furtherance activities. First, the individual beneficiaries must be members of the charitable class benefitted by a supported organization. Second, the officers, directors, or trustees of that supported organization must have a significant voice in the timing of the payments, the manner of making them, and the selection of recipients. Third, the individual beneficiaries must be selected on an objective and nondiscriminatory basis (as described in § 53.4945-4(b)).

A number of commenters suggested that fundraising, making grants, and investing and managing non-exempt-use assets should be considered direct furtherance activities in certain situations, including those in which the supported organization (1) is a community foundation or other publicly-supported grantmaker, (2) is a religiously-affiliated entity, (3) has a close historic and continuing relationship with the supporting organization, or (4) created the supporting organization specifically to house fundraising, grantmaking, and/or investment activities. One commenter further suggested that a Type III supporting organization's fundraising, grantmaking, and/or investment and management of non-exempt-use assets should be treated as direct furtherance activities as long as a “preponderance” of the supporting organization's other activities otherwise directly further the supported organization's exempt purposes. Another commenter recommended that the regulations include an exception that would treat a supporting organization as functionally integrated (or otherwise not subject to a distribution requirement) even if it engaged in grantmaking and the production of investment income as more than an insubstantial part of its activities as long as it (1) has not received any contribution from its founder or family members since 1970, (2) has no substantial contributor (or family member thereof) who is alive, and (3) has already distributed to its supported organization(s), in the aggregate, an amount equal to the amount of its donor contributions.

The Treasury Department and the IRS have determined that a Type III supporting organization should qualify as functionally integrated, and therefore not be subject to the payout requirement, if substantially all of its support for its supported organization(s) consists of charitable activities that the supporting organization itself directly carries out (as distinguished from charitable activities carried out by the supported organization(s) that the supporting organization helps finance by producing and distributing income). This is because a supporting organization that operates substantial, direct charitable programs itself may need more flexibility in structuring its annual operational budget than the annual payout requirement for NFI Type III supporting organizations would allow. The examples of activities that commenters want to be treated as direct furtherance activities or to otherwise qualify them for an exception from the distribution requirement—all of which involve producing income and distributing a portion of it to the supported organization—are not consistent with this rationale and hence the Treasury Department and the IRS do not adopt these comments.

Commenters also requested additional guidance on how direct furtherance activities will be measured for purposes of determining whether they constitute “substantially all” of a supporting organization's activities. A number of commenters suggested that all facts and circumstances should be considered in making this determination, including not only the supporting organization's expenditures but also, for example, the time and effort spent by the organization's employees and volunteers. The final regulations clarify that all pertinent facts and circumstances are considered in measuring activities for purposes of determining whether substantially all of an organization's activities are direct furtherance activities.

One commenter stated that the example in the 2009 proposed regulations of a supporting organization that qualifies as a functionally integrated Type III supporting organization by performing publishing and printing functions for churches was not “realistic” because several churches would be unlikely to jointly establish such a publishing operation. Instead of a publishing operation, this commenter suggested that churches would be more likely to jointly establish a charitable organization that performs a social welfare function. As a result, the final regulations replace the example of a nonprofit publishing organization with an example of a nonprofit food pantry.

Like the 2009 proposed regulations, the final regulations provide that a Type III supporting organization can qualify as functionally integrated by being the parent of each supported organization. In defining “parent” for these purposes, the final regulations repeat the definition set forth in the 2009 proposed regulations and state that a supporting organization is the parent of a supporting organization if the supporting organization exercises a substantial degree of direction over the policies, programs, and activities of the supported organization, and a majority of the officers, directors, or trustees of the supported organization is appointed or elected, directly or indirectly, by the governing body, members of the governing body, or officers of the supporting organization acting in their official capacity. However, the Treasury Department and the IRS have determined that this definition of “parent” is insufficiently specific. Consequently, the Treasury Department and the IRS intend to issue proposed regulations in the near future that will provide a new definition of parent that specifically addresses the power to remove and replace officers, directors, or trustees of the supporting organization.

The 2009 proposed regulations provided a “governmental entity exception” under which a Type III supporting organization that supports one supported organization whose assets are subject to the appropriations process of a federal, state, local, or Indian tribal government may treat grantmaking to the supported organization and investing and managing non-exempt-use assets on behalf of the supported organization as direct furtherance activities, as long as a substantial part of the supporting organization's total activities are otherwise direct furtherance activities.

Several commenters requested that this governmental entity exception be expanded to allow supporting organizations to support more than one supported organization. For example, commenters recommended that a supporting organization be allowed to qualify for this exception if it supports (1) up to five governmental supported organizations; (2) not only a governmental entity but also other supported organizations that are responsive to, and have a substantial operational connection with, that governmental entity; or (3) a governmental system, such as a parent and subsidiary units.

The Treasury Department and the IRS are continuing to consider these comments regarding the governmental entity exception and intend to issue proposed regulations in the near future that will provide guidance on how supporting organizations can qualify as functionally integrated by supporting a governmental entity. These proposed regulations will also provide one or more examples of how a Type III supporting organization can qualify as functionally integrated by supporting a governmental entity (similar to the examples contained in the 2009 proposed regulations but omitted from these final and temporary regulations).

In the meantime, as discussed further in section 8.b. of this preamble, Type III supporting organizations can qualify as functionally integrated by meeting the requirements of the “but for” test under existing § 1.509(a)-4(i)(3)(ii) until the first day of their second taxable year beginning after December 28, 2012. The Treasury Department and the IRS intend to release the proposed regulations on the governmental entity rule sufficiently in advance of the beginning of this second taxable year to enable Type III SOs to determine their eligibility. The Treasury Department and the IRS also anticipate that, for taxable years beginning prior to the date of issuance of the future final regulations on the governmental entity rule, Type III SOs would be permitted to rely on the governmental entity rule as stated in either the future proposed or final regulations.

The 2009 proposed regulations provided that a NFI Type III supporting organization would have to annually distribute a “distributable amount” equal to 5 percent of the fair market value of its non-exempt-use assets. The Treasury Department and the IRS decided to base this distribution requirement on non-exempt-use assets, rather than on income, due to concerns that the income-based payout test under existing § 1.509(a)-4(i)(3)(iii) could result in little or nothing being paid to charity if the supporting organization's assets produced little to no income.

Several commenters stated that the 5-percent payout rate in the 2009 proposed regulations would be too high and would erode a supporting organization's assets over time on a real (inflation-adjusted) basis. A few commenters noted that private non-operating foundations must annually pay out 5 percent of their non-exempt-use assets under section 4942 of the Code but stated that NFI Type III supporting organizations should not be subject to the same payout rate as private non-operating foundations because they are distinguishable from these foundations. For example, some commenters noted that private non-operating foundations can fund any number of charitable organizations in a given year, while Type III supporting organizations are obligated to benefit designated supported organizations and also must satisfy the responsiveness and attentiveness tests with respect to these supported organizations. Commenters also noted that substantial contributors to a supporting organization (as well as certain related persons) cannot control the supporting organization, while private foundations face no such restriction. Some of these commenters noted that lower effective payout requirements are imposed on private operating foundations and medical research organizations and recommended that similar payout requirements should apply to NFI Type III supporting organizations. Other commenters asked that the final regulations maintain the payout test under existing § 1.509(a)-4(i)(3)(iii), which requires payments of substantially all of the supporting organization's income.

The Treasury Department and the IRS recognize that NFI Type III supporting organizations face a number of requirements and restrictions that do not apply to private foundations, including the organizational, operational, and disqualified person control tests under section 509(a)(3) and the responsiveness and attentiveness test under the regulations regarding Type III supporting organizations. These requirements and restrictions should significantly reduce the likelihood that substantial contributors to a NFI Type III supporting organization will be able to use the supporting organization's assets to further their own interests. These requirements also result in a relationship between the supporting organization and the supported organizations that does not necessarily exist between private foundations and their grantees.

As a result, the Treasury Department and the IRS have determined that an asset-based payout percentage lower than the payout percentage for private non-operating foundations is justified for NFI Type III supporting organizations. At the same time, the payout test under existing § 1.509(a)-4(i)(3)(iii), which requires payments of substantially all of the supporting organization's income (with “substantially all” considered to mean 85 percent or more), has helped prevent unreasonable accumulations of income by NFI Type III supporting organizations that generate significant amounts of current income in a particular taxable year. Accordingly, the temporary regulations require NFI Type III supporting organizations to annually distribute a “distributable amount” equal to the greater of 85 percent of adjusted net income or 3.5 percent of the fair market value of the supporting organization's non-exempt-use assets. For these purposes, “adjusted net income” is determined by applying the principles of section 4942(f) and § 53.4942(a)-2(d). Because this distributable amount is significantly different than the distributable amount described in the 2009 proposed regulations, the Treasury Department and the IRS have issued the provisions describing the distributable amount as temporary and proposed regulations to provide an opportunity for comment.

In recommending an asset-based payout percentage of less than 5 percent, a number of commenters emphasized that supporting organizations have a relationship with their supported organizations that private foundations do not have with their grantees and that this relationship helps ensure responsiveness to the needs and demands of the supported organization. The Treasury Department and the IRS considered this relationship in determining the appropriate payout rate for NFI Type III supporting organizations. Accordingly, the Treasury Department and the IRS intend to ensure that this relationship exists between a supporting organization and each of its supported organizations by proposing regulations requiring that NFI Type III supporting organizations meet the responsiveness test with respect to each of their supported organizations.

Many commenters recommended that the distributable amount be based on the average fair market value of non-exempt-use assets over the three years (as opposed to just one year) preceding the year of the required distribution, in order to reduce fluctuations in payments to the supported organization(s) from year to year and avoid significant cuts to supported organizations' budgets during downward market fluctuations. The Treasury Department and the IRS expect that the new notification requirement and the application of the “significant voice” responsiveness test to all Type III supporting organizations, including those organized as trusts, will give supported organizations the opportunity to influence the timing of payments. In addition, the Treasury Department and the IRS expect that the significantly lower payout percentage set forth in the temporary regulations should provide NFI Type III supporting organizations with additional flexibility to respond to requests from supported organizations to adjust the timing of payments to anticipate and respond to market fluctuations. Flexibility to respond to such requests from supported organizations is also made possible by the carryover rule that the final regulations adopt without change from the 2009 proposed regulations. This rule allows a Type III supporting organization that distributes more than its annual distributable amount during a taxable year to carry over that excess amount for five subsequent taxable years. Accordingly, the final and temporary regulations do not adopt the three-year valuation period suggested by commenters and, like the 2009 proposed regulations, provide that the distributable amount is based on the fair market value of the organization's non-exempt-use assets in the immediately preceding taxable year.

One commenter asked that the reasonable cause exception to the distribution requirement be expanded to expressly include times of great financial distress. Like the 2009 proposed regulations, the final regulations allow the Secretary to provide for a temporary reduction in the annual distributable amount in the case of a disaster or emergency, which the Treasury Department and the IRS intend to include a time of great financial distress. Thus, the final and temporary regulations do not make any changes to the reasonable cause exception.

A number of commenters recommended that a NFI Type III supporting organization should, like a private foundation, be able to count toward its distribution requirement amounts set aside for specific charitable projects that accomplish the exempt purposes of one or more supported organization(s). In response to this recommendation, the final regulations provide that a supporting organization may count a set-aside toward its distribution requirement if it establishes to the satisfaction of the IRS, in a manner similar to that required of private foundations making set-asides under section 4942(g)(2)(B)(i) and the accompanying regulations, that the project is one that can be better accomplished by the set-aside than by the immediate payment of funds. In particular, the supporting organization must apply for IRS approval of the set-aside before the end of the taxable year in which the amount is set aside, establish to the satisfaction of the IRS that the amount set aside will be paid for the specific project within 60 months after it is set aside and that the project is one that can better be accomplished by the set-aside than by the immediate payment of funds, and meet the other approval and information requirements set forth in § 53.4942(a)-3(b)(7)(i). The supporting organization must also obtain a written statement from the supported organization, signed by one of the supported organization's principal officers under penalty of perjury. This written statement must confirm that the specific project accomplishes the exempt purposes of the supported organization and that the supported organization approves the supporting organization's determination that the project is one that can be better accomplished by the set-aside than by the immediate payment of funds or distribution of assets. The final and temporary regulations do not incorporate a test similar to the “cash distribution test” for set-asides described in section 4942(g)(2)(B)(ii) and the accompanying regulations because such a test would not provide sufficient assurance that the project is one better accomplished by means of a set aside than by an immediate distribution to the supported organization.

A few commenters requested that the regulations clarify that a supporting organization will be able to count toward the distribution requirement expenditures on activities that directly further the exempt purposes of its supported organization(s). Accordingly, the final regulations provide that a NFI Type III supporting organization can count toward the distribution requirement amounts expended on activities that directly further the exempt purposes of the supported organization(s) to which the supporting organization is responsive and that, but for the involvement of the supporting organization, would normally be engaged in by the supported organization(s) (that is, that meet the requirements of § 1.509(a)-4(i)(4)(i)(A)). However, in the case of such a direct furtherance activity that generates revenue for the supporting organization, the supporting organization can only count expenditures on that activity toward its distribution requirement to the extent the expenditures exceed the revenue derived. Thus, for example, if a NFI Type III supporting organization spent $1 million in a taxable year operating a museum that generated $800,000 in receipts for the supporting organization during that same year, the supporting organization could only count $200,000 of the $1 million spent toward the distribution requirement (assuming the operation of the museum was an activity described in § 1.509(a)-4(i)(4)(i)(A)).

Like the 2009 proposed regulations, the final regulations provide that reasonable and necessary administrative expenses also count toward the distribution requirement. The final regulations clarify, however, that such expenses must be paid to accomplish the exempt purposes of the supported organization(s) and thus do not include expenses incurred in the production of investment income. The list of distributions that count toward the distribution requirement contained in § 1.509(a)-4(i)(6) is not an exhaustive list and other distributions may count toward the distribution requirement. The Treasury Department and the IRS intend to propose regulations in the near future that will more fully describe the expenditures (including expenditures for administrative and additional charitable activities) that do and do not count toward the distribution requirement.

One commenter recommended that § 1.509(a)-4(i)(6)(i) of the 2009 proposed regulations be revised to conform to § 1.509(a)-4(i)(5)(ii) of the 2009 proposed regulations by providing that distributions made “for the use of” one or more supported organizations, as well as “to” one or more supported organizations, can count toward satisfying the distribution requirement. The commenter stated that such a conforming provision would clarify that supporting organizations have the flexibility to make payments to third parties directly “on behalf of” supported organizations. The Treasury Department and the IRS do not agree that the term “for the use of” is synonymous with “on behalf of” or that it permits grants to organizations other than the supported organizations to count toward the distribution requirement. Accordingly, the final and temporary regulations do not adopt this comment.

Several commenters recommended that program-related investments (PRIs), which count toward satisfying a private foundation's distribution requirement under section 4942, should count toward the distribution requirement of NFI Type III supporting organizations. One commenter further recommended that the value of a PRI be excluded in calculating a supporting organization's distributable amount for a taxable year. These final and temporary regulations do not specifically address whether or not PRIs may count toward the distribution requirement for NFI Type III supporting organizations or be excluded in calculating a supporting organization's distributable amount for a taxable year. The Treasury Department and IRS are continuing to consider these comments and intend to provide further clarification in future proposed regulations.

Like the 2009 proposed regulations, the final regulations modify the attentiveness requirement in existing § 1.509(a)-4(i)(3)(iii) to provide that an organization must distribute one-third or more of its required, annual distributable amount to one or more supported organizations that are attentive to the supporting organization and with respect to which the supporting organization meets the responsiveness test. Also like the 2009 proposed regulations, the final regulations provide that, to demonstrate that a supported organization is attentive, a supporting organization must: (1) Provide 10 percent or more of the supported organization's total support; (2) provide support that is necessary to avoid the interruption of the carrying on of a particular function or activity of the supported organization; or (3) provide an amount of support that, based on “all pertinent factors,” is a sufficient part of a supported organization's total support. For purposes of the second test listed above, support is considered necessary if the supporting organization or the supported organization earmarks the support for a particular program or activity of the supported organization, even if such program or activity is not the supported organization's primary activity, as long as the program or activity is a substantial one.

One commenter suggested that the regulations clarify that, for purposes of determining whether a supporting organization provides 10 percent of a supported organization's total support, the supported organization's total support is its total support received in the immediately preceding taxable year. The final regulations adopt this comment.

Other commenters recommended changes to portions of the attentiveness test in the 2009 proposed regulations that are substantially identical to those in the existing regulations. The final and temporary regulations do not amend or supplement any of these portions of the attentiveness test, none of which were directly changed or affected by the PPA.

One commenter requested that the regulations include a safe harbor under which the attentiveness test would be automatically satisfied if a certain stated dollar amount of support (possibly indexed for inflation) were distributed to a supported organization. The final and temporary regulations do not adopt this suggestion because of the difficulty in identifying a specific dollar threshold that would be sufficient in all cases to ensure the supported organization's attentiveness.

Finally, one commenter requested guidance on how a supporting organization to a community foundation could satisfy the attentiveness test if it makes distributions to third-party organizations that fulfill the mission of the supported organization(s). Grants to organizations other than the supported organization will not ensure the attentiveness of a supported organization. Moreover, Type III supporting organizations generally are not permitted to make grants to organizations other than their supported organizations. See § 1.509(a)-4(e)(1). Thus, the final and temporary regulations do not permit supporting organizations to satisfy the attentiveness test by making distributions to third-party organizations.

In describing how a NFI Type III supporting organization determines the fair market value of its non-exempt-use assets for purposes of determining its distributable amount, the 2009 proposed regulations incorporated language used in § 53.4942(a)-2(c), which describes how a private foundation values its assets for purposes of determining its distributable amount. The 2009 proposed regulations also incorporated language used in § 53.4942(a)-2(c) in describing the assets (including exempt-use assets) that are excluded in determining the distributable amount.

Rather than duplicate all of the language in § 53.4942(a)-2(c), the temporary regulations accomplish the same result as the 2009 proposed regulations by cross-referencing § 53.4942(a)-2(c). More specifically, the temporary regulations state that the determination of the aggregate fair market value of a NFI Type III supporting organization's non-exempt-use assets will be made using the valuation methods described in § 53.4942(a)-2(c). The temporary regulations also state that, for these purposes, the “non-exempt-use” assets of the supporting organization do not include assets described in § 53.4942(a)-2(c)(2) or assets used (or held for use) to carry out the exempt purposes of the supported organization(s) (as defined by applying the principles described in § 53.4942(a)-2(c)(3)).

The Treasury Department and the IRS do not intend for cross-referencing (rather than duplicating the language of) § 53.4942(a)-2(c) to result in any substantive changes from the 2009 proposed regulations in how NFI Type III supporting organizations value their assets or in what assets are excluded in determining the distributable amount. However, to the extent that cross-referencing § 53.4942(a)-2(c) could result in any unintended uncertainty on this point, the Treasury Department and the IRS have issued this change in temporary and proposed regulations to provide an opportunity for comment.

A Type III supporting organization that fails to meet the requirements of these final and temporary regulations—and that also fails to meet the requirements of a Type I or II supporting organization and otherwise fails to qualify as a public charity under section 509(a)(1), (2), or (4)—will be classified as a private foundation. Once classified as a private foundation, the section 507 rules regarding termination of private foundation status apply.

One commenter requested that the regulations reclassify a Type III supporting organization that fails to meet the requirements of the regulations as a private foundation as of the beginning of the taxable year in which the failure occurred only for purposes of section 507 and section 4940 (regarding excise taxes on net investment income) and as of the first day of the next taxable year for all other provisions of Chapter 42 (which contains other excise taxes applicable to private foundations). This commenter also recommended that, for purposes of Chapter 42, the identity of substantial contributors to a supporting organization within the meaning of section 507(d)(2) be determined by taking into account only contributions received after the date the organization is reclassified as a private foundation.

In addition, this same commenter made two recommendations related to termination of private foundation status under section 507. First, the commenter recommended that a Type III supporting organization that is reclassified as a private foundation for certain “non-structural” reasons (such as accepting gifts from persons that control the supported organization(s), failing to provide an annual notice, not making the required payout, or not satisfying the attentiveness test) be treated as having received an advance ruling that it can be expected to satisfy the requirements of a supporting organization during the 60-month termination period under § 1.507-2(d) if the supporting organization includes certain explanatory information in its notice of termination of private foundation status. Second, the commenter recommended allowing a supporting organization to provide a notice of termination after the commencement of the 60-month termination period in appropriate cases—for example, during the one or two years after the regulations become effective.

The PPA changes did not impact the timing of when a Type III supporting organization is reclassified as a private foundation or when the various provisions of Chapter 42 apply after the Type III supporting organization fails to meet one or more of the requirements necessary to maintain its classification as a Type III supporting organization (or other type of public charity). The PPA changes also did not impact the contributions that are taken into account when determining whether donors are substantial contributors. With respect to termination of private foundation status under section 507, section 507(b)(1)(B)(ii) states that organizations terminating their private foundation status to operate as a supporting organization or other public charity must notify the Secretary before, not after, the commencement of the 60-month termination period. Accordingly, the final and temporary regulations do not adopt this commenter's recommendations.

The final regulations provide that a Type III supporting organization in existence on December 28, 2012, the effective date of the final regulations, must meet its notification requirement for its taxable year that includes December 28, 2012, by the later of the last day of the fifth calendar month following the close of that taxable year or the due date, including extensions, of its Form 990 (or other annual information return described in section 6033) for that taxable year. Thus, for example, a Type III supporting organization reporting on a calendar year basis that does not have to file its 2012 Form 990 until November 15, 2013, because it was granted two three-month extensions of time to file will have until November 15, 2013, to satisfy its notification requirement for 2012.

The final regulations, like the 2009 proposed regulations, provide that additional facts and circumstances, such as a historic and continuing relationship with supported organization(s), may be taken into account in establishing compliance with the responsiveness test for organizations that were supporting such supported organization(s) prior to November 20, 1970.

One commenter asked that the final regulations clarify whether this alternative responsiveness test for pre-November 20, 1970 organizations requires a Type III supporting organization to also satisfy the significant voice prong of the responsiveness test under § 1.509(a)- 4(i)(3)(iii). Consistent with the existing regulations, the final regulations clarify that the significant voice prong is simply one factor along with other facts and circumstances that will be taken into account in determining compliance with the responsiveness test for pre-November 20, 1970 organizations.

The final regulations provide transition rules with respect to the integral part test for Type III supporting organizations in existence on December 28, 2012, the effective date of the final regulations. The 2009 proposed regulations included a transition rule under which an organization that met and continued to meet the requirements of existing § 1.509(a)-4(i)(3)(ii) (that is, an organization meeting the integral part test by satisfying the “but for” test) would be treated as meeting the requirements of a functionally integrated Type III supporting organization set forth in § 1.509(a)-4(i)(4) until the first day of the organization's first taxable year beginning after the publication of the final or temporary regulations. However, the Treasury Department and the IRS realize that because the final regulations are being published on December 28, 2012, Type III supporting organizations reporting on a calendar year basis that wish to qualify as functionally integrated may need additional time to comply with § 1.509(a)-4(i)(4). As a result, the final regulations amend this transition rule to provide that a Type III supporting organization that met and continues to meet the “but for” test under existing § 1.509(a)-4(i)(3)(ii) will be treated as meeting the requirements of a functionally integrated Type III supporting organization set forth in § 1.509(a)-4(i)(4) until the first day of the organization's second taxable year beginning after December 28, 2012.

Like the 2009 proposed regulations, the final regulations provide that a Type III supporting organization in existence on December 28, 2012, that met and continues to meet the requirements of existing § 1.509(a)-4(i)(3)(iii) (that is, an organization meeting the integral part test by satisfying the existing “payout” test) will be treated as meeting the requirements of a NFI Type III supporting organization set forth in § 1.509(a)-4(i)(5) until the first day of the organization's second taxable year beginning after December 28, 2012. However, for purposes of determining whether a Type III supporting organization treated as NFI under this transition relief creates an “excess amount” that can be carried over for five years, the distributable amount for the supporting organization's first taxable year beginning after December 28, 2012, is the greater of 85 percent of net adjusted income or 3.5 percent of the value of assets in the immediately preceding taxable year (that is, the distributable amount as ordinarily determined under the temporary regulations).

Section 1.509(a)-4(i)(11)(iii) of the 2009 proposed regulations provided that the distributable amount for NFI Type III supporting organizations is zero for the first taxable year beginning after the effective date of the final or temporary regulations. The Treasury Department and the IRS did not intend for this provision to apply to a NFI Type III supporting organization that had been meeting the payout test under existing § 1.509(a)-4(i)(3)(iii), as is clear from the example provided in the preamble to the 2009 proposed regulations illustrating the application of the transition rules for a NFI Type III supporting organization. Rather, § 1.509(a)-4(i)(11)(iii) of the 2009 proposed regulations more appropriately applies only to Type III supporting organizations that had been meeting the “but for” test under existing § 1.509(a)-4(i)(3)(ii) in the taxable year of the final regulations' publication but seek to qualify as NFI (rather than functionally integrated) Type III supporting organizations in succeeding taxable years. Indeed, one commenter specifically asked for clarification regarding the transition relief applicable to Type III supporting organizations that had been satisfying the existing “but for” test but intend to convert to NFI status because they cannot or do not wish to qualify as functionally integrated under the final regulations.

The final regulations provide clarification regarding these transition rules. In particular, the final regulations provide that a Type III supporting organization in existence on December 28, 2012, that meets the requirements of the “but for” test under existing § 1.509(a)-4(i)(3)(ii) in its taxable year including December 28, 2012, but not in its first taxable year beginning after December 28, 2012, is a NFI Type III supporting organization during that first taxable year and will be treated as having a distributable amount of zero for purposes of meeting the distribution and attentiveness requirements under § 1.509(a)-4(i)(5)(ii)-(iii). Notwithstanding this transition relief, for purposes of determining whether such a NFI Type III supporting organization creates an “excess amount” that can be carried over for five years, the distributable amount for the first taxable year beginning after December 28, 2012, is the greater of 85 percent of net adjusted income or 3.5 percent of the value of assets in the immediately preceding taxable year (that is, the distributable amount as ordinarily determined under the temporary regulations). The same rule applies for purposes of determining the excess amount of an organization that has a distributable amount of zero in its first taxable year as a NFI Type III supporting organization under § 1.509(a)-4(i)(5)(ii)(D).

Beginning in the second taxable year beginning after December 28, 2012, and in all succeeding taxable years, all Type III supporting organizations must meet either the requirements of § 1.509(a)-4(i)(4) or § 1.509(a)-4(i)(5). A Type III supporting organization intending to meet the requirements of a NFI Type III supporting organization under § 1.509(a)-4(i)(5) in its second taxable year beginning after December 28, 2012, should value its assets in accordance with the valuation methods described in the final regulations beginning in its first taxable year beginning after December 28, 2012.

In addition, a Type III supporting organization treated as a functionally integrated Type III supporting organization during its first taxable year beginning after December 28, 2012, by virtue of satisfying the “but for” test under existing § 1.509(a)-4(i)(3)(ii) but intending to meet the requirements of a NFI Type III supporting organization under § 1.509(a)-4(i)(5) during its second taxable year beginning after December 28, 2012, will have a distributable amount for that second taxable year based on its income or the value of its assets in the immediately preceding taxable year. Such a Type III supporting organization will not have a distributable amount of zero in its second taxable year beginning after December 28, 2012, notwithstanding the general rule under § 1.509(a)-4(i)(5)(ii)(D) that the distributable amount for the first taxable year an organization is treated as a NFI Type III supporting organization is zero.

Two commenters requested that the regulations provide transition relief to NFI Type III supporting organizations whose governing instrument or other instrument prohibits distributions from capital or corpus, similar to the transition rules provided to certain private foundations organized before May 27, 1969, under § 53.4942(a)-2(e). The final regulations provide transition relief to each NFI Type III supporting organization organized before September 24, 2009, that commences judicial proceedings before June 26, 2013, that are necessary to reform its governing or other instrument to allow it to meet the distribution requirement. During any taxable year in which such a judicial proceeding is pending, a NFI Type III supporting organization is excepted from the distribution requirement to the extent it is prevented from meeting the requirement by one or more mandatory provisions in its governing instrument or other instrument that prohibits distributions from capital or corpus. The transition relief applies only if the governing or other instrument at issue was executed (and the mandatory provisions were in effect) before September 24, 2009, the date the 2009 proposed regulations were published in the Federal Register , and if the judicial proceeding is not subject to any unreasonable delay for which the supporting organization is responsible. Beginning with the first taxable year following the termination of a judicial proceeding, a NFI Type III supporting organization must satisfy the distribution requirement regardless of the outcome of the judicial proceeding—a requirement materially identical to the requirements imposed by § 53.4942(a)-2(e)(3) on pre-May 27, 1969 private foundations whose governing instruments prohibited distributions out of capital or corpus.

Numerous commenters responded to the request in the 2009 proposed regulations for comments regarding the need for a transition rule for NFI Type III supporting organizations whose assets consist predominantly of assets that are not readily marketable. Commenters suggested a longer transition period, varying from four to ten years, for supporting organizations with such assets. Some commenters suggested providing the longer transition period to all supporting organizations with a sufficiently high proportion (for example, a “material” threshold of 20 percent or more) of not-readily-marketable assets. Other commenters recommended allowing a NFI Type III supporting organization to exclude the value of its not-readily-marketable assets from the assets used to calculate the distributable amount during the longer transition period (while possibly also requiring the organization to pay out substantially all of the income generated by its not-readily-marketable assets). A few commenters recommended a phase-in of the required distribution rate during a transition period (either for all NFI Type III supporting organizations or those holding substantial not-readily-marketable assets). As an alternative to transition relief, one commenter recommended a reasonable cause exception for NFI Type III supporting organizations that are unable to reasonably liquidate their assets that are not readily marketable.

The final and temporary regulations do not include a transition rule, or a reasonable cause exception, for NFI Type III supporting organizations with assets that are not readily marketable. After consideration of the comments received, the Treasury Department and the IRS have concluded that any such transition rule would unfairly impose a higher distribution requirement on those NFI Type III supporting organizations that invested primarily in liquid assets, as compared to those organizations that stayed heavily invested in not-readily-marketable assets. Moreover, all NFI Type III supporting organizations have at least two years after December 28, 2012, to satisfy the distribution requirement, and the Treasury Department and the IRS have concluded that this transition relief will give supporting organizations sufficient time to make any sales of not-readily-marketable assets that may be necessary to meet the distribution requirement.

Finally, like the 2009 proposed regulations, the final regulations continue to provide that a trust that on November 20, 1970, met and continues to meet the requirements under existing § 1.509(a)-4(i)(4) and § 1.509(a)-4(i)(9) of the final regulations will satisfy the integral part test as a NFI Type III supporting organization under § 1.509(a)-4(i)(5). One organization questioned why a pre-November 20, 1970 trust that meets all of the requirements set forth in § 1.509(a)-4(i)(9) should have to petition the IRS for a ruling. In lieu of a ruling, the commenter requested a form on which the trust's trustee could certify that the trust meets all of the requirements of § 1.509(a)-4(i)(9) or, if a ruling were required, some assurance that the trust could operate on the assumption that it met the requirements of § 1.509(a)-4(i)(9) until a ruling was issued. Like existing § 1.509(a)-4(i)(4), § 1.509(a)-4(i)(9) of the final regulations states that applicable trusts may (not “must”) obtain a ruling that they meet the requirements set forth in the provision. Accordingly, a trust that meets the requirements of § 1.509(a)-4(i)(9) is not required to obtain a ruling. The final and temporary regulations do not alter this long-standing, optional ruling procedure.

This Treasury decision also includes final regulations under section 4943 that provide two transition rules to address excess business holdings for Type III supporting organizations affected by the PPA. The Treasury Department and the IRS did not receive any comments on these transition rules. The final regulations adopt the 2009 proposed regulations without change.

Several other incidental changes were made throughout the final regulations in order to increase clarity and consistency, none of which are intended to modify the substance of the 2009 proposed regulations.

Both the final and temporary regulations are effective and applicable on December 28, 2012. However, supporting organizations should note that section 509(f), which was added by the PPA, is effective on and after August 17, 2006. In the case of section 509(f)(1)(B), which prohibits Type III supporting organizations from supporting foreign organizations, a transition rule applies under which Type III supporting organizations that were supporting a foreign organization on August 17, 2006, could continue supporting the foreign organization until the first day of its third taxable year beginning after August 17, 2006. In addition, pursuant to section 1241(c) of the PPA, the responsiveness test for charitable trusts in existing § 1.509(a)-4(i)(2)(iii) cannot support classification as a Type III supporting organization, effective August 17, 2007, in the case of trusts operated in connection with a supported organization on August 17, 2006. See PPA section 1241(e)(2)(A).

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 has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to the temporary or the final regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) to the temporary regulations, refer to the Special Analyses section of the preamble to the cross-reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register .

It is hereby certified that the collection of information contained in the final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the final regulations will not impact a substantial number of small entities.

Based on IRS Statistics of Income data for 2009, there are 1,238,201 active nonprofit charitable organizations recognized by the IRS under section 501(c)(3), of which only 7,556 organizations self-identified as Type III supporting organizations. Thus, the number of organizations affected by the collection of information under § 1.509(a)-4(i)(2) will not be substantial. In addition, the collection of information under § 1.509(a)-4(i)(2) will impose a minimal burden on the affected organizations because all of the information that must be provided is information that the organizations are already required to maintain. Therefore, the collection of information under § 1.509(a)-4(i)(2) will not have a significant economic impact.

The collection of information under § 1.509(a)-4(i)(6)(v) is required only if a NFI Type III supporting organization wishes to obtain the benefit of having certain amounts set aside for a specific project count toward the distribution requirement imposed by these proposed regulations. Based on IRS Statistics of Income data for 2009, only 4,438 organizations self-identified as Type III supporting organizations that are not functionally integrated. Because only a very small proportion of private foundations (less than 0.02 percent) submit ruling requests for set-asides each year, the Treasury Department and the IRS similarly expect that this elective provision will apply to only a very small subset of NFI Type III supporting organizations in any given year. Therefore, the number of organizations affected by the collection of information under § 1.509(a)-4(i)(6)(v) will not be substantial. Accordingly, a regulatory flexibility analysis is not required for the final regulations.

Pursuant to section 7805(f) of the Code, the 2009 proposed regulations preceding the final regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business and no comments were received. The temporary regulations (and the cross-reference notice of proposed rulemaking published in the Proposed Rules section in this issue of the Federal Register ) will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal authors of these regulations are Preston J. Quesenberry, and Stephanie N. Robbins, Office of Associate Chief Counsel (Tax-Exempt and Government Entities). However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, 26 CFR parts 1, 53, and 602 are amended as follows:

Background

This document contains final regulations amending the Regulations on Procedure and Administration (26 CFR part 301). On January 4, 2010, the IRS and the Treasury Department published a notice of proposed rulemaking (REG-131028-09) in the Federal Register (75 FR 94), cross-referencing temporary regulations (TD 9478, 75 FR 48), providing rules relating to the ability of a tax return preparer to use tax return information for the purposes of compiling, maintaining, and using lists for solicitation of tax return business under § 301.7216-2T(n); to disclose or use statistical compilations of data described in § 301.7216-1(b)(3)(i)(B) under § 301.7216-2T(o); and to disclose or use tax return information for the purpose of performing conflict reviews under § 301.7216-2T(p) without taxpayer consent. The modifications to § 301.7216-2(o) in the temporary and proposed regulations were made following the issuance of Notice 2009-13 (2009-6 IRB 447 (February 9, 2009)), and the receipt of comments submitted in response to that Notice. These comments were summarized in the preamble to TD 9478. No public hearing on the notice of proposed rulemaking was requested or held. Written and electronic comments responding to the notice of proposed rulemaking were received. All comments were considered and are available for public inspection at www.regulations.gov or upon request. After consideration of all the comments, the proposed regulations, with minor clarifications and revisions to ensure the language of the regulations is internally consistent and technically correct, are adopted by this Treasury decision. This preamble summarizes the significant comments received by the IRS and Treasury.

The IRS and Treasury received seven (7) comments in response to the proposed regulations. Some of the discussion contained in the comments did not relate to the rules in the proposed regulations but instead was directed towards other unrelated content contained in the section 7216 regulations or other published guidance pertaining to section 7216. This Summary of Comments focuses solely on comments relating to the proposed regulations and does not address comments relating to other published guidance pertaining to section 7216, which are outside the scope of this rule.

As proposed, § 301.7216-2(n) allows tax return preparers to maintain a list of limited tax return information that may be used by the compiler to contact taxpayers to provide tax information and general business or economic information or analysis for educational purposes or to solicit tax return preparation services.

One commentator asked to expand the acceptable list maintenance purposes to include solicitation of “accounting services” “consistent with legal and ethical responsibilities.” The commentator explained that these accounting services include, for example, assistance with bookkeeping, the preparation of payroll returns, and the preparation of regulatory returns. The commentator also included the preparation of state and local income tax returns as an accounting service. The preparation of state and local income tax returns is, however, tax return preparation expressly authorized by the statute, and use of the list is permissible to solicit this service.

The language of section 7216(a)(2) prohibits the use of “any such information for any purposes other than to prepare, or assist in the preparing, of any such return * * *” except as specifically excepted by section 7216(b). The IRS and Treasury have determined that it is inconsistent with the purpose of section 7216 to exercise regulatory authority to provide an exception under section 7216 for the use of tax return information to solicit accounting services. Taxpayers may consent in writing to allow tax return preparers to use their tax return information to solicit non-tax return preparation services, such as the accounting services listed by the commentator. Accordingly, to the extent the commentator requested the inclusion of accounting services as a list maintenance purpose, this comment was not adopted.

The proposed regulations provide: “This list may be used by the compiler solely to contact the taxpayers on the list for the purpose of providing tax information and general business or economic information or analysis for educational purposes, or soliciting additional tax return preparation services. The list may not be used to solicit any service or product other than tax return preparation services.” A commentator asked that the final regulations clarify this statement. The commentator specifically asked whether, under the rule set forth in the proposed regulations, articles could be included in a newsletter that address several topics that do not constitute tax return preparation services.

Under the final regulations, a tax return preparer may, without taxpayer consent, compile a list of certain taxpayer specific information that may be used to contact the taxpayers on the list for two purposes: (1) Providing tax information and general business or economic information or analysis for educational purposes, and (2) soliciting additional tax return preparation services. A tax return preparer may not use the list to solicit non-tax return preparation services. The final regulations do not attempt to describe every scenario that may constitute either a permissible or prohibited use of the list. Rather, a tax return preparer seeking to use tax return information in the manner proposed by the commentator must carefully consider, on a case-by-case basis, the specific content of a particular newsletter article to ensure that the content meets the requirements of § 301.7216-2(n). For example, a newsletter that summarizes recent case law or describes current legal developments would be considered to be for educational or informational purposes and a permissible use of the list. If a tax return preparer wishes to solicit non-tax return preparation services in the preparer's newsletter, a consent must be obtained from clients that authorizes the use of specified tax return information to solicit those non-tax return preparation services in the preparer's newsletter.

The final regulations retain the provisions in the proposed regulations that require written consent for all other purposes not expressly allowed by the regulations. This is consistent with the congressional discussion regarding section 7216, which provides that “[section 7216] simply preserves the confidentiality of information provided by the taxpayer to the one who prepares the returns as a professional act.” Senate Discussion on Conference Report, 117 Cong. Record S. 18,627 (daily ed. November 15, 1971) (statement of Sen. Mathias). This floor discussion further provides that “[p]resumably, where appropriate, the Treasury Department will permit the use of the information within the business organization of the preparer of the return if the taxpayers [sic] has indicated in writing that he desires the information to be used by the organization for some purpose specifically benefitting the taxpayer.” (Emphasis added). House Discussion on Conference Report, 117 Cong. Rec. H12,118 (daily ed. Dec. 9, 1971) (statement of Rep. Mills).

One commentator recommended that the proposed regulations be clarified to state that § 301.7216-2(n)(1) permits a tax return preparer to use any delivery method that employs or is based on the list information sanctioned by that regulation provision. The commentator expressed a concern that the two examples provided in the temporary regulations limited the method of delivery to only email or U.S. mail. The examples were not intended to limit the scope of the rule. The final regulations authorize any delivery method that will facilitate direct contact with the taxpayers on the list through the use of only the information authorized for compilation of a list under § 301.7216-2(n). The examples were modified to clarify this point.

One commentator suggested removing any limits on the tax return information a tax return preparer may include in compiling and maintaining lists for the solicitation of tax return business under § 301.7216-2(n). This comment appears to be based upon an interpretation that the policy of section 7216 was intended to protect only privacy concerns. Section 7216(b)(3) provides the Secretary with broad authority to issue regulations authorizing specific disclosures or uses of tax return information. When publishing regulations allowing for these disclosures or uses, the IRS and Treasury must balance congressional intent and concerns for the protection of sensitive taxpayer data with the benefits taxpayers may receive from the proposed disclosures or uses. Removal of all restrictions on the allowable types of tax return information that may be included in the compilation and maintenance of lists is inconsistent with section 7216's underlying purpose. The proposed regulations expanded the types of tax return information a tax return preparer may use to compile a list for the purpose of soliciting tax return preparation business in a manner consistent with the purpose of section 7216 and the regulations. Accordingly, this comment was not adopted.

The commentator also stated that the temporary regulations contained ambiguous and vague language that required clarification regarding the entities and form numbers that may be maintained, such as whether an S corporation can be distinguished from a C corporation or whether a Form 1120 can be distinguished from a Form 1120-S. The rule and examples in the regulations already address whether entity classifications maintained in a list pursuant to § 301.7216-2(n) include individuals and the types of businesses that would file different types of returns. The regulations provide that the “specific type of business entity” may be maintained in the list. Further, Example 1 in § 301.7216-2(n)(2) illustrates that tax return preparers may limit the provision of information based upon filer type. In addition, the income tax return form number refers to the form number that appears on the first page of the particular tax return form that the tax return preparer prepares (for example, Form 1120-S). To clarify this point, a parenthetical has been added to § 301.7216-2(n).

One commentator stated that the proposed regulations should be clarified regarding whether nontax return information may be included in a list maintained pursuant to § 301.7216-2(n) and that the regulations should be modified to state that nontax return information can be included in the list with the allowed items of tax return information. This comment was not adopted. The inclusion of nontax return information in the list could facilitate circumvention of the restrictions of section 7216 as to items of tax return information that may not be kept on the list by permitting tax return preparers to obtain the tax return information from other sources. In any event, if tax return preparers wish to include additional information in a list, they may obtain consent to do so from their clients. The language in § 301.7216-2(n), however, has been clarified to eliminate any potential confusion arising from the wording of the provision.

One commentator recommended that the IRS and Treasury issue guidance, pursuant to the terms of § 301.7216-2T(n), to further expand the types of tax return information that may be included in a list compiled for solicitation of tax return business. This comment was not adopted. This comment requested that the tax return information that may be included in a list compiled for solicitation purposes be expanded to include tax schedules filed, certain information regarding tax preparation software, the date taxpayers file their returns, the employer identification number of taxpayers' employers, the number and age of taxpayers' dependents, and whether taxpayers file with a tax balance due. The IRS and Treasury considered adding each item to the information that may be included in a list compiled for solicitation of tax return business. Including these items, however, would be inconsistent with the taxpayer protection purpose of section 7216, as demonstrated by the congressional discussion. Moreover, certain items present a risk of abuse by tax return preparers that would exceed any potential benefit to the taxpayer.

One commentator recommended that the final regulations clarify the meaning of “bona fide research” and “public policy discussions” by explicitly including examples of individuals or entities that engage in these activities, including lawmakers, academics, nonprofit organizations, and other agencies that facilitate tax policy. While these individuals and entities may, at times, conduct bona fide research or engage in public policy discussions, tax return preparers must determine, on a case-by-case basis, whether a disclosure or use is in support of bona fide research or public policy discussions. For example, public policy discussions would include discussion of the implications of legislative amendments and tax reform proposals.

One commentator recommended limiting the discretion afforded to tax return preparers to determine appropriate disclosures of statistical compilations. The commentator expressed concern that tax return preparers will disclose more information than is lawfully permissible or even sell data to third parties. This comment was not adopted. The availability of anonymous statistical compilations can assist lawmakers and others in the private and public sectors in discussing, formulating, and implementing sound tax policy. The final regulations sufficiently limit the construction of the statistical compilations to prevent the disclosure of any individual's tax return information. In addition, § 301.7216-2(o)(1) specifically prohibits the sale of a statistical compilation of data except in conjunction with the transfer of assets made pursuant to the sale or other disposition of the tax return preparer's tax return preparation business. Finally, there are penalties imposed by sections 7216 and 6713 for the improper disclosure or use of tax return information.

One commentator recommended removing all restrictions on the disclosure or use of anonymous statistical compilations. This comment was not adopted. The purpose of section 7216 and its accompanying regulations is to preserve taxpayer confidentiality by protecting taxpayers from the unauthorized disclosures or uses of sensitive tax return information by tax return preparers. Eliminating all restrictions on the use of statistical compilations would contravene this purpose and could increase opportunities for taxpayer's personal information to be improperly disclosed or misused. In particular, it is possible to craft statistical compilations in a way that allows for the data to be associated with a particular taxpayer.

One commentator recommended that the restriction on the disclosure or use of anonymous statistical information be eliminated to allow for the compilation of statistically anonymous information relating to the dollar amounts of refunds, credits, or deductions. This comment was not adopted. Section 7216 authorizes the IRS and Treasury to promulgate rules regulating how tax return preparers may disclose or use tax return information while ensuring that the taxpayer protection purpose of section 7216 is fulfilled. Eliminating all restrictions on the use of statistical compilations regarding the dollar amounts of refunds, credits, or deductions would provide tax return preparers the unfettered ability to use tax return information. This would undermine the purpose and basic protections of preventing inappropriate disclosure or use of tax return information by tax return preparers afforded by section 7216.

One commentator requested that volunteer income tax assistance programs be exempted from the restrictions on the disclosure or use of statistical compilations for marketing or advertising purposes. This comment was not adopted. Taxpayers who receive volunteer income assistance and taxpayers who receive tax preparation assistance from compensated preparers deserve the same protection of their tax return information. Section 301.7216-2(o) already makes appropriate allowances for a preparer's status as a participant in a volunteer income tax assistance program by allowing for use of statistical compilations in fundraising activities conducted by volunteer return preparation programs and other entities described in section 501(c). As a result, IRS and Treasury believe that the regulations already address the concerns expressed by this commentator.

No comments were received in response to § 301.7216-2(p) of the proposed regulations, and § 301.7216-2(p) is being finalized without change.

One commentator questioned the appropriateness of applying § 301.7216-2(o) of the temporary regulations contained in TD 9478 with an immediate effective date, stating that one provision of this section is more restrictive than prior guidance (Notice 2009-13) indicated. The commentator requested that the effective date of this particular proposal be made fully prospective and only after regulations are finalized. This comment was not adopted for the following reasons.

By its specific terms, Notice 2009-13 expired on December 31, 2009, while TD 9478 is applicable to disclosures or uses of tax return information occurring on or after January 4, 2010. Because there is no conflicting or overlapping period of application of this related guidance, tax return preparers could not have relied upon Notice 2009-13 beyond December 31, 2009. As TD 9478 was not applicable until January 4, 2010, there is no retroactive application of the rule contained in that Treasury decision.

Further, Notice 2009-13 requested comments, and comments in response to the notice were taken into account in the drafting and publication of TD 9478. As explained in the preamble to TD 9478, concerns were expressed regarding the scope of the language used in Notice 2009-13 on this specific issue. The amendments provided in TD 9478 are responsive to public comments on and a logical outgrowth of the language in Notice 2009-13.

Finally, the general rule under section 7216 prohibits the disclosure or use of tax return information unless a written consent is obtained or an exception applies. With the expiration of Notice 2009-13 on December 31, 2009, the uses of statistical compilations allowed for in the notice were no longer permissible. If § 301.7216-2(o) was made effective only upon publication of the final regulations, as the commentator seems to suggest, neither the exceptions provided for Notice 2009-13 nor those provided for in § 301.7216-2T(o) would be applicable after December 2009. The permissible use of statistical compilations without taxpayer consent would be more, not less, restrictive than if § 301.7216-2(o) had not been published as a temporary regulation.

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 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(e) of the Code, the temporary regulations and the proposed regulations preceding these final regulations were published in the Federal Register to provide notice and the opportunity to comment. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were 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 authors of these regulations are Skyler K. Bradbury and Emily M. Lesniak, Office of the Associate Chief Counsel (Procedure and Administration).

Accordingly, 26 CFR part 301 is amended as follows:

I. Background

The Federal Civil Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act, Public Law 101-410, 104 Stat. 890 (28 U.S.C. 2461 note)), as amended by the Debt Collection Improvement Act of 1996 (DCIA), (Pub. L. 104-134, 110 Stat. 1321), requires MSHA to review and, where appropriate, adjust its civil penalties for inflation, based on the cost of living, at least once every four years. It prescribes the formula for any such adjustments. MSHA last adjusted its civil penalties for inflation in 2008 (73 FR 7206).

Section 5(b) of the Inflation Adjustment Act provides an inflation adjustment formula that defines a “cost-of-living” adjustment as—

Section 5(a) included criteria for rounding the cost-of-living adjustment amount as follows:

Section 3(3) of the Inflation Adjustment Act defines the term “Consumer Price Index” (CPI) to mean “the Consumer Price Index for all-urban consumers published by the Department of Labor.”

Section 7 of the Inflation Adjustment Act provides that the first adjustment of a civil monetary penalty under the Act may not exceed 10 percent of such penalty.

The Inflation Adjustment Act only requires that the cost-of-living adjustment and rounding formula be applied to penalties that were statutorily established by Congress. The Mine Act, as amended, contains eight statutory penalties. Consequently, MSHA applied the formula to its statutory civil penalties in 30 CFR Part 100 and is adjusting the maximum penalty for failure to provide timely notification to the Secretary under section 103(j) of the Mine Act, in § 100.4(c), from $60,000 to $65,000. In addition, MSHA is increasing the maximum penalty for flagrant violations under Section 110(b)(2) of the Mine Act, in § 100.5(e), from $220,000 to $242,000. Applying the formula to the remaining statutory civil penalties, regarding the maximum civil penalty for regular assessments in § 100.3(a)(1), the two minimum penalties for unwarrantable failure violations in § 100.4(a) and (b), the minimum penalty for failure to timely report accidents in § 100.4(c), maximum daily penalty in § 100.5(c), and the maximum smoking penalty in § 100.5(d), did not result in inflation adjustments because the increases under the inflation adjustment formula were rounded to zero pursuant to the Inflation Adjustment Act's rounding rules.

The Administrative Procedure Act (APA) requires that rulemakings be published in the Federal Register and that, generally, agencies provide an opportunity for public comment. Notice and an opportunity for public comment are not required, however, when the agency “for good cause finds” that notice and comment “are impracticable, unnecessary, or contrary to the public interest” (5 U.S.C. 553(b)(B)).

The decision whether to make adjustments and the amount of any adjustments for these Civil Penalties are prescribed by the Inflation Adjustment Act and are not within MSHA's discretion. MSHA is required to perform mathematical computations based on published cost-of-living data and adjust its penalties accordingly. For this reason, the Agency has determined that there is good cause that public notice and comment are unnecessary and contrary to the public interest, and that this rule should be published in final form. In accordance with the APA, this final rule is effective 30 days after date of publication in the Federal Register .

MSHA last updated civil penalties according to the Inflation Adjustment Act on February 7, 2008 (73 FR 7206, Feb. 7, 2008).

Existing § 100.3(a)(1) provides the criteria for determining regular penalty assessments and specifies a maximum dollar amount for a proposed civil penalty assessment. The maximum civil penalty assessment was evaluated using the formulas provided in the Inflation Adjustment Act. No adjustment is required. The existing maximum civil penalty assessment of $70,000 remains unchanged.

Existing § 100.3(g) contains a penalty conversion table (Table XIV) based on the statutory maximum penalty assessment of $70,000 in existing § 100.3(a)(1). Since the statutory maximum civil penalty for regular assessments remains unchanged the penalty conversion table is unchanged.

Existing § 100.4 states the minimum penalties for citations or orders issued under section § 104(d)(1) or (d)(2) of the Mine Act. It also includes the specific penalties required for failure to timely report the categories of accidents specified in section 5(a) of the Mine Improvement and New Emergency Response Act of 2006 (MINER Act). MSHA included this requirement in a final rule published on March 22, 2007 (72 FR 13592). In accordance with section 5(b) of the Inflation Adjustment Act, MSHA determined the inflation rate based on the consumer price index from June 2007 (208.352, the month of June of the calendar year in which the amount of the penalty was last set) through June 2011 (225.722, the month of June of the calendar year preceding this adjustment). This resulted in an inflation rate of 8.3 percent [(225.722 −208.352) ÷ 208.352 = 0.083].

Existing § 100.4(c) states that the penalty for failure to provide timely notification to the Secretary under section 103(j) of the Mine Act will not be less than $5,000 and not more than $60,000. The minimum penalty for failure to provide timely notification was evaluated using the formulas provided in the Inflation Adjustment Act. No adjustment is required. The existing minimum penalty of $5,000 remains unchanged. To adjust the existing maximum civil penalty of $60,000 for inflation, MSHA applied the 8.3 percent inflation increase, which resulted in $4,980. MSHA rounded the increase to $5,000 in accordance with section 5(a) of the Inflation Adjustment Act. Final § 100.4(c) retains a minimum penalty of $5,000 and increases the maximum penalty to $65,000.

Existing § 100.5(e) states the maximum penalty for violations that are deemed to be flagrant under section 110(b) of the Mine Act. MSHA included this requirement in a final rule published on March 22, 2007 (72 FR 13592). The existing maximum penalty is $220,000 for such violation. To adjust the existing civil penalty for flagrant violations, MSHA applied the 8.3 percent inflation increase from June 2007 (the month of June of the calendar year in which the amount of the penalty was last set) to June 2011 (the month of June of the calendar year preceding this adjustment), which resulted in $18,260. MSHA rounded the increase to $25,000 in accordance with section 5(a) of the Inflation Adjustment Act. However, this is the first time this penalty has been adjusted under the Inflation Adjustment Act and, therefore, according to section 7, the adjustment may not exceed 10 percent of the penalty. Final § 100.5(e) increases the maximum penalty for a flagrant violation from $220,000 to $242,000 ($220,000 + 10% = $242,000).

Executive Order 12866 requires that regulatory agencies assess both the costs and benefits of significant regulatory actions. Under the Executive Order, a “significant regulatory action” is one meeting any of a number of specified conditions, including the following: Having an annual effect on the economy of $100 million or more; creating a serious inconsistency or interfering with an action of another agency; materially altering the budgetary impact of entitlements or the rights of entitlement recipients, or raising novel legal or policy issues. MSHA has determined that this final rule is not a “significant” regulatory action and a cost-benefit and economic analysis is not required. This regulation merely adjusts civil monetary penalties in accordance with inflation as required by the Inflation Adjustment Act, and has no impact on disclosure or compliance costs. The benefit provided by the inflationary adjustment to the maximum civil monetary penalties is that of maintaining the incentive for operators to maintain safe and healthful workplaces, and not allowing the incentive to be diminished by inflation.

Executive Order 13563 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility to minimize burden. Congress, in mandating the inflationary adjustments, has already determined that any possible increase in costs is justified by the overall benefits of such adjustments. This rule makes only the mandatory statutory changes. Since only mandatory changes are being made, there are no alternatives or further analysis required by E.O. 13563.

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) (5 U.S.C. 804(2)), generally requires an agency to prepare 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 impact on a substantial number of small entities. As MSHA has determined for good cause that notice and public comment are not required for this rule, the Regulatory Flexibility Act does not apply and a regulatory flexibility analysis is not required for this rule. The rule only adjusts for the effects of inflation.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that MSHA consider the impact of paperwork and other information collection burdens imposed on the public. MSHA has determined that this final rule does not require any collection of information.

Because the final rule simply adjusts for inflation, it does not include any Federal mandate that may result in increased expenditures by State, local, or tribal governments; nor does it increase private sector expenditures by more than $100 million annually; nor does it significantly or uniquely affect small governments. Accordingly, the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1501 et seq.) requires no further agency action or analysis.

This final rule does not have federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, Executive Order 13132, Federalism, requires no further agency action or analysis.

This final rule will have no effect on family well-being or stability, marital commitment, parental rights or authority, or income or poverty of families and children. Accordingly, section 654 of the Treasury and General Government Appropriations Act of 1999 (5 U.S.C. 601 note) requires no further agency action, analysis, or assessment.

This final rule will not implement a policy with takings implications. Accordingly, Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights, requires no further agency action or analysis.

This final rule was drafted and reviewed in accordance with Executive Order 12988, Civil Justice Reform. This final rule was written to provide a clear legal standard for affected conduct and was carefully reviewed to eliminate drafting errors and ambiguities, so as to minimize litigation and undue burden on the Federal court system. MSHA has determined that this final rule meets the applicable standards provided in section 3 of Executive Order 12988.

This final rule will have no adverse impact on children. Accordingly, Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks, as amended by Executive Orders 13229 and 13296, requires no further agency action or analysis.

This final rule does not have “tribal implications” because it does not have substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes. Accordingly, Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, requires no further agency action or analysis.

This final rule has been reviewed for its impact on the supply, distribution, and use of energy because it applies to the coal mining industry. MSHA has concluded that the adjustment of civil monetary penalties to keep pace with inflation and thus maintain the incentive for operators to maintain safe and healthful workplaces is not a significant energy action because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Accordingly, Executive Order 13211 requires no further Agency action or analysis.

MSHA has reviewed the final rule to assess and take appropriate account of its potential impact on small businesses, small governmental jurisdictions, and small organizations. This rule does not establish any new burdens. It makes the necessary adjustments as required by the Inflation Adjustment Act and is therefore consistent with the provisions of E.O. 13272.

The Congressional Review Act, codified at 5 U.S.C. 801 et seq., provides generally that “major rules” cannot take effect until 60 days after publication of the rule in the Federal Register and delivery of the rule to each House of Congress and to the U.S. Comptroller General. MSHA has concluded, in agreement with the Office of Information and Regulatory Affairs at the Office of Management and Budget that this rule is not a “major rule” as defined by the Congressional Review Act. For this reason, the rule will take effect on the date indicated.

Under the authority of the Federal Mine Safety and Health Act of 1977, as amended, chapter I of title 30, Code of Federal Regulations, part 100 is amended as follows:

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.

The US Army Corps of Engineers (USACE) originally planned to have a contractor remove underwater rocks in the Thebes, IL and Grand Tower, IL areas on the Upper Mississippi River beginning in mid-February 2013. The operation was planned to occur in the UMR from mile 38.0 to mile 46.0, and mile 78.0 to mile 80.0. This operation also included the loading of explosives onto vessels at any number of facilities in Cape Girardeau, MO, Thebes, IL, and/or Grand Tower, IL.

The Coast Guard was planning to publish a notice of proposed rulemaking for this zone. However, on Wednesday December 5, 2012, the USACE St. Louis District notified the Coast Guard that due to extreme low water, and the role that would play in restricting vessel drafts on the Upper Mississippi River in Thebes, IL, they were able to award a contract to begin rock removal operations no later than December 15, 2012, and this removal operation could continue to March 31, 2013. Therefore, there is not sufficient time to publish an NPRM and receive public comment before this safety zone would be needed to protect the public from the hazards associated with the removal operations. Delaying this rulemaking to provide a comment period before implementing the necessary safety zone would be impracticable and contrary to the public interest because it would delay the immediate action needed to protect persons, property and infrastructure from the potential damage and safety hazards associated with the USACE contractors underwater rock removal operations.

For the same reasons, 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 . Providing 30 days notice and delaying its effective date would be impracticable and contrary to public interest because immediate action is needed to protect persons, property and infrastructure from the potential damage and safety hazards associated with the USACE contractors underwater rock removal operations.

The legal basis and authorities for this rule are found in 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, and 160.5; Public Law 107-295, 116 Stat. 2064; and Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to establish and define regulatory safety zones.

The purpose of this safety zone is to protect persons, property and infrastructure from the potential damage and safety hazards associated with contractor blasting operations for the USACE to remove underwater rock pinnacles from the Upper Mississippi River. Removal of the underwater rock pinnacles is vital to ensuring the safe navigation of vessels in these stretches of river in low water situations. Without this safety zone the public could be placed in danger during the loading, preparation to set, and detonation of explosives being used during this operation, and the removal of the debris following the blasting operations.

The Coast Guard is establishing a temporary safety zone for all vessels on the Upper Mississippi River between miles 35.0 and 55.0, and miles 75.0 and 85.0 from December 15, 2012 until March 31, 2013. The USACE has contracted workers to blast underwater rock pinnacles throughout these stretches of the river. There is currently no set schedule for this operation, so the safety zone will be effective from December 15, 2012 until March 31, 2013, while the enforcement times and exact mile markers impacted for each closure of this safety zone will be coordinated between the Coast Guard, USACE, and the River Industry Action Committee (RIAC). Additionally, the Coast Guard will provide advanced notice of enforcement periods via broadcast notice to mariners and through coordination with the RIAC. During the enforcement period, entry into this zone will be prohibited to all vessels and persons unless specifically authorized by the Captain of the Port (COTP) Sector Ohio Valley or a designated representative. The COTP Sector Ohio Valley will consider entry into and transit through the safety zone on a case-by-case basis. Any exceptions to these operational restrictions will require authorization by the COTP Ohio Valley or a designated representative. The COTP or a designated representative may be contacted by telephone at 502-779-5422.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on a number 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. While stretches of the Upper Mississippi River will be closed to all vessel traffic during enforcement, this will be for a short period of time. Vessels could experience delays throughout this project, but the operations will be coordinated to allow intermittent passage of vessels when deemed safe.

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 term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. 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 may be small entities: The owners or operators of vessels intending to transit the Upper Mississippi River between miles 35.0 and 55.0, and miles 75.0 and 85.0 from December 15, 2012 to March 31, 2013. Traffic in this area is limited almost entirely to recreational vessels and commercial towing vessels. All traffic passage will be prohibited unless specifically authorized by COTP Ohio Valley. If this operation is not carried out, when the Upper Mississippi River reaches low water levels, the rock pinnacles that are being removed in this operation could prohibit all vessel traffic from safely transiting the area. Before the activation of the safety zone, the Coast Guard will coordinate any closures with the USACE and RIAC, and issue broadcast notices to mariners to users of the river. This safety zone will not have a significant economic impact on a substantial number of small entities. Traffic in this area is limited to almost entirely recreational vessels and commercial towing vessels.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer 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 , 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 calls for no 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 State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

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 affect 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 concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule involves restricting vessel traffic on a cumulative 30 mile stretch of the UMR to keep waterway users safe during a USACE contractor's rock pinnacle removal operations. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist and a categorical exclusion determination will be made available as indicated under the ADDRESSES section.

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

Table of Acronyms DHS Department of Homeland Security FR  Federal Register NPRM Notice of Proposed Rulemaking A. Regulatory History and Information

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, unnecessary and contrary to the public interest. The final details regarding the security measures associated with this year's event were not known to the Coast Guard with sufficient time for the Coast Guard to solicit public comments before the start of the event. Thus, waiting for a notice and comment period to run would be impracticable and contrary to the public interest because it would inhibit the Coast Guard from protecting the participants, visitors, and public officials at this year's NAIAS.

It is also unnecessary to solicit public comments because the NAIAS event has taken place annually under the same name since 1989, has been recognized as one of the premier international car shows in the world for more than twenty-five years, and has been at the same location since 1965. In light of the long history of this event and the prior years that it has been regulated by the Coast Guard, public awareness in the affected area is high, making it unnecessary to wait for a comment period to run before enforcing this security zone for the January 2013 NAIAS event.

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 two paragraphs, waiting for a 30 day notice period to run would be impracticable and contrary to the public interest.

The 25th Annual North American International Auto Show (NAIAS) will be held at Cobo Hall in downtown Detroit, MI. The NAIAS is the prime venue for introducing the world's most anticipated vehicles. The public showing days of the NAIAS begin January 19 and extend through January 27. Prior to the public showing, there will also be multiple high profile events; including the press preview days (January 14-15, 2013), industry preview days (January 16-17, 2013), and the charity preview event (January 18, 2013). In 2011, the NAIAS attendance for the public showing was over 735,000 people and press preview days attracted over 5,000 journalists representing 55 countries. Attendance and participation at the 2013 NAIAS is anticipated to rival the 2011 show's attendance and will likely remain as one of the largest media events in North America.

NAIAS has attracted numerous protesters from various organizations. Due to the current state of the economy, the recent number of layoffs, the closures of several thousand automotive dealerships around the country, and the likely presence of high profile visitors, it is possible that protests may continue to occur at this year's event. Consequently, the Captain of the Port Detroit has determined that it is necessary to establish a temporary security zone to protect participants, visitors, and public officials attending the event from any potential unrest and conflict that might arise from mass protests.

To safeguard portions of the Detroit River during this year's event, the Captain of the Port Detroit has determined that a temporary security zone is necessary. This security zone will ensure the safety of the participants in and visitors of the 25th Annual North American International Auto Show being held at Cobo Hall in downtown Detroit, MI. The security zone will be in effect from 8:00 a.m. on January 13, 2013 until 12:00 a.m. on January 28, 2013. The zone will only be enforced from 8:00 a.m. to 12:00 a.m. daily for the duration of the event.

The security zone will encompass an area of the Detroit River beginning at a point of origin on land adjacent to the west end of Joe Lewis Arena at 42° 19.44′ N., 083° 03.11′ W.; then extending offshore approximately 150 yards to 42° 19.39′ N., 083° 03.07′ W.; then proceeding upriver approximately 2000 yards to a point at 42° 19.72′ N., 083° 01.88′ W.; then proceeding onshore to a point on land adjacent the Tricentennial State Park at 42° 19.79′ N., 083° 01.90′ W.; then proceeding downriver along the shoreline to connect back to the point of origin. Vessels in close proximity to the security zone will be subject to increased monitoring and boarding. All geographic coordinates are North American Datum of 1983 (NAD 83).

Entry into, transiting, including below the surface of the water, or anchoring within the security zones is prohibited unless authorized by the Captain of the Port, Sector Detroit, or his designated on-scene representative. The on-scene representative of the Captain of the Port will be aboard a Coast Guard or Local Law Enforcement vessel. The Captain of the Port or his designated on-scene representative may be contacted via VHF Channel 16.

The security zone created by this rule does not inhibit members of the public from assembling on shore or expressing from locations on shore their points of view to those attending the NAIAS.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 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 a 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 security zone on the Detroit River will be relatively small and exist for only a minimal time. Thus, restrictions on vessel movement within any particular area of the Detroit River are expected to be minimal. Under certain conditions, vessels may still transit through the security zone when permitted by the Captain of the Port. Moreover, vessels may still transit freely in Canadian waters adjacent to the security zone.

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 term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. 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 the temporary security zone established by this rule between 8:00 a.m. on January 13, 2013 until 12:00 a.m. on January 28, 2013.

This security zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This security zone will not obstruct the regular flow of commercial traffic and will allow vessel traffic to pass around the security zone. In the event that this temporary security zone affects shipping, commercial vessels may request permission from the Captain of the Port Detroit to transit through the security zone. The Captain of the Port can be reached via VHF channel 16. The Coast Guard will give notice to the public via a Broadcast to Mariners that the regulation is in effect.

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 to that they can better evaluate its effects on them. If this 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 Coast Guard respects the First Amendment rights of protesters. The security zone created by this rule does not inhibit members of the public from assembling on shore or expressing from locations on shore their points of view to those attending the NAIAS. Nonetheless, protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

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 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 concluded 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 security 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:

Within the regulations issued on October 23, 2008, the Secretary included rules to implement the Public Service Loan Forgiveness benefit offered within the Direct Loan Program. 73 FR 63232. One of the matters addressed by those rules was the extent to which service for an organization engaged in religious activities qualifies a borrower for the loan forgiveness benefit. The Department's intent in regulating in this area was to be consistent with the treatment of such service in corresponding regulations for the FFEL Program (34 CFR 682.210(m)), the Perkins Loan Program (34 CFR 674.36(c)(4)), and the Department of Defense Program to Encourage Public and Community Service (32 CFR 77.3(a)). However, as a result of a drafting error, the Department omitted wording from paragraph (3) of the definition of “public service organization” in 34 CFR 685.219(b) that would have corresponded with language in paragraph (5)(ii) of the definition and been consistent with language in the regulations for the FFEL, Perkins Loan, and Department of Defense programs. This language would have made clear that service for a non-profit organization that qualifies a borrower for the loan forgiveness benefit cannot be comprised of activities that are related to religious instruction, worship services, or any form of proselytizing. To correct the drafting error, the Department is publishing this technical correction to add the omitted language. This correction clarifies the intended meaning of the regulations. The Department also corrects a typographical error—the spelling of the word “health” under paragraph (5)(i) of the definition of “public service organization.”

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.

Accordingly, 34 CFR part 685 is corrected as follows:

I. Background

The Huntington-Ashland Area is composed of Cabell and Wayne Counties and the Graham Tax District in Mason County in West Virginia (West Virginia portion of the Area); Boyd County and a portion of Lawrence County in Kentucky; and Lawrence and Scioto Counties and portions of Adams and Gallia Counties in Ohio. On November 15, 2012 (77 FR 68076), EPA published a notice of proposed rulemaking (NPR) for the State of West Virginia. Pursuant to sections 107(d)(3) and 175A of the CAA, the NPR proposed approval of West Virginia's redesignation request, a SIP revision that establishes a maintenance plan for the West Virginia portion of the Area that provides for continued attainment of the 1997 annual PM 2.5 NAAQS for at least 10 years after redesignation, and the insignificance determination for transportation conformity for the West Virginia portion of the Area. The formal SIP revision was submitted by WVDEP on June 30, 2011. In a separate action, EPA approved the base year emissions inventory on December 11, 2012 (77 FR 73544) meeting the requirements of section 172(c)(3) of the CAA. Other specific details of West Virginia's redesignation request, the associated maintenance plan SIP revision and insignificance determination, and the rationales for EPA's proposed actions are explained in the NPR and will not be restated here. No public comments were received on the NPR.

EPA is approving the redesignation request, maintenance plan, and insignificance determination for transportation conformity for the West Virginia portion of the Area that was submitted by WVDEP on June 30, 2011 because the requirements for approval have been satisfied. EPA has evaluated West Virginia's redesignation request, and determined that it meets the redesignation criteria set forth in section 107(d)(3)(E) of the CAA. Approval of this redesignation request will change the legal designation of the West Virginia portion of the Area from nonattainment to attainment for the 1997 annual PM 2.5 NAAQS. EPA is approving the associated maintenance plan for the West Virginia portion of the Area, submitted on June 30, 2011, as a revision to the West Virginia SIP because it meets the requirements of section 175A of the CAA. EPA is also approving the transportation conformity insignificance determination submitted by West Virginia for this Area in conjunction with its redesignation request.

In accordance with 5 U.S.C. 553(d), EPA finds there is good cause for this action to become effective immediately upon publication. A delayed effective date is unnecessary due to the nature of a redesignation to attainment, which eliminates CAA obligations that would otherwise apply. The immediate effective date for this action is authorized under both 5 U.S.C. 553(d)(1), which provides that rulemaking actions may become effective less than 30 days after publication if the rule “grants or recognizes an exemption or relieves a restriction,” and section 553(d)(3), which allows an effective date less than 30 days after publication “as otherwise provided by the agency for good cause found and published with the rule.” The purpose of the 30-day waiting period prescribed in section 553(d) is to give affected parties a reasonable time to adjust their behavior and prepare before the final rule takes effect. Today's rule, however, does not create any new regulatory requirements such that affected parties would need time to prepare before the rule takes effect. Rather, today's rule relieves West Virginia of the obligation to comply with nonattainment-related planning requirements for this PM 2.5 Area pursuant to Part D of the CAA. For these reasons, EPA finds good cause under 5 U.S.C. 553(d) for this action to become effective on the date of publication of this notice.

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).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

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 26, 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 approving the redesignation request, maintenance plan, and transportation conformity insignificance determination for the West Virginia portion of the Area may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

I. Background

The SIP is a living document which the State revises as necessary to address its unique air pollution problems. Therefore, EPA from time to time must take action on SIP revisions containing new and/or revised regulations as being part of the SIP. On May 22, 1997 (62 FR 27968), EPA revised the procedures for incorporating by reference Federally-approved SIPs, as a result of consultations between EPA and the Office of the Federal Register (OFR). The description of the revised SIP document, IBR procedures and “Identification of plan” format are discussed in further detail in the May 22, 1997, Federal Register document. On January 25, 2005, EPA published a document in the Federal Register beginning the new IBR procedure for Idaho. 70 FR 9450. Since the publication of the January 25, 2005, Federal Register document, EPA has approved regulatory changes to the Idaho Administrative Procedures Act (IDAPA) 58.01.01. These approved changes are identified in the following Federal Register notices: 70 FR 58311(October 6, 2005), 71 FR 39574 (July 13, 2006), 73 FR 44915 (August 1, 2008), 75 FR 72705 (November 26, 2010), 75 FR 72719 (November 26, 2010), 76 FR 33651 (June 9, 2011), 76 FR 36329 (June 22, 2011), and 77 FR 41916 (July 17, 2012).

In this action, EPA is doing the following:

A. In paragraph 52.670(b), announcing the update to the IBR material as of August 16, 2012.

B. In paragraph 52.670(c):

1. Removing the section heading “EPA-APPROVED IDAHO REGULATIONS” and adding in its place “EPA-APPROVED IDAHO REGULATIONS AND STATUTES”;

2. Correcting the entry for IDAPA 58.01.01.470 by removing “Permit Application Fees for Tier II Permits” and replacing it with “Reserved” consistent with our proposed action on March 18, 2010 (75 FR 13058) and our final action on November 26, 2010 (75 FR 72719); and

3. Removing the entries for IDAPA 58.01.01.726 through 729, consistent with our proposed action on March 18, 2010 (75 FR 13058) and our final action on November 26, 2010 (75 FR 72719).

C. In paragraph 52.683, revising the language to reflect the approvals made on July 17, 2012 (77 FR 41916), that were erroneously not reflected in paragraph 52.683.

EPA has determined that today's rule falls under the “good cause” exemption in section 553(b)(3)(B) of the Administrative Procedures Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation and section 553(d)(3) which allows an agency to make a rule effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). Today's rule simply codifies provisions which are already in effect as a matter of law in Federal and approved State programs. Under section 553 of the APA, an agency may find good cause where procedures are “impractical, unnecessary, or contrary to the public interest.” Public comment is “unnecessary” and “contrary to the public interest” since the codification only reflects existing law. Immediate notice in the CFR benefits the public by removing outdated citations and incorrect table entries.

Under the Clean Air Act (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).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

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

EPA has also determined that the provisions of section 307(b)(1) of the CAA pertaining to petitions for judicial review are not applicable to this action. Prior EPA rulemaking actions for each individual component of the Idaho SIP compilations had previously afforded interested parties the opportunity to file a petition for judicial review in the United States Court of Appeals for the appropriate circuit within 60 days of such rulemaking action. Thus, EPA sees no need in this action to reopen the 60-day period for filing such petitions for judicial review for this “Identification of plan” update action for Idaho.

40 CFR part 52 is amended as follows:

You may be affected by this withdrawal if you are a manufacturer (including importer) of cadmium or cadmium compounds, including as part of an article, that have been, or are reasonably likely to be, incorporated into consumer products.

In the Federal Register issue of December 3, 2012 (77 FR 71561) (FRL-9355-9), EPA issued a health and safety data reporting rule that would have required manufacturers (including importers) of cadmium or cadmium compounds, including as part of an article, that have been, or are reasonably likely to be, incorporated into consumer products to report certain unpublished health and safety studies to EPA. EPA has good cause to withdraw the final rule.

In this document, EPA is withdrawing the final health and safety data reporting rule that it issued pursuant to TSCA section 8(d) on December 3, 2012. Since the final rule's issuance, EPA has received a number of letters, including requests for withdrawal under § 716.105(c)-(d), asking questions and raising concerns about the scope and extent of the immediate final rule that indicate that there is significant confusion and uncertainty about the final rule in certain industrial sectors subject to the final rule. For example, EPA received comments that the regulatory text did not clearly specify which additional industrial sectors beyond those subject to reporting in § 716.5(a) must report unpublished health and safety studies, as required by § 716.5(b). EPA believes that some of the points raised in the letters warrant additional consideration by the Agency. Comments received by EPA are available in the docket under docket ID number EPA-HQ-OPPT-2011-0363. EPA has concluded that these concerns are good cause per § 716.105(c) to withdraw the health and safety data reporting rule that it issued on December 3, 2012.

EPA finds that there is “good cause” under the Administrative Procedure Act (APA) (5 U.S.C. 553(b)(3)(B)) to withdraw this final rule without prior notice and comment. EPA believes notice and an opportunity for comment on this action are impracticable and unnecessary. Public notice and comment is impracticable because EPA has only a limited time to publish this withdrawal. That is, EPA must publish a document in the Federal Register pursuant to § 716.105(c) withdrawing the addition of cadmium before January 2, 2013, the effective date of the cadmium amendment. Furthermore, notice and comment is unnecessary because this withdrawal conforms to the withdrawal procedure of § 716.105(c) of the part 716 model rule, which EPA promulgated in 1985 regarding withdrawal after having solicited public comment on the need for and mechanics of this procedure as published in the Federal Register issue of August 28, 1985 (50 FR 34809). EPA is adhering to this previously promulgated procedure in this withdrawal, which requires such action to occur by publishing a Federal Register document “[p]rior to the effective date of [the listing] under paragraph (b) of this section.” See § 716.105(c).

EPA also finds that this final rule is not subject to the 30 day delay of the effective date generally required by 5 U.S.C. 553(d). This final rule is “a substantive rule which grants or recognizes an exemption or relieves a restriction,” 5 U.S.C. 553(d)(1), because it lifts the reporting requirement on certain manufacturers (including importers) of cadmium or cadmium compounds. This final rule must be made effective prior to the effective date of the addition of cadmium and cadmium compounds to the TSCA section 8(d) model rule (January 2, 2013) in order to relieve this restriction.

For the reasons already stated, this final rule withdraws a previously issued final rule without imposing any new requirements. As such, the following statutory and Executive Order requirements do not apply to this action:

• This action is not subject to review by the Office of Management and Budget (OMB) under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), Executive Order 13563, entitled “Improving Regulation and Regulatory Review” (76 FR 3821, January 21, 2011), or the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ).

• As discussed previously, the Agency has invoked the “good cause” exemption in APA section 553(b)(3)(B). Because this action is not subject to notice and comment requirements under the APA or any other statute, it is not subject to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) or Title II of the Unfunded Mandates Reform Act (2 U.S.C. 1531-1538).

• This final rule does not have tribal implications, as specified in Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), or federalism implications as specified in Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999).

• Since this action is not subject to Executive Order 12866, it is not subject to Executive Orders 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), and 13211, “Actions concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001).

• This action does not involve technical standards; thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act (15 U.S.C. 272 note) do not apply.

• The Agency is not required to and has not considered environmental justice-related issues as specified in Executive Order 12898, entitled “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, February 16, 1994).

Pursuant to the CRA (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). Section 808 of the CRA allows the issuing agency to make a rule effective sooner than otherwise provided by the CRA if the agency makes a good cause finding that notice and public procedure is impracticable, unnecessary, or contrary to the public interest. This determination must be supported by a brief statement. 5 U.S.C. 808(2). As stated previously, EPA has made such a good cause finding, including the reasons therefore, and established an effective date of January 2, 2013.

Regulations governing the bluefish fishery are found at 50 CFR part 648. The regulations require annual specification of a commercial quota that is apportioned among the coastal states from Florida through Maine. The process to set the annual commercial quota and the percent allocated to each state are described in § 648.162.

The final rule implementing Amendment 1 to the Bluefish Fishery Management Plan, which was published on July 26, 2000 (65 FR 45844), provided a mechanism for bluefish quota to be transferred from one state to another. Two or more states, under mutual agreement and with the concurrence of the Administrator, Northeast Region, NMFS (Regional Administrator), can transfer or combine bluefish commercial quota under § 648.162(e). The Regional Administrator is required to consider the criteria in § 648.162(e)(1) in the evaluation of requests for quota transfers or combinations.

Florida has agreed to transfer 50,000 lb (22,680 kg) of its 2012 commercial quota to New York. This transfer was prompted by the diligent efforts of state officials in New York not to exceed the commercial bluefish quota. The Regional Administrator has determined that the criteria set forth in § 648.162(e)(1) have been met. The revised bluefish quotas for calendar year 2012 are: Florida, 987,894 lb (448,101 kg); and New York, 1,121,466 lb (508,688 kg).

This action is taken under 50 CFR part 648 and is exempt from review under Executive Order 12866.

NMFS manages the groundfish fishery in the Gulf of Alaska (GOA) exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (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. Regulations governing sideboard protections for GOA groundfish fisheries appear at subpart B of 50 CFR part 680.

The 2012 Pacific cod total allowable catch specified for catcher vessels using trawl gear in the Central Regulatory Area of the GOA is 14,154 metric tons (mt) as established by the final 2012 and 2013 harvest specifications for groundfish in the GOA (77 FR 15194, March 14, 2012), after a 1,627 mt apportionment to the trawl catcher vessel sector under the Central GOA Rockfish Program (§ 679.81(c)(4)(ii)) and a 1,800 mt reallocation to the pot and jig gear sectors (77 FR 67579, November 13, 2012). The Administrator, Alaska Region (Regional Administrator) has determined that catcher vessels using trawl gear will not be able to harvest 950 mt of the 2012 Pacific cod TAC allocated to those vessels under § 679.20(a)(12)(i)(B)( 4 ). In accordance with § 679.20(a)(12)(ii)(B), the Regional Administrator has also determined that the pot sector and the less than 50 ft. length overall (LOA) catcher vessel using hook-and-line gear sector currently have the capacity to harvest this excess allocation and reallocates 750 mt to vessels using pot gear and 200 mt to less than 50 ft. LOA catcher vessels using hook-and-line gear.

The harvest specifications for Pacific cod included in the final 2012 harvest specifications for groundfish in the GOA (77 FR 15194, March 14, 2012), as adjusted by the 1,800 mt reallocation to the pot and jig gear sectors (77 FR 67579, November 13, 2012), are revised as follows: 13,204 mt for catcher vessels using trawl gear, 14,005 mt for vessels using pot gear, and 6,374 mt to less than 50 ft. LOA catcher vessels using hook-and-line gear. This action does not reduce the Pacific cod apportionment (1,627 mt) made to the trawl catcher vessel sector operating under the Central GOA Rockfish Program.

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) as such 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 reallocation of Pacific cod specified from catcher vessels using trawl gear to vessels using pot gear and less than 50 ft. LOA catcher vessels using hook-and-line gear. Since the fishery is currently open, it is important to immediately inform the industry as to the revised allocations. 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 as well as processors. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of December 20, 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.

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