As explained in the SBA's “Size Standard Methodology” White paper available at www.sba.gov/size, SBA reviews small business size standards and makes necessary adjustments to them for two reasons: (i) Changes in industry structure and Federal market conditions; and (ii) inflation. Recently, SBA reviewed all monetary based industry size standards with respect to industry structure and Federal market conditions. SBA published a series of rules to revise many of them as part of its ongoing comprehensive size standards review. In this rule, SBA is adjusting its monetary based industry size standards for inflation that has occurred since the last inflation adjustment, published in July 2008 (73 FR 41237). These include receipts based size standards for 476 industries and 11 subindustries ( i.e., “exceptions” in SBA Table of Size Standards) and assets based size standards for five industries. Additionally, SBA is adjusting three program specific receipts based size standards, namely, (1) Sales or Leases of Government Property (other than manufacturing); (2) stockpile purchases; and (3) the alternative size standard for the Small Business Investment Company (SBIC) Program that is based on tangible net worth and net income. As explained elsewhere in this rule, SBA is not adjusting the new tangible net worth and net income based alternative size standard established under the Jobs Act for its 7(a) and 504 Loan Programs. Also not adjusted is the $750,000 receipts based size standard set by statute for agricultural industries.

SBA is required to assess the impact of inflation on its monetary based size standards at least once every five years ( see SBA Interim Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (67 FR 3041 (January 23, 2002)) and 13 CFR 121.102). Although the provision does not mandate that SBA actually adjust size standards for inflation every five years, it does provide assurances to the public that the Agency is monitoring inflation and is making a decision on whether or not to adjust size standards within a reasonable period of time since its last inflation adjustment. Previous inflation adjustments to size standards were in SBA Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards July 2008 (73 FR 41237 (July 18, 2008)); SBA Interim Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards; Business Loan Program; Disaster Assistance Loan Program (70 FR 72577 (December 6, 2005)); SBA Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (67 FR 65285 (October 24, 2002)); SBA Interim Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (67 FR 3041 (January 23, 2002)); SBA Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (59 FR 616513 (April 7, 1994)); SBA Final Rule: Small Business Size Standards; Inflation Adjustment to Size Standards (49 FR 5025 (February 9, 1984)); and SBA Final Rule: Small Business Size Standards (39 FR 44423 (December 24, 1974)).

Many businesses may have lost small business eligibility for Federal assistance under SBA's monetary based size standards simply because of inflation that has occurred since the 2008 adjustment. This rule aims to reinstate those firms' eligibility for Federal assistance.

As mentioned above, the adjustment for inflation in this rule applies to all monetary based industry size standards, except for the $750,000 receipts based size standard for agricultural industries (which is set by the statute). Adjustments in this rule are in addition to revisions that were part of SBA's ongoing comprehensive size standards review, as mandated by the Jobs Act. SBA's comprehensive size standards review primarily focused on industry structure ( i.e., average firm size, startup costs and entry barriers, industry concentration, and distribution of firms by business size) and Federal contracting trends. It did not consider the impacts of inflation on size standards.

Rather than reviewing all size standards at one time, for the comprehensive review, SBA reviewed size standards on a Sector by Sector basis over a period of several years. The objective of the comprehensive size standards review is to review all size standards and make necessary adjustments so that they are consistent with current industry structure and Federal market conditions. Including inflation as an additional factor in the analysis would have meant applying different inflation rates to different sectors at different times. For example, the applicable inflation would be lower for sectors reviewed earlier in the cycle and higher for those reviewed later, resulting in inconsistent size standards across sectors and industries. To avoid this, SBA decided to evaluate all monetary based size standards for inflation separately at one time upon completion of the comprehensive review. As mentioned above, SBA recently completed reviewing all monetary based industry size standards.

Updating size standards based on inflation, in addition to latest industry and Federal contracting data under the comprehensive review, not only satisfies the Jobs Act's mandate that SBA review all size standards, but also is consistent with Executive Order 13563 on improving regulation and regulatory review.

For this interim final rule, SBA has used the same methodology it has described in its “Size Standards Methodology” White Paper, available at www.sba.gov/size . SBA had also applied the same methodology in its previous inflation adjustments, including the last adjustment in 2008. This methodology involves the following steps.

1. Selecting an inflation measure.

2. Selecting a base period.

3. Selecting an end period.

4. Calculating the inflation rate.

5. Adjusting the monetary based size standards.

SBA establishes small business size standards to determine eligibility of businesses for a wide variety of SBA's and other Federal programs. The majority of businesses participating in those programs are engaged in multiple industries producing a wide range of goods and services. Therefore, it is important that the Agency use a broad measure of inflation to adjust its size standards. In the past, SBA's preferred measure of inflation had been the chain-type price index for the U.S. Gross Domestic Product (GDP price index), published by the U.S. Department of Commerce, Bureau of Economic Analysis (BEA) on a quarterly basis as part of its National Income and Product Accounts (NIPA), available at http://www.bea.gov/iTable .

There are a number of other price indexes that the Federal Government produces to measure inflation. In its “Size Standards Methodology,” SBA has stated that, besides the GDP price index used in the previous adjustments, it may also consider using alternative inflation measures to adjust size standards in future inflation adjustments, including industry specific inflation indices that will better capture the variation in inflation levels across industries. Accordingly, for the current inflation adjustment, SBA reviewed some possible industry specific inflation measures. These included chain-type GDP price indices by industry from BEA and consumer and producer prices by industry from the U.S. Bureau of Labor Statistics (BLS). Additionally, in recent years, SBA received comments from the public suggesting that the Agency should consider using alternative measures of price indexes to adjust size standards for inflation ( see SBA Final Rule: Small Business Size Standards; Business Loan Program and Disaster Assistance Loan Program 73 FR 41237 (July 18, 2008)). The commenters argued that the GDP price index underestimates inflation and that it does not account for cost increases that are unique to certain industries that may have experienced a higher rate of inflation than the one suggested by GDP price index. In response, besides the GDP price index, in this rule, SBA also reviewed data on several alternative inflation measures published by the Federal Government, namely the consumer price index (CPI), the personal consumption expenditures price index (PCEPI), the producer price index (PPI), and the employment cost index (ECI). The Agency compared the performance of these indexes with the performance of the GDP price index to determine the appropriateness of using the GDP price index to adjust size standards for inflation. Below are brief descriptions of each of these indexes.

GDP chain-type price index (GDP price index): The GDP price index measures the prices of final goods and services produced by the U.S. economy. BEA produces this index on a quarterly basis. It is derived from the prices of personal consumption expenditures, gross private domestic investment, net exports, and government consumption expenditures, and gross investment. Therefore, it is a very broad measure of inflation in the economy. It is used to adjust for inflation the gross value of the output of the U.S. economy in NIPA during a period considered. For more information, refer to the BEA Web site at http://www.bea.gov/national/Index.htm .

Consumer price index (CPI): The CPI, produced monthly by the BLS, is a measure of the average change in the prices paid by urban consumers for a market basket of goods and services, including imports. The federal government, Federal Reserve Bank, and the private sector use this index as an economic indicator to assess inflationary pressures in the economy. The CPI and its components are also used to adjust other economic series (including various components of NIPA by the BEA) for price change and to convert these series to inflation-free or constant dollars. Finally, the CPI is used to adjust social security and other Government payments. For a detailed explanation, refer to the BLS Web site at http://stats.bls.gov/cpi .

Personal consumption expenditures price index (PCEPI): Similar to the CPI, the PCEPI measures the change in prices paid for goods and services purchased by consumers, and is produced by the BEA on a quarterly basis. The two indexes are similar, but they differ in terms of coverage, weighting, and calculation procedures ( see http://www.bea.gov/iTable ). Given its low volatility, comprehensive coverage of goods and services, and historical revision of the data, the Federal Reserve Bank uses the PCEPI to measure inflation for policy considerations.

Producers' price index (PPI): Also published by the BLS on a monthly basis, the PPI is a family of indexes that measure the average change over time in the prices domestic producers receive for their goods and services. Like the CPI, the PPIs data are used to adjust other economic time series for price changes and to translate those series into inflation-free or constant dollars. For example, constant-dollar GDP series are derived using deflators based on PPI data. The PPIs capture price movements of goods and services prior to the retail level. Therefore, they may not account for subsequent price changes experienced by businesses and final consumers. The U.S. government and the Federal Reserve Bank use PPI data in formulating fiscal and monetary policies. Finally, PPI data are also commonly used in escalating purchase and sales contracts. For more information, refer to the BLS Web site at http://www.bls.gov/ppil .

Employment cost index (ECI): Produced by the BLS, ECI provides a quarterly measure of changes in labor costs ( i.e. wages and salaries and other benefit costs), as well as changes in total compensation. It is one of the principal indicators used by the Federal Reserve Bank in assessing inflationary conditions in the economy. The ECI is also widely used by both Government and private sector. Some examples of its uses are to formulate and assess public policy, to aid collective bargaining negotiations, to evaluate benefit packages, to index Medicare payments, and to adjust wages in long-term contracts. For more information, refer to the BLS Web site at http://www.blsgov/new.released/eci.toc.htm .

Industry specific inflation measures: Additionally, SBA evaluated if the differences between inflation for individual industries and the overall measure of inflation, as measured by the GDP price index, are significant. For this, SBA examined the value added price indexes (VAPI) and Gross Output price indexes (GOPI) by industry contained in BEA's GDP-by-industry accounts tables ( see http://www.bea.gov/iTable ). Value added by industry is the contribution of individual industries to the nation's GDP. Gross Output by Industry measures goods and services produced by an industry, valued at producers' prices ( i.e., the prices received by producers, including excise and sales taxes). The VAPI and GOPI data are published only annually and the latest data available are for 2012. The level of industry disaggregation is not as detailed as in the Economic Census data. SBA calculated the inflation by industry between the calendar years 2008 and 2012 using VAPI and GOPI, and computed the average inflation rate over all industries for which the data were available.

SBA also compared the inflation rates based on CPI, PCEPI, PPI, ECI, and the GDP price index for the period between the first quarter of 2008 and the second quarter of 2013. The results indicated that, although these price indexes tend to show some variations in the short run, they all move in the same direction in the long run, but in different magnitudes. Inflation based on the CPI and PCEPI measures was more or less similar to the one based on the GDP price index and it was somewhat higher based on the PPI and ECI measures. With some variations among industries, SBA found that, on average, inflation rate by industry based on VAPI and GOPI was also more or less similar to the overall inflation rate based on the GDP price index.

The above discussion shows that there exist differences among various price indexes with respect to what they measure and how they are derived. However, generally speaking, all indexes measure changes in some types of price levels in the economy and they all are used by the Government, Federal Reserve and private sector to assess inflationary pressures in the economy, deflate other economic data series, and adjust social security and other income payments. Each price index has its own limitations and advantages and there is no universal preference of one index to others.

As stated above, SBA requires a broad measure of inflation for adjusting its size standards for inflation. In general, the majority of firms participating in the SBA's and other Federal programs receive income or receipts from multiple industries. Among the various inflation measures SBA reviewed, the GDP price index appears to be the most comprehensive measure of movements in the general price level in the economy. It incorporates price changes for all sectors of the economy, including consumer products and services, capital goods, exports, and government services. It is also the most stable measure of inflation overtime relative to other price indexes, especially PPI and ECI. Besides, the GDP price index is widely used as a measure of inflation for policy purposes, and has historical validity and gained acceptance of the small business community. SBA believes that using some other price indexes (such as PPI and ECI) that yield higher inflation than the GDP price index will overestimate the adjustments for inflation and may affect the competitiveness of smaller businesses for Federal opportunities. Most importantly, the GDP price index seems to incorporate information from most other indexes, including PPI, CPI, and ECI, since the BEA uses several subcomponents of these price indexes to deflate various components of GDP ( see BEA, “Concepts and Methods of the U.S. National Income and Product Accounts” at http://bea.gov/national ).

For these reasons, SBA continues to prefer using the GDP price index as the best aggregate measure of inflation for the U.S. economy. Thus, as in the previous inflation adjustments, SBA has decided to use the GDP price index to adjust monetary based size standards for the current inflation adjustment as well.

For this rule, SBA selected the first quarter of 2008 as the base period, because it was the end period for the July 2008 adjustment. SBA selected the fourth quarter of 2013 as the end period for this inflation adjustment.

The GDP price index for the base period was 98.5 and the GDP price index for the end period was 107.1. Accordingly, inflation increased 8.73 percent from the first quarter of 2008 to the fourth quarter of 2013 ((107.1 ÷ 98.5) −1.00) × 100 percent = 8.73 percent. During this period, inflation has been relatively subdued, principally because of a weak and slow economic recovery from the 2007-2009 recession of the U.S. economy, despite some bursts of sharp rises in energy and commodity prices at different times during the period.

Adjustment to receipts based industry size standards: Receipts based size standards were adjusted by multiplying their current levels by 1.0873, and rounding the results to the nearest $500,000. Table 1, Inflation Adjustment to Receipts Based Size Standards, summarizes the results of the analysis for 16 different receipts based size standards levels, ranging from $5 million to $35.5 million. As stated elsewhere in the rule, the $750,000 receipts based size standard for agricultural industries was not adjusted because it was set by the statute. The first column of Table 1 shows the current receipts based size standards, the second column shows their inflation-adjusted values but not rounded, the third column shows their inflation-adjusted values rounded to the nearest $500,000, and the fourth column shows the count of industries and subindustries that are associated with each of the receipts based size standards levels. The results lead to adjustment to 487 size standards, including 476 industries and 11 subindustries or “exceptions.”

Adjustment to assets based size standard: Currently, five industries in North American Classification Systems (NAICS) Sector 52, Finance and Insurance, have the size standard of $500 million in average assets. Similar to the receipts based size standards, the assets based size standard was adjusted by multiplying the current value by 1.0873. The result was $543.7 million, but it was rounded to $550 million.

Adjustment to program based size standards: Most SBA and other Federal programs apply size standards established for industries, as defined by the NAICS. SBA has also established a few size standards on a program basis rather than on an industry basis. These size standards were also adjusted for inflation in the same manner as the receipts based industry size standards. Table 2, Inflation Adjustment to Program Based Size Standards, shows the program based size standards and their corresponding inflation-adjusted values. The size standard for “smaller enterprises” under the Small Business Investment Company (SBIC) Program is set by statute ( see 13 CFR 107.710(a)) and, therefore, not adjusted.

New Alternative Size Standard for 7(a) and 504 Loan Programs: Effective September 27, 2010, the Jobs Act established a new temporary alternative size standard of tangible net worth of not more than $15 million and net income of not more than $5 million for SBA's 7(a) and 504 Loan Programs. On September 29, 2010, SBA issued Notice 5000-1175 advising lenders and the public that, effective September 27, 2010, the new statutory alternative size standard will apply for its 7(a) and 504 Loan Programs, thereby replacing the existing alternative size standard of $8.5 million in tangible net worth and $3 million in net income, then set forth in 13 CFR 121.301(b)(2). The Jobs Act also provided the new temporary alternative size standard would remain in effect for the 7(a) and CDC/504 Loan Programs until the SBA's Administrator has established a different size standard through rulemaking. For this reason, in this rule, SBA is not adjusting the new alternative size standard for its 7(a) and 504 Loan programs for inflation. SBA will issue a different rule to establish a permanent alternative size standard for those programs.

Size Standards for Surety Bond Guarantee Assistance: SBA has decided to remove 13 CFR 121.301(d)(2). Currently, 13 CFR 121.301(d) reads as follows:

(1) A business concern, combined with its affiliates, must meet the size standard for the primary industry in which such business concern, combined with its affiliates, is engaged.

(2) For any contract or subcontract, public or private, to be performed in the Presidentially-declared disaster areas resulting from the 2005 Hurricanes Katrina, Rita or Wilma, a construction (general or special trade) concern or concern performing a contract for services is small if it meets the size standard set forth in paragraph (d)(1) of this section, or the average annual receipts of the concern, together with its affiliates, do not exceed $7 million, whichever is higher.

SBA believes that paragraph (2) is no longer necessary for two reasons. First, given paragraph (1), paragraph (2) is now mostly redundant, because the inflation adjusted receipts based size standards for all industries, except for four, are higher than $7 million ( see Table 1, Inflation Adjustment to Receipts Based Size Standards, above). Second, SBA would not expect, after more than eight years since the Hurricanes Katrina, Rita, and Wilma occurred, small businesses in these disaster areas would be in need of a separate size standard, which now has only limited application. Paragraph (2) made sense when the size standard for a construction concern (general or special trade) for Surety Bond Guarantee was $7 million or less in average receipts, but the size standards for all industries in construction are now higher than $7 million. On August 11, 2010, SBA issued a direct final rule to amend small business size standards for its Surety Bond Guarantee Program (75 FR 48549). Specifically, the direct final rule provided that a business concern is small if such concern, combined with its affiliates, does not exceed the size standard for the NAICS code that corresponds to the primary industry of the business concern, combined with its affiliates.

Size Standards for Economic Injury Disaster Loan (EIDL) Assistance: Since it has been more than eight years since the Hurricanes Katrina, Rita, and Wilma occurred, SBA has decided to remove the text relating to when the Agency determines size status for EIDL assistance under disaster declarations for the Hurricanes Katrina, Rita, and Wilma from 13 CFR 121.302(c).

Size Standard for Leasing of Building Space to Federal Government by Owners—Footnote 9: It has come to SBA's attention that there can be some confusion concerning to what NAICS code(s) footnote 9 and the size standard for the “Leasing of Building Space to Federal Government by Owners” exception apply. Specifically, footnote 9 states, “NAICS code 531190—Leasing of building space to the Federal Government by Owners: For Government procurement, a size standard of $35.5 million in gross receipts applies to the owners of building space leased to the Federal Government. The standard does not apply to an agent.” In the SBA's table of size standards, this “exception” follows immediately after NAICS 531190, Lessors of Other Real Estate Property. This has been understood by some to mean that the exception and footnote 9 apply only to NAICS 531190.

However, the size standard exception for “Leasing of Building Space to Federal Government by Owners” is meant to apply to all industries in NAICS Industry Group 5311, Lessors of Real Estate. That is consistent with SBA's original application of the footnote to Standard Industrial Classification (SIC) Major Group 651, Real Estate Operators (Except Developers) and Lessors, when the SBA's table of size standards was based on the SIC system.

To clarify this, SBA is adding the footnote 9 superscript to each of the four NAICS Industry codes within NAICS Industry Group 5311 and removing from the table the exception that follows NAICS 531190. The new inflation-adjusted size standard for the Leasing of Building Space to Federal Government by Owners exception will be $38.5 million in average annual receipts.

In general, to revise or update size standards, SBA publishes a proposed rule for public comment before issuing a final rule, in accordance with the Administrative Procedure Act (APA), 5 U.S.C. 553 and SBA regulations, 13 CFR 101.108. The APA provides an exception to this standard rulemaking process, however, in situations where an agency finds good cause to adopt a rule without prior public participation. ( See 5 U.S.C. 553(b)(3)(B)). The good cause requirement is satisfied when prior public participation is impracticable, unnecessary, or contrary to the public interest. Under those conditions, an agency may publish an interim final rule without first soliciting public comment. In applying the good cause exception to the standard rulemaking process, Congress recognized that special circumstances (such as a response to a natural disaster or an economic situation) might arise justifying issuance of a rule without prior public participation.

As stated above, the last time SBA made inflation adjustments to size standards was 2008. Many businesses may have lost small business eligibility for Federal assistance under SBA's monetary based size standards simply as a result of the inflation that has occurred since that time. This rule is necessary to make those businesses eligible for Federal assistance. Any delay in the adoption of inflation adjusted size standards could cause serious harm to those businesses and others that are about to exceed current size standards. Immediate implementation of this rule would enable those businesses to benefit from Federal assistance programs and help them create jobs. SBA believes that the job creation under the current economic environment of high unemployment is in the best interest of the public.

The standard notice and comment rulemaking would delay the implementation of this rule by at least eight to twelve months. Such a delay would be contrary to the public interest as it would delay the eligibility of those businesses for Federal small business assistance, perhaps forcing some of them to cease operations before a final rule could be promulgated under the standard rulemaking process. Furthermore, the inflation adjustment will become outdated by the time the final rule is published under notice and comment rulemaking.

SBA believes that delaying the adoption of updated size standards for inflation is not in the best interest of small businesses in the current economic environment. The U.S. economy was in recession from December 2007 to June 2009, the longest and deepest of any recessions since before World War II. The economy lost more than eight million non-farm jobs during 2008-2009. In response, Congress passed and the President signed into law the American Recovery and Reinvestment Act of 2009 (Recovery Act) to promote economic recovery and to preserve and create jobs. Although the recession officially ended in June 2009, the unemployment rate is still at 6.7 percent in March 2014 ( www.bls.gov ) and is forecast to remain around this level at least through the end of 2014. ( http://www.federalreserve.gov/monetarypolicy/mpr_20130717_ part3.htm ). In 2010, Congress passed and the President signed the Jobs Act to promote small business job creation. The Jobs Act included several measures to help small businesses create jobs. Delaying the adoption of updated size standards would prevent businesses that have exceeded size standards due to inflation from participating in Federal financial and procurement assistance programs for small businesses. This would be contrary to the expressed will of the President and the Congress.

For the above reasons, SBA finds that good cause exists to publish this rule as an interim final rule. SBA's rationale for preparing this action as an interim final rule and giving it immediate effect is consistent with the Agency's statutory obligation to act in the public interest in determining eligibility for Federal assistance under the Small Business Act, 15 U.S.C. 633(d). SBA had also implemented inflation adjustments to size standards through an interim final rule in 2002 and 2005 without any controversies.

By publishing this rule as an interim final rule, SBA is not excluding public participation in the rulemaking process. SBA is soliciting comments from interested parties on this interim final rule on a number of issues, including SBA's methodology for inflation adjustment and alternative measures of inflation. SBA will evaluate all comments and revise, if necessary, this rule, and publish a final rule on a later date.

SBA seeks comments on this rule, specifically on the following issues.

1. SBA welcomes comments from the interested parties on SBA's size standards methodology for inflation adjustment to its size standards. Specifically, SBA seeks comment on whether the GDP price index is an appropriate measure of inflation for adjusting size standards. The Agency invites suggestions, along with supporting data and analysis, if a different measure of inflation would be more appropriate.

2. SBA also invites comments on whether it should adjust employee based size standards for changes in labor productivity and technical change, similar to adjusting monetary based size standards for inflation.

3. SBA also invites comments on any other aspects of this rulemaking, such as the changes to size standards for business loan programs, disaster loan programs, and the surety bond guarantee program.

The Office of Management and Budget (OMB) has determined that this interim final rule is not a “significant regulatory action” for purposes of Executive Order 12866. In order to help explain the need for this rule and the rule's potential benefits and costs, SBA is providing a Cost Benefit Analysis in this section of the rule. This is also not a “major rule” under the Congressional Review Act (5 U.S.C. 800).

SBA's statutory mission is to aid and assist small businesses through a variety of financial, procurement, business development, and advocacy programs. To assist the intended beneficiaries of these programs effectively, SBA must establish distinct definitions of which businesses are deemed small businesses. The Small Business Act (15 U.S.C. 632(a)) (Act) delegates to the SBA Administrator the responsibility for establishing small business definitions. The Act also requires that small business definitions vary to reflect industry differences. The supplementary information to this interim final rule explains how SBA adjusts size standards for inflation. SBA is required to assess the impact of inflation on its monetary based size standards at least once every five years (67 FR 3041 and 13 CFR 102(c)). Many businesses may have lost small business eligibility for Federal assistance under SBA's monetary based size standards simply because of inflation that has occurred since the last inflation adjustment to size standards in 2008. This interim final rule aims to make those businesses eligible again for Federal assistance.

The most significant benefit to businesses of this interim final rule is to enable businesses that have exceeded size standards simply due to inflation to regain eligibility for Federal small business assistance programs. This will also help businesses to retain small business eligibility for Federal programs for a longer period. These programs include SBA's financial assistance programs, economic injury disaster loans, and Federal procurement programs intended for small businesses. Federal procurement programs provide targeted opportunities for small businesses under SBA's business development programs, such as 8(a), Small Disadvantaged Businesses (SDB), small businesses located in Historically Underutilized Business Zones (HUBZone), women-owned small businesses (WOSB), economically disadvantaged women-owned small businesses (EDWOSB), and service-disabled veteran-owned small businesses (SDVOSB). Federal agencies may also use SBA's size standards for a variety of other regulatory and program purposes. These programs assist small businesses to become more knowledgeable, stable, and competitive. SBA estimates that this rule will enable approximately 8,500 firms in industries and subindustries with receipts based size standards and about 170 firms in industries with assets based size standards, currently above SBA's size standards, to gain small business status and become eligible for these programs. This will increase the small business share of total receipts in industries and subindustries with receipts based size standards from 31.2 percent to 31.8 percent and the small business share of total assets in industries with assets based size standards from 8.8 percent to 9.4 percent.

Three groups will benefit from the revisions of size standards in this rule: (1) Some businesses that are above the current size standards may gain small business status under the higher, inflation-adjusted size standards, thereby enabling them to participate in Federal small business assistance programs; (2) growing small businesses that are close to exceeding the current size standards will be able to retain their small business status under the higher size standards, thereby enabling them to continue their participation in the programs; and (3) Federal agencies will have a larger pool of small businesses from which to draw for their small business procurement programs.

SBA estimates that firms gaining small business status under the inflation adjusted size standards could receive Federal contracts totaling $150 million to $200 million annually under SBA's small business, 8(a), SDB, HUBZone, WOSB, EDWOSB, and SDVOSB Programs, and unrestricted procurements. The added competition for many of these procurements can also result in lower prices to the Government for procurements reserved for small businesses, but SBA cannot quantify this benefit.

Based on the fiscal years 2010-2012 data, SBA estimates about 80 additional loans totaling about $30 million could be made to these newly defined small businesses under SBA's 7(a) and 504 Loan Programs under the adjusted size standards. Increasing the size standards will likely result in more small business guaranteed loans to businesses in these industries, but it is impractical to try to estimate the exact number and total amount of loans. There are two reasons for this: (1) Under the Jobs Act, SBA can now guarantee substantially larger loans than in the past; and (2) as described above, the Jobs Act established an alternative size standard ($15 million in tangible net worth and $5 million in net income after income taxes) for business concerns that do not meet the size standards for their industry. Therefore, SBA finds it difficult to quantify the actual impact of these inflation adjusted size standards on its 7(a) and 504 Loan Programs.

Newly defined small businesses will also benefit from SBA's Economic Injury Disaster Loan (EIDL) Program. Since this program is contingent on the occurrence and severity of a disaster in the future, SBA cannot make a meaningful estimate of this impact.

In addition, newly defined small businesses will also benefit through reduced fees, less paperwork, and fewer compliance requirements that are available to small businesses through Federal government.

To the extent that those nearly 8,700 additional small firms could become active in Federal procurement programs, the adjusted size standards in this final interim rule may entail some additional administrative costs to the government as a result of more businesses being eligible for Federal small business programs. For example, there will be more firms seeking SBA's guaranteed loans, more firms eligible for enrollment in the System of Award Management (SAM) database, and more firms seeking certification as 8(a) or HUBZone firms or qualifying for small business, WOSB, EDWOSB, SDVOSB, and SDB status. Among those newly defined small businesses seeking SBA's assistance, there could be some additional costs associated with compliance and verification of small business status and protests of small business status. However, SBA believes that these added administrative costs will be minimal because mechanisms are already in place to handle these requirements.

In some cases, Federal government contracts may have higher costs. With a greater number of businesses defined as small, Federal agencies may choose to set aside more contracts for competition among small businesses only rather than using full and open competition. The movement from unrestricted to small business set-aside contracting might result in competition among fewer total bidders, although there will be more small businesses eligible to submit offers. However, the additional costs associated with fewer bidders are expected to be minor since, by law, procurements may be set aside for small businesses or reserved for the 8(a), HUBZone, WOSB, EDWOSB, or SDVOSB Programs only if awards are expected to be made at fair and reasonable prices. In addition, there may be higher costs when more full and open contracts are awarded to HUBZone businesses that receive price evaluation preferences.

The size standards adjustments in this interim final rule may have some distributional effects among large and small businesses. Although SBA cannot estimate with certainty the actual outcome of the gains and losses among small and large businesses, it can identify several probable impacts. There may be a transfer of some Federal contracts to small businesses from large businesses. Large businesses may have fewer Federal contract opportunities as Federal agencies decide to set aside more contracts for small businesses. In addition, some Federal contracts may be awarded to HUBZone concerns instead of large businesses since these firms may be eligible for a price evaluation preference for contracts when they compete on a full and open basis.

Similarly, some businesses defined small under the current size standards may obtain fewer Federal contracts due to the increased competition from more businesses defined as small under the proposed size standards. This transfer may be offset by a greater number of Federal procurements set aside for all small businesses. The number of newly defined and expanding small businesses that are willing and able to sell to the Federal Government will limit the potential transfer of contracts from large and currently defined small businesses. SBA cannot estimate the potential distributional impacts of these transfers with any degree of precision.

The revision to the current monetary based industry size standards for 481 industries and 11 subindustries, and to the monetary based size standards for other specific programs are consistent with SBA's statutory mandate to assist small business. This regulatory action promotes the Administration's objectives. One of SBA's goals in support of the Administration's objectives is to help individual small businesses succeed through fair and equitable access to capital and credit, Government contracts, and management and technical assistance. Reviewing and modifying size standards, when appropriate, including periodic inflation adjustments, ensure that intended beneficiaries have access to small business programs designed to assist them.

A description of the need for this regulatory action and benefits and costs associated with this action including possible distributions impacts that relate to Executive Order 13563 is included above in the Cost Benefit Analysis under Executive Order 12866.

In an effort to engage interested parties in this action, SBA gave appropriate consideration to all input, suggestions, recommendations, and relevant information obtained from industry groups, individual businesses, and Federal agencies in preparing this interim final rule.

The review of size standards in industries and financial assistance programs covered in this interim final rule is consistent with Executive Order 13563, Section 6, calling for retrospective analyses of existing rules. The last inflationary adjustment of monetary based size standards occurred in July 2008.

Additionally to the inflationary adjustment of monetary based size standards of this final interim rule, SBA finalized a comprehensive review of all the receipts and assets based industry size standards to ensure that they have supportable bases.

This action meets applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. The action does not have retroactive or preemptive effect.

For purposes of Executive Order 13132, SBA has determined that this interim final rule will not have substantial, direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, SBA has determined that this interim final rule has no federalism implications warranting preparation of a federalism assessment.

For the purpose of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA has determined that this interim final rule will not impose any new reporting or record keeping requirements.

Under the Regulatory Flexibility Act (RFA), this interim final rule may have a significant impact on a substantial number of small businesses in the industries and subindustries covered by this rule. As described above, this rule may affect small businesses seeking Federal contracts, loans under SBA's 7(a), 504 and Economic Injury Disaster Loan Programs, and assistance under other Federal small business programs.

Immediately below, SBA sets forth an initial regulatory flexibility analysis (IRFA) of this interim final rule addressing the following questions: (1) What are the need for and objective of the rule? (2) What are SBA's description and estimate of the number of small businesses to which the rule will apply? (3) What are the projected reporting, record keeping, and other compliance requirements of the rule? (4) What are the relevant Federal rules that may duplicate, overlap, or conflict with the rule? and (5) What alternatives will allow the Agency to accomplish its regulatory objectives while minimizing the impact on small businesses?

As discussed in the supplemental information, the revision to the monetary based size standards for inflation more appropriately defines small businesses. This interim final rule merely restores small business eligibility in real terms to businesses that have grown above the size standard due to inflation rather than due to increased business activity. A review of the latest inflation indexes indicates that inflation has increased a sufficient amount to warrant an increase to the current monetary based size standards.

Section 3(a) of the Small Business Act (15 U.S.C. 632(a)) gives SBA the authority to establish and change size standards. Within its administrative discretion, SBA implemented a policy in its regulations to review the effect of inflation on size standards at least once every five years (13 CFR 121.102(c)) and make any changes as appropriate. As discussed in the supplementary information, inflation has increases at a sufficient level since the time of the 2008 final rule to warrant a further adjustment to size standards at this time.

SBA estimates that about 8,500 additional firms will become small because of increased receipts based size standards of 476 industries and 11 subindustries. That represents 0.2 percent of total firms that are small under current monetary based size standards. This will result in an increase in the small business share of total industry receipts in those industries and subindustries from 31.2 percent under the current size standards to 31.8 percent under the inflation-adjusted size standards. Due to the adjustment of assets based size standards in five industries, about 170 additional firms will gain small business status in those industries. This will increase the small business share of total assets in those industries from 8.8 percent to 9.4 percent. The size standards adopted in this interim final rule will enable businesses that have exceeded the size standards for their industries to regain small business status. It will also help currently small businesses to retain their small business status for a longer period. Many firms may have lost their eligibility and find it difficult to compete at current size standards with companies that are significantly larger than they are. SBA believes the competitive impact will be positive for existing small businesses and for those that exceed the size standards but are on the very low end of those that are not small. They might otherwise be called or referred to as mid-sized businesses, although SBA only defines what is small; entities that are not small are “other than small.”

The inflation adjustment to size standards imposes no additional reporting or record keeping requirements on small businesses. However, qualifying for Federal procurement and a number of other programs requires that businesses register in the SAM database and certify in SAM that they are small at least once annually. Therefore, newly eligible small businesses opting to participate in those programs must comply with SAM requirements. Businesses whose status changes in SAM from other than small to small must update their SAM profiles and complete the “representations and certifications” sections of SAM. However, there are no costs associated with SAM registration or certification. Changing size standards alters the access to SBA's programs that assist small businesses, but does not impose a regulatory burden because they neither regulate nor control business behavior.

Under section 3(a)(2)(C) of the Small Business Act, 15 U.S.C. 632(a)(2)(c), Federal agencies must use SBA's size standards to define a small business, unless specifically authorized by statute to do otherwise. In 1995, SBA published in the Federal Register a list of statutory and regulatory size standards that identified the application of SBA's size standards as well as other size standards used by Federal agencies (60 FR 57988 (November 24, 1995)). SBA is not aware of any Federal rule that would duplicate or conflict with establishing size standards.

However, the Small Business Act and SBA's regulations allow Federal agencies to develop different size standards if they believe that SBA's size standards are not appropriate for their programs, with the approval of SBA's Administrator (13 CFR 121.903). The Regulatory Flexibility Act authorizes an Agency to establish an alternative small business definition for Regulatory Flexibility Analysis purposes, after consultation with the Office of Advocacy of the U.S. Small Business Administration (5 U.S.C. 601(3)).

By law, SBA is required to develop numerical size standards for establishing eligibility for Federal small business assistance programs. Other than varying size standards by industry and changing the size measures, no practical alternative exists to the systems of numerical size standards.

SBA's only other consideration was whether to adopt the size standards presented in the interim final rule with no further increase for the inflation. However, SBA believes that the additional 8.73 percent inflation that has occurred since the time of the final rule published in July 2008 sufficiently affects the real value of the size standards to warrant applying an increase at this time.

For the reasons set forth in the preamble, SBA amends 13 CFR part 121 as follows:

The FAA has determined that notice of, and opportunity for prior public comment on, these special conditions are impracticable because these procedures would significantly delay issuance of the design approval and thus delivery of the affected airplane. In addition, the substance of these special conditions has been subject to the public-comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon publication in the Federal Register .

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data.

We will consider all comments we receive by the closing date for comments. We may change these special conditions based on the comments we receive.

On October 23, 2012, Gulfstream applied for a supplemental type certificate for airbag-equipped shoulder belts in the Gulfstream Model GVI airplane. The Gulfstream Model GVI is a two-engine jet transport airplane with an executive cabin interior. The maximum takeoff weight is 99,600 pounds, with a maximum passenger capacity of 19.

Under the provisions of § 21.101 Gulfstream must show that the GVI, as changed, continues to meet the applicable provisions of the regulations incorporated by reference in type certificate no. T00015AT or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations incorporated by reference in T00015AT are as follows:

The certification basis is 14 CFR part 25, Airworthiness Standards: Transport Category Airplanes, effective February 1, 1965, including Amendments 25-1 through 25-120 and 25-122, 25-124, and 25-132.

Amendment 25-118 was not published and therefore does not apply.

Optional Design Regulations:

• The Model GVI has been shown to comply with the requirements for ditching: § 25.801, 25.563, 25.807(e), and 25.1585(a). When the operating rules require emergency-ditching equipment, compliance with §§ 25.1411 and 25.1415 must be shown. Gulfstream Report GVI-GER-1709, titled “Design Requirements Document for Ditching Equipment,” provides an acceptable means for showing compliance with §§ 25.1411 and 25.1415.

• The Model GVI is approved for flight into known icing conditions and has demonstrated compliance to § 25.1419.

Exemption No. 9761, §§ 25.562(a) and 25.785(b) for side-facing divans also applies.

The certification basis includes certain special conditions, exemptions, and equivalent-safety findings that are not relevant to these proposed special conditions.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the GVI because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the applicant apply for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, the special conditions would also apply to the other model.

In addition to the applicable airworthiness regulations and special conditions, the GVI must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34 and the noise-certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type-certification basis under § 21.101.

The Gulfstream model GVI will incorporate the following novel or unusual design feature:

Gulfstream Aerospace Corporation is proposing to install inflatable shoulder straps on side-facing divans to reduce the potential for head injury in the event of an accident. The inflatable shoulder strap works similarly to an automotive airbag except that the airbag is integrated with the shoulder strap of the restraint system.

Part 25 states the performance criteria for head injury protection in objective terms. However, none of these criteria are adequate to address the specific issues raised concerning seats with inflatable shoulder straps. The FAA has therefore determined that, in addition to the requirements of part 25, special conditions are needed to address requirements particular to installation of seats with inflatable shoulder straps.

Accordingly, in addition to the passenger-injury criteria specified in § 25.785, these special conditions are adopted for Gulfstream GVI airplanes equipped with inflatable shoulder straps.

From the standpoint of a passenger-safety system, the inflatable shoulder belt is unique in that it is both an active and entirely autonomous device. While the automotive industry has good experience with airbags, the conditions of use and reliance on the inflatable shoulder belt as the sole means of injury protection are quite different. In automobile installations, the airbag is a supplemental system and works in conjunction with an upper torso restraint. In addition, the crash event is more definable and of typically shorter duration, which can simplify the activation logic. The airplane operating environment is also quite different from automobiles, and includes the potential for greater wear and tear and unanticipated abuse conditions (due to galley loading, passenger baggage, etc.). Airplanes also operate where exposure to high-intensity electromagnetic fields could affect the activation system.

The inflatable shoulder belt has two potential advantages over other means of head-impact protection. First, it can provide significantly greater protection than would be expected with energy-absorbing pads, and second, it can provide essentially equivalent protection for occupants of all stature. These are significant advantages from a safety standpoint, because such devices will likely provide a level of safety that exceeds the minimum standards of the federal aviation regulations. Conversely, inflatable shoulder belts in general are active systems and must be relied upon to activate properly when needed, as opposed to an energy-absorbing pad or upper-torso restraint that is passive and always available. Therefore, the potential advantages must be balanced against this and other potential disadvantages in developing standards for this design feature.

The FAA has considered the installation of inflatable shoulder belts to have two primary safety concerns: First, that they perform properly under foreseeable operating conditions, and second, that they do not perform in a manner or at such times as would constitute a hazard to the airplane or occupants. This latter point has the potential to be the more rigorous of the requirements, owing to the active nature of the system.

The inflatable shoulder belt will rely on electronic sensors for signaling, and a stored gas canister for inflation. These same devices could be susceptible to inadvertent activation, causing deployment in a potentially unsafe manner. The consequence of inadvertent deployment, as well as failure to deploy, must be considered in establishing the reliability of the system. Gulfstream Aerospace Corporation must substantiate that the effects of an inadvertent deployment in flight either would not cause injuries to occupants, or that such deployment(s) meet the requirement of § 25.1309(b). The effect of an inadvertent deployment on a passenger or crewmember that might be positioned close to the inflatable shoulder belt should also be considered. The person could be either standing or sitting. A minimum reliability level must be established for this case, depending upon the consequences, even if the effect on the airplane is negligible.

The potential for an inadvertent deployment could be increased as a result of condition in service. The installation must take into account wear and tear so that the likelihood of an inadvertent deployment is not increased to an unacceptable level. In this context, an appropriate inspection interval and self-test capability are considered necessary. Other outside influences are lightning and high-intensity radiated fields (HIRF). Existing HIRF special conditions for the model GVI are applicable.

Additionally, the inflatable shoulder-belt installation should be protected from the effects of fire, so that an additional hazard is not created by, for example, a rupture of the pyrotechnic squib.

To be an effective safety system, the inflatable shoulder belt must function properly and must not introduce any additional hazards to occupants as a result of its functioning. In several ways, the inflatable shoulder belt differs from traditional occupant-protection systems and requires special conditions to ensure adequate performance.

Because the inflatable shoulder belt is essentially a single-use device, this potentially could deploy under crash conditions that are not sufficiently so severe as to require head-injury protection from the inflatable shoulder belt. Because an actual crash is frequently composed of a series of impacts before the airplane comes to rest, this could render the inflatable shoulder belt useless if a larger impact follows the initial impact. The situation does not exist with energy-absorbing pads or upper-torso restraints, which tend to provide continuous protection regardless of severity or number of impacts in a crash event. Therefore, the inflatable shoulder-belt installation should provide protection, when it is required, by not expending its protection during a less-severe impact. It is also possible to have several large impact events during the course of a crash, but we will not require the inflatable shoulder belt to provide protection for multiple impacts.

Because each occupant's restraint system provides protection for that occupant only, the installation must address seats that are unoccupied. It will be necessary to show that the required protection is provided for each occupant regardless of the number of occupied seats, and considering that unoccupied seats may have shoulder belts that are active.

The inflatable shoulder belts should be effective for a wide range of occupants. The FAA has historically considered the range from the 5th-percentile female to the 95th-percentile male as the range of occupants that must be taken into account. In this case, the FAA is proposing consideration of a broader range of occupants, due to the nature of shoulder-belt installation and their close proximity to the occupant. In a similar vein, these persons could have assumed the brace position for those accidents where an impact is anticipated. Test data indicate that occupants in the brace position do not require supplemental protection, so it would not be necessary to show that the inflatable shoulder belts will enhance the brace position. However, the inflatable shoulder belts must not introduce a hazard in the case of deploying into the seated, braced occupant.

Another area of concern is the use of seats, so equipped, by children, whether lap-held, in approved child safety seats, or occupying the seat directly. Similarly, if the seat is occupied by a pregnant woman, the installation should address such usage either by demonstrating that it will function properly, or by adding appropriate limitation on usage.

Because the inflatable shoulder belt will be electrically powered, there is the possibility that the system could fail due to a separation in the fuselage. And because this system is intended as a crash/post-crash protection means, failure to deploy due to fuselage separation is not acceptable. As with emergency lighting, the system should function properly if such a separation occurs at any point in the fuselage. As required by § 25.1353(a), operation of the existing airplane electrical equipment should not adversely impact the function of the inflatable lapbelt under all foreseeable conditions.

The inflatable lapbelt is likely to have a large volume displacement. Likewise, the inflated bag could potentially impede egress of passengers. The bag deflates to absorb energy, so it is likely that an inflatable lapbelt would be deflated at the time that persons would be trying to leave their seats. Nonetheless, we consider it appropriate to specify a time interval after which the inflatable lapbelt may not impede rapid exit (egress) from the airplane. Ten seconds has been deemed to be a reasonable time, as this corresponds to the maximum time allowed for an exit to be openable (§ 25.809).

In actuality, it is unlikely that an exit would be prepared this quickly in an accident severe enough to warrant deployment of the inflatable lapbelt, and the inflatable lapbelt will likely deflate much sooner than ten seconds.

This potential impediment to rapid egress is even more critical at the seats installed in the emergency-exit rows. Section 25.813 requires passenger access to the exit, from the main aisle, in the form of an unobstructed passageway, with no interference in opening the exit. The restraint system must not create an impediment to the access to, and the opening of, the exit. In some cases, the passenger, rather than a flightcrew member, opens an exit such as a Type III overwing hatch. These lap belts should be evaluated in the exit row under existing regulations (§§ 25.809 and 25.813) and guidance material. The inflatable lap belts must also be evaluated in post-crash conditions, and should be evaluated using representative restraint systems in the bag-deployed condition.

This evaluation would include reviewing the access to, and opening of, the exit, specifically for obstructions in the egress path, and any interference in opening the exit. Each unique interior configuration must be considered.

If the restraint creates any obstruction or interference, it is likely that it could impede the rapid egress from the airplane. Project-specific guidance is likely necessary if these restraint systems are installed at exit-door rows.

Part I of appendix F to part 25 specifies the flammability requirements for interior materials and components. Appendix F has no reference to inflatable restraint systems because such devices did not exist at the time the flammability requirements were written. The existing requirements are based on both material types and use, and have been specified in light of the state-of- the-art materials available to perform a given function. In the absence of a specific reference, the default requirement would be for the type of material used in constructing the inflatable restraint, which is a fabric in this case. However, in writing special conditions, the FAA must also consider the use of the material, and whether the default requirement is appropriate. In this case, the specialized function of the inflatable shoulder belt means that highly specialized materials are needed. The standard normally applied to fabrics is a 12-second vertical ignition test. However, materials that meet this standard do not perform adequately as inflatable shoulder belts. Because the safety benefit of the inflatable shoulder belt is significant, the flammability standard appropriate for these devices should not screen out suitable materials, thereby effectively eliminating use of the inflatable shoulder belt based on its flammability performance. At this time, the 2.5-inch-per-minute horizontal test is considered to provide that balance. As the technology in materials progresses (which is expected), the FAA may change this standard in subsequent special conditions to account for improved materials.

The following special conditions can be characterized as addressing either the safety performance of the system or the system's integrity against inadvertent activation. Because a crash requiring use of the inflatable shoulder belt is a relatively rare event, and because the consequences of an inadvertent activation are potentially quite severe, these later requirements are probably more rigorous from a design standpoint.

Note that, although these special conditions are applicable to the inflatable shoulder belts as installed, compliance with these special conditions is not an installation approval. While these special conditions relate to each such system installed, the overall installation approval is a separate finding and must consider the combined effects of all such systems installed.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

As discussed above, these special conditions are applicable to the Gulfstream Model GVI airplane. Should Gulfstream apply at a later date for a supplemental type certificate to modify any other model included on type certificate no. T00015AT to incorporate the same novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on one model of airplane. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane.

The substance of these special conditions has been subjected to the notice-and-comment period in several prior instances and has been derived without substantive change from those previously issued. It is unlikely that prior public comment would result in a significant change from the substance contained herein. Therefore, because a delay would significantly affect the certification of the airplane, which is imminent, the FAA has determined that prior public notice and comment are unnecessary and impracticable, and good cause exists for adopting these special conditions upon publication in the Federal Register . The FAA is requesting comments to allow interested persons to submit views that may not have been submitted in response to the prior opportunities for comment described above.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Gulfstream Model GVI airplanes modified by Gulfstream.

In addition to the requirements specified in exemption no. 9761, the following special conditions are proposed as part of the type certification basis for Gulfstream Model GVI airplanes equipped with an airbag system in the shoulder belt.

1. For seats with an airbag system in the shoulder belt, show that the airbag system in the shoulder belt will deploy and provide protection under crash conditions where it is necessary to prevent serious injury. The means of protection must take into consideration a range of stature from a 2-year-old child to a 95th-percentile male. The airbag system in the shoulder belt must provide a consistent approach to energy absorption throughout that range of occupants. When the seat system includes an airbag system, that system must be included in each of the certification tests as it would be installed in the airplane. In addition, the following situations must be considered, wherein the seat occupant is:

2. The airbag system in the shoulder belt must provide adequate protection for each occupant regardless of the number of occupants of the seat assembly, considering that unoccupied seats may have an active airbag system in the shoulder belt.

3. The design must prevent the airbag system in the shoulder belt from being either incorrectly buckled or incorrectly installed, such that the airbag system in the shoulder belt would not properly deploy. Alternatively, it must be shown that such deployment is not hazardous to the occupant, and will provide the required injury protection.

4. It must be shown that the airbag system in the shoulder belt is not susceptible to inadvertent deployment as a result of wear and tear, or inertial loads resulting from in-flight or ground maneuvers (including gusts and hard landings), and other operating and environmental conditions (vibrations, moisture, etc.) likely to occur in service.

5. Deployment of the airbag system in the shoulder belt must not injure the seated occupant, including injuries that could impede rapid egress. This assessment should include an occupant whose belt is loosely fastened.

6. It must be shown that inadvertent deployment of the airbag system in the shoulder belt, during the most critical part of the flight, will either meet the requirement of § 25.1309(b) or not cause a hazard to the airplane or its occupants.

7. It must be shown that the airbag system in the shoulder belt will not impede rapid egress of occupants 10 seconds after airbag deployment.

8. The airbag system must be protected from lightning and high-intensity radiated fields (HIRF). The threats to the airplane specified in existing regulations regarding lighting, § 25.1316, and HIRF, § 25.1317, are incorporated by reference for the purpose of measuring lightning and HIRF protection.

9. The airbag system in the shoulder belt must function properly after loss of normal airplane electrical power, and after a transverse separation of the fuselage at the most critical location. A separation at the location of the airbag system in the shoulder belt does not have to be considered.

10. It must be shown that the airbag system in the shoulder belt will not release hazardous quantities of gas or particulate matter into the cabin.

11. The airbag system in the shoulder-belt installation must be protected from the effects of fire such that no hazard to occupants will result.

12. A means must be available for a crewmember to verify the integrity of the airbag system in the shoulder-belt activation system prior to each flight, or it must be demonstrated to reliably operate between inspection intervals. The FAA considers that the loss of the airbag-system deployment function alone (i.e., independent of the conditional event that requires the airbag-system deployment) is a major-failure condition.

13. The inflatable material may not have an average burn rate of greater than 2.5 inches per minute when tested, using the horizontal flammability test defined in part 25, appendix F, part I, paragraph (b)(5).

14. The airbag system in the shoulder belt, once deployed, must not adversely affect the emergency-lighting system (i.e., block floor proximity lights to the extent that the lights no longer meet their intended function).

Background

On August 25, 2008, Airbus applied for a type certificate for their new Model A350-900 series airplane. Later, Airbus requested and the FAA approved an extension to the application for FAA type certification to June 28, 2009. The Model A350-900 series airplane has a conventional layout with twin wing-mounted Rolls-Royce Trent XWB engines. It features a twin aisle 9-abreast economy class layout, and accommodates side-by-side placement of LD-3 containers in the cargo compartment. The basic Model A350-900 series configuration will accommodate 315 passengers in a standard two-class arrangement. The design cruise speed is Mach 0.85 with a Maximum Take-Off Weight of 602,000 lbs.

The Airbus Model A350-900 series airplane is equipped with two side stick controllers instead of the conventional control columns and wheels. This kind of controller is designed for only one-hand operation. The requirement of Title 14, Code of Federal Regulations (14 CFR) 25.397(c), which defines limit pilot forces and torques for conventional wheel or stick controls, is not adequate for a side stick controller. Special conditions are necessary to specify the appropriate loading conditions for this kind of controller.

Under Title 14, Code of Federal Regulations (14 CFR) 21.17, Airbus must show that the Model A350-900 series meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-129.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the Model A350-900 series because of a novel or unusual design feature, special conditions are prescribed under § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same or similar novel or unusual design feature, the special conditions would also apply to the other model under § 21.101.

In addition to the applicable airworthiness regulations and special conditions, the Model A350-900 series must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34 and the noise-certification requirements of 14 CFR part 36. The FAA must issue a finding of regulatory adequacy under § 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, under § 11.38, and they become part of the type-certification basis under § 21.17(a)(2).

The Airbus Model A350-900 series airplane will incorporate the following novel or unusual design feature: a side stick controller for only one-hand operation by wrist and not by arms.

Special conditions for Airbus side stick controllers have been developed and applied during previous Airbus certification programs. These special conditions are also appropriate for the Model A350-900 series side stick controller.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

Notice of proposed special conditions No. 25-13-27-SC for Airbus Model A350-900 series airplanes was published in the Federal Register on December 17, 2013 (78 FR 76248). No comments were received, and the special conditions are adopted as proposed.

As discussed above, these special conditions apply to Airbus Model A350-900 series airplanes. Should Airbus apply later for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on the Airbus Model A350-900 series airplanes. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

Accordingly, pursuant to the authority delegated to me by the Administrator, the following special conditions are issued as part of the type certification basis for Airbus Model A350-900 series airplanes in lieu of § 25.397(c), which are identical to A320, A340, and A380 special conditions on the same subject:

For the Airbus Model A350-900 series airplane equipped with stick controls designed for forces to be applied by one wrist and not arms, the limit pilot forces are as follows:

1. For all components between and including the handle and its control stops.

2. For all other components of the side stick control assembly, but excluding the internal components of the electrical sensor assemblies, to avoid damage as a result of an in-flight jam.

On August 25, 2008, Airbus applied for a type certificate for their new Model A350-900 series airplane. Later, Airbus requested and the FAA approved an extension to the application for FAA type certification to June 28, 2009. The Model A350-900 series airplane has a conventional layout with twin wing-mounted Rolls-Royce Trent engines. It features a twin aisle 9-abreast economy class layout, and accommodates side-by-side placement of LD-3 containers in the cargo compartment. The basic Model A350-900 series configuration will accommodate 315 passengers in a standard two-class arrangement. The design cruise speed is Mach 0.85 with a Maximum Take-Off Weight of 602,000 lbs. Airbus proposes the Model A350-900 series airplane to be certified for extended operations (ETOPS) beyond 180 minutes at entry into service for up to a 420-minute maximum diversion time.

The Airbus Model A350-900 series airplane is equipped with a braking system that affects the airplane's pivoting behavior. During pivoting the braking system inhibits braking on some wheels. Title 14 Code of Federal Regulations (14 CFR) 25.503 and European Aviation Safety Agency (EASA) Certification Specification (CS) section 25.503, each specify limit loads due to pivoting, however, system effects are not taken into account.

Under Title 14, Code of Federal Regulations (14 CFR) 21.17, Airbus must show that the Model A350-900 series meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-129.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the Model A350-900 series because of a novel or unusual design feature, special conditions are prescribed under § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same or similar novel or unusual design feature, the special conditions would also apply to the other model under § 21.101.

In addition to the applicable airworthiness regulations and special conditions, the Model A350-900 series must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34 and the noise-certification requirements of 14 CFR part 36 and the FAA must issue a finding of regulatory adequacy under § 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, under § 11.38, and they become part of the type-certification basis under § 21.17(a)(2).

The Airbus Model A350-900 series airplane will incorporate the following novel or unusual design features: a braking system that affects the airplane's pivoting behavior.

Within the Aviation Rulemaking Advisory Committee, the Loads and Dynamics Harmonization Working Group developed criteria for determining pivoting loads. The group recommended, for airplanes with more than two main landing gear units, a rational pivoting maneuver that takes into account the effects of the braking system and tire characteristics, in lieu of the current requirement. Although the Airbus Model A350-900 series airplane has two main landing gear units, EASA and the FAA propose to apply the same criteria on this airplane.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

Notice of proposed special conditions No. 25-13-10-SC for Airbus Model A350-900 series airplanes was published in the Federal Register on October 29, 2013 (78FR64415). The Boeing Company submitted one comment, which stated that “there is not a specific requirement to consider failure modes. Failure modes of the brake system that would cause brakes to be applied during pivoting should be investigated in accordance with the requirements relating to systems and structures interaction. We suggest that the FAA consider revising the proposal to include this specific requirement.”

Failure modes of the braking system are addressed by a separate special-conditions document titled Interaction of Systems and Structures, published in the Federal Register on December 20, 2013 (78FR76980). The Interaction of Systems and Structures special conditions requires that the effects of system failures be taken into account, and specifically addresses the pivoting requirement, § 25.503, and any special condition used in lieu of § 25.503.

This (i.e., current) special conditions document addresses loads associated with structural design not specific to a failure condition.

As discussed above, these special conditions apply to Airbus Model A350-900 series airplanes. Should Airbus apply later for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on the Airbus Model A350-900 series airplanes. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

1. The main landing gear and supporting structure must be designed for the loads induced by pivoting during ground maneuvers.

a. The following rational pivoting maneuvers must be considered:

i. Towing at the nose gear at the critical towing angle with no brakes applied, including cases with torque links disconnected; and separately,

ii. Application of symmetrical or unsymmetrical forward thrust to aid pivoting, with or without braking by pilot action on the pedals.

b. The airplane is assumed to be in static equilibrium, with the loads being applied at the ground contact points.

c. The limit vertical load factor must be 1.0, and:

i. For wheels with brakes applied, the coefficient of friction must be 0.8,

ii. For wheels with brakes not applied, the ground tire reactions must be based on reliable tire data.

The FAA has determined that notice of, and opportunity for prior public comment on, these special conditions are impracticable because these procedures would significantly delay issuance of the design approval and thus delivery of the affected airplane. In addition, the substance of these special conditions has been subject to the public-comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon publication in the Federal Register.

We invite interested people to take part in this rulemaking by sending written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data.

We will consider all comments we receive by the closing date for comments. We may change these special conditions based on the comments we receive.

On May 28, 2009, The Boeing Company applied for an amendment to type certificate no. T00021SE to include the new Model 787-9 airplane. The Model 787-9, which is a derivative of the Model 787 airplane currently approved under type certificate no. T00021SE, is a wide-body twin jet with wing-mounted engines. It has a 420-passenger capacity, a maximum takeoff weight of 553,000 lb/251,360 kg, and is equipped with two Rolls-Royce Trent T1000 or General Electric GENx engines.

Amendment 25-15 to part 25, dated October 24, 1967, introduced the subject of side-facing seats and a requirement that each occupant in a side-facing seat must be protected from head injury by a safety belt and a cushioned rest that will support the arms, shoulders, head, and spine.

Subsequently, Amendment 25-20, dated April 23, 1969, clarified the definition of sideward-facing seats to require that each occupant of a seat that is positioned at more than an 18 degree angle to the vertical plane containing the airplane centerline must be protected from head injury by a safety belt and an energy-absorbing rest that supports the arms, shoulders, head, and spine; or by a safety belt and shoulder harness that prevents the head from contacting injurious objects. The FAA concluded that a maximum 18-degree angle would provide an adequate level of safety based on tests that were performed at that time, and thus adopted that standard.

Part 25 was amended June 16, 1988, by Amendment 25-64, to revise the emergency-landing conditions that must be considered in the design of the airplane. Amendment 25-64 revised the static-load conditions in § 25.561, and added a new § 25.562 that required dynamic testing for all seats approved for occupancy during takeoff and landing. The intent of Amendment 25-64 is to provide an improved level of safety for occupants on transport-category airplanes. Because most seating is forward-facing on transport-category airplanes, the pass/fail criteria developed in Amendment 25-64 focused primarily on these seats. As a result, the FAA issued Policy Memorandums ANM-03-115-30 and PS-ANM-100-2000-00123 to provide the additional guidance necessary to demonstrate the level of safety required by the regulations for side-facing seats.

To reflect current research findings, the FAA developed a methodology to address all fully side-facing seats (i.e, seats oriented in the airplane with the occupant facing 90 degrees to the direction of airplane travel) and has documented those requirements in a set of proposed new special conditions. In this regard, the FAA has issued Policy Statement PS-ANM-25-03-R1 which effectively conveys revised injury criteria associated with neck and leg injuries.

The Model 787-9 Air New Zealand Business Class seat installation is novel such that the current Model 787-8 side-facing seat special conditions do not adequately convey occupant protection expectations for an intermediate 49-degree, side-facing seat installation. Therefore, the configuration Boeing proposes requires revised special conditions.

Under the provisions of 14 CFR 21.101, Boeing must show that the 787-9 meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-128, except for earlier amendments as agreed upon by the FAA. These regulations will be incorporated into type certificate no. T00021SE after type certification approval of the 787-9. The regulations incorporated by reference in T00021SE are as follows:

The type-certification basis for the Model 787-9 airplane is 14 CFR part 25, effective February 1, 1965, as amended by Amendments 25-1 through 25-128, except § 25.795, Security Considerations, at Amendment 25-016; and § 25.125, Landing, at Amendment 25-108.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the Boeing Model 787-9 airplane because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same novel or unusual design feature, or should any other model already included on the same type certificate be modified to incorporate the same novel or unusual design feature, the special conditions would also apply to the other model.

In addition to the applicable airworthiness regulations and special conditions, the Boeing Model 787-9 airplane must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34 and the noise certification requirements of 14 CFR part 36.

The FAA issues special conditions, as defined in 14 CFR 11.19, in accordance with § 11.38, and they become part of the type-certification basis under § 21.101.

The Boeing Model 787-9 airplane will incorporate the following novel or unusual design features:

Installation of Model UCS3 oblique business-class passenger seats manufactured by Zodiac Seats UK, which are seats installed at an angle of 49 degrees to the airplane centerline. In addition, the seat divider wall includes an inflatable restraint system for occupant restraint and injury protection. To provide a level of safety equivalent to that afforded to occupants of forward- and aft-facing seats, additional airworthiness standards, in the form of special conditions, are necessary. Although special conditions 25-431-SC and 25-458-SC already apply to the 787, these do not directly address the complex occupant-loading conditions introduced by a seat the centerline of which is at a 49-degree angle to the centerline of the airplane.

The business class seating configuration proposed by Boeing is unique due to the seat installation at a 49-degree angle to the airplane centerline. Special conditions 25-458-SC were not intended to address this configuration nor is this configuration specifically addressed by policy statement PS-ANM-25-03-R1 (which is intended to address fully side-facing seats i.e., 90 degree installation angle). However, we believe the occupant-injury criteria conveyed in this policy statement is germane to this type of configuration when it comes to evaluating neck and leg injuries. Due to the unique seat installation angle, the revised special conditions also include spinal-loading injury criteria.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

As discussed above, these special conditions are applicable to the Boeing Model 787-9 airplane. Should Boeing apply at a later date for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on one model of airplanes. It is not a rule of general applicability.

Under standard practice, the effective date of final special conditions would be 30 days after the date of publication in the Federal Register ; however, as the certification date for the Boeing Model 787-9 airplane is imminent, the FAA finds that good cause exists to make these special conditions effective upon publication in the Federal Register .

The authority citation for these special conditions is as follows:

1. Existing Criteria: All injury-protection criteria of § 25.562(c)(1) through (c)(6) apply to the occupant of a side-facing seat. Head-injury criterion (HIC) assessments are only required for head contact with the seat and/or adjacent structures.

2. Body-to-Wall/Furnishing Contact: Under the load condition defined in § 25.562(b)(2), the seat must be installed aft of a structure such as an interior wall or furnishing that will support the pelvis, upper arm, chest, and head of an occupant seated next to the structure. A conservative representation of the structure and its stiffness must be included in the tests.

3. Thoracic Trauma: Under the load condition defined in § 25.562(b)(2), thoracic-trauma index (TTI) injury criterion must be substantiated by dynamic test or by rational analysis based on previous test(s) of a similar seat installation. Testing must be conducted with a side-impact dummy (SID), as defined by Title 49, Code of Federal Regulations (CFR) part 572, subpart F, or its equivalent. TTI must be less than 85, as defined in 49 CFR part 572, subpart F. The SID TTI data must be processed as defined in Federal Motor Vehicle Safety Standard (FMVSS) part 571.214, section S6.13.5.

4. Pelvis: Under the load condition defined in § 25.562(b)(2), pelvic lateral acceleration must be shown, by dynamic test or by rational analysis based on previous test(s) of a similar seat installation, to not exceed 130g. Pelvic acceleration data must be processed as defined in FMVSS part 571.214, section S6.13.5.

5. Shoulder Strap Loads: Where upper torso straps (shoulder straps) are used for occupants, tension loads in individual straps must not exceed 1,750 pounds. If dual straps are used for restraining the upper torso, the total strap tension loads must not exceed 2,000 pounds.

6. Neck Injury Criteria: The seating system must protect the occupant from experiencing serious neck injury. In this regard, neck injury must be evaluated to the criteria provided in Policy Statement PS-ANM-25-03-R1, Attachment 1, Section 2.f.

7. Leg Injury Criteria: Axial rotation of the upper leg must be limited to 35 degrees in either direction from the nominal seated position.

8. Spine: The shoulders must remain aligned with the hips throughout the impact sequence, or until the spinal loads (in either tension or compression) drop below the value that would be injurious.

1. Longitudinal test(s), as necessary with the SID anthropomorphic test dummy (ATD), or as necessary EuroSID ATD, undeformed floor, no yaw, and with all lateral structural supports (armrests/walls).

Pass/fail injury assessments: TTI pelvic acceleration, neck, leg, and spine injury.

2. One longitudinal test with the Hybrid II ATD, deformed floor, with 10 degrees yaw, and with all lateral structural supports (armrests/walls).

Pass/fail injury assessments: HIC; and upper torso restraint load, restraint system retention, and pelvic acceleration.

3. Vertical (14g) test is to be conducted with modified Hybrid II ATDs with existing pass/fail criteria.

If inflatable lapbelts are installed on single-place side-facing seats, the inflatable lapbelt(s) must meet special conditions 25-431-SC.

On August 25, 2008, Airbus applied for a type certificate for their new Model A350-900 series airplane. Later, Airbus requested and the FAA approved an extension to the application for FAA type certification to June 28, 2009. The Model A350-900 series has a conventional layout with twin wing-mounted Rolls Royce Trent engines. It features a twin aisle 9-abreast economy class layout, and accommodates side-by-side placement of LD-3 containers in the cargo compartment. The basic Model A350-900 series configuration will accommodate 315 passengers in a standard two-class arrangement. The design cruise speed is Mach 0.85 with a Maximum Take-Off Weight of 602,000 lbs.

Experience has shown that eliminating fire propagation on the surface of interior and insulating materials enhances survivability since the threats from an in-flight fire (e.g., toxic gas emission and smoke obscuration) are typically by-products of a propagating fire. The Airbus Model A350-900 series airplane must provide protection against an in-flight fire propagating along the surface of the fuselage.

In the past, fatal in-flight fires have originated in inaccessible areas of the aircraft where the thermal/acoustic insulation located adjacent to the aluminium aircraft skin has been the path for flame propagation and fire growth. Concern over the fire performance of thermal/acoustic insulation was initially raised by five incidents in the 1990's which revealed unexpected flame spread along the insulation film covering material. In all cases, the ignition source was relatively modest and, in most cases, was electrical in origin (e.g., electrical short circuit, arcing caused by chafed wiring, ruptured ballast case). From 1972 until 2003 these materials were required to comply with a basic “Bunsen burner” requirement per Title 14 Code of Federal Regulations (14 CFR) 25.853(a), 25.855(d), and part 25, Appendix F, part I, paragraph (a)(1)(ii). These requirements prescribed that insulation materials must be self-extinguishing after having been subjected to the flame of a Bunsen burner for 12 seconds, in accordance with the procedures defined in part 25, Appendix F, part I, paragraph (b)(4). The average burn was not to exceed eight inches and the average flame time after removal of the flame source was not to exceed 15 seconds. Drippings from the test specimen were not to continue to flame for more than an average of five seconds after falling.

Further concern with the flammability of thermal/acoustic insulation was raised by the Transportation Safety Board (TSB) of Canada during their investigation of the fatal Swiss Air MD-11 in-flight fire accident that occurred in September 1998 and involved 229 fatalities. TSB investigators reported that the fatal fire appeared to have been confined to the area above the cockpit and forward cabin ceiling and involved the insulation blankets. On August 21, 2001, the TSB recommended that flammability standards for interior materials should be based on realistic ignition scenarios and prevent the use of materials that sustain or propagate a fire.

In 1996, the FAA Technical Center began a program to develop new fire test criteria for insulation films directly relating to the resistance of in-flight fire propagation. The current test standard was evaluated as well as another small-scale test method that has been used by airplane manufacturers to evaluate flame propagation on thermal/acoustic insulation materials. An inter-laboratory comparison of these methods revealed a number of deficiencies. Other small-scale tests developed by the FAA Technical Center did demonstrate that some insulation films would ignite and propagate flame in a confined space. As a result, a series of large-scale fire tests were conducted in a mock-up of the attic area above the passenger cabin ceiling. In a confined space, ignition and flame propagation may occur because of more extensive radiating heat and the trapping of melted film/scrim. Temperature (heat release) data was recorded and the degree of flame propagation was observed from the large-scale tests. A radiant panel test standard for flooring materials was a test method that provided good correlation to the large-scale model. The test method involved subjecting a material to a pilot flame while the material is heated by a radiant panel.

The previously described development program resulted in a new test method (radiant panel test) and test criteria specifically established for improving the in-flight fire ignition/flame propagation of thermal/acoustic insulation materials. A new part 25 airworthiness standard, § 25.856, became effective in September 2003, Amendment 25-111, requiring that all thermal/acoustic insulation materials installed in the fuselage must comply to this flammability and flame propagation requirement. The standards are intended to “reduce the incidence and severity of cabin fires, particularly those ignited in inaccessible areas where thermal acoustic insulation materials are typically installed.”

Under Title 14, Code of Federal Regulations (14 CFR) 21.17, Airbus must show that the Model A350-900 series airplane meets the applicable provisions of 14 CFR part 25, as amended by Amendments 25-1 through 25-129.

If the Administrator finds that the applicable airworthiness regulations (i.e., 14 CFR part 25) do not contain adequate or appropriate safety standards for the Model A350-900 series because of a novel or unusual design feature, special conditions are prescribed under § 21.16.

Special conditions are initially applicable to the model for which they are issued. Should the type certificate for that model be amended later to include any other model that incorporates the same or similar novel or unusual design feature, the special conditions would also apply to the other model under § 21.101.

In addition to the applicable airworthiness regulations and special conditions, the Model A350-900 series must comply with the fuel-vent and exhaust-emission requirements of 14 CFR part 34 and the noise-certification requirements of 14 CFR part 36. The FAA must issue a finding of regulatory adequacy under § 611 of Public Law 92-574, the “Noise Control Act of 1972.”

The FAA issues special conditions, as defined in 14 CFR 11.19, under § 11.38, and they become part of the type-certification basis under § 21.17(a)(2).

The Airbus Model A350-900 series airplane incorporates the following novel or unusual design features: Fuselage fabricated with composite materials.

The Airbus Model A350-900 series airplane makes extensive use of composite materials in the fabrication of the majority of the wing, fuselage skin, stringers, spars, and most other structural elements of all major sub-assemblies of the airplane. Despite the major change from aluminum to composite material for the fuselage, the Model A350-900 series must have in-flight survivability such that the composite fuselage does not propagate a fire. A methodology for assessing the in-flight fire survivability of an all-composite fuselage is therefore needed.

The FAA believes that one way to assess the survivability within the cabin of the Model A350-900 series airplane is to conduct large-scale tests. This large-scale test would utilize a mock-up of an Airbus Model A350-900 series airplane fuselage skin/structure section of sufficient size to assess any tendency for fire propagation. The fire threat used to represent the realistic ignition source in the airplane would consist of a 4″ x 4″ x 9″ polyurethane foam block and 10 ml of Heptane. This ignition source provides approximately three minutes of flame time and would be positioned at various points and orientations within the mocked up installation to impinge on those areas of the fuselage considered to be most crucial.

This fire threat was established based on an assessment of a range of potential ignition sources, coupled with possible contamination of materials. The FAA considers this a severe fire threat, encompassing a variety of scenarios. However, should ignition or fire sources of a greater severity be identified, the special condition or its method of compliance would need to be modified in order to take the more severe threat into account.

These special conditions contain the additional safety standards that the Administrator considers necessary to establish a level of safety equivalent to that established by the existing airworthiness standards.

Notice of proposed special conditions No. 25-13-33-SC for the Airbus Model A350-900 series airplanes was published in the Federal Register on November 15, 2013 (78FR68775). No comments were received, and the special conditions are adopted as proposed.

As discussed above, these special conditions apply to Airbus Model A350-900 series airplanes. Should Airbus apply later for a change to the type certificate to include another model incorporating the same novel or unusual design feature, the special conditions would apply to that model as well.

This action affects only certain novel or unusual design features on the Airbus Model A350-900 series airplanes. It is not a rule of general applicability.

The authority citation for these special conditions is as follows:

In addition to the requirements of § 25.853(a) governing material flammability, the following special condition applies:

The Airbus Model A350 composite fuselage structure must be shown to be resistant to flame propagation under the fire threat used to develop § 25.856(a). If products of combustion are observed beyond the test heat source, they must be evaluated and found acceptable.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to the specified products. The NPRM was published in the Federal Register on February 14, 2014 (79 FR 8905). The NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM (79 FR 8905, February 14, 2014).

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

We estimate that this AD affects 24 RRD turbofan engines installed on aircraft of U.S. registry. We also estimate that it would take about 6 hours per engine to comply with this AD. The average labor rate is $85 per hour. Required parts cost about $293,960 per engine. Based on these figures, we estimate the cost of this AD on U.S. operators to be $7,067,280.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska to the extent that it justifies making a regulatory distinction, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

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

We need medical and other evidence to determine whether you are disabled. We need your permission to request your medical records from your medical sources. You can also submit medical evidence to us. We request close to 15 million medical records from almost 500,000 providers to make decisions on approximately 3 million disability claims annually.

Our regulations define the roles and responsibilities of both the State agency and us in obtaining evidence and carrying out the disability determination function. The State agency has the primary responsibility to secure any evidence it needs to make a disability determination. Traditionally, the State agency collects this evidence through a variety of paper-based processes such as mail and fax. In most disability claims, the State agency converts paper records to electronic format and adds them to an electronic folder, which the State agency uses when it makes a disability determination. If we secure evidence from you or other “special arrangement sources,” we provide that evidence to the State agency for use in making a disability determination.

The United States (U.S.) healthcare system is undergoing a major technological shift, with medical providers adopting electronic health records in place of paper medical records. In 2008, to improve the disability determination process, we started an initiative enabling the electronic exchange of health information rather than using a mostly manual process to request, receive paper records, and then convert them to electronic format. We can now use a fully automated process to obtain electronic medical records nearly instantaneously. Using health IT, we dramatically increase our efficiency in gathering medical evidence. We receive medical evidence via health IT in a matter of minutes or hours, as opposed to days or weeks via traditional channels such as fax and mail.

We currently are in a better position than a State agency to obtain medical evidence via health IT. We developed an application that allows us to request and receive electronic medical records in a fully automated manner through a standards-based electronic transaction. We obtain the evidence via health IT nearly instantaneously, and then we provide it electronically to the State agency that makes the disability determination. This collaborative process allows us to gather medical evidence faster than we can using the traditional paper process and in most cases leads to quicker disability determinations.

With health IT, we increased the frequency at which we, rather than the State agency, request records. As the U.S. healthcare system continues its transition toward health IT, we expect health IT to become the primary means by which we request and receive medical evidence. We anticipate that our requests for medical evidence will continue to increase and that they will no longer only be to “special arrangement sources.” In recognition of these changes to the U.S. healthcare system and our increasing use of health IT to obtain medical records, we are eliminating the “special arrangement sources” language from our rules. This revision only changes who will obtain evidence; it does not change the State agency's role in making disability determinations or in requesting evidence through traditional channels, when appropriate.

While we anticipate obtaining increasing amounts of medical records from health IT sources, we also expect that the State agency will continue to obtain evidence, when appropriate. For example, if your medical provider does not use electronic health records and does not participate in health IT, the State agency is better positioned than us to obtain your medical records through traditional channels.

Executive Order 12866, as supplemented by Executive Order 13563, requires each agency to write all rules in plain language. In addition to your substantive comments on these interim final rules, we invite your comments on how to make them easier to understand. For example:

• Would more, but shorter, sections be better?

• Are the requirements in the rules clearly stated?

• Have we organized the material to suit your needs?

• Could we improve clarity by adding tables, lists, or diagrams?

• What else could we do to make the rules easier to understand?

• Do the rules contain technical language or jargon that is not clear?

• Would a different format make the rules easier to understand, e.g. grouping and order of sections, use of headings, paragraphing?

We will start to use these interim final rules on the date shown under the “Effective Date” section earlier in this preamble.

We also invite public comments on the changes made by the rules. We will consider any relevant comments we receive. If appropriate, we will publish a final rule to respond to any such comments we receive, and to make any changes to the rules based on the comments.

We follow the Administrative Procedure Act (APA) rulemaking procedures specified in 5 U.S.C. 553 when we develop regulations. 1 Generally, the APA requires that an agency provide prior notice and opportunity for public comment before issuing interim final rules. The APA provides exceptions to its notice and public comment procedures when an agency finds there is good cause for dispensing with such procedures because they are impracticable, unnecessary, or contrary to the public interest. 2

We find that there is good cause under 5 U.S.C. 553(b)(B) for dispensing with the notice and public comment procedures for these rules. We find that prior public comment is unnecessary because these rules only change our internal administrative procedures that govern the situations in which we, rather than the State agency, request evidence from some medical providers. The changes we are making to our rules do not affect the rights or benefits of the public or make any changes in the standards that the State agency uses to determine disability. Our current rules describe certain circumstances when we secure evidence. These interim final rules reflect that our evidence collection will become more routine than it traditionally has been, in recognition of the advent of health IT. Because we are not making any substantive changes to our current disability determination rules at this time, we find that prior public comment is unnecessary. However, we are inviting public comment on these interim final rules and will consider any substantive comments we receive within 60 days of the publication of these rules.

In addition, we find good cause for dispensing with the 30-day delay in the effective date of these rules provided for in 5 U.S.C. 553(d)(3). For the reasons stated above, we find it unnecessary to delay the effective date of the changes we are making in these interim final rules. Accordingly, we are making them effective upon publication.

We consulted with the Office of Management and Budget (OMB) and determined that these interim final rules do not meet the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563. Thus, OMB did not review the interim final rules.

We certify that these interim final rules will not have a significant economic impact on a substantial number of small entities because the rules affect our internal procedures for handling claims for individuals only. Therefore, the Regulatory Flexibility Act, as amended, does not require us to prepare a regulatory flexibility analysis.

These interim final rules do not create any new or affect any existing collections and, therefore, do not require OMB approval under the Paperwork Reduction Act.

For the reasons set out in the preamble, we are amending 20 CFR chapter III, parts 404 and 416, as set forth below:

We are making technical corrections to our current regulations in several parts. First, we are revising a reference to section “197(a)(1)” of title 3 of the United States Code in section 404.1018(b)(1)(iv) of our rules to the correct reference, section “107(a)(1).” Section 210(a)(5)(D)(iii) of the Act refers to section 107(a)(1) of title 3, and when we published regulations that implemented that section of the Act, the final rule contained a typographical error that mistakenly referred to section “197(a)(1).” 53 FR 38943, 38945, Oct. 4, 1988. This change corrects that typographical error. Second, in 2012, we published final rules that made some changes to our rules on evaluating evidence. 77 FR 10651, Feb. 23, 2012. Those rules redesignated part of our regulations on evaluating opinion evidence without substantive effect. However, we inadvertently did not correct all of the regulatory sections that the redesignation affected, so that some of the cross-references to the rule are incorrect. Therefore, we are correcting the references in sections 404.1512(b)(7) and (b)(8), and 416.912(b)(7) and (b)(8) to reflect the correct designation of our rules. This change has no effect on claimants' rights or on how we adjudicate cases.

Third, we are correcting the maximum dollar amount of overpayments subject to compromise, suspension, or termination of collection under section 404.515(a) from $20,000 to $100,000, or any higher amount authorized by the Attorney General, as provided by 31 U.S.C. 3711 and the Federal Claims Collection Standards. 1 When we initially published those rules in 1969, the Federal Claims Collection Act of 1966 contained the $20,000 limit reflected in our rules. 2 Congress temporarily raised the $20,000 limit to $100,000 in 1990, 3 and it subsequently removed the sunset provision in the prior law as part of the Debt Collection Improvement Act of 1996. 4 We are revising our rules to conform to the current statutory authority. We are also revising the reference in the heading of section 404.515(a) to the Federal Claims Collection Act of 1966 to the Debt Collection Improvement Act of 1996, to reflect the current statutory authority.

Fourth, we are correcting the formula we use to calculate the maximum amount payable in the first and second installment payments of large past-due benefits, from 12 times to 3 times the maximum monthly benefit payable, in section 416.545(b). Congress changed the formula from 12 times to 3 times the maximum monthly benefit payable in 2005. 5 We subsequently published a final rule, which reflected that statutory change in the first sentence of section 416.545(b), 76 FR 446, 453, Jan. 5, 2011. However, we inadvertently did not change the same reference in the third sentence of that section. We are correcting the third sentence of section 416.545(b) to conform the sentence to the statutory formula. Finally, we are updating references to the coverage status of affected non-temporary employees of the government of the Commonwealth of the Northern Mariana Islands to reflect the fact that these employees became subject to Social Security coverage beginning October 1, 2012. These changes make our regulations clearer and more consistent.

We follow the Administrative Procedure Act (APA) rulemaking procedures specified in 5 U.S.C. 553 when we develop regulations. Section 702(a)(5) of the Social Security Act, 42 U.S.C. 902(a)(5). The APA provides exceptions to its notice and public comment procedures when an agency finds there is good cause for dispensing with such procedures because they are impracticable, unnecessary, or contrary to the public interest. We determined that good cause exists for dispensing with the notice and public comment procedures for these final rules. 5 U.S.C. 553(b)(B). Good cause exists for most of these changes because these changes eliminate minor inconsistencies in our rules and therefore promote clear and consistent regulations. These changes do not alter the substance of the regulations or effect the rights of claimants or any other parties. We therefore find that the public would not be interested in commenting on these changes, and we determined that opportunity for prior comment is unnecessary. In addition, we also find that prior public comment is unnecessary with respect to the changes we are making to sections 404.515(a) and 416.545(b) of our regulations. These changes do not represent discretionary policy but merely reflect changes to the underlying statutes. Since these changes do not represent discretionary policy and merely conform our rules to the statutes, we find that prior public comment is unnecessary with respect to those changes. Therefore, we are issuing these rules as final rules.

In addition, because we are not making any substantive changes to the existing rules, we find there is good cause for dispensing with the 30-day delay in the effective date of a substantive rule provided by 5 U.S.C. 553(d)(3). These changes merely correct typographical errors or minor inconsistencies in our regulations, or conform our regulations to underlying statutory changes in the Act or other laws. Accordingly, we find that it is unnecessary to delay the effective date of these rules and that it is in the public interest to make these final rules effective on the date of publication.

We consulted with the Office of Management and Budget (OMB) and determined that these final rules do not meet the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563 and are not subject to OMB review.

We certify that these final rules will not have a significant economic impact on a substantial number of small entities because they affect only individuals. Accordingly, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

These final rules do not create any new or affect any existing collections and, therefore, do not require Office of Management and Budget approval under the Paperwork Reduction Act.

For the reasons stated in the preamble, we are amending 20 CFR chapter III, part 404, subparts F, K, and P, and part 416, subparts E and I, as set forth below:

Section 330 of title 31 of the United States Code authorizes the Secretary of the Treasury to regulate the practice of representatives of persons before the Treasury Department (Treasury). The Secretary has published regulations governing practice before the IRS in 31 CFR part 10 and reprinted the regulations as Treasury Department Circular No. 230 (Circular 230).

Treasury and the IRS have consistently maintained that individuals subject to Circular 230 must meet minimum standards of conduct with respect to written tax advice, and those who do not should be subject to disciplinary action, including suspension or disbarment. In accordance with these principles, the regulations have been amended from time to time to address issues relating to tax opinions and written tax advice. These regulations modify the rules governing written tax advice as well as other related provisions of Circular 230 to ensure that practitioners meet certain standards of conduct when serving as representatives of persons before the IRS and modify the consequences of failing to meet those standards, such as the expedited suspension provisions.

On September 17, 2012, Treasury and the IRS published in the Federal Register (77 FR 57055) a notice of proposed rulemaking (REG-138367-06) proposing to amend Circular 230 by revising the rules governing written tax advice and other related provisions of Circular 230. Previously proposed amendments to the regulations regarding state or local bond opinions also were withdrawn. The proposed regulations sought to eliminate the complex rules governing covered opinions in current § 10.35 and to expand the requirements for written advice under § 10.37. The proposed regulations also proposed to broaden the requirement for procedures to ensure compliance under § 10.36 beyond the opinion writing and tax return preparation context by requiring that an individual who is subject to Circular 230 with principal authority for overseeing a firm's Federal tax practice take reasonable steps to ensure the firm has adequate procedures in place to comply with Circular 230. The proposed regulations further sought to clarify that practitioners must exercise competence when engaged in the practice of representing persons before the IRS and that the prohibition on a practitioner endorsing or otherwise negotiating any check issued to a taxpayer in respect of a Federal tax liability applies to government payments made by any means, electronic or otherwise. Additionally, the proposed regulations expanded the categories of violations subject to the expedited proceedings in § 10.82 to include failures to comply with a practitioner's personal tax filing obligations that demonstrate a pattern of willful disreputable conduct and clarified the Office of Professional Responsibility's scope of responsibility.

Written comments responding to the proposed regulations were received. A public hearing on the proposed regulations was held on December 7, 2012. After consideration of the public comments, the proposed regulations are adopted as revised by this Treasury decision.

The IRS received nineteen comments in response to the notice of proposed rulemaking. All comments were considered and are available for public inspection. Most of the comments addressing the proposed regulations are summarized in this preamble. Comments addressing provisions of Circular 230 not covered by the notice of proposed rulemaking are not discussed in this preamble. Although these comments are not discussed in this preamble, they may be considered in connection with any future amendments to the relevant provisions of Circular 230.

The overwhelming majority of comments supported the proposed amendments to the regulations, including the removal of the covered opinion rules and introduction of one set of rules for all written tax advice in § 10.37. The final regulations adopt the proposed rules with some revisions as discussed in further detail in this preamble.

The amended rules governing written tax advice contained in these final regulations apply to written tax advice rendered on or after June 12, 2014. The scope of these regulations is limited to practice before the IRS. These regulations do not alter or supplant other ethical or legal standards applicable to individuals subject to Circular 230.

Former § 10.35 provided detailed rules for tax opinions that were “covered opinions” under Circular 230. As discussed in the notice of proposed rulemaking, Treasury and the IRS revisited the covered opinion rules because their application increased the burden on practitioners and clients, without necessarily increasing the quality of the tax advice that the client received. Commenters on the proposed regulations overwhelmingly supported the elimination of former § 10.35 because the former rules were burdensome and provided minimal benefit to taxpayers. Commenters agreed that the rules in former § 10.35 contributed to overuse, as well as misleading use, of disclaimers on most practitioner communications even when those communications did not constitute tax advice.

The final regulations adopt the approach taken in the proposed regulations, eliminating the covered opinion rules in former § 10.35 and instead subjecting all written tax advice to one standard under final § 10.37, as described later in this preamble. Because former § 10.35 is removed, these regulations also remove cross-references to former § 10.35 in §§ 10.3 and 10.22. The burden reduction that should result from these regulations is consistent with the directions in Executive Order 13563 to remove or modify regulations that are outmoded, ineffective, insufficient, or too burdensome.

As discussed in the preamble to the proposed regulations, the elimination of the collection of information requirements in the covered opinion rules in these regulations should save tax practitioners a minimum of $5,333,200. These savings come from the elimination of the provisions in the former regulations requiring practitioners to make certain disclosures in a covered opinion. In connection with the issuance of former § 10.35 in 2004, we estimated that 100,000 practitioners would be required to comply with the disclosure provisions of § 10.35. We estimated that each practitioner would spend 5 to 10 minutes complying with the provision at an average of 8 minutes for a total burden of 13,333 hours. This burden is no longer imposed on practitioners.

Specifically, the former regulations required a practitioner providing a covered opinion to make certain disclosures in marketed opinions, limited scope opinions, and opinions that fail to conclude at a confidence level of at least more likely than not that the issue will be resolved in favor of the taxpayer (in other words, when the practitioner could not conclude that it was more likely than not that the taxpayer's position would be supported by the IRS). For example, a marketed opinion had to specifically contain a statement that the opinion was written to support the marketing of the transaction addressed in the opinion and that the taxpayer should seek advice from an independent tax advisor based on the taxpayer's particular circumstances. In addition, certain relationships between the practitioner and a person promoting or marketing a tax shelter were required to be disclosed. These final regulations do not include the above-referenced collection of information/disclosure requirements, and practitioners and taxpayers are relieved of the entire cost associated with those collection of information/disclosure requirements.

Please note that while we estimate that the elimination of this information collection would save tax practitioners and taxpayers a minimum of $5,333,200, this estimate does not include the burden reduction, and the corresponding cost savings, associated with tax practitioners having to determine whether a covered opinion, and any related disclosure, is necessary. This determination can often take a tax practitioner many hours.

Treasury and the IRS anticipate that the elimination of the covered opinion rules will result in additional, significant savings for both tax practitioners and taxpayers. Practitioners consistently expressed dissatisfaction with the covered opinion rules due the difficulty and cost of compliance with the rules. Practitioners operating under the former rules spent many hours each year determining whether they needed to prepare a covered opinion for a client, or if the advice fell into one of the exceptions. This required significant time to, among other things, research and review the covered opinion rules to determine the right course of action. If, after undertaking these activities, the practitioner decided that a covered opinion was necessary, the practitioner, to keep the client fully informed had to discuss the covered opinion rules with the client, including how the rules affected the scope of the work that the client had asked the practitioner to perform. This discussion would have also been appropriate because preparation of a covered opinion under former § 10.35 would have generally resulted in an increased cost to the client to obtain the advice the client requested. The significant extra costs associated with these activities may, in some cases, have discouraged obtaining written advice. Because the final regulations remove the unnecessary burden related to the process of preparing a covered opinion, both practitioners and taxpayers will likely experience an overall decrease in the costs associated with obtaining written tax advice.

Robust and relevant standards for written tax advice remain appropriate because Treasury and the IRS continue to be aware of the risk for the issuance and marketing of written tax opinions to promote abusive transactions. Commenters overwhelmingly supported the rules in proposed § 10.37 as providing practical, flexible rules that are well suited to the issuance of quality written tax advice, provided in an ethical manner, in today's practice environment. Commenters agreed that the comprehensive, principles-based approach of these amendments is more straightforward, simpler, and can be applied to all written tax advice in a less burdensome manner. Overall, Treasury and the IRS have determined that these written advice rules strike an appropriate balance between allowing flexibility in providing written advice, while at the same time maintaining standards that require individuals to act ethically and competently.

Like the proposed regulations, final § 10.37 replaces the covered opinion rules with principles to which all practitioners must adhere when rendering written advice. Specifically, § 10.37 states affirmatively the standards to which a practitioner must adhere when providing written advice on a Federal tax matter. Section 10.37 requires, among other things, that the practitioner base all written advice on reasonable factual and legal assumptions, exercise reasonable reliance, and consider all relevant facts that the practitioner knows or reasonably should know. A practitioner must also use reasonable efforts to identify and ascertain the facts relevant to written advice on a Federal tax matter.

As under the proposed regulations, § 10.37, unlike former § 10.35, does not require that the practitioner describe in the written advice the relevant facts (including assumptions and representations), the application of the law to those facts, and the practitioner's conclusion with respect to the law and the facts. Rather, the scope of the engagement and the type and specificity of the advice sought by the client, in addition to all other appropriate facts and circumstances, are factors in determining the extent to which the relevant facts, application of the law to those facts, and the practitioner's conclusion with respect to the law and the facts must be set forth in the written advice. Also, under § 10.37, unlike former § 10.35, the practitioner may consider these factors in determining the scope of the written advice. Further, the determination of whether a practitioner has failed to comply with the requirements of § 10.37 will be based on all facts and circumstances, not on whether each requirement is addressed in the written advice.

Several commenters were concerned that the proposed regulations did not include a requirement that the practitioner consider relevant legal authorities and relate that law to the relevant facts. While this requirement was not expressly stated in the proposed regulations, Treasury and the IRS believed that it was implicit in the requirement that practitioners base the written advice on reasonable legal and factual assumptions. To further clarify, however, the final regulations add this requirement to § 10.37. Although the final regulations, unlike former § 10.35, do not impose a specific requirement for a practitioner to include in the written advice itself any particular piece of information or analysis, Treasury and the IRS encourage practitioners to describe all relevant facts, law, analysis, and assumptions in appropriate circumstances. As noted above, the determination of whether a practitioner complied with the requirements of § 10.37 will be based on all facts and circumstances, including whether it was appropriate to describe all relevant facts, law, analysis, and assumptions in a particular piece of written tax advice. Treasury and the IRS also encourage practitioners to observe the aspirational best practices described in § 10.33 of Circular 230.

Some commenters requested clarification that § 10.37 will be applied on the basis of what is reasonable under the facts and circumstances. These commenters stated that the proposed regulations did not affirmatively provide that a practitioner should reasonably consider all facts and circumstances in determining their obligations under § 10.37. Treasury and the IRS agree that practitioners should consider what is reasonable under the facts and circumstances when providing written advice. Although Treasury and IRS believe that proposed § 10.37(a), (b), and (c) accurately reflected that principle, § 10.37(a)(2)(ii) has been clarified to more explicitly include the requirement.

One commenter expressed concern that proposed § 10.37's requirement for practitioners to rely on “reasonable” factual and legal assumptions is too onerous and would prefer that the rule provide that practitioners are required to rely on factual and legal assumptions that are not unreasonable. The commenter would have preferred a rule similar to former § 10.37(a), which prohibits a practitioner from basing advice on unreasonable factual or legal assumptions. The commenter stated that requiring reasonableness puts the burden on the practitioner to prove reasonableness. Treasury and the IRS do not view the change from “not unreasonable” to “reasonable” to be a substantive alteration. This specific amendment is part of the larger effort undertaken in these regulations to affirmatively state the requirements and standards for practitioners rather than merely specifying prohibited conduct. Treasury and the IRS also disagree that a reasonableness standard is too burdensome. As other commenters stated, any advice based on invalid representations, incorrect facts, or unreasonable assumptions has little value. Thus, the final § 10.37 adopts the requirement of proposed § 10.37 that practitioners rely on reasonable factual and legal assumptions. Several commenters also stated that requiring reasonable assumptions is aimed at eliminating informal advice, but Treasury and the IRS disagree. There is no particular correlation between the requirement to base advice on reasonable assumptions and the format of that advice. All forms of advice should be based on reasonable assumptions.

Many individuals currently use a Circular 230 disclaimer at the conclusion of every email or other writing to remove the communication from the covered opinion rules in former § 10.35. In many instances, these disclaimers are inserted without regard to whether the disclaimer is necessary or appropriate. These types of disclaimers are routinely inserted in any written transmission, including writings that do not contain any tax advice. The removal of former § 10.35 eliminates the detailed provisions concerning covered opinions and disclosures in written opinions. Because amended § 10.37 does not include the disclosure provisions in the current covered opinion rules, Treasury and the IRS expect that these amendments will eliminate the use of a Circular 230 disclaimer in email and other writings. Although one commenter stated that the proposed regulations would result in increased use of the disclaimer, the rules in the final regulations are intended to eliminate the need for unnecessary disclaimers. Another commenter stated that the required disclaimer should be retained because it may be helpful in some circumstances. These rules do not, however, prohibit the use of an appropriate statement describing any reasonable and accurate limitations of the advice rendered to the client.

The proposed regulations did not define written advice. Commenters on the proposed regulations agreed that a detailed definition of written advice in Circular 230 is unnecessary. Some commenters, however, requested clarification that certain items, such as submissions to a governmental entity and continuing education presentations, would not be considered written tax advice. The final regulations have been revised to clarify that government submissions on matters of general policy are not considered written tax advice on a Federal tax matter for purposes of § 10.37. For example, if a law firm submitted comments on proposed regulations to Treasury and IRS on a client's behalf, that submission would not be considered written advice on a Federal tax matter because comments on proposed regulations are government submissions on matters of general policy. The final regulations also clarify that continuing education presentations provided to an audience solely for the purpose of enhancing practitioners' professional knowledge on Federal tax matters, such as presentations at tax professional organization meetings, are not considered written advice for purposes of § 10.37. Presentations marketing or promoting transactions will not be considered to be provided solely for the purpose of enhancing practitioners' professional knowledge on Federal tax matters. Including contact information on a continuing education presentation provided solely for the purpose of enhancing professional knowledge, without more, does not convert an educational presentation into an item of written tax advice governed by the final regulations. Even though continuing education presentations provided to an audience solely for the purpose of enhancing practitioners' professional knowledge on Federal tax matters are not considered written advice, Treasury and the IRS nonetheless expect that practitioners will follow the generally applicable diligence and competence standards under §§ 10.22 and 10.35 when engaged in those activities.

Former § 10.35 governed written tax advice addressing Federal tax issues. Under the prior regulations, a Federal tax issue was defined as a question concerning the Federal tax treatment of an item of income, gain, loss, deduction, or credit, the existence or absence of a taxable transfer of property, or the value of property for Federal tax purposes. Because the final regulations eliminate former § 10.35, this definition is no longer applicable.

Section 10.37 of the proposed regulations governed written advice addressing “Federal tax matters,” but did not define Federal tax matters. Some commenters requested clarification regarding the definition of a Federal tax matter, and Treasury and the IRS determined that it is appropriate to define Federal tax matter in the final regulations. Under final § 10.37(d), a Federal tax matter is any matter concerning the application or interpretation of (1) a revenue provision as defined in section 6110(i)(1)(B) of the Internal Revenue Code (Code), (2) any provision of law impacting a person's obligations under the internal revenue laws and regulations, including but not limited to the person's liability to pay tax or obligation to file returns, or (3) any other law or regulation administered by the IRS. The definition of Federal tax matter in the final regulations reflects the broad nature of advice rendered by Federal tax practitioners in today's practice environment.

Other commenters expressed interest in keeping the definition of Federal tax issue contained in former § 10.35 for purposes of § 10.37. The final regulations do not retain the term Federal tax issue or its definition because practitioners provide advice on numerous tax related issues that are outside the scope of the definition of “Federal tax issue” contained in former § 10.35 but nonetheless are Federal tax matters and should be subject to the reasonable practitioner standard embodied in final § 10.37.

Consistent with former § 10.37, the final regulations provide that a practitioner must not, in evaluating a Federal tax matter, take into account the possibility that a tax return will not be audited or that an issue will not be raised on audit. Although commenters agreed with the retention of this rule, one commenter expressed concern that stating this rule only in the context of written advice improperly sends the message that oral advice could take audit risk into account. Treasury and the IRS agree that audit risk should not be considered by practitioners in the course of advising a client on a Federal tax matter, regardless of the form in which the advice is given. Because § 10.37 addresses only written advice, Treasury and the IRS do not believe that the rule barring consideration of the possibility that a return or issue will be audited when giving written advice suggests that it may be considered when giving oral advice. Therefore, no change is made to § 10.37 in response to the comment.

Proposed § 10.37 sought to eliminate the provision in the former regulations that prohibits a practitioner from taking into account the possibility that an issue will be resolved through settlement if raised when giving written advice evaluating a Federal tax matter. Treasury and the IRS concluded that the former rule may have unduly restricted the ability of a practitioner to provide comprehensive written advice because the existence or nonexistence of legitimate hazards that may make settlement more or less likely may be a material issue for which the practitioner has an obligation to inform the client. Commenters agreed that this amendment is appropriate, and the final regulations retain it.

The proposed regulations provided that the IRS will apply a heightened standard of review to determine whether a practitioner has satisfied the written advice standards when the practitioner knows or has reason to know that the written advice will be used in promoting, marketing, or recommending an investment plan or arrangement a significant purpose of which is the avoidance or evasion of any tax imposed by the Code. Some commenters expressed concern that the term “heightened standard of review” was too vague and requested that Treasury and the IRS provide detailed rules and examples with respect to application of a heightened standard of review in these cases. The final regulations clarify in § 10.37(c)(2) that the Commissioner, or delegate, will apply a reasonable practitioner standard that considers all facts and circumstances with an emphasis given to the additional risk associated with the practitioner's lack of knowledge of the taxpayer's particular circumstances.

Proposed § 10.37(b) addressed a practitioner's reliance on the advice of another practitioner. Commenters asked whether the standards in § 10.37(b) should apply to a practitioner's reliance on advice from an appraiser or other individual not described as a practitioner in §§ 10.2 and 10.3 of Circular 230. Treasury and the IRS have determined that the provisions of § 10.37(b) should apply to a practitioner who relies on advice from any other person, including appraisers and other individuals not defined as practitioners under Circular 230. Final § 10.37(b), therefore, reflects that the standards apply to a practitioner relying on advice from another person. This reliance provision in the final regulations is consistent with reliance standards in current §§ 10.22 and 10.34(d), and former § 10.35(d). Commenters also requested special rules for reliance on certain professionals, but Treasury and the IRS have determined that the same standards should apply to all advice upon which a practitioner relies, bearing in mind that the reasonable practitioner standard under § 10.37(c) will be applied considering all facts and circumstances.

Proposed § 10.37(b)(1)-(3) provided that reliance is not reasonable when the practitioner “knows or should know” that the opinion of the other person should not be relied on, the other person is not competent to provide the advice, or the other person has a conflict of interest. Commenters suggested that the reliance provisions in proposed § 10.37(b)(1)-(3) be revised to use a “knows or reasonably should know standard.” Treasury and the IRS agree. Accordingly, the final regulations revise § 10.37(b)(1)-(3) to prohibit reliance when the practitioner “knows or reasonably should know” that the advice is disqualified as specified in each provision. The standard in final § 10.37(a) for reliance on representations also has been amended in a consistent manner.

Commenters also suggested that the reliance provision in proposed § 10.37(b)(2) is too broad because it imposes a duty on a practitioner to inquire into the skills and experience of the person whose advice is being relied upon. While Treasury and the IRS do not believe this standard imposes an affirmative duty on a practitioner to inquire into the skills and experience of the other person when the practitioner is already aware of the other person's background, Treasury and the IRS believe practitioners should consider the skills and experience of a person when they are relying on the advice of that person. Relying on advice of another person without considering that person's expertise and qualifications to provide that advice is inconsistent with the obligation of diligence required in § 10.22. Thus, a practitioner intending to rely on the advice of another person may have an obligation to inquire about that person's background if the practitioner is not familiar with the person's qualifications to render the advice on which the practitioner will be relying. Accordingly, the final regulations retain § 10.37(b)(2), which provides that a practitioner cannot rely on the advice of another when the practitioner knows or reasonably should know that the other person is not competent or lacks necessary qualifications to provide the advice.

Some commenters expressed concern with proposed § 10.37(b)(3), which provided that a practitioner could not rely on the advice of another when the practitioner knows or should know that the other practitioner has a conflict of interest as described in Circular 230. These commenters stated that this rule may prevent reliance when the other practitioner has a conflict of interest that has been properly waived by all affected clients, as permitted by § 10.29 of Circular 230. Treasury and the IRS agree that a practitioner should be able to rely on the advice of another person who has a conflict of interest when the practitioner knows that the other person's conflict has been waived by all affected clients through informed consent, the representation is not prohibited by law (for example, Federal law prohibits representation by a former government lawyer in certain circumstances), and all parties and practitioners reasonably believe that the practitioner with the conflict can provide competent advice. Final § 10.37(b)(3), therefore, specifically provides that reliance is not permitted when the practitioner knows or reasonably should know that the other person has a conflict of interest in violation of the rules described in Circular 230.

Former § 10.36(a) provided requirements for practitioners to establish procedures to ensure compliance with former § 10.35. Because these regulations remove former § 10.35, these regulations also remove former § 10.36(a). As set forth in the notice of proposed rulemaking preceding these final regulations, Treasury and the IRS, however, amended § 10.36 to ensure compliance with Circular 230 generally.

The procedures to ensure compliance have produced great success in encouraging firms to self-regulate without the burden often associated with a rigid one-size-fits-all approach. Treasury and the IRS expanded § 10.36 in June 2011 to require firms to have procedures in place to ensure Circular 230 compliance with respect to a firm's tax return preparation practice (76 FR 32286). Under proposed § 10.36, the requirement for procedures to ensure compliance were expanded to include all provisions in Subparts A (Rules Governing Authority to Practice), B (Duties and Restrictions Relating to Practice Before the Internal Revenue Service), and C (Sanctions for Violation of the Regulations) of Circular 230. Section 10.36 is finalized as proposed, except for the clarifications described in this preamble.

Commenters generally agreed with the amendments to § 10.36. One concern expressed by the commenters, however, was that the proposed rule would arguably permit firm management to be in compliance with Circular 230 if it had taken reasonable steps to ensure the firm had adequate procedures in place but did not take any steps to ensure those procedures are properly followed. Treasury and the IRS agree that § 10.36 should be clarified to require both the existence and implementation of adequate procedures. Accordingly, § 10.36(b)(2) of the final regulations is amended to provide this clarification.

Some commenters also expressed concern with the application of § 10.36 when certain members of firm management are not practitioners under Circular 230. Treasury and the IRS recognize that there may be instances when one or more members of firm management have principal authority and responsibility for overseeing a firm's tax practice but are not practitioners under Circular 230. In these instances, other members of firm management may nonetheless be subject to the provisions of Circular 230. Accordingly, § 10.36 is revised to apply to any member of firm management subject to Circular 230. Although Treasury and the IRS realize there may be some instances in which no member of firm management is subject to Circular 230, the overwhelming majority of firms will have one or more members of firm management who are subject to Circular 230. Treasury and the IRS believe it is reasonable to expect those members of firm management who are subject to Circular 230 to ensure that the firm will have in place and implement adequate procedures to ensure compliance with Circular 230. The final regulations make clear that in the absence of a person or persons identified by the firm as having principal authority and responsibility, the IRS may identify one or more individuals subject to Circular 230 who will be held responsible for taking reasonable steps to ensure that the firm has adequate procedures in effect for all members for purposes of complying with Circular 230.

Because § 10.36 is expanded to apply to all provisions in Subparts A, B, and C of Circular 230, including § 10.51 (under which willful failure to file a tax return and willful evasion of the assessment or payment of tax is disreputable conduct), one commenter was concerned that § 10.36 imposes a duty on firm management to ensure that members of the firm are compliant with their own tax obligations. Treasury and the IRS recognize that personal filing and payment obligations are an individual responsibility, and there are limitations on a firm's responsibility for the compliance of any member, associate, or employee with their personal tax obligations. But, Treasury and the IRS believe that firm management should not ignore the noncompliance with these obligations by any practitioner associated with the firm when such noncompliance is known or should be known to the firm.

One commenter stated that the expansion of § 10.36 should be limited to the practice standards prescribed in Subpart B of Circular 230, which pertains to Duties and Restrictions Relating to Practice Before the Internal Revenue Service. Treasury and the IRS disagree that final § 10.36 should be limited to Subpart B because Subparts A (Rules Governing Authority to Practice) and C (Sanctions for Violation of the Regulations) also impose substantive standards with which firm members must comply. Treasury and the IRS, however, do agree that it is not necessary for a firm's procedures to ensure compliance with Subparts D (Rules Applicable to Disciplinary Proceedings) or E (General Provisions) of Circular 230, and have revised § 10.36 accordingly.

One commenter suggested that firm management should be subject to discipline even when there is no subordinate individual whose conduct is subject to sanction. Another commenter suggested that § 10.36 be expanded to govern contractual relationships occurring outside the firm or in-house context in which one party may supervise or manage the other party. Treasury and the IRS considered these comments and have determined that such authority is not necessary at this time because § 10.36, as amended, is broad enough for the IRS to be able to determine whether firm management is taking reasonable steps to comply with Circular 230. Future consideration may be given to broadening the rules consistent with these comments, if experience shows that additional changes are necessary.

Section 10.35 of the proposed regulations provided that a practitioner must possess the necessary competence to engage in practice before the IRS and that competent practice requires the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.

Some commenters expressed concern over whether the competence standard permits practitioners to become competent by consulting other practitioners with relevant expertise or learning governing law through research and study. In response to these comments, the competence standard in final § 10.35 contemplates that practitioners may become competent in a variety of ways, including, among other things, consulting with experts in the relevant area and studying the relevant law. Whether consultation and/or research are adequate to make a practitioner competent in a particular situation depends on the facts and circumstances of the particular situation.

The proposed regulations provided that competent practice requires “the knowledge, skill, thoroughness, and preparation” necessary for the matter. Commenters questioned whether it is appropriate to consider “thoroughness and preparation” in determining competency because, in some circumstances, the failure to thoroughly prepare does not necessarily show a lack of competence. Treasury and the IRS recognize that a practitioner who is highly experienced in a particular matter may require less preparation than a practitioner who is handling the same matter for the first time. Accordingly, the final regulations clarify that competence requires the “appropriate level of” knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged.

Commenters suggested that the competence standard may be too broad because it could apply to all advice given to a client. The provision is intended to apply to all advice a practitioner provides to a client on a matter within the scope of Circular 230. This competence standard in Circular 230 does not apply to acts that are outside the scope of Circular 230. Treasury and the IRS, and the public, expect practitioners to be competent when they engage clients in matters covered by Circular 230, including the provision of advice. It is also expected that practitioners will advise clients to obtain other counsel when the practitioner is not competent or cannot become competent to provide advice requested on a matter within the scope of Circular 230. Treasury and the IRS, thus, believe the competence standard is not overbroad as it governs conduct within the purview of Circular 230. Accordingly, the final regulations retain the rules in the proposed regulations.

Some commenters noted that the proposed competency standard was nearly identical to the competency standard in the American Bar Association's Model Rules of Professional Conduct. And a few commenters expressed confusion about whether the proposed regulations permitted different competency standards depending on the practitioner's status as an attorney, CPA, enrolled agent, or other practitioner. The proposed regulations provided only one competency standard under Circular 230 and were clear that the same standard applies to all practitioners, regardless of the practitioner's status as an attorney, CPA, enrolled agent, or other practitioner. As commenters noted, the competency standard in § 10.35 is nearly identical to the standard in the Model Rules of Professional Conduct for attorneys, but, unlike the Model Rules, § 10.35 applies to all individuals subject to Circular 230, not just attorneys.

Further, some commenters asked Treasury and the IRS to further develop the standard that would apply under § 10.52 for determining whether there is a violation of § 10.35. Section 10.52 provides the governing standards for determining whether any violation of a Circular 230 provision subjects an individual to sanction. Treasury and the IRS do not believe the standards in § 10.52 need to be expanded upon at this time. Section 10.52 already specifies that a practitioner will be subject to sanction under § 10.52 for violating § 10.35 by behaving recklessly or through gross incompetence. A pattern or practice of incompetent conduct may establish a violation of § 10.35. Under current practice, the IRS considers the presence of aggravating and mitigating factors in determining whether a sanction for a violation of Circular 230 is appropriate (see Notice 2007-39). Therefore, Treasury and the IRS do not believe additional guidance related to § 10.52 is necessary at this time.

Additionally, some commenters requested that the regulations include examples demonstrating practitioner competence. Treasury and the IRS have determined that the inclusion of examples in the regulations is not necessary because competence is not a new standard or concept, and whether the required standard is met must always be based on the relevant facts and circumstances. Although not binding on the IRS, Treasury and the IRS believe that the comments to Rule 1.1 of the Model Rules of Professional Conduct, State Bar opinions addressing the competence standard, and the American Institute of Certified Public Accountant's competency standard are generally informative on the standard of competency expected of practitioners under Circular 230.

Proposed and final § 10.31 provide that a practitioner may not endorse or otherwise negotiate any check issued to a client by the government in respect of a Federal tax liability, including directing or accepting payment by any means, electronic or otherwise, into an account owned or controlled by the practitioner or any firm or other entity with whom the practitioner is associated. This prohibition on practitioner negotiation of taxpayer refunds is intended to provide guidance in the modern-day electronic environment in which practitioners, taxpayers, and the IRS operate. Proposed and final § 10.31 also amend former § 10.31 to apply to all individuals who practice as representatives of persons before the IRS, not just those practitioners who are tax return preparers.

Most commenters on the proposed regulations agreed with Treasury and the IRS that these revisions to § 10.31 are an appropriate standard for all practitioners as well as a necessary step in protecting taxpayers in today's electronic commerce environment. Commenters recognized this is an area of abuse, and observed that the amendments to § 10.31 will improve public confidence in the profession. Accordingly, the final regulations retain this rule.

One commenter expressed concern that § 10.31 prohibits certain arrangements permissible under section 6695(f) of the Code, which imposes a penalty on a tax return preparer for endorsing or otherwise negotiating (directly or through an agent) a taxpayer's check. Section 1.6695(f)-1(f)(2) of the Income Tax Regulations sets forth certain arrangements between a “tax return preparer-bank” and a taxpayer to which section 6695(f) does not apply. Treasury and the IRS do not believe that the rule in proposed § 10.31 prohibits the arrangements described in the section 6695 regulations or any arrangement that is not subject to the penalty under the section 6695(f), and therefore no change to finalized § 10.31 was made in this regard.

One commenter raised the concern that the administration of a trust or estate may be impaired due to the prohibition on practitioner check negotiation. Section 10.31 does not apply to an individual acting solely in the capacity of a trustee of a trust, or administrator/executor of an estate because that person is acting as the taxpayer, not as the taxpayer's representative. See § 10.7(e) of Circular 230.

Section 10.82 authorizes the immediate suspension of a practitioner who has engaged in certain conduct. The proposed and final regulations extend the expedited disciplinary procedures to disciplinary proceedings against practitioners who have willfully failed to comply with their Federal tax filing obligations.

Amended § 10.82 only permits the use of expedited procedures in the limited circumstances when a tax noncompliant practitioner demonstrates a pattern of willful disreputable conduct by (1) failing to make an annual Federal tax return during four of five tax years immediately before the institution of an expedited suspension proceeding, or (2) failing to make a return required more frequently than annually during five of seven tax periods immediately before the institution of an expedited suspension proceeding. For purposes of § 10.82, the phrase “make a return” has the same meaning as used in sections 6011 and 6012 of the Code and § 10.51(a)(6) of Circular 230. Additionally, the practitioner must be noncompliant with a tax filing obligation at the time the notice of suspension is served on the practitioner for the expedited procedures to apply.

Commenters generally agreed that a practitioner's willful non-filing is an appropriate grounds for expedited suspension, and that the final regulations are narrowly tailored to achieve the desired result. One commenter, however, opined that the amendments to § 10.82 should only apply to failures with respect to the requirement to file income tax returns. Treasury and the IRS do not agree with this comment because repeated instances of non-filing demonstrates a practitioner's willfulness and potential harm to the tax system regardless of the type of return at issue.

Some commenters suggested that the periods of noncompliance for which expedited suspension may apply in the case of non-filing (four of five years for annual returns, or five of seven tax periods) are too short. Treasury and the IRS do not agree. Four of five tax years, or five of seven tax periods, of practitioner non-filing shows a level of disregard for the tax system beyond negligence. Practitioners engaging in this repeated pattern of non-filing demonstrate a high level of disregard for the Federal tax system and a level of willfulness sufficient for practitioner sanction under Circular 230.

Some commenters expressed concern that the failure to file four out of five years (or five of seven periods, as applicable) rule deems willfulness without providing the practitioner an opportunity to respond or explain any legitimate basis for the non-filing. A similar comment stated that expedited suspension would not be appropriate if a practitioner and the IRS may have a legitimate dispute as to whether employment tax returns were required to be filed. Section 10.82, however, provides the practitioner with an opportunity to file a response explaining any circumstances surrounding the failure to file prior to the suspension.

Accordingly, Treasury and the IRS have determined that the proposed amendments to § 10.82 are appropriate because practitioners demonstrating this high level of disregard for the Federal tax system are unfit to represent others who are making a good faith attempt to comply with their own Federal tax obligations. Expedited action in these cases will likely prevent harm to taxpayers and the Federal tax system. Furthermore, these changes to the regulations provide appropriate procedures to ensure due process for practitioners.

Prior to these regulations, Circular 230 did not otherwise provide guidance with respect to the length of suspension or the time period in which the practitioner is permitted to apply for reinstatement. Section 10.81, however, formerly provided that a disbarred practitioner (or disqualified appraiser) was eligible to apply for reinstatement after five years following the practitioner's disbarment or disqualification. Proposed § 10.81 extended this standard to suspended practitioners. Consistent with proposed § 10.81, final § 10.81 makes the rules for disbarred and suspended practitioners consistent and applies the same five-year time period for both disbarred and suspended practitioners. One commenter observed that it also should be appropriate for a suspended practitioner to apply for reinstatement when the suspension expires, even if the suspension expires before the end of five years. Treasury and the IRS agree with this observation, and have revised § 10.81 accordingly.

Consistent with proposed § 10.82, final § 10.82 includes several non-substantive changes that will help practitioners distinguish between the expedited suspension procedures of § 10.82 and otherwise generally applicable procedures for sanctions instituted under § 10.60. For example, to begin an expedited suspension under these regulations, the IRS would issue a “show cause order” instead of a “complaint” and the practitioner would submit a “response” instead of an “answer.” Prior to the issuance of the proposed regulations, the terms “complaint” and “answer” described the documents used for both expedited suspensions under § 10.82 and regular proceedings under § 10.60. The changes made in the proposed regulations, which are retained in the final regulations, do not substantively change the expedited suspension procedures, or the contents of what must be included in the underlying documents, but are intended to make it easier to understand § 10.82.

Proposed § 10.82(d) provided that an individual subject to a proposed expedited suspension must file a response within 30 days of the show cause order proposing to suspend the individual. One commenter expressed concern that 30 days is not sufficient time for an individual out of the country to respond to the show cause order. As noted in the preceding paragraph, the proposed regulations sought to amend § 10.82 to assist in clarifying the distinction between expedited suspension procedures and the procedures generally applicable to disciplinary proceedings instituted under § 10.60. The 30-day period was not a change from the prior time period contained in § 10.82(d). The IRS has not experienced that individuals outside the country are defaulting on expedited suspension show cause orders (formerly referred to as complaints) or requesting additional time more frequently, as a general matter, than individuals inside the country to whom a show cause order has been issued. Therefore, Treasury and the IRS do not believe that it is necessary to extend the 30-day period for responding to show cause orders for those outside the United States at this time.

Section 10.82(g), as amended, clarifies that practitioners subject to an expedited proceeding may demand a complaint under § 10.60. Former § 10.82(g) provided that the IRS has 30 days to issue a complaint after receiving the practitioner's demand for a complaint. In some cases, extra time may be necessary to provide the practitioner and Administrative Law Judge with the most current information regarding the practitioner's fitness to practice as a representative of persons before the IRS. The proposed regulations increased the time to file the requested complaint to 45 days. No comments were received on this proposal. But, after further consideration, Treasury and the IRS have determined that, in some cases, more than 45 days may be needed for the IRS to provide the Administrative Law Judge with the most current information regarding the practitioner's fitness to practice. Treasury and the IRS believe that 60 days will provide the IRS with sufficient time to ensure the complaint complies with the requirements in § 10.62. Accordingly, final § 10.82(g) provides that the IRS has 60 days to issue a complaint after receiving a demand for a complaint from a practitioner suspended under the expedited procedures.

Commenters expressed concern about what would happen if the IRS does not file a complaint within the period provided in § 10.82(g). In response to this concern, revised § 10.82 is clarified to provide that if the IRS does not issue a complaint within 60 days of receiving the demand, the suspension is lifted automatically. Lifting the suspension in these circumstances will not, however, preclude the Commissioner, or delegate, from instituting a proceeding under § 10.60.

Proposed § 10.1(a)(1) clarified that the Office of Professional Responsibility has exclusive responsibility for matters related to practitioner discipline, including disciplinary proceedings and sanctions. Commenters stated this amendment would abate previously expressed concerns that other IRS offices may be authorized to handle practitioner disciplinary proceedings. Accordingly, the final regulations retain this clarification. However, the effective date provision of § 10.1(d) is revised to clarify that the only provision of § 10.1 that has an effective date of June 12, 2014 is § 10.1(a)(1).

Notice 2005-47 (2005-1 CB 1373) will be obsolete beginning on June 12, 2014. Notice 2005-47 provided interim guidance and information concerning State or local bond opinions under § 10.35 of Circular 230, and is obsolete because § 10.35 is removed.

IRS notices cited in this preamble are made available by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

This rule has been designated a “significant regulatory action” although not economically significant, under section 3(f) of Executive Order 12866. Accordingly, the rule has been reviewed by the Office of Management and Budget. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The final rule affects individuals who practice as representatives of persons before the IRS. Persons authorized to practice before the IRS have long been required to comply with certain standards of conduct, and those who provide written tax advice currently must comply with specific rules for this advice. Because the final regulations replace rigid rules for written tax advice with more flexible rules and eliminate the necessity to provide disclaimers in certain written tax advice, the rules will reduce the burden imposed on small entities that issue written tax advice. Therefore, the amendments and requirements for written advice imposed by these regulations will not have a significant economic impact on a substantial number of small entities, and a regulatory flexibility analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking published on September 17, 2012 was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses, and no comments were received. These regulations are necessary to provide practitioners and taxpayers with immediate guidance and to inform taxpayers and practitioners of the burden reduction associated with these regulations at the earliest possible date. Accordingly, good cause is found for dispensing with a delayed effective date pursuant to 5 U.S.C. 553(d).

The principal author of these regulations is Matthew D. Lucey of the Office of the Associate Chief Counsel (Procedure and Administration).

Accordingly, 31 CFR part 10 is amended as follows:

The Event Director for the Bike MS: Historic New Bern Ride along with approval from the North Carolina Department of Transportation, owner of the drawbridge, has requested a temporary deviation from the current operating schedule to accommodate the MS Bike Ride.

The US 70/Alfred C. Cunningham Bridge across the Trent River, mile 0.0, a double-leaf bascule drawbridge, in New Bern, NC, has a vertical clearance in the closed position of 14 feet, above mean high water. Under the normal operating schedule, the US 70/Alfred C. Cunningham Bridge would open on signal during this timeframe. However, under this temporary deviation, the drawbridge will be allowed to remain in the closed-to-navigation position from 8 a.m. to 9:30 a.m. on Saturday, September 6, 2014; and from 8 a.m. to 9:30 a.m. on Sunday, September 7, 2014 to accommodate the Bike MS: Historic New Bern Bike Ride.

Vessels that can pass under the bridge without a bridge opening may do so at all times. There are no alternate routes for vessels and the bridge will be able to open in the event of an emergency. The Coast Guard will inform the users of the waterway through our Local and Broadcast Notices to Mariners of the closure periods so that vessels can plan their transits to minimize any impact caused by the temporary deviation. At all other times during the affected period, the bridge will operate as outlined at 33 CFR 117.843(a).

In accordance with 33 CFR 117.35(e), the drawbridge must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The University of Washington through the Washington Department of Transportation has requested that the Montlake Bridge bascule span remain closed and need not open to vessel traffic to facilitate timely movement of Commencement traffic. The Montlake Bridge crosses the Lake Washington Ship Canal at mile 5.2 and while in the closed position provides 30 feet of vertical clearance throughout the navigation channel and 46 feet of vertical clearance throughout the center 60-feet of the bridge; vertical clearance referenced to the Mean Water Level of Lake Washington. Vessels which do not require a bridge opening may continue to transit beneath the bridge during this closure period. Under normal conditions this bridge opens on signal, subject to the list of exceptions provided in 33 CFR 117.1051(e).

This deviation period is from 9:30 a.m. on June 14, 2014 to 6 p.m. on June 15, 2014. The deviation allows the bascule span of the Montlake Bridge to remain in the closed position and need not open for maritime traffic from 9:30 a.m. to 12:30 p.m. and 4:30 p.m. to 6:30 p.m. on June 14, 2014 and from 11 a.m. to 6 p.m. on June 15, 2014. The bridge shall operate in accordance to 33 CFR 117.1051(e) at all other times. Waterway usage on the Lake Washington Ship Canal ranges from commercial tug and barge to small pleasure craft. Mariners will be notified and kept informed of the bridge's operational status via the Coast Guard Notice to Mariners publication and Broadcast Notice to Mariners as appropriate. The draw span will be required to open, if needed, for vessels engaged in emergency response operations during this closure period.

In accordance with 33 CFR 117.35(e), the drawbridges must return to its regular operating schedule immediately at the end of the designated time period. This deviation from the operating regulations is authorized under 33 CFR 117.35.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule.

On April 30, 2014 the KYTC notified Coast Guard MSU Paducah, KY that there are structural concerns with the George Rogers Clark Memorial Bridge at mile 5.3 Tennessee River, creating a hazardous situation. The visible structural concerns are to the approach spans of the bridge on the left descending bank, but KYTC is unsure if the collapse of these spans would negatively impact the channel spans of the bridge. This situation requires immediate emergency safety measures to protect persons and property, and a safety zone is in effect to stop all vessel traffic from transiting from mile 4.8 to mile 5.8 Tennessee River. Deviation from this rule may be requested from the Captain of the Port and requests to deviate and transit through this area may be permitted on a case-by-case basis. Once a structural analysis of the bridge is completed, the safety zone will be canceled or modified to allow vessel traffic to transit through spans of the bridge that are deemed to pose no risk to the public. Delaying this rulemaking to provide a comment period before implementing the necessary safety zone would be contrary to the public interest by delaying the immediate action needed to protect persons, property and infrastructure from the potential damage and safety hazards associated with the structural concerns of this bridge.

For the same reasons, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Providing 30 days notice and delaying its effective date would be contrary to public interest because immediate action is needed to protect persons, property and infrastructure from the potential damage and safety hazards associated with structural concerns of the George Rogers Clark Memorial Bridge at mile 5.3 Tennessee River.

The legal basis and authorities for this rule are found in 33 U.S.C. 1231, 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Public Law 107-295, 116 Stat. 2064; and Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to establish and define regulatory safety zones.

The purpose of this safety zone is to protect persons and vessels from the structurally deficient bridge at mile 5.3 Tennessee River. The approach spans of the bridge have begun to collapse, and this poses significant safety hazards to vessels in the area. For this reason, the Coast Guard is prohibiting entry into this zone by all vessels during the enforcement period unless authorized by the COTP Ohio Valley or a designated representative. Upon a structural analysis of this bridge by KYTC, the Coast Guard may change the exact restrictions for operating around this bridge.

The Coast Guard is establishing a temporary safety zone on the Tennessee River from mile 4.8 to 5.8, extending the entire width of the river. Entry into this zone is prohibited to all vessels and persons unless specifically authorized by the COTP Sector Ohio Valley or a designated representative.

This rule is effective and enforceable with actual notice on April 30, 2014 through June 30, 2014, or until a structural analysis of the bridge can be completed, and deemed to no longer pose a threat to the public. At that time the safety zone will be canceled or modified to allow vessel traffic to transit through spans of the bridge that are deemed to pose no risk to the public. Any exceptions to these operational restrictions must be authorized by the COTP Ohio Valley or a designated representative. The COTP or a designated representative may be contacted by telephone at 502-779-5422.

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

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. This rule establishes a temporary safety zone on all waters of the Tennessee River, extending the entire width from mile 4.8 to 5.8. Notifications to the marine community will be made through Broadcast Notices to Mariners (BNM). The impacts on routine navigation are expected to be minimal as the restrictions will be enforced only as necessary while a structural analysis of the George Rogers Clark Memorial Bridge, mile 5.3 Tennessee River, is conducted. After this analysis, the safety zone will be canceled or modified to allow vessel traffic to transit through spans of the bridge that are deemed to pose no risk to the public. Additionally, deviation from the safety zone restriction may be requested from the COTP Ohio Valley or designated representative and will be considered on a case-by-case basis.

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

This rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit the Tennessee River from mile 4.8 to 5.8 from April 30, 2014 through June 30, 2014. This safety zone will not have a significant economic impact on a substantial number of small entities. Traffic in this area is limited to almost entirely recreational vessels and commercial towing vessels, and the restrictions will be enforced only as necessary while a structural analysis of the George Rogers Clark Memorial Bridge is being completed. When this is completed, the safety zone will be canceled or modified to allow vessel traffic to transit through spans of the bridge that are deemed to pose no risk to the public. Deviation from the safety zone restriction may be requested from the COTP Ohio Valley or designated representative and will be considered on a case-by-case basis.

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

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

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

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

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

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

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

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

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

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

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

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule involves the creation of a safety zone in response to an emergency situation. The safety zone is implemented to protect persons and property due to a structurally deficient bridge at mile 5.3 Tennessee River. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2-1 of the Commandant Instruction. An environmental analysis checklist and a categorical exclusion determination will be made available as indicated under the ADDRESSES section.

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

The Coast Guard will enforce a 100 foot safety zone around the fireworks barge during the loading, transit, and arrival of the fireworks barge at the display location and until the start of the fireworks display. From 9 a.m. until 2 p.m. on July 4, 2014, the fireworks barge will be loading pyrotechnics off of Pier 50 in approximate position 37°46′28″ N, 122°23′06″ W (NAD 83). From 7 p.m. to 8:30 p.m. on July 4, 2014 the loaded fireworks barge will transit from Pier 50 to the launch site near Sausalito, CA in approximate position 37°51′31″ N, 122°28′28″ W (NAD83) where it will remain until the conclusion of the scheduled fireworks display. Upon the commencement of the fireworks display, scheduled to begin at 9:15 p.m. on July 4, 2014, the safety zone will increase in size and encompass the navigable waters around and under the fireworks barge within a radius 1,000 feet in approximate position 37°51′31″ N, 122°28′28″ W (NAD83) for the Fourth of July Fireworks, City of Sausalito in 33 CFR 165.1191, Table 1, Item number 10. This safety zone will be in effect from 9 a.m. to 9:40 p.m. on July 4, 2014.

Under the provisions of 33 CFR 165.1191, unauthorized persons or vessels are prohibited from entering into, transiting through, or anchoring in the safety zone during all applicable effective dates and times, unless authorized to do so by the PATCOM. Additionally, each person who receives notice of a lawful order or direction issued by an official patrol vessel shall obey the order or direction. The PATCOM is empowered to forbid entry into and control the regulated area. The PATCOM shall be designated by the Commander, Coast Guard Sector San Francisco. The PATCOM may, upon request, allow the transit of commercial vessels through regulated areas when it is safe to do so.

This document is issued under authority of 33 CFR 165.1191 and 5 U.S.C. 552(a). In addition to this document in the Federal Register , the Coast Guard will provide the maritime community with extensive advance notification of the safety zone and its enforcement period via the Local Notice to Mariners.

If the Captain of the Port determines that the regulated area need not be enforced for the full duration stated in this notice, a Broadcast Notice to Mariners may be used to grant general permission to enter the regulated area.

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

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

Between 6 a.m. on June 2 through 6 a.m. on June 6, 2014, and on the subsequent dates and times as necessary, demolition work on the old I-90 Inner-belt bridge span crossing the Cuyahoga River, Cleveland, OH, is scheduled: 6 a.m. on June 11, 2014, through 6 a.m. on June 13, 2014; 6 a.m. on June 18, 2014, through 6 a.m. on June 20, 2014; and 6 a.m. on June 25, 2014, through 6 a.m. on June 27, 2014. The bridge removal and demolition work will involve of cutting and dropping 6′ x 8′ sections of steel beams into the river and retrieving them via barge-mounted extractor backhoe. These operations are to be conducted during hours and dates stated above. During these enforcement periods, there will be a continuous closure of a portion of the Cuyahoga River at MM 3.42 and resultant stoppage of any traffic beyond MM 3.42 south to the terminus of the maintained navigable channel. It has been determined that these demolition operations will pose a significant risk to the maritime public. Thus, under the authority within 33 U.S.C. 1225 and 1231, the Captain of the Port, Sector Buffalo, has determined it necessary to establish a temporary safety zone on the Cuyahoga River.

As mentioned above, the Captain of the Port Buffalo has determined that this temporary safety zone is necessary to ensure the safety of mariners and vessels during the old I-90 Inner-belt bridge demolition operation. This safety zone regulation will be enforced from 6 a.m. on June 2, 2014, through 6 a.m. on June 6, 2014, and on the following subsequent dates and times as necessary: From 6 a.m. on June 11, 2014, through 6 a.m. on June 13, 2014; 6 a.m. on June 18, 2014, through 6 a.m. on June 20, 2014, and 6 a.m. on June 25, 2014, through 6 a.m. on June 27, 2014. The safety zone will encompass waters of the Cuyahoga River in the vicinity of the old I-90 interstate bridge span crossing over the Cuyahoga River at river mile marker 3.42. Specifically, the safety zone will cover an area 200 yards upstream and 200 yards downstream of the bridge from position 41°29′10″ N, 081°41′25″ W, (NAD 83).

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

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

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone created by this rule will be relatively small and enforced for a maximum initial duration of 96 hours with subsequent dates enforcement time limited to a maximum duration of 48 hours and only if demolition has not been completed. Also, the safety zone is designed to minimize its impact on commercial traffic operating the navigable waters. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered the impact of this rule on small entities. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit a portion of the Cuyahoga River in Cleveland, Ohio, from June 2-6, 2014; June 11-13, 2014; June 18-20, 2014; and June 25-27, 2014.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This safety zone has been developed and scheduled in cooperation with the local marine industry and shore facilities to mitigate the impact on scheduled commerce and will allow for the passage of vessels through the zone with the permission of the Captain of the Port. The Captain of the Port can be reached via VHF channel 16. Before the activation of the zone, we would issue local Broadcast Notice to Mariners.

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

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

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

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

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

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

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

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

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

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

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

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

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

The Coast Guard will enforce a safety zone in navigable waters around and under the fireworks barge within a radius of 100 feet during the loading, transit, and arrival of the fireworks barge to the display location and until the start of the fireworks display. From 7 a.m. until 8 a.m. on July 4, 2014, the fireworks barge will be loading pyrotechnics off of Tahoe Keys Marina in South Lake Tahoe, CA in approximate position 38°56′05″ N, 120°00′09″ W (NAD 83). From 8 a.m. to 2 p.m. on July 4, 2014, the loaded fireworks barge will transit from Tahoe Keys Marina to the launch site off of Tahoe City, CA in approximate position 39°10′09″ N, 120°08′16″ W (NAD 83) where it will remain until the commencement of the fireworks display. Upon the commencement of the 30 minute fireworks display, scheduled to begin at 9:30 p.m. on July 4, 2014, the safety zone will increase in size to encompass the navigable waters around and under the fireworks barge within a radius 1,000 feet in approximate position 39°10′09″ N, 120°08′16″ W (NAD 83) for the Fourth of July Fireworks, Tahoe City, CA in 33 CFR 165.1191, Table 1, Item number 15. This safety zone will be in effect from 7 a.m. until 10 p.m. on July 4, 2014.

Under the provisions of 33 CFR 165.1191, unauthorized persons or vessels are prohibited from entering into, transiting through, or anchoring in the safety zone during all applicable effective dates and times, unless authorized to do so by the PATCOM. Additionally, each person who receives notice of a lawful order or direction issued by an official patrol vessel shall obey the order or direction. The PATCOM is empowered to forbid entry into and control the regulated area. The PATCOM shall be designated by the Commander, Coast Guard Sector San Francisco. The PATCOM may, upon request, allow the transit of commercial vessels through regulated areas when it is safe to do so.

This document is issued under authority of 33 CFR 165.1191 and 5 U.S.C. 552(a). In addition to this document in the Federal Register , the Coast Guard will provide the maritime community with extensive advance notification of the safety zone and its enforcement period via the Local Notice to Mariners. If the Captain of the Port determines that the regulated area need not be enforced for the full duration stated in this notice, a Broadcast Notice to Mariners may be used to grant general permission to enter the regulated area.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.”

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . The Coast Guard received the information about the highway widening project over the Petaluma River on April 22, 2014, and the project would occur before the rulemaking process would be completed. Because of the dangers posed by the overhead bridge construction project, the safety zone is necessary to provide for the safety of mariners transiting the area during the suspension and installation of the girders. For the safety concerns noted, it is in the public interest to have these regulations in effect during the event.

The legal basis for the proposed rule is 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05-1, 6.04-1, 6.04-6, 160.5; Public Law 107-295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1, which collectively authorize the Coast Guard to establish safety zones.

The California Department of Transportation (CALTRANS) will sponsor the Petaluma River closure for the Highway 101 widening project that will take place from June 9, 2014 through June 21, 2014, over the Petaluma River near Petaluma, CA in approximate position 38°13′44″ N, 122°36′57″ W (NAD83) as depicted in National Oceanic and Atmospheric Administration (NOAA) Chart 18654. This safety zone establishes a temporary restricted area on the waters within 200 feet of the Highway 101 Bridge crossing the Petaluma River during the girder suspension and installation portion of the highway widening project. This restricted area around the construction project is necessary to protect mariners from the hazards associated with the overhead bridge construction project.

The Coast Guard will enforce a safety zone in navigable waters around and under the Highway 101 Bridge crossing the Petaluma River within 200 feet in approximate position 38°13′44″ N, 122°36′57″ W (NAD83) during the girder suspension and installation portion of the highway widening project taking place from June 9, 2014 through June 21, 2014 between the hours of 10 p.m. and 5 a.m. daily.

The effect of the temporary safety zone will be to restrict navigation in the vicinity of the construction site until the conclusion of the scheduled girder suspension and installation project. Except for persons or vessels authorized by the Coast Guard Patrol Commander, no person or vessel may enter or remain in the restricted area. These regulations are needed to keep vessels away from the immediate vicinity of the construction area to ensure the safety of mariners transiting the area.

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

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, as supplemented by Executive Order 13563, Improving Regulation and Regulatory Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of Executive Order 12866 or under section 1 of Executive Order 13563. The Office of Management and Budget has not reviewed it under those Orders.

We expect the economic impact of this rule will not rise to the level of necessitating a full Regulatory Evaluation. The safety zone is limited in duration, and is limited to a narrowly tailored geographic area. In addition, although this rule restricts access to the waters encompassed by the safety zone, the effect of this rule will not be significant because the local waterway users will be notified via public Broadcast Notice to Mariners to ensure the safety zone will result in minimum impact. The entities most likely to be affected are waterfront facilities, commercial vessels, and pleasure craft engaged in recreational activities.

The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

This rule may affect owners and operators of waterfront facilities, commercial vessels, and pleasure craft engaged in recreational activities and sightseeing. This safety zone would not have a significant economic impact on a substantial number of small entities for the following reasons. This safety zone would be activated, and thus subject to enforcement, for a limited duration. When the safety zone is activated, vessel traffic may coordinate movements through the safety zone by contacting the onsite safety representative on VHF-13 or telephone (775) 530-3275. The maritime public will be advised in advance of this safety zone via Broadcast Notice to Mariners.

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

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

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

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and determined that this rule does not have implications for federalism.

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

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

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

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

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

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

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

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

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

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

This is a summary of the Wireline Competition Bureau's Order in CC Docket No. 02-6 and GN Docket No. 09-51; DA 14-712, released on May 23, 2014. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street, SW., Washington, DC 20554 or at the following Internet address: http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0523/DA-14-712A1.pdf.

1. In this Order, the Wireline Competition Bureau (Bureau) revises our guidance for the E-rate program (more formally known as the schools and libraries universal service support program) with respect to the requirement that applicants deduct from their E-rate funding requests the value of ineligible services bundled with services eligible for E-rate support, a process referred to in the E-rate program as cost allocation. The 2010 Clarification Order permitted, under limited circumstances, E-rate applicants to seek E-rate support for purchases of eligible services bundled with ineligible components without providing a cost allocation separating out the value of the ineligible components. Beginning in funding year 2015, we once again require E-rate recipients to cost allocate ineligible components that are bundled with eligible products or services, even under the limited circumstances allowed for by the 2010 Clarification Order. Based on our review of the record, we find that allowing E-rate applicants to purchase bundles of eligible products or services and ineligible components without deducting the value of the ineligible components risks having the federal universal service fund (Fund) overpay for services, and resulted in applicant and service provider confusion. We therefore determine that E-rate applicants must deduct the value of ineligible components bundled with eligible services unless those ineligible components qualify as “ancillary” to the eligible services under the Commission's rules. This revised interpretation of our rules shall be effective beginning in funding year 2015.

2. Based on our review of the record, we now adopt the proposal made in the E-rate Bundled Components Public Notice, 78 FR 23877, April 23, 2013, and revise our guidance regarding cost allocation for bundles of eligible services and ineligible components to more properly align with the Commission's cost allocation rules for the E-rate program, the best interests of the Fund, and the best interests of applicants for E-rate support. As a result, beginning with funding year 2015, E-rate recipients must cost allocate non-ancillary ineligible components that are bundled with eligible products or services, including those components that previously would have fallen within the scope of components not requiring cost allocation as described in the 2010 Clarification Order. Applicants may continue to seek E-rate funding for the eligible components of any bundled service offering but now must cost allocate non-ancillary ineligible components including, but not limited to, end user devices such as telephone handsets, VoIP handsets, computers, cell phones, and other components that are not eligible for E-rate discounts. We make no other changes to the gift guidance in the 2010 Clarification Order. If a gift was prohibited prior to today's Order, it remains prohibited by our rules.

3. The record persuades us that the 2010 Clarification Order guidance, which was focused on providing a further explanation of the Commission's E-rate program gift rules, is not the best reading of the Commission's rules because it did not fully consider the interplay between the gift rules and cost allocation requirements. As a result, the guidance in that order created substantial uncertainty for applicants and service providers about which ineligible components were required to be cost allocated. Moreover, because the 2010 Clarification Order did not impose limitations on what types of equipment or services could be bundled, we have become increasingly concerned that it unintentionally created risk that bundled offerings could result in expenditures for ineligible equipment or services that could drain the resources available for eligible equipment or services.

4. The 2010 Clarification Order guidance has proven to be incompatible with the Commission's E-rate rules regarding eligible services and cost allocation, which serve to prevent the E-rate program from paying for more than just eligible services. Permitting E-rate support for bundled ineligible components without requiring cost allocation creates the risk that E-rate funds will pay for ineligible services, leaving less money for eligible services. The Commission's ongoing commitment to strong stewardship of the Fund and to combatting waste, fraud and abuse in the E-rate program requires us to strive to ensure that E-rate support is not diverted to ineligible services, and the interpretation of our rules adopted here helps guard against that risk.

5. In addition, we have found that the 2010 Clarification Order has caused confusion over the interplay between that order and the Commission's cost allocation rules. The Commission's cost allocation rules require that “[a] request for discounts for a product or service that includes both eligible and ineligible components must allocate the cost of the contract to eligible and ineligible components.” By exempting some bundled offerings from those general cost allocation rules, the cost allocation guidance in the 2010 Clarification Order inadvertently created substantial tension between the guidance provided by the Bureau and the Commission's rules. Moreover, commenters expressed frustration that the 2010 Clarification Order cost allocation guidance did not make clear what products or services, other than cell phones, did not require cost allocation. Rescinding the cost allocation guidance of the 2010 Clarification Order and once again requiring cost allocation of all non-ancillary ineligible components of a bundle reflects the best reading of Commission rules and will make it easier for applicants to determine what must be cost allocated. We agree with the commenter who stated that the longstanding cost allocation requirement is “a simple and conceptually sound approach.”

6. Some commenters recommended that the Bureau reaffirm the cost allocation language in the 2010 Clarification Order, but limit its reach to bundles of cell phone handsets and service. Having a separate cost allocation policy for cell phones might be a practical approach to address the difficulties in assessing equipment price, but allowing bundling without cost allocation, even in relatively narrow circumstances, is in tension with the Commission's rules. Moreover, treating bundles of cell phones and cell phone service differently than other bundles of eligible services and ineligible components is inconsistent with the Commission's general commitment to technological neutrality, and risks having the E-rate program funds overpay for cell phone service. Requiring cost allocation for all bundled ineligible components, including cell phones, comports more fully with Commission rules.

7. Some commenters argue that we should maintain the guidance in the 2010 Clarification Order because bundling eligible and ineligible services is often the most economical way for E-rate recipients to receive services. But under today's decision, E-rate applicants may continue to achieve those economies by purchasing bundles containing eligible products or services and ineligible components. They are merely required to deduct the value of these ineligible components from their funding requests when they seek discounts for purchases of bundled services. In practical terms, this means that when applicants submit requests for funding on an FCC Form 471, they must identify which costs in the bundle are eligible and which costs are ineligible.

8. Several commenters have asked for guidance on the Commission's cost allocation requirements. We recognize that, as explained above, cost allocation requires some administrative effort, but compliance with the requirement is relatively simple. Under the Commission's rules, if a product or service contains ineligible components, costs should be allocated to the extent that a clear delineation can be made between the eligible and ineligible components. The clear delineation must have a tangible basis and the price for the eligible portion must be the most cost-effective means of receiving the eligible service.

9. Finally, as explained above, cost allocation is not required for ineligible ancillary components as defined by the Commission's rules. Although some commenters recommend amending the definition of “ancillary”, a substantive change to the Commission's rule on ancillary components is beyond the scope of this proceeding. We remind applicants that the definition of ancillary requires that the price for the otherwise ineligible component cannot be determined separately and independently from the price of the eligible components, and that the specific service which contains the ineligible ancillary component remains the most cost-effective way for the applicant to receive that service. USAC reviews requests for E-rate funding to ensure that any ineligible components deemed as ancillary to eligible services are truly ancillary under the Commission's definition.

10. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), the Wireline Competition Bureau (Bureau) included an Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on a substantial number of small entities by the policies and rules proposed in the E-rate Bundled Components Public Notice in CC Docket No. 02-6 and GN Docket No 09-51. The Bureau sought written public comment on the proposals in the E-rate Bundled Components Public Notice, including comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

11. This Order continues the Bureau's efforts to simplify the E-rate program and encourage the prudent use of limited E-rate funds. In it, we clarify that beginning with applications seeking discounts for E-rate funding year 2015, any ineligible components must be cost allocated, even if bundled with E-rate eligible services and offered to the public or some class of users. The prudent use of limited E-rate funding and clarity about E-rate rules are important to the long-term efficacy of the federal universal service fund (Fund). This clarification will help to achieve the Commission's goal of maintaining Fund solvency and providing clear rules for E-rate recipients.

12. No comments specifically addressed the IRFA.

13. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one that: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). Nationwide, there are a total of approximately 28.2 million small businesses, according to the SBA. A “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.”

14. Nationwide, as of 2002, there were approximately 1.6 million small organizations. The term “small governmental jurisdiction” is defined generally as “governments of cities, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” Census Bureau data for 2002 indicate that there were 87,525 local governmental jurisdictions in the United States. We estimate that, of this total, 84,377 entities were “small governmental jurisdictions.” Thus, we estimate that most governmental jurisdictions are small.

15. Small entities potentially affected by the proposals herein include eligible schools and libraries and the eligible service providers offering them discounted services.

16. Schools and Libraries. As noted, “small entity” includes non-profit and small government entities. Under the schools and libraries universal service support mechanism, which provides support for elementary and secondary schools and libraries, an elementary school is generally “a non-profit institutional day or residential school that provides elementary education, as determined under state law.” A secondary school is generally defined as “a non-profit institutional day or residential school that provides secondary education, as determined under state law,” and not offering education beyond grade 12. For-profit schools and libraries, and schools and libraries with endowments in excess of $50,000,000, are not eligible to receive discounts under the program, nor are libraries whose budgets are not completely separate from any schools. Certain other statutory definitions apply as well. The SBA has defined for-profit, elementary and secondary schools and libraries having $6 million or less in annual receipts as small entities. In funding year 2007, approximately 105,500 schools and 10,950 libraries received funding under the schools and libraries universal service mechanism. Although we are unable to estimate with precision the number of these entities that would qualify as small entities under SBA's size standard, we estimate that fewer than 105,500 schools and 10,950 libraries might be affected annually by our action, under current operation of the program.

17. Telecommunications Service Providers. First, neither the Commission nor the SBA has developed a size standard for small incumbent local exchange services. The closest size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,307 incumbent carriers reported that they were engaged in the provision of local exchange services. Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees. Thus, under this category and associated small business size standard, we estimate that the majority of entities are small. We have included small incumbent local exchange carriers in this RFA analysis. A “small business” under the RFA is one that, inter alia, meets the pertinent small business size standard (e.g., a telephone communications business having 1,500 or fewer employees), and “is not dominant in its field of operation.” The SBA's Office of Advocacy contends that, for RFA purposes, small incumbent local exchange carriers are not dominant in their field of operation because any such dominance is not “national” in scope. We have therefore included small incumbent carriers in this RFA analysis, although we emphasize that this RFA action has no effect on the Commission's analyses and determinations in other, non-RFA contexts.

18. Second, neither the Commission nor the SBA has developed a definition of small entities specifically applicable to providers of interexchange services (IXCs). The closest applicable definition under the SBA rules is for wired telecommunications carriers. This provides that a wired telecommunications carrier is a small entity if it employs no more than 1,500 employees. According to the Commission's 2010 Trends Report, 359 companies reported that they were engaged in the provision of interexchange services. Of these 300 IXCs, an estimated 317 have 1,500 or few employees and 42 have more than 1,500 employees. Consequently, the Commission estimates that most providers of interexchange services are small businesses.

19. Third, neither the Commission nor the SBA has developed a definition of small entities specifically applicable to competitive access services providers (CAPs). The closest applicable definition under the SBA rules is for wired telecommunications carriers. This provides that a wired telecommunications carrier is a small entity if it employs no more than 1,500 employees. According to the 2010 Trends Report, 1,442 CAPs and competitive local exchange carriers (competitive LECs) reported that they were engaged in the provision of competitive local exchange services. Of these 1,442 CAPs and competitive LECs, an estimated 1,256 have 1,500 or fewer employees and 186 have more than 1,500 employees. Consequently, the Commission estimates that most providers of competitive exchange services are small businesses.

20. Wireless Telecommunications Carriers (except Satellite). Since 2007, the Census Bureau has placed wireless firms within this new, broad, economic census category. Prior to that time, such firms were within the now-superseded categories of “Paging” and “Cellular and Other Wireless Telecommunications.” Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. Because Census Bureau data are not yet available for the new category, we will estimate small business prevalence using the prior categories and associated data. For the category of Paging, data for 2002 show that there were 807 firms that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. For the category of Cellular and Other Wireless Telecommunications, data for 2002 show that there were 1,397 firms that operated for the entire year. Of this total, 1,378 firms had employment of 999 or fewer employees, and 19 firms had employment of 1,000 employees or more. Thus, we estimate that the majority of wireless firms are small.

21. Wireless telephony includes cellular, personal communications services, and specialized mobile radio telephony carriers. As noted, the SBA has developed a small business size standard for Wireless Telecommunications Carriers (except Satellite). Under the SBA small business size standard, a business is small if it has 1,500 or fewer employees. According to the 2010 Trends Report, 413 carriers reported that they were engaged in wireless telephony. Of these, an estimated 261 have 1,500 or fewer employees and 152 have more than 1,500 employees. We have estimated that 261 of these are small under the SBA small business size standard.

22. Common Carrier Paging. As noted, since 2007 the Census Bureau has placed paging providers within the broad economic census category of Wireless Telecommunications Carriers (except Satellite). Prior to that time, such firms were within the now-superseded category of “Paging.” Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. Because Census Bureau data are not yet available for the new category, we will estimate small business prevalence using the prior category and associated data. The data for 2002 show that there were 807 firms that operated for the entire year. Of this total, 804 firms had employment of 999 or fewer employees, and three firms had employment of 1,000 employees or more. Thus, we estimate that the majority of paging firms are small.

23. In addition, in the Paging Second Report and Order, the Commission adopted a size standard for “small businesses” for purposes of determining their eligibility for special provisions such as bidding credits and installment payments. A small business is an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $15 million for the preceding three years. The SBA has approved this definition. An initial auction of Metropolitan Economic Area (“MEA”) licenses was conducted in the year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies claiming small business status won 440 licenses. A subsequent auction of MEA and Economic Area (“EA”) licenses was held in the year 2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-two companies claiming small business status purchased 3,724 licenses. A third auction, consisting of 8,874 licenses in each of 175 EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders claiming small or very small business status won 2,093 licenses.

24. Currently, there are approximately 74,000 Common Carrier Paging licenses. According to the most recent Trends in Telephone Service, 291 carriers reported that they were engaged in the provision of “paging and messaging” services. Of these, an estimated 289 have 1,500 or fewer employees and two have more than 1,500 employees. We estimate that the majority of common carrier paging providers would qualify as small entities under the SBA definition.

25. Internet Service Providers. The 2007 Economic Census places these firms, whose services might include voice over Internet protocol (VoIP), in either of two categories, depending on whether the service is provided over the provider's own telecommunications facilities (e.g., cable and DSL ISPs), or over client-supplied telecommunications connections (e.g., dial-up ISPs). The former are within the category of Wired Telecommunications Carriers, which has an SBA small business size standard of 1,500 or fewer employees. The latter are within the category of All Other Telecommunications, which has a size standard of annual receipts of $25 million or less. The most current Census Bureau data for all such firms, however, are the 2002 data for the previous census category called Internet Service Providers. That category had a small business size standard of $21 million or less in annual receipts, which was revised in late 2005 to $23 million. The 2002 data show that there were 2,529 such firms that operated for the entire year. Of those, 2,437 firms had annual receipts of under $10 million, and an additional 47 firms had receipts of between $10 million and $24,999,999. Consequently, we estimate that the majority of ISP firms are small entities.

26. Vendors of Internal Connections: Telephone Apparatus Manufacturing. The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in manufacturing wire telephone and data communications equipment. These products may be standalone or board-level components of a larger system. Examples of products made by these establishments are central office switching equipment, cordless telephones (except cellular), PBX equipment, telephones, telephone answering machines, LAN modems, multi-user modems, and other data communications equipment, such as bridges, routers, and gateways.” The SBA has developed a small business size standard for Telephone Apparatus Manufacturing, which is: all such firms having 1,000 or fewer employees. According to Census Bureau data for 2002, there were a total of 518 establishments in this category that operated for the entire year. Of this total, 511 had employment of under 1,000, and an additional seven had employment of 1,000 to 2,499. Thus, under this size standard, the majority of firms can be considered small.

27. Vendors of Internal Connections: Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment.” The SBA has developed a small business size standard for firms in this category, which is: all such firms having 750 or fewer employees. According to Census Bureau data for 2002, there were a total of 1,041 establishments in this category that operated for the entire year. Of this total, 1,010 had employment of under 500, and an additional 13 had employment of 500 to 999. Thus, under this size standard, the majority of firms can be considered small.

28. Vendors of Internal Connections: Other Communications Equipment Manufacturing. The Census Bureau defines this category as follows: “This industry comprises establishments primarily engaged in manufacturing communications equipment (except telephone apparatus, and radio and television broadcast, and wireless communications equipment).” The SBA has developed a small business size standard for Other Communications Equipment Manufacturing, which is having 750 or fewer employees. According to Census Bureau data for 2002, there were a total of 503 establishments in this category that operated for the entire year. Of this total, 493 had employment of under 500, and an additional 7 had employment of 500 to 999. Thus, under this size standard, the majority of firms can be considered small.

29. This Order reinstates the requirement that E-rate applicants cost allocate all bundled ineligible components other than those that fall under the Commission's definition of “ancillary.” Cost allocation requirements are already part of § 54.504(e) of the Commission's rules, which requires a clear delineation of eligible and ineligible services that are included on an application requesting E-rate discounts. The rulemaking results in minimal additional reporting requirements.

30. The result of this rulemaking is that small entities that had not been cost allocating certain bundled ineligible components will again be required to comply with § 54.504(e) requirements for cost allocating these components. Small entities that are service providers and vendors in the E-rate program will also be required to reexamine offerings in accordance to any changed requirements.

31. The RFA requires an agency to describe any significant, specifically small business, alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): “(1) the establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance and reporting requirements under the rule for such small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.”

32. This rulemaking could impose minimal additional burdens on small entities. The only additional administrative burden the rulemaking could impose on small entities, however, would be requiring them to cost allocate ineligible components that they may have presumed were exempted from the cost allocation requirements by the 2010 Clarification Order. Cost allocation requires determining the costs of eligible and ineligible components and reporting the delineation of those costs in a request for E-rate discounts on the FCC Form 471. E-rate recipients had been required to cost allocate ineligible components bundled with eligible services prior to the 2010 Clarification Order, and are already generally required to cost allocate all ineligible components.

33. The Commission will send a copy of this Order, including this FRFA, in a report to be sent to Congress pursuant to the SBREFA. In addition, the Commission will send a copy of the Order, including the FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the Order and the FRFA (or summaries thereof) will also be published in the Federal Register .

34. This document contains revised information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under section 3507 of the PRA. We note that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, the Commission previously sought specific comment on how it might further reduce the information collection burden on small business concerns with fewer than 25 employees.

35. In the present document, we rescind the guidance in the 2010 Clarification Order regarding cost allocation requirements in the E-rate program (more formally known as the schools and libraries universal service support program). We have determined that it is in the best interest of the E-rate program and its participants to require E-rate recipients to cost allocate ineligible components that are bundled with eligible services and that may have been subject to the limited exemption provided by the guidance in the 2010 Clarification Order. Any information collected from applicants is limited to information explaining the cost allocation.

36. The Bureau will include a copy of this Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act.

37. Accordingly, it is ordered, that pursuant to the authority contained in sections 1 through 4, 254, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 151 through 154, 254, and 303(r), and authority delegated in Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Third Report and Order, 12 FCC Rcd 22485, 22488 through 89, paragraph 6 (1997), this Order is adopted, effective July 14, 2014.

The Report and Order stated that the information collection requirements would be effective immediately upon announcement in the Federal Register of OMB approval. On June 2, 2014, OMB approved the information collection requirement contained in Section III.I of this Report and Order pursuant to OMB Control Number: 3060-1196, Inmate Calling Services (ICS) Data Collection. Accordingly, the information collection requirement contained in Section III.I of the Report and Order is effective June 12, 2014. The expiration date for the information collection is June 30, 2017. The Commission will announce, in a separate notice, the due date by which respondents must submit the required data.

Pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520, an agency may not conduct or sponsor a collection of information unless it displays a currently valid control number. Notwithstanding any other provisions of law, no person shall be subject to any penalty for failing to comply with the collection of information subject to the Paperwork Reduction Act that does not display a valid control number. Questions concerning this information collection, 3060-1196, should be directed to Leslie F. Smith, Federal Communications Commission at (202) 418-0217 or leslie.smith@fcc.gov.

The total annual reporting burdens and costs for the respondents are as follows:

OMB Control Number: 3060-1196.

OMB Approval Date: June 2, 2014.

OMB Expiration Date: June 30, 2017.

Title: Rates for Inmate Calling Services Data Collection.

Form Number: N/A.

Respondents: Business or other for profit, federal government.

Number of Respondents and Responses: 25 respondents; 25 responses.

Estimated Time per Response: 90 hours.

Frequency of Response: One-time reporting requirement and one-time recordkeeping requirement.

Obligation to Respond: Required to obtain or maintain benefits.

Total Annual Burden: 2,250 hours.

Total Annual Cost: None.

Nature and Extent of Confidentiality: The Commission anticipates providing confidential treatment for proprietary information submitted by ICS providers. Parties that comply with the terms of a protective order for the proceeding will have an opportunity to comment on the data.

Needs and Uses: The Commission's Report and Order required that all inmate calling service (ICS) providers comply with a one-time mandatory data collection. The Report and Order requires ICS providers to submit data on the costs of providing interstate, intrastate toll, and local ICS. Data required to be submitted include data on the costs of telecommunications service, interconnection fees, equipment investment, installation and maintenance, security, ancillary services, and other costs. Providers will also be required to provide certain related rate, demand, and forecast data. The data will be used to inform the Commission's evaluation of rate reform options in the FNPRM, to enable the Commission to transition from interim rate reform to permanent rate reform, and to enable the Commission to discharge its core responsibility of ensuring just, reasonable and fair rates as required by sections 201 and 276 by ensuring ICS rates are just, reasonable, and fair pursuant to sections 201(b) and 276 of the Communications Act of 1934, as amended.