The collection of information related to these proposed regulations under section 707 is reported on Form 8275, Disclosure Statement, and has been reviewed in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) and approved by the Office of Management and Budget under control number 1545-0889. Comments concerning the collection of information and the accuracy of estimated average annual burden and suggestions for reducing this burden should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the burden associated with this collection of information should be received by March 31, 2014.

The collection of information in these proposed regulations is in proposed §§ 1.707-5(a)(3)(ii) and 1.707-5(b)(2)(iii)(B) (regarding the reduction of a liability presumed to be anticipated) and § 1.707-5(a)(7)(ii) (regarding a liability incurred within two years prior to a transfer of property). This information is required by the IRS to ensure that sections 707(a)(2)(B) and 752 of the Code and applicable regulations are properly applied respectively either to transfers between a partner and a partnership or for allocations of partnership liabilities. The respondents will be partners and partnerships.

The collection of information in these proposed regulations under section 752 has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by March 31, 2014. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collection of information in this proposed regulation is in § 1.752-2(b)(3)(iii)(C). This information is required to ensure proper allocations of partnership liabilities. This information will be used to determine the extent to which certain partners or related persons bear the economic risk of loss with respect to partnership liabilities. The collection of information is mandatory. The likely reporters are small and large businesses or organizations and trusts.

Estimated total annual reporting burden: 8 million hours.

The estimated annual burden per respondent varies from 6 minutes to 2 hours, depending on individual circumstances, with an estimated average of 1 hour.

Estimated number of respondents: 8 million.

Estimated frequency of responses: On occasion.

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 tax return information are confidential, as required by section 6103.

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 707 relating to disguised sales of property to or by a partnership and under section 752 relating to the treatment of partnership liabilities.

Section 707(a)(2)(B) of the Code generally provides that, under regulations prescribed by the Secretary, related transfers to and by a partnership that, when viewed together, are more properly characterized as a sale or exchange of property, will be treated either as a transaction between the partnership and one who is not a partner or between two or more partners acting other than in their capacity as partners. The legislative history of section 707(a)(2)(B) indicates Congress adopted the provision to prevent parties from characterizing a sale or exchange of property as a contribution to the partnership followed by a distribution from the partnership, thereby deferring or avoiding tax on the transaction. See H.R. Rep. No. 432, pt. 2, 98th Cong. 2nd Sess. 1216, 1218 (1984).

On September 30, 1992, final regulations under section 707(a)(2) (TD 8439, 1992-2 CB 126) relating to disguised sales of property to and by partnerships were published in the Federal Register (57 FR 44974 as corrected on November 30, 1992, by 57 FR 56443) (existing regulations). Since publication of the existing regulations, the IRS and the Treasury Department have become aware of certain issues in interpreting or applying the regulations. On November 26, 2004, a notice of proposed rulemaking under section 707(a)(2)(B) (REG-149519-03, 2004-2 CB 1009) was published in the Federal Register (69 FR 68838) to add rules for disguised sales of partnership interests and to amend the existing regulations by revising, to a limited extent, the rules relating to disguised sales of property. The IRS and the Treasury Department noted in the preamble to those proposed regulations an awareness of certain deficiencies and technical ambiguities in the existing regulations under §§ 1.707-3, 1.707-4, and 1.707-5, and requested comments on the scope and content of revisions to the existing regulations, but received none. The notice of proposed rulemaking was subsequently withdrawn on January 21, 2009, in Announcement 2009-4, 2009-1 CB 597. The IRS and the Treasury Department have, however, continued to study these issues, and set forth in the following section is a discussion of those areas in the existing regulations that the IRS and the Treasury Department have identified as requiring clarification or revision and the proposed changes to those areas.

In addition, regulations under section 752 address the treatment of partnership recourse and nonrecourse liabilities. The IRS and the Treasury Department believe it is appropriate to reconsider the rules under section 752 regarding the payment obligations that are recognized under § 1.752-2(b)(3), the satisfaction of payment obligations under § 1.752-2(b)(6), and the methods available for allocating excess nonrecourse liabilities under § 1.752-3(a)(3). Also discussed in the following section is an explanation of those areas in the section 752 regulations that the IRS and the Treasury Department have identified as requiring revision and the proposed changes to those areas.

Section 1.707-3 of the existing regulations generally provides that a transfer of property by a partner to a partnership followed by a transfer of money or other consideration from the partnership to the partner will be treated as a sale of property by the partner to the partnership if, based on all the facts and circumstances, the transfer of money or other consideration would not have been made but for the transfer of the property and, for non-simultaneous transfers, the subsequent transfer is not dependent on the entrepreneurial risks of the partnership. Notwithstanding this general rule, the existing regulations provide several exceptions.

One such exception in § 1.707-5(b) of the existing regulations generally provides that a distribution of money to a partner is not taken into account for purposes of § 1.707-3 to the extent the distribution is traceable to a partnership borrowing and the amount of the distribution does not exceed the partner's allocable share of the liability incurred to fund the distribution (the “debt-financed distribution exception”). Under a special rule in the existing regulations, if a partnership transfers to more than one partner pursuant to a plan all or a portion of the proceeds of one or more liabilities, the debt-financed distribution exception is applied by treating all of the liabilities incurred pursuant to the plan as one liability. Thus, partners who are allocated shares of multiple liabilities are treated as being allocated a share of a single liability, to which any distributee partner's distribution of debt proceeds relates, rather than a share of each separate liability.

To illustrate the application of this rule, the proposed regulations add an example to the existing regulations to demonstrate that if more than one partner receives all or a portion of the debt proceeds of multiple liabilities that are treated as a single liability under the special rule, the debt proceeds will not be treated as consideration in a disguised sale to the extent of the partner's allocable share of the single liability.

In addition, the IRS and the Treasury Department are aware that there is uncertainty as to whether, for purposes of § 1.707-5(b)(2), the amount of money transferred to a partner that is traceable to a partnership liability is reduced by any portion of such amount that is also excluded from disguised sale treatment under one or more of the exceptions in § 1.707-4 (for example, because the transfer of money is also properly treated as a reasonable guaranteed payment). The IRS and the Treasury Department believe that the treatment of a transfer should first be determined under the debt-financed distribution exception, and any amount not excluded from § 1.707-3 under the debt-financed distribution exception should be tested to see if such amount would be excluded from § 1.707-3 under a different exception in § 1.707-4. This ordering rule ensures that the application of one of the exceptions in § 1.707-4 does not minimize the application of the debt-financed distribution exception.

Section 1.707-4(d) of the existing regulations provides an additional exception for reimbursements of preformation expenditures to the general rule in § 1.707-3. Under § 1.707-4(d), transfers to reimburse a partner for certain capital expenditures and costs incurred are not treated as part of a sale of property under § 1.707-3 (the “exception for preformation capital expenditures”).

The proposed regulations amend the exception for preformation capital expenditures to address three issues. First, the proposed regulations provide how the exception for preformation capital expenditures applies in the case of multiple property transfers. The exception for preformation capital expenditures generally applies only to the extent that “the reimbursed capital expenditures do not exceed 20 percent of the fair market value of such property at the time of the contribution.” This fair market value limitation, however, does not apply if the fair market value of the contributed property does not exceed 120 percent of the partner's adjusted basis in the contributed property at the time of the contribution. The references to “such property” and “contributed property” in § 1.707-4(d) are intended to refer to the single property for which the expenditures were made. Accordingly, in the case of multiple property contributions, the proposed regulations provide that the determination of whether the fair market value limitation and the exception to the fair market value limitation apply to reimbursements of capital expenditures is made separately for each property that qualifies for the exception.

Second, the proposed regulations clarify the scope of the term “capital expenditures” for purposes of §§ 1.707-4 and 1.707-5. For purposes of §§ 1.707-4 and 1.707-5, the term “capital expenditures” has the same meaning as the term “capital expenditures” has under the Code and applicable regulations, except that it includes capital expenditures taxpayers elect to deduct, and does not include deductible expenses taxpayers elect to treat as capital expenditures. The IRS and the Treasury Department are aware that taxpayers are uncertain whether the term capital expenditures includes only expenditures that are required to be capitalized under the Code. The purpose of the exception for preformation capital expenditures is to permit a partnership to reimburse a contributing partner for expenditures incurred with respect to contributed property. The IRS and the Treasury Department considered whether a contributing partner's capital expenditures for this purpose should be reduced by the benefit of the tax deduction the contributing partner received prior to contribution of the property either because the capital expenditure was currently deductible by the contributing partner or recovered through amortization or depreciation deductions. The proposed regulations, however, do not adopt such an approach because the approach would be too burdensome to administer.

Finally, the proposed regulations provide a rule coordinating the exception for preformation capital expenditures and the rules regarding liabilities traceable to capital expenditures. Section 1.707-5 provides special rules for disguised sales relating to liabilities assumed or taken subject to by a partnership. Under § 1.707-5(a)(1) of the existing regulations, a partnership's assumption of or taking property subject to a qualified liability in connection with a partner's transfer of property to the partnership is treated as a transfer of consideration to the partner only if the property transfer is otherwise treated as part of a sale. A liability constitutes a qualified liability of the partner to the extent the liability meets one of the four definitions of qualified liabilities under § 1.707-5(a)(6). One of the enumerated qualified liabilities is a liability that is allocable under the rules of § 1.163-8T to capital expenditures with respect to the property transferred to the partnership (the “capital expenditure qualified liability”).

The IRS and the Treasury Department are aware that taxpayers are uncertain about whether a partner may qualify under the exception for preformation capital expenditures if those expenditures were funded with a capital expenditure qualified liability. For example, taxpayers are uncertain about whether a partner can finance its capital expenditures through a borrowing that is exempted as a qualified liability and can also be reimbursed for those expenditures without triggering sale treatment. The IRS and the Treasury Department believe that the exception for preformation capital expenditures applies only to the extent the distribution is in reimbursement of such expenditures. Thus, the proposed regulations provide that to the extent a partner funded a capital expenditure through a borrowing and economic responsibility for that borrowing has shifted to another partner, the exception for preformation capital expenditures should not apply because there is no outlay by the partner to reimburse.

As previously mentioned, the existing regulations generally exclude qualified liabilities from disguised sale treatment. The legislative history of section 707(a)(2)(B) with respect to liabilities provides that Congress was “concerned with transactions that attempt to disguise a sale of property and not with non-abusive transactions that reflect the various economic contributions of the partners. . . . For example . . . the transaction will be treated as a sale or exchange of property . . . to the extent the partner has received a loan related to the property in anticipation of the transaction and responsibility for repayment of the loan is transferred to the other partners.” See H.R. Rep. No. 432, pt. 2, 98th Cong. 2nd Sess. 1216, 1220-1221 (1984).

The existing regulations under § 1.707-5(a)(6) provide four types of liabilities that are qualified liabilities. In addition to the capital expenditure qualified liabilities discussed previously, the existing regulations include as a qualified liability a liability incurred in the ordinary course of the trade or business in which property transferred to the partnership was used or held, but only if all of the assets that are material to that trade or business are transferred to the partnership (“ordinary course qualified liability”). There is no requirement that these two types of liabilities encumber the transferred property to be treated as qualified liabilities.

The remaining two types of qualified liabilities are liabilities incurred more than two years before the transfer (or written agreement to transfer), and liabilities incurred within two years of the transfer (or written agreement to transfer) but not in anticipation of the transfer. Liabilities incurred by a partner within two years of the transfer, other than capital expenditure and ordinary course qualified liabilities, are presumed to be incurred in anticipation of the transfer unless the facts and circumstances clearly establish otherwise. With respect to both of these types of qualified liabilities, there is a requirement that the liability encumber the transferred property.

The IRS and the Treasury Department believe the requirement that the liability encumber the transferred property is not necessary to carry out the purposes of section 707(a)(2)(B) when a liability was incurred in connection with the conduct of a trade or business, provided the liability was not incurred in anticipation of the transfer and all of the assets material to that trade or business are transferred to the partnership. Accordingly, the proposed regulations add an additional definition of qualified liability to account for this type of liability. As under the existing regulations regarding liabilities other than capital expenditure and ordinary course qualified liabilities, if the partner incurred the liability within two years of the transfer of assets to the partnership, (i) the liability is presumed under § 1.707-5(a)(7)(i) to have been incurred in anticipation of the transfer unless the facts and circumstances clearly establish that the liability was not incurred in anticipation of the transfer, and (ii) the treatment of the liability as a qualified liability under the new definition must be disclosed to the IRS under § 1.707-8.

Under the existing regulations, for purposes of the rules under section 707, a partner's share of a liability assumed or taken subject to by a partnership is determined by taking into account certain subsequent reductions in the partner's share of the liability. Specifically, a subsequent reduction in a partner's share of a liability is taken into account if (i) at the time that the partnership incurs, assumes, or takes property subject to the liability, it is anticipated that the partner's share of the liability will be subsequently reduced; and (ii) the reduction is part of a plan that has as one of its principal purposes minimizing the extent to which the distribution or assumption of, or taking property subject to, the liability is treated as part of a sale (the “anticipated reduction rule”). The IRS and the Treasury Department are aware that there is uncertainty as to when a reduction is anticipatory because it is generally anticipated that all liabilities will be repaid. Consistent with the overall approach of the existing regulations under section 707, the IRS and the Treasury Department believe that a reduction that is subject to the entrepreneurial risks of partnership operations is not an anticipated reduction, and the proposed regulations adopt this approach.

In addition, the proposed regulations provide that if within two years of the partnership incurring, assuming, or taking property subject to the liability, a partner's share of the liability is reduced due to a decrease in the partner's or a related person's net value (as described in Part 8.a of the Explanation of Provisions section of this preamble), then the reduction will be presumed to be anticipated, unless the facts and circumstances clearly establish that the decrease in the net value was not anticipated. Any such reduction must be disclosed in accordance with § 1.707-8.

The existing regulations in § 1.707-5(e), and § 1.707-6(b) by applying rules similar to § 1.707-5(e), currently provide only a limited tiered-partnership rule for cases in which a partnership succeeds to a liability of another partnership. Under those rules, if a lower-tier partnership succeeds to a liability of an upper-tier partnership, the liability in the lower-tier partnership retains the same characterization as either a qualified or a nonqualified liability that it had as a liability of the upper-tier partnership. Similarly, if an upper-tier partnership succeeds to a liability of a lower-tier partnership, the liability in the upper-tier partnership retains the same characterization as either a qualified or a nonqualified liability that it had as a liability of the lower-tier partnership that incurred the liability. Moreover, the existing regulations provide that a similar rule applies to other related party transactions involving liabilities to the extent provided by guidance in the Internal Revenue Bulletin. See, for example, Rev. Rul. 2000-44, 2000-2 CB 336.

The proposed regulations add additional rules regarding tiered partnerships. First, the proposed regulations clarify that the debt-financed distribution exception applies in a tiered partnership setting. Second, the proposed regulations provide rules regarding the characterization of liabilities attributable to a contributed partnership interest. Section 752(d) provides that in the case of a sale or exchange of an interest in a partnership, liabilities shall be treated in the same manner as liabilities in connection with the sale or exchange of property not associated with partnerships. Accordingly, a partner that contributes an interest in a partnership (lower-tier partnership) to another partnership (upper-tier partnership) must take into account its share of liabilities from the lower-tier partnership in applying the rules under § 1.707-5. The IRS and the Treasury Department believe it is appropriate to treat the lower-tier partnership as an aggregate for purposes of determining whether the upper-tier partnership's share of the liabilities of the lower-tier partnership are qualified liabilities. Thus, these proposed regulations provide that a contributing partner's share of liabilities from a lower-tier partnership are treated as qualified liabilities to the extent the liability would be a qualified liability had the liability been assumed or taken subject to by the upper-tier partnership in connection with a transfer of all of the lower-tier partnership's property to the upper-tier partnership by the lower-tier partnership.

Section 1.752-1(f) provides for netting of increases and decreases in a partner's share of liabilities resulting from a single transaction. Under that rule, increases and decreases in partnership liabilities associated with a merger or consolidation are netted by the partners in the terminating partnership and the resulting partnership to determine the effect of a merger under section 752. The IRS and the Treasury Department believe that similar netting rules should apply with respect to the disguised sale rules and, accordingly, the proposed regulations extend the principles of § 1.752-1(f) to determine the effect of the merger under the disguised sale rules.

For disguised sales of property by a partnership to a partner, the existing regulations under § 1.707-6 provide that rules similar to those in § 1.707-5 (for disguised sales of property by a partner to a partnership) apply to determine the extent to which an assumption of or taking property subject to a liability by a partner, in connection with a transfer of property by a partnership, is considered part of a sale. More specifically, the existing regulations provide that if the partner assumes or takes property subject to a liability that is not a qualified liability, the amount treated as consideration transferred to the partnership is the amount that the liability assumed or taken subject to by the partner exceeds the partner's share of that liability immediately before the transfer. Thus, if a transferee partner had a 100 percent share of a liability immediately before a transfer in which the transferee partner assumed the liability, then no sale is treated as occurring between the partnership and the partner with respect to the liability assumption, irrespective of the period of time during which the partnership liability is outstanding and the period of time in which the partnership liability is allocated to the partner.

The IRS and the Treasury Department are studying these rules and believe it may be inappropriate to take into account a transferee partner's share of a partnership liability immediately prior to a distribution if the transferee partner did not have economic exposure with respect to the partnership liability for a meaningful period of time before appreciated property is distributed to that partner subject to the liability. Thus, the IRS and the Treasury Department are considering, and request comments on, whether the rules under § 1.707-6 should be amended to provide that a transferee partner's share of an assumed liability immediately before a distribution is taken into account for purposes of determining the consideration transferred to the partnership only to the extent of the partner's lowest share of the liability within some meaningful period of time, for example, 12 months.

The existing regulations under section 1.752-2 provide that a partner's share of a recourse partnership liability equals the portion of the liability, if any, for which the partner or related person bears the economic risk of loss. A partner generally bears the economic risk of loss for a partnership liability to the extent the partner, or a related person, would be obligated to make a payment if the partnership's assets were worthless and the liability became due and payable. Subject to an anti-abuse rule and the disregarded entity net value requirement of § 1.752-2(k), § 1.752-2(b)(6) assumes that all partners and related persons will actually satisfy their payment obligations, irrespective of their actual net worth, unless the facts and circumstances indicate a plan to circumvent or avoid the obligation (the “satisfaction presumption”). Thus, for purposes of allocating partnership liabilities, § 1.752-2 adopts an ultimate liability test under a worst-case scenario. Under this test, the regulations would generally allocate an otherwise nonrecourse liability of the partnership to a partner that guarantees the liability even if the lender and the partnership reasonably anticipate that the partnership will be able to satisfy the liability with either partnership profits or capital.

The IRS and the Treasury Department have considered whether the approach of the existing regulations under § 1.752-2 is appropriate given that, in most cases, a partnership will satisfy its liabilities with partnership profits, the partnership's assets do not become worthless, and the payment obligations of partners or related persons are not called upon. The IRS and the Treasury Department are concerned that some partners or related persons have entered into payment obligations that are not commercial solely to achieve an allocation of a partnership liability to such partner. The IRS and the Treasury Department believe that section 79 of the Tax Reform Act of 1984 (Pub. L. 98-369), which overruled the decision in Raphan v. United States, 3 Cl. Ct. 457 (1983) (holding that a guarantee by a general partner of an otherwise nonrecourse liability of the partnership did not require the partner to be treated as personally liable for that debt), and directed the Treasury Department to prescribe regulations under section 752 relating to the treatment of guarantees and other payment obligations, was intended to ensure that bona fide, commercial payment obligations would be given effect under section 752.

Accordingly, the proposed regulations provide a rule that obligations to make a payment with respect to a partnership liability (excluding those imposed by state law) will not be recognized for purposes of section 752 unless certain factors are present. These factors, if satisfied, are intended to establish that the terms of the payment obligation are commercially reasonable and are not designed solely to obtain tax benefits. Specifically, the rule requires a partner or related person to maintain a commercially reasonable net worth during the term of the payment obligation or be subject to commercially reasonable restrictions on asset transfers for inadequate consideration. In addition, the partner or related person must provide commercially reasonable documentation regarding its financial condition and receive arm's length consideration for assuming the payment obligation. The rule also requires that the payment obligation's term must not end prior to the term of the partnership liability and that the primary obligor or any other obligor must not be required to hold money or other liquid assets in an amount that exceeds the reasonable needs of such obligor. The rule would also prevent certain so-called “bottom-dollar” guarantees from being recognized for purposes of section 752.

Moreover, the IRS and the Treasury Department are concerned that some partners or related persons might attempt to use certain structures or arrangements to circumvent the rules included in these proposed regulations with respect to bottom-dollar guarantees. For example, a financial intermediary might artificially convert a single mortgage loan into senior and junior tranches using a wrap-around mortgage or other device with a principal purpose of creating tranches for partners to guarantee that result in exposure tantamount to a bottom-dollar guarantee. Accordingly, the proposed regulations revise the anti-abuse rule under § 1.752-2(j) to address the use of intermediaries, tiered partnerships, or similar arrangements to avoid the bottom-dollar guarantee rules. The IRS and the Treasury Department request comments on whether other structures or arrangements might be used to circumvent the rules regarding bottom-dollar guarantees, and whether the final regulations should broaden the anti-abuse rule further to address any such structures or arrangements.

The IRS and the Treasury Department also acknowledge that the proposed regulations relating to guarantees and indemnities draw lines that, among other things, preclude recognition of a payment obligation for a portion, rather than 100 percent, of each dollar of a partnership liability to which the payment obligation relates (a so-called vertical slice of the partnership liability) (see § 1.752-2(f) Example 12 in the proposed regulations). The IRS and the Treasury Department request comments on whether, and under what circumstances, the final regulations should permit recognition of such a payment obligation. In addition, the IRS and the Treasury Department request comments on whether the special rule under § 1.752-2(e) (and related § 1.752-2(f) Example 7 ) should be removed from the final regulations or revised to require that 100 percent of the total interest that will accrue on a partnership nonrecourse liability be guaranteed.

As was previously noted, the satisfaction presumption assumes that all partners and related persons will actually satisfy their payment obligations, unless the facts and circumstances indicate a plan to circumvent or avoid the obligation. The satisfaction presumption does not apply, however, to the payment obligations of disregarded entities. Instead, the payment obligation of a disregarded entity for which a partner is treated as bearing the economic risk of loss is taken into account only to the extent of the net value of the disregarded entity, as determined under § 1.752-2(k). The preamble to the proposed regulations under § 1.752-2(k) requested comments regarding whether the rules for disregarded entities should be extended to the payment obligations of other entities. Some commenters opposed extending the rules to other entities, while other commenters suggested that the anti-abuse rule in § 1.752-2(j) could be expanded to cover certain situations involving thinly capitalized entities. One commenter suggested that the anti-abuse rule should apply if a substantially undercapitalized subsidiary of a consolidated group of corporations or a substantially undercapitalized passthrough entity (other than a disregarded entity) is utilized as the partner (or related obligor) for a principal purpose of limiting its owner's risk of loss in respect of existing partnership liabilities, and obtaining tax benefits for its owners (or other members of the consolidated group) that would not be available but for the additional tax basis in the partnership interest that results from the satisfaction presumption. Although the final regulations under § 1.752-2(k) did not extend the rules for disregarded entities to other entities, the IRS and the Treasury Department indicated that they would continue to study the issue of extending the net value approach for disregarded entities to other entities.

After further consideration, the IRS and the Treasury Department believe that there are circumstances in addition to those involving disregarded entities under which the satisfaction presumption is not appropriate. Thus, the proposed regulations turn off the satisfaction presumption by extending the net value requirement of § 1.752-2(k) to all partners or related persons, including grantor trusts, other than individuals and decedent's estates for payment obligations associated with liabilities that are not trade payables. In situations in which the satisfaction presumption is turned off, the proposed regulations provide that the partner's or related person's payment obligation is recognized only to the extent of the partner's or related person's net value as of the allocation date. A partner or related person that is not a disregarded entity is treated as a disregarded entity for purposes of determining net value under § 1.752-2(k). The IRS and the Treasury Department request comments on whether it would be clearer if all the net value requirement rules were consolidated in § 1.752-2(k).

The IRS and the Treasury Department considered further extending the net value requirement of § 1.752-2(k) to partners and related persons that are individuals and decedent's estates, but decided not to require such persons to comply with the net value requirement of § 1.752-2(k) because of the nature of personal guarantees. However, applying this less restrictive standard to individuals and decedent's estates may disadvantage other entities that enter into partnerships with individuals or decedent's estates. Thus, the IRS and the Treasury Department request comments on whether the final regulations should extend the net value requirement of § 1.752-2(k) to all partners and related persons. The IRS and the Treasury Department also request comments on the application of the net value requirement of § 1.752-2(k) to tiered partnerships.

Finally, in determining the amount of any obligation of a partner to make a payment to a creditor or a contribution to the partnership with respect to a partnership liability, § 1.752-2(b)(1) reduces the partner's payment obligation by the amount of any reimbursement that the partner would be entitled to receive from another partner, a person related to another partner, or the partnership. The IRS and the Treasury Department have considered whether a right to be reimbursed for a payment or contribution by an unrelated person (for example, pursuant to an indemnification agreement from a third party) should be taken into account in the same manner and have concluded that any source of reimbursement that effectively eliminates the partner's payment risk should cause a payment obligation to be disregarded. Therefore, the proposed regulations change the rule in § 1.752-2(b)(1) to reduce the partner's payment obligation by the amount of any right to reimbursement from any person.

The existing regulations under § 1.752-3 contain rules for determining a partner's share of a nonrecourse liability of a partnership, including the partner's share of excess nonrecourse liabilities under § 1.752-3(a)(3). Section 1.752-3(a)(3) provides various methods to determine a partner's share of the excess nonrecourse liabilities. Under one method, a partner's share of excess nonrecourse liabilities is determined in accordance with the partner's share of partnership profits. For this purpose, the partnership agreement may specify the partners' interests in partnership profits so long as the interests so specified are reasonably consistent with allocations (that have substantial economic effect under the section 704(b) regulations) of some other significant item of partnership income or gain (the “significant item method”). Alternatively, excess nonrecourse liabilities may be allocated among the partners in the manner that deductions attributable to those liabilities are reasonably expected to be allocated (the “alternative method”). Similar to the significant item method, under § 1.704-2(e)(2), the partnership agreement may allocate nonrecourse deductions in a manner that is reasonably consistent with allocations that have substantial economic effect of some other significant partnership item attributable to the property securing the nonrecourse liability.

The IRS and the Treasury Department believe that the allocation of excess nonrecourse liabilities in accordance with the significant item method and the alternative method may not properly reflect a partner's share of partnership profits that are generally used to repay such liabilities because the allocation of the significant item may not necessarily reflect the overall economic arrangement of the partners. Therefore, the proposed regulations remove the significant item method and the alternative method from § 1.752-3(a)(3).

The IRS and the Treasury Department, however, are aware of the difficulty in determining a partner's interest in partnership profits in other than very simple partnerships and, therefore, recognize the need to have a bright-line measure of a partner's interest in partnership profits. The IRS and the Treasury Department considered several alternatives and believe that, for this purpose, an appropriate proxy of a partner's interest in partnership profits, and one that can provide the needed certainty, is a partner's liquidation value percentage, determined upon formation of the partnership and redetermined upon the most recent occurrence of an event described in § 1.704-1(b)(2)(iv)(f)( 5 ), whether or not the capital accounts of the partners are adjusted under § 1.704-1(b)(2)(iv)(f) in connection with such event. A partner's liquidation value percentage is the ratio (expressed as a percentage) of the liquidation value of the partner's interest in the partnership to the liquidation value of all of the partners' interests in the partnership. The proposed regulations adopt the liquidation value percentage approach.

For purposes of the proposed rule, the liquidation value of a partner's interest in a partnership is the amount of cash the partner would receive with respect to the interest if, immediately after formation of the partnership or the occurrence of the event described in § 1.704-1(b)(2)(iv)(f)( 5 ), as the case may be, the partnership sold all of its assets for cash equal to the fair market value of such property (taking into account section 7701(g)), satisfied all of its liabilities (other than those described in § 1.752-7), paid an unrelated third party to assume all of its § 1.752-7 liabilities in a fully taxable transaction, and then liquidated. The proposed regulations also provide an example illustrating the new liquidation value approach in place of Example 2 in § 1.752-3(c) illustrating the alternative method. As the proposed example illustrates, a change in the partners' shares of partnership liabilities as a result of an event described in § 1.704-1(b)(2)(iv)(f)( 5 ) is taken into account in determining the tax consequences of the event that gave rise to such change.

The IRS and the Treasury Department are aware that the liquidation value approach may not precisely measure a partner's interest in partnership profits but believe that the approach is a better proxy than the significant item and alternative methods and is still administrable. The IRS and the Treasury Department request comments on other methods that reasonably measure a partner's interest in partnership profits that are not overly burdensome. In addition, the IRS and the Treasury Department request comments on whether exceptions should be provided to exclude certain events from triggering a redetermination of the partners' liquidation values.

The regulations under section 707 are proposed to apply to transactions with respect to which all transfers occur on or after the date these regulations are published as final regulations in the Federal Register . The regulations under § 1.752-2 are proposed to apply to liabilities incurred or assumed by a partnership and to payment obligations imposed or undertaken with respect to a partnership liability on or after the date these regulations are published as final regulations in the Federal Register . The regulations under § 1.752-3 are proposed to apply to liabilities incurred or assumed by a partnership on or after the date these regulations are published as final regulations in the Federal Register . The IRS and the Treasury Department anticipate that the final regulations under section 752 will permit a partnership to apply the provisions contained in the final regulations to all of its liabilities as of the beginning of the first taxable year of the partnership ending on or after the date these regulations are published as final regulations in the Federal Register .

The proposed regulations also provide transitional relief for any partner whose allocable share of partnership liabilities under § 1.752-2 exceeds its adjusted basis in its partnership interest on the date the proposed regulations are finalized. Under this transitional relief, the partner can continue to apply the existing regulations under § 1.752-2 for a seven-year period to the extent that the partner's allocable share of partnership liabilities exceeds the partner's adjusted basis in its partnership interest on the date the proposed regulations are finalized. The amount of partnership liabilities subject to transitional relief will be reduced for certain reductions in the amount of liabilities allocated to that partner under the transition rules and, upon the sale of any partnership property, for any excess of tax gain (including section 704(c) gain) allocated to the partner less the partner's share of amount realized.

It has been determined that this notice of proposed rulemaking 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. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the amount of time necessary to report the required information will be minimal in that it requires partners that are business entities and trusts to provide information they already maintain or can easily obtain to their respective partnership. Moreover, it should take a partner no more than 2 hours to satisfy the information requirement in these regulations. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on all aspects of the proposed regulations. All comments will be available for public inspection and copying at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by a person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register .

The principal author of these regulations is Deane M. Burke of the Office of the Associate Chief Counsel (Passthroughs & Special Industries), IRS. However, other personnel from the IRS and the Treasury Department participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The additions read as follows:

The additions and revisions read as follows:

i. Removing the language “property” in paragraph (b)(2)(i)(A) and adding the language “consideration” in its place.

The additions and revisions read as follows:

The revisions and additions read as follows:

The revisions and additions read as follows:

The revisions and additions read as follows:

The regulatory definitions of “disability” in the title II and title III regulations are identical, and the preamble will discuss the revisions to both regulations concurrently. Because the ADA Amendments Act's revisions to the ADA have been codified into the U.S. Code, the NPRM will reference the revised U.S. Code provisions except in those cases where citation to a specific ADA Amendments Act provision is necessary in order to avoid confusion on the part of the reader.

This NPRM was submitted to the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs for review prior to publication in the Federal Register .

You may submit electronic comments to www.regulations.gov. When submitting comments electronically, you must include “DOJ-CRT 2010-0112” in the subject field and you must include your full name and address. Electronic files should avoid the use of special characters or any form of encryption and should be free of any defects or viruses.

Please note that all comments received are considered part of the public record and made available for public inspection online at www.regulations.gov. Submission postings will include any personal identifying information (such as your name, address, etc.) included in the text of your comment. If you include personal identifying information (such as your name, address, etc.) in the text of your comment but do not want it to be posted online, you must include the phrase “PERSONAL IDENTIFYING INFORMATION” in the first paragraph of your comment. You must also include all the personal identifying information you want redacted along with this phrase. Similarly, if you submit confidential business information as part of your comment but do not want it to be posted online, you must include the phrase “CONFIDENTIAL BUSINESS INFORMATION” in the first paragraph of your comment. You must also prominently identify confidential business information to be redacted within the comment. If a comment has so much confidential business information that it cannot be effectively redacted, all or part of that comment may not be posted on www.regulations.gov.

This rule is necessary in order to incorporate the ADA Amendments Act's changes to titles II (nondiscrimination in state and local government services) and III (nondiscrimination by public accommodations in commercial facilities) of the ADA into the Department's ADA regulations and to provide additional guidance on how to apply those changes.

The ADA Amendments Act was signed into law by President George W. Bush on September 25, 2008, with a statutory effective date of January 1, 2009. Public Law 110-325, sec. 8, 122 Stat. 3553, 2559 (2008). The Act authorizes the Attorney General to issue regulations implementing the definitions of disability in sections 3 and 4 of the Act, including the rules of construction set forth in section 3, consistent with the Act as applied to title II and title III of the ADA. 42 U.S.C. 12205a.

The ADA Amendments Act made important changes to the ADA's definition of the term “disability,” making it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the statute. See 42 U.S.C. 12102(1)(A)-(C). The Department proposes several major revisions to the definition of “disability” contained in the title II and title III ADA regulations. All of these revisions are based on specific provisions in the ADA Amendments Act or on specific language in the legislative history. These proposed revisions state that the definition of “disability shall be interpreted broadly. The proposed revisions also make it clear that the primary object of attention in cases brought under the ADA should be whether entities covered under the ADA have complied with their statutory obligations and that the question of whether an individual's impairment is a disability under the ADA should not demand extensive analysis. In addition, the proposed revisions expand the definition of “major life activities” by providing a non-exhaustive list of major life activities and specifically including the operation of major bodily functions. The revisions also add rules of construction that should be applied when determining whether an impairment substantially limits a major life activity. The rules of construction state the following:

○ That the term “substantially limits” shall be construed broadly in favor of expansive coverage, to the maximum extent permitted by the terms of the ADA;

○ That an impairment is a disability if it substantially limits the ability of an individual to perform a major life activity as compared to most people in the general population;

○ That the primary issue in a case brought under the ADA should be whether the covered entity has complied with its obligations and whether discrimination has occurred, not the extent to which the individual's impairment substantially limits a major life activity;

○ That in making the individualized assessment required by the ADA, the term “substantially limits” shall be interpreted and applied to require a degree of functional limitation that is lower than the standard for “substantially limits” applied prior to the ADA Amendments Act;

○ That the comparison of an individual's performance of a major life activity to the performance of the same major life activity by most people in the general population usually will not require scientific, medical, or statistical evidence;

○ That mitigating measures other than “ordinary eyeglasses or contact lenses” shall not be considered in assessing whether an individual has a “disability”;

○ That an impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active; and

○ That an impairment that substantially limits one major life activity need not substantially limit other major life activities in order to be considered a substantially limiting impairment.

The NPRM also proposes language that states that the definition of “regarded as” does not require the individual to demonstrate that he or she has, or is perceived to have, an impairment that substantially limits a major life activity and provides that individuals covered only under the “regarded as” prong are not entitled to reasonable modifications.

The ADA Amendments Act's revisions to the ADA apply to title I (employment), title II (State and local governments), and title III (public accommodations) of the ADA. Accordingly, consistent with Executive Order 13563's instruction to agencies to coordinate rules across agencies and harmonize regulatory requirements where appropriate, the Department is proposing, wherever possible, to adopt regulatory language that is identical to the revisions to the Equal Employment Opportunity Commission's (EEOC) title I regulations implementing the ADA Amendments Act. See 76 FR 16978 (Mar. 25, 2011). This will promote consistency in the application of the ADA and prevent confusion among entities subject to both titles I and II, as well as those subject to both titles I and III.

This proposed rule would incorporate into the Department's regulations the changes made by the ADA Amendments Act to titles II and III of the ADA. In accordance with OMB Circular A-4, the Department estimates the benefits and costs of this proposed rule using a pre-ADA Amendments Act baseline. Thus, the effects that are estimated in this analysis are due to statutory mandates that are not under the Department's discretion.

Congress enacted the ADA Amendments Act to ensure that persons with disabilities who were refused access to programs and services would again be able to rely on the protections of the ADA. As a result, the Department believes that the enactment of the law has nonquantifiable but nonetheless important benefits for many Americans. The Department determined, however, that there was a specific group of individuals with disabilities who would be able to receive quantifiable benefits. With the enactment of the ADA Amendments Act, additional post-secondary students and national examination test takers (e.g., CPA, LSAT, and other professional examinations) with attention deficit disorder (ADD) or learning disabilities are now able to receive additional time to complete tests. Before the enactment of the ADA Amendments Act, some of these students may have had their requests for additional time denied by testing entities because such entities believed the disability in question did not meet the ADA's definition of “disability.”

In the first year after this rule goes into effect, our analysis estimates that approximately 142,000 students will take advantage of additional testing accommodations that otherwise would not have been available but for the ADA Amendments Act. Over eleven years, approximately 1.6 million full-time equivalent students would benefit, or, assuming an average 4-year course of study, more than 400,000 individual students. 1 An additional 800,000 national examination test takers would benefit over that same eleven years (assuming that each test taker only takes an exam once). Providing these individuals additional time is consistent with our national values of fairness, equity, and human dignity—values that Executive Order 13563 permits agencies to consider, where appropriate, when analyzing the proposed rule's costs and benefits. See E.O. 13563, 76 FR 3821 (Jan. 18, 2011).

With respect to the costs of the changes under titles II and III made by the ADA Amendments Act, in the first year (the year with the highest costs), we estimate that the total undiscounted costs will range between $36.2 and $61.8 million. The changes made by the ADA Amendments Act are expected to cost $382 million in present value terms over 11 years and discounted at 7 percent. Our cost estimates include the value of time, represented by wages, for proctors to provide additional time to post-secondary students with ADD or learning disabilities to complete tests, and for proctors to provide additional time to individuals with ADD or learning disabilities to complete national examinations.

The ADA Amendments Act was signed into law by President George W. Bush on September 25, 2008, with a statutory effective date of January 1, 2009. Public Law 110-325, sec. 8. The ADA Amendments Act made important changes to the ADA's definition of the term “disability,” making it easier for an individual seeking protection under the ADA to establish that he or she has a disability within the meaning of the statute. The ADA Amendments Act did this by explicitly rejecting the holdings in several Supreme Court decisions that had significantly limited the definition of “disability.” As amended by the ADA Amendments Act, the definition of “disability” under the ADA, 42 U.S.C. 12101, et seq., is to be construed broadly, to the maximum extent permitted by the terms of the ADA, and the determination of whether an individual has a disability should not demand extensive analysis. Public Law 110-325, sec. 2(b)(5); see also 154 Cong. Rec. S8840-44 (daily ed. Sept. 16, 2008) (Statement of the Managers); H.R. Rep. No. 110-730, pt. 1, at 6 (2008); H.R. Rep. No. 110-730, pt. 2, at 5 (2008).

The ADA Amendments Act retains the ADA's basic definition of “disability” as: (1) A physical or mental impairment that substantially limits one or more major life activities; (2) a record of such an impairment; or (3) being regarded as having such an impairment. 42 U.S.C. 12102(1)(A)-(C). However, it provides rules of construction necessary to ensure that the definition is construed broadly and without extensive analysis. Id. at 12102(4). The Department, therefore, drafted this rule to more fully align the Department's title II and title III regulations with the Act.

Congress enacted the ADA Amendments Act in response to a series of Supreme Court decisions in which the Court interpreted the definition of “disability” narrowly, thus eliminating protection for many individuals that Congress intended to protect when it first enacted the ADA. Public Law 110-325, sec. 2. For example, in Sutton v. United Air Lines, Inc., 527 U.S. 471 (1999), the Court ruled that whether an impairment substantially limits a major life activity is to be determined with reference to the ameliorative effects of mitigating measures. Id. at 482. In Sutton, the Court also adopted a restrictive reading of the meaning of being “regarded as” disabled under the ADA's definition of disability, holding that the plaintiff could not prevail under this prong of the definition of disability without first demonstrating that the employer believed the plaintiff's impairment to be substantially limiting. Id. at 490. Subsequently, in Toyota Motor Manufacturing, Kentucky, Inc., v. Williams, 534 U.S. 184 (2002), the Court held that the terms “substantially” and “major” in the definition of disability “need to be interpreted strictly to create a demanding standard for qualifying as disabled” under the ADA, and that to be substantially limited in performing a major life activity under the ADA, “an individual must have an impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people's daily lives.” Id. at 197-98.

As a result of these Supreme Court decisions, lower courts ruled in numerous cases that individuals with a range of substantially limiting impairments were not individuals with disabilities and thus not protected by the ADA. See 154 Cong. Rec. S8841 (daily ed. Sept. 16, 2008) (Statement of the Managers) (“After the Court's decisions in Sutton that impairments must be considered in their mitigated state and in Toyota that there must be a demanding standard for qualifying as disabled, lower courts more often found that an individual's impairment did not constitute a disability. As a result, in too many cases, courts would never reach the question whether discrimination had occurred.”).

While the vast majority of these court decisions arose in the area of employment, the narrowing of the definition of disability had an adverse impact on individuals seeking the protection of the ADA in circumstances involving entities covered by titles II and III, particularly individuals seeking reasonable modifications for learning disabilities in education programs at colleges and universities and in licensing and testing situations. See, e.g., Gonzales v. National Board of Medical Examiners, 60 F. Supp. 2d 703 (E.D. Mich. 1999); and Wong v. Regents of University of California, 410 F.3d 1052 (9th Cir. 2005).

Congress concluded that Sutton, Toyota, and their progeny interpreted the definition of disability more narrowly than what Congress had originally intended. Congress determined that these decisions, coupled with the EEOC's 1991 ADA regulation, which had defined the term “substantially limits” as meaning “significantly restricted,” unduly precluded many individuals from being covered under the ADA. See Public Law 110-325, sec. 2; see also 154 Cong. Rec. S8840-41 (daily ed. Sept. 16, 2008) (Statement of the Managers) (“Thus, some 18 years later we are faced with a situation in which physical or mental impairments that would previously have been found to constitute disabilities are not considered disabilities under the Supreme Court's narrower standard” and “[t]he resulting court decisions contribute to a legal environment in which individuals must demonstrate an inappropriately high degree of functional limitation in order to be protected from discrimination under the ADA.”). For that reason, Congress passed the ADA Amendments Act of 2008.

The ADA Amendments Act of 2008 restores the broad application of the ADA by revising the ADA's “Findings and Purposes” section, expanding the statutory language defining disability, providing specific rules of construction for that definition, and expressly rejecting the holdings of the Supreme Court in Sutton, Toyota and their progeny.

First, the ADA Amendments Act deletes two findings that were in the ADA: (1) That “some 43,000,000 Americans have one or more physical or mental disabilities,” and (2) that “individuals with disabilities are a discrete and insular minority.” 154 Cong. Rec. S8840 (daily ed. Sept. 16, 2008) (Statement of the Managers); see also Public Law 110-325, sec. 3. The 2008 Senate Statement of the Managers stated, “[t]he [Supreme] Court treated these findings as limitations on how it construed other provisions of the ADA. This conclusion had the effect of interfering with previous judicial precedents holding that, like other civil rights statutes, the ADA must be construed broadly to effectuate its remedial purpose. Deleting these findings removes this barrier to construing and applying the definition of disability more generously.” 154 Cong. Rec. S8840 (daily ed. Sept. 16, 2008) (Statement of the Managers).

Second, the ADA Amendments Act clarifies Congress's intent that the definition of “disability” “shall be construed in favor of broad coverage of individuals under this Act, to the maximum extent permitted by the terms of this Act.” 42 U.S.C. 12102(4)(A). Although the ADA Amendments Act retains the term “substantially limits” from the original ADA definition, the language of the rules of construction and the statement of “Findings and Purposes” contained in the ADA Amendments Act make it clear that this language is required to be interpreted far more broadly than it had been interpreted in Toyota. Congress was specifically concerned that the lower courts had applied Toyota in a way that “created an inappropriately high level of limitation necessary to obtain coverage under the ADA.” Public Law 110-325, sec. 2(b)(5). Congress sought to convey that “the primary object of attention in cases brought under the ADA should be whether entities covered under the ADA have complied with their obligations and to convey that the question of whether an individual's impairment is a disability under the ADA should not demand extensive analysis.” Id.

Third, the ADA Amendments Act prohibits consideration of mitigating measures such as medication, assistive technology, and reasonable accommodations or modifications when determining whether an impairment constitutes a disability. 42 U.S.C. 12102(4)(E)(i). Congress added this provision and the applicable purpose language in the ADA Amendments Act to ensure that the ADA was interpreted and applied without reliance on the Supreme Court's holdings that mitigating measures must be considered in determining whether an impairment substantially limits a major life activity. Public Law 110-325, sec. 2(b). The statute also provides that impairments that are episodic or in remission are disabilities if they would substantially limit a major life activity when active. 42 U.S.C. 12102(4)(D).

Fourth, the ADA Amendments Act provides new instructions on what may constitute “major life activities” within the meaning of the ADA. 42 U.S.C. 12102(2). It provides a non-exhaustive list of major life activities and specifically expands the category of major life activities to include the operation of major bodily functions. Id.

Fifth, the ADA Amendments Act makes it clear that, contrary to court decisions interpreting the ADA, the “regarded as” prong of the disability definition does not require the individual to demonstrate that he or she has, or is perceived to have, an impairment that substantially limits a major life activity. 42 U.S.C. 12102(3). With this clarifying language, an individual can once again establish coverage under the law by showing that he or she has been subjected to an action prohibited under the Act because of an actual or perceived physical or mental impairment. The ADA Amendments Act also provides that entities covered by the ADA will not be required to provide reasonable accommodations or modifications to policies, practices, and procedures for individuals who fall solely under this prong. 42 U.S.C. 12201(h).

Finally, the ADA Amendments Act makes it clear that the Attorney General has explicit authority to issue regulations implementing the definitions of disability contained in sections 3 and 4 (including rules of construction) of the ADA. 42 U.S.C. 12205a.

The Equal Employment Opportunity Commission (EEOC) is responsible for regulations implementing title I of the ADA addressing employment discrimination based upon disability. On March 25, 2011, the EEOC published its final rule revising its title I regulation to implement the revisions to the ADA contained in the ADA Amendments Act. 76 FR 16978. 2

Because the ADA Amendments Act's revised definition of “disability” applies to title I as well as titles II and III of the ADA, the Department has made every effort to ensure that its proposed revisions to its title II and III regulations are consistent with, if not always identical to, the provisions of the EEOC final rule. Consistency among the title I, title II, and title III rules will ensure consistent application of the requirements of the ADA Amendments Act, regardless of the Federal agency responsible for enforcement, or the ADA title that is enforced. This consistency is also important because most entities subject to either title II or title III are also subject to title I with respect to employment, and should already be familiar with the revisions to the definition of “disability” in the 2-year-old EEOC revised regulation. Differences in language between the title I rules and the Department's proposed title II and title III rules are generally attributable either to the fact that certain sections of the EEOC rule deal with employment-specific issues or to structural differences between the title I rule and the title II and III rules.

These sections propose to revise §§ 35.101 and 36.101 to add references to the ADA Amendments Act to §§ 35.101(a) and 36.101(a) and to add new §§ 35.101(b) and 36.101(b), which explain that “[t]he primary purpose of the ADA Amendments Act is to make it easier for people with disabilities to obtain protection under the ADA.” These sections state that “[c]onsistent with the ADA Amendments Act's purpose of reinstating a broad scope of protection under the ADA, the definition of `disability' in this part shall be construed broadly in favor of expansive coverage to the maximum extent permitted by the terms of the ADA. The primary object of attention in cases brought under the ADA should be whether entities covered under the ADA have complied with their obligations. . . . The question of whether an individual meets the definition of disability under this part should not demand extensive analysis.”

The current title II and title III regulations include the definition of “disability” in regulatory sections that contain all enumerated definitions in alphabetical order. Given the expanded length of the definition of “disability” and the number of additional subsections required in order to give effect to the ADA Amendments Act revisions, the Department is proposing to move the definition of “disability” from the general definitional sections at §§ 35.104 and 36.104 to its own new section in each regulation, §§ 35.108 and 36.105, respectively.

These sections of the regulations set forth the three-part basic definition of the term “disability” found in the prior version of the ADA that the ADA Amendments Act retained with minor revisions. The current ADA regulations state the following:

Disability means, with respect to an individual,

• A physical or mental impairment that substantially limits one or more of the major life activities of such individual;

• A record of such an impairment; or

• Being regarded as having such an impairment.

The ADA, as amended by the ADA Amendments Act, limits the application of the “regarded as” prong to impairments that are not “transitory and minor” and defines a transitory impairment as “an impairment with an actual or expected duration of 6 months or less.” 42 U.S.C. 12102(3)(B). To reflect these amendments to the ADA, the Department proposes to modify the “regarded as” prong in the current regulations by adding a sentence at proposed §§ 35.108(a)(1)(iii) and 36.105(a)(1)(iii) that limits the application of the “regarded as” prong and references proposed §§ 35.108(f) and 36.105(f), which define the phrase “regarded as having such an impairment.” Proposed §§ 35.108(f) and 36.105(f) clarify that an individual is “regarded as” having an impairment if he or she has been subject to an action prohibited by the ADA, as amended, because of an actual or perceived impairment that is not both “transitory and minor.” It may be a defense to a charge of discrimination by an individual claiming coverage under this prong if the covered entity demonstrates that the impairment is both “transitory and minor.”

These sections set forth rules of construction that give guidance on how to understand and apply the definition of disability. Proposed §§ 35.108(a)(2)(i) and 36.105(a)(2)(i) provide that an individual may establish coverage under any one or more of the prongs in the definition of disability. See §§ 35.108(a)(1)(i)-(iii); 36.105(a)(1)(i)-(iii). To be covered under the ADA, however, an individual is only required to satisfy one prong. The term “actual disability” is used in these rules of construction as short-hand terminology to refer to an impairment that substantially limits a major life activity within the meaning of the first prong of the definition of disability. See §§ 35.108(a)(1)(i); 36.105(a)(1)(i). The terminology selected is for ease of reference. It is not intended to suggest that an individual with a disability who is covered under the first prong has any greater rights under the ADA than an individual who is covered under the “record of” or “regarded as” prongs, with the exception that the ADA, as amended, expressly states that an individual who meets the definition of disability solely under the “regarded as” prong is not entitled to reasonable modifications of policies, practices, or procedures. See 42 U.S.C. 12201(h).

Sections 35.108(a)(2)(ii) and 36.105(a)(2)(ii) are intended to amend the definition of “disability” to incorporate Congress's expectation that consideration of coverage under the first and second prongs of the definition of “disability” will generally not be necessary except in cases involving requests for reasonable modifications. See 154 Cong. Rec. H6068 (daily ed. June 25, 2008) (joint statement of Reps. Steny Hoyer and Jim Sensenbrenner). Accordingly, § 35.108(a)(2)(ii) states that “[w]here an individual is not challenging a public entity's failure to provide reasonable modifications under § 35.130(b)(7), it is generally unnecessary to proceed under the `actual disability' or `record of' prongs, which require a showing of an impairment that substantially limits a major life activity or a record of such an impairment. In these cases, the evaluation of coverage can be made solely under the `regarded as' prong of the definition of disability, which does not require a showing of an impairment that substantially limits a major life activity or a record of such an impairment. An individual may choose, however, to proceed under the `actual disability' or `record of' prong regardless of whether the individual is challenging a public entity's failure to provide reasonable modifications.”

Similarly, § 36.105(a)(2)(ii) states “[w]here an individual is not challenging a covered entity's failure to provide reasonable modifications under § 36.302, it is generally unnecessary to proceed under the `actual disability' or `record of' prongs, which require a showing of an impairment that substantially limits a major life activity or a record of such an impairment. In these cases, the evaluation of coverage can be made solely under the `regarded as' prong of the definition of disability, which does not require a showing of an impairment that substantially limits a major life activity or a record of such an impairment. An individual may choose, however, to proceed under the `actual disability' or `record of' prong regardless of whether the individual is challenging a covered entity's failure to provide reasonable modifications.”

The ADA Amendments Act does not change the meaning of the term “physical or mental impairment.” Thus, the Department is retaining the general regulatory definitions for this term with only minor modifications. First, the Department is proposing to add examples of two new body systems—the immune system and the circulatory system—that may be affected by a physical impairment. See §§ 35.108(b)(1)(i); 36.105(b)(1)(i). In addition, the Department is adding a reference to “dyslexia” to §§ 35.108(b)(2) and 36.105(b)(2) as an example of a specific learning disability that falls within the meaning of the phrase “physical or mental impairment.” The Department is proposing to add the reference to “dyslexia” (i.e., a specific diagnosable learning disability that causes difficulties in reading and speaking unrelated to intelligence and education) because the Department has become aware that some covered entities mistakenly believe that dyslexia is not a clinically diagnosable impairment. The Department is interested in public comment regarding its proposed inclusion of a reference to dyslexia.

The definition of “disability” does not include characteristic predisposition to illness or disease. Other conditions, such as pregnancy, that are not the result of a physiological disorder are also not impairments. However, a pregnancy-related impairment that substantially limits a major life activity is a disability under the first prong of the definition. Alternatively, a pregnancy-related impairment may constitute a “record of” a substantially limiting impairment, or may be covered under the “regarded as” prong if it is the basis for a prohibited action and is not both “transitory and minor.”

Prior to the ADA Amendments Act, the ADA did not define “major life activities,” leaving delineation of illustrative examples to agency regulations. Section 2 of the definition of “disability” in the Department's current title II and title III regulations states that “[t]he phrase major life activities means functions such as caring for one's self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.” See 28 CFR 35.104; id. at 36.104

The ADA, as amended, incorporates into the statutory language a non-exhaustive list of major life activities that includes, but is not limited to, “caring for oneself, performing manual tasks, seeing, hearing, eating, sleeping, walking, standing, lifting, bending, speaking, breathing, learning, reading, concentrating, thinking, communicating, and working.” 42 U.S.C. 12102(2)(A). This list reflects Congress's concern that courts were interpreting the term “major life activities” more narrowly than Congress intended. See 42 U.S.C .12101(b)(4). In §§ 35.108(c) and 36.105(c), the Department proposes to revise its title II and title III regulatory definitions of disability to incorporate the statutory examples as well as to provide additional examples included in the EEOC title I final regulation—reaching, sitting, and interacting with others, see 29 CFR 1630.2(i)(1)(i).

In addition, the ADA, as amended, specifies that a person may meet the definition of “disability” if he or she has a physical or mental impairment that substantially limits the operation of a “major bodily function,” which includes the “functions of the immune system, normal cell growth, digestive, bowel, bladder, neurological, brain, respiratory, circulatory, endocrine, and reproductive functions.” 42 U.S.C. 12102(2)(B). The Department is proposing to revise its regulatory definitions of disability at §§ 35.108(c)(1)(ii) and 36.105(c)(1)(ii) to make it clear that the operations of major bodily functions are major life activities, and to include a non-exclusive list of examples of major bodily functions, consistent with the language of the statute. In addition to the examples included in the statute, the Department proposes to include the following additional examples: the functions of the special sense organs and skin, genitourinary, cardiovascular, hemic, lymphatic, and musculoskeletal systems. These six major bodily functions are also specified in the EEOC title I final regulation. 29 CFR 1630.2(i)(1)(i).

The Department cautions that both the lists of major life activities and major bodily functions are illustrative. The absence of a particular life activity or bodily function from the list should not create a negative implication as to whether such activity or function constitutes a major life activity under the statute or the implementing regulation.

Consistent with the ADA, as amended, proposed §§ 35.108(c)(2) and 36.105(c)(2) also state that, “[i]n determining other examples of major life activities, the term `major' shall not be interpreted strictly to create a demanding standard for disability.” Moreover, the proposed regulations provide that “[w]hether an activity is a `major life activity' is not determined by reference to whether the activity is of `central importance to daily life.'” See §§ 35.108(c)(2), 36.105(c)(2).

Overview. The ADA, as amended, states that the term “substantially limits” is intended to be “interpreted consistently with the findings and purposes of the ADA Amendments Act.” 42 U.S.C. 12102(4)(B). One stated purpose of the Act is to expressly “reject the standards enunciated by the Supreme Court in Toyota Motor Manufacturing, Kentucky, Inc. v. Williams . . . that the terms `substantially' and `major' in the definition of disability under the ADA `need to be interpreted strictly to create a demanding standard for qualifying as disabled,' and that to be substantially limited in performing a major life activity under the ADA `an individual must have an impairment that prevents or severely restricts the individual from doing activities that are of central importance to most people's daily lives.' ” Public Law 110-325, sec. 2(b)(4). The Department proposes to add nine rules of construction at §§ 35.108(d) and 36.105(d) clarifying the meaning of “substantially limits” when determining whether an impairment substantially limits an individual in a major life activity consistent with the mandates of the ADA Amendments Act. These rules of construction are based on the requirements of the statute and the clear mandates of the legislative history and are as follows:

Broad construction—not a demanding standard. Proposed §§ 35.108(d)(1)(i) and 36.105(d)(1)(i) state that “[t]he term `substantially limits' shall be construed broadly in favor of expansive coverage, to the maximum extent permitted by the terms of the ADA. ‘Substantially limits’ is not meant to be a demanding standard.” See 42 U.S.C. 12102(4)(A).

Comparison to most people in the population. Proposed §§ 35.108(d)(1)(ii) and 36.105(d)(1)(ii) state that “[a]n impairment is a disability within the meaning of this part if it substantially limits the ability of an individual to perform a major life activity as compared to most people in the general population.” The Department cautions that this rule of construction addresses how to determine whether the individual's impairment substantially limits a major life activity and not how the impairment is diagnosed. For example, when a person is diagnosed with the impairment of a learning disability, one accepted method of arriving at that diagnosis is the administration of specific tests to determine whether there is a significant discrepancy between the individual's intelligence or aptitude and the individual's academic achievement. Having established the existence of the impairment (here, a learning disability), the individual must still demonstrate that his or her impairment substantially limits a major life activity as compared to most people in the general population.

Significant or severe restriction not required. Proposed §§ 35.108(d)(1)(ii) and 36.105(d)(1)(ii) also state “[a]n impairment need not prevent, or significantly or severely restrict, the individual from performing a major life activity in order to be considered substantially limiting.” See 154 Cong. Rec. S8840-42 (daily ed. Sept. 16, 2008) (Statement of the Managers); H.R. Rep. No. 110-730, pt. 1, at 9-10 (2008). (“While the limitation imposed by an impairment must be important, it need not rise to the level of severely restricting or significantly restricting the ability to perform a major life activity in order to qualify as a disability.”) In the findings and purposes of the ADA Amendments Act, Congress expressed concern that courts had required persons with disabilities seeking the protections of the ADA to demonstrate a greater degree of limitation than had been intended by Congress. Public Law 110-325, sec. 2(a)(7). In addition, Congress specifically found that the EEOC's ADA title I regulation had expressed too high a standard for proving disability by defining the term “substantially limits” as “significantly restricted.” See Public Law 110-325, sec. 2(a)(7), (8).

Primary focus of ADA cases. Proposed §§ 35.108(d)(1)(iii) and 36.105(d)(1)(iii) state that “[t]he primary object of attention in cases brought under the [ADA] should be whether [public entities/covered entities] have complied with their obligations and whether discrimination has occurred, not the extent to which an individual's impairment substantially limits a major life activity. Accordingly, the threshold issue of whether an impairment substantially limits a major life activity should not demand extensive analysis.” Congress recognized that “clearing the initial [disability] threshold is critical, as individuals who are excluded from the definition `never have the opportunity to have their condition evaluated in light of medical evidence and a determination made as to whether they [are] ‘otherwise qualified.’ ” H.R. Rep. No. 110-730 pt. 2, at 7 (2008) (internal quotation marks and citation omitted). This rule of construction addresses that concern.

“Substantially limits” shall be interpreted to require a lesser degree of functional limitation than that provided prior to the ADA Amendments Act. Proposed §§ 35.108(d)(1)(iv) and 36.105(d)(1)(iv) state that “[t]he determination of whether an impairment substantially limits a major life activity requires an individualized assessment. However, in making this assessment, the term `substantially limits' shall be interpreted and applied to require a degree of functional limitation that is lower than the standard for substantially limits applied prior to the ADA Amendments Act.” This rule of construction reflects Congress's concern that prior to the adoption of the ADA Amendments Act, courts were using too high a standard to determine whether an impairment substantially limited a major life activity. See Public Law 110-325, sec. 2(b)(4), (5).

Scientific, medical, or statistical evidence. Proposed §§ 35.108(d)(1)(v) and 36.105(d)(1)(v) state that “[t]he comparison of an individual's performance of a major life activity to the performance of the same major life activity by most people in the general population usually will not require scientific, medical, or statistical evidence. Nothing in this paragraph is intended, however, to prohibit or limit the use of scientific, medical, or statistical evidence in making such a comparison where appropriate.”

Determination made without regard to mitigating measures. The ADA, as amended, expressly prohibits any consideration of the ameliorative effects of mitigating measures when determining whether an individual's impairment substantially limits a major life activity, save for the ameliorative effects of ordinary eyeglasses or contact lenses. 42 U.S.C. 12102(4)(E). Section 12102(4)(E)(i) provides an illustrative, but non-exhaustive, list of different types of mitigating measures that must be considered in determining whether an individual has a covered disability. Id.

Proposed §§ 35.108(d)(1)(vi) and 36.105(d)(1)(vi) track the revised statutory language prohibiting consideration of mitigating measures (with one identified exception). Proposed §§ 35.108(d)(4) and 36.105(d)(4), discussed below, set forth examples of mitigating measures.

Impairments that are episodic or in remission. Proposed §§ 35.108(d)(1)(vii) and 36.105(d)(1)(vii) state that “[a]n impairment that is episodic or in remission is a disability if it would substantially limit a major life activity when active.” See 42 U.S.C. 12102(4)(D). For example, a person with multiple sclerosis (MS) who is substantially limited in a major life activity when her MS is active, would be considered a person with a disability even when her condition is in remission. Similarly, a person who has a seizure disorder that manifests with episodic seizures that substantially limit a major life activity would be a person with a disability even though he is not substantially limited in a major life activity when his seizure disorder is not active.

Impairment need not substantially limit more than one major life activity. Proposed §§ 35.108(d)(1)(viii) and 36.105(d)(1)(viii) state that “[a]n impairment that substantially limits one major life activity need not substantially limit other major life activities in order to be considered a substantially limiting impairment.” See 42 U.S.C. 12102(4)(C). This language reflects the statutory intent to reject court decisions that had required individuals to show that an impairment substantially limits more than one major life activity. See 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers). It is also intended to clarify that the ability to perform one or more particular tasks within a broad category of activities does not preclude coverage under the ADA. For example, even if a person could engage in the manual activity of brushing his teeth or washing his face, he could still be a person with a disability if he were limited in the ability to perform other manual tasks.

Transitory and minor exception. The ADA, as amended, provides that the “regarded as” prong of the definition of “disability” does “not apply to impairments that are [both] transitory and minor.” 42 U.S.C. 12102(3)(B). “[T]ransitory impairment” is defined as “an impairment with an actual or expected duration of six months or less.” See id. As discussed below, §§ 35.108(f) and 36.105(f) incorporate this exception into the determination of disability under the “regarded as” prong. Whether an impairment is both transitory and minor is a question of fact that is dependent upon individual circumstances; however, it is likely that an uncomplicated sprained ankle with an expected recovery time of three months, for example, would be an impairment that is both transitory and minor.

The proposed rules of construction at §§ 35.108(d)(1)(ix) and 36.105(d)(1)(ix) further clarify that an impairment that lasts or is expected to last less than six months and that substantially limits a major life activity can be a disability under the first two prongs of the definition of “disability.” See 154 Cong. Rec. H6067 (daily ed. June 25, 2008) (joint statement of Reps. Steny Hoyer and Jim Sensenbrenner) (“[T]here is no need for the transitory and minor exception under the first two prongs because it is clear from the statute and the legislative history that a person can only bring a claim if the impairment substantially limits one or more major life activities or the individual has a record of an impairment that substantially limits one or more major life activities.”)

Although there are no “per se” disabilities, the Department believes that the inherent nature of certain impairments will in virtually all cases give rise to a substantial limitation of a major life activity. Proposed §§ 35.108(d)(2) and 36.105(d)(2) provide examples of impairments that should easily be found to substantially limit a major life activity. Cf. Heiko v. Columbo Savings Bank, F.S.B., 434 F.3d 249, 256 (4th Cir. 2006) (stating, even pre-ADA Amendments Act, that “certain impairments are by their very nature substantially limiting: the major life activity of seeing, for example, is always substantially limited by blindness”). The analysis of whether the types of impairments referenced in these sections substantially limit a major life activity does not depart from the hallmark individualized assessment required by the ADA. These sections recognize that applying the various principles and rules of construction concerning the definition of “disability,” the individualized assessment of some types of impairments will, in virtually all cases, result in the conclusion that the impairment substantially limits a major life activity, and thus the necessary individualized assessment of these types of impairments should be particularly simple and straightforward.

For example, and as provided in proposed §§ 35.108(d)(2) and 36.105(d)(2), applying the rules of construction set forth in §§ 35.108(d)(1) and 36.105(d)(1), it should easily be concluded that the following non-exhaustive examples of types of impairments will, at a minimum, substantially limit the major life activities indicated: deafness substantially limits hearing and auditory function; blindness substantially limits visual function; an intellectual disability  3 substantially limits reading, learning, and problem solving; partially or completely missing limbs or mobility impairments requiring the use of a wheelchair substantially limit musculoskeletal function; autism substantially limits learning, social interaction, and communication; cancer substantially limits normal cell growth; cerebral palsy substantially limits brain function; diabetes substantially limits endocrine function; epilepsy, muscular dystrophy, and multiple sclerosis substantially limit neurological function; Human Immunodeficiency Virus (HIV) infection substantially limits immune function; and major depressive disorder, bipolar disorder, post-traumatic stress disorder, traumatic brain injury, obsessive compulsive disorder, and schizophrenia substantially limit brain function.

Of course, the impairments listed in §§ 35.108(d)(2) and 36.105(d)(2) may substantially limit a variety of other major life activities in addition to those listed in the regulation. For example, diabetes may substantially limit major life activities such as eating, sleeping, and thinking. Major depressive disorder may substantially limit major life activities such as thinking, concentrating, sleeping, and interacting with others. Multiple sclerosis may substantially limit major life activities such as walking, bending, and lifting. Autism may substantially impair the major life activity of caring for oneself.

The preambles to the Department's original title II and title III regulations noted that a person is considered an individual with a disability for purposes of the first prong of the definition when one or more of the individual's important life activities are restricted as to the conditions, manner, or duration under which they can be performed in comparison to most people. 56 FR 35694, 35699 (July 26, 1991). In the 2008 Senate Statement of the Managers, Congress reiterated what it had said at the time of the original ADA: “A person is considered an individual with a disability for purposes of the first prong of the definition when [one or more of] the individual's important life activities are restricted as to the conditions, manner, or duration under which they can be performed in comparison to most people.” 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008)) (citing S. Rep. No. 101-116, at 23 (1989)). Congress also stated the following:

The Department has included this standard in proposed §§ 35.108(d)(3) and 36.105(d)(3), which provide that, taking into account the rules of construction in §§ 35.108(d)(1) and 36.105(d)(1), “in determining whether an individual is substantially limited in a major life activity, it may be useful in appropriate cases to consider, as compared to most people in the general population, the conditions under which the individual performs the major life activity; the manner in which the individual performs the major life activity; or the duration of time it takes the individual to perform the major life activity, or for which the individual can perform the major life activity.”

An impairment may substantially limit the “condition” or “manner” under which a major life activity can be performed in a number of different ways. For example, the condition or manner under which a major life activity can be performed may refer to how an individual performs a major life activity; e.g., the condition or manner under which a person with an amputated hand performs manual tasks will likely be more cumbersome than the way that someone with two hands would perform the same tasks.

Condition or manner may also describe how performance of a major life activity affects the individual with an impairment. For example, an individual whose impairment causes pain or fatigue that most people would not experience when performing that major life activity may be substantially limited. Thus, the condition or manner under which someone with coronary artery disease performs the major life activity of walking would be substantially limited if the individual experiences shortness of breath and fatigue when walking distances that most people could walk without experiencing such effects. Similarly, condition or manner may refer to the extent to which a major life activity, including a major bodily function, can be performed. In some cases, the condition or manner under which a major bodily function can be performed may be substantially limited when the impairment “causes the operation [of the bodily function] to over-produce or under-produce in some harmful fashion.” See H.R. Rep. No. 110-730, pt. 2, at 17 (2008). For example, the endocrine system of a person with type I diabetes does not produce sufficient insulin.

“Duration” refers to the length of time an individual can perform a major life activity or the length of time it takes an individual to perform a major life activity, as compared to most people in the general population. For example, a person whose back or leg impairment precludes him or her from standing for more than two hours without significant pain would be substantially limited in standing, because most people can stand for more than two hours without significant pain. However, “[a] person who can walk for 10 miles continuously is not substantially limited in walking merely because on the eleventh mile, he or she begins to experience pain because most people would not be able to walk eleven miles without experiencing some discomfort.” See 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers) (citing S. Rep. No. 101-116, at 23 (1989).

Condition, manner, or duration may also suggest the amount of time or effort an individual has to expend when performing a major life activity because of the effects of an impairment, even if the individual is able to achieve the same or similar result as someone without the impairment. For this reason, §§ 35.108(d)(3)(iii) and 36.105(d)(3)(iii) include language that says that the outcome an individual with a disability is able to achieve is not determinative of whether he or she is substantially limited in a major life activity.

For example, someone with a learning disability may achieve a high level of academic success, but may, nevertheless, be substantially limited in one or more of the major life activities of reading, writing, speaking, or learning because of the additional time or effort he or she must spend to read, speak, write, or learn compared to most people in the general population. As Congress emphasized in passing the ADA Amendments Act, “[w]hen considering the condition, manner, or duration in which an individual with a specific learning disability performs a major life activity, it is critical to reject the assumption that an individual who has performed well academically cannot be substantially limited in activities such as learning, reading, writing, thinking, or speaking.” 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers). The House Education and Labor Committee Report noted that:

The proposed regulations provide that the non-ameliorative effects of mitigating measures may be considered in assessing substantial limitation and considering facts such as condition, manner, or duration. See §§ 35.108(d)(3)(ii) and 36.105(d)(3)(ii). Such “non-ameliorative effects” could include negative side effects of medicine, burdens associated with following a particular treatment regimen, and complications that arise from surgery, among others. Of course, in many instances, it will not be necessary to assess the negative side effects of a mitigating measure in determining that a particular impairment substantially limits a major life activity. For example, someone with end-stage renal disease is substantially limited in kidney function, and thus, it is not necessary to consider the burdens that dialysis treatment imposes.

Finally, condition, manner, or duration is not intended to be used as a rigid three-part standard that must be met to establish a substantial limitation. Rather, in referring to condition, manner, or duration, the proposed rules make clear that these are merely the types of factors that may be considered in appropriate cases. To the extent that such factors may be useful or relevant to show a substantial limitation in a particular fact pattern, some or all of them (and related facts) may be considered, but evidence relating to each of these facts may not be necessary to establish coverage.

At the same time, individuals seeking coverage under the first or second prong of the definition of “disability” should not be constrained from offering evidence needed to establish that their impairment is substantially limiting. See 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers). Of course, covered entities may defeat a showing of substantial limitation by refuting whatever evidence the individual seeking coverage has offered, or by offering evidence that shows that an impairment does not impose a substantial limitation on a major life activity.

The Department also notes that although in general the comparison to “most people” means a comparison to most people in the general population, there are a few circumstances where it is only appropriate to make this comparison in reference to a particular population. For example, it would be inappropriate to evaluate whether a young child with a learning disability that affected her or his ability to read was substantially limited in reading compared to most people in the general population, because clinical assessments of such an impairment (e.g., dyslexia), are always performed in the context of similarly-aged children or a given academic year (e.g., sixth grade), and not in comparison to the population at large.

Proposed §§ 35.108(d)(4) and 36.105(d)(4) provide examples of mitigating measures that must not be considered in determining whether an individual has a disability that substantially limits a major life activity. Mitigating measures include but are not limited to medication, prosthetics, assistive technology, reasonable modifications and auxiliary aids or services, and learned behavioral or adaptive neurological modifications.

Learned behavioral or adaptive neurological modifications include those strategies developed by an individual to lessen the impact of an impairment. Reasonable modifications include informal or undocumented accommodations and modifications as well as those provided through a formal process.

Self-mitigating measures or undocumented modifications or accommodations for students with impairments that affect learning, reading, or concentrating, may include measures such as devoting a far larger portion of the day, weekends, and holidays to study than students without disabilities; teaching oneself strategies to facilitate reading connected text or mnemonics to remember facts; receiving extra time to complete tests; receiving modified homework assignments; or being permitted to take exams in a different format or in a less stressful or anxiety-provoking setting. Each of these mitigating measures, whether formal or informal, documented or undocumented, can lessen the impact of, and improve the academic function of a student having to deal with a substantial limitation in a major life activity such as concentrating, reading, speaking, learning, or writing. Nevertheless, these are only temporary supports; the individual still has a substantial limitation in a major life activity and would be a person with a disability under the ADA. See also discussion of §§ 35.108(d)(1) and 36.105(d)(1), above.

The ADA, as amended, specifies one exception to the rule on mitigating measures, stating that the ameliorative effects of ordinary eyeglasses and contact lenses shall be considered in determining whether a person has an impairment that substantially limits a major life activity and thereby is a person with a disability. 42 U.S.C. 12102(4)(E)(ii). Proposed §§ 35.108(d)(4)(i) and 36.105(d)(4)(i) incorporate this exception by excluding ordinary eyeglasses and contact lenses from the definition of “low-vision devices,” which are mitigating measures that may not be considered in determining whether an impairment is a substantial limitation.

Section (3) of the definition of “disability” in the title II and title III regulations states the following: “The phrase has a record of such an impairment means has a history of, or has been misclassified as having, a mental or physical impairment that substantially limits one or more major life activities.” The NPRM proposes to keep the language of section (3) in both the title II and title III regulations (with minor editorial changes) but renumbers it as §§ 35.108(e)(1) and 36.105(e)(1).

In addition, the NPRM proposes adding a new paragraph (2), which states that “[w]hether an individual has a record of an impairment that substantially limited a major life activity shall be construed broadly to the maximum extent permitted by the ADA and should not demand extensive analysis. An individual will be considered to fall within this prong of the definition of disability if the individual has a history of an impairment that substantially limited one or more major life activities or was misclassified as having had such an impairment.”

The NPRM also proposes adding paragraph (3), which provides that “[a]n individual with a record of a substantially limiting impairment may be entitled to a reasonable modification if needed and related to the past disability.” For example, a high school student with an impairment that previously substantially limited, but no longer substantially limits, a major life activity may need permission to miss a class or have a schedule change to permit him or her to attend follow-up or monitoring appointments from a health care provider.

The “regarded as having such an impairment” prong of the definition of “disability” was included in the ADA specifically to protect individuals who might not meet the first two prongs of the definition, but who were subject to adverse decisions by covered entities based upon unfounded concerns, mistaken beliefs, fears, myths, or prejudices about persons with disabilities. See 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers). The rationale for the “regarded as” part of the definition of “disability” was articulated by the Supreme Court in the context of Section 504 of the Rehabilitation Act of 1973 in School Board of Nassau County v. Arline, 480 U.S. 273 (1987). In Arline, the Court noted that, although an individual may have an impairment that does not diminish his or her physical or mental capabilities, it could “nevertheless substantially limit that person's ability to work as a result of the negative reactions of others to the impairment.” Id. at 283. Thus, until the Sutton decision, individuals seeking the protection of the ADA under this prong only had to show that a covered entity took some action prohibited by the statute because of an actual or perceived impairment. There was no requirement that the individual demonstrate that he or she, in fact, had an impairment that substantially limited a major life activity. See 154 Cong. Rec. S8842 (daily ed. Sept. 16, 2008) (Statement of the Managers). For example, if a day care center refused to admit a child with burn scars because of the presence of the scars, then the day care center regarded the child as an individual with a disability, regardless of whether the child's scars substantially limited a major life activity.

In the Sutton decision, the Supreme Court significantly narrowed the application of this prong, holding that individuals who asserted coverage under the “regarded as having such an impairment” prong had to establish either that the covered entity mistakenly believed that the individual had a physical or mental impairment that substantially limited a major life activity, or that the covered entity mistakenly believed that “an actual, nonlimiting impairment substantially limit[ed]” a major life activity, when in fact the impairment was not so limiting. 527 U.S. at 489. Congress expressly rejected this holding in the ADA Amendments Act by adding language clarifying that it is sufficient for an individual to establish that the covered entity regarded him or her as having an impairment, regardless of whether the individual actually has the impairment or whether the impairment constitutes a disability under the Act. 42 U.S.C. 12102(3)(A). This provision restores Congress's intent to allow individuals to establish coverage under the “regarded as” prong by showing that they were treated adversely because of an impairment without having to establish the covered entity's beliefs concerning the severity of the impairment. See H.R. Rep. No. 110-730, pt. 2, at 18 (2008).

Thus, under the ADA Amendments Act, it is not necessary, as it was prior to the Act and following the Supreme Court's decision in Sutton, for an individual to demonstrate that a covered entity perceived him as substantially limited in the ability to perform a major life activity in order for the individual to establish that he or she is covered under the “regarded as” prong. Nor is it necessary to demonstrate that the impairment relied on by a covered entity is (in the case of an actual impairment) or would be (in the case of a perceived impairment) substantially limiting for an individual to be “regarded as having such an impairment.” In short, to be covered under the “regarded as” prong, an individual is not subject to any functional test. See 154 Cong. Rec. S8843 (daily ed. Sept. 16, 2008) (Statement of the Managers) (“The functional limitation imposed by an impairment is irrelevant to the third `regarded as' prong.”); H.R. Rep. No. 110-730, pt. 2, at 17 (2008) (“[T]he individual is not required to show that the perceived impairment limits performance of a major life activity.”). The concepts of “major life activities” and “substantial limitation” simply are not relevant in evaluating whether an individual is “regarded as having such an impairment.”

Proposed §§ 35.108(f)(1) and 36.105(f)(1) restore the meaning of the “regarded as” prong of the definition of “disability” by adding language that incorporates the statutory provision and states: “An individual is `regarded as having such an impairment' if the individual is subjected to an action prohibited by the ADA because of an actual or perceived physical or mental impairment, whether or not the impairment substantially limits, or is perceived to substantially limit, a major life activity, except for an impairment that is both transitory and minor.” The sections also incorporate the statutory definition of transitory impairment, and state that a “transitory impairment is an impairment with an actual or expected duration of six months or less.”

Proposed §§ 35.108(f)(2) and 36.105(f)(2) provide that “[a]n individual is `regarded as having such an impairment' any time a [public entity/covered entity] takes a prohibited action against the individual because of an actual or perceived impairment, even if the [entity] asserts, or may or does ultimately establish, a defense to such action.”

Proposed §§ 35.108(f)(3) and 36.105(f)(3) provide that establishing that an individual is “regarded as having such an impairment” does not, by itself, establish liability. Liability is established under either title II or III of the ADA only when an individual proves that a covered entity discriminated on the basis of disability within the meaning of the ADA. Thus, in order to establish liability, an individual must establish coverage as a person with a disability, as well as establish that he or she has been subjected to an action prohibited by the ADA.

Sections 35.108(g) and 36.105(g) of the Department's proposed definition of “disability” renumber the exclusions contained in paragraph (5) of the definition of “disability” in the title II and title III regulations.

The ADA, as amended, states that a public entity under title II and any person who owns, leases (or leases to), or operates a place of public accommodation under title III, “need not provide a reasonable accommodation or a reasonable modification to policies, practices, or procedures to an individual who meets the definition of disability” solely on the basis of being regarded as having an impairment. 42 U.S.C. 12201(h). Proposed §§ 35.130(b)(7)(i) and 36.302(g) reflect this concept and provide that a public entity/covered entity “is not required to provide a reasonable modification to an individual who meets the definition of disability solely under the `regarded as' prong of the definition of disability,” found in § 35.108(a)(1)(iii) and § 36.105(a)(1)(iii). Thus, proposed §§ 35.130(b)(7)(i) and 36.302(g) make it clear that the duty to provide reasonable modifications arises only when the individual establishes coverage under the first or second prong of the definition of “disability.” These sections are not intended to diminish the existing obligations to provide reasonable modifications under title II and title III of the ADA.

The Department notes that the ADA Amendments Act revised the rules of construction in title V of the ADA by including a provision affirming that nothing in the Act changed the ADA requirement that covered entities provide reasonable modifications in policies, practices, or procedures, unless the entity can demonstrate that making such modifications in policies, practices, or procedures, including academic requirements in postsecondary education, would fundamentally alter the nature of goods, services, facilities, privileges, advantages, or accommodations involved. See 42 U.S.C. 12201(f). Congress noted that the reference to “academic requirements in postsecondary education” was included “solely to provide assurances that the bill does not alter current law with regard to the obligations of academic institutions under the ADA, which we believe is already demonstrated in case law on this topic. Specifically, the reference to academic standards in post-secondary education is unrelated to the purpose of this legislation and should be given no meaning in interpreting the definition of disability.” 154 Cong. Rec. S8843 (daily ed. Sept. 16, 2008) (Statement of the Managers). Given that Congress did not intend there to be any change to the law in this area, the Department has made no changes to its regulatory requirements in response to this provision of the ADA Amendments Act.

The NPRM proposes adding §§ 35.130( i ) and 36.201(c) to the title II and title III regulations, respectively, to reflect the language of the ADA, as amended, which states that “[n]othing in this [Act] shall provide the basis for a claim by an individual without a disability that the individual was subject to discrimination because of the individual's lack of disability.” 42 U.S.C. 12201(g). This provision, and the proposed rules incorporating its language, clarify that persons without disabilities do not have an actionable claim under the ADA on the basis of not having a disability.

This NPRM has been drafted in accordance with Executive Order 13563, 76 FR 3821 (Jan. 18, 2011), Improving Regulation and Regulatory Review, and Executive Order 12866, 58 FR 51735 (Sept. 30, 1993), Regulatory Planning and Review. Executive Order 13563 directs agencies, to the extent permitted by law, to propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; tailor the regulation to impose the least burden on society, consistent with obtaining the regulatory objectives; and, in choosing among alternative regulatory approaches, select those approaches that maximize net benefits. Executive Order 13563 recognizes that some benefits and costs are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.

The Department has determined that this proposed rule is a “significant regulatory action” as defined by Executive Order 12866, section 3(f). The Department has determined, however, that this proposed rule is not an economically significant regulatory action, as it will not have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. This NPRM has been reviewed by the Office of Management and Budget (OMB) pursuant to Executive Orders 12866 and 13563.

This rule is necessary to incorporate into the Department's current regulations the ADA Amendments Act of 2008, which became effective on January 1, 2009. The proposed regulations are intended to promote consistency of judicial interpretations and predictability of executive enforcement of the ADA, as now amended by Congress.

The ADA Amendments Act's changes to the ADA apply to title I of the ADA, which is enforced by the Equal Employment Opportunity Commission (EEOC), and titles II and III of the ADA, which are enforced by the Department. 4 In keeping with the mandates of Executive Order 13563, and in order to promote consistency in the interpretation of the ADA Amendments Act, the Department and the EEOC held four joint public hearings prior to the publication of the EEOC's final title I ADA Amendments Act rule. See 76 FR 16978. In addition, the Department is proposing to revise its ADA title II and title III regulations in such a manner that, wherever possible, the regulatory language is the same as the language adopted by the EEOC in its final rule. This consistency will also ensure greater certainty for the public and businesses subject to the ADA.

As discussed earlier, Congress enacted the ADA Amendments Act in response to a growing number of ADA title I employment discrimination cases in which, contrary to the intent of Congress, persons with disabilities were unable to establish that they had disabilities as defined under the ADA. The EEOC's Regulatory Impact Analysis (RIA) published with its final title I rule discussed the effect of the ADA Amendments Act in terms of benefits to individuals with disabilities and costs to covered entities subject to title I. The EEOC RIA identifies a broad range of individuals with disabilities who, prior to the passage of the ADA Amendments Act, could not establish coverage under the ADA's definition of “disability” and, thus, were not entitled to reasonable accommodations in the workplace. The EEOC RIA focuses on the cost of the additional accommodations that could be required because the ADA Amendments Act results in a larger group of individuals who have disabilities under the ADA. The EEOC RIA concluded that, with respect to the revisions to the title I ADA regulation, the qualitative and quantitative benefits of the rule justified the estimated annual costs of $60 million to $183 million. 76 FR 16978, 16998 (March 25, 2011).

In contrast to the effects of the ADA Amendments Act on entities subject to title I, the Department believes that the statutory changes that the proposed title II and title III regulations incorporate will impact individuals and covered entities differently and will result in significantly less cost than $100 million in any given year. The Department has concluded this for several reasons. First, although the ADA Amendments Act was expected to have an impact on a broad range of individuals with disabilities who were seeking reasonable accommodations in employment under title I, its impact on individuals challenging discrimination under titles II or III was expected to be substantially less. The legislative history only identifies individuals with learning disabilities who require testing accommodations from higher education institutions and testing entities as likely to be affected by the Act. See H.R. Rep. No. 110-730 pt. 1, at 10-11 (2008). Congress was concerned about the number of individuals with learning disabilities who were denied testing accommodations (usually extra time) because covered entities claimed that those individuals did not have disabilities covered by the ADA. Id.

Second, the case law and the Department's enforcement experience in the years since the Supreme Court's decision in Sutton suggest that determining whether a plaintiff was an individual with a disability under the ADA's definition of “disability” was rarely a central issue in title II and title III cases, except with respect to testing accommodations. In addition, the Department's research has not identified any entities outside of higher education and testing entities that purport to be affected by the changes to titles II and III of the ADA made by the ADA Amendments Act.

Third, although the ADA Amendments Act has been in effect for nearly four years, the Department's research has not identified information or data in the literature or on trade association Web sites suggesting that higher education institutions and testing entities have in fact borne significant additional costs attributable to the implementation of the statutory requirements of the ADA Amendments Act.

Fourth, the Department does not believe that there are significant additional costs for providing extended time for testing for students in kindergarten through grade 12 as the result of the ADA Amendments Act. The vast majority of these students are already receiving a range of classroom program modifications, including extended time for testing, pursuant to the Individuals with Disabilities Education Act (IDEA) 20 U.S.C. 1400, et seq. To the extent that there are non-IDEA students in kindergarten through grade 12 who will receive additional classroom modifications (e.g., extended time for testing) as a result of the Department's implementing the ADA Amendments Act by amending its title II regulations, the Department believes that schools will not incur significant additional costs because the extra time will be supervised by the student's teachers or other existing school personnel. The Department is interested in any data that school districts can provide with respect to costs they will incur related to the ADA Amendments Act.

Finally, the Department's preliminary assessment of the costs associated with the anticipated increase in the number of testing accommodation requests that would be granted in testing and licensing situations as a result of the revised ADA definition of “disability” clearly supports the Department's view that the proposed changes will cost significantly less than $100 million in any given year.

Robust data are not readily available on the actual numbers of persons who would be covered by the ADA due to the clarifications from the ADA Amendments Act, and the actual additional costs of accommodations. Nevertheless, some general cost estimates can be made using existing data and assumptions. The Department estimates that the total cost of the revisions required by the ADA Amendments Act and the proposed regulations will range between $36.2 and $61.8 million in the first year (the year with the highest costs) for providing testing accommodations to students with learning disabilities and students with Attention Deficit Disorder or Attention Deficit Hyperactivity Disorder (collectively, “ADD”), who would request and receive testing accommodations and would not have received accommodations but for implementation of the ADA Amendments Act and the proposed regulations.

Research has found that, prior to the enactment of the ADA Amendments Act, a little more than half—51 percent—of students with learning disabilities or ADD were receiving testing accommodations in post-secondary schools or on national examinations. 5 To account for uncertainty regarding the remaining students who were not receiving accommodations but would be eligible to receive them now because of the ADA Amendments Act and the proposed regulations, we estimate the incremental effect of the revisions using a low (50 percent), medium (70 percent), and high (90 percent) range. The Department's research indicates that in the vast majority of cases, the accommodation requested by students with learning disabilities or ADD involves extra test-taking time. The estimate of costs of additional testing accommodations needed as a result of the ADA Amendments Act and the proposed regulations is developed from current data on the number of post-secondary students (undergraduate and graduate), the portion of students with learning disabilities, the portion of students with ADD, the number of students participating in online learning, the average hourly wage of teaching assistants and test proctors, and reasonable estimates of average test time, average course load, and average number of tests per course. 6

The National Center for Education Statistics (NCES) reports that, as of 2010, there were an estimated 17.8 million post-secondary students, 7 including both undergraduate and graduate students. This figure represents full-time student equivalents. The NCES also reports that approximately 3.7 percent of those 17.8 million students are enrolled in online learning and that approximately 20.4 percent of students were taking online learning course(s). 8 The 3.7 percent is an estimate of the percent of all post-secondary students who are taking all their courses online. We removed these students from our cost estimate because if their entire program is online, the Department believes it is unlikely they will have timed tests at a physical location. We did not remove from our cost estimate the students who are taking only some online courses. Instead, we treat these students the same for purposes of our analysis as we treat students taking all courses in physical classrooms, which likely overestimates the number of courses with timed tests at a physical location that we use in our estimate. The Department requests public comment on whether our assumption is correct that those in a post-secondary program where all classes are taken online do not take their tests in a physical location. We also request any information the public might have regarding whether online-only post-secondary programs will incur any costs that we have not accounted for as a result of incorporating the ADA Amendments Act's revised definition of “disability.”

In 2008, approximately 10.8 percent of post-secondary students reported having a disability. 9 Out of those 10.8 percent of students with a disability, 8.9 percent of those students reported having a “specific learning disability” and 19.1 percent reported having ADD. 10 Thus, out of the 10.8 percent of students with a disability, 28 percent of those students have a specific learning disability or ADD. Some research suggests that this percentage may overestimate the proportion of students who self-identify as having ADD and actually require accommodations due to a disability. 11 To account for the possible overestimate, the Department reduced its estimate of the percentage of students with ADD (as a primary disability) by 30 percent, from 19.1 to 13.37 percent of students with a disability. Therefore, the Department estimates that out of the 10.8 percent of students with a disability, 22.3 percent of those students have a specific learning disability or ADD.

Research suggests that prior to the enactment of the ADA Amendments Act, 51 percent of college students with a learning disability or ADD were already receiving accommodations. 12 To calculate the incremental costs of this proposed rule, the percentage of remaining students with a learning disability or ADD (49 percent) who had not sought or received accommodations and who would now both seek and receive them was used as a baseline.

Based on the 49 percent baseline, the Department used a range to estimate the incremental change in the percentage of students with learning disabilities and ADD who would now request and receive accommodations involving extra test-taking time after the enactment of the ADA Amendments Act and the proposed regulations. These calculations proceeded with a low, medium, and high possible value for this unknown portion of students: 50.0 percent, 70.0 percent and 90.0 percent, respectively. The Department used a range because not all postsecondary students with learning disabilities or ADD who are eligible to receive testing accommodations actually request them. Some students may not want to identify themselves as having a disability or needing an accommodation. Other students may not have documentation of their disability at the time they request the accommodation, and they cannot afford to obtain the specific documentation requested by the testing entity. In addition, other students may have a disability, but not need that particular accommodation. Finally, despite the changes made by the ADA Amendments Act, not all students in the affected population are necessarily eligible to receive testing accommodations. The Department is interested in comment on whether the ranges it is using are appropriate or whether it has overestimated the number of additional students who will now request testing accommodations.

We thus estimate that between 101,227 and 182,209 more post-secondary students will request and receive testing accommodations as a result of the revisions to the definition of “disability.” That figure was calculated by multiplying 17.8 million post-secondary students by the percentage of students with disabilities (10.8 percent), multiplied by the percentage of students with disabilities who have a learning disability and 70 percent of students with ADD (22.3 percent), reduced by the 51 percent already receiving accommodations and the 3.7 percent of students taking courses fully online, and adjusting for the fact that either 50 percent, 70 percent, or 90 percent of those impacted students would actually request testing accommodations.

Our research indicated that 59 percent of testing accommodation requests were for 50 percent additional time and another 15 percent were for more than 50 percent additional time. 13 We thus conservatively assumed an average of 75 percent more time would accurately estimate the additional testing accommodation time requested for examinations in post-secondary institutions. 14 A brief review of the academic schedules for post-secondary schools found that most undergraduate courses meet twice a week for an hour and fifteen minutes or an hour and a half. Based on this information, we assumed that the average test time would be the length of the average class session—1.5 hours. Thus, we estimate 1.13 additional hours per test for each accommodation request—1.5 hours (average test time) multiplied by 75 percent (average additional testing time requested).

Little to no data were found on the average number of exams/tests taken per post-secondary student. In this estimation, we assumed that the average full-time equivalent student takes a full-time load of eight classes per year, with an average of 3 tests/quizzes per class (which includes some classes with no exams and some classes with several). Thus, we estimated that students will take approximately 24 exams/tests per year, on average, calculated as follows: 8 classes per year multiplied by 3 tests per class. Multiplying 24 exams/tests per student per year by the average (estimated above) of 1.13 additional hours per testing accommodation request, yields an estimate of 27 additional hours of test taking and proctor time needed per student per year, on average. The Department seeks public comment on the reasonableness of these assumptions.

Multiplying the estimated number of students who as a result of the revisions to the definition of “disability” would now request and be granted testing accommodations (between 101,227 and 182,209), by the average additional time for testing accommodations per student per year (27 hours), by the average hourly wage of teaching assistants ($11.16  15 ) yields an annual cost of testing accommodations in the post-secondary education setting ranging between a low of $30.5 million and a high of $54.9 million.

Our methodology likely overestimates the actual costs for a variety of reasons. For example, because there will sometimes be more than one student needing additional testing time during the administration of a given test, only one proctor would likely be needed per class. Because of the inherent difficulties in accurately estimating when this will occur, we have calculated the costs to account for additional proctor time for each individual student, regardless of whether more than one student needing additional time would be taking the same test.

The Department believes institutions will experience some one-time costs due to the institution's disability services center (or its equivalent) needing to update its policies and procedures to bring them in line with the changes made by the ADA Amendments Act and explaining those changes to the employees responsible for evaluating testing accommodation requests. We estimate that one-time costs to adapt training and procedures will total $3.5 million, which is the result of multiplying the number of institutions affected (7,021  16 ), by $500 (assumed not to be higher than the cost of 5 hours of management time, valued at $100 an hour). We were not able to find estimates for the incremental costs resulting from training employees within post-secondary institutions who are responsible for assessing accommodation requests. We therefore used an estimate of 5 hours at $100 per hour to calculate a very high-level estimate of this cost, and are seeking public comment on these assumptions.

Using the same data as noted above, the calculation of the estimate of additional requests for testing accommodations in national examinations was made as follows: 9,287,619 total annual test takers of national exams, 17 multiplied by the percentage of post-secondary students with disabilities (10.8 percent  18 ), multiplied by the percentage of students with disabilities who have learning disabilities and 70 percent of students with ADD (22.3 percent  19 ), reduced by the 51 percent likely already receiving accommodations yields approximately 109,457 students previously not receiving testing accommodations who now could. As calculated above, a low, medium, and high range was used (50 percent, 70 percent, 90 percent) to represent the likely percentage of these additional students who, as a result of the ADA Amendments Act and proposed regulations, would actually ask for and now receive a testing accommodation. This calculation leads to an estimate of between 54,729 to 98,512 additional requests that would be granted for testing accommodations during national examinations as a result of the revisions to the definition of “disability.” The Department has not found data detailing the distribution of persons with disabilities who take national exams, and therefore has used the data on post-secondary students with disabilities as a proxy for the assumption that the populations are similar (both are adults seeking additional education and degrees/certification). The Department is interested in any comments on the appropriateness of using this data and any alternative sources of information that can be used.

Our research noted that 59 percent of testing accommodation requests are for 50 percent additional time and another 15 percent are for more than 50 percent additional time. 20 We thus assumed an average of 75 percent more time would accurately estimate the additional testing accommodation time requested for national examinations. 21 Data from licensing administrators and the Department's independent research suggest that these national examinations last anywhere from two to eight hours. Averaging these test lengths, weighted by the number of takers for each test, results in a weighted average test length of 3.54 hours. 22 The estimate of additional testing accommodation requests was multiplied by the average test length of 3.54 hours, and multiplied by 75 percent (average additional testing time needed), and in turn multiplied by $10.38, 23 resulting in a range of annual costs between a low of $1.5 million and a high of $2.7 million.

Because our estimation of national exams and licensing tests is based on those which we could actively identify, it underestimates the likely number of actual test takers. 24 We ask the public to provide any information that would help us refine our estimates on the number of national examination test takers.

Although our analysis likely underestimates the number of test takers for national exams and licensing tests, we likely overestimate the actual costs per test taker for the specific national examinations included in the analysis. As stated above, only one proctor would likely be needed at one location, even though in some instances more than one student may be receiving additional time. With respect to national examinations, we know many persons with learning disabilities or ADD were already requesting and receiving extra time as a testing accommodation. Thus, the companies that administer national examinations already employ and pay for additional testing proctors to proctor the examinations of those receiving additional time. The increase in the number of test-takers who would now request and be granted additional test-taking time will likely be placed in the same room or location where the proctors were already monitoring students receiving additional time prior to the ADA Amendments Act. Yet, we have calculated the costs to account for additional proctor time for each individual test taker, regardless of whether an additional proctor is needed because one is already provided to students previously requesting and receiving additional time.

One-time costs to adapt training and procedures were estimated to total $698,500, which is the result of multiplying the number of testing entities affected (1,397  25 ), by $500 (assumed not to be higher than the cost of 5 hours management time, valued at $100 an hour). 26 Again, because the Department was unable to find any data on the costs associated with training, we invite public comment on the accuracy of our assumptions.

Congress enacted the ADA Amendments Act to ensure that persons with disabilities who were refused access to programs and services would again be able to rely on the protections of the ADA. As a result, the Department believes that the enactment of the law benefits millions of Americans and the benefits to these individuals are nonquantifiable but nonetheless significant. The Department determined, however, that there was a specific group of individuals with disabilities who would be able to receive quantifiable benefits. With enactment of the ADA Amendments Act, certain post-secondary students and national examination test takers (e.g., Certified Public Accountant Examination, Law School Admission Test, and other professional examinations) with ADD or learning disabilities are now able to receive additional time to complete tests, whereas before the Act some of these students may have had their requests for additional time denied by testing entities because such entities believed the disability in question did not meet the ADA's definition of “disability.”

In the first year, our analysis estimates that approximately 142,000 students will take advantage of additional testing accommodations that otherwise would not have occurred but for this rule. Over ten years, approximately 1.6 million full-time equivalent enrollees would benefit, or, assuming an average 4-year course of study, more than 400,000 individual students. An additional 800,000 national examination test takers would benefit over that same 10 years (assuming that people take an exam one time only). The Department is interested in comment on whether it is underestimating or overestimating the number of people who will benefit from this rule.

A number of these individuals could be expected to earn a degree or license that they otherwise would not have earned. We were unable to find robust data to estimate the number of students with learning disabilities or ADD who would receive a post-secondary degree or professional license due to the ADA Amendments Act, but note that extensive research has shown notably higher earnings for those with college degrees over those who do not have one. Estimates of lifetime earnings differential vary, with some studies estimating an earning differential ranging from approximately $300,000 to $1 million. 27 In addition, some number of students may be able to earn a degree in a higher paying field than otherwise and yet other students would still get the same degree, but be able to finish faster or more successfully (i.e., higher grades) than otherwise would be the case. All of these students would be expected to earn greater lifetime income and be more productive than they otherwise would if the ADA Amendments Act was not enacted into law.

In addition to these benefits, the ADA Amendments Act has significant non-quantifiable benefits to individuals with disabilities who, prior to the passage of the ADA Amendments Act, were denied the opportunity for equal access to an education or to become licensed in their chosen profession because of their inability to receive needed testing accommodations. As with all other improvements in access for individuals with disabilities, the ADA Amendments Act is expected to generate psychological benefits for covered individuals, including an increased sense of personal dignity and self-worth, as more individuals with disabilities are able to successfully complete tests and exams and more accurately demonstrate their academic skills and abilities. Some individuals will now be more likely to pursue a favored career path or educational pursuit, which will in turn lead to greater personal satisfaction.

There are additional benefits to society that arise from improved testing accessibility. For instance, if some persons with disabilities are able to increase their earnings, they may need less public support—either direct financial support or other programs or services. This, in turn, would lead to resource savings from reduced social service agency outlays. Others, such as family members, may also benefit from less financial and psychological pressure due to the greater independence and earnings of the family member whose disability is now covered by the ADA under the revised definition of “disability.”

The Department believes (as did Congress when it enacted the ADA) that there is inherent value for all Americans which results from greater accessibility. Economists use the term “existence value” to refer to the benefit that individuals get from the plain existence of a good, service, or resource—in this case, the increased accessibility to post-secondary degrees and specialized licenses that would arise from greater access to testing accommodations or the increased accessibility to covered entities' facilities, programs, services, or activities as a result of the ADA Amendments Act. This can also be described as the value that people both with and without disabilities derive from the guarantees of equal protection and non-discrimination. In other words, people value living in a country that affords protections to persons with disabilities, whether or not they themselves are directly or indirectly affected. There can be numerous reasons why individuals might value accessibility even if they do not require it now and do not ever anticipate needing it in the future. These include: bequest motives, benevolence toward relatives or friends who require accessibility features, and general feelings of empathy and responsibility toward individuals with disabilities. In other words, people in society value equity, fairness, and human dignity; even if they cannot put a dollar value on how important it is to them. These are the exact values agencies are directed to consider in E.O. 13563.

In addition to the discrete questions set out above, the Department invites the public to provide information to assist the Department in improving its estimates of the costs and benefits of implementing the ADA Amendments Act (other than with respect to employment). The Department is interested in information regarding the additional actual costs incurred in providing testing accommodations since the ADA Amendments Act took effect and the actual incremental increase in testing accommodations granted since the ADA Amendments Act took effect. Finally, the Department is interested in information to ensure that its estimates of benefits and costs are comprehensive. For example, are other covered entities, besides post-secondary institutions and national examination centers incurring any costs in order to implement the Act's changes to titles II and III of the ADA? If so, who and how so? In addition to testing accommodations, are there any other specific benefits that people with disabilities have accrued (other than in employment) as a result of the ADA Amendments Act?

The Attorney General, in accordance with the Regulatory Flexibility Act, 5 U.S.C. 605(b), has reviewed this regulation, and by approving it certifies that it will not have a significant economic impact on a substantial number of small entities. First, the ADA Amendments Act took effect on January 1, 2009, and all covered entities have been required to comply with the Act since that date and thus, should be familiar with the requirements of the law. Second, the rule does not include reporting requirements and imposes no new recordkeeping requirements.

Third, as shown above, the only title II and title III entities that would be significantly affected by the proposed changes to the ADA regulations are testing entities and institutions of higher education. The type of accommodations that most likely will be requested and required by those whose coverage has been clarified under titles II and III of ADA Amendments Act will be additional time in testing situations. While many of these testing or higher education entities are small businesses or small governmental entities, the costs associated with additional testing time are minimal; therefore, the Department believes the economic impact of the proposed regulation will be neither significant for these small entities nor disproportionate relative to the costs for larger entities.

The Department estimates that approximately 7,021 post-secondary institutions could be impacted based on data from the U.S. Department of Education, Institute of Education Sciences, and the National Center for Education Statistics. 28 The Department used data from the U.S. Census Bureau (Statistics of U.S. Businesses) from 2007 for Junior Colleges (NAICS  29 6112) and Colleges, Universities, and Professional Schools (NAICS 6113) that was analyzed by U.S. Small Business Administration, Office of Advocacy  30 to estimate the proportion of those entities that would meet the SBA's criteria for small business or entity. As shown in Table 2, small post-secondary entities are estimated to account for approximately 42.1 percent of all post-secondary establishments. Therefore, the Department estimates that 2,954 small post-secondary establishments would be impacted.

The overall rule's cost estimates for post-secondary institutions were calculated based on the number of entities and number of post-secondary students affected. Because larger entities have more students, on average, than smaller ones, the Department used the proportion of the industry sub-group's receipts for small and large entities as a proxy for the number of students. This method assumes that per student costs are roughly the same for institutions of differing sizes; the Department does not have robust data for adjusting the estimation. Thus, using receipts for Junior Colleges (NAICS 6112) and Colleges, Universities, and Professional Schools (NAICS 6113) as a proxy for number of students, small post-secondary institutions are estimated to bear 4.8 percent of the costs for that industry sub-group, or approximately $2.2 million of the $46 million first year costs ( see Table 2 in the Initial Regulatory Assessment for the NPRM) for post-secondary institutions, which would average to a little over $750 per small entity establishment in the first year, for the approximately 2,954 small entity post-secondary establishments. Approximately 4,067 post-secondary establishments (57.9 percent of the 7,021) would be medium or large entities, and they would incur $43.9 million in costs during the first year, which would average out to approximately $10,796 per medium/large post-secondary establishment during the first year. This $10,796 per medium/large post-secondary establishment during the first year is approximately 14.3 times higher than the cost that would be incurred by small post-secondary establishments during that same time.

In addition to post-secondary institutions, the Department estimates that some national testing entities would also be impacted. Data specifically on national testing organizations, including size break-out by receipts, was not found, so the Department applied ratios calculated for the larger industry group of Educational Support Services (NAICS 611710) data to estimate the number of Educational Test Development and Evaluation Services (NAICS 6117102). 31 Approximately 1,397 national testing organizations would be impacted by this rule, irrespective of size. If the ratio of small to large Educational Test Development and Evaluation Services entities (NAICS 6117102) is the same as that for the larger industry group of Educational Support Services, 89.5 percent in 2007, then approximately 1,250 of 1,397 establishments would be small entity establishments.

This proposal addresses the following local rules: SBCAPCD Rule 321, Solvent Cleaning Machines and Solvent Cleaning, SBCAPCD Rule 330, Surface Coating of Metal Parts and Products and SBCAPCD Rule 349, Polyester Resin Operations. In the Rules and Regulations section of this Federal Register , we are approving these local rules in a direct final action without prior proposal because we believe these SIP revisions are not controversial. If we receive adverse comments, however, we will publish a timely withdrawal of the direct final rule and address the comments in subsequent action based on this proposed rule. Please note that if we receive adverse comments on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, we may adopt as final those provisions of the rule that are not the subject of an adverse comment.

We do not plan to open a second comment period, so anyone interested in commenting should do so at this time. If we do not receive adverse comments, no further activity is planned. For further information, please see the direct final action.