Agricultural Marketing Service
Commodity Credit Corporation
Foreign-Trade Zones Board
International Trade Administration
National Oceanic and Atmospheric Administration
Engineers Corps
Federal Energy Regulatory Commission
Centers for Disease Control and Prevention
Centers for Medicare & Medicaid Services
Food and Drug Administration
Indian Health Service
National Institutes of Health
Coast Guard
Ocean Energy Management Bureau
Reclamation Bureau
Labor-Management Standards Office
Occupational Safety and Health Administration
Federal Aviation Administration
Federal Railroad Administration
Internal Revenue Service
Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws.
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Nuclear Regulatory Commission.
Final rule; correction.
The U.S. Nuclear Regulatory Commission (NRC) is correcting a final rule that appeared in the
Effective on December 30, 2019.
Please refer to Docket ID NRC-2019-0170 when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:
•
•
•
Jill Shepherd, Office of Nuclear Material Safety and Safeguards, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-1230; email:
In FR Doc. 2019-25847 appearing on page 65639 in the
m. In paragraphs (e)(8), (f)(1)(iii), and (f)(2)(i)(A) and (C), remove “as appropriate”;
For the Nuclear Regulatory Commission.
National Credit Union Administration (NCUA).
Final rule.
The NCUA Board (Board) is amending the NCUA's previously revised regulations regarding prompt corrective action (PCA). The final rule delays the effective date of both the NCUA's October 29, 2015 final rule regarding risk-based capital (2015 Final Rule) and the NCUA's November 6, 2018 supplemental final rule regarding risk-based capital (2018 Supplemental Rule), moving the effective date from January 1, 2020 to January 1, 2022. During the extended delay period, the NCUA's current PCA requirements will remain in effect.
The effective date of the final rule published on October 29, 2015 (80 FR 66626), delayed November 6, 2018 (83 FR 55467), is further delayed until January 1, 2022. The amendment in the final rule published on November 6,
At its October 2015 meeting, the Board issued the 2015 Final Rule to amend part 702 of the NCUA's current PCA regulations to require credit unions taking certain risks hold capital commensurate with those risks.
The 2015 Final Rule restructures the NCUA's current PCA regulations and makes various revisions, including amending the agency's risk-based net worth requirement by replacing credit unions' risk-based net worth ratio with a new risk-based capital ratio. The risk-based capital requirements in the 2015 Final Rule are more consistent with the NCUA's risk-based capital ratio measure for corporate credit unions, and are more comparable to the risk-based capital measures implemented by the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System, and Office of the Comptroller of Currency (other banking agencies) in 2013.
The Board originally set the effective date of the 2015 Final Rule for January 1, 2019 to provide credit unions and the NCUA with sufficient time to make the necessary adjustments—such as systems, processes, and procedures—and to reduce the burden on affected credit unions.
At its October 2018 meeting, the Board issued the 2018 Supplemental Rule to delay the effective date of the 2015 Final Rule for an additional year, moving the effective date from January 1, 2019 to January 1, 2020.
At its June 2019 meeting, the Board approved a notice of proposed rulemaking (proposed rule) to delay the effective date of both the 2015 Final Rule and the 2018 Supplemental Final Rule for an additional two years, moving the effective date of both rules from January 1, 2020 to January 1, 2022.
The proposed rule stated the Board may reconsider how the 2015 Final Rule treats securitizations issued by credit unions.
The proposed rule also stated the delay would provide time for the Board to consider whether the 2015 Final Rule should be amended to address subordinated debt.
The proposed rule also stated the delay would provide the Board time to consider whether a community bank leverage ratio (CBLR) analog should be integrated into the NCUA's capital standards. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 required the other banking agencies, to propose a simplified, alternative measure of capital adequacy for federally insured banks.
The proposed rule also stated the delay would provide the NCUA with additional time to prepare for the 2015 Final Rule's implementation. The NCUA has several initiatives in process to improve and modernize how the agency conducts examinations and supervision. These initiatives include
Finally, the proposed rule stated a delay would further benefit credit unions as they work to implement the Financial Accounting Standards Board's final current expected credit loss (CECL) standard. The Board believes the proposed delay would allow credit unions additional time to allocate resources to the implementation of CECL.
The proposed rule provided for a 30-day comment period, which ended on July 26, 2019.
The NCUA received 29 comment letters in response to the proposed rule. These comment letters were received from credit union trade associations, credit unions, state and regional credit union leagues, bank trade organizations, consumer groups, and an individual. Nearly all commenters supported giving credit unions additional time to comply with the 2015 Final Rule's requirements. Most of these commenters also supported the Board's plan to consider credit union capital standards holistically. A few bank trade organization and consumer group commenters, however, opposed the delay, asserting generally delaying the 2015 Final Rule further would pose potential costs to the NCUSIF and to taxpayers. These commenters also opined the stated reasons for the proposed delay are insufficient and inconsistent with prior agency statements regarding the need for the 2015 Final Rule. The Board has not made any changes to the final rule in response to the comments received. A discussion of the final rule, including a discussion of the comments received, is below.
The credit unions, credit union leagues, credit union trade associations, and one individual who commented all supported the delay. These commenters generally reiterated the Board's reasons for the proposed delay, including the plan to review credit union capital standards holistically and evaluate rulemaking or guidance options relating to subordinated debt, asset securitization, and an analog to the CBLR. Several commenters also mentioned CECL as support for the delay, which was scheduled to become effective for credit unions in January 2022.
Two banking trade organizations, as well as two consumer groups, opposed the delay. These commenters discussed several reasons why they believe the 2015 Final Rule, as modified by the 2018 Supplemental Rule, should go into effect on January 1, 2020.
One of the primary concerns expressed was the Board has not adequately explained why a delay is necessary. Specifically, the commenters did not believe the Board sufficiently explained why last year a one-year delay was sufficient and this year an additional two-year delay is necessary, particularly when the factors cited in the proposed rule for supporting the delay, asset securitization, subordinated debt, and the CBLR, were all known to the Board before the 2018 Supplemental Rule. The Board has reconsidered its position on when to implement the 2015 Final Rule for a few reasons.
As discussed in the proposed rule, the Board is now considering a holistic review of the 2015 Final Rule and its risk-based capital standards. When issuing the 2018 Supplemental Rule, the Board was primarily concerned with ensuring credit unions and the NCUA were prepared to implement the 2015 Final Rule in its current form. The Board has reconsidered its position and is now considering whether to make more substantive revisions to the 2015 Final Rule. The Board does not believe it is prudent to allow the 2015 Final Rule to become effective as the Board considers substantive modifications to the rule.
The Board is aware a few of its identified concerns, including asset securitization and subordinated debt were present when it finalized the 2018 Supplemental Rule. The Board, however, has reconsidered the extent of changes those issues may require to the 2015 Final Rule. The Board also notes while the statutory requirement to implement a CBLR had been enacted when the Board finalized the 2018 Supplemental Rule, the other banking agencies had not yet issued their final rule.
The Board believes the reasons stated in the proposal and discussed above, both individually and collectively, sufficiently support the delay. The Board, however, also notes other factors have occurred after the adoption of the 2018 Supplemental Rule that suggest an additional two-year delay is prudent. Other banking agencies are currently reconsidering several fundamental aspects of their 2013 risk-based capital rule, which influenced the adoption of the 2015 Final Rule.
One commenter suggested the Board implement the 2015 Final Rule and then amend it as necessary, instead of allowing the existing risk-based net worth framework to remain in effect. The commenter stated the NCUA has previously noted the current framework has severe weaknesses and was subject to criticism from both the Government Accountability Office (GAO) and the NCUA's Inspector General.
Other commenters expressed concerns the two-year delay would occur when there is a possibility the economy is weakening. One commenter opined delaying the 2015 Final Rule would threaten the financial security of credit unions, which may harm consumers. Two commenters generally expressed concern about the credit union system not being subject to more stringent capital standards. A commenter stated the Congressional Budget Office has estimated, if the 2015 Final Rule is further delayed, the NCUA will be expected to spend $26 million to resolve failed credit unions from 2020-2022.
The Board agrees higher capital levels keep credit unions from becoming undercapitalized during periods of economic stress. The Board, however, believes the credit union industry is healthy, well capitalized, and most credit unions currently hold capital well beyond the minimum required by the 2015 Final Rule. As stated in the 2018 Supplemental Rule, complex credit unions already hold, on average, more than 17 percent capital, or 70 percent more than the 10 percent required to be well-capitalized under the 2015 Final Rule.
The Board notes the current health and capitalization levels of the credit union industry are not sufficient justification for rescinding the 2015 Final Rule, as some commenters suggested. The Board, however, is clarifying that the current capitalization of the industry provides time for the Board to consider modifications to the 2015 Final Rule and alleviate the need to immediately implement the 2015 Final Rule. The robust capital levels in the credit union industry, however, do not negate the weaknesses in the current capital standards, and having a strong capital framework with enhanced risk sensitivity is an integral part of the NCUA's supervision of credit unions. The Board believes it is sound regulatory practice to ensure credit unions choosing to hold higher risk assets and liabilities on their balance sheets are required to hold appropriate levels of corresponding capital. The Board also notes repealing the 2015 Final Rule is outside the scope of the proposed rule.
A few commenters stated delaying the effective date of the 2015 Final Rule conflicts with the congressional mandate that the NCUA capital rules adequately address risks and harmonize with the other banking agencies' framework. Specifically, the commenters stated the FCU Act requires the Board to adopt a system of PCA for credit unions that is “comparable to” section 38 of the Federal Deposit Insurance Act (FDI Act).
Commenters also questioned the need for additional time to prepare for the 2015 Final Rule. The Board would have been prepared to implement the 2015 Final Rule. The Board, however, does not want to allocate the necessary additional resources to implement the 2015 Final Rule, given its decision to comprehensively evaluate the 2015 Final Rule. The Board believes it is more prudent to allocate resources to other priorities that may not require substantial amendment, including several initiatives to improve and modernize how the agency conducts examinations and supervision. The goals of these initiatives are to replace outdated, end-of-life examination systems, streamline processes, adopt enhanced examination techniques, and leverage new technology and data to maintain high quality supervision of federally-insured credit unions with less onsite presence. These initiatives include the Enterprise Solution Modernization, Call Report Modernization, and Virtual Examination programs. The delay enables the NCUA to direct additional time and resources toward modernizing examination systems, versus dedicating resources to end-of-life systems being retired. One commenter noted supervisory guidance has yet to be issued to examiners and the industry to assist in implementing the risk-based capital rules and changes to the Call Report are necessary to capture risk-based capital related information. The NCUA intends to issue additional guidance and make necessary changes to the Call Report prior to the effective date of the risk-based capital rule.
One commenter stated the 2015 Final Rule should be implemented immediately due to concerns with the treatment of goodwill in the agency's current risk-based capital rule. Currently, goodwill is not deducted
The same commenter expressed concerns about the agency's ability to properly identify potential concentration risks present in credit unions and believed the 2015 Final Rule may have addressed recent losses related to taxi medallions. Risk-based capital is designed to mitigate losses to the NCUSIF; however, it is not meant to protect the NCUSIF from outside systemic risks such as severe disruptions in a particular market. The Board believes credit unions need to hold capital commensurate with the level and nature of the risks to which they are exposed. The NCUA will continue to address, through the examination process and the agency's various enforcement authorities, any safety and soundness concerns related to deficiencies in capital levels relative to all of the credit union's risk, inclusive of concentration risk.
The Board notes the risk-based capital framework is generally designed and calibrated to reflect risks across the industry and may not always require a specific credit union to hold capital commensurate with its credit, market, operational, or other risks. Thus, even though the 2015 Final Rule imposes higher capital requirements for credit unions with significant concentrations of residential real estate and commercial loans, that framework was broadly based on the credit union industry, and not for specific credit union portfolios, such as those with a high concentration in taxi medallions. The Board also notes the other banking agencies' 2013 risk-based capital rule does not address concentration risk even though both the NCUA's current rule and 2015 Final Rule impose higher capital requirements for credit unions with a significant concentrations of residential real estate and commercial loans.
Many commenters also offered recommendations that went beyond the scope of the proposed delay. For example, several commenters recommended the Board consider rescinding the 2015 Final Rule. The Board continues to believe the current risk-based net worth standards have weaknesses and revised standards with enhanced risk sensitivity are appropriate for covered credit unions. In addition, a few commenters recommended the Board change the definition of complex and consider applying the 2015 Final Rule only to credit unions with assets of $10 billion or more. The Board believes this recommendation is beyond the scope of the proposed rule.
Two credit union-affiliated commenters provided suggestions on potential amendments to the 2015 Final Rule. Specifically, a credit union trade association discussed why it supports a more flexible threshold for applying the 2015 Final Rule, as well as how it would envision the Board implementing an analog to the CBLR. The commenter also suggested that the Board consider recalibrating certain risk weights and permanently grandfather excluded goodwill. Separately, an attorney who represents credit unions provided a detailed proposal on how the Board could authorize all credit unions to issue perpetual capital shares that could constitute regulatory capital. The Board believes these comments go beyond the scope of the proposed rule, but will consider them as it undergoes a substantive reevaluation of the NCUA's capital standards.
One commenter noted the 2015 Final Rule eliminates several provisions in the NCUA's current PCA regulations, including provisions related to the regular reserve account, risk mitigation credits, and alternative risk weights. This commenter recommended the Board separately consider addressing these issues in a more immediate timeframe than on the extended timeframe necessary to holistically consider the NCUA's risk-based capital framework. The Board believes these comments are outside the scope of this rule, as they address changes to the current PCA framework, but will consider them as part of their holistic review of the NCUA's capital standards.
Finally, one commenter also asserted the agency's administrative record to support the proposed delay is not sufficient. The commenter attached a study, which only contained a brief discussion of capital, without explaining its relevance. The brief discussion of capital in the study was also reflected in other comment letters and has been addressed by the Board. The commenter also posed numerous questions that it asserts the Board must address in the final rule to comply with the Administrative Procedure Act (APA). The Board disagrees. An agency is not required to include a response to every comment received nor is an agency required to discuss every item of fact or opinion included in the comments.
The Board is finalizing the two-year delay as proposed. Under the final rule, the NCUA's current PCA regulation remains in effect until the 2015 Final Rule and the 2018 Supplemental Rule's effective date, January 1, 2022. The NCUA will continue to enforce the capital standards currently in place and address any supervisory concerns through existing regulatory and supervisory mechanisms. The Board
In 1998, Congress enacted the CUMAA.
The purpose of section 216 of the FCUA is to “resolve the problems of [federally] insured credit unions at the least possible long-term loss to the [NCUSIF].”
Among other things, section 216(c) of the FCUA requires the NCUA to use a credit union's net worth ratio to determine its classification among five “net worth categories” set forth in the FCUA.
Section 216(d)(1) of the FCUA requires that the NCUA's system of PCA include, in addition to the statutorily defined net worth ratio requirement applicable to federally insured natural-person credit unions, “a risk-based net worth
The final rule delays the effective date of the 2015 Final Rule and the 2018 Supplemental Rule from January 1, 2020 until January 1, 2022. The previous effective date, January 1, 2020, is less than thirty days after the publication of the final rule. Under the APA, a final rule cannot be effective until 30 days after its publication, however, there is an exception for rules that grant or recognize an exemption or relieve a restriction.
The Regulatory Flexibility Act (RFA) generally requires, in connection with a final rule, an agency prepare and make available for public comment a final regulatory flexibility analysis that describes the impact of the final rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies the rule will not have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include credit unions with assets less than $100 million)
The delay of the 2015 Final Rule and 2018 Supplemental Rule affects only complex credit unions, which are those with greater than $500 million in assets under the 2018 Supplemental Rule. As a result, credit unions with $100 million or less in total assets are not affected by this final rule. Accordingly, the NCUA certifies this final rule will not have a significant economic impact on a substantial number of small credit unions.
The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501
The information collection requirements prescribed by § 702.101(b) were set-out in the August 8, 2018 (83 FR 38997), proposed rule and assigned OMB control number 3133-0191. There is no new collection of information contained in this final rule that is subject to the PRA. The rule only extends the effective date.
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the principles of the executive order to adhere to fundamental federalism principles. This final rule extends the effective date of the 2015 Final Rule and the 2018 Supplemental Rule for two additional years, until January 1, 2022. Therefore, this final rule does not have a direct effect on the states, on the relationship between the National Government and the states, and on the distribution of power and responsibilities among the various levels of government.
The NCUA has determined this final rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).
The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) (SBREFA) generally provides for congressional review of agency rules.
Credit unions, Reporting and recordkeeping requirements.
Commodity Futures Trading Commission.
Final rule.
The Commodity Futures Trading Commission (the “Commission”) is issuing a final rule that amends the Commission's regulations to eliminate the provisions that set forth the procedures for the formulation, amendment, or repeal of rules or regulations. Because the Administrative Procedure Act (“APA”) governs the Commission's rulemaking process, the Commission believes that it is unnecessary to codify the rulemaking process in a Commission regulation. The amended regulation is comprised solely of the procedure for filing petitions for rulemakings, as the APA does not address this process.
This rule is effective January 16, 2020.
Herminio Castro, Senior Special Counsel, (202) 418-6705,
Part 13 sets forth procedures for the formulation, amendment, or repeal of rules or regulations insofar as those procedures directly affected the public.
On September 20, 2019, the Commission published a notice of proposed rulemaking to amend part 13 of its regulations to eliminate the provisions in part 13 that set forth the process for rulemakings (“NPRM”).
The Commission received two comment letters on the NPRM from Better Markets, Inc. and the Administrative Conference of the United States (“Better Markets” and “ACUS”).
Better Markets agreed with the Commission's proposal to eliminate the rulemaking procedures codified in part 13, stating that they provide little value beyond that provided by the APA and applicable case law. Better Markets, however, recommended the Commission implement ACUS's Recommendation 2014-4 concerning ex parte communications.
The Commission has considered the comments by Better Markets and the ACUS and is adopting part 13, as proposed, with a few modifications.
In response to ACUS's comment, the Commission notes that it has had procedures for filing rulemaking petitions since 1976 to ensure that the public is engaged in the rulemaking process at the Commission. Specifically, regulation § 13.1 provides instructions as to where the petition should be sent, what information should be included in the petition, and the manner in which the Commission must respond to such petition. The Commission believes that retaining this provision is necessary as the APA does not address this process. Furthermore, a formalized process for petitions would promote consistency and transparency in the way that the Commission handles petitions for rulemakings.
The Commission is adopting a change in proposed regulation § 13.1 to allow the electronic submission of petitions through the Commission's website, as recommended by the ACUS. Furthermore, it will be the Commission's policy to post the petitions for rulemaking on the Commission's website.
The Commission will decide on a case-by-case basis whether to solicit public comment on petitions for rulemaking,
Finally, regulation § 13.1 only requires that the petition set forth the text of the rule or amendment being proposed or the rule petitioner wishes to have repealed, and the nature of the petitioner's interest. It also provides that the petition may advance arguments in support of the petition. The Commission is of the view that providing a prescriptive approach to the petition's constructs may have the effect of constraining rather than aiding the presentation of data and arguments by petitioners. To be sure, the petitioner should provide sufficient information and data in order for the Commission to make a determination on the petition for rulemaking. In this regard, regulation § 13.1 provides that, except in affirming a prior denial or when the denial is self-explanatory, notice of a denial in whole or in part of a petition will be accompanied by a brief statement of the grounds of denial. Nevertheless, in the interest of transparency, the Commission will endeavor to include an explanation on a case-by-case basis when the petition merits it.
The Commission also considered whether to implement rules for ex parte communications in informal rulemaking, as suggested by Better Markets. As Better Markets notes, the APA does not prohibit such communications and indeed “directs . . . agencies to provide the public an opportunity for meaningful public comment, which may occur through any type of interaction (
Accordingly, this final rulemaking removes regulation §§ 13.1, 13.3, 13.4, 13.5, and 13.6 from part 13 and retains former regulation § 13.2 as regulation § 13.1, as amended. In addition, the Commission is revising the authority citation for part 13. The authority cited for part 13, 7 U.S.C. 4a(j), was incorrect due to subsequent renumbering and it is being changed to 7 U.S.C. 2(a)(12).
The Regulatory Flexibility Act
The Paperwork Reduction Act (“PRA”)
Section 15(a) of the CEA
As discussed above, the final rule removes redundant and potentially confusing provisions. The final rule is a procedural rule that does not make any substantive change to the Commission rulemaking process. By simplifying the rules setting forth the procedures to be followed in rulemaking proceedings, the Commission eliminates any confusion about the rulemaking procedures that apply, and thus makes them more efficient and understandable to the public and market participants. Further, the final rule does not impose costs on the public since the amendments being finalized do not alter how the public participates in the rulemaking process to submit data, views or arguments.
Because the APA governs the Commission's rulemaking process, the changes to part 13 do not affect the protection of market participants and the public as they will continue to enjoy the ability to petition for rulemaking and otherwise participate in the Commission's rulemaking process. Further, as a procedural rule, the final rule will not impact the efficiency, competitiveness, and financial integrity of the futures markets, price discovery, or sound risk management practices. Finally, it is in the public interest to make the Commission's rulemaking procedures more efficient and understandable to the public and market participants.
Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the objectives of the CEA, in issuing any order or adopting any Commission rule or regulation. The Commission has determined that the final amendments to part 13 have no anticompetitive effects. As the Commission stated in the NPRM, the final rule simply updates part 13 to remove unnecessary and potentially confusing provisions and makes technical changes. The final rule is procedural rule that will not cause a change in behavior that would alter the level playing fields of regulated entities.
Administrative practice and procedure, Rulemaking procedures.
For the reasons stated in the preamble, the Commodity Futures Trading Commission revises 17 CFR part 13 to read as follows:
7 U.S.C. 2(a)(12).
Any person may file a petition with the Secretariat of the Commission, by mail or electronically through the Commission website, for the issuance, amendment or repeal of a rule of general application. The petition shall be directed to Secretariat, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581, and shall set forth the text of any final rule or amendment or shall specify the rule the repeal of which is sought. The petition shall further state the nature of the petitioner's interest and may state arguments in support of the issuance, amendment or repeal of the rule. The Secretariat shall acknowledge receipt of the petition, refer it to the Commission for such action as the Commission deems appropriate, and notify the petitioner of the action taken by the Commission. Except in affirming a prior denial or when the denial is self-explanatory, notice of a denial in whole or in part of a petition shall be accompanied by a brief statement of the grounds of denial.
The following appendices will not appear in the Code of Federal Regulations.
On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.
I support the final rule to eliminate the obsolete provisions in part 13 of the Commission's regulations that specify procedures for Commission rulemakings. Part 13, adopted by the Commission more than 40 years ago, does not conform fully to the rulemaking procedures required by the Administrative Procedure Act (“APA”) and followed today by the Commission. The repeal of these procedures will avoid potential confusion regarding the Commission's rulemaking process.
Notice and comment rulemaking pursuant to the APA relies on a transparent process and an informed public that is able to participate in agency rulemakings. In conjunction with today's final rule, the Commission is posting on its website a plain-English summary of its rulemaking process.
I am particularly pleased to see that in response to public comments, the preamble to the final rule affirms the Commission's commitment to transparency during the rulemaking process.
In addition, the final rule also preserves the public's right to petition the Commission for the issuance, amendment, or repeal of a rule. It incorporates comments received in response to the proposed rule by allowing for the electronic submission of such petitions through the Commission's website. The preamble to the final rule also establishes a Commission policy of posting petitions for rulemaking on the Commission's website. Each of these measures is a valuable addition to the transparency and accessibility that the public deserves when interacting with the Commission.
Internal Revenue Service (IRS), Treasury.
Final regulations and removal of temporary regulations.
This document contains final regulations relating to certain financial products providing for payments that are contingent upon or determined by reference to U.S. source dividend payments.
D. Peter Merkel or Karen Walny at (202) 317-6938 (not a toll-free number).
This document contains final regulations under § 1.871-15 defining the term broker for purposes of section 871(m) of the Internal Revenue Code (the Code). In addition, the final regulations provide guidance relating to when the delta of an option that is listed on a foreign regulated exchange may be calculated based on the delta of that option at the close of business on the business day before the date of issuance. The final regulations also provide guidance identifying which party to a potential section 871(m) transaction is responsible for determining whether a transaction is a section 871(m) transaction when multiple brokers or dealers are involved in the transaction. Finally, this document withdraws temporary regulations under § 1.871-15T regarding these matters.
On January 23, 2012, the
On December 5, 2013, the
On September 18, 2015, the
The Treasury Department and the IRS received written comments on the 2015 proposed regulations. The public hearing scheduled for January 15, 2016, was cancelled because no request to speak was received.
On July 1, 2016, the Treasury Department and the IRS released Notice 2016-42, 2016-29 IRB 67 (QI Notice), containing a proposed amended qualified intermediary agreement. The QI Notice included the requirements
On December 2, 2016, the Treasury Department and the IRS released Notice 2016-76, 2016-51 IRB 834, providing guidance for complying with the final and temporary regulations under sections 871(m), 1441, 1461, and 1473 in 2017 and 2018 and explaining how the IRS intends to administer those regulations in 2017 and 2018.
On January 24, 2017, the
On February 5, 2018, the Treasury Department and the IRS published Notice 2018-5, 2018-6 IRB 341, which permits withholding agents to apply the transition rules for securities loans to which section 871(m) applies from Notice 2010-46, 2010-24 IRB 757, in 2018 and 2019.
On September 20, 2018, the Treasury Department and the IRS published Notice 2018-72, 2018-40 IRB 522, which further extended certain transition relief and permitted withholding agents to apply the transition rules from Notice 2010-46 in 2020.
All written comments received in response to the 2012 proposed regulations, 2013 proposed regulations, 2015 proposed regulations, and 2017 proposed regulations are available at
This Treasury decision finalizes the 2017 proposed regulations without any substantive change.
Executive Order 13789 (82 FR 19317), issued on April 21, 2017, instructs the Secretary of the Treasury (the Secretary) to review all significant tax regulations issued on or after January 1, 2016, and to take concrete action to alleviate the burdens of regulations that (i) impose an undue financial burden on U.S. taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the IRS. Executive Order 13789 further instructs the Secretary to submit to the President within 60 days an interim report that identifies regulations that meet these criteria. Notice 2017-38, 2017-30 I.R.B. 147, which was published on July 24, 2017, did not include regulations under section 871(m) in a list of eight regulations identified by the Secretary in the interim report as meeting at least one of the first two criteria specified in E.O. 13789 (no regulations were identified as meeting the third criterion).
E.O. 13789 further instructs the Secretary to submit to the President by September 18, 2017, a final report that recommends specific actions to mitigate the burden imposed by regulations identified in the interim report. On October 16, 2017, the Secretary published in the
The Treasury Department and the IRS received one comment regarding the 2017 proposed regulations. After consideration of the comment, the 2017 proposed regulations are adopted as final regulations without any substantive change. In addition, the regulations under § 1.871-15T are withdrawn. Comments on the section 871(m) regulations that were not specific to § 1.871-15T are beyond the scope of this rulemaking and are not addressed in this preamble.
The Treasury Department and the IRS are continuing to study and consider possible reforms to the other provisions of the section 871(m) regulations pursuant to E.O. 13789 that are not specifically addressed by this Treasury decision, including comments received that relate to those rules. The Treasury Department and the IRS will consider these comments in connection with any future guidance projects addressing the issues discussed in the comments.
Generally, section 1.871-15(g)(2) provides the delta of a potential section 871(m) transaction is calculated on the earlier of when the contract is priced and when the contract is issued.
A comment expressed concern that the $10 billion threshold would exclude from the definition of a regulated exchange many European exchanges that are treated as regulated markets by the European Securities and Markets Authorities (“ESMA”) for purposes of the Markets in Financial Instruments Directive 2004/39/EC. The comment requested that the final regulations eliminate the $10 billion threshold. Instead, the comment recommended
The $10 billion threshold is intended to ensure that the exchange has a sufficient level of trading activity so that the pricing cannot be manipulated. The Treasury Department and the IRS have determined that the $10 billion threshold continues to serve this purpose. In addition, the ESMA requirement requested by the comment appears duplicative of § 1.871-15T(g)(4)(ii)(B)(
The Treasury Department and the IRS, however, will continue to study this comment regarding the $10 billion threshold in connection with future guidance projects related to E.O. 13789. The Treasury Department and the IRS request comments regarding whether an alternative trading threshold for U.S. equity options would ensure that there is sufficient trading on the exchange to prevent price manipulation. For example, instead of establishing a threshold based on the average daily trading volume for an exchange as a whole, an alternative threshold may be based on only the average daily trading volume of equity options on the exchange or only the average daily trading volume of equity options for a specific stock or stock index on the exchange. Comments recommending an alternative threshold should include information supporting the suggestion, including information regarding the average daily trading volumes for the exchange with respect to equity options separated out by exchange (and stock or stock index, if applicable).
Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits, including potential economic, environmental, public health and safety effects, distributive impacts, and equity. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.
This regulation is not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Department of the Treasury and the Office of Management and Budget regarding review of tax regulations. Therefore, a regulatory impact assessment is not required.
The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control numbers 1545-0096 and 1545-1597. The collection of information in these regulations is in § 1.871-15(p). There is no change to the total annual burden in the current regulations under §§ 1.1441-1 through 1.1441-9 as a result of these final regulations. Without these final regulations, however, the total annual burden in the current regulations under § 1.1441-1 through 1.1441-9 would increase because more than one taxpayer could be treated as a responsible party and be required to collect information regarding potential section 871(m) transactions.
The information is required to establish whether a payment is treated as a U.S. source dividend for purposes of section 871(m). This information will be used for audit and examination purposes. The IRS intends that these information collection requirements will be satisfied by persons complying with chapter 3 reporting requirements and the requirements of the applicable qualified intermediary (QI) revenue procedure, or alternative certification and documentation requirements set out in these regulations. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number.
The estimates for the number of impacted filers with respect to the collections of information described in this part II of the Special Analysis section are based on the distinct U.S. withholding agents who filed a form 1042-S reporting income code 34 (substitute payments—dividends) or income code 40 (Other dividend equivalents under IRS section 871(m) (formerly 871(l)) for calendar year 2017. The estimates for the number of impacted filers are also based on the number of U.S. withholding agents who filed a form 1042 and checked the box in section 3, indicating that the withholding agent made payments related to a potential section 871(m) transaction, for calendar year 2018. The IRS estimates the number of affected filers to be the following:
It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). This certification is based on the fact that these regulations primarily will affect multinational financial institutions, which tend to be larger businesses, and foreign persons. Accordingly, a regulatory flexibility analysis under the Regulatory Flexibility Act is not required.
Pursuant to section 7805(f), the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses. No comments were received.
Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $154 million. This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This final rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.
IRS Notices and other guidance cited in this preamble are published in the Internal Revenue Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at
The principal authors of these final regulations are D. Peter Merkel and Karen Walny of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is amended as follows:
26 U.S.C. 7805 * * *
The revisions read as follows:
(a) * * *
(1)
(g) * * *
(4) * * *
(ii) * * *
(B)
(
(
(
(
(
(p) * * *
(1) * * *
(ii)
(iii)
(iv)
(5)
(i)
(B)
(ii) [Reserved]
Occupational Safety and Health Administration (OSHA), Labor.
Final rule; corrections to standards.
OSHA is issuing corrections to the Walking-Working Surfaces, Personal Protective Equipment, and Special Industries standards.
The effective date for the corrections to the standards is December 17, 2019.
Current § 1910.23(d)(4) requires employers to ensure that the side rails of through or side-step ladders extend 42 inches above the top of the access level or landing platform served by the ladder. As stated in the preamble to the final rule, the agency intended workers to have sufficient handholds “at least 42 inches” above the highest level on which they will step when reaching the access level (81 FR 82494, 82542). OSHA is correcting this error by revising § 1910.23(d)(4) to state that 42 inches is the minimum—not the exact—measurement for fixed ladder side rail extensions.
Current § 1910.25(a) sets forth the types of stairways covered under this section. These include all stairways except for stairs serving floating roof tanks, stairs on scaffolds, stairs designed into machines or equipment, and stairs on self-propelled motorized equipment. In this correction, OSHA is clarifying that articulated stairs, which were excluded from coverage by the rule adopted in 1971 (36 FR 10474), as well as by the rule proposed in 1990 (55 FR 13360, 13363), are not covered by the current standard. In the 2010 proposed rule and the 2016 final rule, OSHA referred to these stairs as “stairs serving floating roof tanks” but did not call them “articulated stairs.” (75 FR 28862, 28882; 81 FR at 82555). OSHA is now clarifying that all articulated stairs used in general industry, not just those serving floating roof tanks, remain excluded from coverage by § 1910.25. By not including this exception, the standard would require all articulated stairs that do not serve floating roof tanks, including those that were previously excluded, to meet the requirements set forth in § 1910.25. OSHA did not intend for any types of articulated stairs to be covered by the standard.
The figure at 29 CFR 1910.25(c) immediately after Table D-1 does not have a title even though it is referred to as Figure D-8 in § 1910.25(c)(4). The title of the figure was included in the proposed rule (75 FR at 29137) but mistakenly left out of the final rule (81 FR at 82989). This document adds the missing title to the figure: “Figure D-8—Dimensions of Standard Stairs”.
In paragraph (b)(1)(i) of § 1910.27, OSHA is correcting a typographical error in the metric parenthetical for 5,000 pounds. The parenthetical currently states the metric equivalent to 5,000 pounds is 268 kg. The correct metric equivalent is 2,268 kg.
OSHA is correcting Figure D-11 to include labels identifying the top rail and end post in the top diagram of the figure. The words “top rail” and “end post” were mistakenly omitted when the final rule was published in the
Current § 1910.140(c)(8) requires D-rings, snaphooks, and carabiners to be proof tested to a minimum tensile load of 3,600 pounds without cracking, breaking, or incurring permanent deformation. The provision also requires the gate strength of snaphooks and carabiners to be proof tested to 3,600 pounds in all directions. In the November 18, 2016, final rule (81 FR at 82653), OSHA intended to be consistent with the ANSI/ASSE Z359.12-2009 consensus standard,
Section 1910.269(h)(2) contains references to ladder standards (§§ 1910.25(d)(2)(i) and (iii) and 1910.26(c)(3)(iii)) that are not the correct references. OSHA is revising § 1910.269(h)(2) by replacing the incorrect references with the correct references, which are § 1910.23(c)(4) and (9).
OSHA determined that this rulemaking is not subject to the procedures for public notice and comment specified in Section 4 of the Administrative Procedures Act (5 U.S.C. 553), Section 6(b) of the Occupational Safety and Health Act of 1970 (29 U.S.C. 655(b)), and 29 CFR 1911.5. This rulemaking only corrects typographical, formatting, and clerical errors, and provides more information about the requirements of some provisions. As it does not affect or change any existing rights or obligations, no stakeholder is likely to object to these corrections. Therefore, the agency finds good cause that public notice and comment are unnecessary within the meaning of 5 U.S.C. 553(b)(3)(B), 29 U.S.C. 655(b), and 29 CFR 1911.5.
Special industries, Walking-working surfaces.
This document was prepared under the direction of Loren Sweatt, Principal Deputy Assistant Secretary of Labor for Occupational Safety and Health. This action is taken pursuant to 29 U.S.C. 653, 655, 657; Secretary of Labor's Order 1-2012 (77 FR 3912 (1/25/2012)), and 29 CFR part 1911.
Signed at Washington, DC.
For the reasons set forth in the preamble, OSHA amends part 1910 of title 29 of the Code of Federal Regulations as follows:
29 U.S.C. 653, 655, 657; Secretary of Labor's Order No. 12-71 (36 FR 8754), 8-76 (41 FR 25059), 9-83 (48 FR 35736), 1-90 (55 FR 9033), and 1-2012 (77 FR 3912), as applicable; and 29 CFR part 1911.
(d) * * *
(4) The side rails of through or side-step ladders extend at least 42 inches (1.1 m) above the top of the access level or landing platform served by the ladder. For parapet ladders, the access level is:
(i) The roof, if the parapet is cut to permit passage through the parapet; or
(ii) The top of the parapet, if the parapet is continuous;
(a)
(c) * * *
(5) * * *
(b) * * *
(1) * * *
(i) Before any rope descent system is used, the building owner must inform the employer, in writing that the building owner has identified, tested, certified, and maintained each anchorage so it is capable of supporting at least 5,000 pounds (2,268 kg), in any direction, for each employee attached. The information must be based on an annual inspection by a qualified person and certification of each anchorage by a qualified person, as necessary, and at least every 10 years.
(b) * * *
(1) The top edge height of top rails, or equivalent guardrail system members, are 42 inches (107 cm), plus or minus 3 inches (8 cm), above the walking-working surface. The top edge height may exceed 45 inches (114 cm), provided the guardrail system meets all other criteria of paragraph (b) of this section (see Figure D-11 of this section).
29 U.S.C. 653, 655, 657; Secretary of Labor's Order No. 12-71 (36 FR 8754), 8-76 (41 FR 25059), 9-83 (48 FR 35736), 1-90 (55 FR 9033), 6-96 (62 FR 111), 3-2000 (65 FR 50017), 5-2002 (67 FR 65008), 5-2007 (72 FR 31160), 4-2010 (75 FR 55355),
(c) * * *
(8) D-rings, snaphooks, and carabiners must be proof tested to a minimum tensile load of 3,600 pounds (16 kN) without cracking, breaking, or incurring permanent deformation. The gate strength of snaphooks and carabiners must be capable of withstanding a minimum load of 3,600 pounds (16 kN) without the gate separating from the nose of the snaphook or carabiner body by more than 0.125 inches (3.175 mm).
29 U.S.C. 653, 655, 657; Secretary of Labor's Order No. 12-71 (36 FR 8754), 8-76 (41 FR 25059), 9-83 (48 FR 35736), 1-90 (55 FR 9033), 6-96 (62 FR 111), 5-2007 (72 FR 31159), 4-2010 (75 FR 55355), or 1-2012 (77 FR 3912), as applicable; and 29 CFR part 1911.
(h) * * *
(2)
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Temporary rule; inseason closure.
This action closes the Regular B Days-at-Sea Program and prohibits the use of Regular B Days-at-Sea for all Northeast multispecies vessels for the remainder of fishing year 2019, through April 30, 2020. This action is being taken because the common pool fishery is projected to have caught 77 percent of the Incidental Catch Total Allowable Catch for Gulf of Maine Cod. We have projected that continuation of the program would undermine the achievements of the objectives of the Northeast Multispecies Fishery Management Plan and the Regular B Days-at-Sea Program.
This action is effective December 16, 2019, through April 30, 2020.
Spencer Talmage, Fishery Management Specialist, (978) 281-9232.
Federal regulations at 50 CFR 648.85(b)(6)(vi) authorize the Regional Administrator to close the Regular B Days-at-Sea (DAS) program by prohibiting the use of Regular B DAS when the continuation of the program would undermine the achievement of the objectives of the Northeast Multispecies Fishery Management Plan (FMP) or the Regular B DAS Program.
Framework Adjustment 58 to the Northeast Multispecies FMP (84 FR 34799, July 19, 2019) implemented Common Pool Incidental Catch Total Allowable Catches (TAC) for the Regular B DAS Program for the 2019 and 2020 fishing years, listed in Table 1 below. The Incidental Catch TAC for Gulf of Maine (GOM) Cod is very small, at 242.5 lb (110 kg).
Based on information reported through October 12, 2019, the common pool fishery is projected to have caught approximately 186 lb (84.4 kg), or 77 percent of the 242.5-lb (110-kg) Incidental Catch Total Allowable Catch (TAC) for GOM cod.
The trip limit for GOM cod for common pool vessels participating in the Regular B DAS Program is 25 lb per trip. At this trip limit, the common pool fishing has only two trips remaining before it achieves the Incidental Catch TAC.
Given the current trip limit, and past fishing behavior, the common pool may achieve or exceed the GOM Cod Incidental Catch TAC in a very short amount of time. Additionally, this may happen sooner if effort in the Regular B DAS Program increases. Even at the current low level of effort in the Regular B DAS Program, we may not be able to close the program in time to prevent the common pool from exceeding the GOM Cod Incidental Catch TAC, which would be detrimental to the fishery.
As a result, it is unlikely that we can effectively limit catch to the GOM Cod Incidental Catch TAC during the remainder of fishing year 2019. We project that continuation of the Regular B DAS program would undermine the achievement of the objectives of the Northeast Multispecies FMP and the Regular B DAS Program. Effective December 16, 2019, the Regular B DAS Program is closed and use of Regular B DAS is prohibited for the remainder of the 2019 fishing year, through April 30, 2020. This applies to all vessels issued
If a vessel declared its trip under a Regular B DAS through the Vessel Monitoring System (VMS) or the interactive voice response system, and crossed the VMS demarcation line prior to December 16, 2019, it may complete its trip.
Weekly quota monitoring reports for the Northeast Multispecies fishery are on our website at:
This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.
The Assistant Administrator for Fisheries, NOAA, finds good cause pursuant to 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(3) to waive prior notice and the opportunity for public comment and the 30-day delayed effectiveness period because it would be impracticable and contrary to the public interest.
The regulations authorize the Regional Administrator to close the Regular B DAS Program when the continuation of the program would undermine the achievement of the objectives of the Northeast Multispecies Fishery Management Plan (FMP) or the Regular B DAS Program. The public had prior notice and opportunity to comment on these regulations and the potential for in-season closures. Updated catch information only recently became available indicating that the common pool fishery is projected to have caught 77 percent of the Incidental Catch TAC for GOM cod as of October 12, 2019. This action prevents or limits the overage of the Incidental Catch TAC for this stock. A delay in effectiveness would provide vessel owners an opportunity to continue to participate in the Regular B DAS Program, but any additional participation and catch in the program could cause the allocation to be exceeded. The time necessary to provide for prior notice and comment, and a 30-day delay in effectiveness, would prevent NMFS from implementing the Regular B DAS program closure in a timely manner, contrary to the purpose of the regulations. This could undermine conservation objectives of the Northeast Multispecies Fishery Management Plan and Regular B DAS Program, and cause negative economic impacts to the Northeast multispecies fishery.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
This implements the prohibition of gillnet fishing in the Nantucket Lightship and Closed Area I Closure Areas as ordered by a Federal Court. Until further notice, gillnet fishing will be prohibited in the Nantucket Lightship and Closed Area I Groundfish Closure Areas.
Effective on December 17, 2019.
Moira Kelly, Senior Fishery Program Specialist, Greater Atlantic Regional Fisheries Office,
On January 3, 2018, NOAA's National Marine Fisheries Service (NMFS) partially approved the New England Fishery Management Council's Omnibus Essential Fish Habitat Amendment 2. The Omnibus Amendment updated essential fish habitat designations for all Council-managed species and implemented changes to the spatial management of Council-managed fisheries throughout the Gulf of Maine, Georges Bank, and Southern New England. On April 9, 2018, a final rule implemented the approved measures (83 FR 15240). The final rule opened, modified, and maintained various closed areas, as well as established new closures to implement approved measures of the Amendment. The Nantucket Lightship and Closed Area I Groundfish Closure Areas were opened to fishing by gears capable of catching groundfish, including gillnets and bottom-trawls, throughout the areas in this final rule. (Note, scallop fishing was still prohibited in these areas for a brief time after the Amendment was in effect, pending a subsequent scallop action that incorporated the newly opened areas into the Scallop Fishery Management Plan's rotational management program.) Directed groundfish fishing had been prohibited in these general areas consistently since the 1980s and early 1990s.
The Conservation Law Foundation filed suit against NMFS arguing that the opening of the Nantucket Lightship and Closed Area I Groundfish Closure Areas to gears capable of catching groundfish, including gillnet gear, was not done in compliance with the Endangered Species Act consultation requirements as it pertains to North Atlantic right whales.
On October 28, 2019, Federal District Court Judge James E. Boasberg (see
To comply with this Order, this rule suspends the Amendment's opening of the Nantucket Lightship and Closed Area I Groundfish Closures to gillnet fishing and restores prior regulations that prohibit gillnet gear from fishing in these areas until further notice, which will be provided consistent with the Administrative Procedure Act.
The NMFS Assistant Administrator has determined that under section 305(d) of the Magnuson-Stevens Fishery Conservation and Management Act, these regulations are necessary to discharge the Secretary's responsibility to ensure the Omnibus Habitat Amendment complies with the provisions of the Act and other applicable law, consistent with the Court's Order.
NMFS has good cause under the Administrative Procedure Act (5 U.S.C. 553(b)(B)) to waive prior notice and comment for this final rule. The Court Order requires NMFS to prohibit gillnet fishing in the areas. Delaying this rule to allow time for notice and comment would be contrary to the Court's Order.
Fisheries, Fishing, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, 50 CFR part 648 is amended as follows:
16 U.S.C. 1801
(a) * * *
(6)
(i)
(ii)
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
This rule implements changes to the Pacific Coast Groundfish Trawl Catch Share Program identified during the Catch Share Program 5-Year Review. This action is intended to modify outdated regulations, complete outstanding program elements, and respond to problems identified following implementation of the Catch Share Program. This action revises regulations consistent with Amendment 21-4 to the Pacific Coast Groundfish Fishery Management Plan, and revises elements in four areas of the Catch Share Program.
This final rule is effective January 16, 2020.
Electronic copies of supporting documents referenced in this final rule, including the Categorical Exclusions (CE) and final regulatory flexibility analysis (FRFA), are available from
Colin Sayre, phone: 206-526-4656, or email:
On January 1, 2011, NMFS implemented the Pacific Coast Groundfish Trawl Catch Share Program (Catch Share Program) through Amendment 20 and Amendment 21 (75 FR 60867; October 1, 2010) to the Pacific Coast Groundfish Fishery Management Plan (FMP). Amendment 20 established a limited entry Individual Fishing Quota (IFQ) system for shorebased trawl vessels and cooperatives for the at-sea Pacific whiting mothership (MS) and catcher-processor (C/P) sectors. The Catch Share Program was intended to increase net economic benefits and create individual economic stability for trawl fishery participants, provide full utilization of the trawl sector allocation, and achieve individual accountability for catch and bycatch in the Pacific Coast groundfish fishery. Amendment 21 established fixed allocations for limited entry trawl participants. These allocations were intended to improve fishery management under the Catch Share Program by streamlining its administration, providing stability to the fishery, and addressing bycatch.
After implementation in 2011, NMFS collected both baseline and annual socioeconomic data to judge the effectiveness of the Catch Share Program for the 5-Year Review, and collected data annually thereafter, as required under the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act). To aid in reviewing and refining the Catch Share Program, the Council appointed the Community Advisory Board (CAB) to provide the perspective of fishing communities on Catch Share Program performance, potential improvements, and other advice at the Council's request to inform the program review and develop follow-on actions.
Socioeconomic data collections and input from the CAB helped to inform the 5-Year Review of the Catch Share Program, which the Council approved in November 2017. From the findings of the 5-Year Review, the Council identified a range of potential follow-on actions in four areas of the Catch Share Program to refine and enhance the program. These follow-on actions are being implemented through Amendment 21-4, which includes an FMP amendment as well as the regulatory changes in this final rule.
Additional discussion of the background and rationale for the Council's development of Amendment 21-4 and the Catch Share Program 5-Year Review is included in the proposed rule for this action (84 FR 54561; October 10, 2019) and is not repeated here. Detailed information, including the supporting documentation the Council considered while developing these recommendations, is available at the Council's website,
The measures in this final rule will: Allow the at-sea whiting sector to more fully and efficiently harvest its allocation through flexible set-aside management of constraining bycatch species; improve utilization of individual fishing quota (IFQ) and overall economic efficiency for the shorebased IFQ trawl sector; ensure fair and equitable access to resources in the event of failure or voluntary dissolution of the at-sea Pacific whiting catcher-processor (C/P) cooperative agreement; and provide a more robust evaluation of Catch Share Program performance. This action also includes clarifying non-substantive changes to the regulatory language for the Catch Share Cost Recovery Program.
Concurrent with these regulatory changes, an amendment to the Pacific Coast Groundfish FMP is required to implement Amendment 21-4 as recommended by the Council. The FMP amendment will implement at-sea set-aside bycatch management by removing from the FMP fixed formulas used to determine (1) bycatch allocations of widow rockfish, and (2) set-aside amounts of darkblotched rockfish and Pacific Ocean perch (POP). Set-aside amounts would instead be determined through the biennial harvest specifications process. On August 30, 2019, NMFS published a Notice of Availability (NOA) in the
This final rule changes management for bycatch of four species in the at-sea Pacific whiting C/P and MS sectors: Canary rockfish, widow rockfish, darkblotched rockfish and POP. Instead of being managed through the use of capped bycatch allocations, canary rockfish and widow rockfish bycatch will be managed as “set-asides,” which are an expected amount of bycatch deducted from the total trawl sector allocations for these species. At-sea bycatch of darkblotched rockfish and POP were previously converted from bycatch allocations to set-asides in Amendment 21-3 (83 FR 757; January 8, 2018). The Council will recommend set-aside amounts for darkblotched rockfish, POP, canary rockfish, and widow rockfish during the biennial harvest specifications and management measures process.
These changes provide NMFS and the Council increased flexibility to determine set-asides amounts during the biennial harvest specifications. NMFS is not required to take action to close the at-sea sectors if catch exceeds the set-aside amounts for these four bycatch species. However, the Council and NMFS retain authority to implement a routine inseason action (
This final rule provides participants in the shorebased IFQ sector a post-season transfer period to cover quota pound (QP) deficits from the prior year with unused or surplus QP remaining from the same year. Unused QP will be transferable only for the purpose of covering a deficit remaining from the previous year. Each year, post-season QP transfers will be permitted from January 1 until March 14, and NMFS will provide advance public notice announcing the ending date of the post-season transfer period. At the end of the post-season transfer period, NMFS will complete end-of-the-year Quota Share (QS) account reconciliation, and issue remaining surplus QP as carryover QP. Quota issued for the current year may also be used to cover any prior-year deficits which remain following the post-season transfer period.
In covering a previous year's deficit, participants in the shorebased IFQ sector will not be restricted by annual vessel QP limits under this final rule. These limits restrict the total amount of QP a vessel may acquire in a single year. Removing the annual vessel QP limit restriction during the post-season transfer period provides relief to vessels that experience unexpected large bycatch events, known as “lightning-strikes,” which have, in the past, exceeded annual vessel QP limits. Under this action, vessels with deficit amounts over annual vessel QP limits could acquire sufficient QP to cover the entire deficit through post-season trading, or by using QP issued in the following year. This action will remove the annual vessel QP limits only when covering deficits in the following year. While Catch Share Program participants would no longer be limited by the annual vessel QP limits in curing deficits, they would violate the carryover regulations if the deficit exceeds the deficit carryover limit. The deficit carryover limit is the amount of deficit QP that a vessel may carry into the following fishing year without violating QP carryover regulations. Under this action, vessel owners may experience regulatory consequences for a QP deficit, but will avoid economic hardship as a result of not fishing for multiple years while covering a large deficit under annual vessel QP limits.
This final rule also eliminates the September 1 deadline to transfer QP from QS account to a vessel account. Under this action, QP will remain in a QS account and available for transfer to a vessel account for fishing until December 31 of each year for which the QP was issued. The QP that remains in a QS account will be available for post-season trading once transferred to a vessel account after January 1 in the following year, and will not expire until the end of the post-season transfer period.
This action will reduce the overall costs of participation in the Shorebased IFQ sector by ensuring the maximum amount of annual IFQ allocations are used to harvest fish, rather than to cover previous year's QP deficits.
This action would allow fishery participants to cover the previous year's quota deficits with unused quota from the previous year. This would ensure that, each year, newly issued quota is used to cover catch rather than to cover outstanding deficits, which should maximize the value of quota and its efficient utilization.
This final rule establishes a permit accumulation limit of five at-sea Pacific whiting C/P-endorsed permits that any one person or entity may own or control, and includes regulations that define “own and control” as it relates to C/P-endorsed permits. The five-permit accumulation limit will take effect only in the event the current at-sea Pacific whiting C/P cooperative fails. When the Catch Share Program was implemented, the Council included a provision that would establish an IFQ program for the at-sea C/P sector should the cooperative agreement fail. This final action includes procedures for determining cooperative failure, and for divestiture of excess permits preceding conversion to an IFQ system.
In the event the C/P-cooperative voluntarily dissolves, or NMFS determines the cooperative agreement has failed, NMFS will announce a divestiture period starting on the date cooperative failure has been determined, and ending on the date an IFQ program is implemented for the at-sea C/P sector or another date specified in the IFQ program implementing regulations. During the divestiture period any individual or entity that owns or controls more than five permits may divest of those permits by sale or trade, or voluntarily abandon permits and allow redistribution of associated QS. After an IFQ-based C/P fishery is implemented, no individual or entity may own or control more than five C/P-endorsed permits, and no person or entity may own or control any quota associated with permits in excess of the five-permit limit. Following implementation of an at-sea C/P IFQ program, NMFS may revoke any C/P-endorsed permits in excess of the accumulation limit and may redistribute associated QS to other C/P-endorsed permit owners. The current C/P cooperative agreement ensures no individual acquires excessive access privileges to at-sea Pacific whiting resources. However, this action is necessary to ensure fair and equitable access to fishery resources in the absence of the cooperative agreement in the event it voluntarily dissolves or fails.
This final rule establishes an information collection for C/P-endorsed permit owners. The Catch Share Program requires mandatory submission of permit ownership interest information from catcher-vessels and motherships. During annual permit application and renewal, C/P-endorsed permit owners in those sectors are required to submit a Trawl Identification of Ownership Interest form. NMFS collects this information to enforce catcher-vessel accumulation limits and mothership sector accumulation limits that ensure no individual, or entity, obtain excessive limited access privileges. This action establishes the requirement that at-sea C/P-endorsed permit owners also complete the Trawl Identification of Ownership Interest form annually during permit renewal. The form is used to collect basic trawl vessel or permit owner information, such as vessel name, permit number, owner name and legal address, and the names and addresses of other individuals and entities that have an ownership interest and percentage of ownership for the vessel or permit. The information on the C/P sector collected in this form will support future Council decisions in the event accumulation limits take effect for the at-sea C/P sector as described in section II, part C of this preamble.
This final rule requires all QS permit owners to submit annual information to the NMFS Northwest Fisheries Science Center West Coast Economic Data Collection (EDC) Program through a Quota Share Permit Owner survey. All QS permit owners, including those QS permit owners that do not also own, lease, or charter a vessel, shorebased processor, or first/receiver site, must submit information on annual participation in the fishery, as well as costs and earnings related to QS permit ownership. This survey will be collected electronically via web-form during the online QS permit application and renewal process. The deadline for submitting this information will be November 30 of each year, to align with timing of submission for QS permit application and renewals. Information collected through this survey will provide NMFS and the Council with a better understanding of economic costs and benefits conferred to fishery dependent communities through QS permit ownership, and of overall Catch Share Program performance. Improved evaluation of Catch Share Program performance will support sustained fishing community participation in the program, and help minimize adverse economic impacts on fishing communities. This action accomplishes these objectives by collecting information on economic benefits tied to QS ownership and community linkage of QS permit owners. This information will be used to ensure the Catch Share Program provides maximum economic benefits to participating communities.
On March 20, 2014, NMFS published a Public Notice (NMFS-SEA-14-12) discussing two clarifications to the Pacific Coast Groundfish Trawl Rationalization Cost Recovery Program that went into effect in January 2014 (78 FR 75268; December 11, 2013). This final rule implements regulatory language necessary to reflect these two program clarifications. The first adjustment clarifies that the deposit principal may be used to refund cost recovery payments made by credit card through
In addition to necessary regulatory changes to implement the Council's recommendations, this final rule also includes minor technical corrections. Specifically, these minor technical corrections remove obsolete baseline dates included during implementation of the Catch Share Program, such as the years when initial trawl allocations
NMFS solicited public comment on the proposed rule implementing the Amendment 21-4 follow-on actions on October 10, 2019 (84 FR 54561). The comment period ended October 29, 2019. NMFS received one public comment letter on behalf of the Pacific Whiting Conservation Cooperative during the comment period for the proposed rule. The four unique comments within that comment letter are summarized and addressed below. Public comment letters, and attached documents, can be viewed, along with the proposed and final rules for this action at
Under these existing regulations at § 660.160(h)(1)(i) through (iv), NMFS has the authority to make an independent determination of C/P cooperative failure in the event any of the following occurs: (i) Any current C/P-endorsed limited entry trawl permit is not identified as a C/P cooperative (coop) member in the coop agreement submitted to NMFS during the C/P coop permit application process; (ii) Any current C/P-endorsed permit withdraws from the C/P coop agreement; (iii) The coop members voluntarily dissolve the coop; or (iv) The coop agreement is no longer valid. This final rule implementing Amendment 21-4 does not make any changes to the conditions necessary for determining cooperative failure as already included in the regulations. If NMFS were to determine cooperative failure, the C/P cooperative permit would no longer be considered valid. Prior to making a final determination of cooperative failure, and the C/P cooperative permit becoming no longer valid, NMFS would use the Initial Administrative Determination (IAD) process to provide an explanation for this determination, consistent with the regulations at § 660.25(b)(1)(v). The IAD is a formal written determination that is subject to an appeal within NMFS. Although the C/P cooperative permit is not considered a limited entry permit, regulations at § 660.160(d)(2) state that the IAD for a C/P cooperative permit follows the same process as specified for limited entry permits at § 660.25(g). This existing process includes procedures for appeals in the case that NMFS makes an independent determination of cooperative failure. NMFS notes that each year since the implementation of Amendment 20 and 21, the C/P cooperative manager has consistently submitted a complete cooperative application and agreement, and has notified NMFS of the C/P cooperative's intentions and any material changes to the cooperative agreement.
NMFS acknowledges the utility of an appeals process specific to the determination of C/P cooperative failure. However, establishing such a provision through this action is outside the scope of the Council recommendation, and beyond the scope of this action. We suggest the appropriate forum to address establishment of a specific appeals process is through the Council process, or in discussion for the next Catch Share Program 5-Year Review, which will begin in 2022.
NMFS did not make any changes from the proposed rule. As such, the regulations provided in this final rule are unchanged from those published in the proposed rule.
Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this action is consistent with the Pacific Coast Groundfish FMP, other provisions of the Magnuson-Stevens Act, and other applicable law.
The Office of Management and Budget has determined that this final rule is not significant for purposes of Executive Order 12866.
This final rule is not an Executive Order 13771 regulatory action because this action is not significant under Executive Order 12866.
This final rule does not contain policies with Federalism or “takings” implications as those terms are defined in Executive Order 13132 and Executive Order 12630, respectively.
This action is categorically excluded from the requirement to prepare an environmental assessment or environmental impact statement in accordance with section 4 of NOAA's Policies and Procedures for Compliance with the National Environmental Policy Act (NEPA) and Related Authorities (Companion Manual for NAO 216-6A). Per section 4B of the Manual, a categorical exclusion (CE) evaluation document has been prepared that evaluates the applicability of the CE.
NMFS prepared a final regulatory flexibility analysis (FRFA) under section 604 of the Regulatory Flexibility Act (RFA), which incorporates the initial regulatory flexibility analysis (IRFA) prepared during the proposed rule stage. A copy of the FRFA and CE memo are available from NMFS (see
For any rule subject to notice and comment rulemaking, the RFA requires Federal agencies to prepare, and make available for public comment, both an initial and final regulatory flexibility analysis, unless the agency can certify that the proposed and/or final rule would not have a significant economic impact on a substantial number of small entities. These analyses describe the impact on small businesses, non-profit enterprises, local governments, and other small entities as defined by the RFA (5 U.S.C. 603). This analysis is to inform the agency and the public of the expected economic effects of the alternatives, and aid the agency in considering any significant regulatory alternatives that would accomplish the applicable objectives and minimize the economic impact on affected small entities. The RFA does not require that the alternative with the least cost or with the least adverse effect on small entities be chosen as the preferred alternative.
The need for and objective of this final rule is described above in section I “Background” of this preamble and not repeated here.
No public comments were received in response to the IRFA.
No agency response was required, as no comments were received.
The RFA (5 U.S.C. 601
A small
For
For the purposes of this rulemaking, a
This rule will impact quota share owners. 22 non-whiting quota share permit owners are estimated, based on holdings of first receiver permit affiliation in the non-public West Coast Region permits database, to be primarily engaged in seafood product preparation and packaging. According to the size standard defined above, three of the entities that own three of these permits are considered small. These small processing entities were issued 1.7 percent of the non-whiting quota pounds issued in 2018, the most recent year available. Some of these small processing entities also own groundfish permits, required on both catcher vessels and catcher processors, which would be regulated by the final rule; three small entities primarily engaged in seafood processing own two groundfish permits. 30 groundfish vessel permits are owned by seven entities that are considered large, as estimated using the definition above, as well as self-reported on groundfish permits and first receiver site license permits (self-reported using the definition above). Six of these seven large processing entities were issued 10.2 percent of the non-whiting quota pounds issued in 2018 across sixteen quota share permits.
Entities that are not registered as trusts, estates, governments, or non-profits are assumed to earn the majority of their revenue from commercial fishing. The definition above is thus used for 124 quota share permit owners, who collectively received 76.5 percent of the quota pounds issued in 2018. Limited entry groundfish vessels are required to self-report size across all affiliated entities; of the businesses who earn the majority of their revenue from commercial fishing, one self-reported as large. This entity owns four groundfish permits and one quota share permit. 118 trawl permits are owned by 117 commercial fishing entities in 2019; 5 of these entities self-reported as large. Although many groundfish trawl permit owners also own quota share, it is not possible with available data to tabulate unique ownership across quota share and groundfish permits, so the numbers provided here likely overestimate the number of entities impacted.
According to the public IFQ Account database, as of June 19, 2018, the City of Monterey owns quota shares of ten species. The U.S. Census estimates the population to be 28,454 as of July 1, 2017, so the City of Monterey would be considered a small governmental jurisdiction by the RFA standard described above. The City of Monterey received 0.5 percent of the quota pounds issued for 2018, according to the public IFQ Account database.
According to the public IFQ Account database, six not-for-profit organizations own quota share in the Catch Share Program and would thus be impacted by the trawl sector allocation under this proposed rule. Five of these would be considered small by the definition above (having 2016 annual receipts as reported on IRS form 990 of $120-500 thousand dollars), and one would be
11 personal or family trusts/estates own quota share permits and would thus potentially be impacted by the trawl sector allocation under this proposed rule. All of these are assumed to be smaller than the small entity size standard described above. Collectively, these eight small entities received 4.2 percent of the non-whiting quota pounds issued for 2018. Five of these entities owned five groundfish permits.
This action changes two information collection requirements.
The modifications include requiring C/P endorsed permit owners to complete Trawl Owner Identification of Interest forms during annual permit renewal under OMB Control Number 0648-0620.
Currently there are 10 C/P endorsed permits approved by NMS in the Catch Share Program. These permits are held by three companies with no single company owning more than five permits. As each company is a controlling entity, three is the minimum number of affected entities that would be expected to submit one Trawl Identification of Ownership Interest form for each C/P endorsed permit. The public reporting burden is expected to require approximately 3.5 minutes for each respondent to complete one form for each permit once per year during C/P endorsed permit renewal. Each form is estimated to cost $0.35 to copy, and is included when mailed with other application forms. The 10 new respondents would add a total of $3.50 annual burden costs.
The action would require changes to the Catch Share Program West Coast Economic Data Collection OMB Control Number 0648-0618. The proposed rule would change reporting requirements for owners of Quota Share permits to submit appropriate forms to the West Coast Economic Data Collection. The EDC currently does not require submission of forms from owners of Quota Share permits who do not also own, lease or charter vessels. The final rule would add a requirement for submission of EDC forms from all participants who own a Quota Share permit, including those who do not otherwise participate in the fishery other than owning a Quota Share permit.
Based on EDC response data and the public permit database, the public reporting burden for this requirement is expected to include approximately 178 Quota Share permit owners, of which approximately 158 currently complete EDC forms because they own, lease or charter vessels. The new requirement would include in the EDC collection an additional 20 respondents who are QS permit owners but are not owners, charterers, or lessees of vessels, shorebased processors, or first receiver sites and as a result do not complete any EDC forms. The new QS Permit owner survey is expected to take approximately 1 hour per year for all respondents to complete.178 respondents will each require approximately 1 hour once a year to complete QS permit owner survey questions. As a result 178 hours will be added to the current EDC burden of 2,224 hours, the new public burden will be a total of 2,402. (158 participants across the three vessel groups [catcher vessels, catcher processers and motherships] each need 8 hours to complete the EDC forms, for a total of 1,264 hours, and 20 hours is estimated for the 48 first receiver/shorebased processor form, for a total of 960 hours. 178 QS permit owners across all categories will require 1 hour, for a total of 178 hours. As a result, one year of data collection will require a total of 2,224 hours to complete the forms.) Costs associated with this reporting requirements are related to making copies of EDC documents (survey respondents are requested to retain a copy of the completed EDC form) and mailing the surveys. The annual cost associated with these activities is assumed to be $0.20 per respondent, assuming that the form is sent via certified mail. Total annual costs for all respondents is currently $4,120 (206 × $20). 22 new respondents will add an additional cost of $36.0, for a new total annual cost of $4,156 [(206 × $20) + (178 × $0.20)] for all respondents.
This rule is not expected to result in adverse impacts to small entities. Thus, there are no significant alternatives to the proposed rule that would minimize adverse economic impacts on small entities.
The Council did consider alternatives to the final rule which would have had a lower level of benefits to small entities. The Council did not consider alternatives that would have had greater benefits to small entities, as these would not have been consistent with other applicable laws.
Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996 states that, for each rule or group of related rules for which an agency is required to prepare a final regulatory flexibility analysis, the agency shall publish one or more guides to assist small entities in complying with the rule, and shall designate such publications as “small entity compliance guides.” The agency shall explain the actions a small entity is required to take to comply with a rule or group of rules. As part of this rulemaking process, a small entity compliance guide (the guide) was prepared. Copies of this final rule are available from the West Coast Regional Office (see
This action contains changes to two information collection requirements, described in section II, part D of this final rule, which have been approved by the Office of Management and Budget (OMB). The first change, under OMB Control Number 0648-0618, West Coast Groundfish Trawl Economic Data Collection, requires any owner of a QS permit to submit annual economic information related to QS ownership. This is a change from previous regulations that required collection of economic information only from QS
The second change in collection requirements, under OMB Control Number 0648-0620, Pacific Coast Groundfish Trawl Rationalization Program Permit and License Information Collection, requires C/P endorsed permit owners to submit Trawl Interest of Ownership forms during annual permit renewal. This is a change from previous requirements for the collection of annual ownership interest information from only mothership and catcher-vessel permit owners. This change will affect three fishing companies that own the ten existing C/P endorsed permits. Respondents will require approximately 45 minutes per permit to complete the form in the first year, and 3 minutes per permit in subsequent years. Mailing and copy costs of $0.35 per form will increase the total cost to public by $3.50.
Pursuant to Executive Order 13175, this final rule was developed after meaningful collaboration with tribal officials from the area covered by the FMP. Consistent with the Magnuson- Stevens Act at 16 U.S.C. 1852(b)(5), one of the voting members of the Council is a representative of an Indian tribe with federally recognized fishing rights from the area of the Council's jurisdiction.
Fisheries, Fishing, and Indians.
For the reasons set out in the preamble, 50 CFR part 660 is to be amended as follows:
16 U.S.C. 1801
The revisions read as follows:
(a)
(c) * * *
(1) Species/species groups and areas allocated between the trawl and non-trawl fisheries are allocated based on the amounts and percentages in the table below. IFQ species not listed in the table below are allocated between the trawl and nontrawl fisheries through the biennial harvest specifications process.
(i)
(ii)
(d)
(j)
The revisions read as follows:
(d)
(1) Automatic actions will be initiated in the following circumstances:
(i) Close the MS or C/P sector when that sector's Pacific whiting allocation is reached, or is projected to be reached. The MS sector non-coop fishery will be closed by automatic action when the Pacific whiting or non-whiting allocation to the non-coop fishery has been reached or is projected to be reached.
(3) For the C/P Coop Program, the value as determined by the aggregate pounds of all groundfish species catch (as defined in § 660.11) retained on board, by the vessel registered to a C/P-endorsed limited entry trawl permit, multiplied by the MS Coop Program average price per pound as announced pursuant to § 660.115(b)(2).
(b) * * *
(1) * * *
(iv) All owners of a quota share (QS) permit as defined at § 660.25(c).
(d)
(5) * * *
(ii) * * *
(A) * * *
(
(
(
(a)
(1) Annual data related to QS permit owner activity and characteristics of participation in the fishery, costs and earnings from quota trades, and quota leasing.
(2) Annual data related to costs, earnings, value, labor, operations, physical characteristics, ownership and leasing information for vessels, first receiver sites, or shorebased processors.
(b)
(c)
(i)
(ii)
(2)
(3)
(d) * * *
(1) * * *
(ii) * * *
(B)
(C)
(d) * * *
(1) * * *
(ii)
(2) * * *
(iii)
(3) * * *
(i) * * *
(D) QS permits will not be renewed until SFD has received a complete application for a QS permit renewal, which includes payment of required fees, complete documentation of QS permit ownership on the Trawl Identification of Ownership Interest Form as required under paragraph (d)(4)(iv) of this section, a complete economic data collection form as required under § 660.114. The QS permit renewal will be considered incomplete until the required information is submitted.
(ii) * * *
(B) * * *
(
(
(e) * * *
(3) * * *
(iii) * * *
(A)
(B)
(4) * * *
(i)
(ii)
(5)
(i)
(ii)
(iii)
(A) The vessel account owner declares out of the Shorebased IFQ Program for the remainder of the year in which the deficit occurred. The vessel account owner must submit a signed, dated, and notarized letter to OLE, declaring out of the Shorebased IFQ Program for the remainder of the year and invoking the carryover provision to cover the deficit. Signed, dated, and notarized letters may be submitted to NMFS, West Coast Region, Office of Law Enforcement, ATTN VMS, Bldg. 1, 7600 Sand Point Way NE, Seattle, WA 98115. If the vessel account owner covers the deficit later within the same calendar year, the vessel may re-enter the Shorebased IFQ Program. If the deficit is documented less than 30 days before the end of the calendar year, exiting out of the Shorebased IFQ Program for the remainder of the year is not required.
(B) The amount of QP or IBQ pounds required to cover the deficit from the current fishing year is less than or equal to the vessel's carryover limit for a deficit. The carryover limit for a deficit is calculated as 10 percent of the total cumulative QP or IBQ pounds (used and unused, less any transfers out of the vessel account, and any previous carryover amounts) in the vessel account 30 days after the date the deficit is documented;
(C) Sufficient QP or IBQ pounds are transferred into the vessel account to cure the deficit within 30 days of NMFS' issuance of QP or IBQ pounds to QS accounts in the following year or the date the deficit is documented (whichever is later) but not later than the end of the post-season transfer period; and
(D) The total QP required to cover the vessel's total catch from the base year is not greater than the annual QP vessel limit for the base year.
(iv)
(A) Post-season transfers may be conducted during a period starting January 1 and ending 14 calendar days after NMFS has completed its determination of the total base year IFQ catch for all vessels for end-of-the-year account reconciliation. NMFS will issue a public notice when end-of-the-year account reconciliation has been completed, on or about March 1 of each year.
(B) QP or IBQ pounds from the base fishing year transferred during the post-season transfer period may not be fished in any way, and may only be transferred for the purpose of covering deficits carried into the immediately following fishing year from the base fishing year.
(C) After the post-season transfer period, remaining QP and IBQ pounds surplus and deficits from the base fishing year are subject to carryover provisions specified at paragraphs (e)(5)(ii) and (e)(5)(iii) of this section.
(c)
(2)
(i)
(A)
(
(
(B)
(
(C)
(ii)
(B)
(iii)
(B)
(3)
(i) Further harvesting, receiving or at-sea processing by a mothership or catcher vessel in the mothership sector is prohibited when the mothership sector Pacific whiting allocation is projected to be reached. No additional unprocessed groundfish may be brought on board after at-sea processing is prohibited, but a mothership may continue to process catch that was on board before at-sea processing was prohibited. Pacific whiting may not be taken and retained, possessed, or landed by a catcher vessel participating in the mothership sector.
(ii) When a permitted MS coop sub-allocation of Pacific whiting-is reached, further harvesting or receiving of groundfish by vessels fishing in the permitted MS coop must cease, unless the permitted MS coop is operating under an NMFS-accepted inter-coop agreement.
(iii) When the non-coop fishery sub-allocation of Pacific whiting is projected to be reached, further harvesting or receiving of groundfish by vessels fishing in the non-coop fishery must cease.
(4) [Reserved]
(5)
(6)
(B) In the case of a MS coop failure during the Pacific whiting primary season for the mothership sector, unused allocation associated with the catch history will not be available for harvest by the coop that failed, by any former members of the coop that failed, or any other MS coop for the remainder of that calendar year.
(
(
(7)
(ii)
(iii)
(iv)
(v)
(vi)
(d) * * *
(1) * * *
(iii) * * *
(A) * * *
(
(
The revisions and additions read as follows:
(c) * * *
(1)
(i) Species with formal allocations to the C/P Coop Program: Pacific whiting.
(3) * * *
(i) At-sea sector set-asides of non-whiting groundfish species will be managed on an annual basis unless there is a risk of a harvest specification being exceeded, unforeseen impact on other fisheries, or conservation concerns, in which case inseason action may be taken. Set asides may be adjusted through the biennial specifications and management measures process as necessary.
(ii) Groundfish species not addressed in paragraph (c)(3)(i) of this section, will be managed on an annual basis unless there is a risk of a harvest specification being exceeded, unforeseen impact on other fisheries, or conservation concerns, in which case inseason action may be taken.
(5) [Reserved]
(6)
(7)
(d) * * *
(1) * * *
(iii) * * *
(A) * * *
(
(
(e) * * *
(1)
(iv)
(h) * * *
(1)
(2)
(3)
(4)
(5)
(i)
(ii)
(iii)
(iv)
(v)
(A) The person or entity has the right to direct, or does direct, in whole or in part, the business of the entity to which the permits are registered, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
(B) The person or entity has the right to limit the actions of or replace, or does limit the actions of or replace, the chief executive officer, a majority of the board of directors, any general partner, or any person serving in a management capacity of the entity to which the C/P permits are registered, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
(C) With the exception of banks and other financial institutions that rely on permits as collateral for loans as described under paragraphs (h)(5)(v)(G) of this section, the person or entity has the right to direct, or does direct, and/or the right to prevent or delay, or does prevent or delay, the transfer of the C/P permit associated QS, or the resulting QP.
(D) The person or entity, through loan covenants or any other means, has the right to restrict, or does restrict, and/or has a controlling influence over the day to day business activities or management policies of the entity to which the permits are registered, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
(E) The person or entity has the right to restrict, or does restrict, any activity related to the C/P permit, associated QS or the resulting QP, including, but not limited to, use of permits, or associated QS, or disposition of fish harvested and processed under the resulting QP, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
(F) The person or entity has the right to control, or does control, the management of, or to be a controlling factor in, the entity to which the C/P permit, associated QS, or the resulting QP, are registered, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
(G) With the exception of banks and other financial institutions that rely on permits as collateral for loans, the person or entity has the right to cause or prevent, or does cause or prevent, the
(
(
(
(H) The person or entity has the ability through any means whatsoever to control or have a controlling influence over the entity to which a permit associated QS is registered, with the exception of those activities allowed under paragraphs (h)(5)(v)(C) and (G) of this section.
Federal Retirement Thrift Investment Board.
Proposed rule.
The Federal Retirement Thrift Investment Board (“FRTIB”) is proposing to amend its regulations to change the cost-of-living adjustment rate used to calculate the annual increase for annuities with an increasing payment option, effective January 18, 2020, and to clarify its requirements regarding identification verification and availability of announcements of meetings open to public observation.
Comments must be received on or before January 16, 2020.
You may send comments, identified by Docket ID number FRTIB-2019-0004, by any of the following methods:
•
•
•
Austen Townsend, (202) 864-8647.
The FRTIB administers the Thrift Savings Plan (TSP), which was established by the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. The TSP is a tax-deferred retirement savings plan for federal civilian employees and members of the uniformed services. The TSP is similar to cash or deferred arrangements established for private-sector employees under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).
A TSP participant has a variety of withdrawal options to choose from when electing to receive a post-separation withdrawal of some or all of his or her account balance. One such option is an annuity with an increasing payment option based on an annual cost-of-living adjustment (COLA) calculation. Under this increasing payment option, the amount of the monthly annuity payment can increase each year on the anniversary date of the first payment.
Currently, when a TSP participant elects to receive an annuity with an increasing payment option, the increase in the amount of his or her monthly annuity payment each year is based on the annual change in inflation, as measured by the Consumer Price Index (CPI). Increases cannot exceed 3 percent per year.
When a TSP participant elects to receive some or all of his or her account balance in the form of an annuity with an increasing payment option, the TSP purchases the annuity for the participant from its annuity vendor. Although the actual change in inflation varies from year to year, the annuity vendor's pricing for this variable increase rate assumes an annual increase of 3 percent when calculating monthly annuity payments even when the calculated COLA turns out to be below 3 percent.
The FRTIB is proposing to change its COLA from the variable rate described above to a fixed rate of 2 percent per year. The Federal Open Market Committee (FOMC) has set an inflation target of 2 percent and implements that target over the medium term. Indeed, over the last 20 years, inflation, as measured by the CPI, has averaged 1.95 percent annually, which is the expected result given the FOMC inflation target.
Using a fixed rate of 2 percent offers two benefits. First, the FRTIB anticipates that fixing the rate at 2 percent will result in a higher initial monthly annuity payment on average. Assuming an inflation rate of 2 percent, a participant's initial monthly annuity payment will, on average, likely be 10 to 15 percent higher than it would have been under the variable rate. Although this increase comes at the expense of a smaller amount of inflation protection (
Second, a fixed rate produces a predictable rate of increase allowing participants to have a predictable pattern of income. Annual changes in a COLA based on the annual change in inflation can vary from year-to-year. This volatility can lead to participant uncertainty about how much, if any, their benefit will increase each year. However, the fixed rate has the added benefit of producing a predictable pattern of income.
As with all contract provisions, the FRTIB will regularly review the COLA to ensure that it continues to be beneficial for TSP participants.
The FRTIB is proposing to amend its rules promulgated under the Privacy Act of 1974, as amended, to clarify that TSP participants may be required to provide identifying particulars in order to access their account information.
The FRTIB is proposing to amend its rule regarding access to announcements of meetings open to public observation to reflect its existing practice of maintaining the annual Board meeting schedule online at
I certify that this regulation will not have a significant economic impact on a substantial number of small entities. This regulation will affect Federal employees, members of the uniformed services who participate in the TSP, and beneficiary participants.
I certify that these regulations do not require additional reporting under the criteria of the Paperwork Reduction Act.
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602, 632,
Privacy.
Sunshine Act.
Alimony, Claims, Government employees, Pensions, Retirement.
For the reasons stated in the preamble, the FRTIB proposes to amend 5 CFR Chapter VI as follows:
5 U.S.C. 552a.
(a) * * *
(2) Participants may also inquire whether this system contains records about them and access certain records through the account access section of the TSP website and the ThriftLine (the TSP's automated telephone system). The TSP website is
(c) * * *
(3) A participant may also access the TSP website or call the TSP ThriftLine to obtain account information. These systems may require identity and account verification information and may require the participant to verify his or her identity by providing identifying particulars.
5 U.S.C. 552b and 8474.
(c) The annual Board meeting schedule will be maintained on
5 U.S.C. 8351, 8432d, 8433, 8434, 8435, 8474(b)(5) and 8474(c)(1).
(g) * * *
(4)
Request for comments.
The Agricultural Marketing Service (AMS) of the Department of Agriculture (USDA) is soliciting comments and feedback on draft instructions for validation of refining processes as it pertains to the National Bioengineered Food Disclosure Standard (Standard).
Comments are due by January 16, 2020.
We invite you to submit written comments via the internet at
Trevor Findley, Deputy Director, Food Disclosure and Labeling Division, Fair Trade Practices Program, Agricultural Marketing Service, U.S. Department of Agriculture, telephone (202) 690-3460, email
On July 29, 2016, Public Law 114-216 amended the Agricultural Marketing Act of 1946 (7 U.S.C. 1621
Foods that do not contain detectable modified genetic material are not bioengineered foods and do not require disclosure under the Standard. Under the definition of
In the preamble to the final regulations, USDA indicated it would provide instructions to the industry to explain how they can ensure acceptable validation of refining processes in accordance with AMS standards (83 FR 65843). A draft of those instructions is now available on the AMS bioengineered food disclosure website at
After reviewing the comments on these draft instructions, AMS will publish final instructions on its website. The final instructions will be maintained and available on the AMS website. These final instructions pertain to the requirements of the existing regulations, which can be found at
7 U.S.C. 1639.
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
The FAA proposes to adopt a new airworthiness directive (AD) for Robinson Helicopter Company Model R44 and R44 II helicopters with an agricultural spray system installed by Supplemental Type Certificate (STC) SR00286BO (spray system). This spray system is also known as a Simplex Manufacturing Company (Simplex) Model 244 spray system. This proposed AD was prompted by a report of an in-flight failure of the spray system elbow pump fitting (pump fitting). This proposed AD would require repetitive inspections of the spray system pump fitting, corrective action if necessary, replacement of the spray system pump fitting, and installation of hose supports and a pump outlet cover. The FAA is proposing this AD to address the unsafe condition on these products.
The FAA must receive comments on this proposed AD by January 31, 2020.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Simplex Manufacturing Company, 13340 NE Whitaker Way, Portland, OR 97230; phone 503-257-3511; fax 503-257-8556; internet
You may examine the AD docket on the internet at
Chris Bonar, Aerospace Engineer, Airframe Section, FAA, Seattle ACO Branch, 2200 South 216th St., Des Moines, WA 98198; phone and fax: 206-231-3521; email:
The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the
The FAA will post all comments received, without change, to
The FAA proposes to adopt a new AD for Robinson Helicopter Company Model R44 and R44 II helicopters with an agricultural spray system installed by STC SR00286BO with spray systems serial-numbered 0045 through 0178 inclusive. STC SR00286BO approves the installation of a Simplex spray system. This proposed AD would require a repetitive inspection until the pump fitting is modified.
This proposed AD is prompted by a report of an in-flight failure of the spray system pump fitting. Following the issuance of a Simplex service letter, five
The FAA reviewed the following service information:
• Simplex Mfg Alert Service Bulletin ASB2017-001, Initial Release, dated March 28, 2017. This service information describes procedures for inspecting the spray system pump fitting to detect damage, including signs of stress, cracking, fatigue, and evidence of leaking.
• Simplex Mfg Service Letter SL2017-017, Revision B, dated March 14, 2018. This service information describes procedures for replacing the spray system pump fitting with an improved pump fitting and installing hose supports.
• Simplex Mfg Service Letter SL2017-030, Initial Release, dated March 12, 2018. This service information describes procedures for installing a pump outlet cover.
This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
The FAA reviewed Simplex Mfg, Installation Manual, Simplex Manufacturing Co. HPR44 III Spray System for the Robinson R44 Series Helicopter, Installation Manual PM001-HPR44III-25-008, Revision 7, dated May 2, 2017. This service information specifies unpacking, installation, and system function test procedures.
The FAA also reviewed Simplex Mfg, Instructions for Continued Airworthiness (ICA), Simplex Manufacturing Co. HPR44 III Spray System for the Robinson R44 Series Helicopter, PM011-HPR44III-25-007 ICA, Revision 9, dated April 20, 2018. This service information specifies general, airworthiness limitation, inspection and maintenance, dimension and access, lifting and shoring, leveling and weighing, towing and taxiing, storing, placard and marking, servicing and lubricating, standard practice, and equipment and furnishing information.
The FAA is proposing this AD after evaluating all the relevant information and determining that the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would require, before each flight, visually inspecting the spray system pump fitting for signs of stress, cracking, fatigue, and evidence of leaking. If there is any sign of stress, cracking, fatigue, or evidence of leaking, this proposed AD would require replacing pump fitting P/N P-58-0752-40 with pump fitting P/N 000‐123847‐000, and installing cushion clamp P/N 000-115571-000, cable tie hose supports, and pump outlet cover P/N 244-302056-001 before further flight. If there is no sign of stress, cracking, fatigue, or evidence of leaking, this proposed AD would require replacing the pump fitting with fitting P/N 000‐123847‐000, and installing cushion clamp P/N 000-115571-000, cable tie hose supports, and pump outlet cover P/N 244-302056-001 within 3 months. This proposed AD would also require pressurizing and inspecting the spray system with fitting P/N 000‐123847‐000, the cushion clamp, the cable tie hose supports, and the pump outlet cover installed, and depending on the outcome of this inspection, replacing the parts and repeating the inspection again.
The Simplex Mfg alert service bulletin and service letter service information identify the spray system as the R44III spray system. The Simplex Mfg installation manual and ICA service information identify the spray system as the HPR44 III spray system. However, this proposed AD identifies this modification as an agricultural spray system installed by STC SR00286BO and acknowledges the marketing designation of Simplex Model 244 spray system. The Simplex Mfg alert service bulletin service information specifies contacting Simplex if there is evidence of damage. This proposed AD would instead require replacing the spray system pump fitting, and installing a cushion clamp, cable tie hose supports, and a pump outlet cover if there is any sign of stress, cracking, fatigue, or evidence of leaking.
The FAA estimates that this proposed AD affects 75 helicopters of U.S. registry. Labor costs are estimated at $85 per work-hour. Based on these numbers, the FAA estimates the following costs to comply with this proposed AD.
Inspecting the fitting would take about 0.1 work-hour for an estimated cost of $9 per helicopter and $675 for the U.S. fleet per inspection cycle. Replacing the fitting and installing the cushion clamp and hose supports would take about 1 work-hour with a nominal parts costs for an estimated cost of $85 per helicopter and $6,375 for the U.S. fleet. Installing the pump outlet cover would take about 1 work-hour and parts would cost about $300 for an estimated cost of $385 per helicopter and $28,875 for the U.S. fleet.
According to the manufacturer, some of the costs of this proposed AD may be covered under warranty, thereby reducing the cost impact on affected individuals. The FAA does not control warranty coverage for affected individuals. As a result, all costs are included in this cost estimate.
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.
The FAA is 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.
The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments by January 31, 2020.
None.
This AD applies to Robinson Helicopter Company Model R44 and R44 II helicopters, certificated in any category, with an agricultural spray system installed by Supplemental Type Certificate (STC) SR00286BO with spray systems serial-numbered 0045 through 0178 inclusive, installed.
Joint Aircraft Service Component (JASC) Code: 2551, Agricultural Spray System.
This AD was prompted by a report of an in-flight failure of the spray system elbow pump fitting (pump fitting). The FAA is issuing this AD to prevent failure of the pump fitting, which could result in an in-flight engine shutdown.
Comply with this AD within the compliance times specified, unless already done.
(1) Before further flight, and thereafter before each flight, visually inspect the spray system pump fitting for signs of stress, cracking, fatigue, and evidence of leaking by following the Accomplishment Instructions, paragraphs 1. through 4., of Simplex Mfg Alert Service Bulletin ASB2017-001, Initial Release, dated March 28, 2017 (ASB2017-001). If there is any sign of stress, cracking, fatigue, or evidence of leaking, before further flight, accomplish paragraph (g)(2) of this AD.
(2) Within 3 months, unless required before further flight by paragraph (g)(1) of this AD:
(i) Replace spray system pump fitting P/N P-58-0752-40 with fitting P/N 000-123847-000 and install cushion clamp P/N 000-115571-000 and cable tie hose supports by following the Accomplishment Instructions, paragraphs 1. through 6., of Simplex Mfg Service Letter SL2017-017, Revision B, dated March 14, 2018.
(ii) Install pump outlet cover P/N 244-302056-001 by following the Accomplishments Instructions, paragraphs 1. through 7., of Simplex Mfg Service Letter SL2017-030, Initial Release, dated March 12, 2018 (SL2017-030), except refer to Figure 2 when instructed to refer to Figure 1.
(iii) Pressurize the system and determine if the new fitting is functioning correctly by visually inspecting the spray system pump fitting for signs of stress, cracking, fatigue, and evidence of leaking by following the Accomplishment Instructions, paragraphs 1. through 4. of ASB2017-001. If there is any sign of stress, cracking, fatigue, or evidence of leaking, before further flight, remove from service the fitting, cushion clamp, cable tie hose supports, and pump outlet cover and replace with a new fitting, new cushion clamp, new cable tie hose supports, and new pump outlet cover, and repeat the actions required by this paragraph.
(3) After the effective date of this AD, do not install a Simplex Model 244 spray system approved under STC SR00286BO with pump fitting P/N P-58-0752-40 on any Robinson Helicopter Company Model R44 or R44 II helicopter.
(1) The Manager, Seattle ACO Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the certification office, send it to the attention of the person identified in paragraph (i)(1) of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(1) For more information about this AD, contact Chris Bonar, Aerospace Engineer, Airframe Section, FAA, Seattle ACO Branch, 2200 South 216th St., Des Moines, WA 98198; phone and fax: 206-231-3521; email:
(2) For service information identified in this AD, contact Simplex Manufacturing Company, 13340 NE Whitaker Way, Portland, OR 97230; phone 503-257-3511; fax 503-257-8556; internet
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
The FAA proposes to adopt a new airworthiness directive (AD) for certain Embraer S.A. Model ERJ 170 airplanes. This proposed AD was prompted by a report of erroneous indications of certain engine parameters and reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight. This proposed AD would require installing updated PRIMUS EPIC LOAD software, as specified in an Agência Nacional de Aviação Civil (ANAC) Brazilian AD, which will be incorporated by reference. The FAA is proposing this AD to address the unsafe condition on these products.
The FAA must receive comments on this proposed AD by January 31, 2020.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For the material identified in this proposed AD that will be incorporated by reference (IBR), contact National Civil Aviation Agency, Aeronautical Products Certification Branch (GGCP), Rua Laurent Martins, n° 209, Jardim Esplanada, CEP 12242-431—São José dos Campos—SP, Brazil; telephone 55 (12) 3203-6600; email
You may examine the AD docket on the internet at
Krista Greer, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3221.
The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the
The FAA will post all comments received, without change, to
The ANAC, which is the aviation authority for Brazil, has issued Brazilian AD 2019-10-02, effective October 21, 2019 (“Brazilian AD 2019-10-02”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Embraer S.A. Model ERJ 170-100 LR, -100 STD, -100 SE, and -100 SU airplanes; and Model ERJ 170-200 LR, -200 SU, -200 STD, and -200 LL airplanes.
This AD was prompted by a report of erroneous indications of the engine parameters N1, N2, and ITT from both engines due to the design of data communication of the full authority digital engine control (FADEC) 1 and 2 with the engine indicating and crew alerting system (EICAS) display, which could result in interference with decisions that must be taken by the flight crew during takeoff. This AD was also prompted by reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight, which could occur in “Autoland” mode during landing. The FAA is proposing this AD to address these conditions, which could interfere with the decisions taken by the flight crew during takeoff and landing and possibly result in reduced controllability of the airplane. See the MCAI for additional background information.
Brazilian AD 2019-10-02 describes procedures for installing updated PRIMUS EPIC LOAD software. This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to a bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI referenced above. The FAA is proposing this AD because the agency evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would require accomplishing the actions specified in Brazilian AD 2019-10-02 described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this AD.
In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA initially worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has since coordinated with other manufacturers and civil aviation authorities (CAAs) to use this process. As a result, Brazilian AD 2019-10-02 will be incorporated by reference in the FAA final rule. This proposed AD would, therefore, require compliance with Brazilian AD 2019-10-02 in its entirety, through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Service information specified in Brazilian AD 2019-10-02 that is required for compliance with Brazilian AD 2019-10-02 will be available on the internet at
The FAA estimates that this proposed AD affects 540 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.
The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments by January 31, 2020.
None.
This AD applies to Embraer S.A. Model ERJ 170-100 LR, -100 STD, -100 SE, and -100 SU airplanes; and Model ERJ 170-200 LR, -200 SU, -200 STD, and -200 LL airplanes; certificated in any category, as identified in Agência Nacional de Aviação Civil (ANAC) Brazilian AD 2019-10-02, effective October 21, 2019 (“Brazilian AD 2019-10-02”).
Air Transport Association (ATA) of America Code 31, Indicating/recording systems.
This AD was prompted by a report of erroneous indications of the engine parameters N1, N2, and ITT from both engines due to the design of data communication of the full authority digital engine control (FADEC) 1 and 2 with the engine indicating and crew alerting system (EICAS) display, which could result in interference with decisions that must be taken by the flight crew during takeoff. This AD was also prompted by reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight, which could occur in “Autoland” mode during landing. The FAA is proposing this AD to address these conditions, which could interfere with the decisions taken by the flight crew during takeoff and landing and possibly result in reduced controllability of the airplane.
Comply with this AD within the compliance times specified, unless already done.
Except as specified in paragraph (h) of this AD: Comply with all required actions and compliance times specified in, and in accordance with, Brazilian AD 2019-10-02.
(1) Where Brazilian AD 2019-10-02 refers to its effective date, this AD requires using the effective date of this AD.
(2) The “Alternative method of compliance (AMOC)” section of Brazilian AD 2019-10-02 does not apply to this AD.
(3) Where paragraph (d) of Brazilian AD 2019-10-02 specifies you must use certain service information for software installation, this AD specifies to use that service information as applicable, except as provided in paragraphs (a)(1) through (3) of Brazilian AD 2019-10-02.
The following provisions also apply to this AD:
(1)
(2)
(1) For information about Brazilian AD 2019-10-02, contact National Civil Aviation Agency, Aeronautical Products Certification Branch (GGCP), Rua Laurent Martins, n° 209,
(2) For more information about this AD, contact Krista Greer, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3221.
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
The FAA proposes to supersede Airworthiness Directive (AD) 2018-16-05, which applies to all The Boeing Company Model 757-200, -200PF, -200CB, and -300 series airplanes. AD 2018-16-05 requires repetitive inspections for skin cracking and shim migration at the upper link drag fittings, diagonal brace cracking, and fastener looseness; and applicable on-condition actions. Since the FAA issued AD 2018-16-05, an operator reported finding multiple cracks in the drag fitting at fastener holes while inspecting for cracking as required by AD 2018-16-05. This proposed AD would retain the actions required by AD 2018-16-05, reduce the compliance times for certain inspections, and add repetitive inspections at certain fastener hole locations and applicable on-condition actions. The FAA is proposing this AD to address the unsafe condition on these products.
The FAA must receive comments on this proposed AD by January 31, 2020.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For service information identified in this NPRM, contact Boeing Commercial Airplanes, Attention: Contractual & Data Services (C&DS), 2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-5600; telephone 562-797-1717; internet
You may examine the AD docket on the internet at
Chandra Ramdoss, Aerospace Engineer, Airframe Section, FAA, Los Angeles ACO Branch, 3960 Paramount Boulevard, Lakewood, CA 90712-4137; phone: 562-627-5239; fax: 562-627-5210; email:
The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the
The FAA will post all comments, without change, to
The FAA issued AD 2018-16-05, Amendment 39-19345 (83 FR 38250, August 6, 2018) (“AD 2018-16-05”), for all The Boeing Company Model 757-200, -200PF, -200CB, and -300 series airplanes. AD 2018-16-05 requires repetitive inspections for skin cracking and shim migration at the upper link drag fittings, diagonal brace cracking, and fastener looseness; and applicable on-condition actions. AD 2018-16-05 resulted from reports of bolt rotation in the engine drag fitting joint and fastener heads; an inspection of the fastener holes revealed that cracks were found in the skin on two airplanes. The FAA issued AD 2018-16-05 to address cracking in the wing upper skin and forward drag fittings, which could lead to a compromised upper link and reduced structural integrity of the engine strut.
Since the FAA issued AD 2018-16-05, an operator reported finding multiple cracks in the drag fitting at the fastener holes while inspecting for cracking as required by AD 2018-16-05. Subsequent analysis determined that additional repetitive open-hole high frequency eddy current (HFEC) inspections for cracking are necessary at the forward rows of fastener holes. Based on findings, it was also determined that more frequent inspections for cracking in the diagonal brace and diagonal brace fittings are necessary.
The FAA reviewed Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019. This service information describes procedures for repetitive inspections,
The FAA is proposing this AD because the FAA evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
Although this proposed AD does not explicitly restate the requirements of AD 2018-16-05, this proposed AD would retain all of the requirements of AD 2018-16-05. Those requirements are referenced in the service information identified previously, which, in turn, is referenced in paragraph (g) of this proposed AD. This proposed AD would also require accomplishment of the actions identified in the Accomplishment Instructions of Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019, described previously.
For information on the procedures and compliance times, see this service information at
The FAA worked in conjunction with industry, under the Airworthiness Directive Implementation Aviation Rulemaking Committee (AD ARC), to enhance the AD system. One enhancement is a process for annotating which steps in the service information are “required for compliance” (RC) with an AD. Boeing has implemented this RC concept into Boeing service bulletins.
In an effort to further improve the quality of ADs and AD-related Boeing service information, a joint process improvement initiative was worked between the FAA and Boeing. The initiative resulted in the development of a new process in which the service information more clearly identifies the actions needed to address the unsafe condition in the “Accomplishment Instructions.” The new process results in a Boeing Requirements Bulletin, which contains only the actions needed to address the unsafe condition (
The FAA estimates that this proposed AD affects 561 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:
The FAA has received no definitive data that would enable the FAA to provide cost estimates for the on-condition actions specified in this proposed AD.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.
The FAA has determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that the proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety,
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments on this AD action by January 31, 2020.
This AD replaces AD 2018-16-05, Amendment 39-19345 (83 FR 38250, August 6, 2018) (“AD 2018-16-05”).
This AD applies to all The Boeing Company Model 757-200, -200PF, -200CB, and -300 series airplanes, certificated in any category.
Air Transport Association (ATA) of America Code 57, Wings.
This AD was prompted by reports of bolt rotation in the engine drag fitting joint and fastener heads; an inspection of the fastener holes revealed that cracks were found in the skin. This AD was also prompted by a report of multiple cracks found in the drag fitting at fastener holes during inspections required by AD 2018-16-05. The FAA is issuing this AD to address cracking in the wing upper skin and forward drag fittings, which could lead to a compromised upper link and reduced structural integrity of the engine strut.
Comply with this AD within the compliance times specified, unless already done.
Except as specified by paragraph (h) of this AD: At the applicable times specified in the “Compliance” paragraph of Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019, do all applicable actions identified in, and in accordance with, the Accomplishment Instructions of Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019.
(1) Where Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019, uses the phrase “the Revision 1 date of Requirements Bulletin 757-57A0073 RB” this AD requires using “the effective date of this AD.”
(2) Where Boeing Alert Requirements Bulletin 757-57A0073 RB, Revision 1, dated August 1, 2019, specifies contacting Boeing for repair instructions: This AD requires doing the repair and applicable on-condition actions before further flight using a method approved in accordance with the procedures specified in paragraph (i) of this AD.
(1) The Manager, Los Angeles ACO Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the certification office, send it to the attention of the person identified in paragraph (j)(1) of this AD. Information may be emailed to:
(2) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(3) An AMOC that provides an acceptable level of safety may be used for any repair, modification, or alteration required by this AD if it is approved by The Boeing Company Organization Designation Authorization (ODA) that has been authorized by the Manager, Los Angeles ACO Branch, FAA, to make those findings. To be approved, the repair method, modification deviation, or alteration deviation must meet the certification basis of the airplane, and the approval must specifically refer to this AD.
(4) AMOCs approved previously for AD 2018-16-05 are not approved as AMOCs for this AD.
(1) For more information about this AD, contact Chandra Ramdoss, Aerospace Engineer, Airframe Section, FAA, Los Angeles ACO Branch, 3960 Paramount Boulevard, Lakewood, CA 90712-4137; phone: 562-627-5239; fax: 562-627-5210; email:
(2) For service information identified in this AD, contact Boeing Commercial Airplanes, Attention: Contractual & Data Services (C&DS), 2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-5600; telephone 562-797-1717; internet
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
The FAA proposes to adopt a new airworthiness directive (AD) for certain Embraer S.A. Model ERJ 190-100 STD, -100 LR, -100 ECJ, -100 IGW, -200 STD, -200 LR, and -200 IGW airplanes. This proposed AD was prompted by a report of erroneous indications of certain engine parameters and reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight. This proposed AD would require installing updated PRIMUS EPIC LOAD software, as specified in an Agência Nacional de Aviação Civil (ANAC) Brazilian AD, which will be incorporated by reference. The FAA is proposing this AD to address the unsafe condition on these products.
The FAA must receive comments on this proposed AD by January 31, 2020.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
For the material identified in this proposed AD that will be incorporated by reference (IBR), contact National Civil Aviation Agency, Aeronautical Products Certification Branch (GGCP), Rua Laurent Martins, n° 209, Jardim Esplanada, CEP 12242-431—São José dos Campos—SP, Brazil; telephone 55 (12) 3203-6600; email
You may examine the AD docket on the internet at
Krista Greer, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3221.
The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the
The FAA will post all comments received, without change, to
The ANAC, which is the aviation authority for Brazil, has issued Brazilian AD 2019-10-01, effective October 21, 2019 (“Brazilian AD 2019-10-01”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Embraer S.A. Model ERJ 190-100 STD, -100 LR, -100 ECJ, -100 IGW, -100 SR, -200 STD, -200 LR, and -200 IGW airplanes. Model ERJ 190-100 SR airplanes are not certified by the FAA and are not included on the U.S. type certificate data sheet; this AD therefore does not include those airplanes in the applicability.
This AD was prompted by a report of erroneous indications of the engine parameters N1, N2, and ITT from both engines due to the design of data communication of the full authority digital engine control (FADEC) 1 and 2 with the engine indicating and crew alerting system (EICAS) display, which could result in interference with decisions that must be taken by the flight crew during takeoff. This AD was also prompted by reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight, which could occur in “Autoland” mode during landing. The FAA is proposing this AD to address these conditions, which could interfere with the decisions taken by the flight crew during takeoff and landing and possibly result in reduced controllability of the airplane. See the MCAI for additional background information.
Brazilian AD 2019-10-01 describes procedures for installing updated PRIMUS EPIC LOAD software. This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the
This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to a bilateral agreement with the State of Design Authority, the agency has been notified of the unsafe condition described in the MCAI referenced above. The FAA is proposing this AD because the agency evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would require accomplishing the actions specified in Brazilian AD 2019-10-01 described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this AD.
In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA initially worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has since coordinated with other manufacturers and civil aviation authorities (CAAs) to use this process. As a result, Brazilian AD 2019-10-01 will be incorporated by reference in the FAA final rule. This proposed AD would, therefore, require compliance with Brazilian AD 2019-10-01 in its entirety, through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Service information specified in Brazilian AD 2019-10-01 that is required for compliance with Brazilian AD 2019-10-01 will be available on the internet at
The FAA estimates that this proposed AD affects 107 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.
The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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 proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments by January 31, 2020.
None.
This AD applies to Embraer S.A. Model ERJ 190-100 STD, -100 LR, -100 ECJ, -100 IGW, -200 STD, -200 LR, and -200 IGW airplanes, as identified in Agência Nacional de Aviação Civil (ANAC) Brazilian AD 2019-10-01, effective October 21, 2019 (“Brazilian AD 2019-10-01”).
Air Transport Association (ATA) of America Code 31, Indicating/recording systems.
This AD was prompted by a case of erroneous indications of the engine parameters N1, N2, and ITT from both engines due to the design of data communication of the full authority digital engine control (FADEC) 1 and 2 with the engine indicating and crew alerting system (EICAS) display, which could result in interference with decisions that must be taken by the flight crew during takeoff. This AD was also prompted by reports of “pitch up” and “pitch down” uncommanded attitudes with autopilot engaged in cruise flight, which could occur in “Autoland” mode during landing. The FAA is proposing this AD to address these conditions, which could interfere with the decisions taken by the flight crew during takeoff and landing and possibly result in reduced controllability of the airplane.
Comply with this AD within the compliance times specified, unless already done.
Except as specified in paragraph (h) of this AD: Comply with all required actions and compliance times specified in, and in accordance with, Brazilian AD 2019-10-01.
(1) Where Brazilian AD 2019-10-01 refers to its effective date, this AD requires using the effective date of this AD.
(2) The “Alternative method of compliance (AMOC)” section of Brazilian AD 2019-10-01 does not apply to this AD.
(3) Where paragraph (d) of Brazilian AD 2019-10-01 specifies you must use certain service information for software installation, this AD specifies to use that service information as applicable, except as provided in paragraphs (a)(1) through (6) of Brazilian AD 2019-10-01.
The following provisions also apply to this AD:
(1)
(2)
(1) Brazilian AD 2019-10-01, contact National Civil Aviation Agency, Aeronautical Products Certification Branch (GGCP), Rua Laurent Martins, n° 209, Jardim Esplanada, CEP 12242-431—São José dos Campos—SP, Brazil; telephone 55 (12) 3203-6600; email
(2) For more information about this AD, contact Krista Greer, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3221.
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
This action proposes to amend the Class E airspace area, designated as a surface area, at Astoria Regional Airport, Astoria, OR by reducing the size of the Class E surface airspace. Also, this action proposes to amend the Class E airspace by adding two Class E airspace areas, designated as an extension to a Class D or Class E surface area, at the airport. Additionally, this action proposes to amend the Class E airspace areas extending upward from 700 feet or more above the surface of the earth, by reducing the dimensions of the area and sizing it to properly contain IFR arrivals and departures. Further, this action proposes to make several administrative corrections to the airport's legal descriptions. This action would ensure the safety and management of IFR operations at the airport.
Comments must be received on or before January 31, 2020.
Send comments on this proposal to the U.S. Department of Transportation, Docket Operations, 1200 New Jersey Avenue SE, West Building Ground Floor, Room W12-140, Washington, DC 20590; telephone: 1-800-647-5527, or (202) 366-9826. You must identify FAA Docket No. FAA-2019-0315; Airspace Docket No. 18-ANM-3, at the beginning of your comments. You may also submit comments through the internet at
FAA Order 7400.11D, Airspace Designations and Reporting Points, and subsequent amendments can be viewed online at
Matthew Van Der Wal, Federal Aviation Administration, Western Service Center, Operations Support Group, 2200 S 216th Street, Des Moines, WA 98198; telephone (206) 231-3695.
The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority, as it would amend the Class E airspace at Astoria Regional Airport, Astoria, Oregon to support instrument flight rules (IFR) operations at the airport.
Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2019-0315; Airspace Docket No. 18-ANM-3”. The postcard will be date/time stamped and returned to the commenter.
All communications received before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.
An electronic copy of this document may be downloaded through the internet at
You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the
This document proposes to amend FAA Order 7400.11D, Airspace Designations and Reporting Points, dated August 8, 2019, and effective September 15, 2019. FAA Order 7400.11D is publicly available as listed in the
The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by amending the Class E airspace area, designated as a surface area, at Astoria Regional Airport, Astoria, OR to properly contain IFR aircraft as follows; That airspace extending upward from the surface within a 4-mile radius of the airport beginning at the 350° bearing from the airport clockwise to the 239° bearing from the airport, thence along the 239° bearing to a 5-miles radius clockwise to the 350° bearing from the airport, thence
Also, this action proposes to amend the Class E airspace by adding two Class E airspace areas, designated as an extension to a Class D or Class E surface area. These areas would properly contain IFR arrivals descending below 1,000 feet above the surface of the earth as follows; That airspace extending upward from the surface within 1.1 miles each side of the 095° bearing from the airport extending from the 4-mile radius to 9.3 miles east of the airport, and within 2.4 miles each side of the 267° bearing from the airport extending from the 5-mile radius to 7.1 miles west of the Astoria Regional Airport.
Additionally, this action proposes to amend the Class E airspace areas extending upward from 700 feet or more above the surface of the earth at the airport. The proposal would reduce the overall dimensions of the area and properly size it to contain IFR departures and arrivals as follows; That airspace extending from 700 feet above the surface within an 8-mile radius of the airport, and within 4 miles each side of the 095° bearing from the airport extending from the 8-mile radius to 18.8 miles east of the airport, and 4.3 miles north and 7.8 miles south of the 265° bearing from the airport extending from the 8-mile radius to 16.1 miles west of the Astoria Regional Airport.
Further, this action proposes to make administrative corrections to the airport's Class E2 Class E5 legal descriptions. The Class E2 airspace should be full time; the following two sentences do not accurately represent the time of use for the Class E2 airspace and need to be removed: “This Class E airspace area is effective during specific dates and times established in advance by a Notice to Airmen. The effective date and time will thereafter be continuously published in the Airport/Facility Directory.” The action also proposes to remove the Seaside Municipal Airport from the Class E5 legal description because the Class E5 700 foot airspace no longer overlies the Seaside Municipal Airport.
Class E2, Class E4 and Class E5 airspace designations are published in paragraphs 6002, 6004, and 6005, respectively, of FAA Order 7400.11D, dated August 8, 2019, and effective September 15, 2019, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order. FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15.
The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.
Airspace, Incorporation by reference, Navigation (air).
Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:
49 U.S.C. 106(f), 106(g), 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.
That airspace extending upward from the surface within a 4-mile radius of the airport beginning at the 350° bearing from the airport clockwise to the 239° bearing from the airport, thence along the 239° bearing to a 5-miles radius clockwise to the 350° bearing from the airport, thence along the 350° bearing to the 4-miles radius of the Astoria Regional Airport, excluding that airspace within a 1-mile radius of the Camp Rilea Army Heliport.
That airspace extending upward from the surface within 1.1 miles each side of the 095° bearing from the airport extending from the 4-mile radius to 9.3 miles east of the airport, and within 2.4 miles each side of the 267° bearing from the airport extending from the 5-mile radius to 7.1 miles west of the Astoria Regional Airport.
That airspace extending from 700 feet above the surface within an 8-mile radius of the airport, and within 4 miles each side of the 095° bearing from the airport extending from the 8-mile radius to 18.8 miles east of the airport, and 4.3 miles north and 7.8 miles south of the 265° bearing from the airport extending from the 8-mile radius to 16.1 miles west of the Astoria Regional Airport.
Food and Drug Administration, HHS.
Proposed rule.
The Food and Drug Administration (FDA, the Agency, or we) is proposing to amend the medical device regulations regarding the procedures for the announcement of approvals and denials of premarket approval applications (PMAs) and humanitarian device exemption applications (HDEs). We are proposing to discontinue publishing in the
Submit either electronic or written comments on the proposed rule by March 2, 2020.
You may submit comments as follows. Please note that late, untimely filed comments will not be considered. Electronic comments must be submitted on or before March 2, 2020. The
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
FDA is proposing to amend its medical device regulations regarding the procedures for the announcement of approvals and denials of PMAs and HDEs to discontinue the quarterly publication in the
FDA is proposing to amend its regulations regarding the announcement procedures for the approval and denial of PMAs and HDEs. FDA is proposing to discontinue publishing in the
FDA is issuing this proposed rule under sections 515, 520(h), 520(m), and 701(a) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 360e, 360j(h), 360j(m), and 371(a)).
The benefit of this proposed rule, if finalized, is that it would result in cost savings to FDA from discontinuing publishing in the
FDA is proposing to amend its medical device regulations regarding the procedures for the announcement of approvals and denials of PMAs and HDEs to discontinue the quarterly publication in the
Section 515(d)(4) of the FD&C Act permits an interested person to obtain review of an order approving a PMA in accordance with section 515(g) of the FD&C Act. The statute does not require the Agency to publish the approval of a PMA in the
In the
We are issuing this proposed rule under the authority of sections 515, 520(h), and 520(m) of the FD&C Act, which set forth requirements for device premarket approval, release of detailed summaries of information respecting the safety and effectiveness of devices, and humanitarian device exemptions, and under section 701(a) of the FD&C Act, which provides FDA the authority to issue regulations for the efficient enforcement of the FD&C Act.
We are proposing to amend 21 CFR part 814 to revise the PMA and HDE approval and denial announcement procedures.
FDA would discontinue publishing in the
We are also proposing to revise § 814.44(d)(2), regarding requests for copies of the current PMA approvals and denials document and copies of SSED, to state that such requests must be sent to the Freedom of Information Staff, rather than to the Division of Dockets Management. We are proposing this revision because these requests are currently handled by the Freedom of Information Staff. Revised § 814.44(d)(2) would be consistent with current § 814.45(d)(2).
In addition, FDA is proposing to update outdated references to section 515(d)(3) of the FD&C Act in the PMA (§§ 814.40, 814.44, and 814.45) and HDE (§ 814.118) regulations. FDA is proposing to make this update because section 515(d)(3) of the FD&C Act was redesignated as section 515(d)(4) by section 202 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115).
FDA is proposing that any final rule based on this proposed rule become effective 30 days after the date of its publication in the
We have examined the impacts of the proposed rule under Executive Order 12866, Executive Order 13563, Executive Order 13771, the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders 12866 and 13563 direct us to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). Executive Order 13771 requires that the costs associated with significant new regulations “shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” We believe that this proposed rule is not a significant regulatory action as defined by Executive Order 12866.
The Regulatory Flexibility Act requires us to analyze regulatory options that would minimize any significant impact of a rule on small entities. Because this proposed rule, if finalized, would not impose any additional regulatory burden on the industry, we propose to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a written statement, which includes an assessment of anticipated costs and benefits, before proposing “any rule that includes any Federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100,000,000 or more (adjusted annually for inflation) in any one year.” The current threshold after adjustment for inflation is $154 million, using the most current (2018) Implicit Price Deflator for the Gross Domestic Product. This proposed rule would not result in an expenditure in any year that meets or exceeds this amount.
The benefit of this proposed rule, if finalized, is that it would result in cost savings to FDA from discontinuing publishing in the
We estimate that this proposed rule, if finalized, would result in no additional costs to industry because the rule would not require performance of any additional tasks. This proposed rule, therefore, would not impose any additional regulatory burden on the industry.
Table 1 summarizes the estimated benefits and costs of the proposed rule, if finalized. Annualized over 10 years, the estimated benefits (
In line with Executive Order 13771, in table 2 we discuss annualized and present values of costs and cost savings over an infinite time horizon. The present value of the net costs would be $0 at both 3 and 7 percent discount rate. The total annualized cost savings would range from $0.008 million to $0.013 million at both 3 and 7 percent discount rates.
We have developed a comprehensive Preliminary Economic Analysis of Impacts that assesses the impacts of the proposed rule. The full preliminary analysis of economic impacts is available in the docket for this proposed rule (Ref. 1) and at
FDA tentatively concludes that this proposed rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.
We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13132. We have determined that this proposed rule does not contain policies that have substantial direct effects on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Accordingly, we conclude that the proposed rule does not contain policies that have federalism implications as defined in the Executive Order and, consequently, a federalism summary impact statement is not required.
We have analyzed this proposed rule in accordance with the principles set forth in Executive Order 13175. We have tentatively determined that the rule does not contain policies that would 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. The Agency solicits comments from tribal officials on any potential impact on Indian Tribes from this proposed action.
The following reference is on display at the Dockets Management Staff (see
Administrative practice and procedure, Confidential business information, Medical devices, Medical research, Reporting and recordkeeping requirements.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs, it is proposed that 21 CFR part 814 be amended as follows:
21 U.S.C. 351, 352, 353, 360, 360c-360j, 360bbb-8b, 371, 372, 373, 374, 375, 379, 379e, 381.
(b) * * * The notice of approval of an HDE will be placed on the FDA's home page on the internet (
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking and notification of public hearing.
This document provides proposed amendments to the regulations under sections 162, 164, and 170 of the Internal Revenue Code (Code). First, the proposed amendments update the regulations under section 162 to reflect current law regarding the application of section 162 to a taxpayer that makes a payment or transfer to an entity described in section 170(c) for a business purpose. Second, the proposed amendments provide safe harbors under section 162 to provide certainty with respect to the treatment of payments made by business entities to an entity described in section 170(c). Third, the proposed amendments provide a safe harbor under section 164 for payments made to an entity described in section 170(c) by individuals who itemize deductions and receive or expect to receive a state or local tax credit in return. Fourth, the proposed amendments update the regulations under section 170 to reflect past guidance and case law regarding the application of the
Written or electronic comments must be received by January 31, 2020 Requests to speak and outlines of topics to be discussed at the public hearing scheduled for February 20, 2020, must be received by January 31, 2020.
Submit electronic submissions via the Federal eRulemaking Portal at
Concerning the proposed regulations, Mon L. Lam and Merrill D. Feldstein at (202) 317-4059; concerning submission of comments and requests to speak at the public hearing, Regina Johnson at (202) 317-6901 (not toll-free numbers) or
Section 170(a)(1) generally allows an itemized deduction for any “charitable contribution” paid within the taxable year. Section 170(c) defines “charitable contribution” as a “contribution or gift to or for the use of ” an entity described in that section. Under section 170(c)(1), such entities include a State, a possession of the United States, or any political subdivision of the foregoing, or the District of Columbia. Section 170(c)(2) includes certain corporations, trusts, or community chests, funds, or foundations, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals. Section 1.170A-1(c)(5) of the Income Tax Regulations provides that transfers of property to an organization described in section 170(c) that bear a direct relationship to the taxpayer's trade or business and that are made with a reasonable expectation of financial return commensurate with the amount of the transfer may constitute allowable
Section 1.162-15(a) applies to contributions to entities described in section 170(c). Section 1.162-15(a)(1) currently provides that no deduction is allowable under section 162(a) for a contribution or gift by an individual or a corporation if any part thereof is deductible under section 170. For example, if a taxpayer makes a contribution of $5,000 and only $4,000 of this amount is deductible under section 170(a) (whether because of the percentage limitation under either section 170(b)(1) or (2), the requirement as to time of payment, or both), no deduction is allowable under section 162(a) for the remaining $1,000. However, § 1.162-15(a)(2) clarifies that the limitations provided in section 162(b) and § 1.162-15(a)(1) apply only to payments that are in fact contributions or gifts to organizations described in section 170. For example, payments by a transit company to a local hospital (which is a charitable organization within the meaning of section 170) in consideration of a binding obligation on the part of the hospital to provide hospital services and facilities for the company's employees are not contributions or gifts within the meaning of section 170 and may be deductible under section 162(a) if the requirements of section 162(a) are otherwise satisfied.
Section 164(a) allows a deduction for the payment of certain taxes, including: (1) State and local, and foreign, real property taxes; (2) state and local personal property taxes; and (3) state and local, and foreign, income, war profits, and excess profits taxes. In addition, section 164 allows a deduction for taxes not described in the preceding sentence that are paid or accrued within the taxable year in carrying on a trade or business or an activity described in section 212. Moreover, under section 164(b)(5), taxpayers may elect to deduct state and local general sales taxes in lieu of state and local income taxes.
Section 164(b)(6), as added by section 11042(a) of the Tax Cuts and Jobs Act Public Law 115-97, (the “TCJA”) provides that in the case of an individual, deductions for foreign real property taxes are not allowable under section 164(a)(1), and the deduction for the aggregate amount of the following state and local taxes paid during the calendar year is limited to $10,000 ($5,000 in the case of a married individual filing a separate return): (1) Real property taxes; (2) personal property taxes; (3) income, war profits, and excess profits taxes; and (4) general sales taxes. This limitation applies to taxable years beginning after December 31, 2017, and before January 1, 2026, and does not apply to foreign taxes described in section 164(a)(3) or to any taxes described in section 164(a)(1) and (2) that are paid or accrued in carrying on a trade or business or an activity described in section 212.
In response to the limitation in section 164(b)(6), some taxpayers have considered tax planning strategies to avoid or mitigate its effects. Some of these strategies rely on state and local tax credit programs under which states provide tax credits in return for contributions by taxpayers to entities described in section 170(c), and some state and local governments have created new programs intended to facilitate use of these strategies.
On June 11, 2018, the Treasury Department and the IRS announced their intention to propose regulations addressing the proper application of sections 164 and 170 to taxpayers who make contributions under state and local tax credit programs to entities described in section 170(c). See Notice 2018-54, 2018-24 I.R.B. 750. On August 27, 2018, proposed regulations (REG-112176-18) under sections 170 and 642(c) were published in the
The Treasury Department and the IRS received over 7,700 comments responding to the 2018 proposed regulations and 25 requests to speak at the public hearing, which was held on November 5, 2018. After taking into account the comments received and the concerns expressed at the public hearing, the Treasury Department and the IRS published final regulations in the
In response to Notice 2018-54 and the 2018 proposed regulations, commenters raised several ancillary issues. These issues involved: (1) Treatment of business entity payments to entities described in section 170(c); (2) treatment of payments by individuals with total state and local tax liabilities that were less than or equal to the section 164(b)(6) limitations; and (3) application of the
Although the Treasury Department and the IRS have provided sub-regulatory safe harbors related to the first two issues (in Rev. Proc. 2019-12, 2019-04 I.R.B. 401, and Notice 2019-12, 2019-27 I.R.B. 57), the Treasury Department and the IRS believe that it is appropriate to include these safe harbors in proposed regulations and to request comments. Further, in the preamble to the final regulations, the Treasury Department and the IRS extensively addressed the third issue—whether a benefit received or expected to be received from a party other than the donee may constitute a
After the issuance of Notice 2018-54, and continuing after the publication of the 2018 proposed regulations, the Treasury Department and the IRS received inquiries from taxpayers regarding the application of the proposed regulations to businesses that make payments to entities described in section 170(c) pursuant to state and local tax credit programs. The taxpayers sought guidance as to whether a business entity may deduct these payments under section 162 as ordinary and necessary business expenses incurred in carrying on a trade or business. In response, on September 5, 2018, the IRS released a frequently asked question (“FAQ”) stating that a business taxpayer making a payment to an entity described in section 170(c) is generally permitted to deduct such payment as an ordinary and necessary business expense under section 162 if the payment is made with a business purpose. However, after the release of the FAQ, taxpayers continued to express concern about whether the business purpose requirement is met for contributions that result in a tax credit. Specifically, taxpayers asked whether payments by business entities in exchange for state and local tax credits would bear a direct relationship to the taxpayer's trade or business such that these payments would qualify as ordinary and necessary business expenses of carrying on a trade or business under section 162(a).
On December 28, 2018, the IRS issued Rev. Proc. 2019-12, providing a safe harbor under section 162 for payments made by a business entity that is a C corporation or specified passthrough entity to or for the use of an organization described in section 170(c) if the C corporation or specified passthrough entity receives or expects to receive state or local tax credits in return. The revenue procedure states that, to the extent that a C corporation receives or expects to receive a state or local tax credit in return for a payment to an organization described in section 170(c), it is reasonable to conclude that there is a direct benefit and a reasonable expectation of commensurate financial return to the C corporation's business in the form of a reduction in the state or local taxes the C corporation would otherwise be required to pay. Thus, the revenue procedure provides a safe harbor that allows a C corporation engaged in a trade or business to treat the portion of the payment that is equal to the amount of the credit received or expected to be received as meeting the requirements of an ordinary and necessary business expense under section 162.
The IRS determined that a similar analysis is appropriate in the case of a business entity other than a C corporation if (1) the business entity is regarded as separate from its owner for all Federal tax purposes under § 301.7701-3 of the Procedure and Administration Regulations (“passthrough entity”); (2) the passthrough entity operates a trade or business within the meaning of section 162; (3) the passthrough entity is subject to a state or local tax incurred in carrying on its trade or business that is imposed directly on the entity; and (4) in return for a payment to an entity described in section 170(c), the passthrough entity receives or expects to receive a state or local tax credit that the entity applies or expects to apply to offset a state or local tax other than a state or local income tax. Thus, to the extent that a specified passthrough entity makes a payment to an entity described in section 170(c) and receives or expects to receive a state or local tax credit, Rev. Proc. 2019-12 permits the passthrough entity to treat the payment as meeting the requirements of an ordinary and necessary business expense under section 162. The safe harbors for C corporations and specified passthrough entities apply only to payments of cash and cash equivalents.
In the interest of providing certainty for taxpayers, the Treasury Department and the IRS believe that it is appropriate to propose regulations to incorporate the safe harbors set out in Rev. Proc. 2019-12 and to request comments on these safe harbors. Thus, these proposed regulations propose amending § 1.162-15(a) to incorporate the Rev. Proc. 2019-12 safe harbors. These proposed regulations also propose amending § 1.170A-1(c)(5) and (h)(3)(viii) to provide cross references to § 1.162-15(a). The Treasury Department and the IRS specifically request comments on whether the safe harbors should be expanded to apply to an individual who is carrying on a trade or business or an activity described in section 212.
The proposed regulations propose additional revisions to § 1.162-15(a) to more clearly reflect the current state of the law regarding a taxpayer's payment or transfer to an entity described in section 170(c). If the taxpayer's payment or transfer bears a direct relationship to its trade or business, and the payment is made with a reasonable expectation of commensurate financial return, the payment or transfer to the section 170(c) entity may constitute an allowable deduction as a trade or business expense under section 162, rather than a charitable contribution under section 170. See § 1.170A-1(c)(5);
The proposed revisions are also consistent with the decision in
In addition, the proposed regulations propose to add a cross-reference to § 1.170A-1(h) (payments to section 170(c) entities in exchange for consideration), which provides more detailed rules for determining whether a payment, or a portion of a payment, to an entity described in section 170(c) may be deducted under section 162(a) or section 170.
After publication of the 2018 proposed regulations, commenters expressed concerns that the proposed regulations would create unfair consequences for certain individuals who receive state or local tax credits in return for their payments. Specifically, commenters noted that individuals who itemize deductions for Federal income tax purposes and have total state and local tax liabilities for the taxable year of $10,000 or less ($5,000 or less in the case of a married individual filing a separate return) would be precluded from taking charitable contribution deductions to the extent that they receive state or local tax credits even though the individuals would have been able to deduct equivalent payments of state and local taxes. Thus, if these individuals chose to make a payment to a section 170(c) entity through a state or local tax credit program instead of
These state and local tax credit programs effectively offer taxpayers a choice of paying taxes to the state or local government or making a payment to a section 170(c) entity and receiving a tax credit that offsets a tax liability the taxpayer would otherwise owe to the state or local government. This situation can be analogized to situations in which an individual entitled to receive a payment from a second party directs or permits the second party to satisfy its payment obligation by making a payment to a third party. In such situations, the payment may be treated, for Federal income tax purposes, as a payment by the payor to the individual entitled to receive payment.
For these reasons, on June 11, 2019, the IRS released Notice 2019-12, announcing that the Treasury Department and the IRS intend to publish proposed regulations with a safe harbor under section 164 for individuals who make payments to section 170(c) entities in return for state or local tax credits. Under this safe harbor, an individual who itemizes deductions and who makes a payment to an entity described in section 170(c) in exchange for a state or local tax credit may treat as a payment of state or local tax for purposes of section 164 the portion of such payment for which a charitable contribution deduction is or will be disallowed under § 1.170A-1(h)(3). This treatment is allowed in the taxable year in which the payment is made, but only to the extent that the individual applies the resulting credit pursuant to applicable state or local law to offset the individual's state or local tax liability for such taxable year or the preceding taxable year. Notice 2019-12 requested comments for purposes of incorporating the safe harbor in proposed regulations.
The Treasury Department and the IRS received several comments in response to Notice 2019-12. Generally, commenters responded favorably to the safe harbor in the notice, finding that its rationale was sound and that the rule would effectively eliminate concerns that the final regulations under § 1.170A-1(h)(3) unfairly burden individuals who itemize deductions and have state and local tax liabilities that are less than the section 164(b)(6) limitation. One commenter noted that Executive Order 12866, which directs the agency issuing a regulation to identify the problem it intends to address and design the regulation in the most cost-effective manner to achieve that objective with the least amount of burden on society, further supports the safe harbor. See Executive Order 12866, section 1(b). This commenter also suggested that the IRS should track the effects of the safe harbor by requiring taxpayers to disclose state tax and local tax credits on their Form 1040, Schedule A. Alternatively, the commenter suggested that the IRS obtain this information directly from the states. Another commenter generally supported the safe harbor, but suggested that the Treasury Department and the IRS should avoid creating more safe harbor exceptions to § 1.170A-1(h)(3) of the final regulations. This commenter also expressed concerns about the application of the safe harbor when the state and local tax limitation under section 164(b)(6) expires or is modified.
Other commenters were concerned that Notice 2019-12 did not fully address the tax consequences to taxpayers who received or expected to receive state or local tax credits. Specifically, these commenters asked that the Treasury Department and the IRS provide guidance to address the treatment of state or local tax credits for Federal income tax purposes upon their sale or expiration. As noted in the preamble to the final regulations, the Treasury Department and the IRS recognize the significance and complexity of these questions. The Treasury Department and the IRS continue to study these issues and invite additional comment to inform potential future guidance on these issues.
The Treasury Department and the IRS continue to believe that the notice provides a fair, reasonable, and legally sound basis for the safe harbor for individual taxpayers, and that the safe harbor should be added to the regulations under section 164. Accordingly, these proposed regulations propose adding § 1.164-3(j) to provide a safe harbor for individuals who make a payment to or for the use of an entity described in section 170(c) in return for a state or local tax credit. These proposed regulations also propose adding § 1.170A-1(h)(3)(ix) to provide a cross reference to the safe harbor proposed under § 1.164-3(j) and to request comments.
Under these proposed regulations, an individual who itemizes deductions and who makes a payment to a section 170(c) entity in exchange for a state or local tax credit may treat as a payment of state or local tax for purposes of section 164 the portion of such payment for which a charitable contribution deduction under section 170 is or will be disallowed under § 1.170A-1(h)(3). This treatment is allowed in the taxable year in which the payment is made, but only to the extent that the resulting credit is applied pursuant to applicable state or local law to offset the individual's state or local tax liability for such taxable year or the preceding taxable year. Any unused credit permitted to be carried forward may be treated as a payment of state or local tax under section 164 in the taxable year or years for which the carryover credit is applied in accordance with state or local law. The safe harbor for individuals applies only to payments of cash and cash equivalents.
The proposed regulations are not intended to permit a taxpayer to avoid the limitations of section 164(b)(6). Therefore, the proposed regulations provide that any payment treated as a state or local tax under section 164, pursuant to the safe harbor provided in § 1.164-3(j) of the proposed regulations, is subject to the limitations on deductions in section 164(b)(6). Furthermore, the proposed regulations are not intended to permit deductions of the same payments under more than one provision. Thus, the proposed regulations provide that an individual who relies on the safe harbor in § 1.164-3(j) to deduct qualifying payments under section 164 may not also deduct the same payments under any other section of the Code.
Section 1.170A-1(h)(1) provides that no part of a payment that a taxpayer makes to or for the use of an organization described in section 170(c) that is in consideration for (as defined in § 1.170A-13(f)(6)) goods or services (as defined in § 1.170A-13(f)(5)) is a contribution or gift within the meaning of section 170(c) unless the taxpayer (i) intends to make a payment in an amount that exceeds the fair market value of the goods or services; and (ii) makes a payment in an amount that exceeds the fair market value of the goods or services.
Section 1.170A-1(h)(2) states that the charitable contribution deduction under section 170(a) may not exceed the amount of cash paid and the fair market value of property transferred to an organization described in section 170(c) over the fair market value of goods or
Section 1.170A-1(h)(3)(iii) defines “in consideration for” for purposes of determining whether a state or local tax credit should reduce a charitable contribution under section 170. This section provides that the term “in consideration for” shall have the meaning set forth in § 1.170A-13(f)(6), except that the state or local tax credit need not be provided by the donee organization.
Some commenters on the 2018 proposed regulations interpreted the definition of “in consideration for” under § 1.170A-13(f)(6) to suggest that consideration provided by a third party is disregarded in calculating the charitable contribution deduction, and that § 1.170A-1(h)(3)(iii) of the proposed regulations provided an exception from this rule solely for state or local tax credits provided by third parties. Other commenters disagreed with this interpretation and suggested that the final regulations should set forth a general rule clarifying that consideration includes all benefits that a taxpayer receives or expects to receive, regardless of whether they are provided by the donee.
In the preamble to the final regulations, the Treasury Department and the IRS acknowledged that the final regulations did not address all situations in which a taxpayer makes a payment or transfers property and receives or expect to receive benefits from a party that is not the donee. Accordingly, the preamble to the final regulations indicated that the Treasury Department and the IRS intended to propose amendments to the regulations under section 170 to make clear that the
As noted in the preamble to the final regulations, in
In Rev. Rul. 67-246, Example 11, a local store agreed to award a transistor radio, worth $15, to each person who contributed $50 or more to a specific charity. The ruling concluded that if a taxpayer received a $15 radio as a result of a $100 payment to the charity, only $85 qualified as a charitable contribution deduction. It did not matter that the donor received the $15 radio from the store, a third party, rather than from the charity. This conclusion is reflected in the IRS's audit practices. See IRS Conservation Easement Audit Techniques Guide (Rev. Jan. 24, 2018, p. 16) (stating that a “quid pro quo contribution is a transfer of money or property . . . partly in exchange for goods or services in return from the charity or a third party,” and “a quid pro quo may also be in the form of an indirect benefit from a third party”).
Moreover, courts have ruled that a taxpayer's expectation of significant financial returns demonstrates a lack of charitable intent. For example, in
The
The proposed regulations do not amend the language of § 1.170A-13(f)(6) which discusses “in consideration for” for purposes of determining whether the taxpayer provides proper substantiation of its charitable contribution. Section 1.170A-13(f) details the requirements of a contemporaneous written acknowledgment, including a statement of whether the donee organization provides any goods or services in consideration for any cash or other property transferred to the donee organization and a description and a
For additional clarity, the proposed regulation amends the language in § 1.170A-1(h)(2)(i)(B) to clarify that the fair market value of goods and services includes the value of goods and services provided by parties other than the donee. Also, the proposed regulation adds a definition of “goods and services” that is the same as the definition in § 1.170A-13(f)(5). Finally, the proposed regulation revises the cross-references defining “in consideration for” and “goods and services” in paragraphs (h)(1) and (h)(3)(iii) to be consistent with the proposed definitions provided in paragraph (h)(4).
The proposed amendments contained in §§ 1.162-15(a)(1) and (2) and 1.170A-1(c)(5), regarding the application of section 162 to taxpayers that make payments or transfers to entities described in section 170(c), are proposed to apply to payments or transfers on or after December 17, 2019. However, a taxpayer may rely on these proposed regulations for payments and transfers made on or after January 1, 2018 and before the date regulations finalizing these proposed regulations are published in the
The proposed amendment contained in § 1.162-15(a)(3), regarding safe harbors for C corporations and specified passthrough entities making payments to or for the use of section 170(c) entities in exchange for state or local tax credits, is proposed to apply to payments on or after December 17, 2019. However, prior to this date, a taxpayer may continue to apply Rev. Proc. 2019-12, which applies to payments made on or after January 1, 2018.
The proposed amendments contained in §§ 1.164-3(j) and 1.170A-1(h)(3)(ix), regarding the safe harbor for payments by certain individuals to or for the use of section 170(c) entities, are proposed to apply to payments made on or after June 11, 2019, the date that the IRS issued Notice 2019-12, announcing it intended to publish proposed regulations with a safe harbor under section 164 for individuals who make payments to section 170(c) entities in return for state or local tax credits. However, individuals may rely on these proposed regulations for payments made after August 27, 2018, the applicability date of the final regulations, and before the date regulations finalizing these proposed regulations are published in the
Finally, the proposed amendments contained in §§ 1.170A-1(h)(1), (h)(2)(i)(B), (h)(3)(iii), and (h)(4)(i), and 1.170A-13(f)(7) clarifying “in consideration for” for purposes of applying § 1.170A-1(h) are proposed to apply to payments or transfers on or after December 17, 2019.
Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This proposed rule is expected to be an E.O. 13771 regulatory action. Details on the estimated costs of this proposed rule can be found in the rule's economic analysis.
These proposed regulations have been designated as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget (OMB) regarding review of tax regulations. The Office of Information and Regulatory Affairs has designated these regulations as significant under section 1(b) of the MOA. Accordingly, the OMB has reviewed these regulations.
Section 164 of the Code allows a deduction for certain state and local taxes paid, including state or local income and property taxes. Section 164(b)(6), added by the TCJA, generally limits an individual's deduction of these taxes to $10,000 ($5,000 in the case of a married individual filing a separate return). The limitation does not apply to foreign income taxes or to property taxes that are paid or incurred in carrying on a trade or business or an activity described in section 212. Section 162 allows a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 170 allows a deduction for charitable contributions, specifically for payments or transfers to an entity described in section 170(c); however, the deduction must be reduced by any
After the enactment of the TCJA, questions arose regarding the interaction of these deductions. To clarify the application of these provisions, the Treasury Department and the IRS issued guidance including: (1) Final regulations (T.D. 9864, 84 FR 27513) providing that a tax credit received or expected to be received in return for a payment or transfer to an entity described in section 170(c) (hereafter referred to as a charitable entity) is a return benefit to the taxpayer, resulting in the reduction of the charitable contribution deduction; (2) Notice 2019-12 announcing the intent to issue proposed regulations providing a safe harbor for individuals under which a charitable contribution that is disallowed because of a return benefit of a state or local tax credit may be treated as a payment of state or local tax; and (3) Rev. Proc. 2019-12 providing a safe harbor allowing as a deductible business expense certain payments by businesses to charitable organizations.
The Treasury Department and the IRS believe that it is appropriate to propose as regulations and seek additional public comment on the safe harbors provided in Notice 2019-12 and Rev. Proc. 2019-12. In addition, comments received in response to Notice 2018-54 and the 2018 proposed regulations (guidance preceding the final regulations T.D. 9864) indicate that taxpayers will benefit from additional guidance regarding contributions to a charitable entity resulting in a return benefit from a third party.
First, these proposed regulations reflect the guidance in Notice 2019-12. Under the safe harbor an individual who itemizes deductions and who makes a payment to a charitable entity in exchange for a state or local tax credit may be able to claim a state and local tax deduction for the portion of the payment for which a charitable contribution deduction is or will be disallowed as a return benefit. The safe harbor for individuals applies only to payments of cash and cash equivalents. In addition, these payments are subject to the overall limitation on state and local deductions added by the TCJA. Further, any payment may be deducted under only one provision of the Code. Thus, an individual who has total state and local tax liability of $10,000 or less, and who makes a payment to a charitable entity and receives a state tax credit in return resulting in the disallowance of a charitable contribution deduction, may claim an itemized deduction for the disallowed amount, subject to other requirements of the Code.
Second, the proposed regulations incorporate into the regulations under section 162 longstanding principles from case law and existing section 170 regulations regarding a taxpayer's payment or transfer to a charitable entity. Specifically, the proposed regulations confirm that, when a taxpayer's transfer or payment bears a direct relationship to its trade or business, and that transfer or payment is made with a reasonable expectation of commensurate financial return, the transfer or payment to the charitable entity may constitute an allowable deduction under section 162, rather than under section 170. In addition, the proposed regulations incorporate the safe harbors provided by Rev. Proc. 2019-12 for certain payments by C corporations and specified passthrough entities, for cases in which the financial return is a tax credit. Thus, under the proposed regulations, a C corporation may treat the portion of the payment to a charitable entity that is equal to the amount of tax credit received or expected to be received in return as a deductible business expense under section 162. Consistent with Rev. Proc. 2019-12, the proposed regulations also provide that a specified passthrough entity may treat a payment resulting in a tax credit as a business expense if the business is regarded as separate from its owner for Federal tax purposes, if it operates a trade or business within the meaning of section 162, if it is subject to state or local tax incurred in carrying on its trade or business that is imposed directly on the passthrough entity, and if it receives or expects to receive a state or local tax credit in return for the payment.
Third, the proposed regulations clarify that a payment to a charitable entity that results in a return benefit is a
The Treasury Department and the IRS have assessed the benefits and costs of these proposed regulations compared to a no-action baseline that reflects anticipated Federal income tax-related behavior in the absence of these proposed regulations.
The proposed regulations reflect existing, published, Treasury Department and IRS policies. As a result, they provide some additional clarity to taxpayers by clearly articulating these existing policies as regulations. The Treasury Department does not expect any noticeable change in taxpayer behavior resulting from these regulations, but requests comments on their potential economic effects. The increased clarity, in particular the provision of safe harbors, is expected to reduce compliance burdens.
As described in the Special Analyses for the final regulations (T.D. 9864), allowing a payment that is disallowed as a charitable contribution deduction because of the receipt or expected receipt of a tax credit to be deducted as a payment of state or local tax means that payments by taxpayers with state and local tax liabilities of $10,000 or less are subject to the same tax treatment under these proposed regulations as under the TCJA (in absence of any guidance) and as under the law prior to the TCJA. (See Example 2, Table 1, T.D. 9864.) It also means that such taxpayers are not treated less favorably than taxpayers with state and local tax liabilities in excess of $10,000 or taxpayers subject to the Alternative Minimum Tax. (See Examples 1 and 3 of Table 1, T.D. 9864.)
The Treasury Department and the IRS request comments on the economic effects of the proposed regulations.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this proposed rule will not have a significant economic impact on a substantial number of small entities. Although data are not readily available for the IRS and the Treasury Department to assess the number of small entities that are likely to be directly affected by the regulations, the economic impact is unlikely to be significant.
As discussed elsewhere in this preamble, the proposed rule largely updates the regulations to reflect existing law and policy. The proposed amendments would update the section 162 and section 170 regulations to reflect current law. In addition, the proposed amendments add to the regulations safe harbors under section 162 and section 164, regarding deductions when payments are made to entities described in section 170(c) and the donor receives or expects to receive a state or local tax credit in return; these safe harbors were provided previously in Internal Revenue Bulletin guidance. These regulations are expected to provide some additional certainty to taxpayers but are not expected to result in any noticeable change in taxpayer behavior. The increased certainty, and in particular the provision of safe harbors, is expected to reduce compliance burdens. Accordingly, the Treasury Department and the IRS certify that the proposed rule will not have a significant economic impact on a substantial number of small entities.
Notwithstanding this certification, the Treasury Department and the IRS invite comments about the potential impact of this proposed rule on small entities.
Pursuant to section 7805(f), the proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.
Before the regulations proposed herein are adopted as final regulations, consideration will be given to any electronic and written comments that are submitted timely to the IRS as prescribed in this preamble under the
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by January 31, 2020. Submit a signed paper or electronic copy of the outline as prescribed in this preamble under the
IRS Revenue Procedures, Revenue Rulings, Notices, and other guidance cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at
The principal author of these proposed regulations is the Office of the Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and the Treasury Department participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
26 U.S.C. 7805 * * *
(a)
(2)
(i)
(ii)
(3)
(ii)
(
(
(
(
(B)
(C)
(iii)
(iv)
(A)
(B)
(C)
(D)
(v)
(4)
(j)
(2)
(3)
(4)
(5)
(6)
(i)
(ii)
(iii)
(7)
The revisions and additions read as follows:
(c) * * *
(5) For payments or transfers to an entity described in section 170(c) by a taxpayer carrying on a trade or business, see § 1.162-15(a).
(h) * * *
(2) * * *
(i) * * *
(B) The fair market value of the goods or services received or expected to be received in return.
(3) * * *
(iii)
(viii)
(ix)
(4)
(i)
(ii)
(iii)
Office of Labor-Management Standards, Department of Labor.
Proposed rule and request for comments.
The Department of Labor (Department) proposes to promulgate a rule governing intermediate bodies that are wholly composed of public sector organizations but are subordinate to national or international labor organizations that are covered by the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA or Act). Under the proposed rule, such intermediate bodies would now be covered by the LMRDA, and would be required to file the Form LM-2 and Form LM-3 annual union financial reports.
Submit written comments on or before February 18, 2020.
You may submit comments, identified by RIN 1245-AA08, only by the following method: Electronic Comments: Submit comments through the Federal eRulemaking Portal
Andrew Davis, Chief of the Division of Interpretations and Standards, Office of Labor-Management Standards, U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5609, Washington, DC 20210, (202) 693-0123 (this is not a toll-free number), (800) 877-8339 (TTY/TDD).
The Department of Labor's statutory authority is set forth in sections 201 and 208 of the LMRDA, 29 U.S.C. 431, 438. Section 208 of the LMRDA provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under Title II of the Act and such other reasonable rules and regulations as he may find necessary to prevent the circumvention or evasion of the reporting requirements. 29 U.S.C. 438. Section 201, discussed in more detail below, sets out the substantive reporting obligations.
The Secretary has delegated his authority under the LMRDA to the Director of the Office of Labor-Management Standards and permitted redelegation of such authority.
In October of 2003, the Department of Labor (Department) issued an interpretation that required certain
On December 27, 2002, the Department proposed revisions to Forms LM-2, LM-3, and LM-4, which are used by labor organizations to file annual financial reports required under Title II of the LMRDA with the Department of Labor's Office of Labor-Management Standards (OLMS). 67 FR 79279 (Dec. 27, 2002). A portion of the proposed rule stated the Department's intent to revise its interpretation of an aspect of the definition of “labor organization . . . deemed to be engaged in an industry affecting commerce” under the LMRDA.
After receiving and considering comments, the Department published a final rule on October 9, 2003. 68 FR 58374 (Oct. 9, 2003). The interpretation in the final rule stated that intermediate bodies that are subordinate to a national or international labor organization that includes a covered labor organization will be covered by the LMRDA, even if the intermediate body's constituents are solely public sector local labor unions not covered by the Act. Before this final rule issued, an intermediate body was subject to the LMRDA only if one or more of its constituent local labor unions represented private sector employees.
Labor organizations affected by the new interpretation of the LMRDA challenged the rule in federal district court. The court granted summary judgment in favor of the labor unions.
The Department issued a “reasoned analysis” supporting the change on January 26, 2007. 72 FR 3735. The analysis in support of expanded coverage rested on three rationales. First, the policy, it was asserted, advanced the twin Congressional goals that labor organizations' financial conditions and operations should be subject to public disclosure to benefit employees who participate in those organizations, and that the definition of “labor organizations” should be interpreted broadly to advance union democracy, financial transparency, and integrity. Second, expanded coverage promoted disclosure of financial disbursements and receipts to and from structurally related labor organizations, thus enhancing members' ability to trace their dues money and to identify any potential financial irregularities. Third, the revised interpretation gave full meaning to the statute, which focuses on covering intermediate bodies precisely because they are subordinate to a covered national or international labor organization, even though they may consist only of unions that do not bargain with private sector employers.
Labor organizations challenged the policy interpretation in U.S. district court.
In 2009, the Department engaged in notice-and-comment rulemaking to return to its pre-2003 policy, which interpreted the Act to exclude, rather than cover, intermediate labor organizations that contain no local labor organization members representing employees in the private sector. 75 FR 5456, 5462 (February 2, 2010).
In support of its return to the pre-2003 interpretation, the Department first concluded that the preferred interpretation of the statute was one that comported with the LMRDA's primary regulatory focus on labor organizations that represent employees in the private sector.
Congress enacted the LMRDA after an extensive investigation of “the labor and management fields . . . [found] that there ha[d] been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct. . . .” 29 U.S.C. 401(b). Congress intended the Act to “eliminate or prevent improper practices” in labor organizations, to protect the rights and interests of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c).
As part of the statutory scheme designed to accomplish these goals, the Act required labor organizations to file annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and public disclosure of a labor organization's financial condition and operations in order to curb embezzlement and other improper financial activities by union officers and employees. See S. Rep. No. 86-187 (1959), reprinted in 1 NLRB, Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 398-99.
Pursuant to the Act, labor organizations must file reports containing information such as assets, liabilities, receipts, salaries, loans to officers, employees, members or businesses and other disbursements “in such detail as may be necessary accurately to disclose [their] financial condition and operations for [the] preceding fiscal year.” 29 U.S.C. 431(b).
The first clause of Section 3(i) applies to entities that exist, at least in part, to deal with employers concerning terms and conditions of employment. The second clause applies to conferences, general committees, joint or system boards or joint councils—entities that are known as “intermediate” labor organizations.
The Act defines “employer” broadly, but excludes the United States, States, and local governments. 29 U.S.C. 402(e). Thus, an organization is not covered under the first clause of Section 3(i), which requires that the organization deal with a statutory “employer,” if it deals only with federal, state or local governments. However, an “organization” covered by the second clause of the definition (a “conference, general committee, [etc.] subordinate to a national or international”) need not deal with employers at all. 29 U.S.C. 402(i). Instead, such an intermediate labor body is covered by the Act so long as it is subordinate to a
Section 3(j) of the LMRDA, 29 U.S.C. 402(j), sets forth the circumstances under which labor organizations will be “deemed to be engaged in an industry affecting commerce” under the Act. In particular, Section 3(j)(5) of the Act provides that: An intermediate labor organization is deemed “engaged in an industry affecting commerce” if it is: “a conference, general committee, joint or system board, or joint council, subordinate to a national or international labor organization, which includes a labor organization engaged in an industry affecting commerce within the meaning of any of the preceding paragraphs of this subsection, other than a State or local central body.” 29 U.S.C. 402(j)(5).
The Department proposes to revise its interpretation of Section 3(j)(5). The revised interpretation of the statute would expand the coverage of intermediate labor bodies subject to the reporting requirements of the LMRDA. Consistent with the interpretation of Section 3(j)(5) that the Department adopted in 2003, the Department proposes to clarify the definition of “labor organization . . . deemed to be engaged in an industry affecting commerce,” by interpreting the “which includes” clause of this provision as modifying “national or international labor organization.”
The Department's pre-2003 (and current) interpretation of Section 3(j)(5) came into question following the decision in
This holding conflicted with the Department's pre-2003, as well as present, interpretation.
The increase in public sector unionization since Congress enacted the 1959 LMRDA further supports the Department's proposed interpretation. The Supreme Court in
Even by the late 1970s, public sector unionism was still considered a relatively new branch of the American labor movement.
However, as the “spurt” in membership began in those decades, the rise of public-sector unions was marked by a parallel increase in state and local government spending.
From the time the statute was enacted, OLMS' interpretation of the statute excluded from LMRDA coverage intermediate bodies that represented no private sector employees and that contained no local unions that represented private sector employees. 75 FR 74936, 74944. The LMRDA was enacted in 1959, at which time states seldom permitted collective bargaining by government employees. Changed circumstances among public sector unions counsel a change in the reporting regime. The increased prevalence of public sector unions and their use of substantial monies affecting matters of great public interest, like state spending, require union financial reporting to the extent permissible under the LMRDA. Private sector union members and the public have an interest in how labor unions, including intermediate bodies, spend their union member dues. And this interest is no less great when the money is spent in ways that affect political activities, state electoral outcomes, and state budgets. Extending LMRDA coverage to intermediate bodies subordinate to covered international unions brings transparency to these activities and serves the public interest in disclosure and financial integrity.
In enacting the LMRDA, Congress intended to “eliminate or prevent improper practices” in labor organizations, protect the rights and interests of workers, and prevent union corruption. 29 U.S.C. 401(b), (c). To curb embezzlement and other improper financial activities of labor organizations, Congress required labor organizations to file detailed annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). Additionally, the reporting provisions of the LMRDA were devised to implement the basic premise of the LMRDA—that the Act was intended to safeguard democratic procedures within labor organizations and protect the basic democratic rights of union members. By mandating that labor organizations disclose their financial operations to employees they represent, Congress intended to promote union self-government, which would be advanced by union members receiving sufficient information to permit them to take effective action in regulating internal union affairs.
In particular, Section 501(a) of the LMRDA imposes a fiduciary duty on all union officers.
The Department's current interpretation of Section 3(j)(5), in place since 2010, does not fully serve the remedial purposes of the LMRDA. Union members concerned about payments to and from public sector intermediate labor organizations subordinate to a covered national or international labor organization do not have access to the quality and quantity of information available to members of unions that have historically filed the Department's annual disclosure forms. Absent such disclosures, union members know less about the governance of their unions and cannot fully monitor the spending of their dues monies. They cannot fully apprise themselves of the financial commitments and obligations of their union. They are disadvantaged in their ability to make informed decisions when electing their union officers, and they do not have detailed information about the funding decisions made by incumbent officeholders. Similarly, the public does not enjoy the same transparency as they do with other covered union bodies.
In contrast, members of unions that file LMRDA financial disclosure forms, such as the Form LM-2 Labor Organization Annual Report, have a tool that can help them detect fraud and embezzlement due to the comprehensive reporting such forms offer. The Form LM-2 is the most detailed annual financial report filed by labor organizations with OLMS. The report requires the completion of no less than 21 informational items, 47 financial items, and 20 supporting schedules. Six functional schedules require itemization, namely for individual receipts and disbursements of $5,000 or more and total receipts or disbursements to a single entity or individual that aggregate to $5,000 or
With LM-2 reporting, a unions' financial transactions are recorded, reported, and made publicly available on the internet for review. Such disclosure deters union officers and employees from committing financial fraud. Union members concerned about the expenditures of intermediate bodies that do not report as the result of the Department's policy are denied the benefits of increased transparency as well as the ability to sue for damages on the union's behalf. These benefits also include more effective member participation in union decision-making, more informed voters in union officer elections, and the deterrence and detection of fraud. Members of the public also are deprived of insight into how union money might be used to affect government spending or other issues. Unless all intermediate bodies subordinate to LMRDA-covered labor organizations are themselves subject to annual financial reporting, union financial integrity and democracy suffer.
In addition to financial reporting, LMRDA coverage brings with it a number of other benefits to union transparency, integrity, and democracy. First, the LMRDA provides union members with a “Bill of Rights,” which gives individual members protections, and the right to file suit to legally enforce them, against the union (
Moreover, the LMRDA provides full investigatory authority to the Secretary of Labor. 29 U.S.C. 521. OLMS is the front line agency responsible for enforcing the LMRDA through its criminal and civil investigations. OLMS criminal investigations may address embezzlement, deprivation of rights by violence, willful failure to file reports, filing false reports, and prohibited union office holding or employment of convicted persons. Civil investigations may include violations of union election procedures, financial disclosure requirements, and trusteeship standards. OLMS also conducts audits of union finances. OLMS investigations have previously discovered both civil and criminal violations in intermediate bodies. OLMS analyzed all 1,001 criminal cases it closed during the most recent five-year period, FY15-19. Of these cases, 57 of these unions constituted intermediate unions, which equals 5.7%. The 1,230 union audit cases closed during the same five-year period (FY15-19) were also reviewed, 65 of which involved intermediate unions. Of these, in nine cases OLMS closed the audit and opened a criminal investigation because the investigation revealed indications of fraud or embezzlement. These nine cases, out of a total of 65 intermediate union audits, means a criminal fallout rate for intermediate unions of 13.8%.
In a unionized workplace, employees may be members of a local labor organization, which represents employees with respect to terms and conditions of employment at that particular workplace. That local union is typically chartered by a national union, which in turn may be affiliated with a national federation of unions. In addition, there are city and state federations of labor organizations, international federations of labor, joint and district councils, and departments within a national federation of unions, among others.
The interrelatedness, and resulting structural complexity, of labor organizations has a number of causes. The need for collaboration among and between labor organizations with shared interests, the necessity of labor organization cohesion, the need for large-scale reform regarding certain issues, such as nation-wide wages and hours reform, the rise in multi-city or national corporations, and the growth of a global economy, have all contributed to the increase in labor organization affiliation within local, central, and national labor organizations.
Union structure, the level at which bargaining takes place and decision-making authority is held, tends to be highly centralized in most developed economies, with collective bargaining occurring at the level of an entire industry or sector. U.S. labor has traditionally been considered extremely decentralized in its structure, with most negotiations and decision-making happening at the firm level; U.S. union locals must deal with immediate market risks in the context of their company, which means keeping the jobs of their employee members at a particular company rather than effecting broader change. Complexity has emerged in union structure as the result of traditionally local-focused labor organizations attempting to scale their impact. Locals organizing as a part of a national union, locals affiliating with other locals not traditionally in the same industry, and national unions organizing into federations have been the means by which the traditionally firm-level U.S. labor movement has scaled its influence to achieve larger political or economic impact. Such changes could only otherwise have been or be achieved by fundamentally altering U.S. union structure to occur at a higher level, namely across an entire industry or sector (
This structural complexity pales in comparison to the financial complexity created by these relationships. Dues and fees are collected from members at the local level, and that money is sent on to other related organizations in the form of per capita assessments to support an increasingly complicated, sophisticated, and coordinated set of expenditures by
A local union member interested in ascertaining the end-point of his or her dues collected by the local but cast into the stream of affiliate expenditures must obtain the financial reports of the local and each affiliated labor organization— the national or international, the state level organization, the national federation, and any other labor organizations affiliated directly or indirectly with the local union. Of course, this opportunity to study and analyze one's own local union expenditures is lost if, within the chain of affiliations, one of the affiliates has not filed an annual financial report.
Given the increased complexity of union structures and finances, the ability of union members to benefit from the transparency afforded by the LMRDA should not be diminished by a labor organization's relationship to an intermediate body that does not presently file annual financial reports. Such a circumstance is akin to a parent corporation disguising its assets and expenditures by lodging them with an undisclosed subsidiary. To avoid this scenario in the context of labor organizations, the LMRDA should be interpreted, to the extent permitted by the statute's terms, so that union members have the ability to lift the cloak of structural and financial complexity, and fully understand the activities and expenditures of their local unions, their local's national affiliates, and the national organization's subordinate labor organizations.
OLMS reporting data indicates that financial transfers take place among LMRDA-covered local unions and international unions, and non-covered intermediate bodies. As explained below, private-sector members contribute an estimated maximum of $2,806,200 in per capita dues payments to their national union, which may, ultimately, make their way to non-covered intermediate unions.
The AFT, FOP, NEA, and IAFF disburse funds to their non-covered intermediate bodies, in the form of direct and indirect disbursements reported by the national or international union on Form LM-2 Schedules 15 (Representational Activities), 16 (Political Activities and Lobbying), 17 (Contributions, Gifts, and Grants), 18 (General Overhead), and 19 (Administration).
The Department identified 12 AFT intermediate bodies that do not submit LM reports. Of these, 8 receive disbursements from the AFT. Reported disbursements for Schedule 15 totaled $1,180,103, Schedule 16 totaled $566,131, and Schedule 17, 18, and 19 reported a total of $0. This results in a total of $1,746,234 in disbursements from the AFT to its non-filing intermediate bodies.
The Department has identified 46 FOP intermediate bodies that do not submit LM reports. A review of the FOP's FY 18 Form LM-2 report indicated that it did not disburse funds to any of its non-covered intermediates.
The Department has identified 42 NEA intermediate bodies that do not submit LM reports. Reported disbursements for Schedule 15 totaled $14,465,776, Schedule 16 totaled $7,210,996, Schedule 17 totaled $52,066,677, Schedule 18 totaled $0, and Schedule 19 reported a total of $656,646 in disbursements. This results in a total of $74,471,218 in disbursements from the NEA to its non-filing intermediate bodies. See Appendix Table 2.
The Department has identified 39 IAFF intermediate bodies that do not currently submit LM reports. A review of the IAFF's FY 18 Form LM-2 report indicated that it disbursed funds to two of its non-covered intermediates, as identified in Schedules 15, 16, 17, 18, and 19. IAFF's Illinois and Rhode Island intermediates only received Schedule 19 disbursements totaling $29,720.
To estimate the maximum amount of private-sector dues traced to the wholly public-sector intermediate body, the Department assumes that the amount of money being traced for any given union is equal to the total disbursements being made to non-covered intermediates of that union, unless the total amount of per capita fees collected from its LMRDA-covered locals is less than the disbursement amount, in which case the per capita fee total represents the maximum amount of money being traced. This assumption is reasonable because funds disbursed in excess of the per capita fee would no longer derive, at least potentially, from LMRDA-covered local funds.
For IAFF, FOP, and AFT, per capita fee totals exceed disbursement totals, and therefore, these three unions' disbursements to their respective non-covered intermediates is the maximum amount of potentially private-sector money that could be traced for each of them. The sum of these three figures is $1,775,954 [$29,720 + $0 + $1,746,234 = $1,775,954]. NEA, however, disbursed funds far in excess of the per capita fees; while the NEA disbursed $74,471,218 to its non-covered intermediates, it collected only $1,030,246 in per capita fees. Therefore, the amount of traceable funds is limited to the $1,030,246 in private-sector funds collected. Thus, the final total of all traceable funds is $2,806,200 [$1,775,954 + $1,030,246 = $2,806,200]. As discussed above, union members and the public at large all have an interest in disclosure regarding the flow and use of those monies.
The Department requests comments onalternative approaches, including continuing to exclude all wholly public-sector intermediate labor organizations from coverage and any approaches that could lessen the costs imposed by the proposed rulemaking. As discussed more fully below, the Department also
Under Executive Order (E.O.) 12866, the Office of Management and Budget (OMB)'s Office of Information and Regulatory Affairs determines whether a regulatory action is significant and, therefore, subject to the requirements of the E.O. and review by OMB. 58
E.O. 13563 directs agencies to propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; the regulation is tailored to impose the least burden on society, consistent with achieving the regulatory objectives; and in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. E.O. 13563 recognizes that some benefits are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitatively values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.
This proposed rule is expected to be an E.O. 13771 regulatory action. We estimate that it would impose $4,422,042 in annualized costs at a 7% discount rate, discounted to a 2016 equivalent, over a perpetual time horizon. The Department requests comment on all aspects of its analysis, including whether there are additional benefits or costs and whether there are any approaches that could lessen the costs imposed by the proposed rulemaking.
As stated in the preamble, intermediate bodies are labor organizations that are subordinate to a covered national or international labor organization that includes a union that represents private sector workers. Using data from the websites of the most likely national/international unions affected by this proposed rule (the American Federation of Teachers (AFT), Fraternal Order of Police (FOP), International Association of Firefighters (IAFF), and the National Education Association (NEA)), the Department estimates that there would be 139 total intermediate bodies affected by this rule (
As estimated in the most recently approved ICR, pursuant to the PRA, the average form LM-3 filer spends approximately 103 hours on average to fill out the report.
In addition to filling out either the LM-2 form or the LM-3 form, each of these 139 intermediate labor organizations would be responsible for filing a Form LM-1 Labor Organization Information Report. Each intermediate body would incur a one-time, first-year Form LM-1 cost. The most recent Information Collection Request (ICR) estimated that Form LM-1 filers would spend approximately 55 minutes on average per report. It is assumed that employees responsible for filling out this Form LM-1 report would be a secretary or treasurer spending 50 percent of 0.917 hours and the president of an intermediate body spending the other 50 percent of 0.917 hours. The weighted average hourly wage for LM-1 filers is $23.45. To account for fringe benefits and overhead costs, the average hourly wage has been doubled, so the fully loaded hourly wage is $46.90 (= $23.45 × 2). The total cost for the 139 filers to complete the Form LM-1 is estimated to be $5,978.01 (= $46.90 × 139 filers × 0.917 hours) and $43.01 per filer.
Regulatory familiarization costs represent direct costs to intermediate bodies associated with reviewing the new regulation. The Department calculated this cost by multiplying the estimated time to review the rule by the hourly compensation of the president of an intermediate body. Using the same
The Department emphasizes that the estimated costs are averages. The Department expects that the costs for intermediate bodies with higher total receipts will be greater and the costs for intermediate bodies with smaller total receipts will be less. The Department requests comment on its cost estimates, including what it costs unions of varying sizes to complete the LM-2 and LM-3 forms and whether those costs are less for unions with smaller total receipts.
Finally, the proposed rule would also subject these public sector intermediate bodies to other provisions of the LMRDA, as noted above. While the Department believes application of these other LMRDA provisions is beneficial, the Department does not anticipate that making those provisions applicable to the public sector intermediate bodies affected by this rule will materially increase costs. The Department invites comment on whether application on all aspects of its cost analysis, including whether application of non-Title II provisions of the LMRDA will result in material costs.
For all 139 intermediate bodies, the expected first-year costs would be $4,256,373.98 (= $4,128,753 + $120,534.72 + $5,978.01 + $1,108.25). In the subsequent years, the total cost would be $4,249,287.72 (= $4,128,753 + $120,534.72). The 10-year annualized cost is expected to be $4,250,094 at a 3 percent discount rate and $4,250,231 at a 7 percent discount rate. The annualized perpetual costs at a 7 percent discount rate are expected to be $4,422,042.
As explained more fully above, the Department proposes this rulemaking in order to more fully implement Congress' goals, in passing the LMRDA, to “eliminate or prevent improper practices” in labor organizations, protect the rights and interests of workers, and prevent union corruption. 29 U.S.C. 401(b), (c). To curb embezzlement and other improper financial activities of labor organizations, Congress required labor organizations to file detailed annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). The reporting provisions of the LMRDA were devised to implement the basic premise of the LMRDA—that the Act was intended to safeguard democratic procedures within labor organizations and protect the basic democratic rights of union members. By mandating that labor organizations disclose their financial operations to the public and the employees they represent, Congress intended to promote union self- government, which would be advanced by union members receiving sufficient information to permit them to take effective action in regulating internal union affairs. The Department is considering this rule in order to expand the benefits of such labor union financial transparency to members of public-sector intermediate labor unions.
Additionally, the Department proposes such expanded labor organization coverage now, as the Department believes that the increased prevalence of public sector unions and the potential for corruption within those unions justifies requiring union financial reporting to the maximum extent permissible under the LMRDA. The LMRDA was enacted in 1959, at which time states seldom permitted collective bargaining by government employees. Changed circumstances among public sector unions counsel a change in the reporting regime. The increased prevalence of public sector unions and their use of substantial monies affecting matters of great public interest, like state spending, require union financial reporting to the extent permissible under the LMRDA. Private sector union members and the public have an interest in how labor unions, including intermediate bodies, spend their union member dues. And this interest is no less great—and possibly greater—when the money is spent in ways that affect political activities, state electoral outcomes, and state budgets. Extending LMRDA coverage to intermediate bodies subordinate to covered international unions brings transparency to these activities and serves the public interest in disclosure and financial integrity. As mentioned above, 5.7% of all criminal cases in the past five years involved intermediate bodies. Similarly, 13.8% of audits of intermediate bodies revealed evidence of criminal activity, requiring the opening of a criminal investigation.
The Department believes that the benefits of the proposed rule outweigh the costs, although the benefits resist quantification. The Department requests comment on its analysis, including whether any of the benefits can be quantified and whether other approaches might lower the costs imposed by the rule.
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601
Agencies must perform a review to determine whether a proposed or final rule would have a significant economic impact on a substantial number of small entities.
The Department conducted this initial regulatory flexibility analysis to aid stakeholders in understanding the small entity impacts of the proposed rule and to obtain additional information on the small entity impacts. The Department invites interested persons to submit comments on the number of small entities affected by the proposed rule's requirements, the compliance cost estimates, and whether alternatives exist that would reduce the burden on small entities.
As explained more fully in the preamble, the Department is considering this rule in order to more fully
Additionally, the Department proposes such expanded labor organization coverage, now, as the Department believes that the increased prevalence of public sector unions and the potential for corruption within those unions justifies requiring union financial reporting to the maximum extent permissible under the LMRDA. The LMRDA was enacted in 1959, at which time states seldom permitted collective bargaining by government employees. Changed circumstances among public sector unions counsel a change in the reporting regime. The increased prevalence of public sector unions and their use of substantial monies affecting matters of great public interest, like state spending, require union financial reporting to the extent permissible under the LMRDA. Private sector union members and the public have an interest in how labor unions, including intermediate bodies, spend their union member dues. And this interest is no less great—and possibly greater—when the money is spent in ways that affect political activities, state electoral outcomes, and state budgets. Extending LMRDA coverage to intermediate bodies subordinate to covered international unions brings transparency to these activities and serves the public interest in disclosure and financial integrity. As mentioned above, OLMS finds civil and criminal violations in all tiers of labor unions, including intermediate bodies. During the immediate five-year period, 5.7% of OLMS criminal investigations concerned intermediate unions. Further, the criminal fallout rate for intermediate bodies during this same period was 13.8%.
Congress enacted the LMRDA after an extensive investigation of “the labor and management fields . . . [found] that there ha[d] been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct. . . .” 29 U.S.C. 401(b). Congress intended the Act to “eliminate or prevent improper practices” in labor organizations, to protect the rights and interests of employees, and to prevent union corruption. 29 U.S.C. 401(b), (c).
As part of the statutory scheme designed to accomplish these goals, the Act required labor organizations to file annual financial reports with the Secretary of Labor. 29 U.S.C. 431(b). Congress sought full and public disclosure of a labor organization's financial condition and operations in order to curb embezzlement and other improper financial activities by union officers and employees. See S. Rep. No. 86-187 (1959), reprinted in 1 NLRB, Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 398-99.
Pursuant to the Act, labor organizations must file reports containing information such as assets, liabilities, receipts, salaries, loans to officers, employees, members or businesses and other disbursements “in such detail as may be necessary accurately to disclose [their] financial condition and operations for [the] preceding fiscal year.” 29 U.S.C. 431(b). The Department of Labor's statutory authority is set forth in sections 201 and 208 of the LMRDA, 29 U.S.C. 431, 438. Section 208 of the LMRDA provides that the Secretary of Labor shall have authority to issue, amend, and rescind rules and regulations prescribing the form and publication of reports required to be filed under Title II of the Act and such other reasonable rules and regulations as he may find necessary to prevent the circumvention or evasion of the reporting requirements. 29 U.S.C. 438. Section 201 sets out the substantive reporting obligations.
This proposed rule would expand the Department's interpretation concerning the scope of labor organization coverage under the LMRDA, pursuant to Sections 3(i) and (j) of the Act, 201 29 U.S.C. 402. Under the revised statutory interpretation, covered intermediate labor bodies would not have to have private sector members to be covered under the LMRDA; rather, they would need only to be subordinate to a national or international labor organization that includes a union that represents private sector workers. See
As stated in the Regulatory Impact Analysis (RIA), this rule would impact 139 intermediate bodies of labor unions, which are labor organizations that are subordinate to a national or international labor organization that represents private sector workers (NAICS 813930). According to the Small Business Administration (SBA), organizations under NAICS 813930 are considered small entities if they have average annual receipts of less than $7.5 million.
This proposed rule would require the intermediate bodies affected to file the Form LM-1 in the first year. In addition,
Regulatory familiarization costs represent direct costs to intermediate bodies associated with reviewing the new regulation. The Department calculated this cost by multiplying the estimated time to review the rule by the hourly compensation of $46.90 for the president of an intermediate body. The Department estimates that the president of an intermediate body would spend 10 minutes to review the rule. Therefore, the one-time familiarization cost for all 139 intermediate bodies is estimated to be $1,108.25 (= $46.90 × 139 × 0.17 hours) or $7.97 per small entity in the first year.
It takes approximately 55 minutes on average to fill out a Form LM-1 report and 530 hours on average to fill out a Form LM-2 report, and 103 hours on average to fill out an LM-3 report. The Department estimated a fully loaded hourly wage of $46.90 for filing LM-1 report and $67.74 for filing a Form LM-2 report, and $48.76 for filing LM-3 report.
Using the average hour estimates for LM-3 filers, the costs in Year 1 for the intermediate bodies with annual receipts below $250,000 is estimated to be $43.01 (= $46.90 × 0.917 hours) for LM-1 report, $5,022.28 (= $48.76 × 103 hours) for LM-3 report, and $7.97 for regulatory familiarization. Therefore, the total cost in Year 1 for intermediate bodies with annual receipts below $250,000 is $5,073.26 ($43.01 + $5,022.28 + $7.97) on average per filer. The total cost in the subsequent years is $5,022.28 per filer per year on average. Out of 88 small business filers, there are 24 filers with revenue below $250,000. For 15 of these 24 small business entities, their first year cost is assumed to be higher than 3 percent of their annual revenue.
Using the average hour estimates for LM-2 filers, the costs in Year 1 for the intermediate bodies with annual receipts between $250,000 and $7.5 million is estimated to be $43.01 on average (= $46.90 × 0.917 hours) for the LM-1 report, $35,902.20 (= $67.74 × 530 hours) on average for the LM-2 report, and $7.97 for regulatory familiarization. Therefore, the total cost in Year 1 for the intermediate bodies with annual receipts between $250,000 and $7.5 million is $35,943.18 on average ($43.01 + $35,902.20 + $7.97). The total cost in the subsequent years is $35,902.20 on average per year. Out of 88 small business filers, there are 64 filers with annual revenue between $250,000 and $7.5 million. For 37 of out 64 small business filers, the first year cost is assumed to be more than 3 percent of their annual revenue.
A threshold of 3 percent of revenues has been used in prior rulemakings for the definition of significant economic impact. See,
Therefore, out of the 88 small entities, the small entities affected by a significant impact of more 3% are the 15 out of 24 LM-3 filers and 37 out of 64 LM-2 filers, for a total of 52 filers. This constitutes 59.09% of the 88 filers [52/88 × 100 = 59.09%], which falls above the 20% substantiality threshold being used for this NPRM.
The following chart further breaks down the expected burden on small entities, by revenue:
The Department is not aware of any relevant Federal rules that conflict with this NPRM.
The Department believes that qualitative benefits for union members and the public associated with greater transparency for certain public-sector intermediate labor organizations—and the benefits from application of the rest of the LMRDA—outweighs the marginal burden imposed on such organizations. However, the Department will consider continuing to exclude all wholly public-sector intermediate labor organizations from coverage. That option would impose no changes and thus maintain the status quo of no disclosure by these entities. The Department seeks public feedback on that and any other alternatives, including any approaches that could lessen the costs imposed by the proposed rulemaking.
In particular, the Department seeks comment on whether to raise the threshold for filing the LM-2 form from $250,000 in annual receipts for intermediate bodies covered by the proposed rulemaking.
This NPRM provides for no differing compliance requirements and reporting requirements for small entities, other than the simplified Form LM-3 report for those unions with fewer than $250,000 in total annual receipts.
This NPRM was drafted to clearly state the compliance and reporting requirements for all small entities subject to this proposed rule.
This proposed rule will not include any Federal mandate that may result in increased expenditures by State, local, and tribal governments, in the aggregate, of $100 million or more, or in increased expenditures by the private sector of $100 million or more.
The Department estimates that 139 intermediate unions would become subject to the LMRDA as a result of the proposed rule and will be required to file annual financial disclosure reports. The Department derives this estimate from a review of the non-filing intermediate bodies associated with the four national/international labor organizations likely affected by this rule: The American Federation of Teachers (AFT), Fraternal Order of Police (FOP), International Association of Firefighters (IAFF), and the National Education Association (NEA).
Initially, each of these 139 intermediate labor organizations would be responsible to file a Form LM-1 Labor Organization Information Report. The most recent ICR estimated that Form LM-1 filers would spend approximately 55 minutes per report (see Form LM-1 Instructions), which results in a total increase of 7,645 additional Form LM-1 burden minutes (139 * 55 minutes) or approximately 127 additional burden hours. The additional 139 Form LM-1 filing intermediate bodies would result in a total of 352 Form LM-1 reports filed (139 + 213), as a result of the proposed rule.
Additionally, OLMS has determined that 24 of these newly-filing intermediate bodies would file an annual Form LM-3 Labor Organization Annual Report, as, based upon their most recent IRS Form 990 report, they would not exceed the $250,000 filing threshold for the more detailed Form LM-2 report. The previous ICR estimated that Form LM-3 filers would spend approximately 103 hours per report (see Form LM-3 Instructions), which results in a total increase of 2,472 additional Form LM-3 burden hours (24 * 103). The additional 24 Form LM-3 filing intermediate unions would result in a total of 12,063 Form LM-3 reports filed (24 + 12,039).
Based upon the most recent Form 990 data, the Department determined that the remaining 115 entities would exceed the $250,000 filing threshold and thus be required to file the Form LM-2 annual financial disclosure report. (Note: For the 20 entities in which the Department could not locate their most recent IRS Form 990, the Department assumes that each would file the more detailed Form LM-2 report.) The previous ICR estimated that Form LM-2 filers would spend approximately 530 hours per report (see Form LM-2 Instructions), which results in a total increase of 60,950 additional Form LM-2 burden hours (115 * 530), and the additional 115 Form LM-2 filing intermediate unions would result in a total of 6,188 Form LM-2 reports filed (115 + 6,073).
As the proposed rule requires an information collection, the Department is submitting, contemporaneous with the publication of this notice, an information collection request (ICR) to revise the Paperwork Reduction Act (PRA) clearance to address the clearance term. The ICR includes updated Forms LM-1, LM-2, LM-3, and LM-4, which the Department revised to make clear that wholly public-sector intermediate unions must complete and submit such forms, consistent with this proposed rule. A copy of this ICR, with applicable supporting documentation, including among other items a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the
This proposed rule is not a major rule as defined by section 804 of the Small Business Regulatory Enforcement Fairness Act of 1996. This rule will not result in an annual effect on the economy of $100,000,000 or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of the United States-based companies to compete with foreign-based companies in domestic and export markets.
Labor management relations.
Accordingly, for the reasons provided above, the Department proposes to amend part 401 of title 29, chapter IV of the Code of Federal Regulations as set forth below:
Secs. 3, 208, 301, 401, 402, 73 Stat. 520, 529, 530, 532, 534 (29 U.S.C. 402, 438, 461, 481, 482); Secretary's Order No. 03-2012, 77 FR 69376, November 16, 2012; § 401.4 also issued under sec. 320 of Title III of the Bankruptcy Reform Act of 1978, Pub. L. 95-598, 92 Stat. 2678.
(a) Any organization that exclusively represents public sector employees, is composed solely of labor unions that exclusively represent public sector employees, or is a conference, general committee, joint or system board, or joint council subordinate to a national or international union that is composed solely of public sector labor unions is not a `labor organization' covered by the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA).
(b) Any national or international union or any conference, general committee, joint or system board, or joint council that includes one or more local unions that are “labor organizations engaged in an industry affecting commerce' is a `labor organization' covered by the LMRDA.
(c) Any conference, general committee, joint or system board, or joint council that is subordinate to a national or international labor organization that is a labor organization `engaged in an industry affecting commerce' is a `labor organization' covered by the LMRDA.
The following appendix will not appear in the Code of Federal Regulations.
Coast Guard, DHS.
Notice of proposed rulemaking.
The Coast Guard is proposing to establish a temporary safety zone for certain waters in Isle of Wight Bay. This action is necessary to provide for the safety of personnel and vessels at and immediately adjacent to the Harry W. Kelley Memorial (US-50) Bridge during submarine electrical cable replacement operations which will occur from January 27, 2020, through February 3, 2020, daily from 6 a.m. until 10 p.m. This proposed rulemaking would prohibit persons and vessels from being in the safety zone unless authorized by the Captain of the Port Maryland—National Capital Region or a designated representative. We invite your comments on this proposed rulemaking.
Comments and related material must be received by the Coast Guard on or before January 2, 2020.
You may submit comments identified by docket number USCG-2019-0897 using the Federal eRulemaking Portal at
If you have questions about this proposed rulemaking, call or email Petty Officer Courtney Perry, Sector Maryland—NCR, Waterways Management Division, U.S. Coast Guard; telephone 410-576-2570, email
The Maryland Department of Transportation notified the Coast Guard that it will be conducting an installation of submarine cables from January 27, 2020, through February 3, 2020, within the navigation channel at the Harry W. Kelley Memorial (US-50) Bridge located in Ocean City, MD. The installation operations will be conducted at all hours during this time period. Vessels will not be able to use the navigation channel to pass through the draw span, daily from January 27, 2020, through February 3, 2020, from 6 a.m. until 10 p.m. Divers will be working from a barge and floating platforms which will impede 75 to 125 feet of the channel. On site marine equipment and vessels will be operated by Covington Machine and Welding, Inc. of Annapolis, MD or its subcontractors. Vessels engaged in work for this project will utilize marine band radio VHF-FM channel 13. The navigable waters outside of the navigation channel, in the vicinity of the bridge, will be unobstructed during this time and may be used at mariners' discretion. The COTP Maryland—National Capital Region has determined potential hazards associated with the installation of submarine electrical cables would be a safety concern for anyone at and immediately adjacent to the bridge.
The purpose of this rulemaking is to ensure the safety of vessels and the navigable waters at and immediately adjacent to the Harry W. Kelley Memorial (US-50) Bridge during this project. The Coast Guard is proposing this rulemaking under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231).
The Coast Guard is proposing to establish a safety zone January 27, 2020, through February 3, 2020 from 6 a.m. until 10 p.m. The safety zone will cover all navigable waters of the Isle of Wight Bay encompassed by a line connecting the following points beginning at 38°19′57.2″ N, 075°05′26.0″ W, thence to 38°19′56.9″ N, 075°05′24.8″ W, thence to 38°19′55.6″ N, 075°05′25.3″ W, thence to 38°19′55.9″ N, 075°05′26.6″ W, and back to the beginning point, located at Ocean City, MD. The regulated area is approximately 100 feet in width and 180 feet in length.
This regulation would require that the bridge owner post a sign facing the northern and southern approaches of the navigation channel labeled “CABLE WORK—DANGER—STAY AWAY” affixed to the sides of the on-scene marine equipment and vessels operating within the area of the safety zone. This provides on-scene notice of the safety zone. This notice will consist of a diamond shaped sign (minimum 4 feet by 4 feet) with a 3-inch orange retro reflective border. The word “DANGER” will be 10 inch black block letters centered on the sign with the words “CABLE WORK” and “STAY AWAY” in 6 inch black block letters placed above and below the word “DANGER,” respectively, on a white background.
The COTP will notify the public that the safety zone will be enforced by all appropriate means to the affected segments of the public, including publication in the
The duration of enforcement of the zone is intended to ensure the safety of vessels and these navigable waters throughout the submarine electrical cable installation. Except for marine equipment and vessels operated by Covington Machine and Welding, Inc. or its subcontractors, no vessel or person will be permitted to enter the safety zone without permission from the COTP or a designated representative. The regulatory text we are proposing appears at the end of this document.
We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.
This regulatory action determination is based on the size, duration, and the time-of-year of the safety zone. The proposed submarine cable installation is being planned during the winter/non-peak season, when vessel transits in this section of the federal navigation channel are unlikely. Vessel traffic not required to use the navigation channel will be able to safely transit around the safety zone. This safety zone would impact a small designated area of Isle of Wight Bay for approximately 8 days and coincides with the non-peak season for recreational boating.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section IV.A above, this proposed rule will not have a significant economic impact on any vessel owner or operator.
If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule will have a significant economic, please submit a comment (see
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 proposed rule. If this rule were to affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the
This proposed rule would 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 proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this proposed 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. If you believe this proposed rule has implications for federalism or Indian tribes, please call or email the person listed in the
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 proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this proposed rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination 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 proposed rule involves a safety zone lasting approximately eight days that would prohibit use of navigable waters at or adjacent to the Harry W. Kelley Memorial (US-50) Bridge. Normally such actions are categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01. A preliminary Record of Environmental Consideration supporting this determination is available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the
We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
Documents mentioned in this NPRM as being available in the docket, and all public comments, will be in our online docket at
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security Measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard is proposing to amend 33 CFR part 165 as follows:
46 U.S.C. 70034, 70051; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(b)
(c)
(2) To seek permission to enter, contact the COTP or the COTP's representative by telephone number 410-576-2693 or on Marine Band Radio VHF-FM channel 16 (156.8 MHz). Those in the safety zone must comply with all lawful orders or directions given to them by the COTP or the COTP's designated representative.
(d)
(e)
(f)
Coast Guard, DHS.
Notice of proposed rulemaking.
The Coast Guard is proposing to revise an existing moving safety zone for San Juan Harbor, San Juan, Puerto Rico. The proposed revisions would expand the existing moving safety zone to include an adjacent berthing; add a 50-yard radius around moored liquefied natural gas and liquefied petroleum gas carriers; and update terminal names. This action would continue to prohibit persons and vessels from entering the safety zone, unless authorized by the Captain of the Port San Juan or a designated representative. This action is necessary to better meet the safety and security needs of San Juan Harbor. We invite your comments on this proposed rulemaking.
Comments and related material must be received by the Coast Guard on or before January 16, 2020.
You may submit comments identified by docket number USCG-2019-0460 using the Federal eRulemaking Portal at
If you have questions about this proposed rulemaking, call or email Lieutenant Commander Pedro Mendoza, Sector San Juan Prevention Department, Waterways Management Division, U.S. Coast Guard; telephone 787-729-2374, email
The existing regulation in 33 CFR 165.754, contains a moving safety zone
While the Coast Guard completes the rulemaking process for this NPRM, we published two temporary final rules (TFR) under the same docket number (USCG-2019-0686) and both entitled “Safety Zone; San Juan Harbor, San Juan, PR.” These TFRs established temporary safety zones for navigable waters within an area of one half mile around each LNG carrier or LPG carrier (collectively referred to as LG carriers) entering and departing San Juan Harbor. The TFRs also established a 50-yard radius around each vessel when moored at the Puma Energy dock, Cataño Oil dock, or Wharf B. The first TFR was published on September 13, 2019 (see 84 FR 48278), and was effective from August 23, 2019 until November 15, 2019. The second TFR was published on October 31, 2019 (84 FR 59726), and is effective until February 28, 2020.
Due to their cargoes, size, draft, and the local channel restrictions, LNG carriers must use of the center of navigation channels for safe transit. The COTP San Juan has determined that potential hazards associated with LNG carriers would be a safety concern for anyone within an area of one half mile during their transit and a 50-yard radius while moored. The purpose of this rulemaking is to ensure the safety of vessels and the navigable waters within one half mile during the transit of LG carriers through San Juan Harbor and a 50-yard radius while the LG carriers are moored at Puma Energy dock, Cataño Oil dock, or Wharf B. The proposed rule would safeguard vessels at an adjacent berthing location, Puerto Nuevo Berth B, which supplies LNG to the Puerto Rico Electric Power Authority (PREPA) and other industrial sectors.
These regulations are necessary for the protection of life and property on the navigable waters of the United States. The Coast Guard is proposing this rulemaking under authority in 46 U.S.C. 70034.
The proposed rule would amend the existing moving safety zone in 33 CFR 165.754 to include LNG carriers, in addition to LPG carriers. We are proposing to change the terminal names, “Gulf Refinery Oil dock or Catano Oil dock” currently referenced in § 165.754 to “Puma Energy Dock, Cataño Oil dock, and Wharf B” to reflect current ownership. The current safety zone is only enforced when LPG carriers are transiting the waters of the San Juan Harbor. However, the moving safety zone in the proposed rule would remain in effect while LG carriers are transiting through the Harbor, and when the carriers are moored. A 50-yard radius is proposed to be added around an LG carriers when these vessels are moored at the terminals. Vessels may seek permission from the COTP to enter, transit through, anchor in, or remain within the safety zone. The public would be notified of the safety zone by a Marine Broadcast Notice to Mariners, which would be issued to the maritime community before the safety zone is activated.
The proposed safety zone would continue to prohibit persons and vessels from entering the safety zone unless authorized by the Captain of the Port San Juan or a designated representative. The new LNG facility at Wharf B expects to receive one carrier every three days with ship-to-ship transfer operations lasting approximately 18 hours in duration. We do not anticipate this would significantly affect current port operations or navigation. Neighboring facilities would be able to safely continue operations when a LG carrier is transiting, moored, or engaged in transfer operations. The proposed regulatory text appears at the end of this document.
As noted above, we received approximately 20 comments, addressing 25 concerns, at the public meetings. A discussion of the comments and responses follows.
Two commenters raised concerns about the source of the LNG. Although, this comment is outside of the scope of this proposed rulemaking, New Fortress Energy advised the Coast Guard that the gas will be sourced from a variety of places including Trinidad and Europe. It is unlikely to be sourced from fracking.
Four commenters asked questions about the specific operations being conducted at the new facility. Although, this comment is outside of the scope of this proposed rulemaking, New Fortress Energy advised they anticipate one LNG carrier to arrive every three days and that each ship-to-ship transfer would take around 18 hours. The gas would then be loaded to trucks to be delivered to another primary or secondary power source.
Three commenters raised concerns about changes to operations within San Juan Harbor. Maritime operations within San Juan Harbor are not expected to be hindered by the proposed safety zone, due to its limits in size and duration during the transit and mooring of each LNG vessel. Neighboring facilities will still be able to conduct operations as normal during each LNG transfer.
Two commenters raised concerns about safety, specifically risk for explosion. The Coast Guard has reviewed dispersion rates and explosive limits of the facility's operation and has set the safety zone accordingly to reduce the risk of such an event. Additionally, New Fortress Energy has considered this issue and determined that the effects of an explosion, which is considered highly unlikely, would be contained within the property lines because there is no landed LNG storage at the facility.
Four commenters raised concerns about not having access to certain documents including the Letter of Intent (LOI) and Waterway Suitability Assessment (WSA). These documents contain business and security sensitive information and would need to be requested through the Freedom of Information Act (FOIA). FOIA requests may be submitted in writing via mail or overnight carrier to: Commandant (Cg-611), ATTN FOIA Officer, US Coast Guard Stop 7710, 2703 Martin Luther King Jr Ave. SE, Washington, DC 20593-7710.
Five commenters asked questions about the Coast Guard's rulemaking process. We explained our rulemaking process including the purpose of the
One commenter raised concern about climate change in Puerto Rico. This comment is outside the scope of this rulemaking.
One commenter asked about the relationship between New Fortress Energy and the Coast Guard. The Coast Guard shares the same relationship and partnership with all of our stakeholders equally and serves as regulators.
Two commenters asked about the project cost, funding source, and consumer savings. This comment is outside the scope of this proposed rulemaking; however, this project has received no public funding and the cost is in the hundreds of millions.
One commenter asked if New Fortress Energy is building any other facilities in Puerto Rico. This comment is outside the scope of this proposed rulemaking; however, New Fortress Energy does not intend to build other facilities in Puerto Rico at this time.
We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.
This regulatory action determination is based on the size, available exceptions to the enforcement of the safety zone, and notice to mariners. The regulated area will impact small designated areas of navigable channels within San Juan Harbor. The rule will allow vessels to seek permission to enter, transit through, anchor in, or remain within the safety zone. Additionally, notifications to the marine community will be made through Local Notice to Mariners, Broadcast Notice to Mariners via VHF-FM marine channel 16, and on-scene representatives. The notifications will allow the public to plan operations around the affected areas.
The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section IV.A above, this proposed rule would not have a significant economic impact on any vessel owner or operator.
If you think that your business, organization, or governmental jurisdiction qualifies as a small entity, and that this rule would have a significant economic impact on it, please submit a comment (see
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 proposed 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
This proposed rule would 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 proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this proposed rule does not have tribal implications under Executive Order 13175 (Consultation and Coordination with Indian Tribal Governments) because it would 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. If you believe this proposed rule has implications for federalism or Indian tribes, please contact the person listed in the
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 proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this proposed rule under Department of Homeland Security Directive 023-01 and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination 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 proposed rule involves a safety zone that would establish a 50-yard radius around transiting and moored liquefied gas carriers. Normally such actions are categorically excluded from further review under paragraph L60(a) in Table 3-1 of U.S. Coast Guard Environmental Planning Implementing Procedures. A preliminary Record of Environmental Consideration supporting this determination will be available in the docket where indicated under
The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the
We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.
We encourage you to submit comments through the Federal eRulemaking Portal at
We accept anonymous comments. All comments received will be posted without change to
Documents mentioned in this NPRM as being available in the docket, and all public comments, will be in our online docket at
Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways.
For the reasons discussed in the preamble, the Coast Guard is proposing to amend 33 CFR part 165 as follows:
46 U.S.C. 70034, 70051; 33 CFR 1.05-1, 6.04-1, 6.04-6, and 160.5; Department of Homeland Security Delegation No. 0170.1.
(a)
(1) The waters around liquefied gas (LG) carriers entering San Juan Harbor in an area one half mile around each vessel, beginning one mile north of the Bahia de San Juan Lighted Buoy #3, in approximate position 18°28′17.8″ N, 066°07′36.4″ W and continuing until the vessel is moored at the Puma Energy dock, Cataño Oil dock, or Wharf B in approximate position 18°25′47″ N, 066°6′32″ W. All coordinates are North American Datum 1983.
(2) The waters around LG carriers in a 50-yard radius around each vessel when moored at the Puma Energy dock, Cataño Oil dock, or Wharf B.
(3) The waters around LG carriers departing San Juan Harbor in an area one half mile around each vessel beginning at the Puma Energy Dock, Cataño Oil dock, or Wharf B in approximate position 18°25′47″ N, 066°6′32″ W when the vessel gets underway, and continuing until the stern passes the Bahia de San Juan Lighted Buoy #3, in approximate position 18°28′17.8″ N, 066°07′36.4″ W. All coordinates referenced use datum: NAD 83.
(b)
(2) Persons desiring to transit the area of the safety zones may contact the COTP San Juan or his designated representative to seek permission to transit the area. If permission is granted, all persons and vessels must comply with the instructions of the COTP or his designated representative.
(3) Vessels encountering emergencies, which require transit through the moving safety zone, should contact the Coast Guard patrol craft or Duty Officer on VHF Channel 16. In the event of an emergency, the Coast Guard patrol craft may authorize a vessel to transit through the safety zone with a Coast Guard designated escort.
(4) The Captain of the Port and the Duty Officer at Sector San Juan, Puerto Rico, can be contacted at telephone number 787-289-2041. The Coast Guard Patrol Commander enforcing the safety zone can be contacted on VHF-FM channels 16 and 22A.
(5) Coast Guard Sector San Juan will, when necessary and practicable, notify the maritime community of periods during which the safety zones will be in effect by providing advance notice of scheduled arrivals and departure of liquefied gas carriers via a Marine Broadcast Notice to Mariners.
(6) All persons and vessels must comply with the instructions of on-scene patrol personnel. On-scene patrol personnel include commissioned, warrant, or petty officers of the U.S. Coast Guard. Coast Guard Auxiliary and local or state officials may be present to inform vessel operators of the requirements of this section, and other applicable laws.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve the State Implementation Plan (SIP) submission provided by the State of Florida, through the Florida Department of Environmental Protection (FDEP), through a letter dated September 18, 2018, for inclusion into the Florida SIP. This proposal pertains to the infrastructure requirements of the Clean Air Act (CAA or Act) for the 2015 8-hour ozone national ambient air quality standards (NAAQS). Whenever EPA promulgates a new or revised NAAQS, the CAA requires that each state adopt and submit a SIP for the implementation, maintenance, and enforcement of each NAAQS promulgated by EPA. FDEP certified
Written comments must be received on or before January 16, 2020.
Submit your comments, identified by Docket ID No. EPA-R04-OAR-2019-0148 at
Tiereny Bell, Air Regulatory Management Section, Air Planning and Implementation Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia 30303-8960. The telephone number is (404) 562-9088. Ms. Bell can also be reached via electronic mail at
On October 1, 2015 (published on October 26, 2015,
This rulemaking is proposing to approve portions of Florida's September 18, 2018
Section 110(a) of the CAA requires states to submit SIPs to provide for the implementation, maintenance, and enforcement of a new or revised NAAQS within three years following the promulgation of such NAAQS, or within such shorter period as EPA may prescribe. Section 110(a) imposes the obligation upon states to make a SIP submission to EPA for a new or revised NAAQS, but the contents of that submission may vary depending upon the facts and circumstances. In particular, the data and analytical tools available at the time the state develops and submits the SIP for a new or revised NAAQS affects the content of the submission. The contents of such SIP submissions may also vary depending upon what provisions the state's existing SIP already contains.
More specifically, section 110(a)(1) provides the procedural and timing requirements for SIPs. Section 110(a)(2) lists specific elements that states must meet for “infrastructure” SIP requirements related to a newly established or revised NAAQS. As mentioned above, these requirements include basic SIP elements such as requirements for monitoring, basic program requirements and legal authority that are designed to assure attainment and maintenance of the NAAQS. The requirements of section 110(a)(2) are listed below and summarized in Section IV and in EPA's September 13, 2013, memorandum entitled “Guidance on Infrastructure State Implementation Plan (SIP) Elements under Clean Air Act Sections 110(a)(1) and 110(a)(2).”
EPA is acting upon the SIP submission from Florida that addresses the infrastructure requirements of CAA sections 110(a)(1) and 110(a)(2) for the 2015 8-hour ozone NAAQS. Whenever EPA promulgates a new or revised NAAQS, CAA section 110(a)(1) requires states to make SIP submissions to provide for the implementation, maintenance, and enforcement of the NAAQS, commonly referred to as an “infrastructure SIP.” These infrastructure SIP submissions must meet the various requirements of CAA section 110(a)(2), as applicable. Due to ambiguity in some of the language of CAA section 110(a)(2), EPA believes that it is appropriate to interpret these provisions in the specific context of acting on infrastructure SIP submissions. EPA has previously provided comprehensive guidance on the application of these provisions through a guidance document for infrastructure SIP submissions and through regional actions on infrastructure submissions.
The Florida infrastructure SIP submission addresses the provisions of sections 110(a)(1) and (2) as described below.
1. 110(a)(2)(A)
Additionally, the following sections of the Florida Statutes provide FDEP the authority to conduct certain actions in support of this infrastructure element. Section 403.061(9), Florida Statutes, authorizes FDEP to “[a]dopt a comprehensive program for the prevention, control, and abatement of pollution of the air . . . of the state;” and Section 403.8055, Florida Statutes, authorizes FDEP to “[a]dopt rules substantively identical to regulations adopted in the
EPA has made the preliminary determination that the provisions contained in these SIP-approved regulations and sections of the Florida Statutes satisfy section 110(a)(2)(A) for the 2015 8-hour ozone NAAQS in the State.
2. 110(a)(2)(B)
3. 110(a)(2)(C)
EPA has made the preliminary determination that Florida's SIP and practices are adequate for program enforcement of control measures, regulation of minor sources and modifications, and PSD preconstruction permitting of major sources and major modifications.
4. 110(a)(2)(D)(i)(I) and (II)
Florida's SIP contains provisions for the State's PSD program that reflects the required structural PSD requirements to satisfy prong 3 of section 110(a)(2)(D)(i)(II). Florida addresses prong 3 through F.A.C. 62-204, 62-210, and 62-212 for the PSD and NNSR programs. EPA has made the preliminary determination that Florida's SIP and practices are adequate for intestate transport for PSD permitting of major sources and major modifications related to the 2015 8-hour ozone NAAQS for section 110(a)(2)(D)(i)(II) (prong 3).
Florida's submission relied on the State's SIP-approved regional haze program to address the prong 4 requirements of section 110(a)(2)(D)(i) for the 2015 8-hour ozone NAAQS.
5. 110(a)(2)(D)(ii)
6. 110(a)(2)(E)
In support of sub-elements 110(a)(2)(E)(i) and (iii), FDEP's infrastructure submission demonstrates that it has authority to carry out its SIP as it is responsible for a comprehensive program to address air pollution in the state as described in Section IV.1 above in reference to 110(a)(2)(A). Additionally, FDEP cites to provisions that provide assurances for adequate personnel and funding. Section 403.061(2), Florida Statutes, authorizes FDEP to “[h]ire only such employees as may be necessary to effectuate the responsibilities of the department.” Section 403.061(4), Florida Statutes, authorizes FDEP to “[s]ecure necessary scientific, technical, research, administrative, and operational services by interagency agreement, by contract, or otherwise.” Section 320.03(6), Florida Statutes, authorizes FDEP to establish an Air Pollution Control Trust Fund and use a $1 fee on every motor vehicle license registration sold in the State for air pollution control purposes. Regarding the 110(a)(2)(E)(iii), Section 403.182, Florida Statutes, authorizes FDEP to approve local pollution control programs, and provides for the State air pollution control program administered by FDEP to supersede a local program if FDEP determines that an approved local program is inadequate, and the locality fails to take the necessary corrective actions.
As evidence of the adequacy of FDEP's resources with respect to sub-elements (i) and (iii), FDEP has a performance partnership agreement with EPA outlining 105 grant commitments and current status of these commitments for fiscal year 2018. Annually, the State updates this performance partnership agreement based on current SIP requirements, air quality planning, and applicable requirements related to the NAAQS. Florida satisfactorily met all commitments agreed to in the Air Planning Agreement for fiscal year 2018, therefore, FDEP's grants were finalized and closed out. EPA has made the preliminary determination that Florida has adequate resources and authority for implementation of the 2015 8-hour ozone NAAQS.
Section 110(a)(2)(E)(ii) requires that the state comply with section 128 of the CAA. Section 128 requires that the SIP contain provisions providing that: (1) The majority of members of the state board or body which approves permits or enforcement orders represent the public interest and do not derive any significant portion of their income from persons subject to permitting or enforcement orders under the CAA; and (2) any potential conflicts of interest by such board or body, or the head of an executive agency with similar powers be adequately disclosed. For purposes of section 128(a)(1), Florida has no boards or bodies with authority over air pollution permits or enforcement actions. Such matters are instead handled by an appointed Secretary. As such, a “board or body” is not responsible for approving permits or enforcement orders in Florida, and the requirements of section 128(a)(1) are not applicable. For the requirements of 128(a)(2), Florida Statutes, subsections 112.3143(4), F.S.,
Therefore, EPA is proposing to approve Florida's infrastructure SIP submission as meeting the requirements of sub-elements 110(a)(2)(E)(i), (ii) and (iii).
7. 110(a)(2)(F)
The following sections of the Florida Statutes provide FDEP the authority to conduct certain actions in support of this infrastructure element. Section 403.061(13) authorizes FDEP to “[r]equire persons engaged in operations which may result in pollution to file reports which may contain . . . any other such information as the department shall prescribe . . .” Section 90.401, Florida Statutes, defines relevant evidence as evidence tending to prove or disprove a material fact. Section 90.402, Florida Statutes, states that all relevant evidence is admissible except as provided by law. EPA is unaware of any provision preventing the use of credible evidence in the Florida SIP.
Additionally, Florida is required to submit emissions data to EPA for purposes of the National Emissions Inventory (NEI) pursuant to Subpart A to 40 CFR part 51,—“Air Emissions Reporting Rule” (AERR). The NEI is EPA's central repository for air emissions data. Specifically, all states are required to submit a comprehensive emission inventory every three years and report emissions for certain larger sources annually through EPA's online Emissions Inventory System. States report emissions data for the six criteria pollutants and the precursors that form them—nitrogen oxides, sulfur dioxide, ammonia, lead, carbon monoxide, particulate matter, and volatile organic compounds. Many states also voluntarily report emissions of hazardous air pollutants. Florida made its latest update to the NEI on December 17, 2014. EPA compiles the emissions data, supplementing it where necessary, and releases it to the general public through the website
8. 110(a)(2)(G)
9. 110(a)(2)(H)
The following sections of the Florida Statutes provide FDEP the authority to conduct certain actions in support of this element. Section 403.061(35) gives FDEP the “broad authority to implement the CAA.” Section 403.061(9) authorizes FDEP to “adopt a comprehensive program for the prevention, control, and abatement of pollution of the air of the state, and to review and modify such programs as necessary.” EPA has made the preliminary determination that Florida adequately demonstrates a commitment to provide future SIP revisions related to the 2015 8-hour ozone NAAQS when necessary. Accordingly, EPA is proposing to approve Florida's infrastructure SIP submission with respect to section 110(a)(2)(H).
10. 110(a)(2)(J)
11. 110(a)(2)(K)
12. 110(a)(2)(L)
13. 110(a)(2)(M)
With the exception of interstate transport provisions of section 110(a)(2)(D)(i)(I) pertaining to the contribution to nonattainment or interference with maintenance in other states, EPA is proposing to approve Florida's infrastructure submission provided on September 18, 2018, for the 2015 8-hour ozone NAAQS for the above described infrastructure SIP requirements. EPA is proposing to approve Florida's infrastructure SIP submission for certain elements for the 2015 8-hour ozone NAAQS because the submission is consistent with section 110 of the CAA for those elements.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations.
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed action; notification of public hearings and extension of comment period.
On December 17, 2019, the U.S. Environmental Protection Agency (EPA) published the proposed rulemaking concerning the residual risk and technology review (RTR) for the National Emission Standards for Hazardous Air Pollutants (NESHAP) for the Miscellaneous Organic Chemical Manufacturing source category. The EPA also requested public comment on the proposed action. The EPA is announcing that it will hold two public hearings to provide interested parties the opportunity to present data, views, or arguments concerning the proposed action.
The hearing in Houston, Texas, will be held in the Harris County Commissioners Courtroom, 1001 Preston Street, Suite 934, Houston, Texas. The hearing will convene at 9:00 a.m. (local time) and will conclude at 5:00 p.m. Lunch breaks will be scheduled as time will allow depending on the number of registered speakers.
The hearing in Washington, DC, will be held in the William Jefferson Clinton East Building (WJC East), 1201 Constitution Avenue NW, Room 1117, Washington, DC 20004. The hearing will convene at 9:00 a.m. (local time) and will conclude at 5:00 p.m. Lunch breaks will be scheduled as time will allow depending on the number of registered speakers.
The EPA's website for this rulemaking, which includes the proposal and information about the hearing, can be found at:
To register to speak at the hearings, please use the online registration form available at
Because both of these hearings are being held at government facilities, individuals planning to attend the hearings should be prepared to show valid picture identification to the security staff to gain access to the meeting room. Please note that the REAL ID Act, passed by Congress in 2005, established new requirements for entering federal facilities. For purposes of the REAL ID Act, the EPA will accept government-issued IDs, including driver's licenses, from the District of Columbia and all states and territories except from American Samoa. If your identification is issued by American Samoa, you must present an additional form of identification to enter the federal building where the public hearing will be held. Acceptable alternative forms of identification include: Federal employee badges, passports, enhanced driver's licenses, and military identification cards. For additional information on the status of your state regarding REAL ID, go to:
On January 13, 2020, the EPA will post general agendas for the hearings that will list pre-registered speakers in approximate order at
Each commenter will have 5 minutes to provide oral testimony. The EPA encourages commenters to provide the EPA with a copy of their oral testimony electronically or in hard copy form. Please refer to the
The EPA may ask clarifying questions during the oral presentations, but will not respond to the presentations at that time. Written statements and supporting information submitted during the comment period will be considered with the same weight as oral comments and supporting information presented at the public hearings. Verbatim transcripts of the hearings and written statements will be included in the docket for the rulemaking.
Please note that any updates made to any aspect of the hearings will be posted online at
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; request for comments.
NMFS proposes to maintain
Public comments must be received by January 16, 2020.
Copies of supporting documents used by the Mid-Atlantic Fishery Management Council, including the Environmental Assessments (EA), the Supplemental Information Report (SIR), the Regulatory Impact Review (RIR), and the Regulatory Flexibility Act (RFA) analysis are available from: Dr. Christopher M. Moore, Executive Director, Mid-Atlantic Fishery Management Council, 800 North State Street, Suite 201, Dover, DE 19901,
You may submit comments, identified by NOAA-NMFS-2019-0122, by any of the following methods:
•
•
Alyson Pitts, Fishery Management Specialist, (978) 281-9352.
This rule proposes specifications, which are the combined suite of commercial and recreational catch levels established for one or more fishing years, for Atlantic mackerel,
The regulations implementing the Atlantic Mackerel, Squid, and Butterfish Fishery Management Plan (FMP) require the Mid-Atlantic Fishery Management Council's Atlantic Mackerel, Squid, and Butterfish Monitoring Committee to develop specification recommendations for each species based upon the ABC advice of the Council's SSC. The FMP regulations also require the specification of annual catch limits (ACL) and accountability measure (AM) provisions for butterfish and Atlantic mackerel. Both squid species are exempt from the ACL/AM requirements because they have a life cycle of less than one year. In addition, the regulations require the specification of domestic annual harvest (DAH), domestic annual processing (DAP), the butterfish mortality cap in the longfin squid fishery, and initial optimum yield (IOY) for both squid species.
On August 1, 2019 (84 FR 37778), we published a final rule in the
The Council did not recommend changes to any other regulations in place for the Atlantic mackerel, squid, and butterfish fisheries. Therefore, any other fishery management measures in place would remain unchanged for the 2020 fishing year. The Council submitted its recommendations, as summarized below, along with the required analyses, for initial agency review on September 30, 2019. NMFS must review the Council's recommendations for compliance with the FMP and applicable law, and conduct notice-and-comment rulemaking to propose and implement the final specifications.
Until new specifications are implemented, the existing Atlantic mackerel,
The Atlantic mackerel specifications for 2019-2021 were developed in May 2018 as part of Framework 13 to the Atlantic Mackerel Squid, and Butterfish FMP, by which the 2020 ABC for Atlantic mackerel was set to increase from the 2019 level (29,184 mt) (Table 1). The 2020 ABC recommended by the SSC for Framework 13 was based on projections that recognized a strong 2015 year class from the 2016 assessment results, which was the most recent data available for the assessment. However, at its May 2019 meeting, the SSC considered preliminary results from the 2019 Canadian Atlantic mackerel assessment, which indicated lower than expected recruitment. The SSC determined that it would not be prudent to implement the original higher 2020 ABC level based on the preliminary information from the Canadian assessment and instead, recommended maintaining the 2019 ABC for 2020 (29,184 mt). There is an Atlantic mackerel stock assessment update scheduled for 2020 that will inform future ABC specifications, so only a 1-year ABC for 2020 was recomended.
The Atlantic Mackerel, Squid, and Butterfish Monitoring Committee met in May 2019 and recommended changing the deduction for recreational catch based on an updated recreational catch accounting methodology. The monitoring committee recommended a new recreational deduction of 1,270 mt versus the previous 1,209 mt established in Framework 13. Using this updated value affects the other Atlantic mackerel specifications compared to 2019, as described in Table 1 below, which compares the implemented 2019 measures with the 2020 measures that are proposed in this action.
Consistent with maintaining the Atlantic mackerel ABC in 2020 as in 2019, this action proposes to maintain the 2019 river herring and shad catch cap (129 mt) for 2020. The Council had previously adopted an increase in the river herring and shad catch cap to 152 mt for 2020. This action proposes to eliminate the 89-mt trigger provision that was implemented in Framework 13. If the 89 mt trigger was met, a 20,000 lb (9,071.84 kg) possession limit for limited access permitholders would be effective. Eliminating the initial 89 mt trigger would allow for additional landings by the Atlantic mackerel fishery, without compromising the 129-mt catch cap, which serves as an incentive to avoid river herring and shad.
This action maintains the existing projected longfin squid ABC of 23,400 mt for 2020, as implemented on March 1, 2018 (83 FR 8764). The background for this ABC is discussed in the proposed rule to implement the 2018-2020 squid and butterfish specifications (December 13, 2017; 82 FR 58583) and is not repeated here. The IOY, DAH, and DAP are calculated by deducting an estimated discard rate (2 percent) from the ABC (Table 2). This action also maintains the existing allocation of longfin squid DAH among trimesters according to percentages specified in the FMP (Table 3). The Council will make recommendations for 2021 and beyond in 2020.
This action also maintains the previously approved projected 2020 butterfish specifications outlined in Table 4, as initially implemented on March 1, 2018 (83 FR 8764). The background for these specifications is discussed in the proposed rule to implement 2019 squid and butterfish specifications (December 13, 2017; 82 FR 58583) and is not repeated here. In summary, the 2020 butterfish specifications are based on long-term recruitment estimates and include a 7.5 percent management uncertainty buffer and an estimated discard rate of 2.4 percent. These specifications maintain the existing butterfish mortality cap in the longfin squid fishery (3,884 mt) and the existing allocation of the butterfish mortality cap among longfin squid trimesters (Table 5).
This action also maintains the previously approved 2019
Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with the Atlantic Mackerel, Squid, and Butterfish FMP, other provisions of the Magnuson-Stevens Act, and other applicable law, subject to further consideration after public comment.
This action is exempt from review under Executive Order 12866. This proposed rule is not subject to Executive Order 13771 because this proposed rule is exempt from Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities. The purpose, context, and statutory basis for this action is described above and not repeated here. Business entities affected by this action include vessels that are issued limited access Atlantic mackerel, longfin squid,
For purposes of complying with the Regulatory Flexibility Act, commercial fishing entities with combined annual fishery landing receipts less than $11 million are considered to be small entities (80 FR 81194, December 29, 2015). The changes to existing mackerel specifications proposed in this action apply to the vessels that hold limited access permits for Atlantic mackerel. There were 126 separate vessels that held limited access Atlantic mackerel permits in 2018, owned by 100 entities. Ninety-three of those are small business entities, four of which had no revenues. For the remainder, the average revenue was $1.6 million in 2018.
Based on recent squid and butterfish landings, the proposed measures would not reduce fishing opportunities, change any entity's access to these resources, or impose any costs to affected entities. Therefore, this action would not reduce revenues or profit for affected entities compared to recent levels. Based on the above justification, the proposed action is not expected to have a significant economic impact on a substantial number of small entities.
16 U.S.C. 1801
Research, Education, and Economics, USDA.
Notice of meeting.
In accordance with the Federal Advisory Committee Act of the National Agricultural Research, Extension, and Teaching Policy Act, and the Agriculture Improvement Act of 2018, the United States Department of Agriculture (USDA) announces a meeting of the National Agricultural Research, Extension, Education, and Economics Advisory Board.
The National Agricultural Research, Extension, Education, and Economics Advisory Board will meet January 28th-30th, 2030. The public may file written comments up to two Weeks after the meeting with the contact person, February 13, 2020.
The meeting will take place at USDA-ARS Jornada Experimental Range, 2995 Knox St., Las Cruces, NM, in Wooton Hall on the New Mexico State University campus. Written comments may be sent to: The National Agricultural Research, Extension, Education, and Economics Advisory Board Office, Room 332A, Whitten Building, United States Department of Agriculture, STOP 0321, 1400 Independence Avenue SW, Washington, DC 20250-0321.
Michele Esch, Executive Director/Designated Federal Officer, or Shirley Morgan-Jordan, Program Support Coordinator, National Agricultural Research, Extension, Education and Economics Advisory Board, Telephone: (202) 720-3684, fax: (202) 720-6199, or email:
On Tuesday, January 28, 2020, the Advisory Board will convene from 8:00 a.m.-5:00 p.m. MST. On Wednesday, January 29, 2020, the Advisory Board will reconvene from 8:00 a.m.-5:00 p.m. MST. And on Thursday, January 30, 2020, the Board will begin at 8:00 a.m. MST and adjourn by 12:00 p.m. (noon) MST.
United States Commission on Civil Rights.
Notice of Commission public business meeting.
Friday, December 20, 2019, 10:00 a.m. ET.
Meeting to take place by telephone.
Brian Walch: (202) 376-8371; TTY: (202) 376-8116;
This business meeting is open to the public by telephone only: 866-556-2519, Conference ID 536-6190. Persons with disabilities who need accommodation should contact Pamela Dunston at (202) 376-8105 or at
On October 30, 2018, Joyson Safety Systems Acquisition, LLC submitted a notification of proposed production activity to the FTZ Board for its facility within Subzone 203A, in Moses Lake, Washington.
The notification was processed in accordance with the regulations of the FTZ Board (15 CFR part 400), including notice in the
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily finds that sales of certain hot-rolled steel flat products from Australia were made at less than normal value during the period of review (POR) October 1, 2017 through September 30, 2018. We invite interested parties to comment on these preliminary results.
Applicable December 17, 2019.
Rachel Greenberg, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-0652.
On December 11, 2018, Commerce initiated the administrative review of the antidumping duty order on certain hot-rolled steel flat products (hot-rolled steel) from Australia in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act).
The products covered by this order are certain hot-rolled, flat-rolled steel products. For a full description of the scope,
Commerce is conducting this review in accordance with section 751(a) of the Act. For a full description of the methodology underlying these preliminary results,
BlueScope failed to provide all necessary information and failed to cooperate by not acting to the best of its ability to comply with Commerce's request for information in this review. As a result, we preliminary determine to apply facts otherwise available with an adverse inference to BlueScope, in accordance with sections 776(a)(2)(A), (B), and (C) and section 776(b) of the Act. For further discussion,
We preliminarily determine that the following weighted-average dumping margin exists for the period October 1, 2017 through September 30, 2018:
Upon completion of this administrative review, Commerce shall determine, and Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries. If BlueScope's weighted-average dumping margin is not zero or
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by BlueScope for which it did not know that the merchandise was destined to the United States, we will instruct CBP to liquidate those entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
We intend to issue liquidation instructions to CBP 15 days after publication of the final results of this review.
The following cash deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the finals results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) The cash deposit rate for BlueScope in the final results of review will be equal to the weighted-average dumping margin established in the final results of this administrative review; (2) for merchandise exported by producers or exporters not covered in this review but covered in a prior segment of the proceeding, the cash deposit rate will continue to be the company-specific rate published for the most recently completed segment of this proceeding in which they were reviewed; (3) if the exporter is not a firm covered in this review or the original investigation but the producer is, then the cash deposit rate will be the rate established for the most recently completed segment of this proceeding for the producer of the merchandise; (4) the cash deposit rate for all other producers or exporters will continue to be 29.58 percent, the all-others rate established in the less-than-fair-value investigation. These cash deposit requirements, when imposed, shall remain in effect until further notice.
We intend to disclose the calculations performed to parties within five days after public announcement of the preliminary results.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. An electronically filed document must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5:00 p.m. Eastern Time within 30 days after the date of publication of this notice. Requests should contain: (1) The party's name, address and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. Commerce intends to issue the final results of this administrative review, including the results of its analysis of the issues raised in any written briefs, not later than 120 days after the date of publication of this notice, pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(1).
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
This administrative review and notice are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
Applicable December 17, 2019.
The Department of Commerce (Commerce) hereby publishes a list of scope rulings and anti-circumvention determinations made during the period January 1, 2019 through March 31, 2019. We intend to publish future lists after the close of the next calendar quarter.
Marcia E. Short, AD/CVD Operations, Customs Liaison Unit, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue
Commerce regulations provide that it will publish in the
Requestor: Nucor Corporation. Wire rod produced and/or exported by Deacero S.A.P.I. de CV with an actual diameter less than 4.75 millimeters, and otherwise meeting the description of the scope of the order constitutes merchandise altered in form or appearance in minor respects from in-scope merchandise and is subject to the antidumping duty order on carbon and certainly alloy steel wire rod from Mexico; March 13, 2019.
Requestor: SIGMA Corporation. SAFELET and UNILET fire-protection weld outlets it imports from China are subject to the China carbon steel butt-weld order because both products feature a beveled end, each has a single butt-welded connection, and they otherwise meet the physical description of merchandise covered by the scope; December 11, 2018.
Interested parties are invited to comment on the completeness of this list of completed scope inquiries and anti-circumvention determinations made during the period January 1, 2019 through March 31, 2019. Any comments should be submitted to the Deputy Assistant Secretary for AD/CVD Operations, Enforcement and Compliance, International Trade Administration, 1401 Constitution Avenue NW, APO/Dockets Unit, Room 18022, Washington, DC 20230.
This notice is published in accordance with 19 CFR 351.225(o).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily finds that Colakoglu Metalurji A.S. and Colakoglu Dis Ticaret A.S. (collectively, Colakoglu), a producer and exporter of certain hot-rolled steel flat products (hot-rolled steel) from the Republic of Turkey (Turkey), sold subject merchandise in the United States at prices below normal value during the period of review (POR) October 1, 2017 through September 30, 2018. In addition, Commerce preliminarily determines that Eregli Demir ve Celik Fabrikalari T.A.S. and Iskenderun Iron & Steel Works Co. (collectively, Erdemir Group) had no shipments during the POR. We invite all interested parties to comment on these preliminary results.
Applicable December 17, 2019.
Lingjun Wang, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-2316.
Commerce is conducting an administrative review of the antidumping duty order on hot-rolled steel from Turkey in accordance with section 751(a)(1)(B) of Tariff Act of
Commerce exercised its discretion to toll all deadlines affected by the partial federal government closure from December 22, 2018 through the resumption of operations on January 28, 2019.
The merchandise covered by the
Commerce is conducting this review in accordance with section 751(a) of the Act. Constructed export prices are calculated in accordance with section 772 of the Act. Normal value is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying our conclusions,
The Preliminary Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
Among the companies under review, Eregli Demir ve Celik Fabrikalari T.A.S. and Iskenderun Iron & Steel Works Co. (collectively, the Erdemir Group) properly filed a certification reporting that they made no shipments of subject merchandise to the United States during the POR.
The statute and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation, for guidance when calculating the rate for companies which were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero or
In this review, we have preliminarily calculated a weighted-average dumping margin for Colakoglu that is not zero,
We preliminarily determine the following weighted-average dumping margins for the period October 1, 2017 through September 30, 2018:
Upon issuance of the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review. Pursuant to 19 CFR 351.212(b)(1), we calculated an importer-specific
For the companies which were not selected for individual review, we will assign an assessment rate equal to the weighted-average dumping margin determined for the non-examined companies in the final results of this review.
For entries of subject merchandise during the POR produced by the respondent for which it did not know that its merchandise was destined for the United States, including for the Erdemir Group (which we have preliminarily found had no shipments during the POR), we will instruct CBP to liquidate such unreviewed entries at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
The final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by the final results of this review and for future deposits of estimated duties, where applicable.
We intend to issue liquidation instructions to CBP 15 days after publication of the final results of this review.
The following deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) The cash deposit rate for each specific company listed above will be equal to each company's weighted-average dumping margin established in the final results of this review, except if the rate is less than 0.50 percent, and therefore
Commerce intends to disclose the calculations performed in connection with these preliminary results to interested parties within five days after the date of publication of this notice.
Interested parties may submit case briefs not later than 30 days after the date of publication of this notice.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. An electronically-filed request for a hearing must be received successfully in its entirety by ACCESS by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Commerce intends to issue the final results of this administrative review, including the results of its analysis of issues raised in any written briefs, not later than 120 days after the publication of these preliminary results in the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) determines that Datong Juqiang Activated Carbon Co., Ltd. (Datong Juqiang) and Carbon Activated Tianjin Co., Ltd. (Carbon Activated) sold certain activated carbon from the People's Republic of China (China) at less than normal value during the period of review (POR) April 1, 2017 through March 31, 2018.
Applicable December 17, 2019.
Bob Palmer or Jinny Ahn, AD/CVD Operations, Office VIII, Enforcement and Compliance, International Trade Administration, Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-0968 or (202) 482-0339, respectively.
Commerce published the
The merchandise subject to the
In the Issues and Decision Memorandum, we addressed all issues raised in the interested parties' case and rebuttal briefs. In Appendix I to this notice, we provided a list of the issues raised by the parties. The Issues and Decision Memorandum is a public document and is on file in the Central Records Unit (CRU), Room B8024 of the main Commerce building, as well as electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
Pursuant to section 782(i) of the Act, and 19 CFR 351.307(b)(iv), we conducted verification of the questionnaire responses of Carbon Activated.
Based on our review of the record and comments received from interested parties regarding our
In the
In our
In the
For companies subject to this review, which established their eligibility for a separate rate, Commerce determines that the following weighted-average dumping margins exist for the POR from April 1, 2017 through March 31,
In the
Pursuant to section 751(a)(2)(C) of the Act and 19 CFR 351.212(b), Commerce has determined, and U.S Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review. We intend to issue assessment instructions to CBP 15 days after the publication date of these final results of review.
For each individually-examined respondent in this review which has a final weighted-average dumping margin that is not zero or
For the respondents which were not selected for individual examination in this administrative review and which qualified for a separate rate, the
For the companies identified as part of the China-wide entity, we will instruct CBP to apply a per-unit assessment rate of 2.42 USD/kg to all entries of subject merchandise during the POR which were produced or exported by those companies.
Pursuant to a refinement in our non-market economy practice, for sales that were not reported in the U.S. sales data submitted by companies individually examined during this review, we will instruct CBP to liquidate entries associated with those sales at the rate for the China-wide entity. Furthermore, where we found that an exporter under review had no shipments of the subject merchandise, any suspended entries that entered under that exporter's case number (
The following per-unit cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise from China entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided by section 751(a)(2)(C) of the Act: (1) For Carbon Activated, Datong Juqiang, and the non-examined separate rate respondents the cash deposit rate will be equal to their weighted-average dumping margins established in the final results of this review; (2) for previously investigated or reviewed Chinese and non-Chinese exporters not listed above that have separate rates, the cash deposit rate will continue to be the exporter-specific rate published for the most recently completed segment of this proceeding in which they were reviewed; (3) for all Chinese exporters of subject merchandise that have not been found to be entitled to a separate rate, the cash deposit rate will be equal to the weighted-average dumping margin for the China-wide entity (
We intend to disclose the calculations performed to parties in this proceeding within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
This notice also serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties has occurred and the subsequent assessment of double antidumping duties.
This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3), which continues to govern business proprietary information in this segment of the proceeding. Timely written notification of the return or destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.
We are issuing and publishing these final results of administrative review and notice in accordance with sections 751(a)(1) and 777(i) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) is rescinding the administrative review of the antidumping duty order on certain oil country tubular goods (OCTG) from Turkey for the period September 1, 2018, through August 31, 2019.
Applicable December 17, 2019.
Lochard Philozin, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4260.
On September 3, 2019, Commerce published a notice of opportunity to request an administrative review of the antidumping duty order on OCTG from Turkey for the period of review September 1, 2018, through August 31, 2019.
Pursuant to 19 CFR 351.213(d)(1), Commerce will rescind an administrative review “in whole or in part, if a party that requested a review withdraws the request within 90 days of the date of publication of notice of initiation of the requested review.” On November 26, 2019, the petitioners timely withdrew their request for review of all remaining companies.
Commerce will instruct U.S. Customs and Border Protection (CBP) to assess antidumping duties on all appropriate entries of OCTG from Turkey during the period September 1, 2018, through August 31, 2019, at rates equal to the cash deposit rate of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue appropriate assessment instructions to CBP 15 days after publication of this notice in the
This notice serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation.
This notice is issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.213(d)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) preliminarily finds that Power Steel Co., Ltd. (Power Steel), an exporter of steel concrete reinforcing bar (rebar) from Taiwan, sold subject merchandise in the United States at prices below normal value during the period of review (POR) March 7, 2017 through September 30, 2018. We invite all interested parties to comment on these preliminary results.
Applicable December 17, 2019.
Kathryn Wallace and Leo Ayala, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-6251 and (202) 482-3945, respectively.
Commerce is conducting an administrative review of the antidumping duty order on rebar from Taiwan in accordance with section 751(a)(1)(B) of Tariff Act of 1930, as amended (the Act).
The product covered by the
Commerce initiated a review of two companies in this proceeding: Power Steel and Lo-Toun Steel.
Commerce is conducting this review in accordance with section 751 of the Act. Export price is calculated in accordance with section 772 of the Act. Normal value is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying the preliminary results,
The Preliminary Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
We preliminarily determine that the following weighted-average dumping margin exists for the period of March 7, 2017 through September 30, 2018:
Upon issuance of the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review. If Power Steel's weighted-average dumping margin is above
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by Power Steel for which the company did not know that the merchandise was destined for the United States, we will instruct CBP to liquidate those entries at the all-others rate if there is no rate for the intermediate company involved in the transaction. We intend to issue instructions to CBP 15 days after the publication date of the final results of this review.
The following deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) The cash deposit rate for Power Steel will be the rate established in the final results of this review (except, if the
These cash deposit requirements, when imposed, shall remain in effect until further notice.
Commerce intends to disclose its calculations and analysis performed within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b). Pursuant to 19 CFR 351.309(c)(1)(ii), interested parties will have the opportunity to comment on the preliminary results and may submit case briefs and/or written comments 30 days following the publication of the preliminary results. Rebuttal briefs, limited to issues raised in case briefs, may be submitted no later than five days after the deadline date for case briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. An electronically-filed document must be received successfully in its entirety by ACCESS by 5:00 p.m. Eastern Time within 30 days after the date of publication of this notice. Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) whether any participant is a foreign national; and (4) a list of issues parties intend to discuss. Issues raised in the hearing will be limited to those raised in the respective case and rebuttal briefs.
Unless otherwise extended, Commerce intends to issue the final results of this administrative review, which will include the results of its analysis of issues raised in any briefs, within 120 days of publication of these preliminary results, pursuant to section 751(a)(3)(A) of the Act.
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
These preliminary results of review are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; proposed incidental harassment authorization; request for comments on proposed authorization and possible renewal.
NMFS has received a request from the United States Department of the Navy (Navy) for authorization to take marine mammals incidental to Ice Exercise 2020 (ICEX20) north of Prudhoe Bay, Alaska. Pursuant to the Marine Mammal Protection Act (MMPA), NMFS is requesting comments on its proposal to issue an incidental harassment authorization (IHA) to incidentally take marine mammals during the specified activities. NMFS is also requesting comments on a possible one-year renewal that could be issued under certain circumstances and if all requirements are met, as described in
Comments and information must be received no later than January 16, 2020.
Comments should be addressed to Jolie Harrison, Chief, Permits and Conservation Division, Office of Protected Resources, National Marine Fisheries Service. Physical comments should be sent to 1315 East-West Highway, Silver Spring, MD 20910 and electronic comments should be sent to
Amy Fowler, Office of Protected Resources, NMFS, (301) 427-8401. Electronic copies of the application and supporting documents, as well as a list of the references cited in this document, may be obtained online at:
The MMPA prohibits the “take” of marine mammals, with certain exceptions. Sections 101(a)(5)(A) and (D) of the MMPA (16 U.S.C. 1361
Authorization for incidental takings shall be granted if NMFS finds that the
The NDAA (Pub. L. 108-136) removed the “small numbers” and “specified geographical region” limitations indicated above and amended the definition of “harassment” as it applies to a “military readiness activity.” The activity for which incidental take of marine mammals is being requested addressed here qualifies as a military readiness activity. The definitions of all applicable MMPA statutory terms cited above are included in the relevant sections below.
To comply with the National Environmental Policy Act of 1969 (NEPA; 42 U.S.C. 4321
On July 3, 2019, NMFS received a request from the Navy for an IHA to take marine mammals incidental to submarine training and testing activities, including establishment of a tracking range on an ice floe in the Beaufort Sea and Arctic Ocean north of Prudhoe Bay, Alaska. The application was deemed adequate and complete on November 22, 2019. The Navy's request is for take of a small number of ringed seals (
NMFS previously issued an IHA to the Navy for similar activities conducted in 2018 (83 FR 6522; February 14, 2018). The Navy complied with all the requirements (
The Navy proposes to conduct submarine training and testing activities from an ice camp established on an ice floe in the Beaufort Sea and Arctic Ocean for approximately six weeks beginning in February 2020. Submarine active acoustic transmissions may result in occurrence of temporary hearing impairment (temporary threshold shift (TTS)) and behavioral harassment (Level B harassment) of ringed and bearded seals.
The proposed action would occur over approximately a six-week period from February through April 2020, including deployment and demobilization of the ice camp. The submarine training and testing activities would occur over approximately four weeks during the six-week period. The proposed IHA would be effective for a period of one year from February 1, 2020 through January 31, 2021.
The ice camp would be established approximately 100-200 nautical miles (nmi) north of Prudhoe Bay, Alaska. The exact location of the camp cannot be identified ahead of time as required conditions (
ICEX20 includes the deployment of a temporary camp situated on an ice floe. Reconnaissance flights to search for suitable ice conditions for the ice camp would depart from the public airport in Deadhorse, Alaska. The camp generally consists of a command hut, dining hut, sleeping quarters, a powerhouse, runway, and helipad. The number of structures and tents ranges from 15-20, and each tent is typically 2 meters (m) by 6 m in size. The completed ice camp, including runway, is approximately 1.6 km in diameter. Support equipment for the ice camp includes snowmobiles, gas-powered augers and saws (for boring holes through ice), and diesel generators. All ice camp materials, fuel, and food would be transported from Prudhoe Bay, Alaska, and delivered by air-drop from military transport aircraft (
A portable tracking range for submarine training and testing would be installed in the vicinity of the ice camp. Ten hydrophones, located on the ice and extending to 100 m below the ice, would be deployed by drilling or melting holes in the ice and lowering the cable down into the water column. Four hydrophones would be physically connected to the command hut via cables while the others would transmit data via radio frequencies. Additionally, tracking pingers would be configured aboard each submarine to continuously monitor the location of the submarines. Acoustic communications with the submarines would be used to coordinate the training and research schedule with the submarines. An underwater telephone would be used as a backup to the acoustic communications. The hydrophone network and acoustic communications between submarines and the ice camp are not expected to result in take of marine mammals.
Submarine activities associated with ICEX20 generally entail safety maneuvers and active sonar use. These maneuvers and sonar use are similar to submarine activities conducted in other undersea environments and are being conducted in the Arctic to test their performance in a cold environment. Submarine training and testing involves active acoustic transmissions, which have the potential to harass marine mammals. Navy acoustic sources are categorized into “bins” based on frequency, source level, and mode of usage (Department of the Navy 2015). The specifics of ICEX20 submarine acoustic sources are classified, including the designated bin(s).
Personnel and equipment proficiency testing and multiple research and development activities would be conducted as part of ICEX20. In-water device data collection and unmanned underwater vehicle testing involve active acoustic transmissions, which have the potential to harass marine mammals; however, the acoustic transmissions that would be used in ICEX20 for research activities are considered
Proposed mitigation, monitoring, and reporting measures are described in detail later in this document (please see
Sections 3 and 4 of the application summarize available information regarding status and trends, distribution and habitat preferences, and behavior and life history, of ringed and bearded seals. Additional information regarding population trends and threats may be found in NMFS's Stock Assessment Reports (SARs;
Table 1 lists all species with expected potential for occurrence in the project area and summarizes information related to the population or stock, including regulatory status under the MMPA and ESA and potential biological removal (PBR), where known. For taxonomy, we follow Committee on Taxonomy (2018). PBR is defined by the MMPA as the maximum number of animals, not including natural mortalities, that may be removed from a marine mammal stock while allowing that stock to reach or maintain its optimum sustainable population (as described in NMFS's SARs). While no mortality or serious injury is anticipated or authorized here, PBR and annual serious injury and mortality from anthropogenic sources are included here as gross indicators of the status of the species and other threats.
Marine mammal abundance estimates presented in this notice represent the total number of individuals that make up a given stock or the total number estimated within a particular study or survey area. NMFS's stock abundance estimates for most species represent the total estimate of individuals within the geographic area, if known, that comprises that stock. For some species, this geographic area may extend beyond U.S. waters. All managed stocks in this region are assessed in NMFS's U.S. Alaska SARs (Muto
All species that could potentially occur in the proposed survey areas are included in Table 1. However, the temporal and/or spatial occurrence of bowhead whales and beluga whales is such that take is not expected to occur, and they are not discussed further beyond the explanation provided here. Bowhead whales migrate annually from wintering areas (December to March) in the northern Bering Sea, through the Chukchi Sea in the spring (April through May), to the eastern Beaufort Sea, where they spend much of the summer (June through early to mid-October) before returning again to the Bering Sea (Muto
In addition, the polar bear (
Bearded seals are a boreoarctic species with circumpolar distribution (Burns 1967; Burns 1981; Burns and Frost 1979; Fedoseev 1965; Johnson
Bearded seals along the Alaskan coast tend to prefer areas where sea ice covers 70 to 90 percent of the surface, and are most abundant 20 to 100 nm (37 to 185 km) offshore during the spring season (Bengston
In their explorations of the Canada Basin, Harwood
On December 28, 2012, NMFS listed both the Okhotsk and the Beringia distinct population segments (DPSs) of bearded seals as threatened under the ESA (77 FR 76740). The Alaska stock of bearded seals consists of only Beringia DPS seals.
Ringed seals are the most common pinniped in the study area and have wide distribution in seasonally and permanently ice-covered waters of the Northern Hemisphere (North Atlantic Marine Mammal Commission 2004). Throughout their range, ringed seals have an affinity for ice-covered waters and are well adapted to occupying both shore-fast and pack ice (Kelly 1988c). Ringed seals can be found further offshore than other pinnipeds since they can maintain breathing holes in ice thickness greater than 2 m (Smith and Stirling 1975). Breathing holes are maintained by ringed seals' sharp teeth and claws on their fore flippers. They remain in contact with ice most of the year and use it as a platform for molting in late spring to early summer, for pupping and nursing in late winter to early spring, and for resting at other times of the year.
Ringed seals have at least two distinct types of subnivean lairs: Haulout lairs and birthing lairs (Smith and Stirling 1975). Haulout lairs are typically single-chambered and offer protection from predators and cold weather. Birthing lairs are larger, multi-chambered areas that are used for pupping in addition to protection from predators. Ringed seal populations pup on both land-fast ice as well as stable pack ice. Lentfer (1972) found that ringed seals north of Barrow, Alaska (west of the ice camp), build their subnivean lairs on the pack ice near pressure ridges. Since subnivean lairs were found north of Barrow, Alaska, in pack ice, they are also assumed to be found within the sea ice in the ice camp proposed action area. Ringed seals excavate subnivean lairs in drifts over their breathing holes in the ice, in which they rest, give birth, and nurse their pups for five to nine weeks during late winter and spring (Chapskii 1940; McLaren 1958; Smith and Stirling 1975). Snow depths of at least 50-65 centimeters (cm) are required for functional birth lairs (Kelly 1988a; Lydersen 1998; Lydersen and Gjertz 1986; Smith and Stirling 1975), and such depths typically are found only where 20-30 cm or more of snow has accumulated on flat ice and then drifted along pressure ridges or ice hummocks (Hammill 2008; Lydersen
In Alaskan waters, during winter and early spring when sea ice is at its maximal extent, ringed seals are abundant in the northern Bering Sea, Norton and Kotzebue Sounds, and throughout the Chukchi and Beaufort Seas (Frost 1985; Kelly 1988b) and, therefore, are found in the study area (Figure 2-1 in Application). Passive acoustic monitoring of ringed seals from a high frequency recording package deployed at a depth of 240 m in the Chukchi Sea 120 km north-northwest of Barrow, Alaska, detected ringed seals in the area between mid-December and late May over the four year study (Jones
In general, ringed seals prey on fish and crustaceans. Ringed seals are known to consume up to 72 different species in their diet; their preferred prey species is the polar cod (Jefferson
Most taxonomists recognize five subspecies of ringed seals. The Arctic ringed seal subspecies occurs in the Arctic Ocean and Bering Sea and is the only stock that occurs in U.S. waters (referred to as the Alaska stock). NMFS listed the Arctic ringed seal subspecies as threatened under the ESA on December 28, 2012 (77 FR 76706), primarily due to anticipated loss of sea ice through the end of the 21st century.
A comprehensive and reliable abundance estimate for the Alaska stock of ringed seals is not available. However, using data from surveys in the late 1990s and 2000 (Bengtson
Since June 1, 2018, elevated strandings of ringed seals, bearded seals, and spotted seals (
There was a previous UME involving ice seals from 2011 to 2016, which was most active in 2011-2012. A minimum of 657 seals were affected. The UME investigation determined that some of the clinical signs were due to an abnormal molt, but a definitive cause of death for the UME was never determined. The number of stranded ice seals involved in this UME, and their physical characteristics, is not at all similar to the 2011-2016 UME, as the seals in 2018-2019 have not been exhibiting hair loss or skin lesions, which were a primary finding in the 2011-2016 UME. The investigation into the cause of the most recent UME is ongoing. More detailed information is available at:
Hearing is the most important sensory modality for marine mammals underwater, and exposure to anthropogenic sound can have deleterious effects. To appropriately assess the potential effects of exposure to sound, it is necessary to understand the frequency ranges marine mammals are able to hear. Current data indicate that not all marine mammal species have equal hearing capabilities (
Subsequently, NMFS (2018) described generalized hearing ranges for these marine mammal hearing groups. Generalized hearing ranges were chosen based on the approximately 65 decibel (dB) threshold from the normalized composite audiograms, with the exception for lower limits for low-frequency cetaceans where the lower bound was deemed to be biologically implausible and the lower bound from Southall
The pinniped functional hearing group was modified from Southall
For more detail concerning these groups and associated frequency ranges, please see NMFS (2018) for a review of available information. Two species of phocid pinnipeds (ringed seal and bearded seal) have the reasonable potential to co-occur with the proposed survey activities. Please refer to Table 1.
This section includes a summary and discussion of the ways that components of the specified activity may impact marine mammals and their habitat. The
Here, we first provide background information on marine mammal hearing before discussing the potential effects of the use of active acoustic sources on marine mammals.
Sound travels in waves, the basic components of which are frequency, wavelength, velocity, and amplitude. Frequency is the number of pressure waves that pass by a reference point per unit of time and is measured in Hz or cycles per second. Wavelength is the distance between two peaks of a sound wave; lower frequency sounds have longer wavelengths than higher frequency sounds and attenuate (decrease) more rapidly in shallower water. Amplitude is the height of the sound pressure wave or the `loudness' of a sound and is typically measured using the dB scale. A dB is the ratio between a measured pressure (with sound) and a reference pressure (sound at a constant pressure, established by scientific standards). It is a logarithmic unit that accounts for large variations in amplitude; therefore, relatively small changes in dB ratings correspond to large changes in sound pressure. When referring to sound pressure levels (SPLs; the sound force per unit area), sound is referenced in the context of underwater sound pressure to 1 microPascal (μPa). One pascal is the pressure resulting from a force of one newton exerted over an area of one square meter. The source level (SL) represents the sound level at a distance of 1 m from the source (referenced to 1 μPa). The received level is the sound level at the listener's position. Note that all underwater sound levels in this document are referenced to a pressure of 1 μPa.
Root mean square (rms) is the quadratic mean sound pressure over the duration of an impulse. RMS is calculated by squaring all of the sound amplitudes, averaging the squares, and then taking the square root of the average (Urick 1983). RMS accounts for both positive and negative values; squaring the pressures makes all values positive so that they may be accounted for in the summation of pressure levels (Hastings and Popper 2005). This measurement is often used in the context of discussing behavioral effects, in part because behavioral effects, which often result from auditory cues, may be better expressed through averaged units than by peak pressures.
When underwater objects vibrate or activity occurs, sound-pressure waves are created. These waves alternately compress and decompress the water as the sound wave travels. Underwater sound waves radiate in all directions away from the source (similar to ripples on the surface of a pond), except in cases where the source is directional. The compressions and decompressions associated with sound waves are detected as changes in pressure by aquatic life and man-made sound receptors such as hydrophones.
Even in the absence of sound from the specified activity, the underwater environment is typically loud due to ambient sound. Ambient sound is defined as environmental background sound levels lacking a single source or point (Richardson
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The sum of the various natural and anthropogenic sound sources at any given location and time—which comprise “ambient” or “background” sound—depends not only on the source levels (as determined by current weather conditions and levels of biological and shipping activity) but also on the ability of sound to propagate through the environment. In turn, sound propagation is dependent on the spatially and temporally varying properties of the water column and sea floor, and is frequency-dependent. As a result of the dependence on a large number of varying factors, ambient sound levels can be expected to vary widely over both coarse and fine spatial and temporal scales. Sound levels at a given frequency and location can vary by 10-20 dB from day to day (Richardson
Underwater sounds fall into one of two general sound types: Impulsive and non-impulsive (defined in the following paragraphs). The distinction between these two sound types is important because they have differing potential to cause physical effects, particularly with regard to hearing (
Impulsive sound sources (
Non-impulsive sounds can be tonal, narrowband, or broadband, brief or prolonged, and may be either continuous or non-continuous (ANSI 1995; NIOSH 1998). Some of these non-impulsive sounds can be transient signals of short duration but without the essential properties of pulses (
Modern sonar technology includes a variety of sonar sensor and processing systems. In concept, the simplest active sonar emits sound waves, or “pings,” sent out in multiple directions, and the sound waves then reflect off of the target object in multiple directions. The sonar source calculates the time it takes for the reflected sound waves to return; this calculation determines the distance to the target object. More sophisticated active sonar systems emit a ping and then rapidly scan or listen to the sound waves in a specific area. This provides both distance to the target and directional information. Even more advanced sonar systems use multiple receivers to listen to echoes from several directions simultaneously and provide efficient detection of both direction and distance. In general, when sonar is in use, the sonar `pings' occur at intervals, referred to as a duty cycle, and the signals themselves are very short in duration. For example, sonar that emits a 1-second ping every 10 seconds has a 10 percent duty cycle. The Navy's most powerful hull-mounted mid-frequency sonar source typically emits a 1-second ping every 50 seconds representing a 2 percent duty cycle. The Navy utilizes sonar systems and other acoustic sensors in support of a variety of mission requirements.
Please refer to the information given previously regarding sound, characteristics of sound types, and metrics used in this document. Anthropogenic sounds cover a broad range of frequencies and sound levels and can have a range of highly variable impacts on marine life, from none or minor to potentially severe responses, depending on received levels, duration of exposure, behavioral context, and various other factors. The potential effects of underwater sound from active acoustic sources can potentially result in one or more of the following: Temporary or permanent hearing impairment, non-auditory physical or physiological effects, behavioral disturbance, stress, and masking (Richardson
Permanent Threshold Shift—Marine mammals exposed to high-intensity sound, or to lower-intensity sound for prolonged periods, can experience hearing threshold shift (TS), which is the loss of hearing sensitivity at certain frequency ranges (Finneran 2015). TS can be permanent (PTS), in which case the loss of hearing sensitivity is not fully recoverable, or temporary (TTS), in which case the animal's hearing threshold would recover over time (Southall
When PTS occurs, there is physical damage to the sound receptors in the ear (
Relationships between TTS and PTS thresholds have not been studied in marine mammals—PTS data exists only for a single harbor seal (Kastak
Temporary Threshold Shift—TTS is the mildest form of hearing impairment that can occur during exposure to sound (Kryter, 1985). While experiencing TTS, the hearing threshold rises, and a sound must be at a higher level in order to be heard. In terrestrial and marine mammals, TTS can last from minutes or hours to days (in cases of strong TTS). In many cases, hearing sensitivity recovers rapidly after exposure to the sound ends.
Marine mammal hearing plays a critical role in communication with conspecifics, and interpretation of environmental cues for purposes such as predator avoidance and prey capture. Depending on the degree (elevation of threshold in dB), duration (
Currently, TTS data only exist for four species of cetaceans (bottlenose dolphin (
Behavioral effects—Behavioral disturbance may include a variety of effects, including subtle changes in behavior (
Habituation can occur when an animal's response to a stimulus wanes with repeated exposure, usually in the absence of unpleasant associated events (Wartzok
Available studies show wide variation in response to underwater sound; therefore, it is difficult to predict specifically how any given sound in a particular instance might affect marine mammals perceiving the signal. If a marine mammal does react briefly to an underwater sound by changing its behavior or moving a small distance, the impacts of the change are unlikely to be significant to the individual, let alone the stock or population. However, if a sound source displaces marine mammals from an important feeding or breeding area for a prolonged period, impacts on individuals and populations could be significant (
Changes in dive behavior can vary widely and may consist of increased or decreased dive times and surface intervals as well as changes in the rates of ascent and descent during a dive (
Disruption of feeding behavior can be difficult to correlate with anthropogenic sound exposure, so it is usually inferred by observed displacement from known foraging areas, the appearance of secondary indicators (
Variations in respiration naturally vary with different behaviors and alterations to breathing rate as a function of acoustic exposure can be expected to co-occur with other behavioral reactions, such as a flight response or an alteration in diving. However, respiration rates in and of themselves may be representative of annoyance or an acute stress response. Various studies have shown that respiration rates may either be unaffected or could increase, depending on the species and signal characteristics, again highlighting the importance in understanding species differences in the tolerance of underwater noise when determining the potential for impacts resulting from anthropogenic sound exposure (
Marine mammals vocalize for different purposes and across multiple modes, such as whistling, echolocation click production, calling, and singing. Changes in vocalization behavior in response to anthropogenic noise can occur for any of these modes and may result from a need to compete with an increase in background noise or may reflect increased vigilance or a startle response. For example, in the presence of potentially masking signals, humpback whales and killer whales have been observed to increase the length of their songs (Miller
Avoidance is the displacement of an individual from an area or migration path as a result of the presence of a sound or other stressors, and is one of the most obvious manifestations of disturbance in marine mammals (Richardson
A flight response is a dramatic change in normal movement to a directed and rapid movement away from the perceived location of a sound source. The flight response differs from other avoidance responses in the intensity of the response (
Behavioral disturbance can also impact marine mammals in more subtle ways. Increased vigilance may result in costs related to diversion of focus and attention (
Many animals perform vital functions, such as feeding, resting, traveling, and socializing, on a diel cycle (24-hour cycle). Disruption of such functions resulting from reactions to stressors such as sound exposure are more likely to be significant if they last more than one diel cycle or recur on subsequent days (Southall
For non-impulsive sounds (
Seals exposed to non-impulsive sources with a received sound pressure level within the range of calculated exposures (142-193 dB re 1 μPa), have been shown to change their behavior by modifying diving activity and avoidance of the sound source (Götz
Adult ringed seals spend up to 20 percent of the time in subnivean lairs during the winter season (Kelly
Ringed seal mothers have a strong bond with their pups and may physically move their pups from the birth lair to an alternate lair to avoid predation, sometimes risking their lives to defend their pups from potential predators (Smith 1987). If a ringed seal mother perceives the proposed acoustic sources as a threat, the network of multiple birth and haulout lairs allows the mother and pup to move to a new lair (Smith and Hammill 1981; Smith and Stirling 1975). The acoustic sources and icebreaking noise from this proposed action are not likely to impede a ringed seal from finding a breathing hole or lair, as captive seals have been found to primarily use vision to locate breathing holes and no effect to ringed seal vision would occur from the acoustic disturbance (Elsner
Stress responses—An animal's perception of a threat may be sufficient to trigger stress responses consisting of some combination of behavioral responses, autonomic nervous system responses, neuroendocrine responses, or immune responses (
Neuroendocrine stress responses often involve the hypothalamus-pituitary-adrenal system. Virtually all neuroendocrine functions that are affected by stress—including immune competence, reproduction, metabolism, and behavior—are regulated by pituitary hormones. Stress-induced changes in the secretion of pituitary hormones have been implicated in failed reproduction, altered metabolism, reduced immune competence, and behavioral disturbance (
The primary distinction between stress (which is adaptive and does not normally place an animal at risk) and “distress” is the cost of the response. During a stress response, an animal uses glycogen stores that can be quickly replenished once the stress is alleviated. In such circumstances, the cost of the stress response would not pose serious fitness consequences. However, when an animal does not have sufficient energy reserves to satisfy the energetic costs of a stress response, energy resources must be diverted from other functions. This state of distress will last until the animal replenishes its energetic reserves sufficient to restore normal function.
Relationships between these physiological mechanisms, animal behavior, and the costs of stress responses are well-studied through controlled experiments and for both laboratory and free-ranging animals (
Auditory masking—Sound can disrupt behavior through masking, or interfering with, an animal's ability to detect, recognize, or discriminate between acoustic signals of interest (
Under certain circumstances, marine mammals experiencing significant masking could also be impaired from maximizing their performance fitness in survival and reproduction. Therefore, when the coincident (masking) sound is anthropogenic, it may be considered harassment when disrupting or altering critical behaviors. It is important to distinguish TTS and PTS, which persist after the sound exposure, from masking, which occurs during the sound exposure. Because masking (without resulting in TS) is not associated with abnormal physiological function, it is not considered a physiological effect, but rather a potential behavioral effect.
The frequency range of the potentially masking sound is important in determining any potential behavioral impacts. For example, low-frequency signals may have less effect on high-frequency echolocation sounds produced by odontocetes but are more likely to affect detection of mysticete communication calls and other potentially important natural sounds such as those produced by surf and some prey species. The masking of communication signals by anthropogenic noise may be considered as a reduction in the communication space of animals (
Masking affects both senders and receivers of acoustic signals and can potentially have long-term chronic effects on marine mammals at the population level as well as at the individual level. Low-frequency ambient sound levels have increased by as much as 20 dB (more than three times in terms of SPL) in the world's ocean from pre-industrial periods, with most of the increase from distant commercial shipping (Hildebrand 2009). All anthropogenic sound sources, but especially chronic and lower-frequency signals (
Potential Effects of Sonar on Prey—Ringed and bearded seals feed on marine invertebrates and fish. Marine invertebrates occur in the world's oceans, from warm shallow waters to cold deep waters, and are the dominant animals in all habitats of the study area. Although most species are found within the benthic zone, marine invertebrates can be found in all zones (sympagic (within the sea ice), pelagic (open ocean), or benthic (bottom dwelling)) of the Beaufort Sea (Josefson
Hearing capabilities of invertebrates are largely unknown (Lovell
Studies of sound energy effects on invertebrates are few, and identify only behavioral responses. Non-auditory injury, permanent threshold shift, temporary threshold shift, and masking studies have not been conducted for invertebrates. Both behavioral and auditory brainstem response studies suggest that crustaceans may sense frequencies up to 3 kHz, but best sensitivity is likely below 200 Hz (Goodall
It is expected that most marine invertebrates would not sense the frequencies of the sonar associated with the proposed action. Most marine invertebrates would not be close enough to active sonar systems to potentially experience impacts to sensory structures. Any marine invertebrate capable of sensing sound may alter its behavior if exposed to sonar. Although acoustic transmissions produced during the proposed action may briefly impact individuals, intermittent exposures to sonar are not expected to impact survival, growth, recruitment, or reproduction of widespread marine invertebrate populations.
The fish species located in the study area include those that are closely associated with the deep ocean habitat of the Beaufort Sea. Nearly 250 marine fish species have been described in the Arctic, excluding the larger parts of the sub-Arctic Bering, Barents, and Norwegian Seas (Mecklenburg
All fish have two sensory systems to detect sound in the water: The inner ear, which functions very much like the inner ear in other vertebrates, and the lateral line, which consists of a series of receptors along the fish's body (Popper and Fay 2010; Popper
Fish species in the study area are expected to hear the low-frequency sources associated with the proposed action, but most are not expected to detect sounds above this threshold. Only a few fish species are able to detect mid-frequency sonar above 1 kHz and could have behavioral reactions or experience auditory masking during these activities. These effects are expected to be transient and long-term consequences for the population are not expected. Fish with hearing specializations capable of detecting high-frequency sounds are not expected to be within the study area. If hearing specialists were present, they would have to be in close vicinity to the source to experience effects from the acoustic transmission. Human-generated sound could alter the behavior of a fish in a manner that would affect its way of living, such as where it tries to locate food or how well it can locate a potential mate; behavioral responses to loud noise could include a startle response, such as the fish swimming away from the source, the fish “freezing” and staying in place, or scattering (Popper 2003). Auditory masking could also interfere with a fish's ability to hear biologically relevant sounds, inhibiting the ability to detect both predators and prey, and impacting schooling, mating, and navigating (Popper 2003). If an individual fish comes into contact with low-frequency acoustic transmissions and is able to perceive the transmissions, they are expected to exhibit short-term behavioral reactions, when initially exposed to acoustic transmissions, which would not significantly alter breeding, foraging, or populations. Overall effects to fish from active sonar sources would be localized, temporary, and infrequent.
Effects to Physical and Foraging Habitat—Unless the sound source is stationary and/or continuous over a long duration in one area, neither of which applies to ICEX20 activities, the effects of the introduction of sound into the environment are generally considered to have a less severe impact on marine mammal habitat compared to any physical alteration of the habitat. Acoustic exposures are not expected to result in long-term physical alteration of the water column or bottom topography as the occurrences are of limited duration and would occur intermittently. Acoustic transmissions also would have no structural impact to subnivean lairs in the ice. Furthermore, since ice dampens acoustic transmissions (Richardson
Non-acoustic Impacts—Deployment of the ice camp could potentially affect ringed seal habitat by physically damaging or crushing subnivean lairs. These non-acoustic impacts could result in ringed seal injury or mortality. However, seals usually choose to locate lairs near pressure ridges, and the ice camp will be deployed in an area without pressure ridges in order to allow operation of an aircraft runway. Further, portable tents will be erected for lodging and operations purposes. Tents do not require building materials or typical construction methods. The tents are relatively easy to mobilize and will not be situated near areas featuring pressure ridges. Finally, the camp buildup will be gradual, with activity increasing over the first five days. This approach allows seals to move to different lair locations outside the ice camp area. Based on this information, we do not anticipate any damage to subnivean lairs that could result in ringed seal injury or mortality.
ICEX20 personnel will be actively conducting testing and training operations on the sea ice and will travel around the camp area, including the runway, on snowmobiles. Although the Navy does not anticipate observing any seals on the ice, it is possible that the presence of active humans could behaviorally disturb ringed seals that are in lairs or on the ice. As discussed above, the camp will not be deployed in areas with pressure ridges and seals will have opportunity to move away from disturbances associated with human activity. Furthermore, camp personnel will maintain a 100-meter avoidance distance for all marine mammals on the ice. Based on this information, we do not believe the presence of humans on ice will result in take.
Our preliminary determination of effects to the physical environment includes minimal possible impacts to marine mammals and their habitat from camp operation or deployment activities. In summary, given the relatively short duration of submarine testing and training activities, relatively small area that would be affected, and lack of physical impacts to habitat, the proposed actions are not likely to have a permanent, adverse effect on populations of prey species or marine mammal habitat. Therefore, any impacts to marine mammal habitat are not expected to cause significant or long-term consequences for individual ringed or bearded seals or their respective populations.
This section provides an estimate of the number of incidental takes proposed for authorization through this IHA, which will inform both NMFS' consideration of “small numbers” and the negligible impact determination.
Harassment is the only type of take expected to result from these activities. For this military readiness activity, the MMPA defines
Authorized takes would be by Level B harassment only, in the form of disruption of behavioral patterns and TTS, for individual marine mammals resulting from exposure to acoustic transmissions. Based on the nature of the activity, Level A harassment is neither anticipated nor proposed to be authorized, and described previously, no serious injury or mortality is anticipated or proposed to be authorized for this activity. Below we describe how the take is estimated.
Generally speaking, we estimate take from exposure to sound by considering: (1) Acoustic thresholds above which NMFS believes the best available science indicates marine mammals will be behaviorally harassed or incur some degree of permanent hearing impairment; (2) the area or volume of water that will be ensonified above these levels in a day; (3) the density or occurrence of marine mammals within these ensonified areas; and, (4) and the number of days of activities. For the proposed IHA, the Navy employed a sophisticated model known as the Navy Acoustic Effects Model (NAEMO) for assessing the impacts of underwater sound.
Using the best available science, NMFS applies acoustic thresholds that identify the received level of underwater sound above which exposed marine mammals would be reasonably expected to be behaviorally harassed (equated to Level B harassment) or to incur PTS of some degree (equated to Level A harassment).
Level B Harassment for non-explosive sources—In coordination with NMFS, the Navy developed behavioral thresholds to support environmental analyses for the Navy's testing and training military readiness activities utilizing active sonar sources; these behavioral harassment thresholds are used here to evaluate the potential effects of the active sonar components of the proposed action. The response of a marine mammal to an anthropogenic sound will depend on the frequency, duration, temporal pattern and amplitude of the sound as well as the animal's prior experience with the sound and the context in which the sound is encountered (
Multi-year research efforts have conducted sonar exposure studies for odontocetes and mysticetes (Miller
Southall
The Navy's Phase III proposed pinniped behavioral threshold has been updated based on controlled exposure experiments on the following captive animals: Hooded seal, gray seal, and California sea lion (Götz
Level A harassment and TTS—NMFS' Technical Guidance for Assessing the Effects of Anthropogenic Sound on Marine Mammal Hearing (Version 2.0) (Technical Guidance, 2018) identifies dual criteria to assess auditory injury (Level A harassment) to five different marine mammal groups (based on hearing sensitivity) as a result of exposure to noise from two different types of sources (impulsive or non-impulsive).
These thresholds were developed by compiling the best available science and soliciting input multiple times from both the public and peer reviewers to inform the final product. The references, analysis, and methodology used in the development of the thresholds are described in NMFS 2018 Technical Guidance, which may be accessed at
The Navy's PTS/TTS analyses begins with mathematical modeling to predict the sound transmission patterns from Navy sources, including sonar. These data are then coupled with marine species distribution and abundance data to determine the sound levels likely to be received by various marine species. These criteria and thresholds are applied to estimate specific effects that animals exposed to Navy-generated sound may experience. For weighting function derivation, the most critical data required are TTS onset exposure levels as a function of exposure frequency. These values can be estimated from published literature by examining TTS as a function of sound exposure level (SEL) for various frequencies.
To estimate TTS onset values, only TTS data from behavioral hearing tests were used. To determine TTS onset for each subject, the amount of TTS observed after exposures with different SPLs and durations were combined to create a single TTS growth curve as a function of SEL. The use of (cumulative) SEL is a simplifying assumption to accommodate sounds of various SPLs, durations, and duty cycles. This is referred to as an “equal energy” approach, since SEL is related to the energy of the sound and this approach assumes exposures with equal SEL result in equal effects, regardless of the duration or duty cycle of the sound. It is well known that the equal energy rule will over-estimate the effects of intermittent noise, since the quiet periods between noise exposures will allow some recovery of hearing compared to noise that is continuously present with the same total SEL (Ward 1997). For continuous exposures with the same SEL but different durations, the exposure with the longer duration will also tend to produce more TTS (Finneran
As in previous acoustic effects analysis (Finneran and Jenkins 2012; Southall
Table 3 below provides the weighted criteria and thresholds used in this analysis for estimating quantitative acoustic exposures of marine mammals from the proposed action.
The Navy performed a quantitative analysis to estimate the number of mammals that could be harassed by the underwater acoustic transmissions during the proposed action. Inputs to the quantitative analysis included marine mammal density estimates, marine mammal depth occurrence distributions (U.S Department of the Navy, in prep), oceanographic and environmental data, marine mammal hearing data, and criteria and thresholds for levels of potential effects.
The density estimate used to estimate take is derived from habitat-based modeling by Kaschner
The quantitative analysis consists of computer modeled estimates and a post-model analysis to determine the number of potential animal exposures. The model calculates sound energy propagation from the proposed sonars, the sound received by animat (virtual animal) dosimeters representing marine mammals distributed in the area around the modeled activity, and whether the sound received by a marine mammal exceeds the thresholds for effects.
The Navy developed a set of software tools and compiled data for estimating acoustic effects on marine mammals without consideration of behavioral avoidance or Navy's standard mitigations. These tools and data sets serve are integral components of NAEMO. In NAEMO, animats are distributed non-uniformly based on
NAEMO then records the energy received by each animat within the energy footprint of the event and calculates the number of animats having received levels of energy exposures that fall within defined impact thresholds. Predicted effects on the animats within a scenario are then tallied and the highest order effect (based on severity of criteria;
There are limitations to the data used in the acoustic effects model, and the results must be interpreted within these context. While the most accurate data and input assumptions have been used in the modeling, when there is a lack of definitive data to support an aspect of the modeling, modeling assumptions believed to overestimate the number of exposures have been chosen:
• Animats are modeled as being underwater, stationary, and facing the source and therefore always predicted to receive the maximum sound level (
• Animats do not move horizontally (but change their position vertically within the water column), which may overestimate physiological effects such as hearing loss, especially for slow moving or stationary sound sources in the model;
• Animats are stationary horizontally and therefore do not avoid the sound source, unlike in the wild where animals would most often avoid exposures at higher sound levels, especially those exposures that may result in PTS;
• Multiple exposures within any 24-hour period are considered one continuous exposure for the purposes of calculating the temporary or permanent hearing loss, because there are not sufficient data to estimate a hearing recovery function for the time between exposures; and
• Mitigation measures that are implemented were not considered in the model. In reality, sound-producing activities would be reduced, stopped, or delayed if marine mammals are detected by submarines via passive acoustic monitoring.
Because of these inherent model limitations and simplifications, model-estimated results must be further analyzed, considering such factors as the range to specific effects, avoidance, and the likelihood of successfully implementing mitigation measures. This analysis uses a number of factors in addition to the acoustic model results to predict effects on marine mammals.
For non-impulsive sources, NAEMO calculates the sound pressure level (SPL) and sound exposure level (SEL) for each active emission during an event. This is done by taking the following factors into account over the propagation paths: Bathymetric relief and bottom types, sound speed, and attenuation contributors such as absorption, bottom loss and surface loss. Platforms such as a ship using one or more sound sources are modeled in accordance with relevant vehicle dynamics and time durations by moving them across an area whose size is representative of the training event's operational area. Table 4 provides range to effects for active acoustic sources proposed for ICEX20 to phocid pinniped specific criteria. Phocids within these ranges would be predicted to receive the associated effect. Range to effects is important information in not only predicting acoustic impacts, but also in verifying the accuracy of model results against real-world situations and determining adequate mitigation ranges to avoid higher level effects, especially physiological effects to marine mammals.
As discussed above, within NAEMO animats do not move horizontally or react in any way to avoid sound. Furthermore, mitigation measures that are implemented during training or testing activities that reduce the likelihood of physiological impacts are not considered in quantitative analysis. Therefore, the current model overestimates acoustic impacts, especially physiological impacts near the sound source. The behavioral criteria used as a part of this analysis acknowledges that a behavioral reaction is likely to occur at levels below those required to cause hearing loss (TTS or PTS). At close ranges and high sound levels approaching those that could cause PTS, avoidance of the area immediately around the sound source is the assumed behavioral response for most cases.
In previous environmental analyses, the Navy has implemented analytical factors to account for avoidance behavior and the implementation of mitigation measures. The application of avoidance and mitigation factors has only been applied to model-estimated PTS exposures given the short distance over which PTS is estimated. Given that no PTS exposures were estimated during the modeling process for this proposed action, the implementation of avoidance and mitigation factors were not included in this analysis.
Table 5 shows the exposures expected for bearded and ringed seals based on NAEMO modeled results.
Subsistence hunting is important for many Alaska Native communities. A study of the North Slope villages of Nuiqsut, Kaktovik, and Barrow identified the primary resources used for subsistence and the locations for harvest (Stephen R. Braund & Associates 2010), including terrestrial mammals (caribou, moose, wolf, and wolverine), birds (geese and eider), fish (Arctic cisco, Arctic char/Dolly Varden trout, and broad whitefish), and marine mammals (bowhead whale, ringed seal, bearded seal, and walrus). Of these species, only bearded and ringed seals would be located within the study area during the proposed action.
The study area is at least 100-150 mi (161-241 km) from land, well seaward of known subsistence use areas and the planned activities would conclude prior to the start of the summer months, during which the majority of subsistence hunting would occur. In addition, the specified activity would not remove individuals from the population, therefore there would be no impacts caused by this action to the availability of bearded seals or ringed seals for subsistence hunting. Therefore, subsistence uses of marine mammals would not be impacted by this action.
In order to issue an IHA under Section 101(a)(5)(D) of the MMPA, NMFS must set forth the permissible methods of taking pursuant to the activity, and other means of effecting the least practicable impact on the species or stock and its habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance, and on the availability of the species or stock for taking for certain subsistence uses. NMFS regulations require applicants for incidental take authorizations to include information about the availability and feasibility (economic and technological) of equipment, methods, and manner of conducting the activity or other means of effecting the least practicable adverse impact upon the affected species or stocks and their habitat (50 CFR 216.104(a)(11)). The NDAA for FY 2004 amended the MMPA as it relates to military readiness activities and the incidental take authorization process such that “least practicable impact” shall include consideration of personnel safety, practicality of implementation, and impact on the effectiveness of the military readiness activity.
In evaluating how mitigation may or may not be appropriate to ensure the least practicable adverse impact on species or stocks and their habitat, as well as subsistence uses where applicable, we carefully consider two primary factors:
(1) The manner in which, and the degree to which, the successful implementation of the measure(s) is expected to reduce impacts to marine mammals, marine mammal species or stocks, and their habitat, as well as subsistence uses. This considers the nature of the potential adverse impact being mitigated (likelihood, scope, range). It further considers the likelihood that the measure will be effective if implemented (probability of accomplishing the mitigating result if implemented as planned), the likelihood of effective implementation (probability implemented as planned); and
(2) The practicability of the measures for applicant implementation, which may consider such things as cost, impact on operations, and, in the case of a military readiness activity, personnel safety, practicality of implementation, and impact on the effectiveness of the military readiness activity.
The following general mitigation actions are proposed for ICEX20 to minimize impacts on ringed and bearded seals on the ice floe:
• Camp deployment would begin in mid-February and would be completed by March 15. Based on the best available science, Arctic ringed seal whelping is not expected to occur prior to mid-March. Construction of the ice camp would be completed prior to whelping in the area of ICEX20. As such, pups are not anticipated to be in the vicinity of the camp at commencement, and mothers would not need to move newborn pups due to construction of the camp. Additionally, if a seal had a lair in the area they would be able to relocate. Completing camp deployment before ringed seal pupping begins will allow ringed seals to avoid the camp area prior to pupping and mating seasons, reducing potential impacts;
• Camp location will not be in proximity to pressure ridges in order to allow camp deployment and operation of an aircraft runway. This will minimize physical impacts to subnivean lairs;
• Camp deployment will gradually increase over five days, allowing seals to relocate to lairs that are not in the immediate vicinity of the camp;
• Personnel on all on-ice vehicles would observe for marine and terrestrial animals; any marine or terrestrial animal observed on the ice would be avoided by 328 ft (100 m). On-ice vehicles would not be used to follow any animal, with the exception of actively deterring polar bears if the situation requires;
• Personnel operating on-ice vehicles would avoid areas of deep snowdrifts near pressure ridges, which are preferred areas for subnivean lair development; and
• All material (
The following mitigation actions are proposed for ICEX20 activities involving acoustic transmissions:
• For activities involving active acoustic transmissions from submarines and torpedoes, passive acoustic sensors on the submarines will listen for vocalizing marine mammals for 15 minutes prior to the initiation of exercise activities. If a marine mammal is detected, the submarine will delay active transmissions, and not restart until after 15 minutes have passed with no marine mammal detections. If there are no animal detections, it may be assumed that the vocalizing animal is no longer in the immediate area and is unlikely to be subject to harassment. Ramp up procedures are not proposed as Navy determined, and NMFS accepts, that they would result in an unacceptable impact on readiness and on the realism of training.
Based on our evaluation of the applicant's proposed measures, as well as other measures considered by NMFS, NMFS has preliminarily determined that the proposed mitigation measures provide the means effecting the least practicable impact on the affected species or stocks and their habitat, paying particular attention to rookeries, mating grounds, and areas of similar significance, and on the availability of such species or stock for subsistence uses.
In order to issue an IHA for an activity, section 101(a)(5)(D) of the MMPA states that NMFS must set forth requirements pertaining to the monitoring and reporting of such taking. The MMPA implementing regulations at 50 CFR 216.104 (a)(13) indicate that requests for authorizations must include the suggested means of accomplishing the necessary monitoring and reporting that will result in increased knowledge of the species and of the level of taking or impacts on populations of marine mammals that are expected to be present in the proposed action area. Effective reporting is critical both to compliance as well as ensuring that the most value is obtained from the required monitoring.
Monitoring and reporting requirements prescribed by NMFS should contribute to improved understanding of one or more of the following:
• Occurrence of marine mammal species or stocks in the area in which take is anticipated (
• Nature, scope, or context of likely marine mammal exposure to potential stressors/impacts (individual or cumulative, acute or chronic), through better understanding of: (1) Action or environment (
• Individual marine mammal responses (behavioral or physiological) to acoustic stressors (acute, chronic, or cumulative), other stressors, or cumulative impacts from multiple stressors.
• How anticipated responses to stressors impact either: (1) Long-term fitness and survival of individual marine mammals; or (2) populations, species, or stocks.
• Effects on marine mammal habitat (
• Mitigation and monitoring effectiveness.
The U.S. Navy has coordinated with NMFS to develop an overarching program plan in which specific monitoring would occur. This plan is called the Integrated Comprehensive Monitoring Program (ICMP) (U.S. Department of the Navy 2011). The ICMP was created in direct response to Navy permitting requirements established in various MMPA rules, ESA consultations, and applicable regulations. As a framework document, the ICMP applies by regulation to those activities on ranges and operating areas for which the Navy is seeking or has sought incidental take authorizations. The ICMP is intended to coordinate monitoring efforts across all regions and to allocate the most appropriate level and type of effort based on set of standardized research goals, and in acknowledgement of regional scientific value and resource availability.
The ICMP is focused on Navy training and testing ranges where the majority of Navy activities occur regularly as those areas have the greatest potential for being impacted. ICEX20 in comparison is a short duration exercise that occurs approximately every other year. Due to the location and expeditionary nature of the ice camp, the number of personnel onsite is extremely limited and is constrained by the requirement to be able to evacuate all personnel in a single day with small planes. As such, a dedicated monitoring project would not be feasible as it would require additional personnel and equipment to locate, tag and monitor the seals.
The Navy is committed to documenting and reporting relevant aspects of training and research activities to verify implementation of mitigation, comply with current permits, and improve future environmental assessments. All sonar usage will be collected via the Navy's Sonar Positional Reporting System database and reported. If any injury or death of a marine mammal is observed during the ICEX20activity, the Navy will immediately halt the activity and report the incident to the Office of Protected Resources, NMFS, and the Alaska Regional Stranding Coordinator, NMFS. The following information must be provided:
• Time, date, and location of the discovery;
• Species identification (if known) or description of the animal(s) involved;
• Condition of the animal(s) (including carcass condition if the animal is dead);
• Observed behaviors of the animal(s), if alive;
• If available, photographs or video footage of the animal(s); and
• General circumstances under which the animal(s) was discovered (
The Navy will provide NMFS with a draft exercise monitoring report within 90 days of the conclusion of the planned activity. The draft exercise monitoring report will include data regarding sonar use and any mammal sightings or detection will be documented. The report will also include information on the number of sonar shutdowns recorded. If no comments are received from NMFS within 30 days of submission of the draft final report, the draft final report will constitute the final report. If comments are received, a final report must be submitted within 30 days after receipt of comments.
NMFS has defined negligible impact as an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival (50 CFR 216.103). A negligible impact finding is based on the lack of likely adverse effects on annual rates of recruitment or survival (
Underwater acoustic transmissions associated with ICEX20, as outlined previously, have the potential to result in Level B harassment of ringed and bearded seals in the form of TTS and behavioral disturbance. No serious injury, mortality or Level A takes are anticipated to result from this activity. At close ranges and high sound levels approaching those that could cause PTS, avoidance of the area immediately around the sound source would be seals' likely behavioral response.
NMFS estimates 11 takes of ringed seals and 1 take of bearded seals due to TTS from the submarine activities. TTS is a temporary impairment of hearing and TTS can last from minutes or hours to days (in cases of strong TTS). In many cases, however, hearing sensitivity recovers rapidly after exposure to the sound ends. This activity has the potential to result in only minor levels of TTS, and hearing sensitivity of affected animals would be expected to recover quickly. Though TTS may occur in up to 11 ringed seals and 1 bearded seal, the overall fitness of these individuals is unlikely to be affected and negative impacts to the entire stocks are not anticipated.
Effects on individuals that are taken by Level B harassment could include alteration of dive behavior, alteration of foraging behavior, effects to breathing, interference with or alteration of vocalization, avoidance, and flight. More severe behavioral responses are not anticipated due to the localized, intermittent use of active acoustic sources and mitigation by passive acoustic monitoring which will limit exposure to sound sources. Most likely, individuals will be temporarily displaced by moving away from the sound source. As described previously in the behavioral effects section, seals exposed to non-impulsive sources with a received sound pressure level within the range of calculated exposures, (142-193 dB re 1 μPa), have been shown to change their behavior by modifying diving activity and avoidance of the sound source (Götz
The Navy's planned activities are localized and of relatively short duration. While the total project area is large, the Navy expects that most activities will occur within the ice camp action area in relatively close proximity to the ice camp. The larger study area depicts the range where submarines may maneuver during the exercise. The ice camp will be in existence for up to six weeks with acoustic transmission occurring intermittently over approximately four weeks.
The project is not expected to have significant adverse effects on marine mammal habitat. The project activities are limited in time and would not modify physical marine mammal habitat. While the activities may cause some fish to leave a specific area ensonified by acoustic transmissions, temporarily impacting marine mammals' foraging opportunities, these fish would likely return to the affected area. As such, the impacts to marine mammal habitat are not expected to cause significant or long-term negative consequences.
For on-ice activity, serious injury and mortality are not anticipated. Level B harassment could occur but is unlikely due to mitigation measures followed during the exercise. Foot and snowmobile movement on the ice will be designed to avoid pressure ridges, where ringed seals build their lairs; runways will be built in areas without pressure ridges; snowmobiles will follow established routes; and camp buildup is gradual, with activity increasing over the first five days providing seals the opportunity to move to a different lair outside the ice camp area. The Navy will also employ its standard 100-m avoidance distance from any arctic animals. Implementation of these measures should ensure that ringed seal lairs are not crushed or damaged during ICEX20 activities and minimize the potential for seals and pups to abandon lairs and relocate.
The ringed seal pupping season on the ice lasts for five to nine weeks during late winter and spring. Ice camp deployment would begin in mid-February and be completed by March 15, before the pupping season. This will allow ringed seals to avoid the ice camp area once the pupping season begins, thereby reducing potential impacts to nursing mothers and pups. Furthermore, ringed seal mothers are known to physically move pups from the birth lair to an alternate lair to avoid predation. If a ringed seal mother perceives the acoustic transmissions as a threat, the local network of multiple birth and haulout lairs would allow the mother and pup to move to a new lair.
There is an ongoing UME for ice seals, including ringed and bearded seals. Elevated strandings have occurred in the Bering and Chukchi Seas since June 2018. Though elevated numbers of seals have stranded during this UME, this event does not provide cause for concern regarding population-level impacts, as the population abundance estimates for each of the affected species number in the hundreds of thousands. The study area for ICEX20 activities is in the Beaufort Sea and Arctic Ocean, well north and east of the primary area where seals have stranded along the western coast of Alaska (see map of strandings at:
In summary and as described above, the following factors primarily support our preliminary determination that the impacts resulting from this activity are not expected to adversely affect the species or stock through effects on annual rates of recruitment or survival:
• No serious injury or mortality is anticipated or authorized;
• Impacts will be limited to Level B harassment, primarily in the form of behavioral disturbance;
• TTS is expected to affect only a limited number of animals;
• The number of takes proposed to be authorized are low relative to the estimated abundances of the affected stocks;
• There will be no loss or modification of ringed or bearded seal habitat and minimal, temporary impacts on prey;
• Physical impacts to ringed seal subnivean lairs will be avoided; and
• Mitigation requirements for ice camp activities would minimize impacts to animals during the pupping season.
Based on the analysis contained herein of the likely effects of the specified activity on marine mammals and their habitat, and taking into consideration the implementation of the proposed monitoring and mitigation measures, NMFS preliminarily finds that the total marine mammal take from the proposed activity will have a negligible impact on all affected marine mammal species or stocks.
Impacts to subsistence uses of marine mammals resulting from the proposed action are not anticipated. The proposed action would occur outside of the primary subsistence use season (
Section 7(a)(2) of the Endangered Species Act of 1973 (ESA: 16 U.S.C. 1531
NMFS is proposing to authorize take of ringed seals and bearded seals, which are listed under the ESA. The Permits and Conservation Division has requested initiation of section 7 consultation with the Protected Resources Division of AKR for the issuance of this IHA. NMFS will conclude the ESA consultation prior to reaching a determination regarding the proposed issuance of the authorization.
As a result of these preliminary determinations, NMFS proposes to issue an IHA to the Navy for conducting submarine training and testing activities in the Beaufort Sea and Arctic Ocean beginning in February 2020, provided the previously mentioned mitigation, monitoring, and reporting requirements are incorporated. A draft of the proposed IHA can be found at
We request comment on our analyses, the proposed authorization, and any other aspect of this Notice of Proposed IHA. We also request comment on the potential renewal of this proposed IHA as described in the paragraph below. Please include with your comments any supporting data or literature citations to help inform decisions on the request for this IHA or a subsequent renewal.
On a case-by-case basis, NMFS may issue a one-year IHA renewal with an additional 15 days for public comments when (1) another year of identical or nearly identical activities as described in the Specified Activities section of this notice is planned or (2) the activities as described in the Specified Activities section of this notice would not be completed by the time the IHA expires and a renewal would allow for completion of the activities beyond that described in the Dates and Duration section of this notice, provided all of the following conditions are met:
• A request for renewal is received no later than 60 days prior to expiration of the current IHA.
• The request for renewal must include the following:
(1) An explanation that the activities to be conducted under the requested renewal are identical to the activities analyzed under the initial IHA, are a subset of the activities, or include changes so minor (
(2) A preliminary monitoring report showing the results of the required monitoring to date and an explanation showing that the monitoring results do not indicate impacts of a scale or nature not previously analyzed or authorized.
• Upon review of the request for renewal, the status of the affected species or stocks, and any other pertinent information, NMFS determines that there are no more than minor changes in the activities, the mitigation and monitoring measures will remain the same and appropriate, and the findings in the initial IHA remain valid.
The Department of Commerce will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. Chapter 35).
This information collection request may be viewed at
Written comments and recommendations for the proposed
Defense Security Cooperation Agency, Department of Defense.
Arms sales notice.
The Department of Defense is publishing the unclassified text of an arms sales notification.
Karma Job at
This 36(b)(1) arms sales notification is published to fulfill the requirements of section 155 of Public Law 104-164 dated July 21, 1996. The following is a copy of a letter to the Speaker of the House of Representatives, Transmittal 19-49 with attached Policy Justification and Sensitivity of Technology.
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* As defined in Section 47(6) of the Arms Export Control Act.
Poland has requested to buy thirty-two (32) F-35 Joint Strike Fighter Conventional Take Off and Landing (CTOL) Aircraft and thirty-three (33) Pratt & Whitney F-135 Engines. Also included are Electronic Warfare Systems; Command, Control, Communications, Computer, and Intelligence/Communications, Navigational, and Identification (C4I/CNI); Autonomic Logistics Global Support System (ALGS); Autonomic Logistics Information System (ALIS); Full Mission Trainer; Weapons Employment Capability, and other Subsystems, Features, and Capabilities; F-35 unique infrared flares; reprogramming center; F-35 Performance Based Logistics; software development/integration; aircraft ferry and tanker support; support equipment; tools and test equipment; communications equipment; spares and repair parts; personnel training and training equipment; publications and technical documents; U.S. Government and contractor engineering, logistics, and personnel services; and other related elements of logistics and program support. The estimated cost is $6.5 billion.
This proposed sale will support the foreign policy and national security of the United States by improving the security of a NATO ally, which is an important force for political stability and economic progress in Europe. This sale is consistent with U.S. initiatives to provide key allies in the region with modern systems that will enhance interoperability with U.S. forces and increase security.
This proposed sale of F-35s will provide Poland with a credible defense capability to deter aggression in the region and ensure interoperability with U.S. forces. The proposed sale will augment Poland's operational aircraft inventory and enhance its air-to-air and air-to-ground self-defense capability. The Polish Air Force's legacy MiG-29 and Su-22 fleet will be replaced with F-35s. Poland will have no difficulty absorbing these aircraft into its armed forces.
The proposed sale of this aircraft, systems and support will not alter the basic military balance in the region.
The prime contractors will be Lockheed Martin Aeronautics Company in Fort Worth, Texas; and Pratt &Whitney Military Engines in East Hartford, Connecticut. There are no known offset agreements proposed in connection with this potential sale. However, the purchaser typically requests offsets. Any offset agreements will be defined in negotiations between the purchaser and the contractor(s).
Implementation of this proposed sale will require multiple trips to Poland involving U.S. Government and contractor representatives for technical reviews/support, program management and training over the life of the program. U.S. contractor representatives will be required in Poland to conduct Contractor Engineering Technical Services (CETS) and Autonomic Logistics and Global Support (ALGS) for after aircraft delivery.
There will be no adverse impact on U.S. defense readiness as a result of this proposed sale.
(vii)
1. The F-35 Conventional Take-Off and Landing (CTOL) Block 4 aircraft is classified SECRET, except as noted below. It contains current technology representing the F-35 low observable airframe/outer mold line, Pratt & Whitney engine, radar, integrated core processor central computer, mission systems/electronic warfare suite, a multiple sensor suite, operational flight and maintenance trainers, technical data/documentation, and associated software. As the aircraft and its subsystems are under development, many specific identifying equipment/system nomenclatures have not been assigned to date. Sensitive and classified elements of the F-35 CTOL Block 4 aircraft include hardware, accessories, components, and associated software for the following major subsystems:
a. The Propulsion system is classified SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET. The single 40,000-lb thrust class engine is designed for low observability and has been integrated into the aircraft system. Pratt & Whitney, with the F-135, is developing and producing engine turbo machinery compatible with the F-35 and assures highly reliable, affordable performance. The engine is designed to be utilized in all F-35 variants, providing unmatched commonality and supportability throughout the worldwide base of F-35 users. The CTOL propulsion configuration consists of a main engine, diverterless supersonic inlet, and a Low Observable Axisymmetric Nozzle (LOAN).
b. The AN/APG-81 Active Electronically Scanned Array (AESA) provides mission systems with air-to-air and air-to-ground tracks, which the mission system uses as a component to sensor fusion. The AESA allows the radar to direct RF energy in a way that does not expose the F-35, allowing it to maintain low observability in high-threat environments. The radar subsystem supports integrated system performance for airto-air missions by providing search, track, identification, and AIM-120 missile data link functionality. The radar also provides synthetic aperture radar mapping for locating surface targets and weather mapping for weather avoidance. The radarfunctions are tightly integrated, interleaved, and managed by an interface to sensor management functions within mission software. The hardware and software are classified SECRET.
c. The Electro Optical Targeting System (EOTS) contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET. The EOTS subsystem to the
d. The Electro-Optical Distributed Aperture System (EODAS) is a subsystem to the sensor suite and provides full spherical coverage for air-to-air and air-to-ground detection and Navigation Forward Looking Infrared (NFLIR) imaging. The system contains both SECRET and UNCLASSIFIED elements and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET. The NFLIR capability provides infrared (IR) imagery directly to the pilot's Helmet-Mounted Display (HMD) for navigation in total darkness, including takeoff and landing, and provides a passive IR input to the F-35's sensor fusion algorithms. The all-aspect missile warning function provides time-critical warnings of incoming missiles and cues other subsystems to provide effective countermeasure employment. EODAS also provides an IRST function that can create and maintain Situational Awareness-quality tracks (SAIRST). EODAS is a midwave Infrared (IR) system consisting of six identical sensors distributed around the F-35 aircraft. Each sensor has a corresponding airframe window panel integrated with the aircraft structure to meet aerodynamic and stealth requirements.
e. The Electronic Warfare (EW) system contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET. Sensitive elements include: apertures; radio frequency (RF) and infrared (IR) countermeasures; and Electronic Countermeasures (ECM) techniques and features. The reprogrammable, integrated system provides radar warning and electronic support measures (ESM) along with a fully integrated countermeasures (CM) system. The EW system is the primary subsystem used to enhance situational awareness, targeting support and self-defense through the search, intercept, location and identification of in-band emitters and to automatically counter IR and RF threats. The IR and RF countermeasures are classified SECRET. This system uses low signature-embedded apertures, located in the aircraft control surface edges, to provide direction finding and identification of surface and airborne emitters and the geo location of surface emitters. The system is classified SECRET.
f. The Command, Control, Communications, Computers and Intelligence/ communications, Navigation, and Identification (C4I/CNI) system provides the pilot with unmatched connectivity to flight members, coalition forces, and the battlefield. It is an integrated subsystem designed to provide a broad spectrum of secure, antijam, covert voice and data communications, precision radio navigation and landing capability, self-identification, beyond visual range target identification, and connectivity with off-board sources of information. The functionality is tightly integrated within the mission system for enhanced efficiency and effectiveness in the areas of communications, navigation, identification, and sensor fusion. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET. The CNI function includes both SECRET and UNCLASSIFIED elements. Sensitive elements of the CNI subsystems include:
1. The VHF/UHF Voice and Data (Plain and Secure) Communication functionality includes air-to-air UHF/VHF voice and data, both clear and secure, to provide communications with other friendly and coalition aircraft, air-to ground UHF voice to provide communications with ground sites, and intercommunication voice and tone alerts to provide communications between the avionics system and the pilot. UHF/VHF downlink of air vehicle status and maintenance information is provided to notify the ground crews of the amounts and types of stores, fuel, and other supplies or equipment needed to quickly turn the aircraft for the next mission. The system contains both SECRET and UNCLASSIFIED elements and contains technology representing the latest state of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
2. The Tactical Air Navigation (TACAN) functionality provides operational modes to identify ground station and to provide bearing-to-station, slant range-to ground station, bearing-to-airborne station and slant range to the nearest airborne station or aircraft. TACAN is not unique to the F-35 aircraft but is standard on most U.S. Air Force aircraft. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
3. The Identification Friend or Foe Interrogator and Transponder Identification functionality consists of integrated Mark XII Identification Friend or Foe (IFF) transponder capability to provide identification of other friendly forces. The CNI system supports sensor fusion by supplying data from IFF interrogations and offboard sources through the intra-flight data link. The system contains both SECRET and UNCLASSIFIED elements and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
4. The Global Positioning System Navigation functionality includes the Global Positioning System (OPS) aided inertial navigation to provide high-quality positional navigation, and the Instrument Landing System (ILS)/Tactical Air Control and Navigation (TACAN) to provide navigation and landing cues within controlled airspace. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
5. The Multi-Function Advanced Data Link (MADL) is used specifically for communications between F-35 aircraft and has a very low probability of intercept, contributing to covert operations. The system contains both SECRET and UNCLASSIFIED elements and contains technology representing the latest stateof-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
6. The Inertial Navigation System is an all-attitude, Ring Laser Gyro-based navigation system providing outputs of linear and angular acceleration, velocity, body angular rates, position, altitude (roll, pitch, and platform azimuth), magnetic and true heading, altitude, and time tags. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
7. The Radar Altimeter functionality is a module provided in the CNI system rack 3A and uses separate transmit and receive antennae. It measures and reports altitude, and altitude rate of change. Control data is transferred over
8. The Instrument Landing System (ILS) measures, and reports azimuth course and alignment, elevation course alignment, and distance to the runway. Data from the ILS is used to drive visual flight instrumentation. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
9. The Tactical Data Link is a secure broadcast Tactical Digital Information Link (TADIL) used for real-time voice/data exchange for command and control, relative navigation, and Precise Position Location Identification (PPLI), providing Link-16 type capabilities. The system contains both SECRET and UNCLASSIFIED elements and contains technology representing the latest state of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is classified SECRET.
g. The F-35 Autonomic Logistics Global Sustainment (ALGS) includes both SECRET and UNCLASSIFIED elements. It provides a fully integrated logistics management solution. ALGS integrates a number of functional areas, including supply chain management, repair, support equipment, engine support, and training. The ALGS infrastructure employs a state-of-the-art information system that provides real-time, decision-worthy information for sustainment decisions by flight line personnel. Prognostic health monitoring technology is integrated with the air system and is crucial to the predictive maintenance of vital components.
h. The F-35 Autonomic Logistics Information System (ALIS) includes both SECRET and UNCLASSIFIED elements. The ALIS provides an intelligent information infrastructure that binds all of the key concepts of ALGS into an effective support system. ALIS establishes the appropriate interfaces among the F-35 Air Vehicle, the warfighter, the training system, government information technology (IT) systems, JSF operations, and supporting commercial enterprise systems. Additionally, ALIS provides a comprehensive tool for data collection and analysis, decision support, and action tracking.
i. The F-35 Training System includes both SECRET and UNCLASSIFIED elements. The Training System includes several types of training devices, to provide for integrated training of both pilots and maintainers. The pilot training device includes a Full Mission Simulator (FMS). The maintainer training devices include an Aircraft Systems Maintenance Trainer (ASMT), Ejection System Maintenance Trainer (ESMT), and Weapons Loading Trainer (WLT). The F-35 Training System can be integrated, where both pilots and maintainers learn in the same Integrated Training Center (ITC). Alternatively, the pilots and maintainers can train in separate facilities (Pilot Training Center and Maintenance Training Center).
j. Weapons employment capability is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is SECRET. Software (object code) is classified SECRET. Sensitive elements include co-operative targeting.
k. Other Subsystems, Features, and Capabilities:
1. The Low Observable Air Frame is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is classified SECRET. Software (object code) is SECRET. Sensitive elements include: the Radar Cross Section and its corresponding plots, construction materials and fabrication.
2. The Integrated Core Processor (ICP) Central Computer is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is SECRET. Software (object code) is classified SECRET. Sensitive elements include: F-35 Integrated Core Processor utilizing Commercial Off-the-Shelf (COTS) Hardware and Module Design to maximize growth and allow for efficient management of DMS and Technology Insertion, if additional processing is needed, a second ICP will be installed in the space reserved for that purpose, more than doubling the current throughput and memory capacity.
3. The F-35 Helmet Mounted Display System (HMDS) is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is SECRET. Software (object code) is SECRET. Sensitive elements include: HMDS consists of the Display Management Computer-Helmet, a helmet shell/display module, a quick disconnect integrated as part of the ejection seat, helmet trackers and tracker processing, day- and night-vision camera functions, and dedicated system/graphics processing. The HMDS provides a fully sunlight readable, bi ocular display presentation of aircraft information projected onto the pilot's helmet visor. The use of a night vision camera integrated into the helmet eliminates the need for separate Night Vision Goggles (NVG). The camera video is integrated with EO and IR imaging inputs and displayed on the pilot's visor to provide a comprehensive night operational capability.
4. The Pilot Life Support System is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is SECRET. Software (object code) is SECRET. Sensitive elements include: a measure of Pilot Chemical, Biological, and Radiological Protection through use of an On-Board Oxygen Generating System (OBOGS); and an escape system that provide additional protection to the pilot. OBOGS takes the Power and Thermal Management System (PTMS) air and enriches it by removing gases (mainly nitrogen) by adsorption, thereby increasing the concentration of oxygen in the product gas and supplying breathable air to the pilot.
5. The Off-Board Mission Support System is SECRET and contains technology representing the latest state-of-the-art in several areas. Information on performance and inherent vulnerabilities is SECRET. Software (object code) is SECRET. Sensitive elements include: mission planning, mission briefing, maintenance/intelligence/ tactical debriefing, sensor/algorithm planning, EW system reprogramming, data debrief, etc.
l. Publications: Manuals are considered SECRET as they contain information on aircraft/system performance and inherent vulnerabilities.
2. The JSF Reprogramming Center is classified SECRET and contains technology representing the latest state-of-the-art in several areas. This hardware/software facility is located in the United States and provides F-35 customers a means to update JSF electronic warfare databases. Sensitive elements include: EW software databases and tools to modify these databases.
3. If a technologically advanced adversary were to obtain knowledge of the specific hardware and software elements, the information could be used to develop countermeasures that might reduce weapon system effectiveness or be used in the development of a system with similar or advanced capabilities.
4. A determination has been made that Poland can provide substantially the same degree of protection for the sensitive technology being released as the U.S. Government. This sale is necessary in furtherance of the U.S. foreign policy and national security objectives outlined in the Policy Justification.
5. All defense articles and services listed in this transmittal are authorized for release and export to the Government of Poland.
U.S. Army Corps of Engineers, DoD.
Notice of intent.
Pursuant to the requirements of the National Environmental Policy Act (NEPA), the U.S. Army Corps of Engineers, Philadelphia District (Corps) is preparing an integrated Feasibility Report/Tiered Environmental Impact Statement (EIS) for the proposed New Jersey Back Bays (NJBB) Coastal Storm Risk Management (CSRM) Feasibility Study. The study is assessing the feasibility of coastal storm risk management alternatives to be implemented within the authorized study area with a specific emphasis on the back bay areas along the New Jersey Atlantic Coast extending from Cape May Inlet to Shark River Inlet including the NJ Coastal Lakes Area.
Comments and suggestions must be submitted by January 16, 2020.
Pertinent information about the study can be found at:
Questions about the overall NJBB study should be directed to J.B. Smith, Project Manager, U.S. Army Corps of Engineers, Philadelphia District, Planning Division, Project Development Branch. Mail: J.B. Smith, U.S. Army Corps of Engineers, Philadelphia District, CENAP-PL-PC, Wanamaker Building, 100 Penn Square East, Philadelphia, PA 19107-3390; Phone: (215) 656-6579; email:
The U.S. Army Corps of Engineers (Corps), in partnership with the New Jersey Department of Environmental Protection (NJDEP), as the non-federal sponsor, are undertaking this study. The NJBB CSRM Feasibility Study area is one of 9 focus areas with vulnerable coastal populations identified in the North Atlantic Coast Comprehensive Study (NACCS). The NACCS was conducted in response to Public Law 113-2 and the Water Resource and Reform Development Act (WRRDA) of 2014 following the devastation in the wake of Hurricane Sandy, which greatly affected the study area in October of 2012. The purpose of the NJBB CSRM Feasibility Study is to identify comprehensive CSRM strategies to increase coastal resilience, and to reduce flooding risk from future storms and impacts of sea level change. The objective of the Study is to investigate CSRM problems and solutions to reduce damages from coastal flooding that affect population, critical infrastructure, critical facilities, property, and ecosystems. The authority for the proposed project is the resolution adopted by the U.S. House of Representatives Committee on Public Works and Transportation and the U. S. Senate Committee on Environment and Public Works dated December 1987. A Feasibility Cost Sharing Agreement (FCSA) was executed in 2016 with the NJDEP.
The study area encompasses approximately 950 square miles located behind the New Jersey barrier islands of Monmouth, Ocean, Burlington, Atlantic and Cape May Counties, and includes the set of interconnected water bodies and coastal lakes that are separated from the Atlantic Ocean.
As required by Council on Environmental Quality's Principles, Requirements and Guidelines for Water and Land Related Resources Implementation Studies all reasonable alternatives to the proposed Federal action that meet the purpose and need will be considered in the Tiered EIS. Tiering, which is defined in 40 CFR 1508.28, is a means of making the environmental review process more efficient by allowing parties to “eliminate repetitive discussions of the same issues and to focus on the actual issues suitable for decision at each level of environmental review” (40 CFR 1502.20). The Study will consider the full array of structural, non-structural, and natural and nature-based measures, and will consider past, current, and future coastal storm risk management and resilience planning initiatives and projects underway by the USACE and other Federal, State, and local agencies.
The Corps and the NJDEP hosted two agency workshop meetings in June 2017, with representatives from federal and state agencies, counties, municipalities, non-governmental organizations (NGOs), elected officials and academia. The Corps initially announced the preparation of an integrated Feasibility Report/EIS for study in the December 27, 2017
The U.S. Army Corps of Engineers is the lead federal agency for the preparation of a Tiered EIS in order to meet the requirements of the NEPA and the NEPA Implementing Regulations of the President's Council on Environmental Quality (40 CFR 1500-1508). The following agencies have accepted the invitation to be Cooperating Agencies: The U.S. Environmental Protection Agency, the U.S. Fish and Wildlife Service, and the National Marine Fisheries Service. The preparation of a Tiered EIS will be coordinated with New Jersey State and local municipalities with discretionary authority relative to the proposed actions. The Draft Integrated Feasibility Report/Tiered EIS is currently scheduled for distribution to the public in March of 2020.
Department of Education (ED), Office of the General Counsel (OGC)
Notice.
In accordance with the Paperwork Reduction Act of 1995, ED is requesting the Office of Management and Budget (OMB) to conduct an emergency review of a new information collection.
Approval by the OMB has been requested by January 2, 2020. Interested persons are invited to submit comments on or before December 27, 2019.
To access and review all the documents related to the information collection listed in this notice, please use
For specific questions related to collection activities, please contact Hilary Malawer, Deputy General Counsel, 202-401-6148.
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. ED is soliciting comments on the proposed information collection request (ICR) that is described below. The Department of Education is especially interested in public comment addressing the following issues: (1) Is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
This collection of information is necessary to implement 20 U.S.C. 1011f.
Office of Postsecondary Education, Department of Education.
Notice.
The Department of Education is issuing a notice inviting applications for fiscal year (FY) 2020 for the Fulbright-Hays Group Projects Abroad (GPA) Program, Catalog of Federal Domestic Assistance (CFDA) number 84.021A and 84.021B. This notice relates to the approved information collection under OMB control number 1840-0792.
For the addresses for obtaining and submitting an application, please refer to our Common Instructions for Applicants to Department of Education Discretionary Grant Programs, published in the
Cory Neal, U.S. Department of Education, 400 Maryland Avenue SW, Room 258-12, Washington, DC 20202. Telephone: (202) 453-6137. Email:
If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.
This competition invites applicants to submit an application to request support for either a Fulbright-Hays GPA short-term project (GPA short-term projects 84.021A) or a Fulbright-Hays GPA long-term project (GPA long-term projects 84.021B). Applicants must clearly indicate on the SF 424, the Application for Federal Assistance cover sheet whether they are applying for support for a GPA short-term project (84.021A) or a GPA long-term project (84.021B). Additional submission details are included in the application package.
There are three types of GPA short-term projects: (1) Short-term seminar projects of four to six weeks in length designed to help integrate international studies into an institution's or school system's general curriculum by focusing on a particular aspect of area study, such as the culture of an area or country of study (34 CFR 664.11); (2) curriculum development projects of four to eight weeks in length that provide participants an opportunity to acquire resource materials for curriculum development in modern foreign language and area studies for use and dissemination in the United States (34 CFR 664.12); and (3) group research or study projects of three to twelve months in duration designed to give participants the opportunity to undertake research or study in a foreign country (34 CFR 664.13).
GPA long-term projects are advanced overseas intensive language projects that may be carried out during a full year, an academic year, a semester, a trimester, a quarter, or a summer. GPA long-term projects are designed to take advantage of the opportunities that exist in the foreign country for intensive advanced language training and for using the language while experiencing the culture in the foreign country. Participants should have successfully completed at least two academic years of training in the language to be studied to be eligible to participate in a GPA intensive advanced language training program. In addition, the language to be studied must be indigenous to the host country and maximum use must be made of local institutions and personnel (34 CFR 664.14).
This priority is:
A group project that focuses on one or more of the following geographic regions of the world: Africa, East Asia, South Asia, Southeast Asia and the Pacific, the Western Hemisphere (Central and South America, Mexico, and the Caribbean), Eastern and Central Europe and Eurasia, and the Near East.
These priorities are:
Applications for GPA short-term projects from the following types of institutions and organizations:
• Minority-Serving Institutions (MSIs)(as defined in this notice).
• Community colleges (as defined in this notice).
• New applicants (as defined in this notice).
• State educational agencies (as defined in this notice).
Applications for GPA long-term advanced overseas intensive language training projects from MSIs.
Applications that propose GPA short-term projects or GPA long-term projects that provide substantive training and thematic focus on any modern foreign language except French, German, or Spanish.
Applications that propose short-term projects abroad that develop and improve foreign language studies, area studies, or both at elementary and secondary schools by including K-12 teachers or K-12 administrators as at least 50 percent of the project participants.
The following definitions are from the 2016 NFP and are designed to provide clarity for applicants addressing the competitive preference priorities.
The regulations in 34 CFR part 86 apply to IHEs only.
Contingent upon the availability of funds and the quality of applications, we may make additional awards in FY 2021 from the list of unfunded applications from this competition.
GPA short-term projects: $50,000-$100,000.
GPA long-term projects: $50,000-$250,000.
GPA short-term projects: $80,059.
GPA long-term projects: $185,025.
GPA short-term projects: 10.
GPA long-term projects: 15.
The Department is not bound by any estimates in this notice.
GPA short-term projects: Up to 18 months.
GPA long-term projects: Up to 24 months.
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• A “page” is 8.5″ x 11″, on one side only, with 1″ margins at the top, bottom, and both sides.
• Double space (no more than three lines per vertical inch) all text in the application narrative, including titles, headings, footnotes, quotations, references, and captions, as well as all text in charts, tables, figures, and graphs.
• Use a font that is either 12 point or larger, or no smaller than 10 pitch (characters per inch).
• Use one of the following fonts: Times New Roman, Courier, Courier New, or Arial.
The recommended page limit does not apply to Part I, the cover sheet; Part II, budget section, including the narrative budget justification; Part IV, the assurance and certifications; or the one-page abstract, the resumes, the biography, or letters of support. However, the recommended page limit does apply to all of the application narrative.
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(a)
(1) The Secretary reviews each application for information to determine the quality of the plan of operation for the project.
(2) The Secretary looks for information that shows—
(i) High quality in the design of the project;
(ii) An effective plan of management that insures proper and efficient administration of the project;
(iii) A clear description of how the objectives of the project relate to the purpose of the program;
(iv) The way the applicant plans to use its resources and personnel to achieve each objective; and
(v) A clear description of how the applicant will ensure that project
(b)
(1) The Secretary reviews each application for information to determine the quality of key personnel the applicant plans to use on the project.
(2) The Secretary looks for information that shows—
(i) The qualifications of the project director;
(ii) The qualifications of each of the other key personnel to be used in the project;
(iii) The time that each person referred to in paragraphs (b)(2)(i) and (ii) of this section will commit to the project; and
(iv) The extent to which the applicant, as part of its nondiscriminatory employment practices, will ensure that its personnel are selected for employment without regard to race, color, national origin, gender, age, or handicapping condition.
(3) To determine the qualifications of a person, the Secretary considers evidence of past experience and training in fields related to the objectives of the project as well as other information that the applicant provides.
(c)
(1) The Secretary reviews each application for information that shows that the project has an adequate budget and is cost effective.
(2) The Secretary looks for information that shows—
(i) The budget for the project is adequate to support the project activities; and
(ii) Costs are reasonable in relation to the objectives of the project.
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(1) The Secretary reviews each application for information that shows the quality of the evaluation plan for the project.
(2) The Secretary looks for information that shows that the methods of evaluation are appropriate for the project and, to the extent possible, are objective and produce data that are quantifiable.
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(1) The Secretary reviews each application for information that shows that the applicant plans to devote adequate resources to the project.
(2) The Secretary looks for information that shows that the facilities, equipment, and supplies that the applicant plans to use are adequate.
(f)
(1) In addition to the general selection criteria contained in this section, the Secretary reviews each application for information that shows that the project meets the specific program criteria.
(2) The Secretary looks for information that shows—
(i) The potential impact of the project on the development of the study of modern foreign languages and area studies in American education. (15 points)
(ii) The project's relevance to the applicant's educational goals and its relationship to its program development in modern foreign languages and area studies. (10 points)
(iii) The extent to which direct experience abroad is necessary to achieve the project's objectives and the effectiveness with which relevant host country resources will be utilized. (10 points)
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In addition, in making a competitive grant award, the Secretary requires various assurances including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
For FY 2020, GPA short-term project applications will be reviewed by separate panels according to world area. GPA long-term project applications will be reviewed by one panel. Separate rank order slates for GPA short-term projects and for GPA long-term projects will be developed and used to make funding recommendations. Each slate will include the peer reviewers' scores from the highest score to the lowest score for each application.
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Please note that, if the total value of your currently active grants, cooperative agreements, and procurement contracts from the Federal Government exceeds $10,000,000, the reporting requirements in 2 CFR part 200, Appendix XII, require you to report certain integrity information to FAPIIS semiannually. Please review the requirements in 2 CFR part 200, Appendix XII, if this grant plus all the other Federal funds you receive exceed $10,000,000.
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If your application is not evaluated or not selected for funding, we notify you.
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We reference the regulations outlining the terms and conditions of an award in the
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(b) At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multiyear award, you must submit an annual performance report that provides the most current performance and financial expenditure information as directed by the Secretary under 34 CFR 75.118. The Secretary may also require more frequent performance reports under 34 CFR 75.720(c). For specific requirements on reporting, please go to
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The information provided by grantees in their performance reports submitted via the International Resource Information System (IRIS) will be the source of data for this measure. Reporting screens for institutions can be viewed at:
You may also access documents of the Department published in the
Office of Postsecondary Education, Department of Education.
Notice.
The Department of Education (Department) is issuing a notice inviting applications for new awards for fiscal year (FY) 2020 for the Student Support Services (SSS) Program, Catalog of Federal Domestic Assistance (CFDA) number 84.042A. This notice relates to the approved information collection under OMB control number 1840-0017.
For the addresses for obtaining and submitting an application, please refer to our Common Instructions for Applicants to Department of Education Discretionary Grant Programs, published in the
Lavelle Wright, U.S. Department of Education, 400 Maryland Avenue SW, Room 268-24, Washington, DC 20202-4260. Telephone: (202) 453-7739. Email:
If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.
These priorities are:
Projects that are designed to address improving collaboration between education providers and employers to ensure student learning objectives are aligned with the skills or knowledge required for employment in in-demand industry sectors or occupations (as defined in section 3(23) of the Workforce Innovation and Opportunity Act of 2014).
Projects that are designed to address supporting instruction in personal financial literacy, knowledge of markets and economics, knowledge of higher education financing and repayment (
For both priorities, the Department is sufficiently interested in these topics that we may later seek to partner with successful applicants to conduct research and evaluation.
In developing logic models, applicants may want to use resources such as the Regional Educational Laboratory Program's (REL Pacific) Education Logic Model Application, available at
The regulations in 34 CFR part 79 apply to all applicants except federally recognized Indian tribes.
The regulations in 34 CFR part 86 apply to institutions of higher education (IHEs) only.
For applicants not currently receiving an SSS Program grant, the maximum awards are as follows:
For applicants currently receiving an SSS program grant, the maximum award amount is the greater of (a) $253,032 or (b) 100 percent of the applicant's base award amount for FY 2019.
For any currently funded applicant that proposes to serve fewer students than it served in FY 2019, the maximum award is the amount that corresponds with the cost per participant previously established for the project in FY 2019.
The Department is not bound by any estimates in this notice.
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Under section 402A(h)(1) of the HEA, the term “different campus” means a site of an IHE that—(a) is geographically apart from the main campus of the institution; (b) is permanent in nature; and (c) offers courses in educational programs leading to a degree, certificate, or other recognized educational credential.
Under section 402A(h)(2) of the HEA, the term “different population” means a group of individuals that an eligible entity desires to serve through an SSS grant that is separate and distinct from any other population that the entity has applied to serve using Federal TRIO Program funds, or, while sharing some of the same needs as another population that the eligible entity has applied to serve using Federal TRIO Program funds, has distinct needs for specialized services. To implement the requirement in section 402A(h)(2) of the HEA for this competition, the Secretary is designating the populations to be served as: Participants who meet the specific requirements for SSS services, participants who are students with disabilities, participants who need ESL services, participants receiving services in the STEM fields, participants receiving Teacher Preparation Services, and participants who have served in the armed forces. These different populations need different types of services. Accordingly, the Secretary has determined that projects serving these different populations should be subject to different standards for the minimum number of participants. An applicant may submit more than one application as long as each application proposes to serve a different population. For project types other than a regular SSS project, an applicant must propose to serve 100 percent of the students in the specific project type.
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Requirements concerning the content of an application, together with the forms you must submit, are in the application package for this program.
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• A “page” is 8.5″ x 11″, on one side only, with 1” margins.
• Double space all text in the application narrative, and single space titles, headings, footnotes, quotations, references, and captions, as well as all text in charts, tables, figures, and graphs.
• Use a 12-point font.
• Use an easily readable font such as Times New Roman, Courier, Courier New, or Arial.
The recommended 65-page limit does not apply to Part I, the Application for Federal Assistance cover sheet (SF 424); Part II, the Budget Information Summary form (ED Form 524); Part III-A, the SSS Program Profile form; Part III-B, the one-page Project Abstract form; or Part IV, the assurances and certifications. The recommended page limit also does not apply to a table of contents, which you should include in the application narrative. You must include your complete response to the selection criteria in the application narrative.
We recommend that any application addressing the competitive preference priorities include no more than three additional pages each for priorities 1 and 2, if addressed.
Applications that do not follow the page limit and formatting recommendations will not be penalized.
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We will award up to 105 points to an application under the selection criteria and up to 5 additional points to an application under the competitive preference priorities, for a total score of up to 110 points. The maximum number of points available for each criterion is indicated in parentheses.
(a)
(1) A high number or percentage, or both, of students enrolled or accepted for enrollment at the applicant institution who meet the eligibility requirements of 34 CFR 646.3 (8 points);
(2) The academic and other problems that eligible students encounter at the applicant institution (8 points); and
(3) The differences between eligible SSS students compared to an appropriate group, based on the following indicators:
(i) Retention and graduation rates.
(ii) Grade point averages.
(iii) Graduate and professional school enrollment rates (four-year colleges only).
(iv) Transfer rates from two-year to four-year institutions (two-year colleges only) (8 points).
(b)
(1) Retention in postsecondary education (3 points).
(2) In good academic standing at grantee institution (2 points).
(3) Two-year institutions only. (i) Certificate or degree completion (1 point); and (ii) Certificate or degree completion and transfer to a four-year institution (2 points).
(4) Four-year institutions only. Completion of a baccalaureate degree (3 points).
(c)
(1) The plan to inform the institutional community (students, faculty, and staff) of the goals, objectives, and services of the project and the eligibility requirements for participation in the project (3 points).
(2) The plan to identify, select, and retain project participants with academic need (3 points).
(3) The plan for assessing each individual participant's need for specific services and monitoring his or her academic progress at the institution to ensure satisfactory academic progress (4 points).
(4) The plan to provide services that address the goals and objectives of the project (10 points).
(5) The applicant's plan to ensure proper and efficient administration of the project, including the organizational placement of the project; the time commitment of key project staff; the specific plans for financial management, student records management, and personnel management; and, where appropriate, its plan for coordination with other programs for disadvantaged students (10 points).
(d)
(1) Committed facilities, equipment, supplies, personnel, and other resources to supplement the grant and enhance project services (6 points);
(2) Established administrative and academic policies that enhance participants' retention at the institution and improve their chances of graduating from the institution (6 points);
(3) Demonstrated a commitment to minimize the dependence on student loans in developing financial aid packages for project participants by committing institutional resources to the extent possible (2 points); and
(4) Assured the full cooperation and support of the Admissions, Student Aid, Registrar and data collection and analysis components of the institution (2 points).
(e)
(1) The qualifications required of the project director, including formal education and training in fields related to the objectives of the project, and experience in designing, managing, or implementing SSS or similar projects (3 points);
(2) The qualifications required of other personnel to be used in the project, including formal education, training, and work experience in fields related to the objectives of the project (3 points); and
(3) The quality of the applicant's plan for employing personnel who have succeeded in overcoming barriers similar to those confronting the project's target population (3 points).
(f)
(g)
(1) The applicant's methods for evaluation—
(i) Are appropriate to the project and include both quantitative and qualitative evaluation measures (2 points); and
(ii) Examine in specific and measurable ways, using appropriate baseline data, the success of the project in improving academic achievement, retention and graduation of project participants (2 points); and
(2) The applicant intends to use the results of an evaluation to make programmatic changes based upon the results of project evaluation (4 points).
(h)
Under the “Objectives” selection criterion in paragraph (b) above, applicants must address the standardized objectives in 34 CFR 646.21(b)(1) through (4) related to the participants' academic achievements, including retention, good academic standing, graduation, and transfer rates. The graduation objective should be measured by cohorts of students who become SSS Program participants in each year of the project and should be compared to a relevant and valid comparison group. The graduation, certificate, and transfer rates for two-year institutions should be measured over a four-year period and that of four-year institutions should be measured over a six-year period.
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In addition, in making a competitive grant award, the Secretary requires various assurances, including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
For this competition, a panel of non-Federal reviewers will review each application in accordance with the selection criteria in 34 CFR 646.21, 34 CFR 75.210, and the competitive preference priorities. The individual scores of the reviewers will be added and the sum divided by the number of reviewers to determine the peer review score received in the review process. Additionally, in accordance with 34 CFR 646.22, the Secretary will award prior experience points to applicants that have conducted an SSS Program project within the last three Federal government fiscal years, based on their documented experience. Prior experience points, if any, will be added to the application's averaged reader score to determine the total score for each application. If there are insufficient funds for all applications with the same total scores, the Secretary will choose among the tied applications so as to serve geographical areas that have been underserved by the SSS Program.
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Please note that, if the total value of your currently active grants, cooperative agreements, and procurement contracts from the Federal Government exceeds $10,000,000, the reporting requirements in 2 CFR part 200, Appendix XII, require you to report certain integrity information to FAPIIS semiannually. Please review the requirements in 2 CFR part 200, Appendix XII, if this grant plus all the other Federal funds you receive exceed $10,000,000.
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If your application is not evaluated or not selected for funding, we notify you.
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We reference the regulations outlining the terms and conditions of an award in the
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(b) At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multiyear award, you must submit an annual performance report that provides the most current performance and financial expenditure information as directed by the Secretary under 34 CFR 75.118. The Secretary may also require more frequent performance reports under 34 CFR 75.720(c). For specific requirements on reporting, please go to
(c) Under 34 CFR 75.250(b), the Secretary may provide a grantee with additional funding for data collection analysis and reporting. In this case the Secretary establishes a data collection period.
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(a) The percentage of first-time, full-time freshmen SSS Program participants who are still enrolled at the beginning of the next academic year or have earned a degree at a two-year grantee institution or transferred from a two-year to a four-year institution.
(b) The percentage of first-time, full-time freshmen SSS participants at four-year institutions who received a bachelor's degree from the grantee institution (Note: The Department will calculate this measure based both on 100 percent and 150 percent of normal completion time).
(c) The percentage of first-time, full-time SSS participants at two-year institutions who received an associate's degree and/or transferred to a four-year institution (Note: The Department will calculate this measure based both on 100 percent and 150 percent of normal completion time).
(d) The cost per successful outcome.
All SSS Program grantees are required to submit an annual performance report documenting the persistence and degree attainment of their participants. Since students take different amounts of time to complete their degrees, multiple years of performance report data are needed to determine the degree completion rates of SSS Program participants. The Department will aggregate the data provided in the annual performance reports from all grantees to determine the overall program accomplishment level.
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In making a continuation award, the Secretary also considers whether the grantee is operating in compliance with the assurances in its approved application, including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
You may also access documents of the Department published in the
Office of Postsecondary Education, Department of Education.
Notice.
The Department of Education (Department) is issuing a notice inviting applications for fiscal year (FY) 2020 for the Fulbright-Hays Doctoral Dissertation Research Abroad (DDRA) Fellowship Program, Catalog of Federal Domestic Assistance (CFDA) number 84.022A. This notice relates to the approved information collection under OMB control number 1840-0005.
The addresses pertinent to this competition—including the addresses for obtaining and submitting an application—can be found under
Dr. Pamela J. Maimer, U.S. Department of Education, 400 Maryland Avenue SW, Room 258-24, Washington, DC 20202. Telephone: (202) 453-6891. Email:
If you use a telecommunications device for the deaf (TDD) or a text telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-800-877-8339.
This priority is:
A research project that focuses on one or more of the following geographic areas: Africa, East Asia, Southeast Asia and the Pacific Islands, South Asia, the Near East, Central and Eastern Europe and Eurasia, and the Western Hemisphere (excluding the United States and its territories).
These priorities are:
A research project that focuses on any modern foreign language except French, German, or Spanish.
A research project conducted in the field of science, technology, engineering, mathematics, computer science, education (comparative or international), international development, political science, public health, or economics.
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You can contact ED Pubs at its website, also:
If you request an application package from ED Pubs, be sure to identify this program as follows: CFDA number 84.022A.
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• A “page” is 8.5″ x 11″, on one side only, with 1″ margins at the top, bottom, and both sides.
• Double space (no more than three lines per vertical inch) all text in the application narrative and bibliography. However, student applicants may single space all text in charts, tables, figures, graphs, titles, headings, footnotes, endnotes, quotations, and captions.
• Use a font that is either 12 point or larger or no smaller than 10 pitch (characters per inch).
• Use one of the following fonts: Times New Roman, Courier, Courier New, or Arial.
The recommended page limit does not apply to the Application for Federal Assistance face sheet (SF 424), the supplemental information form for the SF 424 required by the Department, or the assurances and certification. However, student applicants must include their complete responses to the selection criteria in the application narrative. The recommended page limits only apply to the application narrative and bibliography.
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Submit applications for grants under the program electronically using G5.gov. For information (including dates and times) about how to submit your application electronically, please refer to 7.
We do not consider an application that does not comply with the deadline requirements.
Individuals with disabilities who need an accommodation or auxiliary aid in connection with the application process should contact the person listed under
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To do business with the Department, you must—
a. Have a Data Universal Numbering System (DUNS) number and a Taxpayer Identification Number (TIN);
b. Register both your DUNS number and TIN with the System for Award Management (SAM), the Government's primary registrant database;
c. Provide your DUNS number and TIN on your application; and
d. Maintain an active SAM registration with current information while your application is under review by the Department and, if you are awarded a grant, during the project period.
You can obtain a DUNS number from Dun and Bradstreet at the following website:
If you are a corporate entity, agency, institution, or organization, you can obtain a TIN from the Internal Revenue Service. If you are an individual, you can obtain a TIN from the Internal Revenue Service or the Social Security Administration. If you need a new TIN, please allow two to five weeks for your TIN to become active.
The SAM registration process can take approximately seven business days, but may take upwards of several weeks, depending on the completeness and accuracy of the data you enter into the SAM database. Thus, if you think you might want to apply for Federal financial assistance under a program administered by the Department, please allow sufficient time to obtain and register your DUNS number and TIN. We strongly recommend that you register early.
If you are currently registered with SAM, you may not need to make any changes. However, please make certain that the TIN associated with your DUNS number is correct. Also note that you will need to update your registration annually. This may take three or more business days.
Information about SAM is available at
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Submit applications for grants under the Fulbright-Hays DDRA Fellowship Program, CFDA number 84.022A, electronically using the G5 system, accessible through the Department's G5
Please note the following:
• The process for submitting applications electronically under the Fulbright-Hays DDRA Fellowship Program has several steps. The following is a brief summary of the process; however, all applicants should review the detailed description of the application process in the application package. In summary, the major steps are:
(1) IHEs must email the name of the institution and the full name and email address of the project director to
(2) Students must complete their individual applications and submit them to their IHE's project director using G5;
(3) Persons providing references for individual students must complete and submit reference forms for the students and submit them to the IHE's project director using G5; and
(4) The IHE's project director must officially submit the IHE's application, including all eligible individual student applications, reference forms, and other required forms, using G5.
• The IHE must complete the electronic submission of the grant application by 4:30:00 p.m., Eastern Time, on the application deadline date. G5 will not accept an application for this competition after 4:30:00 p.m., Eastern Time, on the application deadline date. Therefore, we strongly recommend that both the IHE and the student applicant not wait until the application deadline date to begin the application process.
• The hours of operation of the G5 website are 6:00 a.m. Monday until 9:00 p.m., Wednesday; and 6:00 a.m. Thursday until 3:00 p.m., Sunday, Eastern Time. Please note that, because of maintenance, the system is unavailable between 3:00 p.m. on Sundays and 6:00 a.m. on Mondays, and between 9:00 p.m. on Wednesdays and 6:00 a.m. on Thursdays, Eastern Time. Any modifications to these hours are posted on the G5 website.
• Student applicants will not receive additional point value because the student submits his or her application in electronic format, nor will we penalize the IHE or student applicant if the applicant qualifies for an exception to the electronic submission requirement, as described elsewhere in this section, and submits an application in paper format.
• IHEs must submit all documents electronically, including all information typically provided on the following forms: The Application for Federal Assistance (SF 424), the Department of Education Supplemental Information for SF 424, Budget Information—Non-Construction Programs (ED 524), and all necessary assurances and certifications.
• Both IHEs and student applicants must upload any narrative sections and all other attachments to their application as files in a read-only flattened Portable Document Format (PDF), meaning any fillable documents must be saved and submitted as non-fillable PDF files. Do not upload an interactive or fillable PDF file. If you upload a file type other than a read-only, non-modifiable PDF (
• Submit student transcripts electronically through the G5 system.
• Prior to submitting your electronic application, you may wish to print a copy of it for your records.
• After the individual student applicant electronically submits his or her application to the student's IHE, the student will receive an automatic acknowledgment. After a person submits a reference electronically, he or she will receive an online confirmation. After the applicant IHE submits its application, including all eligible individual student applications, to the Department, the applicant IHE will receive an automatic acknowledgment that will include a unique PR/Award number for the IHE's application.
• Within three working days after submitting its electronic application the applicant IHE must—
(1) Print SF 424 from G5;
(2) Have its Authorizing Representative sign this form;
(3) Place the PR/Award number in the upper right-hand corner of the hard-copy signature page of the SF 424; and
(4) Fax the signed SF 424 to the Application Control Center at (202) 245-6272.
• We may request that you provide us original signatures on other forms at a later date.
(1) The IHE is a registered user of the G5 system and the IHE has initiated an electronic application for this competition; and
(2) (a) G5 is unavailable for 60 minutes or more between the hours of 8:30 a.m. and 3:30 p.m., Eastern Time, on the application deadline date; or
(b) G5 is unavailable for any period of time between 3:30 p.m. and 4:30:00 p.m., Eastern Time, on the application deadline date.
We must acknowledge and confirm these periods of unavailability before granting the IHE an extension. To request this extension or to confirm our acknowledgment of any system unavailability, an IHE may contact either (1) the person listed under
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We discourage paper applications, but if electronic submission is not possible (
If you mail your written statement to the Department, it must be postmarked no later than two weeks before the application deadline date. Please send this statement to the person listed under
If you submit a paper application, you must mail the original and two copies of your application, on or before the
The IHE must show proof of mailing consisting of one of the following:
(1) A legibly dated U.S. Postal Service postmark.
(2) A legible mail receipt with the date of mailing stamped by the U.S. Postal Service.
(3) A dated shipping label, invoice, or receipt from a commercial carrier.
(4) Any other proof of mailing acceptable to the Secretary of the U.S. Department of Education.
If the IHE mails its application through the U.S. Postal Service, we do not accept either of the following as proof of mailing:
(1) A private metered postmark.
(2) A mail receipt that is not dated by the U.S. Postal Service.
We will not consider applications postmarked after the application deadline date.
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(1) The IHE must indicate on the envelope and—if not provided by the Department—in Item 11 of the SF 424 the CFDA number, including suffix letter, if any, of the competition under which the IHE is submitting its application; and
(2) The Application Control Center will mail a notification of receipt of the IHE's grant application. If the IHE does not receive this grant notification within 15 business days from the application deadline date, the IHE should call the U.S. Department of Education Application Control Center at (202) 245-6288.
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(1) The statement of the major hypotheses to be tested or questions to be examined, and the description and justification of the research methods to be used;
(2) The relationship of the research to the literature on the topic and to major theoretical issues in the field, and the project's originality and importance in terms of the concerns of the discipline;
(3) The preliminary research already completed in the United States and overseas or plans for such research prior to going overseas, and the kinds, quality and availability of data for the research in the host country or countries;
(4) The justification for overseas field research and preparations to establish appropriate and sufficient research contacts and affiliations abroad;
(5) The applicant's plans to share the results of the research in progress and a copy of the dissertation with scholars and officials of the host country or countries; and
(6) The guidance and supervision of the dissertation advisor or committee at all stages of the project, including guidance in developing the project, understanding research conditions abroad, and acquainting the applicant with research in the field.
(b)
(1) The overall strength of the applicant's graduate academic record;
(2) The extent to which the applicant's academic record demonstrates strength in area studies relevant to the proposed project;
(3) The applicant's proficiency in one or more of the languages (other than English and the applicant's native language) of the country or countries of research, and the specific measures to be taken to overcome any anticipated language barriers; and
(4) The applicant's ability to conduct research in a foreign cultural context, as evidenced by the applicant's references or previous overseas experience, or both.
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In addition, in making a competitive grant award, the Secretary requires various assurances including those applicable to Federal civil rights laws that prohibit discrimination in programs or activities receiving Federal financial assistance from the Department (34 CFR 100.4, 104.5, 106.4, 108.8, and 110.23).
For FY 2020, student applications will be divided into seven categories based on the world area focus of their research projects, as described in the absolute priority. Language and area studies experts in discrete world area-based panels will review the student applications. Each panel will review, score, and rank its applications separately from the applications assigned to the other world area panels. However, all fellowship applications will be ranked together from the highest to lowest score for funding purposes.
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Please note that, if the total value of your currently active grants, cooperative agreements, and procurement contracts from the Federal Government exceeds $10,000,000, the reporting requirements in 2 CFR part 200, Appendix XII, require you to report certain integrity information to FAPIIS semiannually. Please review the requirements in 2 CFR part 200, Appendix XII, if this grant plus all the other Federal funds you receive exceed $10,000,000.
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If a student application is not evaluated or not selected for funding, we notify the IHE.
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We reference the regulations outlining the terms and conditions of an award in the
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(b) At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multiyear award, you must submit an annual performance report that provides the most current performance and financial expenditure information as directed by the Secretary under 34 CFR 75.118. Grantees are required to use the electronic data instrument
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The Department will use the following measures to evaluate its success in meeting this objective:
DDRA GPRA Measure 1: The percentage of DDRA fellows who increased their foreign language scores in speaking, reading, or writing by at least one proficiency level.
DDRA GPRA Measure 2: The percentage of DDRA fellows who complete their degree in their program of study within four years of receipt of the fellowship.
DDRA GPRA Measure 3: The percentage of DDRA fellows who found employment that utilized their language and area studies skills within eight years of receiving their award.
DDRA GPRA Measure 4: Efficiency Measure—The cost per DDRA fellow who found employment that utilized their language and area studies skills within eight years.
The information provided by grantees in their performance report submitted via IRIS will be the source of data for these measures. Reporting screens for institutions and fellows may be viewed at:
You may also access documents of the Department published in the
Office of Nuclear Energy, Department of Energy.
Notice of renewal.
Pursuant to the Federal Advisory Committee Act, and in accordance with Title 41 of the Code of Federal Regulations, and following consultation with the Committee Management Secretariat, General Services Administration, notice is hereby given that the Nuclear Energy Advisory Committee (NEAC) will be renewed for a two-year period beginning on December 11, 2019. The Committee will provide advice to the Department of Energy's Office of Nuclear Energy on complex science and technical issues that arise in the planning, managing, and implementation of DOE's nuclear energy program. Additionally, the renewal of the NEAC has been determined to be essential to conduct business of the Department of Energy and to be in the public interest in connection with the performance of duties imposed upon the Department of Energy, by law and agreement. The Committee will continue to operate in accordance with the provisions of the Federal Advisory Committee Act, adhering to the rules and regulations in implementation of that Act.
Robert Rova, Designated Federal Officer at (301) 903-9096; email:
Office of Science, Department of Energy.
Notice of renewal.
Pursuant to the Federal Advisory Committee Act, App.2, and Code of Federal Regulations, and following consultation with the Committee Management Secretariat, General Services Administration, notice is hereby given that the Biological and Environmental Research Advisory Committee's (BERAC) charter will be renewed for a two-year period. The Committee provides advice and
Dr. Tristram West at (301) 903-5155 or email:
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
Take notice that the Commission received the following qualifying facility filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The following notice of meeting is published pursuant to section 3(a) of the government in the Sunshine Act (Pub. L. 94-409), 5 U.S.C. 552b:
Federal Energy Regulatory Commission.
December 19, 2019, 10:00 a.m.
Room 2C, 888 First Street NE, Washington, DC 20426.
Open.
Agenda.
* NOTE—Items listed on the agenda may be deleted without further notice.
Kimberly D. Bose, Secretary, Telephone (202) 502-8400.
For a recorded message listing items struck from or added to the meeting, call (202) 502-8627.
This is a list of matters to be considered by the Commission. It does not include a listing of all documents relevant to the items on the agenda. All public documents, however, may be viewed on line at the Commission's website at
A free webcast of this event is available through
Immediately following the conclusion of the Commission Meeting, a press briefing will be held in the Commission Meeting Room. Members of the public may view this briefing in the designated overflow room. This statement is intended to notify the public that the press briefings that follow Commission meetings may now be viewed remotely at Commission headquarters, but will not be telecast through the Capitol Connection service.
This constitutes notice, in accordance with 18 CFR 385.2201(b), of the receipt of prohibited and exempt off-the-record communications.
Order No. 607 (64 FR 51222, September 22, 1999) requires Commission decisional employees, who make or receive a prohibited or exempt off-the-record communication relevant to the merits of a contested proceeding, to deliver to the Secretary of the Commission, a copy of the communication, if written, or a summary of the substance of any oral communication.
Prohibited communications are included in a public, non-decisional file associated with, but not a part of, the decisional record of the proceeding. Unless the Commission determines that the prohibited communication and any responses thereto should become a part of the decisional record, the prohibited off-the-record communication will not be considered by the Commission in reaching its decision. Parties to a proceeding may seek the opportunity to respond to any facts or contentions made in a prohibited off-the-record communication, and may request that the Commission place the prohibited communication and responses thereto in the decisional record. The Commission will grant such a request only when it determines that fairness so requires. Any person identified below as having made a prohibited off-the-record communication shall serve the document on all parties listed on the official service list for the applicable proceeding in accordance with Rule 2010, 18 CFR 385.2010.
Exempt off-the-record communications are included in the decisional record of the proceeding, unless the communication was with a cooperating agency as described by 40 CFR 1501.6, made under 18 CFR 385.2201(e)(1)(v).
The following is a list of off-the-record communications recently received by the Secretary of the Commission. The communications listed are grouped by docket numbers in ascending order. These filings are available for electronic review at the Commission in the Public Reference Room or may be viewed on the Commission's website at
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified date(s). Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
This is a supplemental notice in the above-referenced proceeding of East Fork Wind Project, LLC's application for market-based rate authority, with an accompanying rate tariff, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability, is December 30, 2019.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 5 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426.
The filings in the above-referenced proceeding are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for electronic review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the website that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
Take notice that on December 6, 2019, Empire Pipeline, Inc. filed a Request for Waiver of Calendar Year Certified Public Accountant Certification for the 2019 FERC Form 2.
Any person desiring to intervene or to protest this filing must file in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211, 385.214). Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding. Any person wishing to become a party must file a notice of intervention or motion to intervene, as appropriate. Such notices, motions, or protests must be filed on or before the comment date. Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
The Commission encourages electronic submission of protests and interventions in lieu of paper using the eFiling link at
This filing is accessible on-line at
This is a supplemental notice in the above-referenced proceeding of Goldman Sachs Renewable Power Marketing LLC's application for market-based rate authority, with an accompanying rate tariff, noting that such application includes a request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability.
Any person desiring to intervene or to protest should file with the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, in accordance with Rules 211 and 214 of the Commission's Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone filing a motion to intervene or protest must serve a copy of that document on the Applicant.
Notice is hereby given that the deadline for filing protests with regard to the applicant's request for blanket authorization, under 18 CFR part 34, of future issuances of securities and assumptions of liability, is December 30, 2019.
The Commission encourages electronic submission of protests and interventions in lieu of paper, using the FERC Online links at
Persons unable to file electronically should submit an original and 5 copies of the intervention or protest to the Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426.
The filings in the above-referenced proceeding are accessible in the Commission's eLibrary system by clicking on the appropriate link in the above list. They are also available for electronic review in the Commission's Public Reference Room in Washington, DC. There is an eSubscription link on the website that enables subscribers to receive email notification when a document is added to a subscribed docket(s). For assistance with any FERC Online service, please email
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection:
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e.
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g.
h.
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j. Deadline for filing comments, motions to intervene, and protests is 30 days from the issuance date of this notice by the Commission.
The Commission strongly encourages electronic filing. Please file comments, motions to intervene, and protests using the Commission's eFiling system at
The Commission's Rules of Practice and Procedure require all intervenors filing documents with the Commission to serve a copy of that document on each person whose name appears on the official service list for the project. Further, if an intervenor files comments or documents with the Commission relating to the merits of an issue that may affect the responsibilities of a particular resource agency, they must also serve a copy of the document on that resource agency.
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m. Individuals desiring to be included on the Commission's mailing list should so indicate by writing to the Secretary of the Commission.
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o.
In accordance with the National Environmental Policy Act of 1969 and the Federal Energy Regulatory Commission's (Commission) regulations, 18 CFR part 380, the Office of Energy Projects has reviewed the application for a subsequent license for the Riverdale Mills Hydroelectric Project, located on the Blackstone River in the town of Northbridge, Worcester County, Massachusetts, and has prepared an Environmental Assessment (EA) for the project.
The EA contains staff's analysis of the potential environmental impacts of the project and concludes that licensing the project, with appropriate environmental protective measures, would not constitute a major federal action that would significantly affect the quality of the human environment.
A copy of the EA is available for review at the Commission in the Public Reference Room or may be viewed on the Commission's website at
You may also register online at
Any comments should be filed within 30 days from the date of this notice.
The Commission strongly encourages electronic filing. Please file comments
For further information, contact Michael Watts at (202) 502-6123 or by email at
Take notice that the Commission received the following electric rate filings:
Take notice that the Commission received the following electric corporate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system by clicking on the links or querying the docket number.
Any person desiring to intervene or protest in any of the above proceedings must file in accordance with Rules 211 and 214 of the Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
Environmental Protection Agency (EPA).
Notice of proposed consent decree; request for public comment.
In accordance with section 113(g) of the Clean Air Act, as amended (“CAA” or the “Act”), notice is given of a proposed consent decree in
Written comments on the proposed consent decree must be received by January 16, 2020.
Submit your comments, identified by Docket ID number EPA-HQ-OGC-2019-0683, online at
Stephanie L. Hogan, Air and Radiation Law Office, Office of General Counsel, U.S. Environmental Protection Agency, Mail Code 2344A, 1200 Pennsylvania Ave. NW, Washington, DC 20460; telephone: (202) 564-3244; email address:
The consent decree would resolve a lawsuit filed by the Center for Biological Diversity and Center for Environmental Health seeking to compel the Administrator to make a determination under CAA section 179(c)(1) whether the West Central Pinal nonattainment area located in Arizona attained the 2006 PM
The EPA has already taken final action to find that the West Central Pinal nonattainment area attained the 2006 PM
For a period of thirty (30) days following the date of publication of this notice, the Agency will accept written comments relating to the proposed consent decree from persons who are not named as parties or intervenors to the litigation in question. EPA or the Department of Justice may withdraw or withhold consent to the proposed consent decree if the comments disclose facts or considerations that indicate that such consent is inappropriate, improper, inadequate, or inconsistent with the requirements of the Act.
The official public docket for this action (identified by Docket ID No. EPA-HQ-OGC-2019-0683) contains a copy of the proposed consent decree. The official public docket is available for public viewing at the Office of Environmental Information (OEI) Docket in the EPA Docket Center, EPA West, Room 3334, 1301 Constitution Ave. NW, Washington, DC. The EPA Docket Center Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744, and the telephone number for the OEI Docket is (202) 566-1752.
An electronic version of the public docket is available through
It is important to note that EPA's policy is that public comments, whether submitted electronically or in paper, will be made available for public viewing online at
You may submit comments as provided in the
If you submit an electronic comment, EPA recommends that you include your name, mailing address, and an email address or other contact information in the body of your comment and with any disk or CD ROM you submit. This ensures that you can be identified as the submitter of the comment and allows EPA to contact you in case EPA cannot read your comment due to technical difficulties or needs further information on the substance of your comment. Any identifying or contact information provided in the body of a comment will be included as part of the comment that is placed in the official public docket, and made available in EPA's electronic public docket. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment.
Use of the
Environmental Protection Agency (EPA).
Notice of intended approval.
Notice is hereby given that the State of Tennessee is revising its approved Public Water System Supervision Program. Tennessee has adopted drinking water regulations for the Revised Total Coliform Rule. The Environmental Protection Agency (EPA) has determined that Tennessee's regulations are no less stringent than the federal rule and the revision otherwise meets applicable Safe Drinking Water Act requirements. Therefore, EPA intends to approve this revision to the State of Tennessee's Public Water System Supervision Program.
Any interested person may request a public hearing. A request for a public hearing must be submitted by January 16, 2020, to the Regional Administrator at the EPA Region 4 street address shown below. The Regional Administrator may deny frivolous or insubstantial requests for a hearing. However, if a substantial request for a public hearing is made by January 16, 2020, a public hearing will be held. If no timely and appropriate request for a hearing is received and the Regional Administrator does not elect to hold a hearing on her own motion, this determination shall become final and effective on January 16, 2020. Any request for a public hearing shall include the following information: The name, address, and telephone number of the individual, organization, or other entity requesting a hearing; a brief statement of the requesting person's interest in the Regional Administrator's determination and a brief statement of the information that the requesting person intends to submit at such hearing; and the signature of the individual making the request, or, if the request is made on behalf of an organization or other entity, the signature of a responsible official of the organization or other entity.
Documents relating to this determination are available for inspection between the hours of 9:00 a.m. and 4:00 p.m., Monday through Friday (excluding legal holidays) at the following locations: The main office of the Division of Water Resources, Tennessee Department of Environment
Dale Froneberger, EPA Region 4, Drinking Water Section, by mail at the Atlanta street address given above, by telephone at (404) 562-9446, or by email at
The State of Tennessee has submitted a request that EPA approve a revision to the State's Safe Drinking Water Act Public Water System Supervision Program to include the authority to implement and enforce the Revised Total Coliform Rule. For the request to be approved, EPA must find the state regulations codified at Tenn. Comp. R. & Regs. 0400-45-01 to be no less stringent than the federal rule codified at 40 CFR part 141. EPA reviewed Tennessee's application using the federal statutory provisions (Section 1413 of the Safe Drinking Water Act), federal regulations (at 40 CFR parts 141 and 142), state regulations, state policies and procedures for implementing the rule, regulatory crosswalk, and EPA regulatory guidance to determine whether the request for revision is approvable. EPA determined that the Tennessee regulations are no less stringent than the corresponding federal rule and the revision otherwise meets applicable Safe Drinking Water Act requirements. Therefore, EPA intends to approve this revision. If EPA does not receive a timely and appropriate request for a hearing and the Regional Administrator does not elect to hold a hearing on her own motion, this approval shall become final and effective on January 16, 2020.
Section 1413 of the Safe Drinking Water Act, as amended (1996), and 40 CFR part 142.
3:49 p.m. on Thursday, December 12, 2019.
The meeting was held in the Board Room located on the sixth floor of the FDIC Building located at 550 17th Street NW, Washington, DC.
Closed.
In calling the meeting, the Board determined, on motion of Director Joseph M. Otting (Comptroller of the Currency), seconded by Director Martin J. Gruenberg, and concurred in by Director Kathleen L. Kraninger (Director, Consumer Financial Protection Bureau), and Chairman Jelena McWilliams, that Corporation business required its consideration of the matters which were to be the subject of this meeting on less than seven days' notice to the public; that no earlier notice of the meeting was practicable; that the public interest did not require consideration of the matters in a meeting open to public observation; and that the matters could be considered in a closed meeting by authority of subsections (c)(4), (c)(6), (c)(8), (c)(9)(A)(ii), and (c)(9)(B) of the “Government in the Sunshine Act” (5 U.S.C. 552b(c)(4), (c)(6), (c)(8), (c)(9)(A)(ii), and (c)(9)(B).
Requests for further information concerning the meeting may be directed to Mr. Robert E. Feldman, Executive Secretary of the Corporation, at 202-898-7043.
National Institute for Occupational Safety and Health (NIOSH) of the Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Request for information.
The National Institute for Occupational Safety and Health (NIOSH) of the Centers for Disease Control and Prevention (CDC) intends to evaluate the scientific data on engineered nanomaterials (ENMs) to develop categorical occupational exposure limits (OELs) based on the available scientific evidence regarding the hazard or safety of these materials.
NIOSH seeks to obtain materials, including published and unpublished reports and research findings, to evaluate the possible adverse health risks of occupational exposure to ENMs.
Electronic or written comments must be received by February 18, 2020.
You may submit comments, identified by CDC-2019-0111 and Docket Number NIOSH-332, by either of the two following methods:
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Nathan M. Drew, MS, NIOSH, MS-C14, 1090 Tusculum Avenue, Cincinnati, OH 45226, telephone (513) 533-8352.
In 2017, NIOSH contributed to the International Organization for Standardization (ISO) technical report on frameworks for developing OELs for nano-objects [ISO 2016]. In 2019, NIOSH published a Technical Report on occupational exposure banding guidance [NIOSH 2019]. The information presented in these Technical Reports represents the most recent update of the scientific rationale and methodology for establishing hazard values for chemicals, which includes ENMs.
The development of an OEL for an individual chemical involves a critical review of the available scientific data in humans and animals to identify relevant studies and to characterize the various lines of evidence that can support the derivation of the OEL. NIOSH requests information for ENMs to include human, animal, and cellular toxicology data, including but not limited to: Acute, subchronic, or chronic data; the physicochemical characterization of those ENMs; and other information about the biological mechanisms and
NIOSH will publish a Technical Report which describes the data, methods, and findings for the development of categorical OELs for ENMs, which may include relevant information submitted in response to this request. The draft Technical Report will be made available for public comment in a subsequent notice.
Centers for Medicare & Medicaid Services, HHS.
Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing an opportunity for the public to comment on CMS' intention to collect information from the public. Under the Paperwork Reduction Act of 1995 (PRA), federal agencies are required to publish notice in the
Comments on the collection(s) of information must be received by the OMB desk officer by January 16, 2020.
When commenting on the proposed information collections, please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be received by the OMB desk officer via one of the following transmissions: OMB, Office of Information and Regulatory Affairs, Attention: CMS Desk Officer, Fax Number: (202) 395-5806
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following:
1. Access CMS' website address at website address at
1. Email your request, including your address, phone number, OMB number, and CMS document identifier, to
2. Call the Reports Clearance Office at (410) 786-1326.
William Parham at (410) 786-4669.
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3520), federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. The term “collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A)) requires federal agencies to publish a 30-day notice in the
1.
In the FY 2020 IPPS proposed rule (84 FR 19371—19373), we proposed an alternative new technology add-on payment pathway for certain devices. Specifically, for applications received for new technology add-on payments for FY 2021 and subsequent fiscal years, we proposed that a medical device that has received Federal Drug Administration (FDA) marketing authorization (that is,
2.
Effective with items and services furnished on or after January 1, 2011, section 3108 of the Affordable Care Act added physician assistants to the existing authority for nurse practitioners and clinical nurse specialists. Regulations implementing this provision were promulgated in the calendar year (CY) 2011 Medicare Physician Fee Schedule (MPFS) final rule with comment period (75 FR 73387, 73602, 73626-27, November 29, 2010). The requirements at 42 CFR 424.20(a) and (b) concern the initial certification of a beneficiary's need for a SNF level of care, which must be made upon admission or as soon thereafter as is reasonable and practicable. The requirements at 42 CFR 424.20(c) and (d) concern recertification of a beneficiary's need for continued SNF level of care, and also require an estimate of the time the individual will need to remain in the SNF, plans for home treatment, and, if appropriate, whether continued services are needed for a condition that occurred after admission to the SNF and while still receiving treatment for the condition for which he or she had received inpatient hospital services. These sections require recertification at specific intervals (the initial recertification must occur no later than the 14th day of SNF care, with subsequent recertification at least every 30 days thereafter) that posthospital SNF care is or was required because the individual needs or needed skilled care on a daily basis. The following CMS internet-Only Manuals provide more detailed instructions regarding the required certification and recertification of covered post-hospital extended care services for a Medicare beneficiary: Chapter 4, sections 40ff and 80 in the Medicare General Information, Eligibility, and Entitlement Manual (CMS Pub. 100-01), chapter 8, sections 40ff. in the Medicare Benefit Policy Manual (CMS Pub. 100-02), and chapter 6, section 6.3 in the Medicare Program Integrity Manual (CMS Pub. 100-08).
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Indian Health Service.
Notice and request for comments. Request for extension of approval.
In compliance the Paperwork Reduction Act of 1995, the Indian Health Service (IHS) invites the general public to comment on the information collection titled, “Application for Participation in the IHS Scholarship Program,” Office of Management and Budget (OMB) Control No. 0917-0006. IHS is requesting OMB to approve an extension for this collection, which expires on March 31, 2020.
Send your written comments, requests for more information on the collection, or requests to obtain a copy of the data collection instrument and instructions to Ms. Reta Brewer by one of the following methods:
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This previously approved information collection project was last published in the
The table below provides: Types of data collection instruments, Estimated number of respondents, Number of responses per respondent, Annual number of responses, Average burden hour per response, and Total annual burden hours.
There are no direct costs to respondents other than their time to voluntarily complete the forms and submit them for consideration. The estimated cost for the federal government is $145,223.00 (contractor) to work on the program with IHS program staff.
(a) Whether the information collection activity is necessary to carry out an agency function;
(b) whether the agency processes the information collected in a useful and timely fashion;
(c) the accuracy of the public burden estimate (the estimated amount of time needed for individual respondents to provide the requested information);
(d) whether the methodology and assumptions used to determine the estimates are logical;
(e) ways to enhance the quality, utility, and clarity of the information being collected; and
(f) ways to minimize the public burden through the use of automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
This notice is being published less than 15 days prior to the meeting due to the urgent need to meet timing limitations imposed by the intramural research review cycle.
This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle.
Institute of American Indian and Alaska Native Culture and Arts Development (aka Institute of American Indian Arts).
Notice; request for nominations.
The Board directs the Administration of the Institute of American Indian and Alaska Native Culture and Arts Development, including soliciting, accepting, and disposing of gifts, bequests, and other properties for the benefit of the Institute. The Institute provides scholarly study of and instruction in Indian art and culture, and establishes programs which culminate in the awarding of degrees in the various fields of Indian art and culture. The Board consists of thirteen members appointed by the President of
Institute of American Indian Arts, 83 Avan Nu Po Road, Santa Fe, New Mexico 87508.
Dr. Robert Martin, President, 505-424-2301.
Bureau of Ocean Energy Management, Interior.
Notice of information collection; request for comment.
In accordance with the Paperwork Reduction Act of 1995, the Bureau of Ocean Energy Management (BOEM) is proposing to renew an information collection request with revisions.
Interested persons are invited to submit comments on or before January 16, 2020.
Send written comments on this information collection request (ICR) to the Office of Management and Budget's Desk Officer for the Department of the Interior by email at
To request additional information about this ICR, contact Anna Atkinson by email, or by telephone at 703-787-1025. You may also view the ICR at
In accordance with the Paperwork Reduction Act of 1995, BOEM provides the general public and other Federal agencies with an opportunity to comment on new, proposed, revised, and continuing collections of information. This helps BOEM assess the impact of the information collection requirements and minimize the public's reporting burden. It also helps the public understand BOEM's information collection requirements and provide the requested data in the desired format.
A
BOEM is again soliciting comments on the proposed ICR that is described below. BOEM is especially interested in public comment addressing the following issues: (1) Is the collection necessary to the proper functions of BOEM; (2) what can BOEM do to ensure this information will be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might BOEM enhance the quality, utility, and clarity of the information to be collected; and (5) how might BOEM minimize the burden of this collection on the respondents, including minimizing the burden through the use of information technology?
Comments that you submit in response to this notice are a matter of public record. BOEM will include or summarize each comment in its request to the Office of Management and Budget (OMB) for approval of this ICR. You should be aware that your entire comment—including your address, phone number, email address, or other personal identifying information—may be made publicly available at any time. In order for BOEM to withhold from disclosure your personally identifiable information, you must identify any information contained in the submittal of your comments that, if released, would clearly constitute an unwarranted invasion of your personal privacy. You must also briefly describe any possible harmful consequences of the disclosure of your information, such as embarrassment, injury, or other harm. While you can ask BOEM in your comment to withhold your personally identifiable information from public review, BOEM cannot guarantee that it will be able to do so.
BOEM protects proprietary information in accordance with the Freedom of Information Act (5 U.S.C. 552) and the Department of the Interior's implementing regulations (43 CFR part 2), and under regulations at 30 CFR parts 550 and 552 promulgated pursuant to the Outer Continental Shelf Lands Act (OCSLA) at 43 U.S.C. 1352(c).
The Outer Continental Shelf (OCS) Lands Act, as amended (43 U.S.C. 1331
BOEM uses the information collected under the regulations affected by this ICR to ensure that operations in the OCS are carried out in a safe and environmentally sound manner, do not interfere with the rights of other users on the OCS, and balance the protection and development of OCS resources.
• BOEM-0127, Sensitive Reservoir Information Report;
• BOEM-0140, Bottomhole Pressure Survey Report;
• BOEM-1123, Designation of Operator; and
• BOEM-1832, Notification of Incident(s) of Noncompliance.
• For 30 CFR 550.1153, the regions re-evaluated the annual burden hours for static bottomhole pressure surveys. The average hour burden based on industry feedback is 15 hours instead of 14 hours. Also, BOEM on average reviews approximately 400 bottomhole pressure surveys per year instead of 1,161 surveys. The 2017 OMB approved annual burden hours included 3 years of data instead of annual data. Therefore, BOEM is reducing the number of respondents to correct this error. The annual burden hours for 30 CFR 55.1153 is decreasing from 16,254 hours to 6,000 hours (−10,254 hours).
• For 30 CFR 550.1153(d), BOEM is increasing the hour burden from 1 to 5 based on industry feedback. BOEM is currently reviewing fewer departures annually than previously recorded (decreasing number of departures from 200 to 100). With the increase in hour burdens and the decrease in respondents, the overall annual burden hour for 30 CFR 550.1153(d) will increase to 500 hours (+300 hours).
• For 30 CFR 550.1154 and 550.1167, BOEM is changing the hour burden from 1 to 5 hours based on industry feedback. However, the number of respondents is dropping by 2/3rds (from 15 requests to 5 requests). Therefore, the annual burden hour change will increase slightly from 15 hours to 25 hours (+10 hours).
• For 30 CFR 550.1155, based on outreach input, BOEM is increasing the hour burden for form BOEM-0127 from 3 hours to 6 hours. However, BOEM previously overestimated the number of forms submitted. BOEM is reducing the number of forms collected from 2,012 to 610 forms; therefore, the overall annual burden hours will decrease from 6,036 hours to 3,660 hours (−2,376 hours).
• For 30 CFR 550.1153-1167, BOEM is increasing the respondents from 2 to 10 due to an increase in annual departure requests. With changes in technology, operators are installing permanent downhole gauges in wells, which show continuous readings of the downhole pressure. Operators are submitting this type of data, as alternative compliance to static bottomhole pressure surveys, to meet the bottomhole pressure requirement. BOEM has seen an increase from 2 to 10 departure requests annually. This increase in respondents causes the annual burden hours to increase from 2 to 10 hours (+8 hours).
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number.
The authority for this action is the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Bureau of Reclamation, Interior.
Notice of contract actions.
Notice is hereby given of contractual actions that have been proposed to the Bureau of Reclamation (Reclamation) and are new, discontinued, or completed since the last publication of this notice. This notice is one of a variety of means used to inform the public about proposed contractual actions for capital recovery and management of project resources and facilities consistent with section 9(f) of the Reclamation Project Act of 1939. Additional announcements of individual contract actions may be published in the
The identity of the approving officer and other information pertaining to a specific contract proposal may be obtained by calling or writing the appropriate regional office at the address and telephone number given for each region in the
Michelle Kelly, Reclamation Law Administration Division, Bureau of Reclamation, P.O. Box 25007, Denver, Colorado 80225-0007;
Consistent with section 9(f) of the Reclamation Project Act of
Public participation in and receipt of comments on contract proposals will be
1. Only persons authorized to act on behalf of the contracting entities may negotiate the terms and conditions of a specific contract proposal.
2. Advance notice of meetings or hearings will be furnished to those parties that have made a timely written request for such notice to the appropriate regional or project office of Reclamation.
3. Written correspondence regarding proposed contracts may be made available to the general public pursuant to the terms and procedures of the Freedom of Information Act, as amended.
4. Written comments on a proposed contract or contract action must be submitted to the appropriate regional officials at the locations and within the time limits set forth in the advance public notices.
5. All written comments received and testimony presented at any public hearings will be reviewed and summarized by the appropriate regional office for use by the contract approving authority.
6. Copies of specific proposed contracts may be obtained from the appropriate regional director or his or her designated public contact as they become available for review and comment.
7. In the event modifications are made in the form of a proposed contract, the appropriate regional director shall determine whether republication of the notice and/or extension of the comment period is necessary.
Factors considered in making such a determination shall include, but are not limited to, (i) the significance of the modification, and (ii) the degree of public interest which has been expressed over the course of the negotiations. At a minimum, the regional director will furnish revised contracts to all parties who requested the contract in response to the initial public notice.
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Bureau of Reclamation, Interior.
Notice of change in discount rate.
The Bureau of Reclamation is announcing the interest rate to be used by Federal agencies in the formulation and evaluation of plans for water and related land resources is 2.75 percent for fiscal year 2020. The prior fiscal year's rate as announced in the
This discount rate is to be used for the period October 1, 2019, through and including September 30, 2020.
Mr. William Taylor, Bureau of Reclamation, Reclamation Law Administration Division, P.O. Box 25007, Denver, Colorado 80225; telephone 303-445-2113.
The Water Resources Planning Act of 1965 and the Water Resources Development Act of 1974 require an annual determination of a discount rate for Federal water resources planning. The discount rate for Federal water resources planning for fiscal year 2020 is 2.750 percent. Discounting is to be used to convert future monetary values to present values.
This rate has been computed in accordance with Section 80(a), Public Law 93-251 (88 Stat. 34), and 18 CFR 704.39, which: (1) Specify that the rate will be based upon the average yield during the preceding fiscal year on interest-bearing marketable securities of the United States which, at the time the computation is made, have terms of 15 years or more remaining to maturity (average yield is rounded to nearest one-eighth percent); and (2) provide that the rate will not be raised or lowered more than one-quarter of 1 percent for any year. The U.S. Department of the Treasury calculated the specified average to be 2.7201 percent. This rate, rounded to the nearest one-eighth percent, is 2.75 percent, which is a change of less than the allowable one-quarter of 1 percent. Therefore, the fiscal year 2020 rate is 2.75 percent.
The rate of 2.75 percent will be used by all Federal agencies in the
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has received a complaint entitled
Lisa R. Barton, Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205-2000. The public version of the complaint can be accessed on the Commission's Electronic Document Information System (EDIS) at
General information concerning the Commission may also be obtained by accessing its internet server at United States International Trade Commission (USITC) at
The Commission has received a complaint and a submission pursuant to § 210.8(b) of the Commission's Rules of Practice and Procedure filed on behalf of Philips North America, LLC and Koninklijke Philips, N.V., Inc. on December 10, 2019. The complaint alleges violations of section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain wearable monitoring devices, systems, and components thereof. The complaint names as respondents: Fitbit, Inc. of San Francisco, CA; Garmin International, Inc. of Olathe, KS; Garmin USA, Inc. of Olathe, KS; Garmin Ltd. d/b/a Garmin Switzerland GmbH of Switzerland; and Ingram Micro, Inc. of Irvine, CA. The complainant requests that the Commission issue a limited exclusion, a cease desist order and impose a bond upon respondents' alleged infringing articles during the 60-day Presidential review period pursuant to 19 U.S.C. 1337(j).
Proposed respondents, other interested parties, and members of the public are invited to file comments on any public interest issues raised by the complaint or § 210.8(b) filing. Comments should address whether issuance of the relief specifically requested by the complainant in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) Explain how the articles potentially subject to the requested remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the requested remedial orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the requested exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the requested remedial orders would impact United States consumers.
Written submissions on the public interest must be filed no later than by close of business, eight calendar days after the date of publication of this notice in the
Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit 8 true paper copies to the Office of the Secretary by noon the next day pursuant to § 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the docket number (“Docket No. 3423”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of §§ 201.10 and 210.8(c) of the Commission's Rules of Practice and Procedure (19 CFR 201.10, 210.8(c)).
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has received a complaint entitled
Lisa R. Barton, Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205-2000. The public version of the complaint can be accessed on the Commission's Electronic Document Information System (EDIS) at
General information concerning the Commission may also be obtained by accessing its internet server at United States International Trade Commission (USITC) at
The Commission has received a complaint and a submission pursuant to § 210.8(b) of the Commission's Rules of Practice and Procedure filed on behalf of TheraJect, Inc. on December 10, 2019. The original complaint was filed on November 21, 2019 and a notice of receipt of complaint; solicitation of comments relating to the public interest published in the
Proposed respondents, other interested parties, and members of the public are invited to file comments on any public interest issues raised by the complaint or § 210.8(b) filing. Comments should address whether issuance of the relief specifically requested by the complainant in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) Explain how the articles potentially subject to the requested remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the requested remedial orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the requested exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the requested remedial orders would impact United States consumers.
Written submissions on the public interest must be filed no later than by close of business, eight calendar days after the date of publication of this notice in the
Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit 8 true paper copies to the Office of the Secretary by noon the next day pursuant to § 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the docket number (“Docket No. 3420”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of §§ 201.10 and 210.8(c) of the Commission's Rules of Practice and Procedure (19 CFR 201.10, 210.8(c)).
By order of the Commission.
On December 11, 2019, the Department of Justice filed a complaint and lodged a proposed Consent Decree with the United States District Court for the Western District of Michigan in the lawsuit entitled
The United States, on behalf of the United States Environmental Protection Agency (“EPA”), and the State of Michigan (the “State”), on behalf Michigan Department of Environment, Great Lakes, and Energy (“EGLE”), filed suit against NCR Corporation (“NCR”) under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) for the recovery of response costs and the performance of response work at the Allied Paper, Inc./Portage Creek/Kalamazoo River Superfund Site in Michigan (the “Site”). Under the terms of the Consent Decree, NCR will perform an estimated $135.7 million in cleanup work on the Kalamazoo River and the adjacent banks and floodplains. NCR also will pay $76.5 million to EPA and $6 million to the State for past and future Site response costs. Further, NCR will pay $27 million dollars to the Kalamazoo River Natural Resources Trustee Council for natural resources damages and assessment costs. The Kalamazoo River Natural Resources Trustee Council includes both state and federal trustees. The federal trustees include the United States Department of Interior (acting through the Fish and Wildlife Service) and the Department of Commerce (acting through the National Oceanic and Atmospheric Administration). The state trustees include EGLE, the Michigan Department of Natural Resources, and the Michigan Department of the Attorney General. The Consent Decree therefore provides a total estimated value of more than $245 million for cleanup work and payments.
The publication of this notice opens a period for public comment on the proposed Consent Decree. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and should refer to
We will provide a paper copy of the proposed Consent Decree upon written request and payment of reproduction costs. Please mail your request and payment to: Consent Decree Library, U.S. DOJ—ENRD, P.O. Box 7611, Washington, DC 20044-7611.
Please enclose a check or money order for $57.25 (25 cents per page reproduction cost) payable to the United States Treasury.
Office of Attorney Recruitment and Management, Department of Justice.
30-Day notice.
The Department of Justice (DOJ), Justice Management Division, Office of Attorney Recruitment and Management (OARM), will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
The Department of Justice encourages public comment and will accept input until January 16, 2020.
If you have additional comments, especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Deana Willis, Assistant Director, Office of Attorney Recruitment and Management, 450 5th Street NW, Suite 10200, Washington, DC 20530;
Written comments and/or suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
(1) Evaluate whether the proposed collection of information is necessary
(2) Evaluate the accuracy of the agencies estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(3) Evaluate whether, and if so, how, the quality, utility, and clarity of the information to be collected can be enhanced; and
(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
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a. The estimated burden associated with this collection is 586 hours, 40 minutes. It is estimated that new applicants will take 2 hours to complete the request form and justification and that previously selected recipients requesting continued funding will take 20 minutes to complete a renewal form. The burden hours for collecting respondent data, 586 hours, 40 minutes, are calculated as follows: 275 new respondents × 2 hours = 550 hours, plus 110 renewing respondents × 20 minutes = 36 hours, 40 minutes.
b. An estimate of the
If additional information is required, please contact: Melody Braswell, Department Clearance Officer, U.S. Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, Room 3E.405B, Washington, DC 20530.
Occupational Safety and Health Administration (OSHA), Department of Labor.
Notice.
This document provides notice of the declination of coverage over the working conditions of aircraft cabin crewmembers onboard aircraft in operation by all twenty-two (22) OSHA-approved State Plans which cover the private sector. On March 26, 2014, OSHA began applying three safety and health standards to the working conditions of aircraft cabin crewmembers on aircraft in operation. Section 18 of the Occupational Safety and Health Act of 1970, 29 U.S.C. 667 (OSH Act) grants the OSHA-approved State Plans the authority to regulate the working conditions of these employees to the extent consistent with the Federal Aviation Act. Subsequently, OSHA required the State Plans to either elect to amend their State Plans to cover aircraft cabin crewmembers on aircraft in operation, or to decline to exercise such authority, in which case coverage would remain a Federal OSHA responsibility. All affected State Plans declined. OSHA is hereby amending the State Plans' coverage in all of the twenty-two (22) OSHA-approved State Plans covering the private sector to reflect the declination of State Plan coverage, and the continuation of Federal OSHA enforcement authority over the working conditions of aircraft cabin crewmembers while they are onboard aircraft in operation, and notifying affected employers and employees of this action.
December 17, 2019.
Section 18 of the OSH Act provides that State Plans that wish to assume responsibility for developing and enforcing their own occupational safety and health standards may do so by submitting and obtaining federal approval of a State Plan. State Plan approval occurs in stages that include initial approval under Section 18(c) and final approval under Section 18(e). The twenty-two (22) OSHA-approved State Plans that cover the private sector are: Alaska, Arizona, California, Hawaii, Indiana, Iowa, Kentucky, Maryland, Michigan, Minnesota, Nevada, New Mexico, North Carolina, Oregon, Puerto Rico, South Carolina, Tennessee, Utah, Vermont, Virginia, Washington, and Wyoming.
Section 4(b)(1) of the OSH Act, 29 U.S.C. 653(b)(1) provides that OSHA cannot regulate working conditions of employees with respect to which other Federal agencies exercise statutory authority to prescribe or enforce standards or regulations affecting occupational safety and health. Pursuant to the Federal Aviation Act of 1958, the Federal Aviation Administration (FAA) is charged with the promotion of safe flight of civil aircraft in air commerce by prescribing regulations and minimum standards for practices, methods, and procedures the FAA Administrator finds necessary for safety in air commerce and national security. (49 U.S.C. 44701
On August 27, 2013, the FAA Administrator published in the
These standards are hazard communication (29 CFR 1910.1200), bloodborne pathogens exposure (29 CFR 1910.1030), and occupational noise exposure (29 CFR 1910.95). The working conditions addressed by these three standards are the only working conditions of aircraft cabin crewmembers while they are onboard aircraft in operation subject to OSHA enforcement. FAA continues to exercise its statutory authority over all other working conditions of aircraft cabin crewmembers while they are on aircraft in operation, and to fully cover flight deck crew occupational safety and health issues while they are on aircraft in operation.
For the purposes of Federal OSHA enforcement authority, an aircraft cabin crewmember means a person assigned to perform a duty in an aircraft cabin when the aircraft is in operation (other than flight crewmembers). For this purpose, an aircraft is “in operation” from the time it is first boarded by a crewmember, in preparation for a flight, to the time the last crewmember leaves the aircraft after completion of that flight, including stops on the ground during which at least one crewmember remains on the aircraft, even if the engines are shut down.
Separate from this FAA policy change, OSHA already has authority to enforce its regulations on recordkeeping, 29 CFR part 1904, and access to employee exposure and medical records, 29 CFR 1910.1020. These regulations are not subject to preemption by Section 4(b)(1) of the OSH Act. OSHA also already has the responsibility to investigate employee complaints of discrimination for engaging in protected activity related to safety or health in the workplace, under Section 11(c) of the OSH Act, 29 U.S.C. 660(c). Investigations of employee complaints of discrimination for providing information about alleged violations of FAA requirements or of any Federal law relating to air carrier safety are also OSHA's responsibility under Section 519 of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century, Public Law 106-181, 49 U.S.C. 42121, which is the subject of a separate OSHA-FAA Memorandum of Understanding (MOU), 67 FR 55883 (Aug. 30, 2002).
Accordingly, OSHA assumed this authority for the enforcement of the hazard communication, bloodborne pathogens, and noise standard with respect to aircraft cabin crewmembers on aircraft in operation on March 26, 2014. It now enforces these three standards with respect to these employees. OSHA and FAA also entered into a MOU on August 26, 2014, to facilitate coordination and cooperation between the two agencies concerning OSHA's enforcement of these three standards for these employees.
Section 18 of the OSH Act grants the OSHA-approved State Plans the authority to regulate the working conditions of employees. Thus, these agencies might cover aircraft cabin crewmembers while they are onboard aircraft in operation, to the extent consistent with the Federal Aviation Act. State Plans also have the ability to have safety and health standards that differ from Federal OSHA's, as long as those standards are at least as effective as Federal OSHA's, under Section 18(c)(2) of the OSH Act, 29 U.S.C. 667(c). However, FAA expressed concern about airlines being subject to different sets of rules as they fly into and out of different states. (78 FR 52848, 52850).
Subsequently, OSHA required the State Plans to either elect to amend their State Plans to cover aircraft cabin crewmembers or to decline to exercise such authority, in which case coverage would remain a Federal OSHA responsibility. All affected State Plans declined.
OSHA is hereby amending the coverage of approved State Plans to reflect this declination of State coverage and the continuation of Federal OSHA enforcement authority over the enforcement of these three occupational safety and health standards for aircraft cabin crewmembers while they are onboard aircraft in operation in the twenty-two (22) OSHA-approved State Plans that cover the private sector. The State Plan web pages maintained by OSHA have been updated to reflect this notice.
Loren Sweatt, Principal Deputy Assistant Secretary of Labor for Occupational Safety and Health, U.S. Department of Labor, authorized the preparation of this notice. OSHA is issuing this notice under the authority
Nuclear Regulatory Commission.
Biweekly notice.
Pursuant to the Atomic Energy Act of 1954, as amended (the Act), the U.S. Nuclear Regulatory Commission (NRC) is publishing this regular biweekly notice. The Act requires the Commission to publish notice of any amendments issued, or proposed to be issued, and grants the Commission the authority to issue and make immediately effective any amendment to an operating license or combined license, as applicable, upon a determination by the Commission that such amendment involves no significant hazards consideration, notwithstanding the pendency before the Commission of a request for a hearing from any person. This biweekly notice includes all amendments issued, or proposed to be issued, from November 19, 2019, to December 2, 2019. This notice also incorporates the revised biweekly format as noticed in the
Comments must be filed by January 16, 2020. A request for a hearing or petitions for leave to intervene must be filed by February 18, 2020.
You may submit comments by any of the following methods (unless this document describes a different method for submitting comments on a specific subject):
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For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the
Lynn Ronewicz, Office of Nuclear Reactor Regulation, 301-415-1927, email:
Please refer to Docket ID NRC-2019-0243, when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:
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Please include Docket ID NRC-2019-0243, facility name, unit nos. docket no., application date, and subject, in your comment submission.
The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
For the facility-specific amendment requests shown below, the Commission finds that the licensee's analyses provided, consistent with title 10 of the
The Commission is seeking public comments on this proposed determination. Any comments received within 30 days after the date of publication of this notice will be considered in making any final determination.
Normally, the Commission will not issue the amendment until the expiration of 60 days after the date of publication of this notice. The Commission may issue the license amendment before expiration of the 60-day period provided that its final determination is that the amendment involves NSHC. In addition, the Commission may issue the amendment prior to the expiration of the 30-day comment period if circumstances change during the 30-day comment period such that failure to act in a timely way would result, for example in
Within 60 days after the date of publication of this notice, any persons (petitioner) whose interest may be affected by this action may file a request for a hearing and petition for leave to intervene (petition) with respect to the action. Petitions shall be filed in accordance with the Commission's “Agency Rules of Practice and Procedure” in 10 CFR part 2. Interested persons should consult a current copy of 10 CFR 2.309. The NRC's regulations are accessible electronically from the NRC Library on the NRC's website at
As required by 10 CFR 2.309(d) the petition should specifically explain the reasons why intervention should be permitted with particular reference to the following general requirements for standing: (1) The name, address, and telephone number of the petitioner; (2) the nature of the petitioner's right under the Act to be made a party to the proceeding; (3) the nature and extent of the petitioner's property, financial, or other interest in the proceeding; and (4) the possible effect of any decision or order which may be entered in the proceeding on the petitioner's interest.
In accordance with 10 CFR 2.309(f), the petition must also set forth the specific contentions which the petitioner seeks to have litigated in the proceeding. Each contention must consist of a specific statement of the issue of law or fact to be raised or controverted. In addition, the petitioner must provide a brief explanation of the bases for the contention and a concise statement of the alleged facts or expert opinion which support the contention and on which the petitioner intends to rely in proving the contention at the hearing. The petitioner must also provide references to the specific sources and documents on which the petitioner intends to rely to support its position on the issue. The petition must include sufficient information to show that a genuine dispute exists with the applicant or licensee on a material issue of law or fact. Contentions must be limited to matters within the scope of the proceeding. The contention must be one which, if proven, would entitle the petitioner to relief. A petitioner who fails to satisfy the requirements at 10 CFR 2.309(f) with respect to at least one contention will not be permitted to participate as a party.
Those permitted to intervene become parties to the proceeding, subject to any limitations in the order granting leave to intervene. Parties have the opportunity to participate fully in the conduct of the hearing with respect to resolution of that party's admitted contentions, including the opportunity to present evidence, consistent with the NRC's regulations, policies, and procedures.
Petitions must be filed no later than 60 days from the date of publication of this notice. Petitions and motions for leave to file new or amended contentions that are filed after the deadline will not be entertained absent a determination by the presiding officer that the filing demonstrates good cause by satisfying the three factors in 10 CFR 2.309(c)(1)(i) through (iii). The petition must be filed in accordance with the filing instructions in the “Electronic Submissions (E-Filing)” section of this document.
If a hearing is requested, and the Commission has not made a final determination on the issue of no significant hazards consideration, the Commission will make a final determination on the issue of no significant hazards consideration. The final determination will serve to establish when the hearing is held. If the final determination is that the amendment request involves no significant hazards consideration, the Commission may issue the amendment and make it immediately effective, notwithstanding the request for a hearing. Any hearing would take place after issuance of the amendment. If the final determination is that the amendment request involves a significant hazards consideration, then any hearing held would take place before the issuance of the amendment unless the Commission finds an imminent danger to the health or safety of the public, in which case it will issue an appropriate order or rule under 10 CFR part 2.
A State, local governmental body, Federally-recognized Indian Tribe, or agency thereof, may submit a petition to the Commission to participate as a party under 10 CFR 2.309(h)(1). The petition should state the nature and extent of the petitioner's interest in the proceeding. The petition should be submitted to the Commission no later than 60 days from the date of publication of this notice. The petition must be filed in accordance with the filing instructions in the “Electronic Submissions (E-Filing)” section of this document, and should meet the requirements for petitions set forth in this section, except that under 10 CFR 2.309(h)(2) a State, local governmental body, or Federally-recognized Indian Tribe, or agency thereof does not need to address the standing requirements in 10 CFR 2.309(d) if the facility is located within its boundaries. Alternatively, a State, local governmental body, Federally-recognized Indian Tribe, or agency thereof may participate as a non-party under 10 CFR 2.315(c).
If a hearing is granted, any person who is not a party to the proceeding and is not affiliated with or represented by a party may, at the discretion of the presiding officer, be permitted to make a limited appearance pursuant to the provisions of 10 CFR 2.315(a). A person making a limited appearance may make an oral or written statement of his or her position on the issues but may not otherwise participate in the proceeding. A limited appearance may be made at any session of the hearing or at any prehearing conference, subject to the limits and conditions as may be imposed by the presiding officer. Details regarding the opportunity to make a limited appearance will be provided by the presiding officer if such sessions are scheduled.
All documents filed in NRC adjudicatory proceedings, including a request for hearing and petition for leave to intervene (petition), any motion or other document filed in the proceeding prior to the submission of a request for hearing or petition to intervene, and documents filed by interested governmental entities that request to participate under 10 CFR 2.315(c), must be filed in accordance with the NRC's E-Filing rule (72 FR 49139; August 28, 2007, as amended at 77 FR 46562; August 3, 2012). The E-Filing process requires participants to submit and serve all adjudicatory documents over the internet, or in some cases to mail copies on electronic storage media. Detailed guidance on making electronic submissions may be
To comply with the procedural requirements of E-Filing, at least 10 days prior to the filing deadline, the participant should contact the Office of the Secretary by email at
Information about applying for a digital ID certificate is available on the NRC's public website at
A person filing electronically using the NRC's adjudicatory E-Filing system may seek assistance by contacting the NRC's Electronic Filing Help Desk through the “Contact Us” link located on the NRC's public website at
Participants who believe that they have a good cause for not submitting documents electronically must file an exemption request, in accordance with 10 CFR 2.302(g), with their initial paper filing stating why there is good cause for not filing electronically and requesting authorization to continue to submit documents in paper format. Such filings must be submitted by: (1) First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemaking and Adjudications Staff; or (2) courier, express mail, or expedited delivery service to the Office of the Secretary, 11555 Rockville Pike, Rockville, Maryland 20852, Attention: Rulemaking and Adjudications Staff. Participants filing adjudicatory documents in this manner are responsible for serving the document on all other participants. Filing is considered complete by first-class mail as of the time of deposit in the mail, or by courier, express mail, or expedited delivery service upon depositing the document with the provider of the service. A presiding officer, having granted an exemption request from using E-Filing, may require a participant or party to use E-Filing if the presiding officer subsequently determines that the reason for granting the exemption from use of E-Filing no longer exists.
Documents submitted in adjudicatory proceedings will appear in the NRC's electronic hearing docket which is available to the public at
The table below provides the plant name, docket number, date of application, ADAMS accession number, and location in the application of the licensee's proposed NSHC determination. For further details with respect to these license amendment applications, see the application for amendment which is available for public inspection in ADAMS and at the NRC's PDR. For additional direction on accessing information related to this document, see the “Obtaining Information and Submitting Comments” section of this document.
During the period since publication of the last biweekly notice, the Commission has issued the following amendments. The Commission has determined for each of these amendments that the application complies with the standards and requirements of the Atomic Energy Act of 1954, as amended (the Act), and the Commission's rules and regulations. The Commission has made appropriate findings as required by the Act and the Commission's rules and regulations in 10 CFR chapter I, which are set forth in the license amendment.
A notice of consideration of issuance of amendment to facility operating license or combined license, as applicable, proposed NSHC determination, and opportunity for a hearing in connection with these actions, was published in the
Unless otherwise indicated, the Commission has determined that these amendments satisfy the criteria for categorical exclusion in accordance with 10 CFR 51.22. Therefore, pursuant to 10 CFR 51.22(b), no environmental impact statement or environmental assessment need be prepared for these amendments. If the Commission has prepared an environmental assessment under the special circumstances provision in 10 CFR 51.22(b) and has made a determination based on that assessment, it is so indicated.
For further details with respect to the action, see (1) the applications for amendment, (2) the amendment, and (3) the Commission's related letter, Safety Evaluation, and/or Environmental Assessment as indicated. All of these items can be accessed as described in the “Obtaining Information and Submitting Comments” section of this document.
For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning negotiated service agreements. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list.
Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request's acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request.
The public portions of the Postal Service's request(s) can be accessed via the Commission's website (
The Commission invites comments on whether the Postal Service's request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3010, and 39 CFR part 3020, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633,
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This Notice will be published in the
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning negotiated service agreements. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the market dominant or the competitive product list, or the modification of an existing product currently appearing on the market dominant or the competitive product list.
Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request's acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request.
The public portions of the Postal Service's request(s) can be accessed via the Commission's website (
The Commission invites comments on whether the Postal Service's request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern market dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3010, and 39 CFR part 3020, subpart B. For request(s) that the Postal Service states concern competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3015, and 39 CFR part 3020, subpart B. Comment deadline(s) for each request appear in section II.
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This Notice will be published in the
Postal Regulatory Commission.
Notice.
The Commission is acknowledging a recent Postal Service filing of its intention to change prices not of general applicability to be effective January 1, 2020. This document informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
On December 10, 2019, the Postal Service filed notice announcing its intention to change prices not of general applicability for Inbound Parcel Post (at Universal Postal Union (UPU) Rates) effective January 1, 2020.
To accompany its Notice, the Postal Service filed: A redacted copy of the UPU International Bureau (IB) Circular that contains the new prices, a copy of the certification required under 39 CFR 3015.5(c)(2), redacted Postal Service data used to justify any bonus payments, a copy of the Postal Service's submission to the UPU in support of an inflation-linked adjustment, and a redacted copy of Governors' Decision 19-1. Notice at 2-3;
Additionally, the Postal Service filed an unredacted copy of Governors' Decision 19-1, an unredacted copy of the new prices, and related financial information under seal.
The Postal Service states that it has provided supporting documentation as required by Order No. 2102 and Order No. 2310.
The Commission establishes Docket No. CP2020-61 for consideration of matters raised by the Notice.
The Commission invites comments on whether the Postal Service's filing is consistent with 39 U.S.C. 3632, 3633, and 39 CFR part 3015. Comments are due no later than December 18, 2019. The public portions of the filing can be accessed via the Commission's website (
The Commission appoints Katalin K. Clendenin to serve as Public Representative in this docket.
1. The Commission establishes Docket No. CP2020-61 for consideration of the matters raised by the Postal Service's Notice.
2. Pursuant to 39 U.S.C. 505, Katalin K. Clendenin is appointed to serve as an officer of the Commission to represent the interests of the general public in this proceeding (Public Representative).
3. Comments are due no later than December 18, 2019.
4. The Secretary shall arrange for publication of this order in the
By the Commission.
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Sean Robinson, 202-268-8405.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on December 11, 2019, it filed with the Postal Regulatory Commission a
Postal Service
Notice.
The Postal Service gives notice of filing a request with the Postal Regulatory Commission to add a domestic shipping services contract to the list of Negotiated Service Agreements in the Mail Classification Schedule's Competitive Products List.
Sean Robinson, 202-268-8405.
The United States Postal Service® hereby gives notice that, pursuant to 39 U.S.C. 3642 and 3632(b)(3), on December 11, 2019, it filed with the Postal Regulatory Commission a
Office of Science and Technology Policy (OSTP).
Notice of Request for Information (RFI) on the American research environment.
On behalf of the National Science and Technology Council's (NSTC's) Joint Committee on the Research Environment (JCORE), the OSTP requests input on actions that Federal agencies can take, working in partnership with private industry, academic institutions, and non-profit/philanthropic organizations, to maximize the quality and effectiveness of the American research environment. Specific emphasis is placed on ensuring that the research environment is welcoming to all individuals and enables them to work safely, efficiently, ethically, and with mutual respect, consistent with the values of free inquiry, competition, openness, and fairness.
The comment period has been extended. Interested persons are invited to submit comments on or before 11:59 p.m. ET on January 28, 2020.
Comments submitted in response to this notice may be submitted online to: The NSTC Executive Director, Chloe Kontos,
It is suggested that no business proprietary information, copyrighted information, or personally identifiable information be submitted in response to this RFI.
In accordance with FAR 15.202(3), responses to this notice are not offers and cannot be accepted by the Federal Government to form a binding contract. Additionally, those submitting responses are solely responsible for all expenses associated with response preparation.
For additional information, please direct your questions to the NSTC Executive Director, Chloe Kontos,
NSTC established JCORE in May 2019. JCORE is working to address key areas that impact the U.S. research enterprise; enabling a culture supportive of the values and ethical norms critical to world-leading science and technology. This includes the need to improve safety and inclusivity, integrity, and security of research settings while balancing accountability and productivity.
Specifically, JCORE is working to:
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The National Academies and others have in recent reports on rigor, reproducibility and replicability
1. What actions can Federal agencies take to facilitate the reproducibility, replicability, and quality of research? What incentives currently exist to (1) conduct and report research so that it can be reproduced, replicated, or generalized more readily, and (2) reproduce and replicate or otherwise confirm or generalize publicly reported research findings?
2. How can Federal agencies best work with the academic community, professional societies, and the private sector to enhance research quality, reproducibility, and replicability? What are current impediments and how can institutions, other stakeholders, and Federal agencies collaboratively address them?
3. How do we ensure that researchers, including students, are aware of the ethical principles of integrity that are fundamental to research?
4. What incentives can Federal agencies provide to encourage reporting of null or negative research findings?
5. How can the U.S. government best align its efforts to foster research rigor, reproducibility, and replicability with those of international partners?
Numerous reports and recommendations, including from the National Academies,
Taking into consideration the current Federal landscape with respect to individual Federal agency financial conflict of interest (FCOI) regulations and policies, including definitions, disclosure or reporting requirements and thresholds, training requirements, and timing for disclosure, please comment on the following:
1. What actions can the Federal government take to reduce administrative work associated with FCOI requirements for researchers, institutions, and Federal agency staff?
2. How can Federal agencies best achieve the appropriate balance between reporting and administrative requirements and the potential risk of unreported or managed financial conflicts that could compromise the research?
3. From the perspective of institutions, describe the impact of the 2011 revisions to the Public Health Services FCOI regulations. What were the implications with respect to the balance between burden and risk? Did the revisions result in fewer significant unresolved or unreported financial conflicts?
4. Please comment on whether and how a streamlined, harmonized, Federal-wide policy for FCOI would provide benefits with respect to reducing administrative work and whether there would be anticipated challenges.
5. How can agencies best reduce workload associated with submitting and reviewing applications for Federal research funding? What information is necessary to assess the merit of the proposed research, and what information can be delayed until after the merit determination is made (“just-in-time”)?
The open and internationally collaborative nature of the U.S. science and technology research enterprise underpins America's innovation, science and technology leadership, economic competitiveness, and national security. However, over the past several years, some nations have exhibited increasingly sophisticated efforts to exploit, influence, our research activities and environments. Some of these recent efforts have come through foreign government-sponsored talent recruitment programs. Breaches of research ethics, both within talent programs and more generally, include the failure to disclose required information such as foreign funding, unapproved parallel foreign laboratories (so-called shadow labs), affiliations and appointments, and conflicting financial interests. Other inappropriate behaviors include conducting undisclosed research for foreign governments or companies on United States agency time or with United States agency funding, diversion of intellectual property or other legal rights, and breaches of contract and confidentiality in or surreptitious gaming of the peer-review process.
In light of these concerns, we seek public input on the following questions:
1. How can the U.S. Government work with organizations that perform research to manage and mitigate the risk of misappropriation of taxpayer or other funds through unethical behaviors in the research enterprise? Please consider:
a. Disclosure requirements and policies. Who within the research enterprise should disclose financial as well as nonfinancial support and affiliations (
b. Disclosure of sources of support for participants in the research enterprise. What additional sources of support should be disclosed, and should they include current or pending participation in foreign government-sponsored talent recruitment programs?
c. What information can the government provide to organizations that perform research to help them assess risks to research security and integrity?
2. How can the U.S. government best partner across the research enterprise to enhance research security? Please consider:
a. Appropriate roles and responsibilities for government agencies, institutions, and individuals;
b. Discovery of and communication of information regarding activities that threaten the security and integrity of the research enterprise; and
c. Establishment and operation of research security programs at organizations that perform research.
3. What other practices should organizations that perform research adopt and follow to help protect the security and integrity of the research enterprise? Please consider:
a. Organization measures to protect emerging and potentially critical early-stage research and technology.
b. How can Federal agencies and research institutions measure and balance the benefits and risks associated with international research cooperation?
JCORE is focused on identifying actions that will ensure research environments in America are free from harassment of any kind, and from any conditions that encourage or tolerate harassment or other forms of behavior that are inconsistent with the ethical norms of research. The aim is to foster an American research enterprise, which epitomizes our values and those of research itself, namely, where researchers feel welcome and are encouraged to join, wish to remain, and subsequently thrive. To achieve this, leaders must create a research environment that welcomes all individuals, values their ideas, treats individuals as equals, and promotes bold thinking, rigorous and civil debate, and collegiality. With this focus in
1. What policies and practices are most beneficial in fostering a culture of safe and inclusive research environments? Where applicable, please provide information on:
a. Organizational leadership actions that create a culture of inclusivity;
b. Best practices for preventing harassment from beginning;
c. Best practices for prohibiting retaliation against those who report harassment;
d. Best practices for re-integrating those who have been accused of harassment but found to be innocent;
e. Whether your organization has a common code of ethics applicable to researchers, and whether that code is highlighted and actively promoted in training, research practice, etc;
f. How institution-based procedures for reporting cases of sexual harassment and non-sexual harassment (or toxic climate) differ, and if there are aspects of one set of policies that would be beneficial for broader inclusion.
2. What barriers does your organization face in the recruitment and retention of diverse researchers? Where applicable, please provide information on:
a. The setting to which it applies (
b. Whether your organization has best practices or challenges specific to recruitment and retention of global talent;
c. Solutions your organization has used to successfully increase recruitment or retention of diverse and/or international researchers;
d. Best practices to promote bold thinking and enable collegiality in debate.
3. Are Federal agency policies on harassment complimentary or conflicting with regard to state or organizational policies? Where applicable, please provide information on:
a. What aspects are in conflict, along with the associated agency policy;
b. What aspects are most protective and make policy reasonable to implement;
c. What processes have effectively streamlined the administrative workload associated with implementation, compliance, or reporting.
4. What metrics can the Federal government use to assess progress in promoting safer and more inclusive research environments? Where applicable, please provide information on:
a. What methods your organization uses to assess workplace climate;
b. What systems within your organization were developed to enforce and/or report back to agencies;
c. What metrics does your organization uses to assess effectiveness of safe and inclusive practices;
d. What actions does your organization take communicate climate survey results, both within your organization and to external stakeholders?
Pursuant to Section 11A(a)(3) of the Securities Exchange Act of 1934 (“Act”)
Set forth in this Section I is the statement of the purpose and summary of Amendment No. 5, along with the information required by Rule 608(a)(4) and (5) under the Exchange Act,
The Plan Sponsors have agreed to amend the OLPP to govern the listing of option classes that quote in one-cent increments and five-cent increments under a Penny Interval Program (“Penny Program”).
The Plan Sponsors propose to establish the Penny Program as a permanent replacement to the current Penny Pilot Program (“Penny Pilot”).
The Penny Program will initially apply only to the 363
The Plan Sponsors agree on an annual review process by which eligible option classes may be added to the Penny Program, or ineligible option classes may be removed from the Penny Program based on objective criteria. Specifically, on an annual basis commencing in December 2020 and each December thereafter, OCC will rank all multiply listed option classes based on National Cleared Volume for the six full calendar months from June 1 through November 30 for determination of the most actively traded option classes. Any option class not yet in the Penny Program that is among the 300 most actively traded multiply listed option classes overlying
In addition, following the annual review, any option class in the Penny Program that falls outside the 425 most actively traded multiply listed option classes will be removed from the Penny Program.
In addition to the annual review described above, the Plan Sponsors agree to allow option classes to be added to the Penny Program if they are a newly listed option class that meets certain criteria. Specifically, the Exchanges may add a newly listed option class to the Penny Program, provided that (i) it is among the 300 most actively traded multiply listed option classes, as ranked by National Cleared Volume at OCC, in its first full calendar month of trading, and (ii) the underlying security is priced below $200 or the underlying index is at an index level below $200. Any option class added under this provision will be added on the first trading day of the month after it qualifies.
In addition to the annual review described above, the Plan Sponsors agree to allow an option class to be added to the Penny Program if it is an option class that has a significant growth in activity. Specifically, the Exchanges may add any option class to the Penny Program, provided that (i) it is among the 75 most actively traded multiply listed option classes, as ranked by National Cleared Volume at OCC, for six full calendar months of trading, and (ii) the underlying security is priced below $200 or the underlying index is at an index level below $200. Any option class added under this provision will be added on the first trading day of the second full month after it qualifies.
The Plan Sponsors believe that a provision to allow for option classes to be added to the Penny Program outside of the annual review process is beneficial to market participants because of the rare instances when an option class that has been listed for some time becomes very active for an extended period of time, such as after the development of a new product. While some issues may become active for a month or two, the six month activity requirement and the higher qualification level (among the 75 most active) ensures that only those option classes with widespread investor interest are added to the Penny Program outside of the regular process.
The Plan Sponsors also believe that option classes added outside of the regular process should be subject to the
The Plan Sponsors agree to provide that if a corporate action involves one or more option classes in the Penny Program, all adjusted and unadjusted series of the option class shall be included in the Penny Program.
The Plan Sponsors agree to provide that any series in an option class participating in the Penny Program in which the underlying has been delisted, or is identified by OCC as ineligible for opening customer transactions, will continue to quote pursuant to the terms of the Penny Program until all options series have expired. The Plan Sponsors believe that the proposal to allow delisted or ineligible option classes to stay in the Penny Program until they expire will encourage market participants to continue to provide liquidity in these issues in a manner that is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.
The Plan Sponsors agree that references to multiply listed option classes in proposed Section 3.1 of the OLPP will apply only to option classes in the Penny Program, and to no other sections of the OLPP.
The Plan Sponsors further agree to an amendment process that would only apply to changes to the Penny Program provisions set forth in proposed Section 3.1 of the OLPP. Currently, any amendments to the OLPP other than to add new Plan Sponsors must be approved unanimously by the Plan Sponsors.
The Plan Sponsors agree to adopt the Penny Program based on results of the numerous previously published studies regarding the Penny Pilot, and the most recent data presented in the Report on Activity in Option Classes Added to the Penny Pilot summarized below. Plan Sponsors note that the various markets and market participants have previously studied the Penny Pilot, in 2009 and 2010, when the Penny Pilot was expanded. The Exchanges have also studied the Penny Pilot throughout the duration of the program, and consistently found that as an overall program, the Penny Pilot was of significant benefit to investors and other market participants and had a minimal negative impact on the industry.
In addition, the Commission's Division of Economic and Risk Analysis (“DERA”) recently contracted with Cornerstone Research (“Cornerstone”) to conduct an independent analysis of the impact of the Penny Pilot on market quality, using quoted and effective spreads as measures of market quality (“Cornerstone Analysis”).
Most recently, on behalf of the U.S. options exchanges participating in the Penny Pilot, NYSE Group, together with its subsidiary markets, NYSE American Options and NYSE Arca Options, studied option quote and trade activity in the eight option classes listed in the table below (the “Study Group”). The study examined trading activity for this Study Group during two time periods: the Third and Fourth Quarters of 2014 (
The data for the Study Group was compiled based on trading activity that occurred on each Wednesday during the pre-Pilot, and Pilot period (n=27), in an effort to minimize disruption from options expirations, which occur on Fridays, and/or the additions of new series, which often occur on Mondays.
The quote data was compiled across all series and expirations for options on each of the eight underlying securities in the Study Group. To focus on the effect of quoting in $0.01 increments, the quotes in the Study Group were segregated by those with an offer value less than or equal to $3.00, and those with an offer greater than $3.00.
Spread width is a measure of the benefit to investors, as the costs of entering and exiting the market are reduced by a narrower spread.
As shown in Figures 1 and 3 of the Report, the study found that the average spread width for issues in the Study Group was reduced during the Pilot period as compared to the pre-Pilot period. The results indicated a more consistent reduction in spread width in the lower-priced options (
The study also examined the median width of all of the quotes on issues in the Study Group to determine whether the average spread width was distorted by higher-priced options in the Study Group. As Figures 4-5 show, the results indicated a reduced median spread width for lower-priced options during the Pilot period, while the results did not indicate as consistent a reduction in the median spread width for higher-priced options during the same period. The Exchanges still believe that the findings support making the Penny Pilot a permanent program because of the reduction in quoted spreads, especially for lower-priced options, which is beneficial to the investing public by lowering the costs of entering and exiting the market and thus consistent with the Act.
The study also examined the number of contracts in the Study Group offered at the National Best Offer. While most markets submitted to options exchanges are symmetrical in the number of contracts bid for, and the number of contracts offered, the common presence of quotes without a bid in out-of-the-money option series would distort the average bid size for a given option. With that in mind, the study focused solely on offer sizes.
Since the beginning of the Penny Pilot in 2007, there was a focus on whether the benefit of a reduced spread would be offset by a decrease in liquidity available at the National Best Bid/Offer (“NBBO”). As shown in Figure 6 and Table 2 of the Report, the study found that while there was a reduction in the number of contracts offered at the NBBO
As Table 3 shows, an examination of the Study Group trades during the pre-Pilot and Pilot period also indicated a sizeable percentage of transactions occurred between the NBBO (
As shown in Figures 7-14 in the Report, further examination of the Study Group data also demonstrated that having price points available under $0.10 resulted in trading that was concentrated on narrower spreads even if this trend did not result in a significant narrowing of spreads across the universe of series in an underlying class. The data also indicated that after being added to the Penny Pilot, all but two classes in the Study Group experienced more than 50% of trading occurred when the spread width was $0.05 or less. The other two classes (
One portion of the quote traffic analysis also observed the same Study Group and covered time pre-Pilot and Pilot periods of 2014 and 2015, respectively. As Figure 15 of the Report shows, nearly all of the issues showed an increase in number of quotes once it was included with the Penny Pilot.
Additionally, further analysis was conducted on a second study group to evaluate quote traffic for Penny Pilot issues that were added to the Penny Pilot in July 2017 (see option classes below, “July 2017 Study Group”).
Figure 16 in the Report compares two time periods (January-June 2017 and January-June 2018) for the July 2017 Study Group, which represents the time before and after their inclusion into the Penny Pilot. As shown in Figure 16, of the July 2017 Study Group issues, only two (2) experienced a decrease in quote traffic (
The Report also compares the effect on quote traffic for the potential removals and additions to the Penny Pilot for the time period between January 2018 and June 2018, as shown in Figure 17. Over the six months of 2018, the issues which would be additions to the Penny Pilot generated nearly 103 billion quotes, and issues which would be removed generated about 77 billion quotes over the same time period. Thus by comparison, the additions generated approximately 26 billion more quotes than the removals during January to June timeframe (or an average of over 4 billion quotes each month). While the foregoing findings demonstrate that the increase in quote traffic has been appreciable, the capacities of the Exchanges' systems and Options Price Reporting Authority (“OPRA”) have been sufficiently adequate in handling the quote traffic increase resulting from the Penny Pilot. In addition, the Exchanges believe that their respective and OPRA's systems have sufficient quote capacity going forward to accommodate the projected increase in quote traffic that will result from the initial selection and annual review process proposed above.
Not applicable.
The OLPP, as amended, will become effective upon Commission approval. The Plan Sponsors will implement the OLPP, as amended, pursuant to the terms of this Amendment No. 5 upon Commission approval.
Not applicable.
The proposed OLPP, as amended, does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Plan Sponsors do not believe that this Amendment No. 5 introduces terms that are unreasonably discriminatory for the purposes of Section 11A(c)(1)(D) of the Act.
Not applicable.
This Amendment No. 5 has been approved by the Plan Sponsors in accordance with the OLPP. The Plan Sponsors have each executed a signed copy of the Amendment.
Not applicable.
Not applicable.
Not applicable.
Not applicable.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the amendment is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
By the Commission.
On behalf of the U.S. options exchanges participating in the Penny Pilot program (the “Penny Pilot” or “Pilot”), NYSE Group, together with its subsidiary markets, NYSE American Options and NYSE Arca Options, studied option quote and trade activity in the eight option classes listed in the table below (the “Study Group”). The study examined trading activity for this Study Group during two time periods: The Third and Fourth Quarters of 2014 (
The data for the Study Group was compiled based on trading activity that occurred on each Wednesday during the pre-Pilot, and Pilot period (n=27), in an effort to minimize disruption from options expirations, which occur on Fridays, and/or the addition of new series, which often occur on Mondays.
The quote data was compiled across all series and expirations for options on each of the eight underlying securities in the Study Group. To focus on the effect of quoting in $0.01 increments, the quotes in the Study Group were segregated by those with an offer value less than or equal to $3.00, and those with an offer greater than $3.00.
The study found that the average spread width for issues in the Study Group was reduced during the Pilot period as compared to the pre-Pilot period. The results indicated a more consistent reduction in spread width in the lower-priced options (
The study also examined the number of contracts in the Study Group offered at the National Best Offer. While most markets submitted to options exchanges are symmetrical in the number of contracts bid for, and the number of contracts offered, the common presence of quotes without a bid in out-of-the-money option series would distort the average bid size for a given option. With that in mind, the study focused solely on offer sizes.
Since the beginning of the Pilot in 2007, there was a focus on whether the benefit of a reduced spread would be offset by a decrease in liquidity available at the National Best Bid/Offer (“NBBO”). The study found that while there was a reduction in the number of contracts offered at the NBBO for the Study Group during the Pilot period, the size traded at the NBBO for the Study Group still vastly exceeded the available size at the NBBO during this same time period. An examination of the Study Group trades during the pre-Pilot and Pilot period also indicated a sizeable percentage of transactions occurred between the NBBO (
Further examination of the Study Group data also demonstrated that having price points available under $0.10 resulted in trading that was concentrated on narrower spreads even if this trend did not result in a significant narrowing of spreads across the universe of series in an underlying class. The data also indicated that after being added to the Pilot, all but two classes experienced more than 50% of trading occurred when the spread width was $0.05 or less. The other two classes (
The Participants feel the Report demonstrates the benefit to the investing public of pricing active options classes in $0.01 increments below $3.00, and $0.05 increments above $3.00. The Report is consistent with findings from earlier Penny Pilot Reports from 2007 to 2012: The NBBO spread has narrowed, size available at the NBBO has declined, quote traffic has increased and industry volumes have increased.
These findings are also consistent with those of Cornerstone Research,
Except for a two
The periods where VIX increased correlated to increased spread widths.
The study did not demonstrate a consistently narrower market for higher-priced options.
An examination of the median of all the spreads of lower-priced options in the Study Group during the Pilot demonstrated a consistent reduction in the average spread width.
An examination of the median of all spread widths of higher-priced options in the Study Group did not demonstrate as consistent a reduction in spread width.
While the data
Transactions in the Study Group for the pre-Pilot and Pilot periods were analyzed by segregating such transactions into the following “buckets” of quote widths:
A review of the data indicates that significantly higher percentage of Study Group transactions occurred in the bucket with the narrowest quote width (
This data demonstrates that having price points available under $0.10 resulted in trading that was concentrated on narrower spreads even if this trend did not result in a significant narrowing of spreads across the universe of series in an underlying class. The data also indicated that after being added to the Pilot, all but two classes experienced more than 50% of trading occurred when the spread width was $0.05 or less. The other two classes (
As the Plan Sponsors look to amend the Pilot, one of the modifications to the program will be the inauguration of an annual review. This review will be conducted every December to allow eligible issues to be added to the program, while ineligible issues will be removed from the program. Currently, there are 363 issues in the Pilot. However, it is assumed that the current issues are not the top 363 issues in the industry based upon volume. The exchanges performed a test to assess what the impact would be if the annual review would be conducted present day versus waiting until December to do so. This would examine not only the issues added/removed, but also how OPRA quote traffic would be impacted with all changes to the program. For this projection, the analysis looked at options volume from January through July 2018 to set the industry's top 363 issues. There were 107 current Penny Pilot issues which did not rank within the top 363 industry issues. Conversely, there were 96 issues that are currently not in the Pilot, however, that rank in the top 363 industry issues. There are 11 issues that are within the top 363 issues, but would not qualify for the Pilot due to the underlying price being greater than $200.
The analysis looked at the basket of recent additions to the Penny Pilot (basket of 8 stocks from earlier analysis) from the years 2014-2015. As evidenced by the chart below, nearly all of the issues showed an increase in number of quotes once it was included with the Pilot.
Using a different sample set, the analysis examined the quote traffic for the eleven (11) issues that were added to the Pilot in July 2017 (“July 2017 Study Group”). The below chart depicts the change in quote traffic based on quote totals from January to June 2017 vs January to June 2018. There were only two issues which did not experience an increase in quote traffic for the comparative time periods.
When analyzing the two study groups above, each of them showed a quote traffic increase over comparative time periods. The average increase between the samples is 132%.
When comparing the January to June 2018 quote traffic for the potential removals and potential additions to the Penny Pilot, there is an increase in traffic for each of the six months. It ranges from a 28% increase in March to a 44% increase in June. The monthly traffic increase over the six month period averages out to nearly 33%.
4.
9.
• [American Stock Exchange LLC (“AMEX”)]
• [BATS Exchange, Inc. (“BATS”)]
• BOX [Options] Exchange LLC (“BOX”), registered as a national
• [Chicago Board Options Exchange, Incorporated. (“CBOE”)]
• [C2 Options Exchange, Incorporated (“C2”)]
• [EDGX Exchange, Inc. (“EDGX”)]
• [International Securities Exchange LLC (“ISE”)]
• [ISE Mercury, LLC (“ISE Mercury”)]
• Miami International Securities Exchange, LLC (“MIAX”), registered as a national securities exchange under the Exchange Act and having its principal place of business at 7 Roszel Road, Fifth Floor, Princeton, New Jersey 08540.
• MIAX Emerald, LLC (“MIAX Emerald”), registered as a national securities exchange under the Exchange Act and having its principal place of business at 7 Roszel Road, Fifth Floor, Princeton, New Jersey 08540.
• MIAX PEARL, LLC (“MIAX PEARL”), registered as a national securities exchange under the Exchange Act and having its principal place of business at 7 Roszel Road, Fifth Floor, Princeton, New Jersey 08540.
• The [NASDAQ]
• [NASDAQ OMX BX, Inc., (“BX”)]
• The Options Clearing Corporation (“OCC”), registered as a clearing agency under the Exchange Act and having its principal place of business at [440 South LaSalle Street, Chicago, Illinois 60605]
• [Pacific Exchange, Inc. (“PCX”)]
• [Philadelphia Stock Exchange, Inc. (“PHLX”)]
• [Topaz Exchange, LLC (“Topaz”)]
On October 10, 2019, the Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change SR-OCC-2019-009 (“Proposed Rule Change”) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (“Exchange Act”)
As noted above, OCC proposes to revise its Clearing Fund and stress testing rules and methodology. Specifically, OCC proposes to: (1) Incorporate a new set of stress test scenarios to be used in the monthly sizing of OCC's Clearing Fund that are designed to capture the risks of extreme moves in individual or small subsets of securities; (2) revise OCC's stress testing methodology for modeling certain volatility index futures; (3) modify OCC's methodology for allocating Clearing Fund contribution requirements to standardize the margin risk component of the allocation formula for all Clearing Members; and (4) adopt an additional threshold for notifying senior management of intra-day margin calls based on certain stress test results. OCC also proposes to correct certain rules concerning OCC's cooling-off period and replenishment/assessment powers.
On a monthly basis, OCC establishes the size of its Clearing Fund at the level it believes is necessary to maintain sufficient financial resources to cover losses arising from the default of the two Clearing Member Groups that would
In constructing the Idiosyncratic Scenarios, OCC would shock each single-name equity (
Under OCC's current stress testing methodology, prices shocks for futures based on the Cboe Volatility Index (“VIX”)
OCC allocates Clearing Fund contribution requirements to individual Clearing Members, in part, based on each Clearing Member's proportionate share of risk margin, which OCC refers to as “total risk.”
On a daily basis, OCC evaluates the sufficiency of its financial resources based on OCC's potential exposure to Clearing Member Groups under certain stress test scenarios (“Sufficiency Stress Tests”). Based on the results of the Sufficiency Stress Tests, OCC may call for additional collateral to ensure that it maintains sufficient financial resources to guard against potential losses. For example, OCC is authorized to make an intra-day margin call against a Clearing Member Group whose Sufficiency Stress Test exposures breach a pre-determined threshold. Currently, OCC's rules require that written notification of such intra-day margin calls in excess of $500 million be provided to OCC's Executive Chairman, Chief Executive Officer, and Chief Operating Officer (“Office of the CEO”). OCC proposes to revise its rules to require that written notification of stress test-related intra-day margin calls also be sent to the Office of the CEO when a stress test-related intra-day margin call would exceed 75 percent of the Clearing Member's excess net capital. OCC believes that this additional notification requirement is appropriate because it would allow OCC's senior management to be informed as soon as practicable of, and to subsequently monitor, circumstances where a margin call may strain a particular Clearing Member's ability to meet such requirements based on its financial condition or the amount of collateral it has available to pledge when certain pre-identified thresholds have been exceeded.
In 2018, OCC implemented a set of recovery tools, including revisions to OCC's authority to assess its Clearing Members for funds to replenish OCC's
Section 19(b)(2)(C) of the Exchange Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization.
Section 17A(b)(3)(F) of the Exchange Act requires, among other things, that the rules of a clearing agency be designed to (i) promote the prompt and accurate clearance and settlement of securities transactions, and to the extent applicable, derivatives agreements, contracts, and transactions; (ii) assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible; and (iii), in general, protect investors and promote the public interest.
The Commission believes that the proposed changes to OCC's stress testing methodology are designed to promote the prompt and accurate clearance and settlement of securities transactions. As an initial matter, OCC is the only clearing agency for standardized U.S. securities options listed on Commission-registered national securities exchanges (“listed options”).
The Commission believes that the proposed changes regarding notice of intra-day margin requirements and allocation of Clearing Fund requirements are consistent with assuring the safeguarding of securities and funds. Currently, OCC notifies its Office of the CEO when intra-day margin calls generated in response to OCC's daily stress tests are large in absolute terms (
Additionally, OCC proposes to revise its method of allocating Clearing Fund contribution requirements across
Finally, the Commission believes that the proposed expansion of triggers for the cooling-off period is designed, in general, to protect investors and promote the public interest. The Commission continues to believe that the cooling-off period provides certainty and predictability regarding Clearing Members' maximum liability for Clearing Fund contributions.
The Commission believes, therefore, that the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Exchange Act.
Rule 17Ad-22(e)(2)(v) under the Exchange Act requires that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to provide for governance arrangements that, among other things, specify clear and direct lines of responsibility.
As described above, OCC proposes to add a new internal reporting requirement regarding certain intra-day margin calls. OCC may call for additional margin from Clearing Members based on the results of its Sufficiency Stress Tests. In addition to notifying its Office of the CEO when such margin calls are large in absolute terms (
Rule 17Ad-22(e)(4) under the Exchange Act requires, in part, that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes.
Rules 17Ad-22(e)(4)(i) and (iii) under the Exchange Act require that a covered clearing agency's policies and procedures meet the requirements of Rule 17Ad-22(e)(4) by maintaining financial resources at the minimum to enable OCC to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the participant family that would potentially cause the largest aggregate credit exposure for OCC in extreme but plausible market conditions.
As described above, OCC proposes to expand the set of stress tests that it uses to size the Clearing Fund by adding the Idiosyncratic Scenarios to its current suite of stress tests. The Idiosyncratic Scenarios are designed to capture the risk of extreme moves in individual securities or small subsets of securities, while the current Systemic Scenarios are based on broad-based market and systemic shocks. Consistent with the general view that expanding the types of scenarios that a clearing agency uses in its monthly sizing process makes the clearing agency's risk management robust to a broader range of shocks, the Commission believes that OCC's proposal to add the Idiosyncratic Scenarios to its suite of stress tests would be a strengthening change—meaning it would enhance OCC's ability to accurately and appropriately size its Clearing Fund—that is consistent with the requirements of Rules 17Ad-22(e)(4)(i) and (iii) under the Exchange Act.
Additionally, OCC proposes to revise its stress testing methodology to produce differing price shocks for VIX futures across the term structure. The proposed methodology would be based on SPX volatility shocks across different expirations, as opposed to the current methodology's reliance on a single shock to the VIX. As discussed above, these changes would help OCC produce VIX futures price shocks in its stress scenarios that are consistent with OCC's observation that futures contracts with different expirations generally trade at different prices reflecting the differing future price expectations of the underlying asset, which in turn should
Accordingly, the Commission believes that, taken together, OCC's proposed changes to its stress testing methodology would be consistent with the requirements of Rules 17Ad-22(e)(4)(i), (iii), and (vi).
As noted above, Rule 17Ad-22(e)(4) under the Exchange Act generally requires that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes.
OCC relies on the Clearing Fund as a source of mutualized resources available to manage losses arising out of a Clearing Member's default. OCC's method for allocating contributions to the Clearing Fund among Clearing Members is aligned primarily with the credit risk posed by each Clearing Member.
Rule 17Ad-22(e)(4)(ix) under the Exchange Act requires, in part, that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to describe its process to replenish any financial resources it may use following a default or other event in which use of resources is contemplated.
As noted above, OCC's current recovery tools include a cooling-off period, during which OCC's authority to assess Clearing Members for funds to replenish OCC's Clearing Fund is limited. Recognizing the limit that such a cooling-off period places on the financial resources available to OCC, the Commission continues to believe that the cooling-off period provides certainty and predictability regarding Clearing Members' maximum liability for Clearing Fund contributions.
Accordingly, and for the reasons stated above, the Commission believes the changes proposed in the Proposed Rule Change are consistent with Rule 17Ad-22(e)(4) under the Exchange Act.
On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of Section 17A of the Exchange Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On October 8, 2019, Banque Centrale de Compensation, which conducts business under the name LCH SA (“LCH SA”), filed with the Securities and Exchange Commission (“Commission”), Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The purpose of LCH SA's RP is to maintain the continuity of critical services in times of extreme stress and to facilitate its recovery.
Significant scenarios that could prevent LCH SA from providing its critical services discussed in the RP include the default of one or multiple clearing members; liquidity shortfalls as result of a clearing member or allied clearing house default; default of an investment counterparty of LCH SA or any other investment losses resulting from changes in the market value on the investments; losses resulting from an operational risk event; failure of a critical IT service provider; and failure of financial market infrastructures such as an allied clearing house, CSD, or Trades Repository.
The proposed rule change intends to incorporate the following main changes from the updated 2018 version of the RP: (1) Inclusion of details on handling of the recovery from a cyber-risk scenario, (2) inclusion of fraud as an operational risk, (3) inclusion of tools for non-Euro transactions and collateral, (4) implementation of CC&G rulebook changes related to service closure, (5) inclusion of a comprehensive list of LCH SA's critical service providers, (6) inclusion of details regarding the monitoring of capital related tools, and (7) inclusion of details for managing the failure of LCH Ltd as a service provider.
Under the proposed rule change, the RP would include more details on the management of a cyber-risk scenario with the addition of the Cyber Crisis Management Plan as a new recovery tool. The Cyber Crisis Management Plan would define “cyber-crisis” and provide a framework of procedures describing and specifying how LCH SA would respond to a potential breach of a system, service or network indicating possible problems with information security policy or a failure of controls. The RP further defines cyber-risks as a single or a series of unwanted or unexpected information security events that have a significant probability of compromising business operations and threatening information security taking the form of unauthorized scans or probes, malicious code, denial of service, or attempts to gain access. The framework and procedures would be activated in event that LCH SA detected a cyber incident that could potentially cause a significant impact on LCH SA business objectives.
In addition to losses resulting from a clearing member default scenarios, the RP covers losses resulting from a non-default operational risk event. While the current version of the RP addresses operational risks such as failure of third party service providers or cyber risks, the proposed rule change would include as an operational risk losses resulting from a fraud which impacts the critical services provided by LCH SA. As is the case with other operational risks, the RP would specify that business lines and operational risk departments have the responsibility to identify potential fraud and to put into place relevant controls to monitor for fraud risk.
Currently, the RP includes various tools to deal with liquidity needs resulting from default losses or other events giving rise to liquidity constrains, including deferral of settlement for fixed income and cash equity as well as collateral limits. The RP would now specify that to bolster its recovery tools, LCH SA can use several new tools to meet liquidity needs, including using non-Euro collateral to raise liquidity, transforming liquidity received in non-Euro currencies into Euro through bi-lateral repo transactions with the “FXmarkets” recovery tool, receiving liquidity directly in Euro from Gilt or USD securities, and performing payments in an alternate currency than the original obligation.
The current version of the RP provides as a recovery tool the closure of the interoperability link on Italian debt, which is triggered when CC&G is declared in default or CC&G has performed a service closure. Upon triggering this tool, LCH SA will proceed with closing out all outstanding contracts. Further, uncovered losses from the cash settlement and close out after a CC&G default will be covered by deposited collateral of CC&G and the application of a haircut on outgoing payments to clearing members. In order to cover a potential cash shortfall in case of a CC&G default, LCH SA is proposing that the RP would state that in the event of a closure of CC&G, LCH SA will not be obliged to perform payment to clearing members until it receives deposited collateral from the CC&G estate, which addresses LCH SA's potential inability to retrieve the deposited collateral with CC&G.
The current RP in general describes critical services such as those provided by LCH Ltd and other entities providing technological services. The RP describes LCH SA's approach to the maintaining continuity of services to LCH SA, including contractual rights. In this rule proposal, the RP would describe that LCH SA will implement a new framework to manage critical service providers. The framework would identify the various types of critical service providers and include a new list of such providers in an annex to the RP. This would layout the overall landscape of providers and facilitate LCH SA's ability to monitor for potential financial or operational failure of a critical service provider and plan to replace service providers or otherwise sustain any disruption caused by their failure.
The quantitative assessment section of the recovery plan would include more details on the monitoring of capital related recovery tools like surplus capital, variable payments and dividend payments in order to help ensure their adequacy to cover the identified scenarios. This additional detail would list each tool and describe their efficiency as recovery tools. The RP currently notes that LCH SA will monitor that surplus/buffers capital is adequate to cover both default and non-default losses. The proposed rule would revise the RP to describe the stress scenarios and associated indicators as well as the capital coverage tools available in each case. In addition to the capital requirements and available headroom, the RP would note that LCH SA follows indicators such as the Liquidity Coverage Ratio, the aggregate credit risk and market risk exposure on its investment portfolio, operational risk and business risks indicators. The RP would indicate that the capital and buffers are monitored in order to allow LCH SA to always be in a situation to replenish the skin in the game within one month if the CCP was to face multiple defaults.
In addition to surplus capital, the RP would indicate that the LCH Board may decide to withhold Dividend payment and Variable bonus payment to be used as additional buffers.
In response to French regulatory recommendations, the RP would provide information related to the dependency between LCH SA and LCH
Section 19(b)(2)(C) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.
Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of LCH SA be designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions, as well as to assure the safeguarding of securities and funds which are in the custody or control of LCH SA or for which it is responsible, and, in general, to protect investors and the public interest.
As noted above, the updates to the RP reflected in this proposed rule change would add more details on the management of a cyber-scenario and the Cyber Crisis Management Plan has been added as a new recovery tool. By providing a framework of procedures for allowing LCH SA to respond to or prevent cyber incidents, the Commission believes that LCH SA will improve its ability to cope with, prevent, and plan for disruptions to its clearing services by responding quickly to such things as software malfunctions or cyber breaches. Further, the Commission believes that LCH SA will be in a position to prioritize incidents and activate the relevant response teams and plans.
Similarly, by updating the RP to account for the failure of entities such as linked CCPs and critical service providers as described above, the Commission believes that the proposed rule change provides LCH SA the ability to timely and efficiently plan for, monitor, and respond to failures or disruptions of these other parties. Specifically, the RP would note that LCH SA has implemented the rules relating to CC&G service closure related to a potential loss on investment of the cash collateral with CC&G. LCH SA may not immediately be able to retrieve the deposited collateral with CC&G if it is insolvent and has to wait for the relevant payment of the estate. However, the RP would clarify that LCH SA is only obliged to perform payment to clearing members if and when it has received the relevant funds from the CC&G estate. The Commission believes that these changes strengthen LCH SA's ability to recover from the liquidity and credit challenges that could arise from CC&G's closure. This in turn enhances LCH SA's financial position and ultimately its ability to continue to provide prompt and accurate clearance and settlement. Likewise, the RP would include scenarios and mitigating actions in case of the failure of LCH Ltd as a service provider and include a list of other critical service providers. The Commission believes that these proposed changes enhance LCH SA's management of important relationships by including details of these services and the steps that it can take to replace or otherwise respond to disrupted services. The Commission believes that this in turn promotes LCH SA's ability to continue to promptly and accurately clear transactions.
Additionally, as noted above, the RP would include more details on the monitoring of capital related recovery tools like surplus capital, variable payments and dividend payments. For example, the RP would note that LCH SA will monitor that “surplus/buffers capital” is adequate to cover both default and non-default losses. By including within the RP the scenarios, indicators, and capital coverage tools available in each case, the Commission believes that LCH SA will enhance its ability to preserve the requisite financial resources and hence its ability to continue to promptly and accurately clear transactions and safeguard securities and funds in its custody and control.
Further, the proposed rule change would provide that LCH SA can use several new tools to meet liquidity needs, including using non-Euro collateral to raise liquidity, transforming liquidity received in non-Euro currencies through bi-lateral repo transactions with the “FXmarkets” recovery tool, receiving liquidity directly in Euro from Gilt or USD securities, and performing payments in an alternate currency than the original obligation. The Commission believes that this enhances LCH SA's ability to resolve a specific currency liquidity shortfall resulting from a management of a defaulting clearing member and thereby maintains its financial strength and ultimately its ability to promptly and accurately clear transactions.
Overall, the Commission believes that with the additional detail described above, the updated RP would continue to strengthen the purpose of the RP as originally adopted of maintaining the continuity LCH SA's critical services by reducing the likelihood of a disorderly or unsuccessful recovery through planning for various disruptive scenarios. Therefore, for the reasons stated above the Commission finds that the proposed rule change would promote the prompt and accurate clearance and settlement of securities transactions, assure the safeguarding of securities and funds in LCH SA's custody and control, and, in general, protect investors and the public interest, consistent with the Section 17A(b)(3)(F) of the Act.
Rule 17Ad-22(e)(2) requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable, provide for governance arrangements that are clear and transparent and clearly prioritize the safety and efficiency of the covered clearing agency, to support the public interest requirements in Section 17A of the Act.
As noted above, more details on the management of a cyber-scenario and the Cyber Crisis Management Plan have been added as a new recovery tool. The purpose of this document is to provide a framework of procedures allowing LCH SA to respond to cyber incidents and crises. The RP would contain details about the procedures utilized to identify incidents, notification of hierarchy, and for notifying and activating the Crisis Management Team. The Commission believes that proposed details regarding the cyber scenario will enhance LCH SA's governance procedures as they relate to cyber crisis by setting forth a clear process for detecting and notifying required
Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(e)(2).
Rule 17Ad-22(e)(3) requires that a covered clearing agency establish, implement, maintain and enforce written policies and procedures reasonably designed to, as applicable, maintain a sound risk management framework for comprehensively managing legal, credit, liquidity, operational, general business, investment, custody, and other risks that arise in or are borne by the covered clearing agency, which must include plans for the recovery and orderly wind-down of the covered clearing agency necessitated by credit losses, liquidity shortfalls, losses from general business risk, or any other losses.
Overall, the Commission believes that the rule proposal enhances LCH SA's ability to manage legal, credit, liquidity, operational, general business, investment, and other risks that arise in or are borne by the covered clearing agency in the recovery context. As noted above, the rule proposal updates the RP to address operational, liquidity, and investment risks. Specifically, the RP would include fraud as an operational risk and incorporate it into its system for the monitoring and management of losses. The Commission believes that with this addition, the RP is more attentive to fraud as an operational risk. Additionally, the Commission believes that the inclusion of non-Euro recovery tools described above will enhance LCH SA's ability to cope with liquidity challenges by giving it additional ways to access and meet liquidity needs. The Commission also believes that by implementing the rules relating to CC&G service closure discussed above, LCH SA has resolved a potential liquidity risk relating to a CC&G default.
Further, the Commission believes that the proposed changes to the RP related to LCH Ltd. and other critical service providers strengthen LCH SA's ability to maintain the continuity of critical services in times of extreme stress and to facilitate the recovery of LCH SA. For instance, the Commission believes that the list of critical service providers and scope of each service enhances LCH SA's ability to identify those services which could impact the continuity of LCH SA's operations and the LCH Ltd exit plan strengthens LCH SA's ability to manage a potential wind down of LCH Ltd. and replicate or replace the services provided by LCH Ltd. on short notice.
Additionally, because the quantitative assessment section of the RP, as described above, now includes more details on the monitoring of capital related recovery tools, the Commission believes that LCH SA's ability to monitor and sustain its capital requirements under various scenarios has been strengthened.
Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(e)(3).
On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, and in particular, Section 17A(b)(3)(F) of the Act
For the Commission by the Division of Trading and Markets, pursuant to delegated authority.
On October 10, 2019, the Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change SR-OCC-2019-010 (“Proposed Rule Change”) pursuant to Section 19(b) of the Securities Exchange Act of 1934 (“Exchange Act”)
As a central counterparty (“CCP”), OCC is exposed to its Clearing Members' positions. To the extent that the value of a Clearing Member's positions is positively correlated with the creditworthiness of the Clearing Member, OCC faces specific wrong-way risk (“SWWR”).
As a general matter, OCC uses its System for Theoretical Analysis and Numerical Simulations (“STANS”) methodology for calculating Clearing Member margin requirements. OCC also incorporates add-on charges to address risks not otherwise addressed by its STANS methodology.
The proposed SWWR Equity Charge is based on the assumption that, when a Clearing Member defaults, the value of any equity security issued by the Clearing Member or its affiliates would fall to zero. For purposes of calculating the SWWR Equity Charge, OCC would value a Clearing Member's positions accordingly (
The SWWR ETN Charge would be designed to address the risk that the value of open positions related to uncollateralized ETNs issued by a Clearing Member or its affiliates would be correlated with the Clearing Member's credit quality. Similar to the SWWR Equity Charge, the SWWR ETN Charge assumes that a degradation in the value of securities issued by a Clearing Member or its affiliates would occur concurrently with the Clearing Member's default. The SWWR ETN Charge, however, would not assume a complete loss of value for the relevant securities (
The SWWR Residual would ensure that implementation of the SWWR Add-on would not reduce a Clearing Member's overall margin requirements.
As noted above, the proposed SWWR ETN Charge would not assume a complete loss of value for ETNs issued by a Clearing Member or its affiliates. The SWWR Add-on, in turn, would not generate margin requirements designed to cover a scenario in which the recovery rate for such ETNs would be zero. To address such a scenario, OCC proposes to introduce new scenarios into the set of stress tests that OCC uses to test the sufficiency of its financial resources (“SWWR Sufficiency Scenarios”). To construct the SWWR Sufficiency Scenarios, OCC would revise certain of its existing stress test scenarios by assuming a value of zero for ETNs issued by a Clearing Member or its affiliates. OCC stated that the introduction of SWWR Sufficiency Scenarios would enable OCC to more accurately measure its credit risks as they relate to SWWR and better test the sufficiency of its overall financial resources as well as to call for additional resources as appropriate.
Through its stock loan programs,
OCC proposes to implement the prohibition on Clearing Members lending their own securities only on a going-forward basis. The proposal would not affect stock lending activity cleared by OCC before the implementation of the prohibition. Existing stock loan transactions would, however, be subject to the SWWR Add-on described above.
Section 19(b)(2)(C) of the Exchange Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to such organization.
Section 17A(b)(3)(F) of the Exchange Act requires, among other things, that the rules of a clearing agency be designed to (i) promote the prompt and accurate clearance and settlement of securities transactions, and to the extent applicable, derivatives agreements, contracts, and transactions; and (ii) assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible.
First, the Commission believes that the adoption of the SWWR Add-on would be consistent with assuring the safeguarding of securities and funds. To the extent that the value of a Clearing Member's positions is positively correlated with the creditworthiness of the Clearing Member, OCC faces SWWR. OCC's current margin methodology does not incorporate a specific component designed to address SWWR for cleared positions. As described above, the proposed SWWR Add-on would address SWWR arising out of equities and ETNs issued by the relevant Clearing Member or its affiliates underlying a Clearing Member's cleared positions. Further, the SWWR Add-on would be designed to avoid any unintended reduction in margin requirements resulting from “right-way risk” in a Clearing Member's accounts.
Second, the Commission believes that introduction of the SWWR Sufficiency Scenarios and the proposed prohibition of certain stock lending activity as described above would be consistent with the promotion prompt and accurate clearance and settlement. As an initial matter, OCC is the only clearing agency for standardized U.S. securities options listed on Commission-registered national securities exchanges (“listed options”).
The Commission believes, therefore, that the Proposed Rule Change is consistent with the requirements of Section 17A(b)(3)(F) of the Exchange Act.
Rule 17Ad-22(e)(4) under the Exchange Act requires, in part, that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to effectively identify, measure, monitor, and manage its credit exposures to participants and those arising from its payment, clearing, and settlement processes.
As described above, OCC proposes to prohibit each Clearing Member submitting for clearing any stock loan activity involving the lending of equity securities or ETNs issued by such a Clearing Member or its affiliates going forward. Under the proposal, OCC would identify those stock loan transactions presenting SWWR and avoid any potential exposures arising out of such transactions through the proposed prohibition. Further, for those transactions that would not be affected by the prohibition (
Rules 17Ad-22(e)(4)(i) and (iii) under the Exchange Act require that a covered clearing agency's policies and procedures meet the requirements of Rule 17Ad-22(e)(4) by maintaining financial resources at the minimum to enable OCC to cover a wide range of foreseeable stress scenarios that include, but are not limited to, the default of the participant family that would potentially cause the largest aggregate credit exposure for OCC in extreme but plausible market conditions.
As described above and discussed below, the proposed SWWR Add-on is designed to measure and manage OCC's credit exposures to Clearing Members to the extent those exposures arise out of SWWR related to cleared positions. One component of the SWWR Add-on—the SWWR ETN Charge—would not, however, fully cover OCC's potential exposure through margin because it would not assume a complete loss of value for ETNs issued by the Clearing Member or its affiliates. To address the potential credit exposure represented by the value of ETNs issued by the Clearing Member or its affiliates going to zero, OCC proposes to introduce the new SWWR Sufficiency Scenarios described above. OCC would use the SWWR Sufficiency Scenarios to test its total financial resources and to call for additional resources as necessary to ensure the resources it holds would be sufficient to enable OCC to cover exposures arising under the relevant stress scenarios. Accordingly, and for the reasons stated above, the Commission believes the changes proposed in the Proposed Rule Change are consistent with Rule 17Ad-22(e)(4)(i), (iii), and (vi) under the Exchange Act.
Rule 17Ad-22(e)(6)(i) under the Exchange Act requires that a covered clearing agency establish, implement, maintain, and enforce written policies and procedures reasonably designed to cover, if the covered clearing agency provides central counterparty services, its credit exposure to participants by establishing a risk-based margin system that, at a minimum, considers, and produces margin levels commensurate with, the risks and particular attributes of each relevant product, portfolio, and market.
As noted above, OCC faces SWWR to the extent that the value of a Clearing Member's positions is positively correlated with the creditworthiness of the Clearing Member. OCC proposes to cover its exposure to such SWWR posted by its Clearing Members through the introduction of the SWWR Add-on. The SWWR Add-on consists of three components. Two of those components—the SWWR Equity Charge and SWWR ETN Charge—are designed to produce margin levels commensurate with the particular attributes of certain products that OCC clears in terms of the likely recovery available in the event of a default by the issuing Clearing Member. Further, the SWWR Residual would ensure that the introduction of the SWWR Add-on could not inadvertently weaken OCC's current margin methodology due to the potential existence of “right-way risk” in a Clearing Member's accounts.
On the basis of the foregoing, the Commission finds that the Proposed Rule Change is consistent with the requirements of the Exchange Act, and in particular, the requirements of Section 17A of the Exchange Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1)
The Exchange proposes to amend its rules to add new Rule 7.19 (Pre-Trade Risk Controls). The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
In order to assist member organizations' efforts to manage their risk, the Exchange proposes to amend
For purposes of this proposed rule change, the Exchange proposes to define the term “Entering Firm” to mean a member organization that either has a correspondent relationship with a Clearing Firm whereby it executes trades and the clearing function is the responsibility of the Clearing Firm or clears for its own account
In order to help firms manage their risk, the Exchange proposes to offer optional pre-trade risk controls that would authorize the Exchange to take automated actions if a designated credit limit or other pre-trade risk control for a firm is breached. Because Clearing Firms bear the risk on behalf of their correspondent Entering Firms, the Exchange proposes to make the proposed pre-trade risk controls available not only to Entering Firms, but also to their Clearing Firms, if so authorized by the Entering Firm. These pre-trade risk controls would provide Entering Firms and their Clearing Firms with enhanced abilities to manage their risk with respect to orders on the Exchange.
As proposed, these optional controls would allow Entering Firms and their Clearing Firms to each define different pre-set risk thresholds and to choose the automated action the Exchange would take if those thresholds are breached, which would range from notifying the Entering Firm and Clearing Firm that a limit has been breached, blocking new orders, or canceling orders until the Entering Firm has been reinstated to trade on the Exchange.
Although use of the proposed Exchange-provided pre-trade risk controls are optional, all orders on the Exchange will pass through risk checks. As such, an Entering Firm that does not choose to set limits or permit its Clearing Firm to set limits on its behalf will not achieve any latency advantage with respect to its trading activity on the Exchange. In addition, the Exchange expects that any latency added by the pre-trade risk controls will be
The proposed pre-trade risk controls described are meant to supplement, and not replace, the member organizations' own internal systems, monitoring and procedures related to risk management. The Exchange does not guarantee that these controls will be sufficiently comprehensive to meet all of a member organization's needs, the controls are not designed to be the sole means of risk management, and using these controls will not necessarily meet a member organization's obligations required by Exchange or federal rules (including, without limitation, the Rule 15c3-5 under the Act
Proposed Rule 7.19(a) would set forth the definitions that would be used for purposes of the Rule. In addition to the defined terms of “Entering Firm” and “Clearing Firm,” as described above, the Exchange proposes the following definitions:
• The term “Single Order Maximum Notional Value Risk Limit” would mean a pre-established maximum dollar amount for a single order before it can be traded.
• The term “Single Order Maximum Quantity Risk Limit” would mean a pre-established maximum number of shares that may be included in a single order before it can be traded.
• The term “Gross Credit Risk Limit” would mean a pre-established maximum daily dollar amount for purchases and sales across all symbols, where both buy and sell orders are counted as positive values. For purposes of calculating the Gross Credit Risk Limit, unexecuted orders in the Exchange Book,
The Exchange proposes to separately calculate Gross Credit Risk Limits for: (i) All unexecuted and executed orders; (ii) unexecuted orders only; and (iii) executed orders only.
Proposed Rule 7.19(b) would set forth the Pre-Trade Risk Controls that would be available to Entering Firms and Clearing Firms. Under proposed Rule 7.19(b)(1), an Entering Firm may select one or more of the following optional pre-trade risk controls with respect to its trading activity on the Exchange: (i) One or more Gross Credit Risk Limits; (ii) Single Order Maximum Notional Value Risk Limits; and (iii) Single Order Maximum Quantity Risk Limits, which would collectively be referred to as the “Pre-Trade Risk Controls.”
In addition, under proposed Rule 7.19(b)(2)(A), an Entering Firm that does not self-clear may designate its Clearing Firm to (i) view any Pre-Trade Risk Controls set by the Entering Firm, or (ii) set one or more Pre-Trade Risk Controls on the Entering Firm's behalf, or both. Proposed Rule 7.19(b)(2)(B) provides that an Entering Firm would be able to view any Pre-Trade Risk Controls that its Clearing Firm sets with respect to the Entering Firm's trading activity on the Exchange. Because both an Entering Firm and Clearing Firm would be able to access information about Pre-Trade Risk Controls, this mechanism would foster transparency between an Entering Firm and its Clearing Firm regarding which Pre-Trade Risk Control limits may have been set. For example, if an Entering Firm designates its Clearing Firm to view the Pre-Trade Risk Controls set by that Entering Firm, its Clearing Firm may determine that it does not need to separately set Pre-Trade Risk Controls on behalf of such Entering Firm.
Because the Entering Firm is the member organization that is entering orders on the Exchange, the Exchange will not take action based on a Clearing Firm's instructions about the Entering Firm's trading activities on the Exchange without first receiving consent from the Entering Firm. Accordingly, proposed Rule 7.19(b)(2)(C) would provide that if an Entering Firm designates a Clearing Firm to set Pre-Trade Risk Controls for the Entering Firm, the Entering Firm would be consenting to the Exchange taking certain prescribed actions (discussed further below) with respect to the Entering Firm's trading activity as provided for in proposed Rules 7.19(c)
Proposed Rule 7.19(b)(3) would set forth how the Pre-Trade Risk Controls could be set or adjusted. Proposed Rule 7.19(b)(3)(A) would provide that Pre-Trade Risk Controls may be set before the beginning of a trading day and may be adjusted during the trading day. Proposed Rule 7.19(b)(3)(B) would provide that Entering Firms and Clearing Firms may set Pre-Trade Risk Controls at the MPID level or at a sub-ID of an MPID, as designated by an Entering Firm. The Exchange believes that supporting Pre-Trade Risk Controls at both an MPID and sub-ID level would provide both Entering Firms, and if designated, their Clearing Firms, more granular control over how such risk controls are determined and monitored.
Proposed Rule 7.19(b)(4) would provide that with respect to Gross Credit Risk Limits, both an Entering Firm and its designated Clearing Firm may enable alerts to signal when an Entering Firm is approaching its designated credit limit(s). The Exchange believes that by providing such alerts, the Entering Firm, and if designated, its Clearing Firm, would have advance notice that the Entering Firm is approaching a designated limit and could take steps to mitigate the potential that an automated breach action would be triggered.
Proposed Rule 7.19(c) would set forth the actions the Exchange would be authorized to take when a Pre-Trade Risk Control set by an Entering Firm or a Clearing Firm is breached, which would be referred to as “Automated Breach Actions.” These proposed actions would be automated; if a Pre-Trade Risk Control is breached, the Exchange would automatically take the designated action and would not need further direction from either the Entering Firm or Clearing Firm to take such action.
At the outset, proposed Rule 7.19(c)(1) would provide that if both an Entering Firm and its Clearing Firm set the same type of Pre-Trade Risk Control for the Entering Firm but have set different limits, the Exchange would enforce the more restrictive limit. For example, if an Entering Firm sets a Single Order Maximum Notional Value Risk Limit of $20 million and its Clearing Firm sets the same risk limit at $15 million, the Exchange will take action when the more restrictive limit is breached—
Proposed Rule 7.19(c)(2) would set forth the Automated Breach Action the Exchange would take if an order would breach the designated limit of either a Single Order Maximum Notional Value Risk Limit or Single Order Maximum Quantity Risk Limit. As proposed, the Exchange would reject the incoming order that would have breached the applicable limit.
Proposed Rule 7.19(c)(3)(A) would set forth the Automated Breach Actions the Exchange would take if a designated Gross Credit Risk Limit is breached. The Exchange proposes to provide options of which Automated Breach Action the Exchange would be authorized to take if a Gross Credit Risk Limit is breached. Such Automated Breach Actions would be taken at the MPID or sub-ID level that is associated with the designated Gross Credit Risk Limit. As proposed, when setting Gross Credit Risk Limits, the Entering Firm or Clearing Firm setting the limit would be required to indicate one of the following actions that the Exchange would take if such limit is breached:
• “Notification Only.” As set forth in proposed Rule 7.19(c)(3)(A)(i), if this option is selected, the Exchange would notify the Entering Firm or Clearing Firm that a limit has been breached and continue to accept new orders and order instructions and would not cancel any unexecuted orders in the Exchange Book.
• “Block Only.” As set forth in proposed Rule 7.19(c)(3)(A)(ii), if this option is selected, the Exchange would reject new orders and order instructions but would not cancel any unexecuted orders in the Exchange Book. The Exchange would continue to accept instructions from the Entering Firm to cancel one or more orders in full (including Auction-Only Orders) or any instructions specified in proposed Rule 7.19(e) (described below), but would not take any automated action to cancel orders.
• “Cancel and Block.” As set forth in proposed Rule 7.19(c)(3)(A)(iii), if this option is selected, in addition to the Block actions described above, the Exchange would also cancel all unexecuted orders in the Exchange Book other than Auction-Only Orders.
If an Entering Firm and its Clearing Firm each set different limits for a Gross Credit Risk Limit for the Entering Firm's activities on the Exchange, proposed Rule 7.19(c)(3)(B) would provide that the Exchange would enforce the action that was chosen by the party that set the limit that was breached. For example, if a Clearing Firm sets a lower limit and designates the “Cancel and Block” Automated Breach Action, if that limit is breached, the Exchange will implement that “Cancel and Block” action even if the Entering Firm designated a different Automated Breach Action.
Proposed Rule 7.19(c)(3)(C) would provide that if both the Entering Firm and Clearing Firm set the same Gross Credit Risk Limit and that limit is breached, the Exchange would enforce the most restrictive Automated Breach Action. As further proposed, for purposes of this Rule, the “Cancel and Block” action would be more restrictive than “Block Only,” which would be more restrictive than “Notification Only.” For example, if the Entering Firm selects the “Block Only” action for a Gross Credit Risk Limit and its Clearing Firm selects the “Cancel and Block” action for the same Gross Credit Risk Limit, if the limit is breached, the Exchange would take the “Cancel and Block” action for the Entering Firm's orders.
Proposed Rule 7.19(d) concerns how an Entering Firm's ability to enter orders and order instructions would be reinstated after a “Block Only” or “Cancel and Block” Automated Breach Action has been triggered. In such case, proposed Rule 7.19(d) provides that the Exchange would not reinstate the Entering Firm's ability to enter orders and order instructions on the Exchange (other than instructions to cancel one or more orders (including Auction-Only Orders) in full) until it has received notification that the Entering Firm can be reinstated. Proposed Rule 7.19(d)(1) provides that if the Gross Credit Risk Limit that was breached was set by the Entering Firm, the Entering Firm must seek reinstatement on the Exchange. Proposed Rule 7.19(d)(2) provides that if the Gross Credit Risk Limit that was breached was set by a Clearing Firm, the Entering Firm must seek reinstatement on the Exchange, unless the Clearing Firm designates that it must approve the Entering Firm's reinstatement, in which case both the Entering Firm and Clearing Firm must seek reinstatement. The Exchange proposes to include this functionality because the Clearing Firm bears the risk of any exposure of its correspondent Entering Firms.
Finally, proposed Rule 7.19(e) would set forth member organization-directed actions,
The Exchange proposes to specify certain member organization-directed actions in proposed Rule 7.19(e). As described above, the risk management tool that would be provided to member organizations in connection with this proposed rule change would include information about an Entering Firm's Gross Credit Risk Limits at either an MPID or sub-ID level (at the direction of the Entering Firm). As further described above, these limits would be updated with information about an Entering Firm's unexecuted orders in the Exchange Book, orders routed on arrival, and executed orders. Because this tool would provide information to member organizations to determine whether to direct the Exchange to take action with respect to their orders, the Exchange proposes that proposed Rule 7.19 would supersede and replace the description of risk controls as set forth in the 2013 Risk Control Filing.
More specifically, proposed Rule 7.19(e) would specify that an Entering Firm, or if authorized pursuant to proposed Rule 7.19(b)(2)(A), its Clearing Firm, could direct the Exchange to take one or more of the following actions with respect to orders at either an MPID, or if designated, sub-ID Level: (1) Cancel all Auction-Only Orders; (2) Cancel all unexecuted orders in the Exchange Book other than Auction-Only Orders; or (3) Reject entry of any new orders and order instructions, provided that the Exchange would continue to accept instructions from Entering Firms to cancel one or more orders (including Auction-Only Orders) in full.
A member organization can currently direct the Exchange to take these actions with respect to its orders and with this proposed rule change, Clearing Firms designated by the Entering Firm could also take such action. A member organization that wants more control over when and which actions are taken with respect to its orders may choose to use these controls instead of the “Block” or “Cancel and Block” Automated Breach Actions described above. For example, for a member organization that selects the “Notification Only” Automated Breach Action, if it receives notification of a credit breach, it could choose to direct the Exchange to take an action described in proposed Rule 7.19(e).
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
Specifically, the Exchange believes that the proposed rule will remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed optional Pre-Trade Risk Controls would provide both Entering Firms, and if designated, Clearing Firms, with the ability to manage risk, while also providing an alert system that would help to ensure that such firms are aware of developing issues. In addition, the Pre-Trade Risk Controls would provide Clearing Firms, who have assumed certain risks of the Entering Firms, greater control and flexibility over setting risk tolerance and exposure on behalf of their correspondent Entering Firms. As such, the Exchange believes that the Pre-Trade Risk Controls would provide a means to address potentially market-impacting events, helping to ensure the proper functioning of the market.
In addition, the Exchange believes that the proposed rule change is designed to protect investors and the public interest because the Pre-Trade Risk Controls are a form of impact mitigation that will aid Entering Firms and Clearing Firms in minimizing their risk exposure and reduce the potential for disruptive, market-wide events. The Exchange understands that member organizations implement a number of different risk-based controls, including those required by Rule 15c3-5. The proposed controls will serve as an additional tool for Entering Firms and Clearing Firms to assist them in identifying any risk exposure. The Exchange believes the Pre-Trade Risk Controls will assist Entering Firms and Clearing Firms in managing their financial exposure which, in turn, could enhance the integrity of trading on the securities markets and help to assure the stability of the financial system.
Further, the Exchange believes that the proposed rule will foster cooperation and coordination with persons facilitating transactions in securities because the Exchange will provide alerts to Entering Firms and their Clearing Firms when the Entering Firm's trading reaches certain thresholds. As such, the Exchange will help Clearing Firms monitor the risk levels of their correspondent Entering Firms and provide tools for Clearing Firms, if designated, to take action.
Finally, the Exchange believes that the proposed rule change does not unfairly discriminate among the Exchange's member organizations because use of the Pre-Trade Risk Controls is optional and is not a prerequisite for participation on the Exchange. In addition, because all orders on the Exchange would pass through the risk checks, there would be no difference in the latency experienced by member organizations who have opted to use the Pre-Trade Risk Controls versus those who have not opted to use them.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. In fact, the Exchange believes that the proposal will have a positive effect on competition because, by providing Entering Firms and their Clearing Firms additional means to monitor and control risk, the proposed rule will increase confidence in the proper functioning of the markets.
No written comments were solicited or received with respect to the proposed rule change.
Within 45 days of the date of publication of this notice in the
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”),
The Exchange proposes a rule change to list and trade shares of the Clearbridge Focus Value ETF under currently proposed Rule 14.11(k).
The text of the proposed rule change is also available on the Exchange's website (
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The Exchange has submitted a proposal and four subsequent amendments to add new Rule 14.11(k) for the purpose of permitting the listing and trading of Managed Portfolio Shares, which are securities issued by an actively managed open-end management investment company.
The shares of the Fund (the “Shares”) will be issued by ActiveShares ETF Trust (the “Trust”), a statutory trust organized under the laws of the State of Maryland and registered with the Commission as an open-end management investment company.
Proposed Rule 14.11(k)(2)(D) provides that if the investment adviser to the Investment Company issuing Managed Portfolio Shares is registered as a broker-dealer or is affiliated with a broker-dealer, such investment adviser will erect and maintain a “fire wall” between the investment adviser and personnel of the broker-dealer or broker-dealer affiliate, as applicable, with respect to access to information concerning the composition of and/or changes to such Investment Company portfolio and/or the Creation Basket.
In the event (a) the Adviser or Sub-Adviser becomes registered as a broker-dealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio and/or the Creation Basket, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio and/or Creation Basket.
Further, proposed Rule 14.11(k)(2)(E) requires that any person or entity, including an AP Representative, custodian, Reporting Authority, distributor, or administrator, who has access to information regarding the Investment Company's portfolio composition or changes thereto or the Creation Basket, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Moreover, if any such
The Fund seeks long-term capital appreciation. By employing fundamental research, in an effort to identify securities with favorable risk-adjusted return characteristics, the Fund's portfolio management team constructs the portfolio on a bottom-up basis. The Fund will invest primarily in equity securities of large capitalization companies, but may also make limited investments in mid-capitalization companies. While most investments will be in U.S. companies, the fund may also invest in American Depository Receipts (“ADRs”) and U.S.-listed shares of foreign companies. The team considers a number of variables such as business fundamentals, valuation, free cash flow generation, earnings growth, management quality and competitive positioning. The Fund will invest in a diversified portfolio typically consisting of the securities of 30 to 40 issuers.
In addition, the Fund may also invest in common stocks, preferred securities, and warrants and rights of U.S. exchange-listed companies, U.S. exchange traded notes, U.S. exchange listed real estate investment trusts (“REITs”), U.S. ETFs,
The Exchange notes that the Fund's holdings will meet the generic listing standards applicable to series of Managed Fund Shares under Rule 14.11(i)(4)(C). While such standards do not apply directly to series of Managed Portfolio Shares, the Exchange believes that the overarching policy issues related to liquidity, market cap, diversity, and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is intended to address are equally applicable to series of Managed Portfolio Shares.
The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets.
According to the Registration Statement, the Fund will seek to qualify for treatment as a Regulated Investment Company (“RIC”) under the Internal Revenue Code.
The Shares of the Fund will conform to the initial and continued listing criteria under proposed Rule 14.11(k). The Fund's holdings will be limited to and consistent with what is permissible under the Exemptive Order and described herein.
The Fund's investments will be consistent with its investment objective and will not be used to enhance leverage. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (
Creations and redemptions of the Shares will occur as described in the Proposal. More specifically, in connection with the creation and redemption of Creation Units
Each AP Representative will be given, before the commencement of trading each Business Day (defined below), the Creation Basket for that day. This information will permit an AP that has established a Confidential Account with an AP Representative, to instruct the AP Representative to buy and sell positions in the portfolio securities to permit creation and redemption of Creation Units and Redemption Units. Shares of the Fund will be issued and redeemed in Creation Units and Redemption Units of 5,000 or more Shares. The Fund will offer and redeem Creation Units and Redemption Units on a continuous basis at the net asset value (the “NAV”) per share next determined after receipt of an order in proper form. The NAV per share of the Fund will be determined as of the close of regular trading on the Exchange on each day that the Exchange is open (a “Business Day”). The Fund will sell and redeem Creation Units and Redemption Units only on Business Days. The Adviser anticipates that the initial price of a share will range from $20 to $60, and that the price of a Creation Unit will be at least $100,000.
To keep costs low and permit the Fund to be as fully invested as possible, Shares will be purchased and redeemed in Creation Units and Redemption Units and generally on an in-kind basis. Accordingly, except where the purchase or redemption will include cash under the circumstances described in the Exemptive Application, APs will be required to purchase Creation Units by making an in-kind deposit of specified instruments (“Deposit Instruments”), and APs redeeming their Shares will receive an in-kind transfer of specified instruments (“Redemption Instruments”) through the AP Representative in their Confidential Account.
The Fund will issue Shares through the Distributor on a continuous basis at NAV. The Exchange represents that the issuance of Shares will operate in a manner similar to that of other ETFs. The Fund will issue Shares only at the NAV per share next determined after an order in proper form is received.
In the case of a creation, the AP would enter an irrevocable creation order with the Fund and direct the AP Representative to purchase the Creation Basket. The AP Representative would then purchase the necessary securities in the Confidential Account. In purchasing the necessary securities, the AP Representative will use methods, such as breaking the transaction into multiple transactions and transacting in multiple marketplaces, to avoid revealing the composition of the Creation Basket. Once the Creation Basket has been acquired in the Confidential Account, the AP Representative would contribute the Creation Basket in-kind to the Fund.
The Distributor will furnish acknowledgements to those placing such orders that the orders have been accepted, but the Distributor may reject any order which is not submitted in proper form, as described in the Fund's prospectus or Statement of Additional Information (“SAI”). The NAV of the Fund is expected to be determined once each Business Day at a time determined by the Trust's Board of Trustees (“Board”), currently anticipated to be as of the close of the regular trading session on the Exchange (ordinarily 4:00 p.m. E.T.) (the “Valuation Time”). The Fund will establish a cut-off time (“Order Cut-Off Time”) for purchase orders in proper form. Such Order Cut-Off Time will be provided in the Registration Statement. To initiate a purchase of Shares, an AP must submit to the Distributor an irrevocable order to purchase such Shares after the most recent prior Valuation Time. All orders to purchase Creation Units must be received by the Distributor no later than the Order Cut-Off Time in each case on the date such order is placed (“Transmittal Date”) for the AP to receive the NAV per share next determined.
Purchases of Shares will be settled in-kind and/or cash for an amount equal to the applicable NAV per share purchased plus applicable “Transaction Fees,” as discussed below. While the Fund will generally receive securities in-kind, the Adviser may determine from time to time that it is not in the Fund's best interests to receive securities in-kind, but rather to receive cash.
The Shares may be redeemed to the Fund in Redemption Unit size or multiples thereof as described below. Redemption orders of Redemption Units must be placed by an AP (“AP Redemption Order”). The Fund will establish in its Registration Statement an Order Cut-Off Time for redemption orders of Redemption Units in proper form. Redemption Units of the Fund will be redeemable at their NAV per share next determined after receipt of a request for redemption by the Trust in the manner specified below before the Order Cut-Off Time. To initiate an AP Redemption Order, an AP must submit to the Distributor an irrevocable order to redeem such Redemption Unit after the most recent prior Valuation Time, but not later than the Order Cut-Off Time.
In the case of a redemption, the AP would enter into an irrevocable redemption order, and then immediately instruct the AP Representative to sell the Creation Basket that it will receive in the redemption. As with the purchase of securities, the AP Representative will use methods, such as breaking the transaction into multiple transactions and transacting in multiple marketplaces, to avoid revealing the composition of the Creation Basket.
Consistent with the provisions of Section 22(e) of the 1940 Act and Rule 22e-2 thereunder, the right to redeem will not be suspended, nor payment upon redemption delayed, except for: (1) Any period during which the Exchange is closed other than customary weekend and holiday closings, (2) any period during which trading on the Exchange is restricted, (3) any period during which an emergency exists as a result of which disposal by the Fund of securities owned by it is not reasonably practicable or it is not reasonably practicable for the Fund to determine its NAV, and (4) for such other periods as the Commission may by order permit for the protection of shareholders.
Redemptions will occur primarily in-kind, although redemption payments may also be made partly or wholly in cash.
The NAV per share of the Fund will be computed by dividing the value of the net assets of the Fund (
Shares of U.S. exchange-listed equity securities, including common stocks, preferred securities, securities of other investment companies and of REITs, and warrants and rights, as well as ETFs, exchange-listed ADRs, and U.S. exchange-listed futures will be valued at market value, which will generally be determined using the last reported official closing or last trading price on the exchange or market on which the securities are primarily traded at the time of valuation.
The Fund's website (
The Trust's SAI and the Fund's shareholder reports will be available free upon request from the Trust. These documents and forms may be viewed on-screen or downloaded from the Commission's website at
Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. Quotation and last sale information for the Shares will be available via the Consolidated Tape Association (“CTA”) high-speed line. In addition, the VIIV, as defined in proposed Rule 14.11(k)(3)(B) and as described further below, will be widely disseminated by the Reporting Authority
With respect to trading of the Shares, the ability of market participants to buy and sell Shares at prices near the VIIV is dependent upon their assessment that the VIIV is a reliable, indicative real-time value for the Fund's underlying holdings. Market participants are expected to accept the VIIV as a reliable, indicative real-time value because (1) the VIIV will be calculated and disseminated based on the Fund's actual portfolio holdings, (2) the securities in which the Fund plans to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the VIIV at or near the close of trading is indeed predictive of the actual NAV. The VIIV for the Fund will be disseminated by the Reporting Authority and/or one or more major market data vendors in one-second intervals during Regular Trading Hours. If the Adviser determines that a portfolio security does not have a readily available market quotation, that fact along with the identity and weighting of that security in a Fund's VIIV calculation will be publicly disclosed on the Fund's website.
With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable, including whether unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares also will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a) and (b) in the Proposal, which set forth circumstances under which trading in the Shares of the Fund will be halted.
Specifically, Proposed Rule 14.11(k)(4)(B)(iii)(a) provides that the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (i) The extent to
Proposed Rule 14.11(k)(4)(B)(iii)(b) provides that, if the Exchange becomes aware that: (i) The Verified Intraday Indicative Value of a series of Managed Portfolio Shares is not being calculated or disseminated in one second intervals, as required; (ii) the net asset value with respect to a series of Managed Portfolio Shares is not disseminated to all market participants at the same time; (iii) the holdings of a series of Managed Portfolio Shares are not made available on at least a quarterly basis as required under the 1940 Act; or (iv) such holdings are not made available to all market participants at the same time, (except as otherwise permitted under the currently applicable exemptive order or no-action relief granted by the Commission or Commission staff to the Investment Company with respect to the series of Managed Portfolio Shares), it will halt trading in such series until such time as the Verified Intraday Indicative Value, the net asset value, or the holdings are available, as required.
The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. Shares will trade on the Exchange only during Regular Trading Hours as provided in proposed Rule 14.11(k)(2)(B). As provided in BZX Rule 11.11(a), the minimum price variation for quoting and entry of orders in securities traded on the Exchange is $0.01, with the exception of securities that are priced less than $1.00, for which the minimum price variation for order entry is $0.0001.
The Shares will conform to the initial and continued listing criteria under Rule 14.11(k) as well as all terms in the Exemptive Order. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A-3 under the Act.
The Exchange believes that its surveillance procedures are adequate to properly monitor the trading of the Shares on the Exchange during all trading sessions and to deter and detect violations of Exchange rules and the applicable federal securities laws. Trading of the Shares through the Exchange will be subject to the Exchange's surveillance procedures for derivative products, including Managed Portfolio Shares. As part of these surveillance procedures and consistent with proposed Rule 14.11(k)(2)(C), the Adviser will upon request make available to the Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio holdings of the Fund. The issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Exchange Act, the Exchange will surveil for compliance with the continued listing requirements. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under Exchange Rule 14.12.
The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures with other markets and other entities that are members of the Intermarket Surveillance Group (“ISG”), and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading such securities from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.
In addition, the Exchange also has a general policy prohibiting the distribution of material, non-public information by its employees.
Prior to the commencement of trading, the Exchange will inform its members in an Information Circular (“Circular”) of the special characteristics and risks associated with trading the Shares. Specifically, the Circular will discuss the following: (1) The procedures for purchases and redemptions of Shares; (2) BZX Rule 3.7, which imposes suitability obligations on Exchange members with respect to recommending transactions in the Shares to customers; (3) how information regarding the VIIV is disseminated; (4) the requirement that members deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; (5) trading information; and (6) that the portfolio holdings will be disclosed within at least 60 days following the end of every calendar quarter.
In addition, the Circular will reference that the Fund is subject to various fees and expenses described in the Registration Statement. The Circular will discuss any exemptive, no-action, and interpretive relief granted by the Commission from any rules under the Act. The Circular will also disclose that the NAV for the Shares will be calculated after 4:00 p.m., E.T. each trading day.
The Exchange believes that this proposal is consistent with Section 6(b) of the Act
The Exchange believes that, to the extent that the Proposal and, thus proposed Rule 14.11(k), is approved by the Commission, this proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Fund would meet each of the rules relating to listing and trading of Managed Portfolio Shares and, to the extent that the Fund is not in compliance with such rules, the Exchange would either prevent the Fund from listing and trading if it hadn't started trading on the Exchange or would commence delisting procedures under Exchange Rule 14.12. More specifically, the Exchange will consider the suspension of trading in, and will commence delisting proceedings under Rule 14.12 for, the Fund under any of the following
The Adviser is not registered as a broker-dealer or affiliated with a broker-dealer. The Sub-Adviser is not registered as a broker-dealer, but is affiliated with a broker-dealer and has implemented and will maintain a “fire wall” with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund's portfolio and Creation Basket.
In the event (a) the Adviser or Sub-Adviser becomes registered as a broker-dealer or becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement and maintain a fire wall with respect to its relevant personnel or its broker-dealer affiliate regarding access to information concerning the composition and/or changes to the portfolio and Creation Basket, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio and Creation Basket.
Further, proposed Rule 14.11(k)(2)(E) requires that any person or entity, including an AP Representative, custodian, Reporting Authority, distributor, or administrator, who has access to information regarding the Investment Company's portfolio composition or changes thereto or the Creation Basket, must be subject to procedures designed to prevent the use and dissemination of material nonpublic information regarding the applicable Investment Company portfolio or changes thereto or the Creation Basket. Moreover, if any such person or entity is registered as a broker-dealer or affiliated with a broker-dealer, such person or entity will erect and maintain a “fire wall” between the person or entity and the broker-dealer with respect to access to information concerning the composition and/or changes to such Investment Company portfolio or Creation Basket.
The Exchange further believes that the proposed rules are designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares because they provide meaningful requirements about both the data that will be made publicly available about the Shares as well as the information that will only be available to certain parties and the controls on such information. Specifically, the Exchange believes that the requirements related to information protection enumerated under proposed Rule 14.11(k)(2)(E) will act as a strong safeguard against misuse and improper dissemination of information related to the Fund's portfolio composition or changes thereto or the Creation Basket. The requirement that any person or entity implement procedures to prevent the use and dissemination of material nonpublic information regarding the portfolio or Creation Basket will act to prevent any individual or entity from sharing such information externally and the internal “fire wall” requirements applicable where an entity is a registered broker-dealer or affiliated with a broker-dealer will act to make sure that no entity will be able to misuse the data for their own purposes. As such, the Exchange believes that this proposal is designed to prevent fraudulent and manipulative acts and practices.
The Exchange further believes that the proposal is designed to prevent fraudulent and manipulative acts and practices related to the listing and trading of Managed Portfolio Shares and to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange would halt trading under certain circumstances under which trading in the Shares may be inadvisable. Specifically, trading in the Shares will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a), which provides that the Exchange may consider all relevant factors in exercising its discretion to halt trading in a series of Managed Portfolio Shares. Trading may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the series of Managed Portfolio Shares inadvisable. These may include: (i) The extent to which trading is not occurring in the securities and/or the financial instruments composing the portfolio; or (ii) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.
With respect to the proposed listing and trading of Shares of the Fund, the Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Rule 14.11(k). The Fund will invest primarily in equity securities of large capitalization companies, but may also make limited investments in mid-capitalization companies. While most investments will be in U.S. companies, the fund may also invest in ADRs and U.S.-listed shares of foreign companies. The team considers a number of variables such as business fundamentals, valuation, free cash flow generation, earnings growth, management quality and competitive positioning. The Fund will invest in a diversified portfolio typically consisting of the securities of 30 to 40 issuers.
In addition, the Fund may also invest in common stocks, preferred securities, and warrants and rights of U.S. exchange-listed companies, U.S. exchange traded notes, U.S. exchange listed REITs, U.S. ETFs, U.S. exchange-listed ADRs, U.S. exchange-listed equity futures contracts, and U.S. exchange-listed equity index futures contracts. The Fund may also hold cash without limitation, and may invest in short-term U.S. Treasury securities, government money market funds and may enter into repurchase agreements for cash management or defensive investment purposes.
The Exchange notes that the Fund's holdings will meet the generic listing standards applicable to series of Managed Fund Shares under Rule 14.11(i)(4)(C). All equity securities in which the Fund will invest will be listed and traded on U.S. national securities exchanges. Price information for the U.S. exchange-listed equity securities held by the Fund will be available through major market data vendors or securities exchanges listing and trading such securities. Price information for any other U.S. exchange-listed instruments held by the Fund will be available through major market data vendors or exchanges listing and trading such instruments. The Fund's investments will be consistent with its investment objective and will not be used to enhance leverage. The Fund will not invest in non-U.S. exchange-listed securities. All futures held by the Fund will be listed on U.S. futures exchanges. The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares, underlying equity securities and U.S. exchange-listed futures with other markets and other entities that are members of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or both, may obtain trading information regarding trading such securities from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, underlying equity securities, and U.S. exchange-listed futures from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.
With respect to trading of the Shares, the ability of market participants to buy and sell Shares at prices near the VIIV is dependent upon their assessment that the VIIV is a reliable, indicative real-time value for the Fund's underlying holdings. Market participants are expected to accept the VIIV as a reliable, indicative real-time value because (1) the VIIV will be calculated and disseminated based on the Fund's actual portfolio holdings, (2) the securities in which the Fund plans to invest are generally highly liquid and actively traded and therefore generally have accurate real time pricing available, and (3) market participants will have a daily opportunity to evaluate whether the VIIV at or near the close of trading is indeed predictive of the actual NAV.
The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation that the NAV per share of the Fund will be calculated daily and that the NAV will be made available to all market participants at the same time. Investors can also obtain the Fund's SAI, shareholder reports, Form N-CEN, Form N-CSR, and Form N-PORT. The Fund's SAI and shareholder reports will be available free upon request from the applicable fund, and those documents and the Form N-CSR and Form N-PORT may be viewed on-screen or downloaded from the Commission's website. In addition, with respect to the Fund, a large amount of information will be publicly available regarding the Fund and the Shares, thereby promoting market transparency. Quotation and last sale information for the Shares will be available via the CTA high-speed line. Information regarding the VIIV will be widely disseminated every second throughout Regular Trading Hours by the Reporting Authority and/or one or more major market data vendors. The website for the Fund will include a prospectus for the Fund that may be downloaded, and additional data relating to NAV and other applicable quantitative information, updated on a daily basis.
Moreover, prior to the commencement of trading, the Exchange will inform its members in a Circular of the special characteristics and risks associated with trading the Shares. The Exchange will halt trading in the Shares under the conditions specified in BZX Rule 11.18 or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. Trading in the Shares will be subject to proposed Rule 14.11(k)(4)(B)(iii)(a) and (b), which set forth circumstances under which Shares of the Fund will be halted.
In addition, as noted above, investors will have ready access to the VIIV, and quotation and last sale information for the Shares. The Shares will conform to the initial and continued listing criteria under proposed Rule 14.11(k). The Fund's holdings will be limited to and consistent with what is permissible under the Exemptive Order and described herein. The Fund's investments will be consistent with its investment objective and will not be used to enhance leverage. While the Fund may invest in inverse ETFs, the Fund will not invest in leveraged (
The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of an actively-managed exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. As noted above, the Exchange has in place surveillance procedures relating to trading in the Shares and may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. In addition, as noted above, investors will have ready access to information regarding the VIIV and quotation and last sale information for the Shares.
For the above reasons, the Exchange believes that the proposed rule change
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Act. The Exchange notes that the proposed rule change, rather will facilitate the listing and trading of an actively-managed exchange-traded product that will enhance competition among both market participants and listing venues, to the benefit of investors and the marketplace.
The Exchange has neither solicited nor received written comments on the proposed rule change.
Within 45 days of the date of publication of this notice in the
A. By order approve or disapprove such proposed rule change, or
B. institute proceedings to determine whether the proposed rule change should be disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange proposes to amend Exchange Rule 5815 regarding review of Nasdaq Staff (“Staff”) Delisting Determinations by Hearings Panels. The proposed change would preclude the stay of a Staff Delisting Determination during the review period in three specified circumstances outlined below.
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
Nasdaq administers a series of rules that govern the initial and continued listing qualifications required of companies listed on the Exchange.
Nasdaq Rule 5815(a) allows a company to request a written or oral hearing before a Hearings Panel to review a Delisting Determination, public reprimand letter or denial of a listing application. Under the existing rules, this request for a hearing generally will stay the suspension and delisting action pending the issuance of a written decision from the Hearings Panel.
The Exchange proposes to amend Rule 5815 to remove the stay provision in certain situations so that a company's securities will be suspended from trading on Nasdaq during the pendency of the Hearings Panel's review. Specifically, removal of the stay provision will apply to companies that have received a Delisting Determination: In the case of proposed 5815 (a)(1)(B)(ii)(a), following the completion of a business combination with an operating company that fails to satisfy the requirements of Nasdaq Rule IM-5101-2; in the case of proposed 5815 (a)(1)(B)(ii)(b), following a business combination with a non-Nasdaq entity that results in a change of control under Rule 5110(a) where the initial listing application has yet to be approved; and in the case of proposed 5815 (a)(1)(B)(ii)(c), in connection with a company that has declared bankruptcy or announced liquidation pursuant to rule 5110(b). After considering the record in the matter, including an oral hearing if elected by the company, the Hearings Panel can reinstate the company and allow trading to continue on Nasdaq.
Under Listing Rule IM-5101-02, Nasdaq will permit the listing of a company whose business plan is to complete an initial public offering and engage in a merger or acquisition with one or more unidentified companies within a specific period of time. Such a company is required to keep the proceeds of its initial public offering in an escrow account and, until the company has completed one or more business combinations having an aggregate fair market value of at least 80% of the value of the escrow account, must meet the requirements for initial listing following each business combination.
Similarly, a Nasdaq-listed company must apply for initial listing on the Exchange in connection with a transaction whereby the company combines with a non-Nasdaq entity, resulting in a change of control of the company and potentially allowing the non-Nasdaq entity to obtain a Nasdaq listing.
In each case, under existing Nasdaq rules, if a company requests review by a Hearings Panel, the Delisting Determination is stayed during the pendency of such review and the company's shares will continue to trade on the Exchange. The proposed rule change will modify the rules so that suspension of the company's shares is not stayed in connection with a Delisting Determination for the following reasons.
For both categories of companies outlined above, the Exchange believes immediate suspension is appropriate and necessary in order to prevent a company from listing shares on the Exchange despite it having never established compliance with the Exchange's initial listing requirements. In each case, the company that must satisfy the initial listing requirements is effectively a new business entity and, as a result, is required by Nasdaq's rules to demonstrate compliance with the Exchange's initial listing standards. To allow such companies to trade on the Exchange without first demonstrating compliance with the initial listing standards misleads the investing public by giving the appearance that the company has met the standards imposed by Nasdaq. Moreover, the company could then use the benefits of its Nasdaq listing and trading to achieve compliance with the initial listing requirements it does not satisfy.
Nasdaq believes that adopting this rule change will align the process for listing a company following a business combination (with an acquisition
Under Nasdaq Rule 5110(b), Staff may use its discretionary authority to delist a company's listing in the event it has filed for protection under the federal bankruptcy laws, or comparable foreign laws, or has announced that liquidation has been authorized by its board of directors, even if the company's securities otherwise meet all requirements for continued listing on the Exchange.
Nasdaq believes that it is appropriate to eliminate the stay during the pendency of the Hearings Panel's review where Nasdaq Staff has determined to delist a company in bankruptcy proceedings. In these cases, the company has acknowledged its serious financial straits and, in Nasdaq's experience, there is generally no residual equity for the current stockholders. Continued trading of the company's shares during the duration of the Hearings Panel's review is inadvisable in light of these facts and could create investor confusion about the company's ability to satisfy Nasdaq's listing requirements.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
In the case of companies whose business plan is to complete one or more acquisitions and companies that complete a business combinations with a non-Nasdaq entity resulting in a change in control, allowing continued trading on the Exchange would permit companies that are effectively new entities to be listed without having completed the standard vetting process conducted by the Exchange of all new listed companies and demonstrating compliance with all initial listing requirements. Likewise, due to the uncertainty of the outcome, and the limited information provided during bankruptcy proceedings, continued listing of a company's shares on the Exchange during such proceedings exposes investors to increased risk. The proposed rule will protect investors by preventing continued trading in such company's securities until an independent Hearings Panel reviews the Delisting Determination and determines that continued trading on Nasdaq is appropriate.
The proposed rule change is also consistent with Section 6(b)(7) of the Act in that it provides a fair procedure for the prohibition or limitation by the Exchange of any person with respect to access to services offered. Under the proposed rule change, companies whose business plan is to complete one or more acquisitions or a business combination with a non-Nasdaq entity resulting in a change of control would be treated the same as any other company that is applying for listing on The Nasdaq Stock Market. No company may trade on The Nasdaq Stock Market until it demonstrates compliance with the listings qualifications rules of the Exchange. This standard is applied to new companies and companies that previously traded on the Exchange but have now undergone a change in business status that requires demonstration of compliance with the Exchange's listing rules.
In the case of a company undergoing bankruptcy, the proposed rule change is fair because the company's shares will be suspended only for the duration of an independent Hearing Panel's consideration of the company's appeal. The proposed rule would not immediately delist a company's shares. A company subject to a Delisting Determination pursuant to bankruptcy would be given an opportunity to present its case to an impartial Hearings Panel. Once the Hearings Panel has issued a written decision, the company's shares may then resume trading if the Hearings Panel deems it appropriate. Fairness requirements do not mandate continued trading, only the ability to have an impartial Hearings Panel review the Staff's Delisting Determination. Limitations on trading during the pendency of the Hearings Panel's review is appropriate in light of the need to protect prospective investors.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule would be applied equally to all listed companies whose business plan is to complete one or more acquisitions, that complete a business combinations with a non-Nasdaq entity resulting in a change in control, or that seek bankruptcy protection. In addition, the proposed rule change will align the process for listing a new company following a business combination with an acquisition company or following a business combination resulting in a change of control with the process for other newly listing companies, which must meet the initial listing requirements prior to being listed.
No written comments were either solicited or received.
Within 45 days of the date of publication of this notice in the
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
U.S. Small Business Administration.
Notice of intent to waive the Nonmanufacturer Rule for commercially available off-the-shelf laptop and tablet computers under NAICS code 334111/PSC 7435.
The U.S. Small Business Administration (SBA) is considering granting a request for a class waiver of the Nonmanufacturer Rule (NMR) for commercially available off-the-shelf laptop and tablet computers under North American Industry Classification System (NAICS) code 334111 and Product Service Code (PSC 7435). This U.S. industry comprises establishments primarily engaged in manufacturing commercially available off-the-shelf laptop and tablet computers. According to the request, no small business manufacturers supply this product to the Federal government. If granted, the class waiver would allow otherwise qualified regular dealers to supply the waived item(s), regardless of the business size of the manufacturer, on a Federal contract set aside for small business, service-disabled veteran-owned small business (SDVOSB), women-owned small business (WOSB), economically disadvantaged women-owned small business (EDWOSB), historically underutilized business zones (HUBZone), or participants in the SBA's 8(a) Business Development (BD) program.
Comments and source information must be submitted by January 16, 2020.
You may submit comments and source information via the Federal Rulemaking Portal at
Carol Hulme, Program Analyst, by telephone at 202-205-6347; or by email at
Sections 8(a)(17) and 46 of the Small Business Act (Act), 15 U.S.C. 637(a)(17) and 657s, and SBA's implementing regulations require that recipients of Federal supply contracts (except those valued between $3,500 and $250,000) set aside for small business, SDVOSB, WOSB, EDWOSB, HUBZone, or BD program participants, provide the product of a small business manufacturer or processor if the recipient is not the actual manufacturer or processor of the product. This requirement is commonly referred to as the Nonmanufacturer Rule (NMR). 13 CFR 121.406(b). Sections 8(a)(17)(B)(iv)(II) and 46(a)(4)(B) of the Act authorize SBA to waive the NMR for a “class of products” for which there are no small business manufacturers or processors available to participate in the Federal market.
As implemented in SBA's regulations at 13 CFR 121.1202(c), in order to be considered available to participate in the Federal market for a class of products, a small business manufacturer must have submitted a proposal for a contract solicitation or been awarded a contract to supply the class of products within the last 24 months.
The SBA defines “class of products” based on a combination of (1) the six-digit NAICS code, (2) the four-digit PSC, and (3) a description of the class of products.
The SBA is currently processing a request to waive the NMR for commercially available off-the-shelf laptop and tablet computers under NAICS code 334111 and PSC 7435. Table 1 below identifies manufacturers of these products that SBA is aware of:
The SBA invites the public to comment on this pending request to waive the NMR for commercially available off-the-shelf laptop and tablet computers under NAICS code 334111 and PSC 7435. For purposes of this waiver SBA will be using the Federal Acquisition Regulation definition for COTS. (FAR) 2.101 (48 U.S.C. 2.101). SBA has already adopted the FAR definition for COTS for purposes of the government contracting programs. 13. CFR 125.1. The FAR definition for COTS states the following:
(1) Means any item or supply (including construction material) that is—(i) A commercial item (as defined in paragraph (1) of the definition in this section); (ii) Sold in substantial quantities in the commercial marketplace; and (iii) Offered to the Government, under a contract or subcontract at any tier, without modification, in the same form in which it is sold in the commercial marketplace; and (2) Does not include bulk cargo, as defined in 46 U.S.C. 40102(4), such as agricultural products and petroleum products.
More information on the NMR and class waivers can be found at
Office of the United States Trade Representative.
Notice of amendments.
Effective August 23, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $16 billion as part of the action in the Section 301 investigation of China's acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative's determination included a decision to establish a product exclusion process. The U.S. Trade Representative initiated the exclusion process in September 2018, and stakeholders have submitted requests for the exclusion of specific products. In July, September and October 2019, the U.S. Trade Representative granted exclusion requests. This notice makes amendments to certain notes in the Harmonized Tariff Schedule of the United States (HTSUS). The U.S. Trade Representative will continue to issue decisions as necessary.
The amendments announced in this notice are retroactive to the date the original exclusions were published and do not extend the period for the original exclusions. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
For general questions about this notice, contact Assistant General Counsel Philip Butler or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For specific questions on customs classification or implementation of the product exclusions identified in the Annex to this notice, contact
For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including 82 FR 40213 (August 23, 2017), 83 FR 14906 (April 6, 2018), 83 FR 28710 (June 20, 2018), 83 FR 33608 (July 17, 2018), 83 FR 38760 (August 7, 2018), 83 FR 40823 (August 16, 2018), 83 FR 47236 (September 18, 2018), 83 FR 47974 (September 21, 2018), 83 FR 65198 (December 19, 2018), 84 FR 7966 (March 5, 2019), 84 FR 20459 (May 9, 2019), 84 FR 29576 (June 24, 2019), 84 FR 37381 (July 31, 2019), 84 FR 49600 (September 20, 2019), and 84 FR 52553 (October 2, 2019).
Effective August 23, 2018, the U.S. Trade Representative imposed additional 25 percent duties on goods of China classified in 279 8-digit subheadings of the HTSUS, with an approximate annual trade value of $16 billion.
Under the September 18 notice, requests for exclusion had to identify the product subject to the request in terms of the physical characteristics that distinguish it from other products within the relevant 8-digit subheading covered by the $16 billion action. Requestors also had to provide the 10-digit subheading of the HTSUS most applicable to the particular product requested for exclusion, and could submit information on the ability of U.S. Customs and Border Protection to administer the requested exclusion. Requestors were asked to provide the quantity and value of the Chinese-origin product that the requestor purchased in the last three years. With regard to the rationale for the requested exclusion, requests had to address the following factors:
• Whether the particular product is available only from China and specifically whether the particular product and/or a comparable product is available from sources in the United States and/or third countries.
• Whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests.
• Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
The September 18 notice stated that the U.S. Trade Representative would take into account whether an exclusion would undermine the objective of the Section 301 investigation.
The September 18 notice required submission of requests for exclusion from the $16 billion action no later than December 18, 2018, and noted that the U.S. Trade Representative periodically would announce decisions. In July 2019, the U.S. Trade Representative granted an initial set of exclusion requests.
To correct technical and ministerial errors and in order to conform to the U.S. Trade Representative's intent to grant certain exclusions, the Annex to this notice includes amendments to certain notes in the HTSUS.
In order to clarify a periodic revision to the HTSUS, subparagraph A(1) of the Annex modifies the text to U.S. note 20(v)(86) to subchapter III of chapter 99 of the HTSUS, as set out in the Annex of the notice published at 84 FR 49600 (September 20, 2019).
Subparagraphs A(2-7) of the Annex correct errors in U.S. notes 20(v)(21), 20(v)(22), 20(v)(36), 20(v)(71), 20(v)(72), and 20(v)(87) to subchapter III of chapter 99 of the HTSUS, as set out in the Annex of the notice published at 84 FR 49600 (September 20, 2019).
In order to conform to the U.S. Trade Representative's intent to grant certain exclusion requests, Subparagraphs A(8-9) of the Annex make amendments to U.S. notes 20(v)(20) and 20(v)(37) to subchapter III of chapter 99 of the HTSUS, as set out in the annex of the notice published at 84 FR 49600 (September 20, 2019).
The U.S. Trade Representative will continue to issue determinations on a periodic basis as needed.
A. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on August 23, 2018:
1. U.S. note 20(v)(21) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “2.44 mm” and inserting “2.44 m” in lieu thereof.
2. U.S. note 20(v)(22) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “47.5 cm in width, 61.0 cm in length and 24 mm in thickness” and inserting “45.72 cm in width, 60.96 cm in length and 0.6096 mm in thickness” in lieu thereof.
3. U.S. note 20(v)(36) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “1.12 cm or more but not exceeding 1.52 cm in width and 1.93 cm or more but not exceeding 2.29 cm in length” and inserting “1.12 m or more but not over 1.52 m in width and 1.93 m or more but not over 2.29 m in length” in lieu thereof.
4. U.S. note 20(v)(71) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting `'25 W but not exceeding 2.0 kW” and inserting “exceeding 750 W but not over 1.8 kW” in lieu thereof.
5. U.S. note 20(v)(72) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is deleted.
6. U.S. note 20(v)(20) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “1.5 m or more in width, printed in various colors, valued at $1.60 to $1.90 per kg” and inserting “0.6 m or more in width, whether or not printed in various colors, valued at $0.88 or more but not over $2.42 per kg” in lieu thereof.
7. U.S. note 20(v)(37) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “plastic sheeting made of plain-woven, high-density polyethylene fabric coated on both sides with low-density polyethylene, in rolls measuring 5 m in width” and inserting “plastic sheeting, core/scrim woven layer of high-density polyethylene (HDPE) textile strip, coated on both sides with low density polyethylene (LDPE), with a layer of visible black file of linear LDPE, polyvinyl chloride free, weighing not over 1.492 kg/m2, in rolls each not over 5 m in width” in lieu thereof.
8. U.S. note 20(v)(86) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “(described in statistical reporting numbers 8711.60.0050 or 8711.60.0090)” and inserting “(described in statistical reporting numbers 8711.60.0050 or 8711.60.0090, effective July 1, 2019; described in statistical reporting number 8711.60.0000, effective prior to July 1, 2019)” in lieu thereof.
9. U.S. note 20(v)(87) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “not exceeding 250 W” (described in statistical reporting numbers 8711.60.0050)” and inserting “of 1.0 kW or more but not over 2.1 kW (described in statistical reporting number 8711.60.0090, effective July 1, 2019; described in statistical reporting number 8711.60.0000, prior to July 1, 2019)”.
Office of the United States Trade Representative.
Notice of product exclusions.
In September 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $200 billion as part of the action in the Section 301
The product exclusions announced in this notice will apply as of the September 24, 2018, effective date of the $200 billion action, to August 7, 2020. The amendment announced in this notice is retroactive to the date the original exclusion was published.
For general questions about this notice, contact Assistant General Counsels Philip Butler or Megan Grimball, or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For specific questions on customs classification or implementation of the product exclusions identified in the Annex to this notice, contact
For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including 82 FR 40213 (August 23, 2017), 83 FR 14906 (April 6, 2018), 83 FR 28710 (June 20, 2018), 83 FR 33608 (July 17, 2018), 83 FR 38760 (August 7, 2018), 83 FR 47974 (September 21, 2018), 83 FR 49153 (September 28, 2018), 83 FR 65198 (December 19, 2018), 84 FR 7966 (March 5, 2019), 84 FR 20459 (May 9, 2019), 84 FR 29576 (June 24, 2019), 84 FRN 38717 (August 7, 2019), 84 FR 46212 (September 3, 2019), 84 FR 49591 (September 20, 2019), 84 FR 57803 (October 28, 2019), 84 FR 61674 (November 13, 2019), and 84 FR 65882 (November 29, 2019).
Effective September 24, 2018, the U.S. Trade Representative imposed additional 10 percent duties on goods of China classified in 5,757 full and partial subheadings of the Harmonized Tariff Schedule of the United States (HTSUS), with an approximate annual trade value of $200 billion.
Under the June 24 notice, requests for exclusion had to identify the product subject to the request in terms of the physical characteristics that distinguish the product from other products within the relevant 8-digit subheading covered by the $200 billion action. Requestors also had to provide the 10-digit subheading of the HTSUS most applicable to the particular product requested for exclusion, and could submit information on the ability of U.S. Customs and Border Protection to administer the requested exclusion. Requestors were asked to provide the quantity and value of the Chinese-origin product that the requestor purchased in the last three years. With regard to the rationale for the requested exclusion, requests had to address the following factors:
• Whether the particular product is available only from China and specifically whether the particular product and/or a comparable product is available from sources in the United States and/or third countries.
• Whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests.
• Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
The June 24 notice required submission of requests for exclusion from the $200 billion action no later than September 30, 2019, and noted that the U.S. Trade Representative would periodically announce decisions. In August 2019, the U.S. Trade Representative granted an initial set of exclusion requests.
Based on the evaluation of the factors set out in the June 24 notice, which are summarized above, pursuant to sections 301(b), 301(c), and 307(a) of the Trade Act of 1974, as amended, and in accordance with the advice of the interagency Section 301 Committee, the U.S. Trade Representative has determined to grant the product exclusions set out in the Annex to this notice. The U.S. Trade Representative's determination also takes into account advice from advisory committees and any public comments on the pertinent exclusion requests.
As set out in the Annex, the exclusions are reflected in 9 ten-digit HTSUS subheadings and 35 specially prepared product descriptions, which cover 75 separate exclusion requests.
In accordance with the June 24 notice, the exclusions are available for any product that meets the description in the Annex, regardless of whether the importer filed an exclusion request. Further, the scope of each exclusion is governed by the scope of the product descriptions in the Annex, and not by the product descriptions set out in any particular request for exclusion.
To correct a ministerial error and in order to conform to the U.S. Trade Representative's intent to grant an exclusion requested, the Annex to this notice also includes an amendment to a note in the HTSUS.
Paragraph A, subparagraphs (3)-(6) are conforming amendments to the HTSUS reflecting the modifications made by the Annex.
Paragraph B, subparagraph (1) is a ministerial correction of U.S. note 20(ll)(53) to subchapter III of chapter 99 of the HTSUS that modifies the product description value published in the annex to the notice published at 84 FR 57803 (October 28, 2019). Paragraph B, subparagraphs (2)-(4), make conforming amendments to note 20(ll) published at 84 FR 57803 (October 28, 2019), note 20(mm) published at 84 FR 61674 (November 13, 2019), and note 20(nn) published at 84 FR 65882 (November 29, 2019).
As stated in the September 20, 2019 notice, the exclusions will apply from September 24, 2018, to August 7, 2020. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
The U.S. Trade Representative will continue to issue determinations on pending requests on a periodic basis.
A. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on September 24, 2018, subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS) is modified:
1. By inserting the following new heading 9903.88.36 in numerical sequence, with the material in the new heading inserted in the columns of the HTSUS labeled “Heading/Subheading”, “Article Description”, and “Rates of Duty 1—General”, respectively:
2. by inserting the following new U.S. note 20(oo) to subchapter III of chapter 99 in numerical sequence:
“(oo) The U.S. Trade Representative determined to establish a process by which particular products classified in heading 9903.88.03 and provided for in U.S. notes 20(e) and (f) to this subchapter could be excluded from the additional duties imposed by heading 9903.88.03, and by which particular products classified in heading 9903.88.04 and provided for in U.S. note 20(g) to this subchapter could be excluded from the additional duties imposed by heading 9903.88.04. See 83 FR 47974 (September 21, 2018) and 84 FR 29576 (June 24, 2019). Pursuant to the product exclusion process, the U.S. Trade Representative has determined that the additional duties provided for in heading 9903.88.03 or in heading 9903.88.04 shall not apply to the following particular products, which are provided for in the enumerated statistical reporting numbers:
3. by amending the last sentence of the first paragraph of U.S. note 20(e) to subchapter III of chapter 99:
a. By deleting the word “or” where it appears after the phrase “U.S. note 20(mm) to subchapter III of chapter 99;”; and
b. by inserting the phrase “; or (6) heading 9903.88.36 and U.S. note 20(oo) to subchapter III of chapter 99” after the phrase “U.S. note 20(nn) to subchapter III of chapter 99”.
4. by amending U.S. note 20(f) to subchapter III of chapter 99;
a. by deleting the word “or” where it appears after the phrase “U.S. note 20(mm) to subchapter III of chapter 99;”; and
b. by inserting the phrase “; or (6) heading 9903.88.36 and U.S. note 20(oo) to subchapter III of chapter 99” after the phrase “U.S. note 20(nn) to subchapter III of chapter 99”.
5. by amending the Article Description of heading 9903.88.03:
a. By deleting “9903.88.34 or” and inserting “9903.88.34,” in lieu thereof; and
b. by inserting “or 9903.88.36,” after “9903.88.35,”.
6. By amending the Article Description of heading 9903.88.04:
a. By deleting “9903.88.33 or” and inserting “9903.88.33,” in lieu thereof; and
b. By inserting “or 9903.88.36,” after “9903.88.34,”.
B. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on September 24, 2018:
1. U.S. note 20(ll)(53) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS) is modified by deleting “21” and inserting “55” in lieu thereof.
2. The second sentence of U.S. note 20(ll) to subchapter III of chapter 99 is amended by inserting “or in heading 9903.88.04” after “provided for in heading 9903.88.03”.
3. The second sentence of U.S. note 20(mm) to subchapter III of chapter 99 is amended by inserting “or in heading 9903.88.04” after “provided for in heading 9903.88.03”.
4. The second sentence of U.S. note 20(nn) to subchapter III of chapter 99 is amended by inserting “or in heading 9903.88.04” after “provided for in heading 9903.88.03”.
Office of the United States Trade Representative.
Notice of product exclusion and amendments.
Effective July 6, 2018, the U.S. Trade Representative imposed additional duties on goods of China with an annual trade value of approximately $34 billion as part of the action in the Section 301 investigation of China's acts, policies, and practices related to technology transfer, intellectual property, and innovation. The U.S. Trade Representative's determination included a decision to establish a product exclusion process. The U.S. Trade Representative initiated the exclusion process in July 2018, and stakeholders have submitted requests for the exclusion of specific products. In December 2018, and March, April, May, June, July, September, and October 2019, the U.S. Trade Representative granted exclusion requests. This notice announces the U.S. Trade Representative's determination to grant an additional exclusion request, as specified in the Annex to this notice, and makes amendments to certain notes in the Harmonized Tariff Schedule of the United States (HTSUS). The U.S. Trade Representative will continue to issue decisions as necessary.
The product exclusion will apply as of the July 6, 2018 effective date of the $34 billion action, and will extend to October 1, 2020 at 11:59 p.m. EDT. The amendments announced in this notice are retroactive to the date the original exclusions were published and do not extend the period for the original exclusions. U.S. Customs and Border Protection will issue instructions on entry guidance and implementation.
For general questions about this notice, contact Assistant General Counsel Philip Butler or Director of Industrial Goods Justin Hoffmann at (202) 395-5725. For specific questions on customs classification or implementation of the product exclusions identified in the Annex to this notice, contact
For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including 82 FR 40213 (August 23, 2017), 83 FR 14906 (April 6, 2018), 83 FR 28710 (June 20, 2018), 83 FR 33608 (July 17, 2018), 83 FR 38760 (August 7, 2018), 83 FR 40823 (August 16, 2018), 83 FR 47974 (September 21, 2018), 83 FR 65198 (December 19, 2018), 83 FR 67463 (December 28, 2018), 84 FR 7966 (March 5, 2019), 84 FR 11152 (March 25, 2019), 84 FR 16310 (April 18, 2019), 84 FR 21389 (May 14, 2019), 84 FR 25895 (June 4, 2019), 84 FR 32821 (July 9, 2019), 84 FR 49564 (September 20, 2019), and 84 FR 52567 (October 2, 2019).
Effective July 6, 2018, the U.S. Trade Representative imposed additional 25 percent duties on goods of China classified in 818 8-digit subheadings of the HTSUS, with an approximate annual trade value of $34 billion.
Under the July 11 notice, requests for exclusion had to identify the product subject to the request in terms of the physical characteristics that distinguish it from other products within the relevant 8-digit subheading covered by the $34 billion action. Requestors also had to provide the 10-digit subheading of the HTSUS most applicable to the particular product requested for exclusion, and could submit information on the ability of U.S. Customs and Border Protection to administer the requested exclusion. Requestors were asked to provide the quantity and value of the Chinese-origin product that the requestor purchased in the last three years. With regard to the rationale for the requested exclusion, requests had to address the following factors:
• Whether the particular product is available only from China and specifically whether the particular product and/or a comparable product is available from sources in the United States and/or third countries.
• Whether the imposition of additional duties on the particular product would cause severe economic harm to the requestor or other U.S. interests.
• Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
The July 11 notice required submission of requests for exclusion from the $34 billion action no later than October 9, 2018, and noted that the U.S. Trade Representative periodically would announce decisions. In December 2018, the U.S. Trade Representative granted an initial set of exclusion requests.
Based on the evaluation of the factors set out in the July 11 notice, which are
Exclusions from the duties have been established in two different formats: (1) As an exclusion for an existing 10-digit subheading from within an 8-digit subheading covered by the $34 billion action, or (2) as an exclusion reflected in specially prepared product descriptions. The exclusion announced in this notice takes the form of a 10-digit HTSUS subheading.
In accordance with the July 11 notice, the exclusion is available for any product that meets the description in the Annex, regardless of whether the importer filed an exclusion request. Further, the scope of the exclusion is governed by the scope of the 10-digit HTSUS subheading in the Annex to this notice, and not by the product descriptions set out in any particular request for exclusion.
Paragraph A is a conforming amendment to the HTSUS reflecting the modification made by the Annex to this notice.
To correct technical and ministerial errors and in order to conform to the U.S. Trade Representative's intent to grant certain exclusions requested, the Annex to this notice includes amendments to certain notes in the HTSUS.
Subparagraphs B(1-5) correct errors in U.S. notes 20(q)(25), 20(q)(26), 20(q)(201), 20(q)(235) and 20(q)(252) to subchapter III of chapter 99 of the HTSUS, as set out in the Annex of the notice published at 84 FR 49564 (September 20, 2019).
In order to conform to the U.S. Trade Representative's intent to grant certain exclusion requests, subparagraphs B(6-7) of the Annex make amendments to U.S. notes 20(n)(11) and 20(n)(85) to subchapter III of chapter 99 of the HTSUS, as set out in the Annex of the notice published at 84 FR 32821 (July 9, 2019). Subparagraphs B(8-14) of the Annex make amendments to notes 20(q)(27), 20(q)(28), 20(q)(58), 20(q)(195), 20(q)(217), 20(q)(291) and 20(q)(293) to subchapter III of chapter 99 of the HSTUS, as set out in the Annex of the notice published at 84 FR 49564 (September 20, 2019), to conform to this intent.
The U.S. Trade Representative will continue to issue determinations on a periodic basis as needed.
A. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on July 6, 2018, and before October 2, 2020, U.S. note 20(x) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States (HTSUS) is modified by inserting the following exclusion in numerical order after exclusion (92): “(93) 9030.90.4600”.
B. Effective with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on July 6, 2018:
1. U.S. note 20(q)(25) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “Rotary compressors, each exceeding 746 W (1 horsepower) but not exceeding 2,984 W (4 horsepower), with a cooling capacity ranging from 2,300 W (7,960 BTU) to 5,500 W (18,766 BTU) (described in statistical reporting number 8414.30.8060)” and inserting “Rotary compressors, each exceeding 746 W but not exceeding 2,238 W, with a cooling capacity ranging from 2.3 kW to 5.5 kW (described in statistical reporting number 8414.30.8060)” in lieu thereof.
2. U.S. note 20(q)(26) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “Rotary compressors, each exceeding 746 W (1 horsepower) but not exceeding 2,984 W (4 horsepower), with a cooling capacity ranging from 750 to 1400 W (described in statistical reporting number 8414.30.8060)” and inserting “Rotary compressors, each exceeding 746 W but not exceeding 2,238 W, with a cooling capacity of 750 W or more but not exceeding 1.4 kW (described in statistical reporting number 8414.30.8060)” in lieu thereof.
3. U.S. note 20(q)(201) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “electric transformers, static converters and”.
4. U.S. note 20(q)(235) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “Single-pole, double-throw switches, for a voltage not exceeding 100 V, each with a movable contact arm permitting the opening and closing of contact points (described in statistical reporting number 8536.50.9065)” and inserting “Single-pole, double-throw switches, each with a movable contact arm permitting the opening and closing of contact points, of a rating not over 1,000 V (described in statistical reporting number 8536.50.9065)” in lieu thereof.
5. U.S. note 20(q)(252) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “of less than 1 W and an operating frequency of less than 100 MHz (described in statistical reporting number 8541.29.0095)” and inserting “of 1W or more (described in statistical reporting number 8541.29.0095)” in lieu thereof.
6. U.S. note 20(n)(11) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “$72” and inserting “$96” in lieu thereof.
7. U.S. note 20(n)(85) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “$2.50” and inserting “$3.20” in lieu thereof.
8. U.S. note 20(q)(27) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “$250 but not over $500” and inserting “$200 but not over $1500” in lieu thereof.
9. U.S. note 20(q)(28) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “$500 but not over $900” and inserting “$200 but not over $1500” in lieu thereof.
10. U.S. note 20(q)(58) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “polymer filtration systems of a kind used to separate solid contaminants from liquid polymers, each valued over $30,000 but not over $40,000” and inserting “filtration or purifying machinery for liquid chemical polymers, of steel housing, with sintered metal cylindrical filters” in lieu thereof.
11. U.S. note 20(q)(195) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “stators and rotors, 2 or 4 pole type, valued over $4,700 but not over $4,900” and inserting “stators and rotors for electric motors and generators (excluding generating sets), 2 or 4 pole type, valued $85 or more but not over $1,700” in lieu thereof.
12. U.S. note 20(q)(217) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “not over $1.50” and inserting “at not over $4” in lieu thereof.
13. U.S. note 20(q)(291) to subchapter III of chapter 99 of the Harmonized
14. U.S. note 20(q)(293) to subchapter III of chapter 99 of the Harmonized Tariff Schedule of the United States is modified by deleting “$2” and inserting “$8.50” in lieu thereof.
Under part 235 of title 49 of the Code of Federal Regulations (CFR) and 49 U.S.C. 20502(a), this document provides the public notice that by a document dated October 28, 2019, the National Railroad Passenger Corporation (Amtrak), petitioned the Federal Railroad Administration (FRA) seeking approval to discontinue or modify a signal system. FRA assigned the petition Docket Number FRA-2019-0093.
Specifically, Amtrak requests permission to replace a Model 14 Interlocking machine with a non-vital microprocessor with all signals displaying “restricting” as their most permissive aspect.
Amtrak will designate the territory currently known as Q Interlocking on the New York Division, Sunnyside Yard, Queens, New York, NY, as a non-vital switching center. The interlocking machine for Q Interlocking will be retired and replaced with a non-vital microprocessor-based control system. All territory impacted by the modification is within yard limits and is not designated as mainline track.
Amtrak's reason for the modification is to eliminate legacy equipment that is beyond its useful life and has no support for major repairs or modifications.
A copy of the petition, as well as any written communications concerning the petition, is available for review online at
Interested parties are invited to participate in these proceedings by submitting written views, data, or comments. FRA does not anticipate scheduling a public hearing in connection with these proceedings since the facts do not appear to warrant a hearing. If any interested parties desire an opportunity for oral comment and a public hearing, they should notify FRA, in writing, before the end of the comment period and specify the basis for their request.
All communications concerning these proceedings should identify the appropriate docket number and may be submitted by any of the following methods:
•
•
•
•
Communications received by January 31, 2020 will be considered by FRA before final action is taken. Comments received after that date will be considered if practicable.
Anyone can search the electronic form of any written communications and comments received into any of our dockets by the name of the individual submitting the comment (or signing the document, if submitted on behalf of an association, business, labor union, etc.). Under 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its processes. DOT posts these comments, without edit, including any personal information the commenter provides, to
Issued in Washington, DC.
Under part 235 of title 49 of the Code of Federal Regulations (CFR) and 49 U.S.C. 20502(a), this document provides the public notice that by a document dated November 20, 2019, CSX Transportation (CSXT) petitioned the Federal Railroad Administration (FRA) seeking approval to discontinue or modify a signal system. FRA assigned the petition Docket Number FRA-2019-0100.
Specifically, CSXT requests approval to modify the Edgeton automatic railroad crossing-at-grade, at milepost S-154.73, Aberdeen Subdivision, Raleigh, NC. The modification will consist of the removal of existing relay logic interlocking and the installation of microprocessor-based equipment to control the interlocking with the removal of the numbers 1 and 3 power-operated split point derails.
CSXT explains the installation of microprocessor interlocking control and upgrades to track circuits and wayside devices and the retirement of split point derails will allow for safer operational movements through the interlocking.
A copy of the petition, as well as any written communications concerning the petition, is available for review online at
Interested parties are invited to participate in these proceedings by submitting written views, data, or comments. FRA does not anticipate scheduling a public hearing in connection with these proceedings since the facts do not appear to warrant a hearing. If any interested parties desire
All communications concerning these proceedings should identify the appropriate docket number and may be submitted by any of the following methods:
•
•
•
•
Communications received by January 31, 2020 will be considered by FRA before final action is taken. Comments received after that date will be considered if practicable.
Anyone can search the electronic form of any written communications and comments received into any of our dockets by the name of the individual submitting the comment (or signing the document, if submitted on behalf of an association, business, labor union, etc.). In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its processes. DOT posts these comments, without edit, including any personal information the commenter provides, to
Internal Revenue Service (IRS), Treasury.
Final and temporary regulations, and removal of temporary regulations.
This document contains final regulations that provide guidance relating to the determination of the foreign tax credit under the Internal Revenue Code. The guidance relates to changes made to the applicable law by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. This document finalizes the proposed regulations published on December 7, 2018. This document also finalizes proposed regulations on overall foreign losses that were published on June 25, 2012, and finalizes certain portions of proposed regulations published on November 7, 2007, relating to a U.S. taxpayer's obligation to notify the IRS of a foreign tax redetermination.
Concerning §§ 1.861-8 through 1.861-13, 1.861-17, and 1.904(b)-3, Jeffrey P. Cowan, (202) 317-4924; concerning §§ 1.901(j)-1, 1.904-1 through 1.904-6, 1.904(f)-12, 1.904(g)-3, 1.905-3, 1.954-1, 1.986(a)-1, Jeffrey L. Parry, (202) 317-4916, or Larry R. Pounders, (202) 317-5465; concerning § 1.960-1 through 1.960-7, Suzanne M. Walsh, (202) 317-4908; concerning §§ 1.965-5 and 1.965-9, Karen J. Cate, (202) 317-4667 (not toll-free numbers).
On December 7, 2018, the Department of the Treasury (the “Treasury Department”) and the IRS published proposed regulations (REG-105600-18) relating to foreign tax credits in the
A public hearing on the proposed regulations was scheduled for March 14, 2019, but it was not held because there were no requests to speak. The Treasury Department and the IRS also received written comments with respect to the 2018 FTC proposed regulations. Certain portions of the proposed regulations relating to §§ 1.78-1, 1.861-12(c)(2), and 1.965-7(e) were finalized as part of TD 9866, published in the
On June 25, 2012, the
On June 23, 1988, the
On May 15, 2006, the Treasury Department and the IRS issued Notice 2006-47, 2006-1 C.B. 892, which provides interim rules allowing a taxpayer that otherwise would be required to use an average exchange rate translation convention to elect to translate foreign income taxes into U.S. dollars (dollars) using the exchange rates when the taxes were paid, either for all foreign income taxes or only for those foreign income taxes denominated in nonfunctional currency that are attributable to qualified business units within the meaning of section 989(a) (QBUs) with dollar functional currencies.
On November 7, 2007, the
As part of the TCJA, section 905(c) was amended to reflect the repeal of section 902, by eliminating the provisions allowing for adjustments to pools of post-1986 undistributed earnings and foreign income taxes. The TCJA made no changes to section 986(a) or 6689.
This Treasury decision adopts certain portions of the proposed regulations under sections 905(c) and 986(a) that were published in connection with the 2007 temporary regulations. References in this preamble to the 2007 temporary regulations are understood to refer to the corresponding provisions of the accompanying proposed regulations. In particular, this Treasury decision finalizes (1) the currency translation rules (which are moved from § 1.905-3T(b) to § 1.986(a)-1)), (2) the definition of foreign tax redetermination in § 1.905-3T(c), (3) the rules under § 1.905-3T(d)(1) requiring a redetermination of U.S. tax liability with respect to foreign income taxes other than those that are deemed paid under section 960, and (4) the rules in § 1.905-3T(e) relating to foreign income taxes imposed on foreign tax refunds. Portions of the 2007 temporary regulations relating to prospective pooling adjustments are not included in the final regulations in light of the TCJA's repeal of section 902 and related amendments to section 905(c).
Section 1.905-3T(d)(2), which addresses redeterminations that affect foreign taxes deemed paid under section 960, § 1.905-4T, which in general provides the procedural rules for how to notify the IRS of a foreign tax redetermination, and § 301.6689-1T, which provides rules for the penalty for failure to notify the IRS of a foreign tax redetermination, are not included in this Treasury decision. Although the underlying substantive rule requiring redeterminations of U.S. tax liability has not changed, in light of the elimination of prospective pooling adjustments (which in many cases obviated the need for U.S. tax redeterminations), the Treasury Department and the IRS anticipate that there will be significantly more instances in which taxpayers must redetermine their U.S. tax liability with respect to a prior taxable year by reason of a foreign tax redetermination with respect to a controlled foreign corporation (“CFC”). As a result, the Treasury Department and the IRS have determined that the rules under §§ 1.905-3T(d)(2), 1.905-4T, and 301.6689-1T should be reissued as a notice of proposed rulemaking in order to allow taxpayers an additional opportunity to comment on those rules. These regulations are available in a notice of proposed rulemaking in the Proposed Rules section of this issue of the
This Treasury Decision also makes a technical amendment to § 1.905-2(a)(2). Regulations issued under § 1.905-2 address the forms, information, and evidence required to claim a foreign tax credit. On December 31, 1964, the
The final regulations retain the basic approach and structure of the 2018 FTC proposed regulations, with certain revisions. Parts I through III and V of this Summary of Comments and Explanation of Revisions discuss those revisions as well as comments received in response to the solicitation of comments in the 2018 FTC proposed regulations. Part III.I of this Summary of Comments and Explanation of Revisions discusses the revisions and comments received with respect to the 2012 OFL proposed regulations. Part IV of this Summary of Comments and Explanation of Revisions discusses the revisions with respect to the 2007 temporary regulations relating to sections 905(c) and 986(a). Finally, Part VI of this Summary of Comments and Explanation of Revisions addresses the applicability dates for the final regulations.
A taxpayer determines its foreign tax credit limitation under section 904, in part, based on the taxpayer's taxable income from sources without the United States. The 2018 FTC proposed regulations provide that, in general, the regulations under sections 861 through 865 that provide rules for allocating and apportioning deductions to determine the taxpayer's taxable income from sources without the United States apply to income described in section 904(d)(1)(A) (the “section 951A category”).
Some comments requested that regulations provide that no expenses should be allocated to the section 951A category in order to ensure that income of a United States shareholder (“U.S. shareholder”) derived through a CFC would be effectively exempt from additional U.S. tax if the foreign effective tax rate is greater than or equal to a particular rate. These comments generally cite language in H.R. Rep. 115-466 (2017) (the “Conference Report”) illustrating that no U.S. “residual tax” applies to foreign earnings subject to a foreign effective tax rate of 13.125 percent or more. These comments suggest that not requiring expenses to be allocated to the section 951A category allows GILTI to function as a “minimum tax.” Alternatively, some comments suggested that expense allocation be eliminated if the taxpayer establishes that net CFC tested income is subject to a minimum foreign effective tax rate of 13.125 percent, or that expense allocation to the section 951A category be eliminated until section 864(f)(1) (providing an election to allocate interest expense on a worldwide basis) becomes effective. One comment suggested a fundamentally different approach to expense allocation that would allow taxpayers to prorate the allocation of expenses to certain foreign source income based on a ratio of the foreign tax rate with the U.S. tax rate, and recalculate U.S. income tax liability after disallowing the prorated expenses allocated to foreign source income. One comment suggested that after the TCJA the United States no longer relies on the general principle of a foreign tax credit to relieve double taxation, and that allocation of any expenses to section 951A category income is therefore inconsistent with U.S. treaty obligations to exempt the income from U.S. tax. One comment agreed with the approach of the proposed regulations requiring expense allocation to the section 951A category, noting that the application of the expense allocation rules is important to minimize the potential for base erosion.
As explained in Part I of the Explanation of Provisions section of the 2018 FTC proposed regulations, the TCJA did not provide for any changes to
This approach is confirmed by the Joint Committee on Taxation's Explanation of the TJCA, which states that Congress intended that the foreign tax credit limitation in the section 951A category, like any other separate category, is calculated by taking into account expenses allocable to income in that category.
Accordingly, the final regulations do not alter the requirement under the Code for deductions to be allocated and apportioned to the section 951A category. However, the 2019 FTC proposed regulations provide certain additional rules under §§ 1.861-8 through 1.861-17, including rules that will have the effect of precluding the allocation and apportionment of certain research and experimentation expenses to the section 951A category. In addition, Part I.A.5 of the Explanation of Provisions of the 2019 FTC proposed regulations states that the Treasury Department and the IRS are studying whether further guidance with respect to the allocation and apportionment of interest expenses is necessary, and request comments on this topic.
The 2018 FTC proposed regulations make certain clarifying changes to the definitions of exempt income and exempt asset in proposed § 1.861-8(d)(2)(ii). Additionally, those regulations address the treatment of the deduction under section 250(a)(1) (the “section 250 deduction”) for purposes of the exempt income and assets rule. Under proposed § 1.861-8(d)(2)(ii)(C)(
One comment argued that the full allocation of expenses to the section 951A is needed to prevent base erosion. The comment recommended that the rules in proposed § 1.861-8(d)(2)(ii)(C) that treat income offset by the section 250 deduction as exempt income and the assets that give rise to that income as exempt assets are inappropriate and should be withdrawn. Another comment agreed with the approach of the proposed regulations.
The Treasury Department and the IRS have determined that the treatment of the section 250 deduction as giving rise to exempt income is consistent with the legislative history, which states that Congress “intends for the [section 250 deduction to] be treated as exempting the deducted income from tax.”
One comment requested that the final regulations clarify the requirement to identify assets that produce gross income included in FDII for purposes of determining the portion of a taxpayer's assets that are treated as exempt by reason of having FDII. In particular, the comment stated that it would be difficult to identify assets that produce FDII, and that tangible assets should be treated differently due to the exemption for qualified business asset investment (“QBAI”) under section 250(b)(2)(B). As a result, the comment recommended that FDII-related assets should not be treated as exempt assets. Alternatively, the comment recommended a formulary approach, which would take into account only basis of intangible assets that gave rise to either deduction eligible income (as defined in section 250(b)(3)) or foreign derived deduction eligible income (“FDDEI”) (as defined in section 250(b)(4)). Another comment suggested that the rule be modified to refer to assets that produce FDDEI rather than FDII.
Following the issuance of the 2018 FTC proposed regulations, the Treasury Department and the IRS issued rules under section 250 providing that the determination of FDDEI requires applying §§ 1.861-8 through 1.861-14T and 1.861-17 to allocate and apportion deductions between gross income derived from sales and services that are FDDEI (“gross FDDEI”) versus gross income that is not gross FDDEI.
Under proposed § 1.861-8(d)(2)(ii)(C)(
The 2018 FTC proposed regulations also confirm that earnings and profits excluded from income under section 959 (“previously taxed earnings and profits”) do not result in any portion of the stock in a CFC being treated as an exempt asset. Proposed § 1.861-8(d)(2)(iv). One comment suggested adding the word “solely” to proposed § 1.861-8(d)(2)(iv) in order to clarify that stock that is not exempt by reason of earnings and profits described in section 959(c)(1) or (c)(2) can nonetheless be partially exempt under other rules. The adjustment to stock value in respect of earnings and profits under section 864(e)(4) and § 1.861-12(c)(2) precedes the application of the exempt asset rules of section 864(e)(3) and § 1.861-8(d)(2), and the determination of whether stock is exempt is unrelated to whether the value of the stock was adjusted by reference to previously taxed earnings and profits. Proposed § 1.861-8(d)(2)(iv) was merely intended to clarify existing law in order to preclude taxpayers from taking unreasonable positions inconsistent with section 864(e)(4), and the rule is clear that it is limited to precluding arguments that stock is exempt “by reason of” an adjustment under § 1.861-12(c)(2) for previously taxed earnings and profits. Therefore, the addition of the word “solely” is unnecessary, and the comment is not adopted.
One comment to the 2018 FTC proposed regulations suggested that insurance companies reduce exempt income and assets to reflect prorated amounts of dividends and tax exempt interest.
Proposed § 1.861-8(e)(13) and (14) provide rules for allocating and apportioning (i) the portion of the section 250 deduction for FDII and (ii) the portion of the section 250 deduction for the GILTI inclusion and the amount of the section 78 dividend attributable to foreign taxes deemed paid with respect to the GILTI inclusion. In particular, proposed § 1.861-8(e)(13) provides that the portion of the section 250 deduction for FDII is treated as definitely related and allocable to the specific class of gross income that is included in the taxpayer's FDDEI, and that the deduction is apportioned between the statutory and residual grouping based on the FDDEI in each grouping.
A comment expressed concern that, to the extent that the portion of the section 250 deduction for FDII is allocated to foreign source income, it would reduce the ability to claim foreign tax credits. The comment recommended not apportioning this portion of the deduction to FDDEI. Under sections 861 and 862, a taxpayer must determine its taxable income by deducting from gross income the deductions properly apportioned or allocated thereto. Under § 1.861-8, deductions are generally allocated and apportioned based on a factual relationship between the deductions and gross income. Because a portion of the section 250 deduction for FDII is factually related to the taxpayer's FDDEI, under the principles of § 1.861-8 that portion of the section 250 deduction is allocated to that income, regardless of whether the FDDEI is U.S. or foreign source. Accordingly, this comment is not adopted.
The 2018 FTC proposed regulations did not make any changes to the rules in § 1.861-8(e)(6) for allocating and apportioning state income taxes, which were finalized in 1991 (T.D. 8337). The final regulations also make no changes to these rules but remove
The 2018 FTC proposed regulations included rules addressing the source and separate category of interest income and expense related to loans to a partnership by a U.S. person (or a member of its affiliated group) that owns an interest (directly or indirectly) in the partnership. These loans are referred to as specified partnership loans. Proposed § 1.861-9(e)(8)(vi)(C). Under proposed § 1.861-9(e)(8)(ii), the lender in these transactions is generally required to match the source and separate category of the interest income and expense by assigning the interest income to the same statutory and residual groupings from which the interest expense is deducted. The portion of the loan that corresponds to the matched income and expense is not taken into account for purposes of allocating and apportioning the lender's remaining interest expense. Proposed § 1.861-9(e)(8)(i). The 2018 FTC proposed regulations also include anti-avoidance rules to extend the application of these provisions to certain back-to-back loans or loans made through CFCs.
One comment suggested modifying the language in proposed § 1.861-9(e)(8)(ii) to clarify that the rules for specified partnership loans apply solely to match existing income and expense related to the loan, and therefore the rules do not create additional gross income. The final regulations clarify the language of the 2018 FTC proposed regulations consistent with the comment.
The same comment requested clarification with respect to the anti-avoidance rule in proposed § 1.861-9(e)(8)(iii). Proposed § 1.861-9(e)(8)(iii) provides that if instead of loaning directly to a partnership, a partner instead enters into a back-to-back loan structure through an unrelated person, then the series of loans will be recharacterized as a direct loan to the partnership if there was a principal purpose of avoiding the rules in proposed § 1.861-9(e)(8). A per se rule provides that a series of loans will be subject to the recharacterization rule without regard to the principal purpose test if the loan to the unrelated person would not have been made or maintained on substantially the same terms irrespective of the loan of funds
The Treasury Department and the IRS have determined that a loan to an unrelated person that would not have been made or maintained on substantially the same terms if the unrelated person did not loan the funds to the partnership in which the original lender (or an affiliate of the original lender) has a direct or indirect interest is necessarily made with a principal purpose of avoiding the rules in § 1.861-9(e)(8). In addition, this rule is parallel to a similar anti-avoidance rule in § 1.861-11T(e)(3) that applies to loans between members of an affiliated group. The Treasury Department and the IRS have determined that a similar standard should apply in both cases. Therefore, the comment is not adopted.
The comment also requested clarification with respect to the anti-avoidance rule in proposed § 1.861-9(e)(8)(iv), which provides that certain loans to a partnership held by a CFC will be treated as held directly by the U.S. shareholder of the CFC if the loan was made or transferred with a principal purpose of avoiding the rules of proposed § 1.861-9(e)(8). The comment requested further guidance as to when a CFC loan to a partnership is considered to have a principal purpose of avoidance. The final regulations do not provide further guidance on the determination of principal purpose, which is a highly factual and case specific inquiry. The comment further requested clarification as to the tax consequences that arise when the loan is deemed to be held by the U.S. shareholder under the rule, and requested an example that would illustrate the operation of these rules. The final regulations clarify the operation of § 1.861-9(e)(8)(i), which generally requires that the U.S. person that owns a direct or indirect interest in the partnership disregard a portion of the loan receivable for purposes of allocating any other interest expense of the U.S. person. Where this anti-avoidance rule applies, the loan receivable is held by the CFC rather than its U.S. shareholder (which has the direct or indirect interest in the partnership), and thus merely disregarding the loan receivable would not affect the interest expense allocated by the U.S. shareholder because the relevant asset to the U.S. shareholder is the stock of the CFC that holds the loan receivable. Accordingly, the final regulations provide that appropriate adjustments are made to the value and characterization of the U.S. shareholder's stock in the CFC to reflect the amount of the loan that is disregarded under § 1.861-9(e)(8)(i). The final regulations also provide examples that illustrate the application of § 1.861-9(e)(8) in general.
Several comments requested that the rules for specified partnership loans be expanded to cover loans made by a partnership to a partner (“upstream partnership loans”) so that the treatment of loans by partners to partnerships and vice versa would be parallel for purposes of determining the source and separate category of the associated interest income and expense. The Treasury Department and the IRS agree that providing similar rules for upstream partnership loans is appropriate. Therefore, the 2019 FTC proposed regulations provide similar rules for determining the source and separate category of interest income and expense with respect to upstream partnership loans. These rules are being proposed in order to provide taxpayers an additional opportunity to comment on the rule. To better coordinate the terminology between § 1.861-9(e)(8) and the rules addressing upstream partnership loans in the 2019 FTC proposed regulations, all references in the final regulations to a specified partnership loan, or SPL, are changed to downstream partnership loan, or DPL, respectively.
Proposed § 1.861-9(e)(4)(i) requires that limited partners and corporate general partners with less than 10 percent ownership in a partnership directly allocate their distributive share of partnership interest expense to their share of partnership gross income, which is generally treated as passive category income under proposed § 1.904-4(n)(1)(ii). One comment requested that the direct allocation rule be revised such that individuals that are partners with less than 10 percent ownership in a limited liability company or limited liability partnership be treated per se as limited partners.
Whether a partner is a general partner or limited partner is determined under general partnership law principles and therefore further guidance on this issue is outside the scope of the regulations. Accordingly, the comment is not adopted.
The general method to allocate and apportion interest expense, as provided in § 1.861-9T(a), is based on the principle that money is fungible and interest expense is attributable to all activities and property regardless of any specific purpose for incurring an obligation on which interest is paid.
One comment requested that the final regulations suspend restrictions on changing any elections under either the foreign tax credit or expense allocation rules, including any elections included in these final regulations, whether from year-to-year or a retroactive basis, for a three-year period beginning in 2018. The only election identified by the comment letter is the election to use the alternative tax book value method for apportioning interest expense.
Allowing annual or retroactive changes to the decision to use the alternative tax book value method would create significant compliance concerns for taxpayers and administrability concerns for the IRS because each change in method will require adjusting asset bases and depreciation schedules to reflect the new method. Therefore, the comment is not adopted. However, the final regulations provide additional time for taxpayers to change between the sales and gross income methods for purposes of allocating and apportioning research
In general, under the tax book value method or alternative tax book value method of interest apportionment, a taxpayer must determine the value of its assets based on an average of the tax book value of the asset at the beginning and end of the year.
One comment requested that for a given asset, taxpayers be permitted to average the prior taxable year's end of year fair market value with the current year-end value, which would be based on tax book value. This approach, however, would be inconsistent with the repeal of the fair market value method for interest apportionment as part of the TCJA. Furthermore, because the fair market value and tax book value methods rely on different methodologies, this approach could lead to a substantial distortion. Therefore, the comment is not adopted.
Another comment requested either that taxpayers be permitted to rely solely on the year-end tax book value of assets (and thus not requiring averaging) or that taxpayers electing to use first quarter values be permitted to do so without the earnings adjustment under § 1.861-12(c)(2)(i)(A) when the asset being valued is stock in a 10 percent owned corporation. The comment argues that this is necessary because otherwise taxpayers would have to determine the amount of the earnings adjustment at the end of the taxpayer's first quarter, which would be burdensome to comply with. However, the regulations already provide that taxpayers do not need to determine the earnings adjustment described in § 1.861-12(c)(2)(i)(A) as of the end of the first quarter. Under proposed § 1.861-9(g)(2)(ii)(B), with respect to stock in a 10 percent owned corporation, the tax book value of the stock at the end of the first quarter is determined before the adjustment required by § 1.861-12(c)(2)(i)(A), and a single earnings and profits adjustment is made based on the earnings and profits determined as of the end of the taxable year. This rule is maintained in the final regulations.
Section 1.861-9T(g) provides rules for purposes of allocating and apportioning interest expense of a CFC under the asset method, which also apply to characterize the stock of a first-tier CFC under § 1.861-12 for purposes of allocating and apportioning expenses of the CFC's U.S. shareholders. Under the rules in § 1.861-12, the adjusted basis of the stock of the first-tier CFC is adjusted by the earnings and profits of the CFC and other lower-tier foreign corporations owned by the CFC.
One comment requested that the asset method under § 1.861-9T(g) be clarified to confirm that when applying § 1.861-9 at the level of a CFC, the rules in § 1.861-12 apply for purposes of characterizing stock owned directly and indirectly by the CFC, and that such rules apply for all operative sections, not just section 904. The Treasury Department and the IRS agree that in applying the asset method at the level of a CFC (including for purposes of characterizing CFC stock in applying section 904 as the operative section), the CFC must apply the rules in § 1.861-12(c) with respect to any lower-tier CFCs. For example, a CFC applying the asset method must make basis adjustments to reflect earnings and profits of lower-tier corporations when valuing and characterizing the assets of the CFC. Otherwise, the value of the lower-tier corporations would be under- or over-represented in characterizing the assets of the CFC. Furthermore, any lower-tier CFCs must also apply the same rules, starting with the lowest-tier CFC and moving up.
Therefore, the final regulations provide in § 1.861-9(g)(4) that § 1.861-12 applies to characterize lower-tier stock in the hands of a CFC. Consistent with the 2018 FTC proposed regulations, § 1.861-12(a) clarifies that the rules of that section apply for all operative sections and are not limited to section 904.
Section 1.861-9T(j)(2) provides rules for purposes of allocating and apportioning interest expense of a CFC under the modified gross income method, which also apply to characterize the stock of a first-tier CFC under § 1.861-12 for purposes of allocating and apportioning expenses of the CFC's U.S. shareholders. In general, § 1.861-9T(j)(2) requires each CFC in a chain of ownership, beginning with the lowest-tier CFC, to allocate and apportion its interest expense and then tier up its income (net of interest expense) to the next-highest CFC in the chain, which then allocates and apportions its interest expense. Under proposed § 1.861-9(j)(2)(ii), gross tested income (net of interest expense) of a lower-tier corporation does not tier up to a higher-tier corporation, which is consistent with how the rules applied to subpart F income before the TCJA. One comment recommended that the regulations be revised to allow upper-tier CFCs to take into account gross tested income (net of interest expense) of lower-tier CFCs, noting that this would be consistent with the group-based approach of section 951A, would minimize differences between the modified gross income method and the asset method in § 1.861-9T(g), and would eliminate distortions that could arise in the case of an upper-tier holding company. The Treasury Department and the IRS agree with the comment, and therefore § 1.861-9(j)(2)(ii) eliminates the rule that excludes gross tested income from tiering up to higher-tier corporations for purposes of allocating and apportioning interest expense of the CFC. Additionally, modifications were made to § 1.861-13(c)(3) (Example 3) to reflect this change.
Proposed § 1.861-12(c)(3) provides rules for characterizing the stock of a CFC for purposes of allocating and apportioning expenses under an asset method. If the operative section is not section 904, the stock of a CFC is characterized under either the asset method or the modified gross income method. Proposed § 1.861-12(c)(3)(i)(A). Where section 904 is the operative section, proposed § 1.861-13 applies to characterize the stock of the CFC as producing foreign source income in the separate categories or as producing U.S. source income. Proposed § 1.861-
One comment requested that proposed § 1.861-13 provide that stock of a noncontrolled 10-percent owned foreign corporation owned by a CFC is instead assigned to the groupings for specified foreign source general category income or specified foreign source passive category income (as described in proposed § 1.861-13(a)(1)(i)(A)(
As noted in Part III.B of the Explanation of Provisions to the temporary regulations under section 245A, the Treasury Department and the IRS intend to address issues related to the application of § 1.952-2, taking into account various comments received in connection with the TCJA (including in connection with regulations issued under section 951A), in a future guidance project.
Another comment suggested that the gross income and assets of tested loss CFCs should be exempt from the expense apportionment rules due to the existence of special rules for tested loss CFCs in the context of calculating GILTI, including the disallowance of any foreign tax credits related to the tested loss under section 960(d)(3). Section 864(e)(2) requires that interest expense be apportioned on the basis of the adjusted bases of assets. Whether or not a CFC is profitable does not change the fact that a taxpayer's borrowings can fund the operations of the CFC. In addition, a CFC may be highly valuable (and have a large and positive amount of accumulated earnings and profits) even if it happens to be in a loss position for a particular year. Exempting the assets of tested loss CFCs would also result in distortive incentives whereby a CFC with a small amount of tested income would have an incentive to shift into a tested loss in order to have the entire value of the CFC be excluded for purposes of interest expense apportionment. Finally, the special treatment of tested losses in the determination of the GILTI inclusion is already accounted for by reducing the value of the stock of any CFC that is assigned to the section 951A category based on the inclusion percentage.
Finally, the final regulations clarify in § 1.861-13(a)(1)(i) and (ii) that for purposes of characterizing the stock of a CFC in the various statutory groupings, the U.S. shareholder of the CFC must use the same method (either the asset method or modified gross income method) that the CFC uses to apportion its interest expense. This is consistent with the rule in existence before the 2018 FTC proposed regulations, which is still reflected in § 1.861-12(c)(3)(i)(A).
Under § 1.861-12T(f)(1), to the extent that interest expense is capitalized, deferred, or disallowed, the adjusted basis of an asset connected to the interest expense is reduced to account for the interest that was capitalized, deferred, or disallowed. One comment suggested a revision to clarify, and narrow, the scope of this rule. The Treasury Department and the IRS agree that this rule should be clarified and have proposed changes in the 2019 FTC proposed regulations.
Proposed § 1.861-17 provides a one-time exception to the five-year binding election period by allowing taxpayers to switch between the sales method and gross income method in the first taxable year beginning after December 31, 2017. This exception is finalized without change.
Comments requested revisions to the approach for allocating and apportioning R&D expenditures under § 1.861-17, which the 2018 FTC proposed regulations do not otherwise modify. These comments are discussed in the 2019 FTC proposed regulations, which propose changes to the application of the sales method and allow taxpayers that are on the sales method to rely on those changes for taxable years before the proposed rulemaking is in effect. In order to give taxpayers an additional opportunity after the 2019 FTC proposed regulations have been issued to switch to the sales method, the final regulations provide that taxpayers may change to the sales method up to their last taxable year that begins before January 1, 2020, without the prior consent of the Commissioner.
Section 904(b)(4) makes certain adjustments to both the taxpayer's foreign source taxable income and the taxpayer's entire taxable income for purposes of computing the applicable foreign tax credit limitation, based on the foreign-source portion (as defined in section 245A(c)) of any dividend from a specified 10-percent owned foreign corporation (as defined in section 245A(b)) and the deductions allocated and apportioned to, in general, income with respect to stock of the foreign corporation that will generally be eligible for a section 245A deduction or the stock of the foreign corporation that gives rise to that income. Proposed § 1.904(b)-3(c)(1) and (2) provide rules for determining what amount of the stock of the foreign corporation gives rise to income that, if distributed, is generally eligible for a section 245A deduction. The rules subdivide a portion of the value of the stock into a section 245A subgroup and a non-section 245A subgroup within each separate category.
One comment requested that the regulations clarify the treatment of stock basis of a CFC that is associated with a hybrid instrument when the stock would give rise to dividends for which a deduction is disallowed under section 245A(e), and suggested that the amount of the basis of that stock should be assigned to the non-section 245A subgroup.
Under proposed § 1.861-13(a)(5), stock is assigned to a section 245A subgroup without regard to whether a dividend paid (either in the current or future year) with respect to the stock may actually qualify for a section 245A deduction (for example, the deduction could be disallowed due to section 245A(e) or section 246(c)). The Treasury Department and the IRS considered a rule that would assign a portion of stock to a section 245A subgroup only if the earnings and profits reflected in the stock's value were allowed (or would be allowed in the future) a section 245A deduction. However, taxpayers generally could not know in a current year whether a distribution of the current earnings and profits would be allowed a section 245A deduction in a future year, and a rule requiring taxpayers to recalculate their section 245A subgroups through amended returns would create compliance burdens for taxpayers and administrative burdens for the IRS. Therefore, the final regulations retain the rules in the 2018 FTC proposed regulations, which determine the amount of stock in a section 245A subgroup without regard to whether a section 245A deduction is or would be allowed with respect to dividends paid with respect to the stock.
The comment also suggested that stock associated with hybrid instruments owned directly by a U.S. shareholder should be assigned to the non-section 245A subgroup due to a concern that the value of stock assigned to a section 245A subgroup would be excluded for purposes of valuing the stock under the beginning- and end-of-year averaging rule in § 1.861-9(g)(2). However, neither § 1.861-13(a)(5) nor § 1.904(b)-3 provides that stock assigned to the section 245A subgroup is excluded. Instead, deductions allocated and apportioned to stock assigned to the section 245A subgroup are added back to the numerator and denominator determined under section 904(a). Therefore, contrary to the comment, the assignment of stock to the section 245A subgroup (as opposed to the non-section 245A subgroup) does not impact the calculation of the total value of stock under the beginning- and end-of-year averaging rule in § 1.861-9(g)(2). Thus, the comment is not adopted.
Another comment recommended that proposed § 1.904(b)-3 be amended to provide that the treatment of deductions allocated and apportioned to the section 245A subgroup not be added back to entire taxable income for purposes of applying section 904(a) to section 951A category income. The comment is not adopted. Section 904(b)(4) is clear that deductions described in that provision are disregarded for purposes of “entire taxable income,” which means that the computation under section 904(a) (which describes a fraction, the denominator of which is “entire taxable income”) with respect to all separate categories, including the section 951A category, are affected by deductions allocated and apportioned to the section 245A subgroup. However, the amount of income in the section 951A category (the numerator of the section 904(a) fraction when section 904(a) applies to that category) is not affected by deductions allocated and apportioned to the section 245A subgroups of other separate categories.
The 2018 FTC proposed regulations provide transition rules for assigning carryforwards of unused foreign taxes paid or accrued, or deemed paid or accrued, in pre-2018 taxable years to post-2017 separate categories, which include new categories for section 951A category income and foreign branch category income. Proposed § 1.904-2(j)(1)(ii) provides that if unused foreign taxes paid or accrued or deemed paid with respect to a separate category of income are carried forward to a taxable year beginning after December 31, 2017, those taxes are allocated to the same post-2017 separate category as the pre-2018 separate category from which the unused foreign taxes are carried. Proposed § 1.904-2(j)(1)(iii) provides an exception that permits taxpayers to assign unused foreign taxes in the pre-2018 separate category for general category income to the post-2017 separate category for foreign branch category income to the extent they would have been assigned to that separate category if the taxes had been paid or accrued in a post-2017 taxable year. Any remaining unused taxes are assigned to the post-2017 separate category for general category income.
Several comments requested a simplified rule for assigning a portion of the pre-2018 unused foreign taxes to the post-2017 separate category for foreign branch category income. One comment recommended a simplified rule under which unused foreign taxes are assigned to the foreign branch category in the same proportions as foreign taxes paid or accrued by the taxpayer's foreign branches in the relevant pre-2018 year bear to all foreign taxes paid or accrued by the taxpayer in that year. Another comment recommended a simplified rule that assigns the pre-2018 unused foreign taxes to the post-2017 separate categories by reference to a single year. Another comment recommended either allowing taxpayers to allocate pre-2018 unused foreign taxes freely between the post-2017 separate categories for general category income and foreign branch category income, or in the alternative, using any reasonable method. Finally, one comment recommended that if the reconstruction option is maintained in the final regulations that it be simplified by not requiring taxpayers to reconstruct disregarded payments between a branch and its owner.
After considering the comments, the Treasury Department and the IRS agree that a simplified safe harbor option with respect to the reconstruction option should be provided. Section 1.904-2(j)(1)(iii)(B) provides a safe harbor that allocates unused foreign taxes from a particular pre-2017 taxable year to the post-2018 separate category for foreign branch category income based on a ratio equal to the amount of foreign income taxes that were paid or accrued by the taxpayer's foreign branches divided by the amount of all foreign income taxes assigned to the general category that were paid or accrued, or deemed paid by the taxpayer with respect to the taxable year. The Treasury Department and the IRS adopt this recommendation because it combines administrative convenience, a low potential for manipulation, and a reasonable approximation of a full reconstruction. Furthermore, in light of the addition of a safe harbor option, no changes are made to the requirements for reconstruction if the safe harbor option is not chosen. Taxpayers that do not choose the safe harbor must determine the unused foreign taxes with respect to foreign branch category income as if that separate category (and thus, all the rules in § 1.904-4(f)) had applied in the year the taxes were paid or accrued.
Another comment requested that when applying the reconstruction option, the final regulations provide that for purposes of determining whether excess credits relate to direct or indirect
Another comment requested that taxpayers be allowed to apply the general category exception in proposed § 1.904-2(j)(1)(iii) to post-2017 tax years on a year-by-year basis, rather than to all post-2017 tax years. The Treasury Department and the IRS have determined that the use of different methods in different years could result in inconsistent allocations of the same foreign tax credit carryovers and create significant complexity for taxpayers and the IRS. Accordingly the comment is not adopted.
Proposed § 1.904(f)-12(j) generally provides that any separate limitation loss (“SLL”) or overall foreign loss (“OFL”) accounts in a pre-2018 separate category remain in the same post-2017 separate category. However, to the extent there are any unused foreign taxes with respect to the pre-2018 separate category for general category income that are allocated between the post-2017 separate categories for general category income and foreign branch category income, then any SLL or OFL account in the pre-2018 separate category for general category income is allocated to those post-2017 separate categories in the same proportion that the unused foreign taxes were allocated. Similar rules were provided in the 2018 FTC proposed regulations with respect to the recapture of SLLs or overall domestic losses (each an “ODL”) that reduced income in a separate category in a pre-2018 taxable year, as well as for foreign losses that are part of a net operating loss that is incurred in a pre-2018 taxable year and carried forward to post-2017 taxable years.
One comment suggested that it was not clear that the allocation of losses should follow the allocation of unused foreign taxes, and that it was inflexible not to allow an allocation of losses with respect to the pre-2018 separate category for general category income between the post-2017 separate categories for general category income and branch category income when there were no unused foreign taxes with respect to that category to be allocated. The comment suggested that a true reconstruction of the losses would be too complex, but requested that the Treasury Department and the IRS consider some other unspecified approach that was independent from the allocation of unused foreign taxes.
Another comment on the same issue requested that the Treasury Department and the IRS allow taxpayers to elect to reconstruct the losses. In other words, this approach would allow taxpayers to allocate a portion of loss accounts with respect to the pre-2018 separate category for general category income to the post-2017 separate category for foreign branch category income to the extent they were attributable to losses that either related to, or offset, pre-2018 general category income that would have been foreign branch category income if recognized in a post-2017 taxable year, regardless of the taxpayer's treatment of unused foreign taxes.
The Treasury Department and the IRS agree that additional options should be added under the transition rules for loss accounts that relate to the pre-2018 separate category for general category income. Accordingly, § 1.904(f)-12(j)(2) provides that a SLL or OFL account incurred in the pre-2018 separate category for general category income by default remains in the general category, but that the taxpayer may choose to reconstruct how much of the loss account would have been in the foreign branch category had that category been in effect before 2018. As an alternative to reconstruction, a safe harbor provides that the taxpayer may instead recapture the pre-2018 loss account by recharacterizing the first available income in the post-2017 separate category for either general category income or foreign branch category income. To the extent the income in both separate categories available for recapture exceeds the balance in the loss account, the loss account is recaptured proportionately from each separate category. An ordering rule provides that the balance in a pre-2018 loss account is recaptured before any post-2017 additions to the account. This safe harbor follows similar transition rules provided in § 1.904(f)-12(a) for pre-1987 loss accounts.
Similarly, § 1.904(f)-12(j)(3) provides that an SLL or OFL that reduced pre-2018 general category income is by default recaptured in post-2018 years as general category income, but that a taxpayer may choose to reconstruct how much of the balance in the loss account would have offset foreign branch category income had that separate category applied in the year the loss was incurred, and recapture that amount in post-2017 taxable years as income in the foreign branch category. As an alternative to reconstruction, the final regulations retain the rule in proposed § 1.904(f)-12(j)(3)(ii) as a safe harbor, which provides that the taxpayer may instead recapture the balance in the loss account in subsequent taxable years ratably as income in the taxpayer's post-2017 separate categories for general category and foreign branch category income based on the proportion in which any unused foreign taxes in the pre-2018 separate category for general category income are allocated under the transition rules in § 1.904-2(j)(1)(iii)(A) or (B).
Section 1.904(f)-12(j)(4) provides that foreign losses that are part of general category net operating losses incurred in pre-2018 taxable years which are carried forward to post-2017 taxable years are by default treated as general category net operating losses, but that the taxpayer may choose to reconstruct how much of that loss would have been attributable to the foreign branch category had that separate category applied in the year the net operating loss arose. As an alternative to reconstruction, a safe harbor provides that the taxpayer may instead choose to treat the net operating loss carryforward as attributable to the general category and foreign branch category to the extent of any general category income and foreign branch category income, respectively, that is available in the year to be offset by the net operating loss carryforward (the carryforward year). To the extent the net operating loss carryforward offsets any other income in the carryforward year, it is treated as attributable to the general category. If the sum of taxpayer's general category income and foreign branch category income in the carryforward year exceeds the amount of the net operating loss carryforward, then the amount of each type of separate category income that is offset by the net operating loss carryforward, and therefore the separate category treatment of the net operating loss carryforward, is determined on a proportionate basis. An ordering rule provides that a pre-2018 general
Finally, § 1.904(f)-12(j)(5) sets forth a coordination rule that provides that for purposes of applying the transition rules for unused foreign taxes or any of the rules for loss accounts, the choice whether to default to the general category or to reconstruct must be made consistently in all cases. However, if the taxpayer chooses to reconstruct, the choice to apply a safe harbor may be made independently under each set of transition rules.
Comments recommended that the final regulations, or preamble to the final regulations, include a discussion of the tax policy considerations relevant to proposed § 1.904-4(f). In general, proposed § 1.904-4(f) defines the term foreign branch category income, which affects both the limitation on foreign tax credits under section 904 and the deduction for FDII under section 250(a)(1)(A). Under section 904(d)(2)(J), foreign branch income is defined as the business profits attributable to one or more QBUs in one or more foreign countries, with the amount of business profits attributable to a QBU determined under rules established by the Secretary. Accordingly, the 2018 FTC proposed regulations provide guidance regarding the attribution of profits to a foreign branch.
The legislative history to the TCJA does not discuss the attribution of business profits to a QBU. In drafting the 2018 FTC proposed regulations, the Treasury Department and the IRS balanced various policy objectives, including: Attributing gross income to a foreign branch in a manner that is commensurate with its business activities; administrability for taxpayers and the IRS; conformity with local country tax law; and giving effect to the policies of sections 250(b)(3)(A)(i)(VI) and 904(d)(1)(B), which limit, respectively, the deduction under section 250 and the allowance of a credit under section 901 by reference to the amount of business profits attributable to a QBU.
The Treasury Department and the IRS have determined that the 2018 FTC proposed regulations' approach to attributing gross income to a foreign branch strikes the appropriate balance among those goals. In general, the 2018 FTC proposed regulations attribute gross income by reference to the books and records maintained with respect to a foreign branch, subject to certain adjustments (including adjustments to reflect Federal income tax principles). Proposed § 1.904-4(f)(2)(i). Reliance on a foreign branch's books and records promotes administrability for both taxpayers and the IRS. In addition, gross income reflected on the books and records of a foreign branch generally reflects payments for economic activity of that foreign branch, such that the proposed regulations' approach is broadly consistent with the policy of attributing gross income based on the relative economic activity of a foreign branch. Furthermore, the rule will promote conformity between the income attributed to a foreign branch under § 1.904-4(f) and the income subject to tax in the foreign jurisdiction.
To further those policies, the 2018 FTC proposed regulations also give effect to payments made in connection with certain transactions that are disregarded for Federal income tax purposes (such payments, “disregarded payments”). Proposed § 1.904-4(f)(2)(vi). These payments are generally reflected on the books and records of a foreign branch, represent compensation for economic activity performed by or for a foreign branch, and are frequently given effect for foreign income tax purposes. Accordingly, giving effect to those transactions generally aligns with the policies furthered by the general rule for attributing gross income to a foreign branch. For additional discussion regarding the policies and rules relating to disregarded payments, see Part III.B.2 of this Summary of Comments and Explanation of Revisions.
Several comments were received regarding proposed § 1.904-4(f)(2)(vi), under which gross income attributable to a foreign branch that is not passive category income must be adjusted to reflect disregarded payments between a foreign branch and its foreign branch owner, and between foreign branches (the “disregarded payment rule”). Some comments expressed support for the rule, while others indicated that they believed that proposed § 1.904-4(f) would be more administrable without the disregarded payment rule. As described in Part III.B.1 of this Summary of Comments and Explanation of Revisions, the Treasury Department and the IRS have determined that the disregarded payment rule furthers the various policies related to the attribution of gross income to a foreign branch. The disregarded payment rules are designed to utilize information that is already available to taxpayers, making the rule more administrable. Taking disregarded payments into account will also give effect to the economic activity of a foreign branch (or a foreign branch owner) while reducing mismatches between the amount of gross income attributable to a foreign branch and the foreign tax base. Accordingly, the final regulations retain the disregarded payment rule, subject to the modifications described in this Part III.B.2 of the Summary of Comments and Explanation of Revisions.
Comments recommended that the character and source of gross income that is reattributed under the disregarded payment rule be determined by reference to the disregarded transaction giving rise to the reattribution. For example, if a foreign branch owner earned $50 of U.S. source royalty income, and made a $50 disregarded payment to its foreign branch for services performed that if regarded would be allocable to the royalty income under the 2018 FTC proposed regulations, the proposed regulations would attribute $50 of U.S. source royalty income to the foreign branch. Because attributing U.S. source royalty income to the foreign branch would not increase the taxpayer's limitation under section 904(d)(2)(B) (the foreign branch category), the comments recommended that the source and character of the reattributed gross income be determined by reference to the disregarded payment, such that the $50 of U.S. source royalty income would be converted to foreign source services income, potentially increasing the creditability of taxes attributable to the foreign branch (including taxes imposed by reason of the disregarded transaction).
The Treasury Department and the IRS have determined that it would be inappropriate to issue rules under section 904 converting the source and character, as opposed to the separate category, of a taxpayer's gross income. Generally, section 904(d) and the regulations under § 1.904-4(f) provide rules regarding the separate application of section 904 with respect to certain categories of regarded gross income of a taxpayer. The Treasury Department and the IRS have determined that section 904 does not provide for the redetermination of the character or source of a taxpayer's gross income. Converting U.S. source income to foreign source income would also be inconsistent with the purpose of section
Comments recommended that disregarded payments be netted before determining the amount of gross income attributable to a foreign branch and its owner. For example, under a netting rule, if a foreign branch made a $100 disregarded payment to its foreign branch owner, and the foreign branch owner made an $85 disregarded payment to the foreign branch during the same year, no more than $15 of the gross income reflected on the books and records of the foreign branch would be attributed to the foreign branch owner, regardless of the factual relationship between the two payments. Similarly, if a foreign branch owner made a $50 disregarded payment to one branch, and received a $50 disregarded payment from a second branch, none of the gross income reflected on the books and records of the second foreign branch would be attributed to its owner and none of the gross income earned by the foreign branch owner would be attributed to the first foreign branch.
The Treasury Department and the IRS have determined that disregarded payments should not be netted before making adjustments under the disregarded payment rule. As described in Part III.B.2.ii of this Summary of Comments and Explanation of Revisions, the disregarded payment rule affects only the separate category of gross income, and not the source or character of a taxpayer's gross income. Accordingly, when a disregarded payment is made between a foreign branch owner and a foreign branch, the payment must be allocated to gross income of the payor to determine the source and character of the amount that is reattributed. When there is an increase to the amount of gross income attributable to a foreign branch, for example, there must be a corresponding decrease to income of the foreign branch owner with the same source and character. Moreover, the disregarded payment rule only affects the assignment of gross income in the foreign branch category and the general category, or a specified separate category that is associated with the foreign branch or general categories. Passive income, for example, is always excluded from the foreign branch category. Thus, to the extent that a disregarded payment from a foreign branch owner to a foreign branch would be allocable to passive income of the foreign branch owner, there can be no adjustment as a result of that payment to the taxpayer's gross income in the passive category, even though the amount of passive category income that is attributable to the foreign branch (and the foreign branch owner) may change.
Netting disregarded payments would distort these rules by preventing the disregarded payment rule from accurately identifying the source and character of gross income that is attributable to the foreign branch and its owner, respectively. For example, if a foreign branch earned $100 of foreign source royalty income that was initially attributable to the foreign branch, and made a $90 disregarded payment to its foreign branch owner that if regarded would be allocable to that foreign source royalty income, only $10 of that foreign source royalty income should be treated as foreign branch category income. Under a netting rule, however, a $90 disregarded payment by the foreign branch owner to that foreign branch (or another foreign branch of the foreign branch owner) that would be allocable to U.S. source passive category income of the foreign branch owner would offset the payment, such that U.S. source passive category income that could not increase foreign branch category income itself would effectively increase foreign branch category income, by increasing the non-passive foreign source royalty income attributable to a foreign branch. Accordingly, to prevent this and similarly arbitrary outcomes under the disregarded payment rule, the final regulations do not include a rule netting disregarded payments between a foreign branch owner and its foreign branches.
A comment further recommended that disregarded payments between foreign branches should be disregarded, and stated that taking those transactions into account added administrative complexity to the 2018 FTC proposed regulations without changing the categorization of any item of gross income as foreign branch category income. The Treasury Department and the IRS have determined that this comment is incorrect, and the final regulations retain the 2018 FTC proposed regulations' rules regarding transactions between foreign branches. The items of gross income attributable to a particular foreign branch vary based on the nature of the disregarded transaction, which could include multiple back-to-back disregarded payments between foreign branches and the foreign branch owner; further, the amount, character, and source of gross income allocable to a particular foreign branch may vary, and knowing which gross income items are attributable to a particular foreign branch is necessary to determine the amount, character, and source of gross income that is attributed to a foreign branch or the foreign branch owner as the result of a particular disregarded payment. The final regulations clarify this point, including through clarifications to the ordering rule in § 1.904-4(f)(2)(vi)(F), and a new example illustrating the effects of transactions between foreign branches.
Under the proposed regulations, the disregarded payment rules do not apply to disregarded payments of interest or interest equivalents (“disregarded interest payments”).
The final regulations adopt the 2018 FTC proposed regulations' approach to disregarded interest payments. The Treasury Department and the IRS have
Proposed § 1.904-4(f)(2)(vi)(D) (the “intangible property rule”) requires the use of section 367(d) principles to impute payments, over time, for certain transfers of intangible property in a disregarded transaction. Comments requested that the intangible property rule be withdrawn, either in whole or in part (for example, by limiting the application of the rule to transfers from a foreign branch owner to a foreign branch). The comments argued that (i) there is no compelling policy rationale for the intangible property rule; (ii) the intangible property rule undermines a legislative objective of the TCJA, which was to achieve neutrality as to whether to locate intellectual property in a domestic corporation or its foreign subsidiary; (iii) the anti-abuse rule in § 1.904-4(f)(2)(v) is sufficient to prevent abusive tax-avoidance through disregarded remittances or contributions; (iv) the absence of a similar rule for tangible property or money evidences the lack of a need for a special rule for certain intangible property; (v) the intangible property rule would result in mismatches between the gross income attributable to a foreign branch and the gross income of the foreign branch for foreign tax purposes; and (vi) the rule would present administrative and compliance challenges. Certain comments acknowledged that the intangible property rule may be theoretically accurate, but argued that the compliance burdens that the rule posed outweighed its benefits.
The Treasury Department and the IRS have determined that retaining the intangible property rule is appropriate, and that it should apply to any disregarded transfer between a foreign branch owner and a foreign branch, as well as to transfers between foreign branches. While the intangible property rule may increase compliance burdens and increase the disparity between the gross income attributable to a foreign branch and the gross income taxable by a foreign country, the Treasury Department and the IRS have determined that those concerns are outweighed by the benefits derived from the rule. In general, § 1.904-4(f)(2)(vi)(A) adjusts the attribution of gross income when disregarded payments are made between a foreign branch and a foreign branch owner, or between foreign branches. Disregarded remittances or contributions, however, do not result in the reattribution of gross income. Section 1.904-4(f)(2)(vi)(C)(
The Treasury Department and the IRS have, however, modified the intangible property rule in response to comments. First, comments recommended that the intangible property rule be limited to disregarded transfers occurring after the enactment of the TCJA, after the date on which the proposed regulations were issued, or after the date on which the final regulations become effective. In response to these comments, the final regulations provide that the intangible property rule does not apply to transfers that occurred before December 7, 2018 (the date on which the proposed regulations were published). Section 1.904-4(f)(2)(vi)(D)(
Second, several comments indicated that the intangible property rule inappropriately captures transient ownership of intangible property that was neither developed nor exploited by the foreign branch (or foreign branch owner) before a transfer. For example, several comments suggested that the intangible property rule would apply to certain repatriations of intangible property from a foreign subsidiary that elected to be treated as a disregarded entity (within the meaning of § 1.904-4(f)(3)(iv)), and immediately thereafter distributed intangible property to its U.S. owner. The Treasury Department and the IRS have determined that the potential distortions that the intangible property rule addresses generally are not implicated in the situation described in the comments. Accordingly, the final regulations adopt the recommendation. Specifically, the final regulations provide that the intangible property rule does not apply to transfers by a foreign branch or foreign branch owner that owns the intangible property transitorily, subject to certain limitations.
Finally, comments requested additional guidance and examples illustrating the application of section 367(d) principles in the context of a remittance of intangible property from a foreign branch to the foreign branch owner. In response to the comments, the final regulations specify that if a foreign branch remits property described in section 367(d)(4) to its foreign branch owner, the foreign branch is treated as having sold the transferred property to the foreign branch owner in exchange for annual payments contingent on the productivity or use of the property, the amount of which are determined under the principles of section 367(d) and the regulations under that section. The final regulations also include an example illustrating the application of the intangible property rule to a remittance
A comment recommended that the final regulations clarify that disregarded payments that would be capitalized into amortizable or depreciable basis may produce adjustments under § 1.904-4(f)(2)(vi) in the year or years that the amortization or depreciation deductions would be allowed if those payments had been regarded. The final regulations adopt this recommendation.
The final regulations also provide additional guidance regarding certain disregarded payments that would, if regarded, not be deductible, including guidance regarding disregarded sales of property that reattribute gross income when basis would be recovered other than through depreciation, amortization, or other disregarded cost recovery deductions. Under these rules, for example, a foreign branch owner's sale of property with a zero basis to its foreign branch for $100, followed by a sale by the foreign branch of that property to a third party for $110, would generally result in $110 of income that is reflected on the books and records of a foreign branch. The final regulations clarify that, in this example, $100 of gross income must be attributed to the foreign branch owner. Specifically, the foreign branch would be treated as having an adjusted disregarded basis in the property of $100, resulting in $10 of gain from the sale of the property being attributed to the foreign branch, and $100 of adjusted disregarded gain being attributed to its foreign branch owner.
The 2018 FTC proposed regulations provide for certain adjustments to the amount of gross income that would otherwise be attributed to a foreign branch under proposed § 1.904-4(f)(2)(i). For example, gross income attributable to a foreign branch generally does not include gain attributable to a sale of stock by the foreign branch.
The proposed regulations define a foreign branch by reference to the definition of a QBU in § 1.989(a)-1(b)(2)(ii) and (b)(3), which require that the branch maintain a separate set of books and records with respect to its activities and conduct of a trade or business outside of the United States (among other things). For this purpose, the trade or business standard described in § 1.989(a)-1(c) applies, subject to certain modifications.
A comment indicated that it is not clear when activities that constitute a permanent establishment should ever be treated as failing to satisfy this requirement. The Treasury Department and the IRS have determined that, consistent with the policy of promoting conformity between the gross income attributable to a foreign branch and the gross income subject to tax in a foreign jurisdiction, no exception to this rule is warranted. Accordingly, the final regulations provide that activities conducted outside the United States that constitute a permanent establishment under the terms of an income tax treaty between the United States and the country in which the activities are carried out constitute a trade or business conducted outside the United States for purposes of determining whether the activities meet the trade or business standard of the foreign branch definition, and do not adopt the presumption rule in the proposed regulations. § 1.904-4(f)(3)(vii)(B).
The proposed regulations include a special rule treating a partnership as maintaining a separate set of books and records with respect to the activities of a foreign trade or business, whether or not a separate set of books and records was actually maintained.
A comment recommended that the final regulations provide additional guidance regarding the attribution of income items to any deemed set of books and records. In particular, the comment recommended that the principles of sections 864(c)(2), (c)(4), and (c)(5) should apply in constructing any deemed books and records in a manner analogous to the approach taken under the dual consolidated loss regulations with respect to genuine branches (although the comment recommended that the rule apply whether the QBU was a genuine branch or was held in a disregarded entity).
To the extent that gross income (as adjusted to conform to Federal income tax principles) is reflected on the books and records of a foreign branch, the 2018 FTC proposed regulations generally treat the income as attributable to a foreign branch. Thus,
Comments recommended that gain or loss from the disposition of a foreign branch be treated as attributable to a foreign branch whether or not the gain or loss is reflected on the books and records of a foreign branch, including the disposition of a foreign branch held through a disregarded entity. The Treasury Department and the IRS have determined that the rules for attributing gain from the sale of an interest in a foreign branch in the proposed regulations are appropriate. In general, the proposed regulations' treatment of the disposition of a foreign branch promotes conformity with local country taxation. Gain on the sale of assets properly reflected on the books of a foreign branch will generally be included in the taxable income of the foreign branch in its local country, and will generally reflect income associated with the trade or business activities of the foreign branch. In contrast, a foreign branch owner's sale of an entity that includes a foreign branch will not be reflected on the books of the foreign branch being sold, and will generally not give rise to local country tax on the transferred entity. Furthermore, proposed § 1.904-4(f)(2)(i), which relies on the books and records of a foreign branch, sets forth a rule that is administrable for taxpayers and the IRS.
In the case of a sale by a foreign branch of another entity that includes a foreign branch, the sale generally reflects gain that is not associated with the selling branch's trade or business activities, except when there is a sufficiently close business connection between the selling branch and the entity being sold. As described in Part III.B.4.ii of this Summary of Comments and Explanation of Revisions, the proposed and final regulations include an exception that allows gain or loss on the sale of another entity to be included in foreign branch category income when that connection exists.
The exception to this rule in proposed § 1.904-4(f)(2)(iv)(A) (excluding the disposition of certain interests reflected on the books and records of a foreign branch), appropriately prevents gain from the sale of interests unrelated to the trade or business conducted by a foreign branch from being treated as the “business profits” of the foreign branch. Accordingly, the final regulations adopt the rules set forth in the proposed regulations, subject to the modifications described in Part III.B.4.ii of this Summary of Comments and Explanation of Revisions.
The proposed regulations provide that the disposition of an interest in a partnership or other pass-through entity is treated as occurring in the ordinary course of the foreign branch's active trade or business to the extent that the foreign branch “engages in the same or a related trade or business as the partnership or other pass-through entity (other than through a less than 10 percent interest)” (the “same or related trade or business rule”). Proposed § 1.904-4(f)(2)(iv)(B). A comment suggested that the reference to a “10 percent interest” in the same or related trade or business rule is unclear. To address the comment, the final regulations clarify that the same or related trade or business rule applies only when the foreign branch owns 10 percent or more of the interests in the partnership or other pass-through entity, and the foreign branch directly engages in the same, or a related, trade or business as that partnership or other pass-through entity.
Several comments to proposed § 1.904-4(f) were received that are outside the scope of this rulemaking, including: Comments related to the allocation of expenses to foreign branch category income; comments relating to the trade or business and books and records standards of § 1.989(a)-1(c) and (d); comments relating to the interaction of § 1.1502-13 with § 1.904-4(f); comments relating to the operation of section 367(d); and comments relating to the application of the step transaction doctrine. These comments are not addressed in this Summary of Comments and Explanation of Revisions, but may be considered in future guidance projects addressing the issues discussed in the comments.
In particular, the Treasury Department and the IRS intend to issue future guidance coordinating the allocation and apportionment of expenses with the determination of foreign branch category income. In particular, the Treasury Department and the IRS are considering proposing rules applicable to regulated financial institutions regarding the allocation of interest expense to foreign branch category income. Under one approach, interest expense on demand deposits of a foreign banking branch would be directly allocated to foreign branch category income that is denominated in the same currency. Interest expense with respect to U.S. dollar-denominated demand deposits could similarly be directly allocated to interest income earned on U.S. dollar-denominated assets. Assets and liabilities would then be adjusted and residual interest expense would be allocated fungibly under the generally-applicable rules. This approach would take account of the fact that regulated financial institutions typically invest foreign currency-denominated deposits in interest-bearing assets denominated in the same currency, in part because interest rates vary across different currencies and this practice is more likely to yield a predictable return.
Under another approach, interest expense would be allocated to the foreign branch category using an approach similar to the rules applicable to foreign corporations that are engaged in the conduct of a trade or business within the United States. Generally, those rules provide for the allocation of interest expense by reference to the liabilities reflected on the books and records of a branch, and make adjustments to the amount of interest expense allocable to a branch by reference to the leverage ratio of the taxpayer as a whole.
The Treasury Department and the IRS also recognize that the existing expense allocation rules, including with respect to R&E expenditures, depreciation, or losses, when applied to allocate and apportion expenses to gross income that has been reattributed under the disregarded payment rule in § 1.904-4(f)(2)(vi), may lead to results that are inconsistent with the policy goal of identifying income attributable to the foreign branch that is commensurate with its business activities. The Treasury Department and the IRS are studying whether additional rules for allocating and apportioning expenses to foreign branch category income or limiting the amount of the adjustments to the attribution of gross income as a result of certain disregarded payments are appropriate.
The Treasury Department and the IRS welcome comments on issues relating to allocation and apportionment of expenses to the foreign branch category. Comments on this topic should be submitted as part of the notice and comment process for the 2019 FTC proposed regulations. See Part I.A.5 of the Explanation of Provisions to the 2019 FTC proposed regulations.
Proposed § 1.904-4(g) generally provides that section 951A category income means amounts included in the gross income of a United States person (“U.S. person”) under section 951A(a), but does not include passive category income.
The Treasury Department and the IRS note that although it is generally unlikely that passive category income would be included under section 951A, nothing in section 904 eliminates this possibility. To the contrary, the parenthetical in section 904(d)(1)(A) contemplates that all or part of a GILTI inclusion could be passive category income by expressly excluding passive category income from the section 951A category. Further, to the extent that income included under section 951A is excluded from passive category income under the section 904 high-tax kickout, it is appropriate under the rules of section 904(d) and § 1.904-4 that the income be reclassified as section 951A category income rather than income in another separate category. The section 904 high-tax kickout does not specify the category to which high-taxed income is assigned; it merely specifies that the high-taxed income is not passive category income. Therefore, the comment is not adopted.
Additionally, under section 904(c) as amended by the TCJA, unused foreign taxes with respect to section 951A category income may not be carried back or carried forward. Proposed § 1.904-2(a) incorporated this statutory change into the regulations. One comment recommended that unused foreign taxes with respect to section 951A category income should be eligible to be carried back or carried forward. However, because the statutory language of section 904(c) is clear, the comment is not adopted.
The 2018 FTC proposed regulations include rules regarding section 904(d)(6), which applies when a taxpayer elects the benefits of a treaty obligation to resource an item of income. Proposed § 1.904-4(k)(2) adopts a grouping methodology for purposes of section 904(d)(6) whereby the relevant portions of sections 904, 907, and 960 apply separately to the aggregate amount of items of income that are in a single separate category and resourced under a particular treaty rather than separately to each item resourced under the treaty. The proposed regulations also provide that § 1.904-6 applies to allocate foreign income taxes to a separate category determined under section 904(d)(6). The preamble to the 2018 FTC proposed regulations requested comments on whether special rules should apply to limit the taxes allocated to a separate category determined under section 904(d)(6) to taxes imposed by the foreign jurisdiction that was a party to the relevant treaty, or whether taxes imposed by a third-party jurisdiction should continue to be allocated to the separate category determined under section 904(d)(6).
One comment addressed the issue of foreign taxes imposed by third-party jurisdictions, noting that any rule that allocated such taxes away from the income on which it was imposed under § 1.904-6 would be a departure from the framework of the foreign tax credit regime, which generally aims to attribute foreign taxes to the income to which they relate. The Treasury Department and the IRS agree with the comment, and therefore the final regulations reaffirm that taxes imposed by a third-party jurisdiction should continue to be allocated to the separate category determined under section 904(d)(6) or 865(h).
Another comment recommended that the final regulations apply the approach under section 904(d)(6) to income resourced under section 865(h). The comment indicated that there was no compelling reason why similar grouping rules should not also be extended to income subject to section 865(h). The Treasury Department and the IRS agree that consistent application of the similar rules in sections 865(h) and 904(d)(6) that assign items of income resourced under a treaty to a separate category is appropriate. Accordingly, the final regulations provide that, with respect to gains described in section 865(h)(2)(A), the provisions of section 904(a), (b), (c), (d), (f), and (g), and sections 907 and 960 are applied separately with respect to each treaty under which the taxpayer has claimed benefits and, within each treaty, to each separate category of income.
Under former § 1.904-5(h) (as in effect before the final regulations) and
The Treasury Department and the IRS agree that in the case of corporate general partners in a partnership, the corporation's distributive share of income of the partnership should be characterized based on the income of the partnership regardless of the corporate partner's ownership threshold. The rule in former § 1.904-5(h) assigning income of a less than 10-percent partner to the passive category reflected the concern that partners would have difficulty obtaining information from the partnership in order to determine the partnership's income. However, the comment states that corporate general partners are generally able to obtain information to determine their distributive shares of the partnership's income. In addition, with respect to CFCs, section 951A requires the CFC to determine whether each item of partnership income is tested income, subpart F income, or excluded from tested income under section 951A(c)(2)(A)(i)(I) through (V) regardless of the CFC's ownership percentage in the partnership. Furthermore, with respect to individuals, the prior final regulations at § 1.904-5(h)(1) already provided that general partners with less than 10 percent ownership in the partnership apply a look-through approach. Therefore, there is minimal administrative benefit to assigning all of a less-than-10-percent corporate general partner's income to the passive category rather than following the general rule that assigns the distributive share based on the income of the partnership. Therefore, § 1.904-4(n)(1)(ii) provides that all general partners apply the general rule even if the partner owns less than 10 percent of the partnership. The same change is made to the expense allocation rules under § 1.861-9(e)(4), which provides rules for assigning partnership interest expense in the case of a less-than-10-percent limited partner or corporate general partner.
The proposed regulations generally provide that the look-through rules under section 904(d)(3) provide look-through treatment solely with respect to payments allocable to the passive category.
Comments requested that § 1.904-4 be revised to provide that the look-through rules under section 904(d)(3) apply to characterize interest, rents, and royalties paid by a CFC to a U.S. shareholder as income in the section 951A category. However, section 904(d)(3) provides that look-through payments not allocable to passive category income are not treated as passive category income, but does not assign the income to a particular category. Section 904(d)(1) generally defines the separate categories, and section 904(d)(1)(A) is clear that only amounts includible in gross income under section 951A are assigned to the section 951A category. Accordingly, under the clear terms of the statute, look-through payments cannot give rise to section 951A category income and must be assigned to other separate categories, such as the foreign branch category (if described in section 904(d)(1)(B)), a separate category for income described in section 901(j) or income resourced under a tax treaty, or the general category. Therefore, the comment is not adopted.
Proposed § 1.861-9(c)(5) provides that if a taxpayer's deduction for business interest expense is disallowed under section 163(j) in a given year but permitted in a future taxable year, that the deduction for the business interest expense is apportioned under the rules of § 1.861-9 as though it were incurred in the year in which the expense is deductible. This is consistent with the existing general rule in § 1.861-9T(c) that in order for interest expense to be allocated and apportioned, the expense must be currently deductible.
One comment requested guidance on how to apply the look-through rules, which require allocating and apportioning interest expense under § 1.861-9 in order to match the interest with gross income of the payor, when the interest expense is not allowed as a deduction at the CFC level. The comment noted that the disallowance at the CFC level does not defer a recipient income inclusion that must be assigned to a separate category.
In response to the comment, the final regulations provide in § 1.904-5(c)(2)(i) that the allocation and apportionment rule described in § 1.904-5(c)(2)(ii) is applied in the year the interest income is taken into account even if the interest expense is not actually deductible by the CFC in that year.
Proposed § 1.904-6(a) provides rules for the allocation and apportionment of taxes to the separate categories of income. Consistent with section 904(d)(2)(H)(i), proposed § 1.904-6(a)(1)(iv) provides that foreign taxes imposed with respect to base differences are assigned to the separate category in section 904(d)(1)(B), which is the foreign branch category. Comments stated that Congress had inadvertently failed to revise the cross-reference in section 904(d)(2)(H)(i) and that the regulations should assign taxes associated with base differences to the general category, or should provide a rule assigning the taxes to the general category or the foreign branch category depending on the types of income that the taxpayer earns. Because the statute is clear that taxes associated with base differences are assigned solely to the foreign branch category, the final regulations confirm that such taxes are assigned to the category specified in section 904(d)(2)(H)(i).
Several comments to the 2018 FTC proposed regulations requested additional guidance clarifying the allocation and apportionment of foreign income taxes under § 1.904-6. These
The Treasury Department and the IRS have determined that proposed § 1.904-6(a)(1)(iv) generally reflects the appropriate principles regarding what constitutes a base or timing difference, but agree that additional guidance regarding how those principles apply in specific fact patterns is warranted. In order to provide final rules for taxpayers to apply, while also providing an additional opportunity for taxpayers to comment on the new additional guidance, the final regulations finalize the rules in the 2018 FTC proposed regulations in § 1.904-6(a)(1)(iv). New rules relating to the allocation and apportionment of foreign income taxes are contained in the 2019 FTC proposed regulations.
Other than a provision coordinating the application of the adjustments in proposed § 1.904(b)-3 with the ordering rules for allocation and recapture of losses, including SLLs and OFLs,
One comment recommended that income in the section 951A category be excluded for purposes of the OFL recapture rule in § 1.904(f)-2(c)(1), which generally provides that the OFL recapture amount in a separate category is the lesser of the maximum recapture amount in that category (the lesser of the OFL account balance or income in that category) or 50 percent of total foreign source income. The comment suggested that for most taxpayers, GILTI inclusions will significantly exceed foreign source income in other separate categories and as a result the foreign source income in those other separate categories will always be fully subject to the recapture rule, up to the amount of the OFL account balance in that category. Comments also recommended that the final regulations provide that the separate limitation loss rules under section 904(f)(5) do not apply with respect to the section 951A category, that the ODL rules in section 904(g) do not apply to reduce income in the section 951A category, and that foreign tax credits assigned to the section 951A category that are not allowed by reason of a separate limitation loss or ODL “hover” until the loss is recaptured, at which time the “hovering” foreign tax credits would be allowed.
The current OFL recapture rule reflects the intended application of section 904(f)(1) as expressed in legislative history from 1986. In addition, section 904(f)(5) and (g) are clear that foreign source losses must be allocated to foreign source income in other separate categories before reducing U.S. source income and that ODLs reduce foreign source income in each separate category and must be recaptured out of income in those categories. The TCJA did not modify the operation of section 904(f) or (g) with respect to the section 951A category, nor is there any indication in the TCJA or legislative history that Congress intended the rules under section 904(f) and (g) to apply differently to section 951A category income as compared to other separate categories. In addition, no authority is provided in section 904 to allow taxes assigned to the section 951A category that accrue in one year to be deferred and claimed as a credit in a future year. Such a rule would be inconsistent with sections 901 and 905(a), which allow a foreign tax credit only when the foreign tax is paid or accrued (or deemed paid), and section 904(c) which, as amended by the TCJA, explicitly provides that foreign income taxes assigned to the section 951A category that are not credited in the current year cannot be carried to different taxable years. Accordingly, the comments are not adopted.
The 2012 OFL proposed regulations revise the ordering rules under § 1.904(g)-3 that generally provide for the coordination of section 904(f) and (g) to include specific references for taking into account OFL recapture on property dispositions under section 904(f)(3). In the case of dispositions in which gain is recognized irrespective of section 904(f)(3), the proposed regulations provide that the OFL recapture is included in Step Five along with other general OFL recapture. In the case of dispositions in which gain would not otherwise be recognized on a disposition, the 2012 OFL proposed regulations add a new Step Eight to those ordering rules to address the recognition of the additional income under section 904(f)(3) and the corresponding recapture of the applicable OFL account. New Step Eight also provides that if the additional recognition of gain increases the allowable amount of the net operating loss deduction, then the recapture of the OFL account occurs first before the additional net operating loss carryover is taken into account to offset all or a portion of that gain.
Step Eight did not address the case where additional recognition of gain reduces the amount of a current year net operating loss. The final regulations revise the new Step Eight to provide that the allocation rules for additional net operating loss carryovers apply similarly to reductions in current year net operating losses, because both cases involve loss offsetting the additional recognized gain.
One comment was received with respect to the 2012 OFL proposed regulations, which recommended addressing dispositions that result in additional income recognition under branch loss recapture and dual consolidated loss recapture rules. The 2019 FTC proposed regulations provide a new Step Nine addressing branch loss recapture and dual consolidated loss recapture amounts. The new Step Nine is being proposed in order to provide taxpayers an additional opportunity to comment on the rule.
The 2007 temporary regulations provide currency translation rules to reflect the statutory changes made to sections 905(c) and 986(a) by the Taxpayer Relief Act of 1997 (Pub. L. 105-34, 111 Stat. 788 (1997)) and to section 986(a) by the American Jobs Creation Act of 2004 (Pub. L. 108-357, 118 Stat. 1418 (2004)). Consistent with section 986(a)(1)(A), § 1.905-3T(b)(1)(i) of the 2007 temporary regulations generally provides that accrued foreign income taxes are translated into dollars at the average exchange rate for the taxable year to which such taxes relate. The 2007 temporary regulations also provide, consistent with section 986(a), several exceptions to this rule, including that, under section 986(a)(1)(B), the exchange rate on the date the taxes are paid is used to translate accrued foreign income taxes
Consistent with sections 905(c)(1)(B) and 986(a)(1)(A), § 1.905-3T(b)(1)(ii) and (c) of the 2007 temporary regulations use the term “two years,” raising the issue of whether the term refers to two taxable years or two calendar years (that is, 24 months). The Treasury Department and the IRS have determined that a short taxable year, such as could result from a restructuring or other event, should not reduce the period within which a taxpayer can pay an accrued tax without triggering a foreign tax redetermination and thereby requiring the tax to be translated into dollars at the exchange rate on the date of payment. Accordingly, the final regulations at §§ 1.986(a)-1(a)(2)(i) and (c) and 1.905-3(a) use the term “24 months” instead of the term “two years.”
The relevant taxable year of a partner or beneficiary that is legally liable for foreign income tax on a distributive share of income is the partner's or beneficiary's taxable year. On the other hand, in the case of a partnership that has legal liability under foreign law for foreign income tax and that uses a different U.S. taxable year than its partners who take their distributive shares of the partnership's tax into account under section 901(b)(5) and § 1.702-1(a)(6), the rules under § 1.905-3T(b)(1)(i) of the 2007 temporary regulations does not specify whether the taxable year of the partnership or of the partner is the relevant “taxable year to which such taxes relate” for purposes of determining the applicable exchange rate, including whether the tax is denominated in inflationary currency, as well as whether the tax is paid within two years. A similar issue may arise with respect to a beneficiary of a trust who takes into account a distributive share of foreign income taxes paid by the trust.
The Treasury Department and the IRS have determined that the relevant taxable year is that of the person, including a partnership or trust, that has legal liability for the tax within the meaning of § 1.901-2(f) (the “section 901 taxpayer”). Measuring the period with reference to the taxable year of a partnership or trust that is the section 901 taxpayer is simpler and more administrable than a rule that would vary the applicable translation convention and determine whether a foreign tax has been redetermined by reference to the taxable year of each partner or beneficiary. It will also generally conform the average exchange rate translation convention used to translate the taxes with the translation rate used to translate the income out of which the tax is paid by using the same taxable year to determine the average rate for both purposes. See section 989(b)(4). Accordingly, the final regulations at § 1.986(a)-1(a)(1) and (2) clarify that the relevant taxable year to which the tax relates is that of the person that is considered to pay the tax under § 1.901-2(f).
Under section 986(a)(1)(C) and section 986(a)(2), a foreign tax liability denominated in an inflationary currency (as determined under regulations) is translated into dollars at the exchange rate on the date of payment of the foreign tax. Section 1.905-3T(b)(1)(ii)(C) of the 2007 temporary regulations defines an inflationary currency as the currency of a country in which there is cumulative inflation of at least 30 percent during the 36-month base period immediately preceding the last day of the taxable year. The 2007 temporary regulations do not address which year or years are relevant to determining whether a currency in which a foreign tax liability is denominated is inflationary.
The purpose of the payment date translation rule for tax denominated in inflationary currency is to more accurately reflect the dollar cost of satisfying a foreign tax liability when the currency experiences significant inflation between the time the tax accrues and the date the tax is paid, including when the average exchange rate would otherwise apply because the tax is paid within 24 months of the close of the taxable year to which the tax relates. To avoid overstating the dollar cost of the foreign tax liability, the Treasury Department and the IRS have determined that it is appropriate to translate a foreign tax liability into dollars at the spot rate (as defined in § 1.988-1(d)) on the date of payment of the foreign taxes if the taxes are denominated in a currency that is inflationary in the accrual year or in any subsequent taxable year up to and including the taxable year of the section 901 taxpayer in which the tax is paid.
The final regulations also reflect editorial changes to the definition of an inflationary currency that adopt the principles of § 1.985-1(b)(2)(ii)(D) as modified by cross-reference instead of restating the method described in that paragraph. No substantive change to the computation was intended as a result of this rephrasing of the rule.
Section 1.905-3T(b)(1)(ii)(C) and (D) of the 2007 temporary regulations and § 1.986(a)-1(a)(2)(iii) and (a)(2)(iv)(A) of the final regulations provide that, in the case of accrued taxes, the liability for which is denominated in an inflationary currency, or in the case of a taxpayer that elects to translate accrued taxes into dollars using the spot rate as of the date of payment, any accrued but unpaid taxes are translated into dollars at the spot rate on the last day of the U.S. taxable year to which such taxes relate. If the currency is not inflationary in the accrual year, but is inflationary when paid, under the general rule of § 1.986(a)-1(a)(1) of the final regulations, the tax will be provisionally translated into dollars at the average rate for the year of accrual. In each of these cases, when the taxes are subsequently paid they are translated into dollars at the spot rate on the date of payment. If this amount differs from the provisional year-end rate or average rate initially used to assign a dollar value to the credit, the later payment of the tax will constitute a foreign tax redetermination requiring an adjustment to reflect the difference between the accrued amount and the actual dollar cost of paying the tax. See § 1.905-3T(c) of the 2007 temporary regulations and § 1.905-3(a) of the final regulations for the definition of a foreign tax redetermination. The final regulations at § 1.986(a)-1(a)(2)(iii) and (iv) include a cross reference to § 1.905-3 to clarify that there generally will be a foreign tax redetermination when the accrued tax is subsequently paid, which may result in a U.S. tax redetermination.
The 2007 temporary regulations effectively require that two returns be filed in the case of accrued taxes subject to § 1.905-3T(b)(1)(ii)(C) (inflationary currency) or (D) (spot rate election) that accrue in one taxable year and are paid in the next taxable year before the return for the accrual year has been filed: First, the original return on which the accrued but unpaid taxes are translated at the provisional year-end rate, and, second, an amended return, filed after such taxes are paid, on which such taxes are translated at the rate on the date of payment. To minimize compliance burdens for taxpayers, the final regulations at § 1.986(a)-1(a)(2)(iii) and (iv) provide that taxpayers may translate
Section 1.905-3T(b)(1)(ii)(D) of the 2007 temporary regulations provides that, pursuant to section 986(a)(1)(D), a taxpayer that otherwise would be required to translate foreign taxes using the average exchange rate may elect to translate all foreign income taxes denominated in nonfunctional currency using the exchange rate as of the date of payment (spot rate election). Although using the spot rate on the date of payment most accurately reflects the dollar cost of paying the foreign income tax, the 2007 temporary regulations reflect the view that taxpayers should not be permitted to use hindsight to select the more favorable of the spot rate or average exchange rate conventions to translate nonfunctional currency taxes on a QBU-by-QBU basis. Rather, in addition to a spot rate election for all of a taxpayer's nonfunctional currency foreign income taxes, the 2007 temporary regulations also permit an election to use the spot rate to translate less than all of a taxpayer's nonfunctional currency foreign income taxes, but only in situations that would reduce compliance burdens or avoid a mismatch between the exchange rates used to translate creditable foreign taxes and the same nonfunctional currency amount of income used to pay the tax. As noted in the preamble to the 2007 temporary regulations, such a mismatch may occur in the case of a QBU that has a dollar functional currency (dollar QBU) if the average exchange rate is used to translate nonfunctional currency tax that is paid out of nonfunctional currency income earned by the dollar QBU, because in that case income from transactions involving foreign currency are accounted for using the spot rate on a transaction-by-transaction basis. Accordingly, § 1.905-3T(b)(1)(ii)(D) of the 2007 temporary regulations provides that a taxpayer may make a spot rate election for all foreign income taxes denominated in nonfunctional currency, or for only those foreign income taxes that are denominated in nonfunctional currency and are attributable to dollar QBUs.
Section 1.905-3T(b)(1)(ii)(D) of the 2007 temporary regulations refers only to a “taxpayer” and not also to a section 902 corporation (a qualified group member described in section 909(d)(5) before its repeal in the TCJA), raising a question whether a foreign corporation with a U.S. shareholder eligible to compute deemed paid taxes should be considered a separate “taxpayer” that is eligible to make the spot rate election. To address this issue, the final regulations at § 1.986(a)-1(a)(2)(iv)(A) and (B) provide that the taxpayer for purposes of making the spot rate election under section 986(a)(1)(D) is any individual or corporation, and revise the references to section 902 corporations to reflect the repeal of sections 902 and 909(d)(5). Accordingly, a foreign corporation that is a specified 10-percent owned foreign corporation may elect separately from any of its U.S. shareholders to translate either all of the foreign corporation's foreign income taxes denominated in nonfunctional currency, or only those nonfunctional currency taxes of the foreign corporation's dollar QBUs, using the spot rate on the date of payment. Section 1.986(a)-1(a)(2)(iv)(B) of the final regulations also clarifies that a spot rate election by a U.S. shareholder does not further require that the shareholder's foreign subsidiaries make a spot rate election.
Section 986(a)(1)(D)(i) provides that a spot rate election is available only for foreign taxes denominated in a taxpayer's nonfunctional currency. The final regulations clarify at § 1.986(a)-1(a)(2)(iv)(A) that whether a tax that is attributable to a QBU of a taxpayer is denominated in nonfunctional currency is determined by reference to the functional currency of the taxpayer (which includes a specified 10-percent owned foreign corporation), and not that of the QBU. Accordingly, taxes denominated in a QBU's functional currency that is a nonfunctional currency of the taxpayer are considered nonfunctional currency taxes for purposes of these rules.
The final regulations at § 1.986(a)-1(a)(2)(iv)(B) also confirm that, in the case of a taxpayer (including a specified 10-percent owned foreign corporation) that makes the spot rate election only with respect to nonfunctional currency taxes that are attributable to dollar QBUs, the election must be made for all of the taxpayer's dollar QBUs and cannot be made separately for each dollar QBU. Finally, the final regulations clarify that foreign tax is attributable to a dollar QBU for purposes of these rules if it is properly recorded on the books and records of the QBU in accordance with the regulations under sections 985 through 989. This rule will help ensure matching of the exchange rate used to determine the dollar amount of the credit with the exchange rate used to determine the dollar amount of income that is used to pay the tax.
The 2007 temporary regulations do not permit the spot rate election to be used to translate taxes that are denominated in a nonfunctional currency of the taxpayer and attributable to QBUs with non-dollar functional currencies (non-dollar QBUs), other than as part of an election to translate all foreign taxes at the spot rate on the date of payment. As noted, one of the rationales for providing an election for taxpayers to translate less than all of their nonfunctional currency taxes using the rate on the date of payment is to allow taxpayers to avoid a mismatch due to the use of different translation conventions in determining the translated dollar amount of foreign tax credit and the translated dollar amount of the foreign income used to pay the tax.
However, there is generally no mismatch between the translation rate for taxes on income earned through non-dollar QBUs and the income used to pay the taxes. Under sections 986(a)(1)(A), 987(2), and 989(b)(4), such taxes and income generally are translated into dollars at the average exchange rate, minimizing administrative and compliance burdens. Although § 1.987-3T(c)(2)(v), issued in 2016, requires section 987 income or loss equal to the creditable tax amount to be translated at the same exchange rate that is used to translate the creditable taxes for purposes of section 901, the Treasury Department and the IRS intend to amend the regulations under section 987, deferring the applicability date of § 1.987-3T(c)(2)(v) (along with other portions of the regulations under section 987).
The 2007 temporary regulations do not address how to determine section 988 gain or loss when there has been a change in functional currency between the time a tax is paid or accrued and when it is refunded. If a QBU receives a refund of nonfunctional currency tax that is denominated in a currency that was the functional currency of the QBU when the tax was claimed as a credit or added to PTEP group taxes, § 1.986(a)-1(e)(2) of the final regulations provides that the QBU uses the exchange rate used under § 1.985-5(c) when the QBU's functional currency changed to determine its basis in the refunded nonfunctional currency. If a QBU receives a refund of functional currency tax that was denominated in a nonfunctional currency when the tax was claimed as a credit or added to PTEP group taxes, § 1.986(a)-1(e)(3) of the final regulations provides that the QBU recognizes the section 988 gain or loss that would have been recognized under § 1.985-5(b) if the refund had been received immediately before the QBU's functional currency changed. The final regulations also add a cross-reference to these rules at § 1.988-2(a)(2)(iii)(C).
Section 1.905-3T(c) of the 2007 temporary regulations defines a “foreign tax redetermination” as a change in the foreign tax liability that may affect a taxpayer's foreign tax credit, including accrued taxes that when paid differ from the amounts added to post-1986 foreign income taxes or claimed as credits by the taxpayer (such as corrections to overaccruals and additional payments); accrued taxes that are not paid before the date two years after the close of the taxable year to which such taxes relate; refunds of tax paid; and for accrued taxes translated into dollars when paid, a difference between the dollar value of the accrued tax and the dollar value of the tax paid attributable to fluctuations in the foreign currency's value.
Section 1.905-3(a) of the final regulations reflects several clarifying changes to what constitutes a foreign tax redetermination. First, a foreign tax redetermination includes certain situations covered by section 905(c) that do not involve a change in the foreign tax liability, such as the failure to pay accrued taxes within two years and the subsequent payment of any such accrued but unpaid taxes. Second, a foreign tax redetermination includes adjustments such as a correction to an accrual that determined the tax due with reasonable accuracy, but is revised after additional consideration to reflect the correct final tax liability. Third, the regulations clarify that a foreign tax redetermination occurs if any tax that is claimed as a credit or added to PTEP group taxes is subsequently refunded, regardless of whether the tax was properly treated as paid within the meaning of § 1.901-2(e) (which includes, among other requirements, that the tax was owed and not refundable) when claimed as a credit or added to PTEP group taxes. New examples at § 1.905-3(b)(1)(ii) of the final regulations illustrate these rules, including an example demonstrating that a foreign tax redetermination includes the accrual and payment of contested taxes following the resolution of a dispute with a foreign government.
Section 1.905-3T(c) of the 2007 temporary regulations, implementing section 905(c)(1)(B), states that a foreign tax redetermination includes “accrued taxes that are not paid
If a calendar year taxpayer accrues foreign taxes at the close of calendar Year 1, “the date two years after the close of the taxable year to which such taxes relate” literally refers to December 31 of Year 3, rather than January 1 of Year 4. Thus, if the taxpayer has not paid the taxes before December 31 of Year 3, that is, on or before December 30, a foreign tax redetermination would occur on December 31 of Year 3 even if the tax was paid on December 31 of Year 3, and such payment would constitute a second foreign tax redetermination. Both foreign tax redeterminations generally would require translating the foreign taxes at the same average exchange rate, resulting in offsetting foreign tax redeterminations.
To better coordinate the application of the foreign tax redetermination and currency translation rules and to ease compliance burdens, the definition of a foreign tax redetermination has been revised to include “accrued taxes that are not paid
The Treasury Department and the IRS also have determined that the foreign tax redetermination resulting from accrued taxes that remain unpaid after two years should be considered to occur on the date that is 24 months after the close of the taxable year to which the taxes relate. Accordingly, § 1.905-3(a) of the final regulations provides that if accrued taxes are not paid on or before the date that is 24 months after the close of the taxable year to which they relate, the resulting foreign tax redetermination will be accounted for as if the unpaid portion of the taxes were refunded on such date.
Finally, the final regulations clarify that taxes that first accrue after the date 24 months after the close of the taxable year to which such taxes relate may not be claimed as a credit or added to PTEP group taxes until they are paid. The final regulations also include a cross-reference to the rules of section 905(b) and the all-events test under § 1.461-4(g)(6)(iii)(B), which require the taxpayer to establish the amount of tax that was properly accrued.
Section 1.905-3T(d)(1) of the 2007 temporary regulations provides that, in the case of a foreign tax redetermination with respect to taxes paid or accrued by a U.S. taxpayer, a redetermination of U.S. tax liability is required “for the taxable year for which the foreign tax was claimed as a credit.” The final regulations clarify how the rules apply when a U.S. taxpayer's foreign taxes exceed the applicable limitation under section 904(d) and the taxpayer carries its unused foreign taxes back or forward to another year under section 904(c). Section 1.905-3(b)(1)(i) of the final regulations provides that, if a foreign tax redetermination occurs with respect to foreign tax claimed as a direct credit, then a redetermination of U.S. tax liability is required for the taxable year in which the credit was claimed and any year to which unused foreign taxes from such year were carried under section 904(c).
Section 1.905-3T(d)(1) of the 2007 temporary regulations provides that a
Section 1.905-3T(e) of the 1988 temporary regulations provided that tax imposed on a refund of foreign tax is considered to reduce the amount of the refund, and no other credit or deduction is allowed with respect to such tax imposed on such refund. This provision was carried over at § 1.905-3T(e) of the 2007 temporary regulations without change. Section 1.905-3(c) of the final regulations modifies this rule to clarify that it applies in the case of any section 901 taxpayer, which includes a specified 10-percent owned foreign corporation.
Proposed § 1.960-2 deems a corporate U.S. shareholder of a CFC to pay certain of the CFC's current year foreign income taxes that are attributable to the CFC's income that the domestic corporation includes under sections 951(a)(1)(A) and 951A(a). Current year taxes are the foreign income taxes that a CFC pays or accrues in its current taxable year, which the rule defines as the U.S. taxable year of a CFC that either is an inclusion year or during which the CFC receives or makes a distribution that is described in sections 959(a) or (b). Proposed § 1.960-1(b)(3), (4). Proposed § 1.960-1(b)(4) preserves current law with respect to the timing of the accrual of foreign income taxes. Under current law, taxes accrue when all the events have occurred that establish the fact of the liability and the amount of the liability can be determined with reasonable accuracy. Therefore, in the case of taxes that are withheld from a payment, the withholding taxes accrue when the payment from which the tax is withheld is made. In the case of taxes that are imposed on net income that a taxpayer recognizes under foreign law with respect to a taxable period, the net income taxes accrue on the last day of the foreign taxable period.
Comments requested changes to the definition of “current year taxes” that address timing differences that arise when a CFC has different U.S. and foreign taxable years. Specifically, the comments suggested a number of approaches to match the foreign income taxes that the CFC pays or accrues with respect to a foreign taxable year with the income that it recognizes in a U.S. taxable year. For example, comments requested that the definition take into account foreign income taxes that relate to income recognized during the current taxable year but that are paid or accrued by a CFC with respect to a foreign taxable year that closes after the current taxable year. Comments suggested that a portion of the foreign income taxes could be allocated between U.S. taxable years on the basis of a ratable allocation of the foreign taxable income on which the taxes are imposed to the portion of a foreign taxable year of the CFC that corresponds to the two U.S. taxable years. The foreign income taxes that are allocated to the current taxable year under the proration would then be treated as current year taxes for purposes of computing deemed paid taxes under section 960(a) and section 960(d), even though a portion of the taxes do not accrue under section 461 and the all events test until after the close of the current taxable year. Comments also suggested modifying the current accrual rule for foreign income taxes to treat any foreign income taxes paid or accrued by a CFC that are allocated to a current taxable year under the proration as accruing in that year. In addition, comments suggested a “closing of the books” method for determining the foreign tax that is treated as either a current year tax or as accruing during the next U.S. taxable year, or other approaches such as a “with-and-without” calculation to determine taxes attributable to extraordinary transactions.
Differences in the timing of the accrual of foreign income taxes and the inclusion of income by a U.S. shareholder on which the taxes are imposed due to a CFC's differing U.S. and foreign taxable years will generally resolve over time because although the U.S. and foreign taxable years start and close on different dates, both taxable periods encompass profits earned over the same length of time. A comment noted that this mismatch might not resolve if there are differences in the type or amount of income that a CFC earns from year to year. Unless the CFC earns all of its income ratably every year for both U.S. and foreign tax purposes, however, any method for allocating foreign tax to a different U.S. taxable year may not mitigate or may even exacerbate an ongoing mismatch of the income recognized in the current U.S. taxable year with the foreign income tax that accrues after the close of that year. Moreover, as one comment acknowledged, a rule that relies on estimates of foreign income taxes that have not accrued because they are attributable to a foreign taxable year that closes after the U.S. taxable year would require the ongoing correction of inaccurate estimates through redeterminations under section 905(c) and the filing of amended returns.
A comment noted that § 1.901-2(f)(4) requires the allocation of certain foreign taxes to a U.S. taxable year and treats those taxes as accruing in that year. This rule, however, only applies to mismatches that occur with respect to a single foreign taxable year due to the transfer of a disregarded entity or a partnership interest. Section 1.901-2(f)(4) addresses these narrow fact patterns by treating the foreign taxes that accrue in one U.S. taxable year but
One comment requested that the fourth sentence in § 1.960-1(b)(4), which provides that net basis foreign income taxes accrue on the last day of the foreign taxable year, be removed or qualified, because the comment asserted that the statement did not reflect current law regarding the accrual of these taxes. However, the comment did not identify any fact patterns in which net basis foreign income taxes could accrue before the last day of the foreign taxable year. By definition, net basis foreign income taxes can only be determined with reasonable accuracy after the foreign taxable year has closed and all income and deductions have been accrued for foreign tax purposes. Therefore, the fourth sentence in § 1.960-1(b)(4) reflects current law regarding when these taxes accrue and the comment is not adopted.
One comment suggested that mismatches between the U.S. and foreign taxable years could be addressed by characterizing current year tax, and therefore allocating and apportioning it to an income group, based upon the earnings recognized under Federal income tax law for the current taxable year, regardless of whether that income was included in the foreign tax base upon which the current year tax was imposed. However, this change would nullify the § 1.904-6(a) rules as a mechanism for attributing a current year tax to a statutory grouping of income, namely, income items included under section 951A or 951(a) and distributions of previously taxed earnings and profits, and potentially associate current year taxes with income for section 960 purposes other than the income to which the tax would relate for purposes of section 904. Congress intended, however, that similar principles would apply to treat current year taxes as properly attributable to a statutory grouping of income for purposes of determining deemed paid taxes under section 960 as those that apply for purposes of assigning foreign income tax to a section 904 category.
Comments also requested changes that would address a broader range of timing differences, such as a difference in the timing of income recognition with respect to a particular transaction or difference in the timing of cost recovery, in addition to taxable year mismatches. Consistent with section 960(a) and (d), the 2018 FTC proposed regulations deem a corporate U.S. shareholder of a CFC to pay foreign income taxes of the CFC, which are allocated and apportioned to an income group under the principles of § 1.904-6, only if there is an inclusion under either section 951(a)(1)(A) or section 951A that is attributable to net income in the income group.
Several comments addressed the ineligibility of a current year tax to be deemed paid because it is associated under the principles of § 1.904-6 with an income group that has no current year income or to which no inclusion is otherwise attributable. Comments requested that, in that circumstance, the current year tax be treated as properly attributable to previously taxed earnings and profits and deemed paid under section 960(b) upon a subsequent distribution of the previously taxed earnings and profits. A similar comment suggested that a current year tax that is assigned to an income group to which no inclusion is attributable nonetheless be treated as deemed paid under section 960 for the current taxable year as long as the income that was included in the foreign tax base either was previously recognized or will be recognized in the future under Federal income tax rules.
Section 960 requires an inclusion of subpart F income under section 951(a)(1) or of tested income under section 951A in order for foreign income taxes that are associated with that income to be deemed paid.
Congress intended for § 1.904-6 principles to apply to associate current year tax with those inclusions or distributions so that the taxes that are deemed paid with respect to an inclusion or distribution are also associated, for purposes of applying the limitation under section 904(d), with the separate category to which the inclusion or previously taxed earnings and profits is assigned. Congress also repealed section 902, which tracked multi-year amounts of a CFC's foreign income taxes and associated those amounts with multi-year amounts of its earnings and profits, in favor of a system that associates, within a single, current
Associating the tax with previously taxed earnings and profits rather than current year items of income would be inconsistent with Congress's intent to eliminate pooling and calculate deemed paid foreign tax credits on a current year basis rather than on a multi-year basis; the change requested by the comments, in other words, would circumvent Congress's intent that, in the absence of a distribution of previously taxed earnings and profits, the only event that causes a foreign income tax to be deemed paid by a domestic corporation is an inclusion of the income to which the foreign income tax that is paid or accrued by a CFC relates. Conference report at 628. Therefore, the comments are not adopted.
Comments also requested the allowance of carryovers or carrybacks at the CFC level if a current year tax is not deemed paid because it is imposed on a timing difference item to which no inclusion is attributable or if the inclusion amount is reduced to reflect the shareholder's qualified deficit. The requested changes to allow carryovers of foreign income taxes at the CFC level are inappropriate in light of the transition, discussed in this Part V.B, from a system based on multi-year pools of foreign income taxes to a current-year system. Moreover, Congress also expressly disallowed carryovers of section 951A category foreign income taxes paid, accrued, or deemed paid by a domestic corporation.
One comment specifically referenced the rule in proposed § 1.960-2(c)(5) that provides for no deemed paid taxes under section 960(d) and proposed § 1.960-2(c)(1) when the taxpayer has no inclusion under section 951A(a) in arguing for a proportionate carryover of taxes not deemed paid in the current year. The comment noted that if there was no inclusion under section 951A(a) because the taxpayer had no net CFC tested income (as defined in § 1.951A-1(c)(2)) or had deemed tangible income return (as defined in § 1.951A-1(c)(3)) in excess of its net CFC tested income, the earnings associated with that income may not be eligible for the deduction under section 245A and therefore could be subject to double taxation.
In general, earnings and profits related to income that is not included under section 951(a) or section 951A(a) (including income that is not included because of the taxpayer's deemed tangible income return or a lack of net CFC tested income) are eligible for the dividends received deduction under section 245A when those earnings are distributed to a domestic corporation, if the holding period and other requirements under section 245A are met. Thus, excluding the taxes associated with those earnings from being deemed paid under proposed § 1.960-2(c)(5) does not result in double taxation as asserted by the comment.
A comment requested an adjustment to the computation of deemed paid taxes if a domestic corporation's subpart F inclusion that is attributable to net income in a subpart F income group is reduced by the amount of the domestic corporation's share of a qualified deficit. The requested adjustment would cause all taxes in the subpart F income group to be deemed paid in the year the qualified deficit is used. Under the requested adjustment, the amount of the current year taxes allocated and apportioned to the group that would be deemed paid by the domestic corporation would be disproportionate to the portion of the subpart F income in the group that is included in income by the domestic corporation. Under section 952(c)(1)(B), a qualified deficit reduces the amount of subpart F income of a CFC that a U.S. shareholder includes in its gross income under section 951(a)(1)(A) but does not reduce the subpart F income of the CFC. In contrast, section 952(c)(1)(A) reduces the subpart F income of the CFC at the CFC level. In addition, whereas the current year E&P limitation in section 952(c)(1)(A) can give rise to recapture in a future taxable year of the reduced subpart F income amount, no such recapture occurs with respect to qualified deficits. Therefore, the final regulations retain the rule in § 1.960-2(b)(3)(ii) that reduces the amount of foreign income taxes deemed paid to the extent the U.S. shareholder reduces its subpart F inclusion by reason of a qualified deficit. Otherwise, taxpayers could be allowed a deemed paid credit in excess of the amount of foreign income taxes the CFC paid with respect to the income that was included.
Comments requested clarification on the application of the timing difference rule in the case of foreign income taxes incurred by a CFC after the enactment of section 951A but imposed on income included in the foreign tax base that may correspond to income recognized under Federal income tax law in a pre-enactment taxable year (including, for example, income of a CFC that was included in a U.S. shareholder's income under section 965). In particular, comments noted that the description in proposed § 1.960-1(d)(3)(ii)(B)(
Under § 1.904-6(a)(1)(iv), a tax imposed on an amount that is not included in U.S. taxable income in the
One comment asked for clarifications regarding how current year taxes are allocated and apportioned under proposed § 1.960-1(d)(3)(ii) when the foreign corporation's U.S. and foreign taxable years do not match. In addition to the change to proposed § 1.960-1(d)(3)(ii)(B)(
Proposed § 1.960-1(a)(1) sets out the general scope of the rules providing for the determination of the foreign income taxes deemed paid by a domestic corporation under section 960. Comments requested that proposed § 1.960-1(a)(1) be modified to clarify that the regulations under section 960 do not preclude a credit under section 1293(f). The final regulations in § 1.960-1(a)(1) clarify that the regulations apply for purposes of any provision that treats a taxpayer as a domestic corporation that is deemed to pay foreign income taxes or treats a foreign corporation as a CFC for purposes of section 960, including for example, section 962(a)(2) or 1293(f).
With respect to a CFC, proposed § 1.960-1(d) provides rules for assigning gross income, and allocating and apportioning deductions and current year taxes, to section 904 categories and income groups for purposes of determining what taxes are properly attributable to, and therefore deemed paid with respect to, a subpart F inclusion, GILTI inclusion, or a distribution of previously taxed earnings and profits. Under proposed § 1.960-1(d)(2)(i), gross income is first assigned to a section 904 category. The rule also specifies that, other than gross income relating to a section 959(b) distribution, gross income of a CFC cannot be assigned to the section 951A category or foreign branch category.
One comment recommended changes to this language, in general, to specify that gross income relating to a section 959(b) distribution can be assigned to the section 951A category, but that gross income of a CFC can never be assigned to the foreign branch category. The Treasury Department and the IRS agree that the language could be clarified, and accordingly, the final regulations modify § 1.960-1(d)(2)(i) to omit any references to the foreign branch category. However, the Treasury Department and the IRS are studying whether in certain cases a CFC may have gross income that is assigned to the foreign branch category and therefore the final regulations do not preclude that possibility.
After assignment of income to section 904 categories, proposed § 1.960-1(d)(2)(ii)(A) provides that the income is further assigned to income groups within the section 904 categories. Under proposed § 1.960-1(d)(2)(ii)(B), gross subpart F income is assigned to income groups based on the items of income determined under § 1.954-1(c)(1)(iii).
Comments requested that all subpart F income in a separate category be treated as a single item for purposes of determining what taxes are properly attributable to a subpart F inclusion. However, because the grouping rules in the 2018 FTC proposed regulations are necessary to properly coordinate the calculation of foreign taxes deemed paid under section 960(a) with the application of the subpart F high-tax exception and the section 904 high-tax kickout, the final regulations do not adopt these comments.
Section 960(a) requires a determination of the foreign income taxes that are attributable to “any item of income . . . with respect to [a] controlled foreign corporation” that is included in gross income of a domestic corporation under section 951(a)(1). However, under the subpart F high-tax exception, a taxpayer may exclude from a CFC's foreign base company income an “item of income” that is high-taxed. High-taxed income is excluded from foreign base company income, and therefore is not included in the U.S. shareholder's income under section 951(a)(1). The regulations under section 954(b)(4) identify items of gross foreign base company income within each section 904 category and allocate and apportion expenses (including foreign tax expense) among these items in order to compute the net items of foreign base company income and determine the foreign effective tax rate with respect to each item. The grouping rules in the section 954(b)(4) regulations further coordinate the application of the subpart F high-tax exception with the section 904 high-tax kickout by adopting the passive category grouping rules used in the section 904 regulations. See § 1.954-1(c)(1)(iii) and sections 904(d)(2)(B)(ii)(II) and 904(d)(2)(F), excluding from passive income any income with respect to which the foreign income taxes paid, accrued, and deemed paid exceed the highest U.S. tax rate.
By adopting the same grouping rules used to determine eligibility for the subpart F high-tax exception and the application of the section 904 high-tax kickout, the subpart F income groups of proposed § 1.960-1(d)(2)(ii)(B) ensure that the same amount of foreign tax is treated as attributable to a particular item of a CFC's foreign base company income for purposes of all three Code sections. This helps minimize the circumstances in which passive subpart F income could fail to qualify for the subpart F high-tax exception, but when included under section 951(a) by the U.S. shareholder with foreign taxes deemed paid trigger the similar (but not identical) section 904 high-tax kickout. Additionally, given that section 960(a)
Proposed § 1.960-2(b)(1) provides that no foreign income taxes are deemed paid under section 960(a) with respect to an inclusion under section 951(a)(1)(B), which is based on the amount determined under section 956 (a “section 956 inclusion”). The preamble to the proposed regulations explains that a section 956 inclusion is not an inclusion of an “item of income” of the CFC but instead is an inclusion equal to an amount that is determined under the formula in section 956(a) and therefore section 960(a), which as amended by the TCJA computes deemed paid taxes by reference to foreign taxes attributable to an “item of income,” does not allow for a deemed paid credit. Comments noted that section 960(a) references section 951(a)(1), not merely subpart F inclusions under section 951(a)(1)(A), and argued that a section 956 inclusion is an item of income in respect of the U.S. shareholder and requested that the regulation be modified to allow for a deemed paid credit in connection with a section 956 inclusion. Additionally, comments argued that not allowing credits in respect of section 956 inclusions was inconsistent with the legislative history of the TCJA. However, one comment stated that the rule in proposed § 1.960-2(b)(1) represented sensible policy because, under a pre-TCJA regime that deferred U.S. taxation of a CFC's earnings until those earnings were repatriated through a dividend distribution, section 956 served the purpose of treating effective repatriations of CFC earnings in the form of investments in certain U.S. property in a manner similar to repatriations in the form of dividends. The TCJA allowed a dividend received deduction for dividends from subsidiary foreign corporations, and no foreign taxes are deemed paid under the TCJA with respect to dividends (including dividends that are not eligible for a deduction under section 245A).
The Treasury Department and the IRS disagree that the “item of income” reference in section 960(a) refers to the U.S. shareholder's inclusion under section 951(a)(1), rather than the item of income of the CFC that is included in the U.S. shareholder's income. If that were the case, then no foreign taxes of the CFC would be properly attributable to such item of income, since the foreign taxes are imposed on the items of income earned by the CFC and not on the U.S. shareholder's subpart F inclusion. Therefore, the items to which foreign tax can be properly attributed must refer to the CFC's income items in order for section 960(a) to allow for a deemed paid credit for foreign taxes paid or accrued by the CFC. Because a section 956 inclusion is not traceable to an item of income of the CFC, section 960(a) does not permit a deemed paid credit for section 956 inclusions.
In addition, section 960(a) does not define what it means for taxes to be “properly attributable” to items of income. The legislative history provides that rules similar to § 1.904-6(a) should apply in attributing foreign income taxes to “item[s] of subpart F income.” H.R. Rep. No. 115-409, at 383. Section 1.960-1(d)(3)(ii) accordingly applies the principles of § 1.904-6(a) to allocate a CFC's current year taxes to the CFC's income items that comprise its subpart F income and other income earned in the current taxable year. Those principles require attributing foreign income taxes, which are paid or accrued by the CFC, to items of income of the CFC, not to an item of income of the U.S. shareholder, since an inclusion under section 951(a) with respect to the U.S. shareholder is not “included in the [foreign] base upon which the [CFC's foreign income] tax is imposed.” Section 1.904-6(a)(1). Furthermore, an inclusion under section 951(a) with respect to the U.S. shareholder is not an “item of subpart F income,” and subpart F income excludes earnings relating to section 956.
The Treasury Department and the IRS have also determined that attributing any foreign income taxes to a section 956 inclusion would be inconsistent with the intent of Congress to eliminate the need for multi-year tracking of income and taxes and move to a foreign tax credit system based solely on current year taxes and income. H.R. Rep. No. 115-409, at 383 (“[O]ffering deemed paid foreign tax credits on a current year basis solely under section 960 reflects what the Committee believes to be a simpler and more appropriate application of the foreign tax credit regime in a 100 percent participation exemption system.”). Congress intended for the repeal of section 902 and the amendment of section 960 to “eliminate[ ] the need for computing and tracking cumulative tax pools.”
Therefore, consistent with the proposed regulations, the final regulations provide that no foreign income taxes are deemed paid under section 960(a) with respect to a section 956 inclusion.
Under proposed § 1.960-3(c)(1), a CFC must establish a separate, annual account (“annual PTEP account”) for its earnings and profits for its current taxable year to which subpart F or GILTI inclusions of U.S. shareholders are attributable. The previously taxed earnings and profits in each annual account are then assigned to one of ten possible groups of previously taxed earnings described in proposed § 1.960-3(c)(2) (each, a “PTEP group”). After the proposed regulations were issued, the Treasury Department and the IRS released Notice 2019-01, 2019-2 I.R.B. 275, which announced the intention to issue regulations relating to foreign corporations with previously taxed earnings and profits. Notice 2019-01 affirmed the requirement to maintain annual PTEP accounts, but expanded the number of PTEP groups to 16, which included the original ten PTEP groups in the 2018 FTC proposed regulations as well as six additional groups. Notice 2019-01 provided that these rules would be coordinated with proposed §§ 1.960-1 and 1.960-3. Both the preamble to the 2018 FTC proposed regulations and Notice 2019-01 requested comments on possible ways to simplify the PTEP groups. While no comments made specific suggestions on how to combine or consolidate PTEP groups, one comment noted that the rules were complex and questioned whether tracking all the PTEP groups was necessary.
After evaluating the various limitations on the creditability of certain foreign income taxes and the application of the foreign currency rules under section 986(c) with respect to PTEP groups, the Treasury Department and the IRS have determined that it is possible to consolidate certain of the PTEP groups that were listed in Notice 2019-01. Accordingly, the final regulations update the list of the PTEP groups in § 1.960-3 to include ten PTEP groups. This list consolidates the PTEP groups that were included in the 2018 FTC proposed regulations with the PTEP groups that were included in Notice 2019-01. The updated list permits taxpayers to track fewer PTEP groups than those provided for in Notice 2019-01, while still permitting the application of the relevant foreign tax credit and foreign currency provisions. However, the Treasury Department and the IRS intend to issue more comprehensive regulations addressing the maintenance of annual PTEP accounts and the PTEP groups in a separate notice of proposed rulemaking under section 959. It is anticipated that, as part of that guidance, further changes may be made to § 1.960-3 in order to coordinate both sets of regulations.
Proposed § 1.960-3(d)(3) provides rules for how to determine whether foreign income taxes that were paid or accrued by a CFC in a taxable year that began before January 1, 2018, with respect to PTEP groups that were established for an inclusion year beginning before January 1, 2018, are treated as PTEP group taxes for purposes of applying § 1.960-3. The rule requires that the foreign income taxes meet three conditions, including a condition that the taxes were paid or accrued in a taxable year of the CFC that began before January 1, 2018.
One comment noted that this condition could be read to provide that taxes imposed after 2017 on a distribution from a PTEP group from an inclusion year before 2018 are not treated as PTEP group taxes. The comment recommended eliminating this condition. The Treasury Department and the IRS agree with the comment that the condition inappropriately limited the foreign income taxes that could qualify as PTEP group taxes under the rule. Accordingly, the final regulations eliminate the requirement in proposed § 1.960-3(d)(3)(i).
If certain conditions are met, section 960(c)(1) and § 1.960-4 allow a taxpayer to increase its section 904 limitation in the year of receipt of previously taxed earnings and profits. Because a distribution of previously taxed earnings and profits is excluded from gross income under section 959(a), the distribution will not increase the taxpayer's section 904 limitation except to the extent of any foreign currency gain recognized under section 986(c). The lack of sufficient section 904 limitation could prevent the taxpayer from claiming a credit for foreign income tax, such as a withholding tax, imposed by reason of the distribution. Section 960(c)(1) and § 1.960-4 permit foreign tax on the distribution to be credited to the extent the taxpayer had excess limitation in the year of inclusion of the income under section 951A or section 951(a).
However, in order to limit the increase to the limitation attributable to the inclusion, the increase in the section 904 limitation is reduced by the amount which would have been the section 904 limitation in the inclusion year if the amounts had not been included in gross income under section 951(a) or 951A(a).
A comment recommended that § 1.960-4(c) and (d) not apply to GILTI inclusions because GILTI inclusions are segregated in a separate category that cannot include any other income. However, the parenthetical in section 904(d)(1)(A) contemplates that all or part of a GILTI inclusion could be passive category income by expressly excluding passive category income from the section 951A category. Therefore, the comment is not adopted.
Section 965(g) provides that no credit is allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under section 965(c). On August 9, 2018, the Treasury Department and the IRS published proposed regulations (REG-104226-18) in the
In addition, the 2018 FTC proposed regulations provide a rule similar to the rule that applies to taxes deemed paid under section 960(a)(3) (as in effect on December 21, 2017) that is in § 1.965-5(c)(1)(ii) in the section 965 proposed regulations. In particular, foreign income taxes that would have been deemed paid under section 960(a)(1) (as in effect on December 21, 2017) with respect to the portion of a section 965(a) earnings amount that was reduced under § 1.965-1(b)(2) or § 1.965-8(b) are not eligible to be deemed paid under section 960(b) and § 1.960-3(b)(1) or any other section of the Code.
A comment asserted that these taxes should be considered to meet the requirements of section 960(b) as they are income taxes “properly attributable” to section 965(b) previously taxed
The Treasury Department and the IRS disagree with the comment for several reasons. First, any distribution of PTEP that reduces basis does not necessarily result in U.S. tax; rather, such distribution is excluded from income under section 959(a) to the extent there is sufficient basis. The reasoning suggested by the comment would require that when a U.S. shareholder has a section 951(a) inclusion that is not reduced under section 965(b)(4), a deemed paid credit would be allowed twice, once at the time of the section 951(a) inclusion and then again when a distribution of PTEP is made that results in a reduction of basis under section 961(b), which is plainly contrary to the text of section 960 and the purpose of the foreign tax credit.
Second, the comment argues that section 965(b)(4)(A) provides that section 965(a) earnings amounts offset by an aggregate foreign E&P deficit are treated as income previously included under section 951(a) “solely” for purposes of applying section 959, so that such earnings are not treated as previously included under section 951(a) for purposes of applying section 960. However, the application of section 959 is a precondition to the application of section 960(b); section 960(b) cannot result in deemed paid taxes other than with respect to a distribution that is excluded from income under section 959, and in order to be so treated the section 965(b) previously taxed earnings and profits are necessarily treated as previously included under section 951(a) for purposes of section 959. See also Part VI.B of the Summary of Comments and Explanation of Revisions to the final regulations under section 965 (T.D. 9846, published in the
Third, section 960(b) allows a credit for foreign income taxes paid by CFCs upon a subsequent distribution of the section 965(b) previously taxed earnings and profits through a chain of CFCs to the domestic corporate shareholder, but does not allow a credit for foreign income taxes that were previously deemed paid (or treated as deemed paid) under section 960(a) when the amounts were included (or treated as included) in income under section 951(a). As explained in Part VI.B of the Summary of Comments and Explanation of Revisions to the final regulations under section 965 (T.D. 9846, published in the
Finally, section 960(b) provides that only taxes that are “properly attributable to” a distribution of PTEP are treated as deemed paid. The comment does not explain why foreign income taxes that were paid or accrued in taxable years before the TCJA would be “properly attributable” to a distribution of PTEP in a later taxable year. The legislative history to the TCJA indicates that rules similar to § 1.904-6(a) should apply to determine the meaning of “properly attributable.” H.R. Rep. No. 115-409, at 383. Under § 1.904-6(a) as in effect at the time of the TCJA, foreign income taxes paid or accrued in a current year are allocated and apportioned to current year income in a separate category (taking into account timing differences under former § 1.904-6(a)(1)(iv)), and not to income in a different taxable year. Section 1.960-1(d)(3)(ii) implements this legislative intent by providing that only current year taxes imposed solely by reason of a distribution of PTEP are allocated and apportioned to PTEP groups. Because section 960(b) applies only to distributions of PTEP arising in taxable years covered by the TCJA, foreign income taxes paid or accrued in taxable years before the TCJA can never be “properly attributable” to a distribution of PTEP that is described in section 960(b).
Therefore, the final regulations provide that no credit is allowed under section 960(b) or any other provision of the Code for taxes attributable to section 965(a) earnings amounts offset by an aggregate foreign E&P deficit that would have been deemed paid under former section 960(a)(1) had the amounts actually been included in income under section 951(a).
Under section 78, as amended by the TCJA, an amount equal to the taxes deemed paid by a domestic corporation under section 960(a), (b), and (d) are treated as a dividend received from the foreign corporation. Section 960(b) addresses taxes deemed paid on distributions of previously taxed earnings and profits. Before the TCJA, section 78 did not reference former section 960(a)(3), which at the time addressed taxes deemed paid on distributions of previously taxed earnings and profits. This is consistent with the purpose of the section 78 dividend, which is to ensure that a U.S. shareholder cannot effectively both deduct and credit the foreign taxes paid by a foreign subsidiary that are deemed paid by the U.S. shareholder.
One comment requested that the final regulations make clear that, notwithstanding the amendment of section 78, deemed paid taxes are not treated as a section 78 dividend to the extent that the taxes are related to previously taxed earnings and profits. The comment states that providing a section 78 dividend on these taxes is inappropriate given the purpose of section 78, and that no changes to the statutory language of section 78 should be needed to achieve this result based on the final regulations in effect before the enactment of the TCJA. Finally, the comment also requested changes to the example in proposed § 1.960-1(f) to show the computation of deemed paid taxes of a U.S. shareholder under section 960(b)(1) and the application of section 78 to the deemed paid taxes.
Because section 78 clearly states that taxes deemed paid under section 960(b) give rise to a section 78 dividend, the final regulations do not adopt the comment. Additionally, because an example of the application of section 960(b)(1) is already provided in § 1.960-3(e)(2), no changes were made to the example in proposed § 1.960-1(f) in the final regulations.
One comment requested clarification that a section 78 dividend associated with an inclusion under section 951A can be included in foreign oil related income under section 907(c)(3)(B). The
The Treasury Department and the IRS agree that section 78 dividends with respect to inclusions under section 951A can be included in foreign oil related income, and that section 907(c)(3)(B), as amended by the TCJA, clearly provides for this result notwithstanding the existence of outdated regulations. However, the final regulations do not contain revisions to the regulations under section 907, which is beyond the scope of the final regulations. The regulations under section 907 have not been revised since 1991 and substantial revisions are required to conform to statutory changes made since 1991. The Treasury Department and the IRS expect to revise the regulations under section 907 in a future guidance project. Comments are requested on what additional issues should be addressed as part of revising those regulations.
In general, the 2018 FTC proposed regulations provide that the portions of the regulations that relate to statutory amendments made by the TCJA apply to taxable years beginning after December 31, 2017.
Other portions of the proposed regulations that do not relate to the TCJA apply to taxable years ending on or after December 4, 2018.
In general, no changes were made to the proposed applicability dates in the 2018 FTC proposed regulations in the final regulations. For §§ 1.904(b)-3 and 1.960-1 through 1.960-6, the applicability dates were revised to apply the regulations to taxable years that both begin after December 31, 2017, and end on or after December 4, 2018, consistent with section 7805(b)(1)(B).
Section 1.904(g)-3, which finalizes the 2012 OFL proposed regulations, is applicable to taxable years ending on or after December 16, 2019.
Section 1.905-3, which finalizes proposed § 1.905-3 (other than proposed § 1.905-3(a)) is applicable to foreign tax redeterminations occurring in taxable years ending on or after December 16, 2019. See proposed § 1.905-3(b)(2) and § 1.905-5, contained in the 2019 FTC proposed regulations, for rules that apply to foreign tax redeterminations of foreign corporations.
Section 1.986(a)-1, which finalizes proposed § 1.905-3(a), applies to taxable years ending on or after December 16, 2019, and to taxable years of foreign corporations which end with or within a taxable year of a U.S. shareholder ending on or after December 16, 2019.
Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. For purposes of Executive Order 13771, this rule is regulatory.
The final regulations have been designated by the Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. The Office of Information and Regulatory Affairs has designated these regulations as economically significant under section 1(c) of the MOA. Accordingly, the OMB has reviewed these regulations.
Before the Tax Cuts and Jobs Act (TCJA), the United States taxed its citizens, residents, and domestic corporations on their worldwide income. However, to the extent that a foreign jurisdiction and the United States taxed the same income, this framework could have resulted in double taxation. The U.S. foreign tax credit (FTC) regime alleviated potential double taxation by allowing a non-refundable credit for foreign income taxes paid or accrued that could be applied to reduce the U.S. tax on foreign source income. Although the TCJA eliminated the U.S. tax on some foreign source income, the United States continues to provide foreign tax credits for foreign source income subject to U.S. tax. The changes made by TCJA to international taxation necessitate certain changes in this FTC regime.
In plain language, the FTC calculation is applied separately to different categories of income (a “separate category”), a long-standing framework that is unchanged by TCJA.
Expenses borne by U.S. parents and domestic affiliates that support foreign operations also generally follow this long-standing framework. Deductions that reduce foreign source taxable income in a particular category thereby reduce the allowable FTCs for that
The TCJA added new separate categories for global intangible low-taxed income (the section 951A category) and foreign branch income. The addition of these new categories and other changes
The final regulations specify the methodologies and approaches necessary to conform the existing regulations to the changes specified in the TCJA. The final regulations provide guidance for taxpayers to determine the amount of their foreign tax credits and how to compute their foreign tax credit limitation.
Most notably, the final regulations help interpret the statute by providing details regarding how income is assigned and expenses are apportioned to the new separate categories created by the TCJA. In particular, the final regulations specify that, for purposes of applying the expense allocation and apportionment rules, the portion of gross income related to FDII or a GILTI inclusion which is offset by the section 250 deduction is treated as exempt income, and the stock giving rise to GILTI that is offset by the section 250 deduction is treated as a partially exempt asset. Such treatment implies that fewer expenses will be allocated to the section 951A category as a result of this rule, leading to higher computed foreign source taxable income, a larger foreign tax credit limitation, and a larger foreign tax credit offset with respect to GILTI income. Because in the absence of these regulations, these expenses would generally be allocated to the section 951A category (which makes it more difficult to utilize FTCs related to GILTI), this rule will in general reduce the tax burden of U.S. multinational corporations with GILTI income and allocable expenses.
The final regulations also address how FTC carryovers are allocated across the new separate categories. The formation of two new separate categories requires a determination regarding how the balance of FTC carryovers in existence upon enactment of TCJA are to be allocated across new and existing separate categories.
The final regulations also address certain potentially abusive borrowing arrangements, such as when a U.S. person lends money to a foreign partnership in order to artificially increase foreign source income (and therefore the FTC limitation) without affecting U.S. taxable income. In addition, they clarify the regulatory environment by updating inoperative language in §§ 1.904-1 through 1.904-3, parts of the regulations that have not previously been updated to reflect changes to section 904 made in 1978.
The final regulations also ease transitional administrative burdens associated with the implementation of the TCJA; for example, they allow an exception to the 5 year waiting period for the election of the gross income or sales method for R&E expense allocation, and provide added flexibility for when the average bases of assets is measured by taxpayers who are required to switch to the tax book method of valuation. The final regulations further clarify the § 1.904-6 rules concerning how allocation of taxes across separate categories should be calculated in the presence of base and timing differences and also fill technical gaps in how to implement the statute in practice, for example, by providing a clear rule for how to characterize the value of stock in each separate category in the context of the new separate categories.
The Treasury Department and the IRS have assessed the benefits and costs of the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these regulations.
The final regulations provide certainty and clarity to taxpayers regarding the allocation of income, expenses, and FTC carryovers to the separate income categories. In the absence of the enhanced specificity provided by these regulations, similarly situated taxpayers might interpret the foreign tax credit provisions of the tax code differently, potentially resulting in inefficient patterns of economic activity. For example, because separate categories for GILTI and foreign branch income did not previously exist, one taxpayer might undertake a particular business activity, based on that taxpayer's interpretations of how that activity's income, expenses, and carryover foreign tax credits will be allocated across these categories, that another taxpayer, making a different interpretation of the tax treatment of these allocations, might forego. If this difference in interpretations confers a competitive advantage on the less profitable enterprise, U.S. economic performance may suffer. The guidance provided in these regulations helps to ensure that taxpayers face more uniform incentives when making economic decisions. In general, economic performance is enhanced when businesses face more uniform signals about tax treatment.
Because the TCJA is new, the Treasury Department and the IRS do not know with reasonable precision the tax interpretations that taxpayers might make in the absence of this guidance. To the extent that taxpayers would generally have interpreted the foreign tax credit rules as being less favorable to the taxpayer than the final regulations provide, these final regulations may result in additional international activity by these taxpayers relative to the no-action baseline. This additional activity may include both activities that are beneficial to the U.S. economy (perhaps because they represent enhanced international opportunities for businesses with U.S. owners) and activities that are not beneficial (perhaps because they are accompanied by reduced activity in the United States) The Treasury Department and the IRS recognize that additional U.S. economic activity abroad may be a complement or substitute to activity within the United States and that to the extent these regulations change this activity (relative to the no-action baseline or alternative regulatory approaches), a mix of results may occur.
The Treasury Department and the IRS have not undertaken quantitative estimates of the economic effects of the final regulations. The Treasury Department and the IRS do not have readily available data or models to estimate with reasonable precision (i) the tax stances that taxpayers would likely take in the absence of these final regulations or under alternative regulatory approaches; (ii) the difference in economic decisions that taxpayers might make between the final regulations and the no-action baseline or alternative regulatory approaches; or (iii) how this difference in business activities will affect U.S. economic
Under the Code, to the extent a taxpayer pays or accrues creditable foreign taxes in excess of its foreign tax credit limitation in a given year, the taxpayer can carry those excess credits back one year or forward ten years (FTC carryover). Because a taxpayer's FTC limitation is determined on a separate category basis, FTC carryovers are maintained on a separate category basis as well. When there are changes in the number of separate categories, transition rules are generally needed to deal with how to classify the existing FTC carryovers so that they can be allocated to the new separate categories. The TCJA expanded the existing separate categories by subdividing the general category into three categories: General, foreign branch, and section 951A. The TCJA did not, however, provide transition rules for the existing stock of FTC carryovers.
To deal with the transition issue, the 2018 FTC proposed regulations provided a default rule that kept FTC carryovers in the general category going forward. However, taxpayers could elect to reconstruct their FTC carryover with respect to the foreign branch (but not the section 951A) category. To do so, a taxpayer would need to determine what portion of its FTC carryover would be in the foreign branch category if the foreign branch category had existed in the year the carryover arose. No amount of the carryover was required to be allocated to the section 951A category because of the difficulty associated with the reconstruction and because under the TCJA carryovers are not allowed for the foreign tax credits in the section 951A category. The provision in the 2018 FTC proposed regulations not to require taxpayers that elected reconstruction to allocate FTC carryovers to the section 951A category is generally favorable to the affected taxpayers because otherwise taxpayers would have had carryover credits allocated to the section 951A category and those taxpayers would not have been allowed to utilize those credits.
The Treasury Department and the IRS considered several options to deal with FTC carryovers in response to taxpayer comments.
The final regulations adopt the first simplified rule, (a). Thus, taxpayers may keep FTC carryovers in the general category, allocate them to the foreign branch category in the same manner as they would have been allocated had the foreign branch category always existed, or allocate them to the foreign branch category proportionately. This simplified rule reduces complexity for some taxpayers and is not expected to result in a substantially different allocation of FTCs to the branch basket than full reconstruction. The final rule therefore minimizes the potential for the manipulation of allocations of income, expenses, and foreign taxes to the categories while minimizing taxpayer compliance and IRS administrative costs.
This provision potentially affects any taxpayer with a general category FTC arising in a taxable year beginning before January 1, 2018, that is carried to a taxable year beginning on or after January 1, 2018. The Treasury Department and the IRS estimate that there are between 2 and 2.25 million individual and business taxpayers that would be affected by the transition rules related to FTC carryovers. This estimate is based on currently available counts of taxpayers with FTC carryovers reported on Form 1118 schedule B line 5 and Form 1116 part III line 10 for tax years 2015-2017.
The TCJA added a new separate category related to foreign branch income. The statute did not, however, provide specific guidance on what constitutes foreign branch income other than that it is business profits attributable to one or more qualified business units of the taxpayer in one or more foreign countries. To provide greater specificity over the definition of foreign branch income, the 2018 FTC proposed regulations generally determined the foreign branch income based on the U.S.-tax adjusted books and records of the foreign branch. However, certain adjustments were made to those books and records based on certain disregarded transactions that may have occurred between the foreign branch owner and the foreign branch. These adjustments were intended to get to a more accurate representation of the gross income attributable to the branch.
The issue of disregarded payments is particularly salient in the context of disregarded transfers of intellectual property (IP). The 2018 FTC proposed regulations included a rule that disregarded transfers of IP between a foreign branch and its owner would result in a deemed payment that reallocates income between the foreign branch category and the general category. This rule has the effect of preventing artificial manipulation of the foreign branch category through changes in ownership of IP between a foreign branch and its owner. This rule applied regardless of when the transfer of IP occurred and regardless of how long the IP remained in the foreign branch. Comments requested that the rule be withdrawn and cited, among other concerns, its administrative and compliance burdens. Other comments requested that the Treasury Department limit the applicability of the rule to a later date and also limit its applicability where ownership of the IP by the foreign branch is transitory.
The Treasury Department and the IRS considered three options with respect to the treatment of disregarded transfers of IP for purposes of determining foreign branch income. The first option was to withdraw the rule in its entirety and to provide no specific guidance for
The final regulations adopt the third option. They retain the structure of the 2018 FTC proposed regulations but limit its applicability to transactions that occurred after the date of publication of the 2018 FTC proposed regulations, and included an exception for transitory ownership. The Treasury Department and the IRS recognize that this rule may result in higher compliance costs relative to the no-action baseline but project that this negative consequence is outweighed by concerns that taxpayers could otherwise structure highly valuable and mobile IP transfers to avoid the purpose of the rules. This avoidance would be difficult for the IRS to address absent the rule. In order to minimize the increase in compliance costs relative to withdrawing the rule (and simultaneously to reduce compliance costs relative to retaining the proposed regulations without change), the rule is limited to IP transfers that occurred after the publication of the 2018 FTC proposed regulations, when taxpayers were aware of the rule and how foreign branch category income would be determined. Furthermore, the Treasury Department and the IRS determined that cases where the foreign branch only owned the IP for brief periods of time were unlikely to pose the risk identified and thus should be excepted.
This provision affects any taxpayer that transfers IP to or from a foreign branch on or after December 7, 2018. Because transfers of IP are not specifically identified on any tax forms, the Treasury Department and the IRS estimated the number of taxpayers who report nonzero gross income and allocable deductions with respect to a foreign branch as an upper bound on the group of taxpayers potentially affected by this rule. The Treasury Department and the IRS have determined that there were 1,500 unique taxpayers that meet these conditions in currently available data from taxable years 2015-2017. The number of these taxpayers that transfer IP is likely much smaller than this count because most taxpayers do not transfer IP in any given tax year.
The Code provides rules for how the interest expense of a CFC is to be allocated for purposes of claiming the foreign tax credit. Under the Code, a CFC must allocate and apportion its interest expense among groups of income for purposes of determining its tested income, subpart F income, or other types of net foreign source income. At the same time, a U.S. taxpayer must characterize (in terms of separate categories) the value of its CFCs for purposes of allocating and apportioning its own interest expense. Existing rules allow a CFC to allocate its interest using one of two methods (the asset method or the modified gross income (MGI) method) and the U.S. taxpayer characterizes the stock of its CFC (for purposes of allocating its own interest) using the same method that the CFC used to allocate its interest. The MGI method treats subpart F income differently than other types of gross income with respect to interest allocations for tiered CFC ownership structures; in particular, subpart F income of lower tier CFCs is not accounted for by upper tier CFCs (that is, it does not “tier up”) for purposes of interest expense allocation, whereas all other types of a CFC's income do tier up.
The 2018 FTC proposed regulations do not take into account gross tested income from a lower-tier CFC with respect to an upper-tier CFC for purposes of allocating the upper tier CFC's interest expense. A comment requested that gross tested income tier up to the upper-tier CFC under the MGI method in order to minimize differences between the results obtained under the asset method and the MGI method.
The Treasury Department and the IRS considered two options with respect to the treatment of interest expense allocation. The first option was to adopt the rule from the 2018 FTC proposed regulations. The second option was to adopt a rule that requires gross tested income to tier up for purposes of applying the MGI method.
The final regulations require tested income to tier up to the upper-tier CFC for purposes of allocating interest expense when applying the MGI method. This is an appropriate solution for several reasons. First, the section 951A rules do not have special rules for passive income similar to those present in the subpart F regime; the Treasury Department and the IRS have further determined that the existing rule accounts for the special rules that apply to subpart F income. Hence, an exception to the general tiering up rule is not needed for tested income. Second, the solution minimizes differences in the results obtained by taxpayers that elect the asset method rather than the MGI method, thus minimizing arbitrary differences in the tax treatment of similarly situated taxpayers. Finally, the solution is consistent with how the rules in section 951A apply for purposes of determining the CFC's tested income.
The Treasury Department and the IRS determined that the group of taxpayers affected by the regulation consists of any taxpayer with at least one second-tier CFC that earns gross tested income. The Treasury Department and the IRS estimate that there are between 11,000 and 14,000 taxpayers that fit that profile based on tax filings for tax years 2015-2017.
The existing rules for the foreign tax credit generally specify how taxpayer income, expenses, and FTC carryovers are to be allocated to the separate categories. There remain, however, many allocation rules that would benefit from additional clarity. Regarding interest income and expenses in the case of partnership loan structures, the 2018 FTC proposed regulations specified that the taxpayer's interest income allocation is to be matched to its interest expense allocation, rather than specifying that the interest expense allocation be matched to the taxpayer's interest income allocation.
This rule reduces opportunities for taxpayers to increase their gross foreign source income based solely on a related party loan to a partnership. Such potentially abusive borrowing arrangements occur, for example, when a U.S. person lends money to a foreign partnership in order to artificially increase foreign source income (and therefore the FTC limitation) without affecting U.S. taxable income. This increase in the FTC limitation is accomplished, for example, by lending to a controlled partnership, which has no effect on U.S. taxable income
To prevent such artificial inflation of foreign tax credits, the final regulations specify that interest income attributable to borrowing through a partnership will be allocated across separate foreign tax credit categories in the same manner as the associated interest expense. Accordingly, the proposed matching rule achieves a more neutral foreign tax credit limitation result and better minimizes the impact of related party loans on a taxpayer's foreign tax credit limitation.
The final regulations are the same as the 2018 FTC proposed regulations in this regard except for minor technical modifications.
The statute does not specify how income associated with the section 250 deduction is to be treated for purposes of claiming the FTC. To address this issue, the proposed regulations specified that the income associated with the section 250 deduction is treated as income that is partially exempt from income tax (based on the amount of the section 250 deduction allowed) for purposes of the foreign tax credit. As a result, the taxpayer's expenses are to be allocated and apportioned without taking into account this income.
The partially exempt treatment provided for section 250 income means that fewer expenses are allocated to the section 951A category than would have been if that income were not partially exempt (since the total gross income in the section 951A category would have been higher). The regulations therefore potentially increase the competitiveness of U.S. corporations relative to the no-action baseline, as described in Part I.3.B of this Special Analyses.
The 2018 FTC proposed regulations requested comment on the estimated impact of the reduced expense allocation to the section 951A category relative to specifying that no expenses may be allocated against this income. Most comments did not address this issue. One comment expressed the view that the increased incentive to over-allocate expenses to the United States (relative to the no-action baseline) might not be small, because expense allocation responds to effective tax rates rather than statutory rates, and post-TCJA effective tax rates might not have fallen as much as statutory rates. Estimates of post-TCJA marginal effective tax rates suggest that effective tax rates have fallen meaningfully, consistent with a reduced incentive to over-allocate interest expense to the United States.
The final regulations are the same as the 2018 FTC proposed regulations in this regard except for minor technical modifications.
Before the TCJA, dividends, interest, rents and royalties (“look-through payments”) paid to a United States shareholder by its CFC were generally allocated to the general category to the extent that they were not treated as passive category income. Because TCJA split the general category income into three categories, it created a question of how to assign look-through payments. To address this issue, the 2018 FTC proposed regulations specified that these look-through payments be assigned to the general category or foreign branch category. They may not be assigned to the section 951A category. This treatment is consistent with the fact that payments of dividends, interest, rents, and royalties made directly to a United States shareholder are not included in the new section 951A category. By contrast, certain interest, rents, and royalties earned by a foreign branch can meet the definition of foreign branch category income, and the general category is a residual category that encompasses all income that is not specifically assigned to any other category.
The Treasury Department and the IRS considered as an alternative not issuing guidance for the treatment of look-through payments but concluded that affected taxpayers and the overall U.S. economy would benefit from the issuance of final regulations on this issue.
The final regulations are the same as the 2018 FTC proposed regulations in this regard except for minor technical modifications.
The rules relating to foreign tax credits that were modified by the Act are reflected in several revised and new schedules added to existing forms discussed in this Part II of the Special Analyses. For purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) (“PRA”), the reporting burden associated with the revised and new schedules will be reflected in the PRA submission associated with the forms described in this Part II. Additionally, a revised collection of information is added with respect to section 986 in § 1.986(a)-1(a)(2)(iv).
The collection of information in § 1.986(a)-1(a)(2)(iv) is an election to translate foreign income taxes denominated in nonfunctional currency using the spot rate as of the date of payment (rather than the average exchange rate for the year). This election may be made by an individual or corporation and may be made on behalf of a foreign corporation by a U.S. shareholder. A pass-through entity cannot make this election. This election can be made for all foreign income taxes denominated in nonfunctional currency, or it can be made only with respect to all foreign income taxes denominated in nonfunctional currency that are recorded on the separate books and records of a dollar functional currency QBU of the taxpayer. This election, if made with respect to dollar functional currency QBUs, will match the exchange rate used to determine the dollar amount of the foreign tax credit with the exchange rate used to determine the dollar amount of income that is used to pay the tax. The election is made once and applies to all future years. The election is made by attaching a statement to a timely filed U.S. income tax return for the first year to which the election applies. For purposes of the PRA, the reporting burden associated with § 1.986(a)-1(a)(2)(iv) will be reflected in the PRA submission associated with the Form 1040 series and Form 1120 series.
Form 1118, Foreign Tax Credit—Corporations, has been revised to add new Schedule C (Tax Deemed Paid With Respect to Section 951(a)(1) Inclusions by Domestic Corporation Filing Return (Section 960(a)), Schedule D (Tax Deemed Paid With Respect to Section 951A Income by Domestic Corporation Filing the Return (Section 960(d)), and Schedule E (Tax Deemed Paid With Respect to Previously Taxed Income by Domestic Corporation Filing the Return (Section 960(b)). In addition, the existing schedules of Form 1118 have been modified to account for the two new separate categories of income under section 904(d); the repeal of section 902 indirect credits for foreign taxes deemed paid with respect to dividends from foreign corporations; modified indirect
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, has also been revised to add Schedule E-1 (Taxes Paid, Accrued, or Deemed Paid on Accumulated Earnings and Profits (E&P) of Foreign Corporation) and Schedule P (Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations) and to amend Schedule E (Income, War Profits, and Excess Profits Taxes Paid or Accrued) and Schedule J (Accumulated Earnings & Profits (E&P) of Controlled Foreign Corporations). These changes to the Form 5471 reflect the two new separate categories of income under section 904(d); the repeal of section 902 indirect credits for foreign taxes deemed paid with respect to dividends from foreign corporations; modified indirect credits under section 960 for inclusions under sections 951(a)(1) and 951A; and limited foreign tax credits with respect to inclusions under section 965. For purposes of the PRA, the reporting burden associated with these changes is reflected in the PRA submission associated with Schedules E, E-1, J, and P of Form 5471 (OMB control number 1545-0123).
Schedule B (Specifically Attributable Taxes and Income (Section 999(c)(2)) of the Form 5713, International Boycott Report, has also been revised to reflect the repeal of section 902. Schedule C (Tax Effect of the International Boycott Provisions) of the Form 5713 has been revised to account for the new section 904(d) categories of income. For purposes of the PRA, the reporting burden associated with these changes is reflected in the PRA submission associated with Schedules B and C of Form 5713 (OMB control number 1545-0216, which represents a total estimated burden time, including all other related forms and schedules, of 143,498 hours).
Schedules K and K-1 of the following forms have been revised to account for the new section 904(d) categories of income: Form 1065, U.S. Return of Partnership Income, Form 1120-S, U.S. Income Tax Return for an S Corporation, and Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), has also been revised to account for the new section 904(d) categories of income. For purposes of the PRA, the reporting burden associated with these changes is reflected in the PRA submission associated with Forms 1065 and 1120S (OMB control number 1545-0123); Form 8865 (OMB control number 1545-1668, which represents a total estimated burden time, including all other related forms and schedules, of 289,354 hours), and Form 1116 (OMB control numbers 1545-0121, which represents a total estimated burden time, including all other related forms and schedules, of 25,066,693 hours; and 1545-0074, which represents a total estimated burden time, including all other related forms and schedules, of 1.784 billion hours and total estimated monetized costs of $31.764 billion).
The IRS estimates the number of affected filers for the aforementioned forms to be the following:
The estimates for the number of impacted filers with respect to the collections of information described in this part II of the Special Analysis section are based on filers of U.S. income tax returns that file a Form 1040 or Form 1120 because only filers of these forms would be subject to the collection of information requirement. The IRS estimates the number of impacted filers to be the following:
The current status of the PRA submissions related to foreign tax credits is provided in the following table. The burden estimates provided in the above narrative are aggregate amounts that relate to the entire package of forms associated with the OMB control numbers 1545-0123 (which represents a total estimated burden time for all forms and schedules for corporations of 3.157 billion hours and total estimated monetized costs of $58.148 billion ($2017)), 1545-0074 (which represents a total estimated burden time, including all other related forms and schedules for individuals, of 1.784 billion hours and total estimated monetized costs of $31.764 billion ($2017)), 1545-0216 (which represents a total estimated burden time, including all other related forms and schedules, of 143,498 hours), 1545-1668 (which represents a total estimated burden time, including all other related forms and schedules of 289,354 hours), and 1545-0121 (which represents a total estimated burden time, including all other related forms and schedules of 25,066,693 hours). The overall burden estimates provided for the OMB control numbers below are aggregate amounts that relate to the entire package of forms associated with the applicable OMB control number and will in the future include, but not isolate, the estimated burden of only the foreign tax credit-related forms that are included in the tables in this Part II. These numbers are therefore unrelated to the future calculations needed to assess the burden imposed by the regulations. These burdens have been reported for other regulations related to the taxation of cross-border income and the Treasury Department and the IRS urge readers to recognize that these numbers are duplicates and to guard against overcounting the burden that international tax provisions imposed prior to the TCJA. No burden estimates specific to the forms affected by the regulations are currently available. The Treasury Department and the IRS have not estimated the burden, including that
The Treasury Department and the IRS request comments on all aspects of information collection burdens related to these final regulations, including estimates for how much time it would take to comply with the paperwork burdens described above for each relevant form and ways for the IRS to minimize the paperwork burden. Proposed revisions (if any) to these forms that reflect the information collections contained in these final regulations will be made available for public comment at
In 2018, the IRS released and invited comments on drafts of the above forms in order to give members of the public advance notice and an opportunity to submit comments. The IRS received no comments on the portions of the forms that relate to foreign tax credits during the comment period. Consequently, the IRS made the forms available in late 2018 for use by the public. The IRS is contemplating making additional changes to the forms in order to implement final regulations.
It is hereby certified that this final regulation will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6).
These final regulations provide guidance needed to comply with statutory changes and affect individuals and corporations claiming foreign tax credits. The domestic small business entities that are subject to the foreign tax credit rules in the Code and these final regulations are generally those domestic small business entities that are at least 10 percent corporate shareholders of foreign corporations, and so are eligible to claim dividends-received deductions or compute foreign taxes deemed paid under section 960 with respect to inclusions under subpart F and section 951A from CFCs. Other provisions of the TCJA, such as the new separate foreign tax credit limitation category for foreign branch income and the repeal of the option to allocate and apportion interest expense on the basis of the fair market value (rather than tax basis) of a taxpayer's assets, might also affect domestic small business entities that operate in foreign jurisdictions. Based on 2017 Statistics of Income data, the Treasury Department and the IRS computed the fraction of taxpayers owning a CFC by gross receipts size class. The smaller size classes have a relatively small fraction of taxpayers that own CFCs, which suggests that many domestic small business entities will be unaffected by these regulations.
Many of the important aspects of these final regulations, including all of the rules in §§ 1.861-8(d)(2)(C), 1.861-10, 1.861-12, 1.861-13, 1.901(j)-1, 1.904-5, 1.904(b)-3, 1.954-1, 1.960-1 through 1.960-3, and 1.965-5(c)(1)(iii) apply only to U.S. persons that operate a foreign business in corporate form, and, in most cases, only if the foreign corporation is a CFC. Because it takes significant resources and investment for a business to operate outside of the United States in corporate form, and in particular to own a CFC, the owners of such businesses will infrequently be domestic small business entities, as indicated by the Table.
The Treasury Department and the IRS project that the final regulations are unlikely to affect a substantial number of domestic small business entities but data are unavailable to estimate with certainty and certify in accordance with RFA that the number of small entities affected will not be substantial.
The Treasury Department and the IRS have determined that these final regulations will not have a significant economic impact on domestic small business entities. Based on published information from 2013, foreign tax credits as a percentage of three different tax-related measures of annual receipts (see Table for variables) by corporations are substantially less than the 3 to 5 percent threshold for significant economic impact. The amount of foreign tax credits in 2013 is an upper bound on the change in foreign tax credits resulting from the final regulations.
The collection of information in § 1.986(a)-1(a)(2)(iv) of the final regulations (relating to the election to translate creditable foreign taxes at the spot rate on the date of payment instead of the average exchange rate for the year) may affect some small business entities with significant foreign operations. The data to assess the number of small entities potentially affected by § 1.986(a)-1(a)(2)(iv) are not readily available. However, businesses with significant foreign operations are generally not small businesses, as indicated by the data above. Further, as demonstrated in the table in this Part III of the Special Analyses, foreign tax credits generally do not have a significant economic impact on small business entities. Therefore, the Treasury Department and the IRS have determined that a substantial number of domestic small business entities will not be subject to § 1.986(a)-1(a)(2)(iv). Consequently, the Treasury Department and the IRS have determined, and hereby certify, that § 1.986(a)-1(a)(2)(iv) will not have a significant economic impact on a substantial number of small entities.
Pursuant to section 7805(f), the proposed regulations preceding these final regulations (REG-105600-18) were 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.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $154 million. This rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive order.
The Administrator of the Office of Information and Regulatory Affairs of the OMB has determined that this Treasury decision is a major rule for purposes of the Congressional Review Act (5 U.S.C. 801
Pursuant to section 808(2) of the CRA, the Treasury Department and the IRS find, for good cause, that a 60-day delay in the effective date is unnecessary and contrary to the public interest. In general, the statutory provisions to which these rules relate were enacted on December 22, 2017, and apply to taxable years of foreign corporations beginning after 2017 and to the taxable years of U.S. persons in which or with which such taxable years of foreign corporations end. In many cases, these taxable years have already ended. This means that the statutory provisions are currently effective, and taxpayers may be subject to Federal income tax liability for their 2018 taxable year reflecting these provisions. In certain cases, taxpayers may be required to file returns reflecting this Federal income liability during the 60-day period that begins after this rule is published in the
These final regulations provide crucial guidance for taxpayers on how to apply the relevant statutory rules, compute their tax liability and accurately file their U.S. income tax returns. These final regulations resolve statutory ambiguity, prevent abuse, and grant taxpayer relief that would not be available based solely on the statute. As taxpayers must already comply with the statute, a 60-day delay in the effective date of the final regulations is unnecessary and contrary to the public interest. A delay would place certain taxpayers in the unusual position of having to determine whether to file U.S. income tax returns during the pre-effective date period based on final regulations that are not yet effective. If taxpayers chose not to follow the final regulations and did not amend their returns after the regulations became effective, it would place significant strain on the IRS to ensure that taxpayers correctly calculated their tax liabilities. For example, these final regulations provide significant guidance on foreign branch category income, a provision added by the TCJA along with a broad grant of regulatory authority to provide additional guidance. Therefore, the rules in this Treasury decision are effective on the date of publication in the
The foregoing good cause statement only applies to the 60-day delayed effective date provision of section 801(3) of the CRA and is permitted under section 808(2) of the CRA. The Treasury Department and the IRS hereby comply with all aspects of the CRA and the Administrative Procedure Act (5 U.S.C. 551
The principal authors of these regulations are Karen J. Cate, Jeffrey P. Cowan, Jeffrey L. Parry, Larry R. Pounders, and Suzanne M. Walsh of the Office of Associate Chief Counsel
Income taxes, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is amended as follows:
The revisions and additions read in part as follows:
26 U.S.C. 7805.
Section 1.861-8 also issued under 26 U.S.C. 250(c), 26 U.S.C. 864(e)(7), and 26 U.S.C. 882(c).
Sections 1.861-9 and 1.861-9T also issued under 26 U.S.C. 863(a), 26 U.S.C. 864(e)(7), 26 U.S.C. 865(i), and 26 U.S.C. 7701(f).
Section 1.861-10(e) also issued under 26 U.S.C. 863(a), 26 U.S.C. 864(e)(7), 26 U.S.C. 865(i), and 26 U.S.C. 7701(f).
Section 1.861-11 also issued under 26 U.S.C. 863(a), 26 U.S.C. 864(e)(7), 26 U.S.C. 865(i), and 26 U.S.C. 7701(f).
Section 1.861-13 also issued under 26 U.S.C. 864(e)(7).
Section 1.861-17 also issued under 26 U.S.C. 864(e)(7).
Section 1.901(j)-1 also issued under 26 U.S.C. 901(j)(4).
Section 1.904-1 also issued under 26 U.S.C. 904(d)(7).
Section 1.904-2 also issued under 26 U.S.C. 904(d)(7).
Section 1.904-3 also issued under 26 U.S.C. 904(d)(7).
Section 1.904-4 also issued under 26 U.S.C. 250(c), 26 U.S.C. 865(j), 26. U.S.C. 904(d)(2)(J)(i), 26 U.S.C. 904(d)(6)(C), 26 U.S.C. 904(d)(7), and 26 U.S.C. 951A(f)(1)(B).
Section 1.904-5 also issued under 26 U.S.C. 904(d)(7) and 26 U.S.C. 951A(f)(1)(B).
Section 1.904-6 also issued under 26 U.S.C. 904(d)(7).
Section 1.904(g)-3 also issued under 26 U.S.C. 904(g)(4).
Section 1.905-3 also issued under 26 U.S.C. 989(c)(4).
Section 1.960-1 also issued under 26 U.S.C. 960(f).
Section 1.960-2 also issued under 26 U.S.C. 960(f).
Section 1.960-3 also issued under 26 U.S.C. 960(f).
Section 1.960-4 also issued under 26 U.S.C. 951A(f)(1)(B) and 26 U.S.C. 960(f).
Section 1.986(a)-1 also issued under 26 U.S.C. 986(a)(1)(C) and 26 U.S.C. 986(a)(1)(D)(ii).
The revisions and additions read as follows:
(c) * * *
(2)
(4)
(d) * * *
(2)
(ii)
(B)
(C)
(
(
(
(
(
(
(
(
(
(
(
(
(iii)
(A) For further guidance, see § 1.861-8T(d)(2)(iii)(A) and (B).
(B) [Reserved]
(C) Dividends for which a deduction is allowed under section 245A;
(D) Foreign earned income as defined in section 911 (however, the rules of § 1.911-6 do not require the allocation and apportionment of certain deductions, including home mortgage interest, to foreign earned income for purposes of determining the deductions disallowed under section 911(d)(6)); and
(E) Inclusions for which a deduction is allowed under section 965(c).
(iv)
(e) * * * (1) * * * Paragraphs (e)(13) and (14) of this section contain rules with respect to the allocation and apportionment of the deduction allowed under section 250(a). Paragraph (e)(15) of this section contains rules with respect to the allocation and apportionment of a taxpayer's distributive share of a partnership's deductions. * * *
(6) * * * (i) * * * The deduction for foreign income, war profits and excess profits taxes allowed by section 164 (including with respect to a controlled foreign corporation)) is allocated and apportioned among the applicable statutory and residual groupings under the principles of § 1.904-6(a)(1)(i), (ii), and (iv). The deduction for state and local taxes (
(13)
(14)
(15)
(f) * * *
(1) * * *
(ii)
(4) * * *
(ii)
(B)
(g)
(1) through (18) [Reserved]
(19)
(B) USP has domestic gross receipts from sales of $750,000x and foreign gross receipts from sales of $500,000x and has gross income from such sales in the same ratio, namely $300,000x from domestic sources and $200,000x from foreign sources that is general category income.
(ii)
(B)
(20)
(ii)
(B)
(21)
(ii)
(B)
(22) through (24) [Reserved]
(25)
(ii)
(B)
(26)
(ii)
(B)
(
(
(27)
(ii)
(
(
(
(
(
(B)
(h)
The revisions and additions read as follows:
(c) * * *
(2)
(d) * * *
(2) * * *
(ii) * * *
(A)
(C)
(iii) * * *
(C) For further guidance, see § 1.861-8(d)(2)(iii)(C) through (E).
(D) and (E) [Reserved]
(iv)
(e) * * *
(3)
(4) through (15) [Reserved]
(f)
(g) [Reserved]
The revisions and additions read as follows:
(a)
(b) [Reserved]
(c)
(1)
(2) through (4) [Reserved]
(5)
(d)
(e)
(4)
(ii)
(5)
(6) and (7) [Reserved]
(8)
(ii)
(iii)
(iv)
(v)
(vi)
(A)
(B)
(C)
(D)
(E)
(F)
(vii)
(A)
(
(B)
(
(C)
(
(D)
(
(9) [Reserved]
(10)
(f)
(2)
(A) Takes into account the assets of any section 987 QBU (as defined in § 1.987-1(b)(2)), translated according to the rules set forth in paragraph (g) of this section; and
(B) Combines with its own interest expense any deductible interest expense incurred by a section 987 QBU, translated according to the rules under section 987.
(ii)
(iii)
(A)
(B)
(3)
(4)
(iii)
(5)
(g)
(ii) A taxpayer may elect to determine the value of its assets on the basis of either the tax book value or the fair market value of its assets. However, for taxable years beginning after December 31, 2017, the fair market value method is not allowed with respect to allocations and apportionments of interest expense.
(iii) [Reserved]
(iv) For rules relating to earnings and profits adjustments by taxpayers using the tax book value method for the stock in certain 10 percent owned corporations, see § 1.861-12(c)(2).
(v) [Reserved]
(2)
(B)
(ii)
(
(
(B)
(iii)
(iv)
(3)
(4)
(h)
(1)
(2) and (3) [Reserved]
(5)
(i) * * *
(2) * * * (i) Except as provided in this paragraph (i)(2)(i), a taxpayer may elect to use the alternative tax book value method. For the taxpayer's first taxable year beginning after December 31, 2017, the Commissioner's approval is not required to switch from the fair market value method to the alternative tax book value method for purposes of apportioning interest expense. * * *
(j)
(1) For further guidance, see § 1.861-9T(j)(1).
(2) For further guidance, see § 1.861-9T(j)(2) introductory text.
(i)
(ii)
(A) Exclude from the gross income of the higher-tier corporation any dividends or other payments received from the lower-tier corporation other than interest income received from the lower-tier corporation;
(B) Exclude from the gross income net of interest expense of any lower-tier corporation any gross subpart F income, net of interest expense apportioned to such income;
(C) Then apportion the interest expense of the higher-tier controlled foreign corporation based on the adjusted combined gross income amounts; and
(D) Repeat paragraphs (j)(2)(ii)(A) through (C) of this section for each next higher-tier controlled foreign corporation in the chain.
(k)
The additions and revisions read as follows:
(c) * * *
(5)
(e) * * *
(4) * * *
(i)
(8)
(9) and (10) [Reserved]
(f) * * *
(2)
(4)
(g) * * *
(1) * * *
(ii) For further guidance, see § 1.861-9(g)(1)(ii) through (g)(2)(i).
(2) * * *
(ii) * * *
(A) * * *
(
(h)
(j) * * *
(2) * * *
(ii)
The revisions and addition read as follows:
(e) * * *
(8) * * *
(vi)
(f)
(e)
The revisions and addition read as follows:
(a)
(b)
(2)
(c)
(h)
(b) * * *
(1)
The revisions read as follows:
(a)
(b)
(c)
(3)
(B)
(ii)
(iii)
(4)
(ii)
(d)
(2)
(e) Portfolio securities that constitute inventory or generate primarily gains. For further guidance, see § 1.861-12T(e) through (i).
The revisions read as follows:
(a)
(c) * * *
(3) * * *
(i)
(iii)
(d) * * *
(2)
(a)
(1)
(A)
(
(
(
(
(
(
(
(
(
(
(B)
(ii)
(2)
(3)
(ii)
(4)
(5)
(ii)
(iii)
(A) The value of the portion of the stock of the controlled foreign corporation that is assigned to the gross tested income statutory grouping within foreign source passive category income multiplied by a percentage equal to 100 percent minus the United States shareholder's inclusion percentage for passive category gross tested income; and
(B) The value of the portion of the stock of the controlled foreign corporation that was assigned to the specified foreign source passive category gross income statutory grouping.
(iv)
(A) The value of the portion of the stock of the controlled foreign corporation that is assigned to the U.S. source general category gross tested income statutory grouping multiplied by a percentage equal to 100 percent minus the United States shareholder's inclusion percentage for the general category;
(B) The value of the portion of the stock of the controlled foreign corporation that is assigned to the U.S. source passive category gross tested income statutory grouping multiplied by a percentage equal to 100 percent minus the United States shareholder's inclusion percentage for the passive category;
(C) The value of the resourced gross tested income stock of the controlled foreign corporation that is not assigned to a particular treaty category under paragraph (a)(3)(i) of this section (Step 3);
(D) The value of the portion of the stock of the controlled foreign corporation that is assigned to the specified U.S. source general category gross income statutory grouping; and
(E) The value of the portion of the stock of the controlled foreign corporation that is assigned to the specified U.S. source passive category gross income statutory grouping.
(v)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(c)
(1)
(B) CFC1 owns the following assets with the following values as determined under §§ 1.861-9(g)(2) and 1.861-9T(g)(3): Assets that generate income described in the foreign source gross tested income statutory grouping within the general category ($4,000x), assets that generate income described in the foreign source gross subpart F income statutory grouping within the general category ($1,000x), assets that generate specified foreign source general category gross income ($3,000x), and assets that generate income described in the foreign source gross subpart F income statutory grouping within the passive category ($2,000x).
(C) CFC1 also owns all of the stock of CFC2, a controlled foreign corporation. The tax book value of CFC1's stock in CFC2 is $6,000x. CFC2 owns the following assets with the following values as determined under §§ 1.861-9(g)(2) and 1.861-9T(g)(3): Assets that generate income described in the foreign source gross subpart F income statutory grouping within the general category ($2,250x) and assets that generate specified foreign source general category gross income ($750x).
(ii)
(
(B)
(C)
(D)
(
(
(E)
(
(
(F)
(2)
(ii)
(
(B)
(C)
(D)
(
(E)
(
(
(F)
(3)
(B) CFC1 earns $1,500x of foreign source gross tested income within the general category and $500x of foreign source gross subpart F income within the passive category. CFC1 incurs $1,000x of interest expense.
(C) CFC2 earns $3,000x of foreign source gross tested income within the general
(ii)
(
(
(B)
(C)
(D)
(
(
(E)
(
(
(F)
(d)
The additions and revisions read as follows:
(e) * * *
(3)
(i)
(a)
(b)
(a)
(b)
(c)
(d)
(e)
The revisions and additions read as follows:
(a)
(b)
(c)
(1)
(2)
(3)
(A) The creditable foreign tax actually paid or accrued or deemed paid under section 902 (as in effect on December 21, 2017) or section 960 with respect to the separate category in the excess limitation year; and
(B) The portion of any unused foreign tax for a taxable year preceding the excess credit year that is absorbed as taxes deemed paid or accrued in the excess limitation year under paragraphs (a) and (d) of this section.
(ii)
(d)
(i) The portion of the unused foreign tax that may be carried to the taxable year under paragraph (b) of this section; or
(ii) The amount, if any, of the excess limitation for such taxable year with respect to the separate category of such unused foreign tax.
(2)
(3)
(h)
(i)
(j)
(ii)
(iii)
(B)
(C)
(D)
(2)
(ii)
(iii)
(k)
The additions and revisions read as follows:
(a) * * * The rules in this section apply separately with respect to each separate category as defined in § 1.904-5(a)(4)(v).
(e)
(i) The spouses file separate returns for the current taxable year and an unused foreign tax is carried thereto from a taxable year for which they filed a joint return;
(ii) The spouses file separate returns for the current taxable year and an unused foreign tax is carried to such taxable year from a year for which they filed separate returns but is first carried through a year for which they filed a joint return; or
(iii) The spouses file a joint return for the current taxable year and an unused foreign tax is carried from a taxable year for which they filed joint returns but is first carried through a year for which they filed separate returns.
(2)
(f) * * * (1)
(2)
(3)
(h)
The revisions and additions read as follows:
(a)
(b) * * *
(2) * * *
(i) * * *
(C) Distributive shares of partnership income treated as passive category income under paragraph (n)(1) of this section, and income from the sale of a partnership interest treated as passive category income under paragraph (n)(2) of this section; or
(D) Income treated as passive category income under the look-through rules in § 1.904-5.
(ii)
(iv)
(A)
(B)
(c) * * * (1) * * * Income is considered to be high-taxed income if, after allocating expenses, losses, and other deductions of the United States person to that income under paragraph (c)(2) of this section, the sum of the foreign income taxes paid or accrued, and deemed paid under section 960, by the United States person with respect to such income (reduced by any portion of such taxes for which a credit is not allowed) exceeds the highest rate of tax specified in section 1 or 11, whichever applies (and with reference to section 15 if applicable), multiplied by the amount of such income (including the amount treated as a dividend under section 78). If, after application of this paragraph (c), income that would otherwise be passive income is determined to be high-taxed income, the income is treated as general category income, foreign branch category income, section 951A category income, or income in a specified separate category, as determined under the rules of this section, and any taxes imposed on that income are considered related to the same separate category of income under § 1.904-6. If, after application of this paragraph (c), passive income is zero or less than zero, any taxes imposed on the passive income are considered related to the same separate category of income to which the passive income (if not reduced to zero or less than zero) would have been assigned had the income been treated as high-taxed income (general category, foreign branch category, section 951A category, or a specified separate category). * * *
(2) * * *
(iii)
(3) * * * Paragraph (c)(4) of this section provides additional rules for inclusions under section 951(a)(1) or 951A(a) that are passive income, dividends from a controlled foreign corporation or noncontrolled 10-percent owned foreign corporation that are passive income, and income that is received or accrued by a United States person through a foreign QBU that is passive income. For purposes of this paragraph (c), a foreign QBU is a qualified business unit (as defined in section 989(a)), other than a controlled foreign corporation or noncontrolled 10-percent owned foreign corporation, that has its principal place of business outside the United States. The rules in this paragraph (c)(3) apply whether the income is received from a controlled foreign corporation of which the United States person is a United States shareholder, from a noncontrolled 10-percent owned foreign corporation of which the United States person is a United States shareholder that is a domestic corporation, or from any other person. In applying the rules in this paragraph (c)(3), passive income is not treated as subject to a withholding tax or other foreign tax when a credit is disallowed in full for such foreign tax, for example, under section 901(k). * * *
(4)
(5) * * *
(ii)
(iii) * * *
(C)
(
(
(6) * * * (i) * * * The determination of whether an amount included in gross income under section 951(a)(1) or 951A(a) is high-taxed income is made in the taxable year the income is included in the gross income of the United States shareholder under section 951(a) or 951A(a) (for purposes of this paragraph (c), the
(iii) * * * If an item of income is considered high-taxed income in the year of inclusion and paragraph (c)(6)(i) of this section applies, then any increase in foreign income taxes imposed with respect to that item are considered to be related to the same separate category to which the income was assigned in the taxable year of inclusion. * * * The taxpayer shall treat any taxes paid or accrued, or deemed paid, on the distribution in excess of this amount as taxes related to the same category of income to which such inclusion would have been assigned had the income been treated as high-taxed income in the year of inclusion (general category income, section 951A category income, or income in a specified separate category). If these additional taxes are not creditable in the year of distribution, the carryover rules of section 904(c) apply (see section 904(c) and § 1.904-2(a) for rules disallowing carryovers in the section 951A category). For purposes of this paragraph (c)(6), the foreign tax on an inclusion under section 951(a)(1) or 951A(a) is considered increased on distribution of the earnings and profits associated with that inclusion if the total of taxes paid and deemed paid on the inclusion and the distribution (taking into account any reductions in tax and any withholding taxes) exceeds the total taxes deemed paid in the year of inclusion. * * *
(iv)
(7) * * * (i) * * * If the inclusion is considered to be high-taxed income, then the taxpayer treats the inclusion as general category income, section 951A category income, or income in a specified separate category as provided in paragraph (c)(1) of this section. * * * For purposes of this paragraph (c)(7)(i), the foreign tax on an inclusion under section 951(a)(1) or 951A(a) is considered reduced on distribution of the earnings and profits associated with the inclusion if the total taxes paid and deemed paid on the inclusion and the distribution (taking into account any reductions in tax and any withholding taxes) is less than the total taxes deemed paid in the year of inclusion. * * *
(8)
(i)
(ii)
(iii)
(iv)
(v) through (viii) [Reserved]
(ix)
(x)
(xi)
(xii)
(d)
(e) * * * (1)
(ii)
(A) Income derived in the active conduct of a banking, insurance, financing, or similar business (active financing income as defined in paragraph (e)(2) of this section);
(B) Passive income as defined in section 904(d)(2)(B) and paragraph (b) of this section as determined before the application of the exception for high-taxed income but after the application of the exception for export financing interest; or
(C) Incidental income as defined in paragraph (e)(4) of this section.
(f)
(A) Income attributable to foreign branches of the United States person held directly or indirectly through disregarded entities;
(B) A distributive share of partnership income that is attributable to foreign branches held by the partnership directly or indirectly through disregarded entities, or held indirectly by the partnership through another partnership or other pass-through entity that holds the foreign branch directly or indirectly through disregarded entities; and
(C) Income from other pass-through entities determined under principles similar to those described in paragraph (f)(1)(i)(B) of this section.
(ii)
(2)
(ii)
(iii)
(B)
(iv)
(B)
(
(
(v)
(vi)
(B)
(
(
(
(
(
(
(
(
(C)
(
(
(
(
(D)
(
(
(
(
(
(E)
(F)
(
(
(3)
(i)
(A) Reduced by any disregarded cost recovery deductions with respect to the property; and
(B) Increased by any disregarded section 1016(a)(1) expenditures with respect to the property.
(ii)
(
(
(B)
(iii)
(A) The amounts that would be allowed as a deduction, and that would give rise to an adjustment described in section 1016(a)(2), with respect to the transferred property if the transfer (and the foreign branch) were regarded for Federal income tax purposes, to the extent that, under paragraph (f)(2)(vi)(B)(
(
(
(B) The amounts that are allowed as a deduction, and that give rise to an adjustment described in section 1016(a)(2), with respect to the transferred property to the extent that, under the principles of paragraph (f)(2)(vi)(B)(
(
(
(iv)
(v)
(A)
(B)
(vi)
(A) General category gross income, in the case of property held by a foreign branch owner; or
(B) Foreign branch category income, in the case of property held by a foreign branch.
(vii)
(B)
(C)
(
(
(
(viii)
(ix)
(x)
(4)
(i)
(
(
(B)
(
(
(ii)
(B)
(
(iii)
(B)
(iv)
(B)
(
(
(v)
(B)
(
(
(
(vi)
(B)
(vii)
(B)
(viii)
(B)
(ix)
(B)
(
(x)
(
(
(B)
(
(
(xi)
(
(
(B)
(
(xii)
(B)
(g)
(2)
(h) * * *
(2)
(4)
(i)
(ii)
(iii)
(5)
(ii)
(iii)
(A)
(B)
(k)
(ii)
(iii)
(iv)
(B)
(v)
(2)
(l)
(m)
(n)
(ii)
(B)
(2)
(ii)
(3)
(4)
(i)
(ii)
(o)
(p)
(q)
The additions and revisions read as follows:
(a)
(2)
(3)
(4)
(i) The term
(ii) The term
(iii) The term
(iv) The term
(v) The term
(vi) The term
(b)
(2)
(c) * * * (1)
(2) * * * (i) * * * Related person interest is treated as passive category income to the extent it is allocable to passive category income of the controlled foreign corporation. If related person interest is received or accrued from a controlled foreign corporation by two or more persons, the amount of interest received or accrued by each person that is allocable to passive category income is determined by multiplying the amount of related person interest allocable to passive category income by a fraction. * * * Solely for purposes of assigning interest income to a separate category under section 904(d)(3) and the look-through rule in this paragraph (c)(2), the rules in paragraph (c)(2)(ii) of this section for allocating and apportioning interest expense of a controlled foreign corporation apply for purposes of characterizing interest income in the hands of the recipient, even if a deduction for the interest expense is deferred or disallowed to the controlled foreign corporation.
(v)
(A)
(
(B)
(C)
(
(
(
(D)
(
(
(E)
(F)
(3)
(4) * * * (i) * * * Except as provided in paragraph (d)(2) of this section, any dividend paid or accrued out of the earnings and profits of any controlled foreign corporation is treated as passive category income in proportion to the ratio of the portion of earnings and profits attributable to passive category income to the total amount of earnings and profits of the controlled foreign corporation. * * *
(iii)
(B)
(5)
(6)
(7)
(i)
(B)
(ii)
(B)
(
(iii)
(B)
(iv)
(B)
(v)
(B)
(d) * * * (1)
(2)
(3)
(i)
(ii)
(e) * * *
(2)
(i)
(ii)
(h)
(i) * * * (1) * * * For purposes of this paragraph (i)(1), indirect ownership of stock is determined under section 318. In the case of a partnership or other pass-through entity, indirect ownership and value is determined under the rules in paragraph (i)(2) of this section.
(2)
(3)
(5)
(i)
(ii)
(iii)
(iv)
(v)
(k) * * *
(2) * * *
(iii) Inclusions under sections 951(a)(1)(A) and 951A(a) and distributive shares of partnership income;
(l)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(4)
(ii)
(5)
(ii)
(B) Under paragraph (k)(2)(ii) of this section, the remaining $50x interest payment from CFC1 to CFC2 is then characterized. The interest payment is first allocable under the rules of paragraph (c)(2)(ii)(C) of this section to CFC1's passive category income. Therefore, under paragraph (c)(2)(i) of this section, the $50x interest payment to CFC2 is passive category income. The interest income is foreign personal holding company income in CFC2's hands. CFC2, therefore, has $50x of passive category subpart F income and $200x of general category non-subpart F income.
(C) Under paragraph (k)(2)(iii) of this section, inclusions under section 951(a)(1)(A) are characterized next. USP has an inclusion under section 951(a)(1)(A) with respect to CFC1 of $50x that is attributable to passive category income of CFC1 and is treated as passive category income to USP. USP has an inclusion under section 951(a)(1)(A) with respect to CFC2 of $50x that is attributable to passive category income of CFC2 and is treated as passive category income to USP.
(6)
(ii)
(B) Under paragraph (k)(2)(ii) of this section, the interest payments from CFC1 to CFC2 and CFC3 are characterized next. Under paragraph (c)(2)(ii)(C) of this section, the interest payments are first allocable to CFC1's passive category income. Therefore, under paragraph (c)(2)(i) of this section, $50x of the interest payment to CFC2 is passive category income and $50x of the interest payment to CFC3 is passive category income. The remaining $50x paid to CFC2 is general category income and the remaining $50x paid to CFC3 is general category income. Because $100x of the interest income received or accrued from CFC1 is properly allocable to income of CFC1 which is not subpart F income, under section 954(c)(6) the general category interest income is not treated as foreign personal holding company income to CFC2 and CFC3. The remaining $100x of interest income received or accrued from CFC1 is passive category subpart F foreign personal holding company income to both recipients. Therefore, CFC3 and CFC2 each have $50x of passive category subpart F foreign personal holding company income related to the interest received from CFC1.
(C) Under paragraph (k)(2)(iii) of this section, USP's $50x inclusion under section 951(a)(1)(A) with respect to CFC2 is characterized next. Under paragraph (c)(5) of this section, USP's inclusion under section 951(a)(1)(A) is attributable to the passive category portion of the interest income received by CFC2 from CFC1 and is passive category income to USP. Under paragraph (k)(2)(iii) of this section, USP's $50x inclusion under section 951(a)(1)(A) with respect to CFC3 is also characterized next. Under paragraph (c)(5) of this section, USP's inclusion under section 951(a)(1)(A) is attributable to the passive category portion of the interest income received by CFC3 from CFC2 and is passive category income to USP.
(D) Under paragraph (k)(2)(iv) of this section, the $150x distribution from CFC2 to CFC1 is characterized next. The first $50x of the distribution is out of passive category
(7)
(ii)
(m) * * *
(2) * * *
(ii)
(3)
(i)
(B)
(ii)
(4) * * * (i)
(5)
(ii)
(A)
(B)
(7) * * *
(ii)
(A)
(B)
(n) * * * Section 904(d)(3), (d)(4), and (h) and this section are then applied for purposes of characterizing and sourcing income received, accrued, or included by a United States shareholder of the foreign corporation that is attributable or allocable to income or earnings and profits of the foreign corporation.
(o)
The revisions and additions read as follows:
(a) * * * (1) * * * (i) * * * The amount of foreign taxes paid or accrued with respect to a separate category (as defined in § 1.904-5(a)(4)(v)) of income (including U.S. source income within the separate category) includes only those taxes that are related to income in that separate category. * * * Income included in the foreign tax base is calculated under foreign law, but characterized as income in a separate category under Federal income tax principles. For example, a foreign tax imposed on an amount realized on the disposition of controlled foreign corporation stock that is characterized as a capital gain under foreign law but as a dividend under section 1248 is generally assigned to the general category, not the passive category. * * *
(iv)
(2)
(ii)
(B)
(iii)
(B)
(iv)
(A)
(B) The terms
(3)
(b)
(2)
(3)
(4)
(ii)
(A) The CFTEs are allocated and apportioned by the partnership under the rules of paragraph (a) of this section to the general category;
(B) In the hands of the partnership, the CFTEs are related to general category income attributable to a foreign branch (as described in § 1.904-4(f)(2)) under the principles of paragraph (a) of this section; and
(C) The partner's distributive share of the income described in paragraph (b)(4)(ii)(B) of this section is foreign branch category income of the partner under § 1.904-4(f)(1)(i)(B).
(d)
(a)
(i) Any dividend for which a deduction is allowed under section 245A;
(ii) Deductions properly allocable or apportioned to gross income in the section 245A subgroup as determined under paragraphs (b) and (c)(1) of this section; and
(iii) Deductions properly allocable or apportioned to stock of specified 10-percent owned foreign corporations in the section 245A subgroup as determined under paragraphs (b) and (c) of this section.
(2)
(b)
(c)
(2)
(d)
(2) [Reserved]
(e)
(1)
(ii)
(iii)
(2)
(ii)
(A)
(B)
(f)
(j)
(ii) The term
(iii) The term
(2)
(ii)
(B)
(C)
(3)
(ii)
(B)
(C)
(4)
(ii)
(B)
(C)
(5)
(6)
The revisions and additions read as follows:
(i) Step Eight: Dispositions under section 904(f)(3) in which gain would not otherwise be recognized.
(j) [Reserved]
(k) Examples.
(l) Applicability date.
The revisions and additions read as follows:
(c) * * * The taxpayer also takes into account any adjustments required under section 904(b)(4) and § 1.904(b)-3.
(f)
(i)
(k)
(1)
(B) For Year 2, USC has a net operating loss of ($500x), determined as follows:
(ii)
(B)
(2)
(B) For Year 2, USC has the following taxable income and losses:
(ii)
(B)
(3)
(ii)
(B)
(4)
(ii)
(B)
(5)
(ii)
(B)
(
(6)
(B) In Year 2, USC has the following taxable income and losses:
(ii)
(B)
(C)
(D)
(E)
(
(l)
(a) * * *
(2) * * * If the receipt or the return is in a foreign language, a certified translation thereof must be furnished by the taxpayer. * * *
(a)
(b)
(ii)
(A)
(
(B)
(
(C)
(
(D)
(
(E)
(
(
(F)
(
(G)
(
(2) and (3) [Reserved]
(c)
(d)
The additions read as follows:
(d) * * *
(3) * * *
(iii)
(h)
(2)
(a)
(2)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(c)
(i) First, items of gross income of the controlled foreign corporation for the current taxable year other than a section 959(b) distribution are assigned to section 904 categories and included in income groups within those section 904 categories under the rules in paragraph (d)(2) of this section. The receipt of a section 959(b) distribution by the controlled foreign corporation is accounted for under § 1.960-3(c)(3).
(ii) Second, deductions (other than for current year taxes) of the controlled foreign corporation for the current taxable year are allocated and apportioned to reduce gross income in the section 904 categories and the income groups within a section 904 category. See paragraph (d)(3)(i) of this section. Additionally, the functional currency amounts of current year taxes of the controlled foreign corporation for the current taxable year are allocated and apportioned to reduce gross income in the section 904 categories and the income groups within a section 904 category, and to reduce earnings and profits in any PTEP groups that were increased as provided in paragraph (c)(1)(i) of this section. See paragraph (d)(3)(ii) of this section. For purposes of computing foreign taxes deemed paid, current year taxes allocated and apportioned to income groups and PTEP groups in the section 904 categories are translated into U.S. dollars in accordance with section 986(a). See paragraph (c)(3) of this section.
(iii) Third, current year taxes deemed paid under section 960(a) and (d) by the domestic corporation with respect to income of the controlled foreign corporation are computed under the rules of § 1.960-2. In addition, foreign income taxes deemed paid under section 960(b)(2) with respect to the receipt of a section 959(b) distribution by the controlled foreign corporation are computed under the rules of § 1.960-3(b).
(iv) Fourth, any previously taxed earnings and profits of the controlled foreign corporation resulting from subpart F inclusions and GILTI inclusion amounts with respect to the controlled foreign corporation's current taxable year are separated from other earnings and profits of the controlled foreign corporation and added to an annual PTEP account, and a PTEP group within the PTEP account, under the rules of § 1.960-3(c).
(v) Fifth, paragraphs (c)(1)(i) through (iv) of this section are repeated for each next higher-tier controlled foreign corporation in the chain.
(vi) Sixth, with respect to the highest-tier controlled foreign corporation in a chain that is owned directly (or indirectly through a partnership) by the domestic corporation, foreign income taxes that are deemed paid under section 960(b)(1) in connection with the receipt of a section 959(a) distribution by the domestic corporation are computed under the rules of § 1.960-3(b).
(2)
(3)
(d)
(2)
(ii)
(B)
(
(
(
(
(
(
(C)
(D)
(E)
(
(
(
(
(3)
(A) First, the rules of sections 861 through 865 and 904(d) (taking into account the rules of section 954(b)(5) and § 1.954-1(c), and section 951A(c)(2)(A)(ii) and § 1.951A-2(c)(3), as appropriate) apply to allocate and apportion to reduce gross income (or create a loss) in each section 904 category and income group within a section 904 category any deductions of the controlled foreign corporation that are definitely related to less than all of the controlled foreign corporation's gross income as a class. See paragraph (d)(3)(ii) of this section for special rules for allocating and apportioning current year taxes to section 904 categories, income groups, and PTEP groups.
(B) Second, related person interest expense is allocated to and apportioned among the subpart F income groups within the passive category under the principles of §§ 1.904-5(c)(2) and 1.954-1(c)(1)(i).
(C) Third, any remaining deductions are allocated and apportioned to reduce gross income (or create a loss) in the section 904 categories and income groups within each section 904 category under the rules referenced in paragraph (d)(3)(i)(A) of this section.
(ii)
(B)
(C)
(e)
(f)
(1)
(ii)
(iii)
(2)
(ii)
(B)
(
(C)
(D)
(E)
(F)
(a)
(b)
(2)
(3)
(ii)
(iii)
(4)
(5)
(i)
(ii)
(B)
(c)
(2)
(3)
(4)
(5)
(6)
(7)
(i)
(B)
(ii)
(
(B)
(
(
(a)
(b)
(2)
(3)
(4)
(5)
(c)
(2)
(i) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 965(a) (“reclassified section 965(a) PTEP”);
(ii) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 965(b)(4)(A) (“reclassified section 965(b) PTEP”);
(iii) Earnings and profits described in paragraphs (c)(2)(iii)(A) through (C) of this section (which are aggregated into a single PTEP group, “general section 959(c)(1) PTEP”):
(A) Earnings and profits described in section 959(c)(1)(A) by reason of section 951(a)(1)(B) and not by reason of section 959(a)(2);
(B) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 951(a)(1)(A) (other than earnings that were initially described in paragraphs (c)(2)(vi) through (ix) of this section); and
(C) Earnings and profits described in section 959(c)(1)(B), including by reason of section 959(a)(3) (before its repeal);
(iv) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 951A(f)(2) (“reclassified section 951A PTEP”);
(v) Earnings and profits described in paragraphs (c)(2)(v)(A) through (C) of this section (which are aggregated into a single PTEP group, “reclassified section 245A(d) PTEP”):
(A) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 245A(e)(2);
(B) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 959(e); and
(C) Earnings and profits described in section 959(c)(1)(A) that were initially described in section 959(c)(2) by reason of section 964(e)(4);
(vi) Earnings and profits described in section 959(c)(2) by reason of section 965(a) (“section 965(a) PTEP”);
(vii) Earnings and profits described in section 959(c)(2) by reason of section 965(b)(4)(A) (“section 965(b) PTEP”);
(viii) Earnings and profits described in section 959(c)(2) by reason of section 951A(f)(2) (“section 951A PTEP”);
(ix) Earnings and profits described in paragraphs (c)(2)(ix)(A) through (C) of this section (which are aggregated into a single PTEP group, “section 245A(d) PTEP”):
(A) Earnings and profits described in section 959(c)(2) by reason of section 245A(e)(2);
(B) Earnings and profits described in section 959(c)(2) by reason of section 959(e); and
(C) Earnings and profits described in section 959(c)(2) by reason of section 964(e)(4); and
(x) Earnings and profits described in section 959(c)(2) by reason of section 951(a)(1)(A) not otherwise described in paragraph (c)(2)(vi) through (ix) of this section (“section 951(a)(1)(A) PTEP”).
(3)
(4)
(d)
(i) The sum of—
(A) The current year taxes paid or accrued by the controlled foreign corporation that are allocated and apportioned to the PTEP group under § 1.960-1(d)(3)(ii);
(B) Foreign income taxes that are deemed paid under section 960(b)(2) and paragraph (b)(2) of this section by the controlled foreign corporation with respect to a section 959(b) distribution received by the controlled foreign corporation, the amount of which is added to the PTEP group under paragraph (c)(3) of this section; and
(C) In the case of a reclassified PTEP group of the controlled foreign corporation, reclassified PTEP group taxes that are attributable to the section 959(c)(2) PTEP group that corresponds to the reclassified PTEP group.
(ii) Reduced by—
(A) Foreign income taxes that were deemed paid under section 960(b)(2) and paragraph (b)(2) of this section by another controlled foreign corporation that received a section 959(b) distribution from the controlled foreign corporation, the amount of which is subtracted from the controlled foreign corporation's PTEP group under paragraph (c)(3) of this section;
(B) Foreign income taxes that were deemed paid under section 960(b)(1) and paragraph (b)(1) of this section by a domestic corporation that is a United States shareholder of the controlled foreign corporation that received a section 959(a) distribution from the controlled foreign corporation, the amount of which is subtracted from the controlled foreign corporation's PTEP group under paragraph (c)(3) of this section; and
(C) In the case of a section 959(c)(2) PTEP group of the controlled foreign corporation, reclassified PTEP group taxes.
(2)
(3)
(i) Not included in a controlled foreign corporation's post-1986 foreign income taxes (as defined in section 902(c)(2) as in effect on December 21, 2017) used to compute foreign taxes deemed paid under section 902 (as in effect on December 21, 2017) in any taxable year that began before January 1, 2018; and
(ii) Not treated as deemed paid under section 960(a)(3) (as in effect on December 21, 2017) by a domestic corporation that was a United States shareholder of the controlled foreign corporation.
(e)
(1)
(ii)
(B) Under paragraph (c)(3) of this section, in the 2019 taxable year, the 1,000,000u related to the section 959(b) distribution from CFC2 is added to CFC1's annual PTEP account for the 2018 taxable year in the passive category and to the section 951(a)(1)(A) PTEP within such account. Similarly, CFC2's 2018 taxable year annual PTEP account within the passive category, and the section 951(a)(1)(A) PTEP within such account, is reduced by the amount of the 1,000,000u section 959(b) distribution to CFC1. Additionally, CFC1's annual PTEP account for the 2018 taxable year in the passive category, and the section 951(a)(1)(A) PTEP within such account, is reduced by the 300,000u of withholding tax imposed on CFC1 by Country X. Therefore, CFC1's annual PTEP account for the 2018 taxable year within the passive category and the section 951(a)(1)(A) PTEP within such account is 700,000u.
(C) Under paragraph (d)(1) of this section, the 300,000u of withholding tax is translated
(2)
(ii)
(B)
(C)
(
(
The addition and revisions read as follows:
(a) * * * (1) * * * For purposes of this section, an amount included in gross income under section 951A(a) is treated as an amount included in gross income under section 951(a). The amount of the increase in the foreign tax credit limitation allowed by this section is determined with regard to each separate category of income described in § 1.904-5(a)(4)(v).
(d) * * * For purposes of this paragraph (d), the term “foreign income taxes” includes foreign income taxes paid or accrued, foreign income taxes deemed paid or accrued under section 904(c), and foreign income taxes deemed paid under section 960 (or section 902 with respect to taxable years of foreign corporations beginning before January 1, 2018), for the taxable year of inclusion.
(f)
(1)
(2)
The revision reads as follows:
(b)
(1)
(2)
(b)
(1)
(2)
Sections 1.960-1 through 1.960-6 apply to each taxable year of a foreign corporation that both begin after December 31, 2017, and ends on or after December 4, 2018, and to each taxable year of a domestic corporation that is a United States shareholder of the foreign corporation in which or with which such taxable year of such foreign corporation ends.
(c) * * *
(1) * * *
(iii)
The addition reads as follows:
(c)
(a)
(2)
(ii)
(iii)
(iv)
(B)
(C)
(D)
(
(v)
(b)
(c)
(d)
(e)
(2)
(3)
(4)
(f)
The additions read as follows:
(a) * * *
(2) * * *
(iii) * * *
(C)
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking.
This document contains proposed regulations that provide guidance relating to the allocation and apportionment of deductions and creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the transition tax, and the application of the foreign tax credit limitation to consolidated groups.
Written or electronic comments and requests for a public hearing must be received by February 18, 2020.
Send electronic submissions via the Federal eRulemaking Portal at
Concerning the proposed regulations under §§ 1.861-8, 1.861-9(b), 1.861-12, 1.861-14, 1.861-17, and 1.954-2(h), Jeffrey P. Cowan, (202) 317-4924; concerning §§ 1.704-1, 1.861-9(e), 1.904-4(e), 1.904(b)-3, 1.904(g)-3, 1.1502-4, and 1.1502-21, Jeffrey L. Parry, (202) 317-4916; concerning §§ 1.861-20, 1.904-6, 1.960-1, and 1.960-7, Suzanne M. Walsh, (202) 317-4908; concerning §§ 1.904-4(c), 1.905-3, 1.905-4, 1.905-5, 1.954-1, 301.6227-1, and 301.6689-1, Larry R. Pounders, (202) 317-5465; concerning §§ 1.965-5 and 1.965-9, Karen J. Cate, (202) 317-4667; concerning submissions of comments and requests for a public hearing, Regina Johnson, (202) 317-6901 (not toll-free numbers).
On December 7, 2018, the Treasury Department and the IRS published proposed regulations (REG-105600-18) relating to foreign tax credits in the
On June 25, 2012, the
On November 7, 2007, the
This document contains proposed regulations (the “proposed regulations”) addressing the following issues: (1) The allocation and apportionment of deductions under sections 861 through 865, including new rules on the allocation and apportionment of R&E expenditures and certain deductions of life insurance companies; (2) the definition of financial services income under section 904(d)(2)(D); (3) the allocation and apportionment of creditable foreign taxes; (4) the interaction of the branch loss and dual consolidated loss recapture rules with sections 904(f) and (g); (5) the effect of foreign tax redeterminations of foreign corporations on the application of the high-tax exception described in section 954(b)(4) (including for purposes of determining tested income under section 951A(c)(2)(A)(i)(III)), and required notifications under section 905(c) to the IRS of foreign tax redeterminations and related penalty provisions; (6) the definition of foreign personal holding company income under section 954; (7) the application of the foreign tax credit disallowance under section 965(g); and (8) the application of the foreign tax credit limitation to consolidated groups.
Under § 1.861-8(e)(4)(i), stewardship expenses are definitely related and allocable to dividends received or to be received from related corporations. This reflects a determination that stewardship expenses are, at least in part, intended to protect the shareholder's capital investment and thus are factually related to the income that arises from the investment. Before the enactment of the TCJA, taxpayers with foreign subsidiaries often included in their income foreign source income only when that income was distributed to the taxpayer. However, as a result of the enactment of sections 951A and 245A, a significant portion of the foreign source income of foreign subsidiaries is included in income on a current basis or not at all. The Treasury Department and the IRS are aware that some taxpayers may be interpreting the “dividends received, or to be received” phrase in § 1.861-8(e)(4)(ii) to exclude the gross up amount treated as a dividend under section 78 (the “section
With respect to the allocation of stewardship expenses, income arising because of one's capital investment in a foreign corporation's stock ordinarily includes not only dividends, but also inclusions under sections 951 and 951A, as well as amounts included under sections 1291, 1293, and 1296 (the “passive foreign investment company provisions”). Therefore, the proposed regulations provide that stewardship expenses are allocated to dividends and inclusions received or accrued, or to be received or accrued, from related corporations.
With respect to apportionment, the current regulations do not provide an explicit rule but instead provide examples of permissible methods. The Treasury Department and the IRS have determined that an explicit rule would provide certainty for taxpayers and the IRS on the appropriate methodology for apportioning stewardship expenses while ensuring that stewardship expenses are apportioned to gross income in a manner that reflects the purpose of the expenses to protect capital investments or to facilitate compliance with reporting, legal, or regulatory requirements. Therefore, the proposed regulations provide that stewardship expenses are apportioned based upon the relative values of a taxpayer's stock assets, as determined and characterized under § 1.861-9T(g) (and, as relevant, §§ 1.861-12 and 1.861-13) for purposes of allocating and apportioning the taxpayer's interest expense. Therefore, a taxpayer will be required to use the same method to characterize and value its stock assets for purposes of allocating and apportioning its interest and stewardship expenses, and, in some cases as described in Part 1.A.2 of this Explanation of Provisions, certain damages payments. Accordingly, since the fair market value method may not be used for interest allocation and apportionment, it may also not be used for stewardship and certain damages payments. Conforming changes are also proposed with respect to § 1.861-14T(e)(4), which provides rules for the treatment of stewardship expenses with respect to an affiliated group. See also § 1.861-8(g)(18) (
The Treasury Department and the IRS are aware that stewardship expenses that are incurred to facilitate compliance with reporting, legal, or regulatory requirements may be more appropriately treated as definitely related to the gross income produced by the particular asset, or assets, whose ownership required the stewardship expenditure. For example, the owner of an entity in a particular jurisdiction might have unique reporting requirements not triggered by the ownership of a similar entity in a different jurisdiction. The Treasury Department and the IRS request comments regarding exceptions to the general rule for the allocation and apportionment of stewardship expenses where it is more appropriate to treat stewardship expenses as definitely related to a more limited class of gross income. Comments are also requested on whether it is more appropriate in certain cases to allocate and apportion stewardship expenses on a separate entity, rather than an affiliated group, basis.
The proposed regulations maintain the definition of stewardship expenses as a duplicative activity (as defined in § 1.482-9(l)(3)(iii)) or a shareholder activity (as defined in § 1.482-9(l)(3)(iv)).
The proposed regulations extend the treatment of stewardship expenses to cover expenses incurred with respect to a partnership.
Finally, the Treasury Department and the IRS are considering whether additional changes to the rules for allocating and apportioning stewardship and similar expenses are appropriate in light of the enactment of the TCJA, and in order to better reflect modern business practices that are increasingly global and mobile in nature. Comments are requested on this topic.
The current rule for the allocation and apportionment of legal and accounting fees and expenses in § 1.861-8(e)(5) does not specifically address damages awards, prejudgment interest, or settlement payments arising from product liability and similar claims. The Treasury Department and the IRS are aware that large, unplanned, and relatively rare expenses can have a significant effect on the calculation of a taxpayer's taxable income and foreign tax credit limitation, and, in the absence of clear rules, disputes have arisen regarding the proper treatment of such expenses. Proposed § 1.861-8(e)(5) provides that deductions for damages awards, prejudgment interest, and settlement payments arising from product liability and similar or related claims are allocated to the class or classes of gross income produced by the specific sales of products or services that gave rise to the claims for damage or injury. Damages, prejudgment interest, and settlement payments related to events incident to the production of goods or provision of services, such as damages for injuries caused by industrial accidents, are allocated to the class of gross income produced by the assets involved in the event and, if necessary, apportioned between groupings based on the relative value of the assets in such groupings. In the case of claims made by investors that arise from corporate negligence, fraud, or other malfeasance, the
Under current rules, a net operating loss deduction is allocated and apportioned in the same manner as the deductions giving rise to the net operating loss deduction. However, the rule does not specify how the statutory and residual grouping components of a net operating loss are determined.
In connection with the proposed regulations under section 250, comments requested clarification on the application of § 1.861-8(e)(8) with respect to net operating losses arising prior to the enactment of the TCJA when the net operating loss is deducted in a post-TCJA year for purposes of applying section 250 as the operative section.
As explained in Part II.B.2 of the Summary of Comments and Explanation of Revisions to the 2019 FTC final regulations, one comment to the 2018 FTC proposed regulations suggested that insurance companies reduce exempt income and assets to reflect prorated amounts of dividends and tax exempt interest.
Under subchapter L, a nonlife insurance company includes in income its underwriting income, which consists of premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred. The proration rules reduce the company's losses incurred by the “applicable percentage” of tax exempt interest or deductible dividends received.
While the mechanics of the proration rules differ depending on whether a company is a life or nonlife insurance company and whether the amount relates to dividends or tax exempt interest, the purpose of those provisions is the same. That is, the policyholder's share or applicable percentage of dividends and tax exempt interest should not create a double benefit by reason of a DRD or section 103 tax exemption for interest in the first instance and a reduction to income (via increases in unpaid losses and reserves during the taxable year) in the second. Regardless of the mechanics, however, the policyholder's share and applicable percentage adjustments do not change the fact that tax exempt interest and (for a nonlife insurance company) the applicable percentage of dividends eligible for DRDs remain exempt from U.S. tax. Including those exempt amounts and the corresponding exempt assets in the apportionment formula in allocating expenses under § 1.861-8T(d)(2)(i)(B), as the comment suggests, would effectively apportion reserve deductions (which already do not include the disallowed deductions deemed to be attributable to the exempt income, except in the case of the policyholder's share of life insurance DRDs) to exempt U.S. source income, with the result that those deductions would reduce unrelated U.S. source income, in contravention of the rule in § 1.861-8T(d)(2)(i)(B).
The current regulations already provide the appropriate rules in this area. Section 1.861-8T(d)(2)(ii)(B) provides that the policyholder's share of dividends received by a life insurance company is treated as tax exempt income notwithstanding the partial disallowance of the DRD, and § 1.861-14T(h) provides for the direct allocation to the dividends of an amount of reserve expenses equal to the disallowed portion of the DRDs. The current regulations do not provide a special rule for either tax exempt interest of a life insurance company or DRDs and tax exempt interest of a nonlife insurance company because, when a policyholder's share or applicable percentage is accounted for as either a reserve adjustment or a reduction to losses incurred, no further modification to the generally applicable rules is required to ensure that the appropriate amount of expenses are apportioned to U.S. source income.
Nevertheless, in order to provide greater clarity, the proposed regulations provide in proposed § 1.861-8(d)(2)(ii)(B), (d)(2)(v), and (e)(16) the effect of certain deduction limitations on the treatment of income and assets generating dividends received deductions and tax exempt interest held by insurance companies. More specifically, the proposed regulations provide that in the case of insurance companies, the term exempt income includes dividends for which a deduction is provided by sections 243(a)(1) and (2) and 245, without regard to the proration rules disallowing a portion of the deduction. Similarly, the term exempt income includes tax exempt interest without regard to the proration rules. These provisions apply on a company wide basis and therefore include each separate account of the company. Two examples are provided in proposed § 1.861-8(d)(2)(v)(B) that illustrate the application of these rules.
The Treasury Department and the IRS continue to study the rules for allocating and apportioning interest deductions. In addition, the Treasury Department and the IRS expect the implementation of section 864(f) (which is effective for taxable years beginning after December 31, 2020) will have a significant impact on the effect of interest expense apportionment and will necessitate a reexamination of the existing expense allocation rules. Therefore, the Treasury Department and the IRS are studying whether further guidance with respect to allocation and apportionment of interest expense, taking into account the changes made by the TCJA and the future implementation of section 864(f), is required. Comments are requested on this topic.
The Treasury Department and the IRS are also considering whether rules providing for the capitalization and amortization of certain expenses solely for purposes of § 1.861-9 may better reflect asset values under the tax book value method. For example, solely for purposes of § 1.861-9, research and experimental expenditures and advertising expenses could be treated as if they were capitalized and amortized. Comments are requested on this topic.
As noted in Part III.B.4.iii of the Summary of Comments and Explanation of Revisions to the 2019 FTC final regulations, the Treasury Department and the IRS are studying whether additional rules for allocating and apportioning expenses to foreign branch category income or limiting the amount of the gross income reallocated as a result of certain disregarded payments are appropriate. Comments are requested on whether such special rules would more accurately reflect the business profits of a foreign branch, while maintaining administrability for taxpayers and the IRS.
The 2018 FTC proposed regulations included rules addressing the source and separate category of interest income and expense related to loans to a partnership by a U.S. person (or a member of its affiliated group) that owns an interest (directly or indirectly) in the partnership. These rules were finalized in the 2019 FTC final regulations.
As discussed in Part II.C.1 of the Summary of Comments and Explanation of Revisions of the 2019 FTC final regulations, several comments to the 2018 FTC proposed regulations requested that the rules under § 1.861-9(e)(8) with respect to specified partnership loans be expanded to cover loans made by a partnership to a partner (an “upstream partnership loan”). The Treasury Department and the IRS agree with comments that rules addressing upstream partnership loans would reduce distortions that could otherwise affect the foreign tax credit limitation. Therefore, the comments are adopted in proposed § 1.861-9(e)(9)(ii), which generally provides that, to the extent the borrower in an upstream partnership loan transaction takes into account both interest expense and interest income with respect to the same loan, the interest income is assigned to the same statutory and residual groupings as those groupings from which the matching amount of interest expense is deducted, as determined under the allocation and apportionment rules in §§ 1.861-9 through 1.861-13. Additionally, proposed § 1.861-9(e)(9)(i) provides that, for purposes of applying the allocation and apportionment rules, the borrower does not take into account as an asset its proportionate share of the loan, as otherwise provided under § 1.861-9(e)(2) and (3). Proposed § 1.861-9(e)(8)(iv) also applies the upstream partnership loan rules to transactions that are not loans but that give rise to deductions that are allocated and apportioned in the same manner as interest expense under § 1.861-9T(b). An anti-avoidance rule similar to the rule in § 1.861-9(e)(8)(iii) is included to cover back-to-back third-party loans that are intended to circumvent the purposes of the rules.
Additionally, the Treasury Department and the IRS are aware that some taxpayers may be converting existing partnership debt structures that were used to increase a taxpayer's foreign tax credit limitation before the issuance of § 1.861-9(e)(8) from partnership debt into partnership equity that provides for guaranteed payments for the use of capital. The taxpayer then takes the position that the guaranteed payments are neither allocated and apportioned under the rules in § 1.861-9 nor included in subpart F income by reason of § 1.954-2(h).
Guaranteed payments for the use of capital are similar to a loan from the partner to the partnership because the payment is for the use of money and is generally deductible.
Section 1.861-12T(f)(1) provides that, in certain circumstances, where interest expense that is capitalized, deferred, or disallowed under a provision of the Code, the adjusted basis or fair market value of the asset to which the interest expense is connected is reduced by the principal amount of the interest that is capitalized, deferred, or disallowed. One comment with respect to the 2018 FTC proposed regulations recommended that the Treasury Department and the IRS consider narrowing the scope of the rule in § 1.861-12T(f)(1) to prevent taxpayers from taking overly expansive views of the rule in order to minimize the value of controlled foreign corporation (“CFC”) stock that attracts interest expense to reduce the foreign tax credit limitation. In response to the comment, the proposed regulations clarify what it means for an asset to be connected with indebtedness, modify the existing example, and add a new example.
Section 818(f)(1) provides that the deduction for life insurance reserves and certain other deductions (“section 818(f) expenses”) are treated as items which cannot definitely be allocated to an item or class of gross income. Therefore, when a life insurance company computes its foreign tax credit limitation, its section 818(f) expenses generally reduce its U.S. source income and foreign source income ratably. However, issues arise as to how to allocate and apportion section 818(f) expenses if the life insurance company is a member of an affiliated group of corporations (including both life and nonlife members) (the group, “life-nonlife consolidated group”) that join in filing a consolidated return.
The Treasury Department and the IRS are aware of at least five potential
In response to the request for comments in the 2018 FTC proposed regulations, the Treasury Department and the IRS have received comments advocating for certain of the aforementioned allocation methods. One comment recommended an allocation method similar to the single entity method. The comment proposed that, if all members of a consolidated group were treated as a single corporation, and if that corporation would constitute a life insurance company, then section 818(f) expenses might be allocated and apportioned to all members of the consolidated group, including nonlife members of a life-nonlife consolidated group.
Two other comments disagreed with the single entity method. These comments proposed that section 818(f) expenses generally be allocated on the separate entity method. However, if the facts and circumstances demonstrate a sufficient factual relationship between the expense and the income of more than one life insurance company, these comments proposed that such expenses might be allocated based on the facts and circumstances method. The comments did not provide examples of when facts and circumstances would demonstrate a sufficient relationship to qualify for this treatment.
The Treasury Department and the IRS decline to adopt the single entity method in the proposed regulations. Section 818(f) only applies to a life insurance company; thus, section 818(f) expenses should not be allocated to nonlife members of a consolidated group. The Treasury Department and the IRS also decline to adopt the facts and circumstances method because a broad facts and circumstances approach would introduce substantial uncertainty into the tax system and would be difficult to administer.
The Treasury Department and the IRS considered adopting the life subgroup method in the proposed regulations. This method would reflect a single entity approach for life insurance companies that operate businesses and manage assets and liabilities on a group basis. Under this paradigm, section 818(f) expenses would be treated as not definitely related to an item or class of gross income of the entire life subgroup for purposes of calculating the foreign tax credit limitation, and therefore generally ratably reduce U.S. source income and foreign source income of the life subgroup.
The Treasury Department and the IRS also considered adopting the separate entity method. The separate entity method would allocate and apportion section 818(f) expenses on a separate company basis. This method is consistent with the Code because section 818(f) expenses generally are computed on a separate company basis and relate to the liabilities of a specific life insurance company. In addition, this method is consistent with the treatment of reserves when members of a consolidated group engage in an intercompany transaction. Under § 1.1502-13(e)(2)(ii)(A), direct insurance transactions between members of a consolidated group are accounted for by both members on a separate entity basis. For example, if one member provides life insurance coverage for another member with respect to its employees, the premiums, reserve increases and decreases, and death benefit payments are determined and taken into account by both members on a separate entity basis (rather than on a single entity basis under the general rules of § 1.1502-13).
After considering both methods, proposed § 1.861-14(h)(1) adopts the separate entity method. As noted previously, this method generally is consistent with section 818(f) and with the separate entity treatment of reserves under § 1.1502-13(e)(2). Nevertheless, the Treasury Department and the IRS are concerned that this method may create opportunities for consolidated groups to use intercompany transactions to shift their section 818(f) expenses and achieve a more desirable foreign tax credit result. Accordingly, the Treasury Department and the IRS request comments on whether a life subgroup method more accurately reflects the relationship between section 818(f) expenses and the income producing activities of the life subgroup as a whole, and whether the life subgroup method is less susceptible to abuse because it might prevent a consolidated group from inflating its foreign tax credit limitation through intercompany transfers of assets, reinsurance transactions, or transfers of section 818(f) expenses. The Treasury Department and the IRS also request comments on whether an anti-abuse rule may be appropriate to address concerns with the separate entity method, and regarding the appropriate application of § 1.1502-13(c) to neutralize the ancillary effects of separate-entity computation of insurance reserves, such as the computation of limitations under section 904.
Part I.G of the Explanation of Provisions of the 2018 FTC proposed regulations discussed the interaction between the current rules for allocating and apportioning R&E expenditures and the changes made to section 904(d) by the TCJA, and requested comments on how the regulations should be revised to account for the new category in section 904(d)(1)(A) (the “section 951A category”). The comments received are addressed in this Part I.E.
Several comments to the 2018 FTC proposed regulations recommended that the regulations for allocating and apportioning R&E expenditures under § 1.861-17 be revised to preclude allocation and apportionment of R&E expenditures to the section 951A category. The comments stated that R&E expenditures are incurred by a U.S. taxpayer to develop intangible property that cannot generate income in the section 951A category, which is limited to inclusions under section 951A (“GILTI inclusions”) and the related section 78 dividend in respect of deemed paid taxes. Further, to the extent a GILTI inclusion is attributable to a CFC's income derived from intangible property developed by the worldwide group, the comments stated that the intangible property must have either been developed by the CFC or a CFC affiliate (in which case the R&E expenditures were not borne by the U.S. taxpayer), or licensed or acquired by the CFC from a U.S. affiliate, which would
The Treasury Department and the IRS agree with the comments that the rules under § 1.861-17 should be modified to reflect the fact that R&E expenditures that are deductible under section 174 generally give rise to intangible property, and that under the rules in sections 367(d) and 482, the person incurring such R&E expenditures must be compensated properly when such intangible property gives rise to income. Therefore, proposed § 1.861-17(b) provides that the rules in that section are premised on the fact that successful R&E expenditures ultimately result in the creation of intangible property (as defined in section 367(d)(4)) and, therefore, R&E expenditures ordinarily are considered deductions that are definitely related to all gross intangible income reasonably connected with the relevant Standard Industrial Classification Manual code (“SIC code”) category (or categories) of the taxpayer and so are allocable to all items of gross intangible income related to the SIC code category (or categories) as a class. Gross intangible income is defined as all gross income earned by a taxpayer that is attributable, in whole or in part, to intangible property derived from R&E expenditures and does not include dividends or any amounts included under section 951, 951A, or 1293.
Under § 1.861-17(c) and (d), a taxpayer may elect to apportion R&E expenditures, in excess of amounts exclusively apportioned to the place the R&E is performed under § 1.861-17(b), on the basis of either sales or gross income. In contrast to the sales method, the gross income method of apportioning R&E expenditures (1) limits taxpayers to exclusively apportion only 25 percent of R&E expenditures based on the place of research activities (instead of 50 percent under the sales method), and (2) requires the apportionment to or among the statutory groupings to be at least half of what would have been apportioned under the sales method. These limits reflect concerns that the gross income method could produce inappropriate results in cases where the types of gross income recognized by the taxpayer in the statutory and residual groupings in a SIC code category are different. For example, if a taxpayer sells products incorporating its intangible property in the United States but earns royalties from licensing its intangible property used by others to make sales abroad, comparing the gross income from sales, which includes value attributable to other factors in addition to intangible property, to the gross royalty income will generally distort the extent to which the R&E expenditures produce U.S. and foreign source income from intangible property. In such cases, the gross income method is inconsistent with the general principle under § 1.861-8T(c) that the method of apportionment “reflect to a reasonably close extent the factual relationship between the deduction and the grouping of gross income.” In comparison, the sales method requires that taxpayers use a single, consistent measure—gross receipts from sales and services—to attribute R&E expenditures to their various groupings and, therefore, more clearly reflects the anticipated income expected to be derived from successful R&E expenditures.
Therefore, the proposed regulations eliminate the optional gross income method and require R&E expenditures in excess of the amount exclusively apportioned under § 1.861-17(b) to be apportioned among the statutory and residual groupings within the class of gross intangible income on the basis of the relative amounts of gross receipts from sales and services in each grouping.
Under § 1.861-17(a)(2)(ii), the relevant SIC code categories are determined by reference to the three digit classification of the SIC code. Proposed § 1.861-17(b)(3)(iv) clarifies the rules relating to goods or property that are described in the SIC code category for “wholesale trade” or “retail trade.” The purpose of this rule is to match R&E expenditures with a taxpayer's core business and minimize the number of a taxpayer's SIC code categories. This rule provides that vertically integrated taxpayers that perform upstream activities (for example, extraction or manufacturing) before downstream wholesale and retail functions must aggregate their wholesale and retail R&E expenditures and sales with their R&E expenditures and sales in the most closely related three-digit SIC code category. A taxpayer cannot use a SIC code category within the wholesale or retail trade divisions unless its business is generally limited to sales-related activities. Taxpayers engaged in both wholesale and retail trade, but not related upstream activities, are not required to aggregate their wholesale and retail R&E expenditures and sales.
Comments are requested on whether a different classification method that takes into account more recent changes in the economy and business practices should be used. For example, comments are requested on whether NAICS codes would be more appropriate.
Comments to § 1.861-17 were also received in connection with the proposed regulations under section 250.
Under § 1.861-17(a)(4), R&E expenditures that are undertaken solely to meet legal requirements (“legally mandated R&E”) imposed by a political entity and that cannot reasonably be expected to generate amounts of gross income (beyond de minimis amounts) outside a single geographic source are allocated directly to gross income within the geographic source imposing the requirement. A rule similar to the legally mandated R&E rule existed in regulations issued in 1977 that allocated
Since the adoption of the legally mandated R&E rule in the 1977 regulations, the Treasury Department and the IRS have observed that taxpayers rarely rely on the legally mandated R&E rule. In particular, legal requirements for certain products may significantly overlap between multiple jurisdictions because those jurisdictions have similar legal requirements that relate to areas such as consumer safety, pollution, or pharmaceutical products. In addition, multiple jurisdictions may have similar legal requirements because of multilateral trade and investment agreements or because taxpayers choose to sell their products only in markets with similar requirements. See, for example, IRS Coordinated Issue Biotech and Pharmaceutical Industries Legally Mandated R&E Expense (June 18, 2003) (discussing the International Conference on Harmonization, subsequently the International Council for Harmonization, and its role in rationalizing and harmonizing pharmaceutical regulations in multiple jurisdictions). To reflect the changing international business environment and simplify the regulations with respect to R&E, the proposed regulations eliminate the legally mandated R&E rule.
Under § 1.861-17(b), an exclusive apportionment of R&E expenditures is made if activities representing more than 50 percent of the R&E expenditures were performed in a particular geographic location, such as the United States. Under § 1.861-17(b)(1)(ii), for taxpayers electing the gross income method, 25 percent of R&E expenditures is exclusively apportioned to the geographic location where the R&E activities accounting for more than 50 percent of the deductible expenses were incurred. Under § 1.861-17(b)(1)(i), for taxpayers electing the sales method, 50 percent of R&E expenditures are exclusively apportioned to the geographic location where the R&E activities accounting for more than 50 percent of the deductible expenses were incurred. After this initial exclusive apportionment, the remainder of the taxpayer's R&E expenditures are apportioned under either the sales or gross income methods.
The 1977 regulations also included a rule similar to a rule in the current regulations at § 1.861-17(b)(2). Under this rule, taxpayers may demonstrate to the satisfaction of the Commissioner that an even higher amount of R&E expenditures should be exclusively apportioned to a geographic location. According to the current regulations, the exclusive apportionment rules are based on the understanding that R&E may be more valuable where it is undertaken because R&E benefits products all of which may be sold in the nearest market but only some of which may be sold in foreign markets, and R&E is often used in the nearest market first before it is used in other markets. Therefore, under the increased exclusive apportionment rule, a taxpayer may establish to the satisfaction of the Commissioner that one or both of these conditions are satisfied—that is, its research is expected to have a particularly limited or long delayed application outside the geographic area where the research is performed, such that a greater amount of R&E expenditures should be initially exclusively apportioned.
Similar to the legally mandated rule, the Treasury Department and the IRS have observed that taxpayers have rarely used the current increased exclusive apportionment rule since the issuance of the 1977 regulations. Moreover, when it has been used, the facts and circumstances nature of the analysis has caused hard-to-resolve disagreements between the Commissioner and taxpayers. Changes in the international business environment have also contributed to the decreased utilization of this rule. Accordingly, the proposed regulations eliminate the increased exclusive apportionment rule.
Finally, proposed § 1.861-17(b) clarifies that the exclusive apportionment rule applies only to section 904 as the operative section.
The sales method for apportioning R&E expenditures provides that gross receipts from sales of products or provision of services within a relevant SIC code category by controlled parties of the taxpayer are taken into account in apportioning the taxpayer's R&E expenditures if the controlled party is reasonably expected to benefit from the taxpayer's research and experimentation. Under § 1.861-17(c)(3)(iv), the sales of controlled parties that enter a valid cost sharing arrangement (“CSA”) with a taxpayer are excluded from the apportionment formula because the controlled party is not expected to benefit from the taxpayer's remaining R&E expenditures.
Proposed § 1.861-17 clarifies the treatment of CSAs in two respects. First, consistent with § 1.482-7, the taxpayer's R&E expenditures allocated and apportioned under § 1.861-17 do not include any amounts that are not deductible by reason of the second sentence under § 1.482-7(j)(3)(i) (relating to cost sharing transaction payments from a controlled party). Second, the proposed regulations clarify that the exclusion of the controlled party's gross receipts applies only for purposes of apportioning those R&E expenditures that are intangible development costs with respect to the CSA. If a taxpayer who enters a CSA also incurs R&E expenditures that are not intangible development costs with respect to the CSA, then those expenses would be apportioned under the generally applicable rules, including the rules concerning controlled party sales.
One comment suggested that § 1.861-17 be modified to provide that a taxpayer's R&E expenditures that are funded by a foreign affiliate under a contract research arrangement should be directly allocated to the taxpayer's income from such arrangements. The terms of the contract research arrangement are not clear from the comment, and it is unclear whether the described expenditures that are reimbursed by a foreign affiliate are paid or incurred by the taxpayer to develop or improve a product in connection with the taxpayer's trade or business.
Another comment suggested a special rule for “licensor models” whereby CFCs pay royalties to compensate for a taxpayer's R&E expenditures. The comment suggested that in order to avoid allocation and apportionment of R&E expenditures to the section 951A category, the activities of the licensee CFC should be excluded for purposes of apportioning the licensor's R&E
The Treasury Department and the IRS agree that R&E expenditures should be allocated and apportioned solely with respect to the gross intangible income of the taxpayer rather than the net income of a licensee, and therefore not allocated and apportioned to the section 951A category.
Finally, under § 1.861-17(c)(3)(ii) and (f)(3), sales made by controlled corporations and partnerships taken into account to apportion R&E expenditures are reduced to reflect the taxpayer's percentage ownership of such entities. This reduction is inappropriate because the taxpayer's gross intangible income is not dependent on its percentage ownership of the entity to which it transfers intangible property. The proposed regulations, therefore, eliminate the rule reducing sales of controlled corporations that are taken into account and include partnership sales to the same extent as those made by controlled corporations.
The 2018 FTC proposed regulations included a rule in § 1.904(b)-3(d) coordinating the application of section 904(b)(4) with sections 904(f) and 904(g), which apply after section 904(b)(4). This rule is finalized substantially as proposed in the 2019 FTC final regulations. However, the 2018 FTC proposed regulations did not coordinate any of the adjustments required under section 904(b) with the net operating loss provisions. Therefore, the proposed regulations include a coordination rule. Under proposed § 1.904(b)-3(d)(2), for purposes of determining the source and separate category of a net operating loss, the separate limitation loss and overall foreign loss rules of section 904(f) and the overall domestic loss rules of section 904(g) are applied without taking into account the adjustments required under section 904(b). The Treasury Department and the IRS have determined this rule is appropriate because the amount of the net operating loss eligible to be carried to another year under section 172 is not affected by the adjustments required by section 904(b).
Section 904(d)(2)(D) provides that financial services income can only be received by a person “predominantly engaged in the active conduct of a banking, insurance, financing, or similar business.” Under current law, the principal significance of this provision is that under section 904(d)(2)(C), passive income of such a person is not assigned to the passive category. The preamble to the 2018 FTC proposed regulations noted that the Treasury Department and the IRS were considering modifications to the gross income-based test for determining financial services entity (“FSE”) status and requested comments in this regard. One comment was received requesting that any future modifications not affect the classification of income derived by a substantial (and genuinely active) financial services group. The Treasury Department and IRS agree that a substantial and genuinely active financial services group should be included in the definition of an FSE.
However, numerous places in the Code use similar concepts and, at times, the same terms, but provide different definitions (even when largely overlapping in application). The Treasury Department and IRS have determined that interpretive guidance should be simplified and made consistent where possible and appropriate. For example, section 954(h) in the subpart F rules defines “predominantly engaged in the active conduct of a banking, financing, or similar business” (which in the case of a lending or finance business, requires more than 70 percent of the gross income be derived directly from transactions with unrelated customers); section 1297(b)(2)(B) in the passive foreign investment company (“PFIC”) rules defines “active conduct of an insurance business by a qualifying insurance corporation”; and section 953(e)(3) defines the term “qualifying insurance company” in order to determine the amount of passive income excluded from subpart F income as income derived in the active conduct of an insurance business under section 954(i).
In order to promote simplification and greater consistency with other Code provisions that have complementary policy objectives, proposed § 1.904-4(e)(2) modifies the definition of an FSE by adopting a definition of “predominantly engaged in the active conduct of a banking, insurance, financing, or similar business” and “income derived in the active conduct of a banking, insurance, financing, or similar business” that is generally consistent with sections 954(h), 1297(b)(2)(B), and 953(e). Conforming changes are made to the rules for affiliated groups in proposed § 1.904-4(e)(2)(ii) and partnerships in proposed § 1.904-4(e)(2)(i)(C).
Comments are requested on whether additional guidance is needed with respect to section 954(h) (including in particular section 954(h)(2)(B)(ii), which authorizes the Treasury Department to issue regulations regarding corporations not licensed as a bank in the United States) and section 952(c)(1)(B)(vi) (defining a qualified financial institution for purposes of the qualified deficit rules).
In addition, when the regulations defining an FSE were originally promulgated in 1988, section 904(d)(1)(C) assigned financial services income to its own separate category. This separate category was repealed in 2004, effective for taxable years beginning after 2006, but the rules in section 904(d)(2)(C) and (D) were retained. The proposed regulations make additional clarifying changes to reflect the repeal of the separate category for financial services income.
Finally, in 2004, a definition of financial services group was added in section 904(d)(2)(C)(ii) which was based on the definition of an affiliated group under section 1504(a) but expanded to include insurance companies and foreign corporations. While the current regulations already include foreign corporations as part of an affiliated group, proposed § 1.904-4(e)(2)(ii) conforms the definition of an affiliated group to also include insurance companies referenced in section 1504(b)(2).
As explained in Part III.G of the Summary of Comments and Explanation of Revisions to the 2019 FTC final regulations, the Treasury Department and the IRS have determined that additional guidance regarding the allocation and apportionment to separate categories of creditable foreign income taxes in § 1.904-6 is warranted. As a result of changes made by the TCJA, the accurate allocation and apportionment of foreign income taxes to the gross income to which they relate has taken on increased importance. See, for example, sections 245A(d), 960, 965(g), and § 1.861-8(e)(6) (allocating the deduction for foreign income taxes, including at the level of a CFC, to statutory and residual groupings). Therefore, taxpayers will benefit from increased certainty on how to match foreign income taxes with income, particularly in the case of differences in how a U.S. taxable base and foreign taxable base are computed with respect to the same transaction. Furthermore, because these rules are relevant in numerous contexts outside of section 904, the general rules in § 1.904-6 (which address allocating and apportioning taxes to separate categories) have been moved to new proposed § 1.861-20 and generalized to apply for purposes of allocating and apportioning foreign income taxes to statutory and residual groupings. Rules specific to the allocation and apportionment of foreign income taxes to separate categories remain in proposed § 1.904-6. Conforming changes are proposed to §§ 1.704-1(b)(4)(viii)(
Current § 1.904-6 provides that the allocation and apportionment of foreign tax expense to a section 904 separate category is made on the basis of the income as computed under foreign law on which the tax is imposed; foreign tax is allocated to the separate category to which the income included in the foreign tax base would be assigned under Federal income tax principles.
Proposed § 1.861-20 adopts the principles of § 1.904-6 but provides more detailed guidance on how to apply those principles, which are illustrated by several examples. Proposed § 1.861-20(c) provides that foreign tax expense is allocated and apportioned among the statutory and residual groupings by first assigning the items of gross income under foreign law (“foreign gross income”) on which a foreign tax is imposed to a grouping, then allocating and apportioning deductions under foreign law to that income, and finally allocating and apportioning the foreign tax among the groupings.
Proposed § 1.861-20(d)(1) provides a general rule for assigning foreign gross income to a statutory or residual grouping. Under this rule, a foreign gross income item is assigned to a grouping by characterizing the item under Federal income tax law. If an item of gross income or loss arises under Federal income tax law from the same transaction or realization event from which the foreign gross income item arose (a “corresponding U.S. item”), the foreign gross income item is assigned to the same statutory or residual grouping as the corresponding U.S. item. In the case of a corresponding U.S. item that is an item of loss (or zero), the foreign gross income is assigned to the same grouping to which an item of gain would be assigned had the transaction or realization event given rise to an item of gain under Federal income tax law.
Proposed § 1.861-20(d)(2) sets forth rules for assigning a foreign gross income item to a grouping if there is no corresponding U.S. item in the U.S. taxable year in which the taxpayer paid or accrued the foreign income tax imposed on foreign taxable income that includes the foreign gross income item. Proposed § 1.861-20(d)(2)(i) generally addresses the circumstance in which there is no corresponding U.S. item either because the event giving rise to the foreign gross income is a nonrecognition event under Federal income tax law or because the recognition event giving rise to the foreign gross income occurred under Federal income tax law in a different U.S. taxable year. In both cases, proposed § 1.861-20(d)(2)(i) assigns the foreign gross income to the grouping to which the corresponding U.S. item would be assigned if the event giving rise to the foreign gross income resulted in the recognition of gross income or loss under Federal income tax law in the same U.S. taxable year in which the foreign income tax is paid or accrued.
Proposed § 1.861-20(d)(2)(ii) provides guidance regarding the treatment of foreign gross income items that are either excluded from gross income under Federal income tax law or attributable to base differences. Under § 1.861-20(d)(2)(ii)(A), with the exception of base difference items, foreign gross income that is a type of income expressly excluded from gross income under Federal income tax law is assigned to the grouping to which the gross income would be assigned if it were included in U.S. gross income. Proposed § 1.861-20(d)(2)(ii)(B) provides an exclusive list of items that are excluded from U.S. gross income and that, if taxable under foreign law, are treated as base differences. The items are death benefits described in section 101, gifts and inheritances described in section 102, contributions to capital described in section 118 and the receipt of property in exchange for stock described in section 1032, the receipt of property in exchange for a partnership interest described in section 721, returns of capital described in section 301(c)(2), and distributions to partners described in section 733. The Treasury Department and the IRS have determined that foreign tax on these items, which are excluded from U.S. gross income, is particularly difficult to associate with a particular type of U.S. gross income. Accordingly, foreign tax on base difference items is assigned to the residual grouping, with the result that no credit is allowed if the tax is paid by a CFC, and the tax is assigned to the separate category described in section 904(d)(2)(H)(i) if paid (or treated as paid) by a taxpayer claiming a direct credit under section 901. Comments are requested on whether the list should be expanded to include other items that have no logical analogue to items included in U.S. gross income, or whether a different assignment of any of these types of foreign gross income would be more appropriate.
Proposed § 1.861-20(d)(3) sets forth special rules that apply for purposes of assigning certain items of foreign gross income to a grouping, including rules for distributions that both Federal income tax law and foreign law recognize, certain foreign law distributions such as consent dividends, inclusions under foreign law CFC regimes, disregarded payments, inclusions from reverse hybrids, and gain on the sale of a disregarded entity.
In the case of a distribution from a non-hybrid corporation that is recognized for both Federal income tax
If foreign law, but not Federal income tax law, recognizes a deemed distribution or consent dividend (a “foreign law distribution”), proposed § 1.861-20(d)(3)(i)(C) assigns the resulting foreign gross income to a statutory or residual grouping by applying proposed § 1.861-20(d)(3)(i)(B) as though Federal income tax law recognized the distribution in the U.S. taxable year in which the taxpayer paid or accrued tax with respect to the foreign law distribution. For example, if a taxpayer recognizes foreign gross income arising from a foreign law distribution, and proposed § 1.861-20(d)(3)(i)(B) (as applied for purposes of section 904 as the operative section) would treat the distribution as made out of general category section 965(a) previously taxed earnings and profits if the distribution had also occurred under Federal income tax law, the foreign gross income is assigned to the general category.
If a taxpayer (including an upper-tier CFC) includes an item of foreign gross income by reason of a foreign law regime similar to the subpart F provisions under sections 951 through 959 (a “foreign law subpart F regime”), proposed § 1.861-20(d)(3)(i)(D) assigns that item to the same statutory or residual grouping as the gross income (determined under the foreign law subpart F regime) of the foreign law CFC that gave rise to the foreign gross income of the taxpayer. The taxpayer's gross income included under the foreign law subpart F regime is, in other words, treated as the foreign gross income of the foreign law CFC, and the general rules of proposed §§ 1.861-20(d)(1) and (2) apply to characterize that foreign gross income and assign it to the statutory and residual groupings. For example, in applying proposed § 1.861-20(d)(3)(i)(D) in applying section 960 as the operative section where an upper-tier CFC is the taxpayer, the upper-tier CFC's foreign law subpart F inclusion is treated as the foreign gross income of the foreign law CFC, which is treated as if it were the taxpayer. If the foreign law CFC has a corresponding U.S. item of subpart F income for which its United States shareholder elects to apply the high tax exception under section 954(b)(4), the foreign gross income and the associated foreign tax paid by the upper-tier CFC are assigned to a residual income group under § 1.960-1(d). In addition, § 1.904-6(f) includes a special rule assigning certain items of foreign gross income recognized by a United States shareholder of a CFC that is also a foreign law CFC to the section 951A category for purposes of applying section 904 as the operative section.
Proposed § 1.861-20(d)(3)(ii) addresses the assignment of foreign gross income arising from disregarded payments between a foreign branch (as defined in § 1.904-4(f)(3)) and its owner. If the foreign gross income item arises from a payment made by a foreign branch to its owner, proposed § 1.861-20(d)(3)(ii)(A) generally assigns the item to the statutory and residual groupings by deeming the payment to be made ratably out of the after-tax income, computed for Federal income tax purposes, of the foreign branch, and deeming the branch income to arise in the statutory and residual groupings in the same ratio as the tax book value of the assets, including stock, owned by the foreign branch. If the item of foreign gross income arises from a disregarded payment to a foreign branch from its owner, proposed § 1.861-20(d)(3)(ii)(B) generally assigns the item to the residual grouping. However, proposed § 1.861-20(d)(3)(ii)(C) assigns an item of foreign gross income attributable to gain recognized under foreign law with respect to the receipt of a disregarded payment in exchange for property under the rule in § 1.861-20(d)(2)(i). In addition, proposed § 1.904-6(b)(2) includes special rules assigning foreign gross income items arising from certain disregarded payments for purposes of applying section 904 as the operative section.
Proposed § 1.861-20(d)(3)(iii) addresses the assignment to a statutory or residual grouping of foreign gross income that a taxpayer includes by reason of its ownership of a reverse hybrid. Under this rule, the foreign gross income that a taxpayer recognizes from a reverse hybrid is assigned to the statutory and residual groupings by treating that foreign gross income as the income of the reverse hybrid and applying the general rules of proposed § 1.861-20(d). However, § 1.904-6(f) includes a special rule assigning certain items of foreign gross income recognized by a United States shareholder of a controlled foreign corporation that is a reverse hybrid to the section 951A category for purposes of applying section 904 as the operative section. The Treasury Department and the IRS request comments on whether additional rules are needed to address other fact patterns in which the U.S. and a foreign country tax different persons on the same item of income, for example, in the case of a sale-repurchase agreement.
Finally, under proposed § 1.861-20(d)(3)(iv), if a taxpayer recognizes an item of foreign gross income that is gain from the sale of a disregarded entity, and Federal income tax law characterizes the transaction as a sale of the assets of the disregarded entity, the foreign gross income is assigned to the statutory and residual groupings in the same proportion as the gain that the taxpayer would have recognized if foreign law also treated the transaction as a sale of assets.
Changes to § 1.904-6 and § 1.960-1 are proposed to clarify and, in certain cases, modify the application of proposed § 1.861-20 for purposes of computing the foreign tax credit limitation under section 904 and foreign income taxes deemed paid under section 960.
Proposed § 1.904-6(b)(1) assigns foreign gross income that is attributable to a base difference, and the associated tax, to the separate category described in section 904(d)(2)(H)(i). Proposed § 1.904-6(b)(2)(i) generally provides that if a foreign branch makes a disregarded payment to another foreign branch or to its owner that causes the taxpayer's gross income under Federal income tax law that is otherwise attributable to the foreign branch to be attributed to another foreign branch or to the foreign branch owner under § 1.904-4(f)(2)(vi)(A) or § 1.904-4(f)(2)(vi)(D), the foreign gross income that arises by reason of the disregarded payment is assigned to the same category as the reattributed U.S. gross income. Under proposed § 1.904-6(b)(2)(ii), items of foreign gross income that a taxpayer includes solely by reason of the receipt by a foreign branch of a disregarded payment from its foreign branch owner that is a United States person are generally assigned to the foreign branch category (or, in the case of a foreign branch owner that is a partnership, to the partnership's general category income that is attributable to the foreign branch). However, items of foreign gross income attributable to gain recognized under foreign law with respect to the receipt of a disregarded payment in exchange for property are characterized
Finally, § 1.904-6(f) addresses the circumstance in which a United States shareholder pays or accrues foreign income tax with respect to foreign gross income that it recognizes because it owns a foreign law CFC or a reverse hybrid. The foreign income tax is allocated and apportioned to a category by treating the foreign gross income of the United States shareholder as the foreign gross income of the foreign law CFC or reverse hybrid under proposed §§ 1.861-20(d)(3)(i)(D) or 1.861-20(d)(3)(ii)(B). Proposed § 1.904-6(f) reassigns to the section 951A category the foreign gross income that, if the foreign law CFC or reverse hybrid recognized the foreign gross income instead of the United States shareholder, would be assigned to the general category tested income group of the foreign law CFC or reverse hybrid to which an inclusion under section 951A is attributable. The amount of the foreign gross income that is reassigned is based upon the inclusion percentage, as defined in § 1.960-2(c)(2), of the United States shareholder.
The Treasury Department and the IRS are continuing to study the allocation and apportionment of foreign income tax that is imposed on foreign gross income that is associated with the general category tested income group of a foreign law CFC or reverse hybrid under proposed §§ 1.861-20(d)(3)(i)(D) and 1.861-20(d)(3)(ii)(B), respectively. Comments are requested on the proper treatment of such foreign income tax in the circumstance in which some or all of the tax is not assigned to the section 951A category under proposed § 1.904-6(f) because no inclusion is attributable to the tested income group, or the inclusion percentage of the United States shareholder is less than 100 percent. In particular, comments are requested on the interaction of proposed § 1.904-6(f) with sections 245A(g) and 909.
Proposed § 1.960-1(d)(3)(ii) makes conforming changes and in addition clarifies that, if proposed § 1.861-20 would otherwise apply to assign foreign gross income to a PTEP group that is not increased as a result of a distribution described in section 959(b), the foreign taxable income is assigned to the income group to which the income, computed under Federal income tax law, that gave rise to the PTEP would be assigned if recognized under Federal income tax law in the year in which tax was imposed.
The Treasury Department and the IRS are also studying whether additional guidance should be provided on allocating and apportioning foreign taxes described in section 903 (tax in lieu of income tax), and foreign income taxes for which the foreign taxable base is computed formulaically with respect to a unitary business. The Treasury Department and the IRS are also studying whether the rules in § 1.861-8(e)(6) for allocating and apportioning state income taxes should be revised in light of changes made by the TCJA and changes to state rules for taxing foreign income. Comments are requested on these topics.
One comment was received with respect to the 2012 OFL proposed regulations, which recommended addressing dispositions that result in additional income recognition under branch loss recapture and dual consolidated loss recapture rules. The comment pointed out that these additional income recognition amounts are determined after first determining the additional recognition amount under section 904(f)(3) and therefore recommended adding the coordination of these rules as a new Step Nine in the ordering rules of § 1.904(g)-3. The comment recommended that the additional income recognition amounts resulting from branch loss recapture and dual consolidated loss recapture should not be subject to the overall foreign loss (OFL) recapture rules.
The branch loss recapture rules under section 367(a) referenced by the comment letter were repealed by the TCJA (subject to a special savings clause that applies with respect to losses incurred before January 1, 2018) and replaced with a new set of branch loss recapture rules in section 91. One of the principal differences between the two regimes is that previously the branch loss recapture amounts were treated as foreign source income, whereas under new section 91(d) they are treated as U.S. source income. Accordingly, although the branch loss recapture amounts for losses incurred after December 31, 2017, are no longer subject to the OFL recapture rules or separate limitation loss (SLL) recapture rules, they are now potentially subject to the overall domestic loss (ODL) recapture rules, and therefore ordering rules are still needed for the application of the branch loss recapture rules, including the rules for losses incurred before January 1, 2018, that are subject to the special savings clause.
The Treasury Department and the IRS agree with the recommendation to add a new Step Nine to § 1.904(g)-3 to clarify that additional income amounts recognized by reason of branch loss recapture and dual consolidated loss recapture are not taken into account for purposes of the ordering rules until after the section 904(f)(3) amounts are determined. However, the Treasury Department and the IRS do not agree that those additional income amounts should not be subject to the OFL or ODL recapture rules. The fact that a loss recapture rule may provide that the additional income amount is treated as U.S. source income does not mean it should be treated any differently than any other U.S. source income that is subject to the ODL recapture rules. The same reasoning applies to additional income amounts that are treated as foreign source income and therefore subject to the OFL recapture rules. Accordingly, Step Nine in proposed § 1.904(g)-(3)(j) provides that like section 904(f)(3) recapture amounts addressed in Step Eight, the additional income recognized by reason of branch loss and dual consolidated loss recapture will be subject to the first seven steps of the ordering rules. However, Step Nine applies only to additional income amounts with respect to branch loss and dual consolidated loss recapture that are determined after taking into account an offset for a section 904(f)(3) recapture amount. For example, if a taxpayer has a dual consolidated loss recapture in a year in which there is no section 904(f)(3) recapture, then there is only one application of Steps One through Seven, which takes into account the additional income, and Steps Eight and Nine will not apply.
When Step Nine applies, the proposed regulations provide that for purposes of determining how much of the additional income with respect to branch loss and dual consolidated loss recapture will be subject to the ODL, OFL or SLL recapture rules, any increases to an ODL, OFL or SLL account balance in the current year due to the original application of Steps One
In addition, if any additional income with respect to a branch loss or dual consolidated loss recapture is foreign source income in a separate category for which there is a remaining OFL account balance after Steps One through Eight, a special rule applies for purposes of determining the OFL recapture amount under § 1.904(f)-2(c) (the lesser of the maximum potential recapture or 50 percent of total foreign source income). The special rule provides that a taxpayer must first determine a hypothetical OFL recapture amount, which is the OFL recapture amount that would have been determined in the original application of Steps One through Seven (prior to the application of Steps Eight and Nine) if the additional income in Step Nine were also taken into account. From that hypothetical OFL recapture amount, the taxpayer subtracts the actual OFL recapture amount that was determined in the original application of Steps One through Seven (without taking into account the additional income in Step Nine). The remainder is then the OFL recapture amount with respect to the additional income in Step Nine. This special rule is necessary because a simple reapplication of the OFL recapture amount rules in § 1.904(f)-2(c) to just the additional income in Step Nine could result in requiring an excessive amount of recapture, because the same amount of foreign source income in other separate categories may be used twice to increase the OFL recapture amount (once in the original calculation and again in the second calculation with respect to the additional income).
As discussed in Part III of the Background section of the 2019 FTC final regulations, portions of the temporary regulations relating to sections 905(c), 986(a), and 6689 (TD 9362) (the “2007 temporary regulations”) are being reproposed in order to provide taxpayers an additional opportunity to comment on those rules in light of the changes made by the TCJA. References in this preamble to the 2007 temporary regulations are understood to refer to the corresponding provisions of the accompanying proposed regulations, which were issued by cross-reference to the 2007 temporary regulations at 72 FR 62805.
In particular, the rules being reproposed are: (1) § 1.905-3T(d)(2), which addresses foreign tax redeterminations that affect foreign taxes deemed paid under section 960, (2) § 1.905-4T, which in general provides the procedural rules for how to notify the IRS of a foreign tax redetermination, and (3) § 301.6689-1T, which provides rules for the penalty for failure to notify the IRS of a foreign tax redetermination. In addition, the proposed regulations contain a transition rule in proposed §§ 1.905-3(b)(2)(iv) and 1.905-5 to address foreign tax redeterminations of foreign corporations that relate to taxable years before the amendments made by the TCJA.
Section 1.905-3T(d)(2) of the 2007 temporary regulations reflects the law in effect before the TCJA, which generally required foreign tax redeterminations of foreign corporations to be taken into account by prospectively adjusting the foreign corporations' pools of post-1986 undistributed earnings and post-1986 foreign income taxes, rather than by adjusting the calculation of deemed-paid taxes and the United States shareholder's (“U.S. shareholder”) U.S. tax liability in the prior year or years in which the adjusted foreign tax was included in the calculation of foreign taxes deemed paid. Section 1.905-3T(d)(3) of the 2007 temporary regulations provides exceptions to the pooling adjustment rules that required redeterminations of the U.S. shareholder's U.S. tax liability in situations where refunds or other downward adjustments to a foreign corporation's foreign tax liability would otherwise cause a substantial overstatement of deemed paid taxes. With the repeal of the pooling regime and related amendments to section 905(c) in the TJCA, the statute now requires U.S. tax redeterminations to reflect all foreign tax redeterminations, including those that result in adjustments to foreign taxes deemed paid. Accordingly, proposed § 1.905-3(b)(2)(i) provides that a U.S. tax redetermination is required in all cases to account for the effect of a foreign corporation's foreign tax redetermination.
Section 1.905-3T(d)(3)(ii), illustrated by an example in § 1.905-3T(d)(3)(iii), provides that the required U.S. tax redetermination is made by taking the foreign tax redetermination into account in the prior year to which the redetermined foreign tax relates, and further provides that a U.S. tax redetermination is also required for any subsequent year in which the domestic corporate shareholder received or accrued a distribution or inclusion from the foreign corporation, which under pre-TCJA law would have resulted in foreign taxes deemed paid. Under these rules, the amount of the adjusted foreign tax was deemed to “relate back” and adjust the foreign corporation's earnings and profits, as well as its creditable foreign taxes, in the adjusted year.
In any case where a U.S. tax redetermination and adjustment to deemed paid taxes is required, an adjustment to the foreign corporation's taxable income and earnings and profits in the functional currency amount of the adjusted foreign tax (whether upward to reflect a refund or downward to reflect an additional payment of foreign tax) in the relation-back year is necessary in order to coordinate the computation of the U.S. shareholder's inclusions with the amount of the section 78 dividend in the amount of the adjusted foreign taxes deemed paid. This is because under sections 954(b)(5) and 951A(c)(2)(ii), the creditable foreign tax reduces the foreign corporation's subpart F income, tested income, and earnings and profits, so that the amount included in the U.S. shareholder's income under sections 951 and 951A is an after-foreign-tax amount; the section 78 dividend prevents the effective allowance of both a deduction and a credit for an amount of foreign tax that both reduces the inclusion and is allowed as a deemed paid foreign tax credit. If the foreign corporation's deduction from income and earnings and profits in respect of foreign taxes were adjusted in a different year than the year in which its creditable foreign taxes were adjusted, the amount of foreign tax that reduces the U.S. shareholder's inclusion and the amount added to income under section 78 in respect of the deemed paid tax would not match, such that the U.S. shareholder's income would be understated or overstated by the amount of the foreign tax adjustment.
Accordingly, proposed § 1.905-3(b)(2)(ii) clarifies that the required adjustments by reason of a foreign tax redetermination of a foreign corporation include not only adjustments to the amount of foreign taxes deemed paid and related section 78 dividend, but also adjustments to the foreign corporation's income and earnings and profits and the amount of the U.S. shareholder's inclusions under sections 951 and 951A in the year to which the redetermined foreign tax relates. The TCJA amendments, by eliminating deemed paid taxes under section 902 with respect to dividends and basing deemed paid taxes under section 960
Section 905(c)(1)(B) and (C) require a redetermination of U.S. tax if accrued taxes remain unpaid after two years, or if any tax paid is refunded in whole or in part. These provisions are not limited to cases in which the foreign tax redetermination reduces the amount of the foreign tax credit. Accordingly, proposed §§ 1.905-3(a) and 1.905-3(b)(2)(ii) also provide that the rules under section 905(c) apply in cases in which foreign tax redeterminations affect U.S. tax liability even though there may be no change to the amount of foreign tax credits originally claimed. For example, under the proposed regulations a redetermination of U.S. tax liability is required when a foreign tax redetermination affects whether or not a taxpayer is eligible for the high-tax exception under section 954(b)(4) (the “subpart F high-tax exception”) in the year to which the redetermined foreign tax relates. Similarly, a foreign tax redetermination could affect the subpart F income, tested income, and earnings and profits of a CFC in the year to which the tax relates, see proposed § 1.905-3(b)(2)(ii), and therefore affect the amount of a U.S. shareholder's inclusion under section 951 or section 951A with respect to the adjusted year. Corresponding amendments are proposed to the rules in §§ 1.904-4(c)(7) and 1.954-1(d).
The proposed regulations at § 1.905-3(b)(3) add a rule clarifying that if at the time of a foreign tax redetermination the person with legal liability for the tax (the “successor”) is a different person than the person that had legal liability for the tax in the year to which the redetermined tax relates (the “original taxpayer”), the required redetermination of U.S. tax liability is made as if the foreign tax redetermination occurred in the hands of the original taxpayer. This could occur, for example, if a disregarded entity is sold to a different taxpayer, or if a CFC liquidates into another CFC that has transferee liability for the liquidated CFC's foreign tax. The proposed regulations further provide that Federal income tax principles apply to determine the tax consequences if the successor remits, or receives a refund of, a tax that in the year to which the redetermined tax relates was the legal liability of, and thus considered paid by, the original taxpayer. Thus, for example, when the original taxpayer owns the successor which remits a tax that was the legal liability of, and considered paid by, the original taxpayer (for example, if a controlled foreign corporation that was formerly a disregarded entity pays additional tax after a foreign audit), then a distribution can result from the successor to the original taxpayer.
Proposed § 1.905-4 contains rules for notifying the IRS of a foreign tax redetermination. Proposed § 301.6689-1 contains rules regarding the penalty for failure to notify the IRS of a foreign tax redetermination. This Part III.C describes changes made to §§ 1.905-4 and 301.6689-1 relative to the rules that were contained in the 2007 temporary regulations.
Section 1.905-4T(b)(1)(iv) of the 2007 temporary regulations provides that, if more than one foreign tax redetermination requires a redetermination of U.S. tax liability for the same taxable year of the taxpayer (the affected year) and those redeterminations occur within two consecutive taxable years, the taxpayer generally may file for the affected year one amended return, Form 1118 (Foreign Tax Credit—Corporations) or Form 1116 (Foreign Tax Credit), and one statement under § 1.905-4T(c) with respect to all of the redeterminations. Proposed § 1.905-4(b)(1)(iv) clarifies that, if more than one foreign tax redetermination requires a redetermination of U.S. tax liability for the same affected year and those redeterminations occur within the same taxable year or within two consecutive taxable years, the taxpayer may file for the affected year one amended return and one statement under proposed § 1.905-4(c) with respect to all of the redeterminations. Proposed § 1.905-4(b)(1)(iv) also provides that the due date of the amended return and statement varies depending on whether the net effect of the foreign tax redeterminations reduces or increases the U.S. tax liability in the affected taxable year.
Section 1.905-4T(b)(1)(v) of the 2007 temporary regulations provides that, if a foreign tax redetermination requires a redetermination of U.S. tax liability that otherwise would result in an additional amount of U.S. tax due, but such amount is eliminated as a result of a carryback or carryover of an unused foreign tax under section 904(c), the taxpayer may, in lieu of applying the rules of §§ 1.905-4T(b)(1)(i) and (b)(1)(ii), notify the IRS of such redetermination by attaching a statement to the original return for the taxpayer's taxable year in which the foreign tax redetermination occurs. Section 1.905-4T(b)(1)(v) of the 2007 temporary regulations does not apply if the foreign tax redetermination does not change the U.S. tax liability for the taxable year to which the tax relates for a reason other than the carryback or carryover of an unused foreign tax. Section 1.905-4T(b)(1)(v) of the 2007 temporary regulations also does not apply if more than one foreign tax redetermination occurring within the same taxable year or two consecutive taxable years requires a redetermination of U.S. tax liability for the same taxable year but, taking into account all such foreign tax redeterminations on a net basis, results in no additional amount of U.S. tax liability due for such taxable year.
Proposed § 1.905-4(b)(1)(v) provides that, if a foreign tax redetermination (either alone or in combination with certain other foreign tax redeterminations as provided in proposed § 1.905-4(b)(1)(iv)) does not result in a change to the amount of U.S. tax due for a taxable year, for reasons including but not limited to a carryover or carryback of unused foreign taxes under section 904(c), no amended return is required for such year. Instead, appropriate adjustments are made to the amounts carried over from that year (for example, unused foreign taxes). If no amended return is required for any year, the taxpayer must attach a statement containing the information described in § 1.904-2(f) to the taxpayer's timely filed (with extensions) original return for the taxpayer's taxable year in which the foreign tax redetermination occurs.
The 2007 temporary regulations did not specifically provide guidance for
Additionally, in 2015, Congress introduced the centralized audit partnership regime, which requires that certain adjustments be made at the level of the partnership, rather than by partners.
On June 14, 2017, the Treasury Department and the IRS published in the
The use of the AAR process, even if the period under section 6227(c) is closed, is intended to further the purpose of sections 905(c), 6227(d), 6235(a), and 6241(11). An AAR is analogous to an amended return, which is required from other taxpayers who have a foreign tax redetermination, and provides an administrable process whereby a partnership, and its partners, can satisfy their obligations under section 905(c). The Treasury Department and the IRS request comments on any further coordination that may be required between sections 905(c) and 6227 in order to carry out the purposes of the foreign tax credit and the centralized partnership audit regime.
Proposed § 1.905-4(b)(3) provides that an amended return and Form 1118 (Foreign Tax Credit—Corporations) or Form 1116 (Foreign Tax Credit), is not required to notify the IRS of a foreign tax redetermination and redetermination of U.S. tax liability if the taxpayer satisfies alternative notification requirements that may be prescribed by the IRS through forms, instructions, publications, or other guidance. For example, as provided in Notice 2016-10, 2016-1 I.R.B. 1, the Treasury Department and the IRS intend to issue regulations providing for alternative notification procedures in the case of tax refunds received by regulated investment companies making the election to pass through foreign tax credits under section 853. The Treasury Department and the IRS request comments on additional alternative approaches to complying with the notification requirements in section 905(c) that minimize burdens to both taxpayers and the IRS.
Section 1.905-4T(b)(3) of the 2007 temporary regulations provides a special rule for U.S. taxpayers under the jurisdiction of the Large and Mid-Size Business Division. The proposed regulations reflect the organization's name change to Large Business and International Division (LB&I).
Under the special rule for U.S. taxpayers under LB&I jurisdiction (“LB&I rule”), such taxpayers are required, in limited circumstances, to provide to their examiners notice of a foreign tax redetermination that requires a redetermination of U.S. tax, in lieu of filing an amended return. One of the threshold requirements of § 1.905-4T(b)(3) of the 2007 temporary regulations is that the taxpayer must provide the statement describing the foreign tax redetermination no later than 120 days after the latest of (1) the date the foreign tax redetermination occurs, (2) the opening conference of the examination for the affected taxable year, or (3) the hand-delivery or postmark date of the opening letter concerning the examination. In no case, however, can the alternative notification procedure apply if the 120-day period within which notification must be made would start after the due date of the return for the taxable year in which the foreign tax redetermination occurs.
The LB&I rule contained in the proposed regulations is generally the same as the rule in the 2007 temporary regulations, and the Explanation of Provisions of the 2007 temporary regulations contains an explanation of the rules. However, one change has been made with respect to § 1.905-4T(b)(3) of the 2007 temporary regulations. Section 1.905-4T(b)(3) provides that, if that provision applies to permit notification during an audit, in lieu of filing an amended return a taxpayer must provide to the examiner the statement described in § 1.905-4T(c) of the 2007 temporary regulations, which contains information that enables the IRS to verify and compare the original computations with respect to a claimed foreign tax credit, the revised computations resulting from the foreign tax redetermination, and the net changes resulting therefrom. In order to satisfy the requirements of § 1.905-4T(c), a taxpayer is required to recompute its U.S. tax liability during the course of an examination, rather than only at the conclusion of the audit. To minimize administrative burdens, the statement requirement at proposed § 1.905-4(b)(4)(iii) requires the taxpayer to provide to the examiner the original amount of foreign taxes paid or accrued in the year to which the foreign tax redetermination relates, the revised amount of foreign taxes paid or accrued, and documentation with respect to the revisions, including exchange rates and dates of accrual and/or payment. This information must be provided with a penalties-of-perjury declaration signed by a person authorized to sign the return of the taxpayer.
In order to clarify when the special rules for LB&I taxpayers apply, the proposed regulations reorganize certain portions of the 2007 temporary regulations into a list of conditions, all of which must be met in order for § 1.905-4(b)(4) to apply. These
Section 6689 provides that a taxpayer may be subject to a penalty if it fails to notify the IRS of a foreign tax redetermination on or before the date prescribed by regulations. Section 301.6689-1T(a) (issued in TD 8210 on June 22, 1988) states that the penalty may apply if a taxpayer fails to notify the IRS of a foreign tax redetermination “on or before the date prescribed in regulations.” However, the preamble of the 2007 temporary regulations, in describing section 6689, provides that, “Under section 6689, a taxpayer that fails to notify the IRS of a foreign tax redetermination in the time
The penalty under section 6689 is generally computed by reference to the amount of the deficiency resulting from a foreign tax redetermination. If a partnership fails to timely file an AAR as required under proposed § 1.905-4(b)(2)(ii) such that the penalty under section 6689 is applicable there is ambiguity regarding the correct base upon which the penalty is computed because partnerships do not generally have deficiencies in chapter 1 tax. Under the centralized partnership audit regime enacted by the BBA, if an adjustment is made to a partnership-related item of a partnership that is subject to the BBA (either by the IRS or by the partnership upon the filing of an AAR), the default rule is that the partnership is liable for an imputed underpayment calculated on the adjustments, which is an approximate substitute for the amount of chapter 1 tax that would have been owed by its partners.
Finally, because section 6662 may apply if a taxpayer's U.S. tax liability is understated on an original return even if section 6689 applies to a failure to notify the IRS of a subsequent foreign tax redetermination, the proposed regulations eliminate the reference in § 301.6689-1(b) to section 6653(a) (the predecessor to section 6662).
The TCJA repealed the pooling rules of section 902 and related provisions of section 905(c) that mandated prospective pooling adjustments to account for redeterminations of foreign taxes paid by foreign corporations that were eligible to be deemed paid by domestic corporate shareholders of the foreign corporations. Proposed §§ 1.905-3(b)(2)(iv) and 1.905-5 provide a transition rule providing that post-2017 redeterminations of pre-2018 foreign income taxes must be accounted for by adjusting the foreign corporation's taxable income and earnings and profits, post-1986 undistributed earnings, and post-1986 foreign income taxes (or pre-1987 accumulated profits and pre-1987 foreign income taxes, as applicable) in the pre-2018 year to which the redetermined foreign taxes relate. A redetermination of U.S. tax liability is required to account for the effect of the foreign tax redetermination on foreign taxes deemed paid by domestic corporate shareholders of the foreign corporation in the relation-back year and any subsequent pre-2018 year in which the domestic corporate shareholder computed a deemed-paid credit under section 902 or 960 with respect to the foreign corporation, as well as any year to which unused foreign taxes from any such year were carried. The proposed regulations generally apply the currency translation rules applicable under prior law and the notification requirements of proposed § 1.904-4 to redeterminations of U.S. tax liability required by proposed § 1.905-3(b)(2)(iv) in these circumstances.
The Treasury Department and the IRS request comments on whether an alternative adjustment to account for post-2017 foreign tax redeterminations with respect to pre-2018 taxable years of foreign corporations, such as an adjustment to the foreign corporation's taxable income and earnings and profits, post-1986 undistributed earnings, and post-1986 foreign income taxes as of the foreign corporation's last taxable year beginning before January 1, 2018, may provide for a simplified and reasonably accurate alternative.
As discussed in Part III.A of this Explanation of Provisions, proposed § 1.905-3(b)(2) provides that a U.S. tax redetermination is required when a foreign tax redetermination affects whether or not a taxpayer is eligible for the subpart F high-tax exception. Proposed § 1.954-1(d)(3)(iii) therefore provides that the subpart F high-tax exception is applied by taking into account the redetermined foreign tax in the adjusted year.
The proposed regulations also include an additional clarification relating to schemes involving jurisdictions that do not impose corporate income tax on a CFC until its earnings are distributed. The Treasury Department and the IRS are aware that certain taxpayers claim that taxes are treated as paid or accrued for purposes of § 1.954-1(d)(3) even in the absence of any distribution triggering foreign tax. The IRS may challenge this position under existing law. Furthermore, the proposed regulations clarify that foreign income taxes that have not accrued because they are contingent on a future distribution are not taken into account for purposes
The Treasury Department and the IRS are aware that certain taxpayers may have engaged in certain transactions that are intended to avoid the disallowance of foreign tax credits under section 965(g) with respect to distributions of section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits. For example, certain U.S. shareholders of specified foreign corporations may incur foreign income taxes on distributions recognized for foreign tax purposes that are not recognized for U.S. tax purposes (for example, consent dividends). When the section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits are distributed for U.S. tax purposes, no foreign income tax is imposed by the foreign jurisdiction. The taxpayers may argue that the foreign income taxes on the foreign distributions are not associated with a distribution of section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits for U.S. tax purposes, and, accordingly, the credit need not be reduced by the section 965(g) disallowance.
Proposed § 1.965-5(b)(2) clarifies that the principles of § 1.904-6 apply in determining the extent to which foreign income taxes are attributable to distributions of section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits for purposes of § 1.965-5(b)(1). For example, under the principles of § 1.904-6, foreign withholding taxes imposed on an amount that is recognized as a dividend for foreign, but not Federal income, tax purposes are attributable to an item of income to which that amount would be assigned if recognized as a distribution for Federal income tax purposes. To the extent a distribution would be a distribution of section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits if it were recognized for U.S. tax purposes, under proposed § 1.965-5(b)(2) the tax would be associated with section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits and disallowed in part by reason of section 965(g). For foreign corporation taxable years beginning after December 31, 2019, § 1.861-20 applies in lieu of § 1.904-6.
The IRS may challenge the credits claimed for foreign income taxes imposed on distributions recognized solely for foreign tax purposes in prior years to the extent that such foreign income taxes would be considered imposed on distributions of section 965(a) previously taxed earnings and profits or section 965(b) previously taxed earnings and profits had such distributions been recognized for U.S. tax purposes.
Proposed § 1.1502-4 includes amendments to regulations under section 1502 relating to the computation of the consolidated foreign tax credit. The proposed amendments update the regulations to reflect changes in the law, such as by eliminating out-of-date references to the per-country limitation. For purposes of determining the foreign tax credit limitation, the proposed regulations also provide that the amount of foreign source income in each separate category, used as the numerator in the foreign tax credit limitation fraction, is determined by applying the rules of § 1.1502-11, as well as sections 904(f) and 904(g), on a group-wide basis, rather than applying those rules on a separate member basis and combining the results.
The proposed regulations also add new rules for purposes of determining the source and separate category of a consolidated NOL, as well as the portion of a consolidated net operating loss (“CNOL”) that is apportioned to a separate return year of a member. The Treasury Department and the IRS have determined that, when characterizing a CNOL that is apportioned to a separate return year, it is generally appropriate to link the source and separate category of the CNOL with the member's assets that are expected to produce income with that same source and separate category so as to minimize the creation of loss accounts under sections 904(f) and 904(g) in the year in which the CNOL is used. The proposed regulations achieve this result formulaically through a two-step process that generally determines a CNOL's source and separate category by reference to the statutory and residual groupings described in § 1.861-8 for purposes of applying section 904 as the operative section, which are foreign source income in each separate category, and the residual grouping, which is U.S. source income.
First, the member determines a tentative apportionment, which is a proportionate share of the amount of the CNOL in each grouping based on a comparison of the value of the member's assets in that grouping to the value of the group's total assets in the grouping. Because the total of tentative apportionments of the CNOL does not necessarily equal the member's total share of the CNOL, an adjustment is provided. If the total tentative apportionments exceed the CNOL attributable to the member, the tentative apportionment in each grouping is reduced by a pro rata share of the excess, in proportion to the amount of the tentative apportionment in that grouping over the total tentative apportionments. In contrast, if the total tentative apportionments are less than the CNOL attributable to the member, the tentative apportionment in each grouping is increased by a pro rata share of that deficiency, in proportion to the remaining CNOL in that grouping (after subtracting the tentative apportionment) over the total remaining CNOL in all groupings.
The rules in proposed §§ 1.861-8, 1.861-9, 1.861-12, 1.861-14, 1.904-4(c)(7) and (8), 1.904(b)-3, 1.954-1, and 1.954-2, generally apply to taxable years that end on or after December 16, 2019.
The rules in proposed §§ 1.704-1(b)(4)(viii)(
Proposed §§ 1.904-4(e) and 1.904(g)-3 apply to taxable years ending on or after the date the final regulations are filed with the
In general, proposed §§ 1.905-3, 1.905-4, 1.905-5, and 301.6689-1 apply to foreign tax redeterminations (as defined in § 1.905-3(a)) occurring in taxable years ending on or after December 16, 2019, and to foreign tax redeterminations of foreign corporations occurring in taxable years that end with or within a taxable year of a U.S.
Proposed § 1.965-5(b)(2) applies to taxable years of foreign corporations that end on or after December 16, 2019, and with respect to a United States person, to the taxable years in which or with which such taxable years of the foreign corporations end.
Proposed § 1.1502-4 applies to taxable years for which the original consolidated Federal income tax return is due (without extensions) after December 17, 2019.
Executive Orders 13563 and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The Executive Order 13771 designation for any final rule resulting from these proposed regulations will be informed by comments received.
The proposed regulations have been designated by the Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. The Office of Information and Regulatory Affairs (OIRA) has designated these proposed regulations as significant under section 1(b) of the MOA. Accordingly, these proposed regulations have been reviewed by OIRA.
Before the Tax Cuts and Jobs Act (TCJA), the United States taxed its citizens, residents, and domestic corporations on their worldwide income. However, to the extent that a foreign jurisdiction and the United States taxed the same income, this framework could have resulted in double taxation. The U.S. foreign tax credit (FTC) regime alleviated potential double taxation by allowing a non-refundable credit for foreign income taxes paid or accrued that could be applied to reduce the U.S. tax on foreign source income. Although TCJA eliminated the U.S. tax on some foreign source income, the United States continues to tax other foreign source income, and to provide foreign tax credits against this U.S. tax. The changes made by TCJA to international taxation necessitate certain changes in this FTC regime.
The FTC calculation operates by defining different categories of foreign source income (a “separate category”) based on the type of income.
The proposed regulations are needed to address changes introduced by the TCJA and to respond to outstanding issues raised in comments to the 2018 FTC proposed regulations. In particular, the comments highlighted the following areas of concern: (a) Uncertainty concerning appropriate allocation of R&E expenditures across FTC categories, (b) the need to treat loans from partnerships to partners the same as loans from partners to partnerships with respect to aligning interest income to interest expense, and (c) uncertainty regarding the appropriate level of aggregation (affiliated group versus subgroup) at which expenses of insurance companies should be allocated to foreign source income. In addition, the proposed regulations are needed to expand the application of section 905(c) to cases where a foreign tax redetermination changes a taxpayer's eligibility for the high-taxed exception under subpart F and GILTI.
These proposed regulations address the following issues: (1) The allocation and apportionment of deductions under sections 861 through 865, including new rules on the allocation and apportionment of research and experimentation (R&E) expenditures and certain deductions of life insurance companies; (2) the definition of financial services income under section 904(d)(2)(D); (3) the allocation of foreign income taxes to the foreign income to which such taxes relate; (4) the interaction of the branch loss and dual consolidated loss recapture rules with sections 904(f) and (g); (5) the effect of foreign tax redeterminations of foreign corporations on the application of the high-tax exception described in section 954(b)(4) (including for purposes of determining tested income under section 951A(c)(2)(A)(i)(III)), and required notifications under section 905(c) to the IRS of foreign tax redeterminations and related penalty provisions; (6) the definition of foreign personal holding company income under section 954; (7) the application of the foreign tax credit disallowance under section 965(g); and (8) the application of the foreign tax credit limitation to consolidated groups.
The Treasury Department and the IRS have assessed the benefits and costs of these proposed regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these regulations.
The proposed regulations provide certainty and clarity to taxpayers regarding the allocation of income, expenses, and foreign income taxes to the separate categories. In the absence of the enhanced specificity provided by these regulations, similarly situated taxpayers might interpret the foreign tax credit provisions of the tax code differently, potentially resulting in inefficient patterns of economic activity. For example, in the absence of the proposed regulations, one taxpayer might have chosen not to undertake research (that is, incur R&E expenses) in a particular location, based on that taxpayer's interpretation of the tax consequences of such expenditures, that another taxpayer, making a different interpretation of the tax treatment of R&E, might have chosen to pursue in that same location. If this difference in interpretations confers a competitive advantage on the less productive enterprise, U.S. economic performance may suffer. The guidance provided in these regulations helps to ensure that taxpayers face more uniform incentives when making economic decisions. In general, economic performance is enhanced when businesses face more uniform signals about tax treatment.
Because the TCJA is new, the Treasury Department and the IRS do not know with reasonable precision the tax interpretations that taxpayers might make in the absence of this guidance. To the extent that taxpayers would generally have interpreted the foreign tax credit rules as being less favorable to the taxpayer than the proposed regulations provide, the proposed regulations may result in additional international activity by these taxpayers relative to the no-action baseline. This additional activity may include both activities that are beneficial to the U.S. economy (perhaps because they represent enhanced international opportunities for businesses with U.S. owners) and activities that are not beneficial (perhaps because they are accompanied by reduced activity in the United States). In essence, the Treasury Department and the IRS recognize that additional foreign economic activity by U.S. taxpayers may be a complement or substitute to activity within the United States and that to the extent these regulations change this activity (relative to the no-action baseline or alternative regulatory approaches), a mix of results may occur.
The Treasury Department and the IRS have not undertaken quantitative estimates of the economic effects of these regulations. The Treasury Department and the IRS do not have readily available data or models to estimate with reasonable precision (i) the tax stances that taxpayers would likely take in the absence of the proposed regulations or under alternative regulatory approaches; (ii) the difference in business decisions that taxpayers might make between the proposed regulations and the no-action baseline or alternative regulatory approaches; or (iii) how this difference in those business decisions will affect measures of U.S. economic performance.
In the absence of such quantitative estimates, the Treasury Department and the IRS have undertaken a qualitative analysis of the economic effects of the proposed regulations relative to the no-action baseline and relative to alternative regulatory approaches. This analysis is presented in part I.C.3 of these Special Analyses.
Under long-standing foreign tax credit rules, taxpayers must allocate expenditures to income categories. In the case of research and experimentation (R&E) expenditures, taxpayers can elect between a “sales method” and a “gross income method” to allocate the R&E expenses.
The TCJA created some uncertainty regarding the application of the sales method because of the introduction of the section 951A category. In particular, comments raised issues regarding whether any R&E expenditures should be allocated to the section 951A category. The fact that sales by CFCs generate tested income and tested income is generally assigned to the section 951A category might imply that R&E expenditures should be allocated to the section 951A category. But the fact that royalty payments from the CFC to the U.S. taxpayer (
The gross income method is based on a different apportionment factor (gross income) as compared to the sales method (gross receipts). However, the gross income method is subject to certain conditions that require the result to be within a certain band around the result under the sales method, because historically the Treasury Department and the IRS have considered that the gross income method could lead to anomalous results and could be more easily manipulated than the sales method.
The Treasury Department and the IRS considered three options with respect to the allocation of R&E expenditures to the section 951A category for purposes of calculating the FTC limitation. The first option was to confirm that R&E expenditures are allocated to the section 951A category under the sales method and to otherwise leave their treatment under the gross income method unchanged. The second option was to revise the sales method to provide that R&E expenditures are only allocated to the income that represents the taxpayer's return on intellectual property (thus, R&E expenditures could not be allocated to income from the taxpayer's CFC sales) and otherwise leave their treatment under the gross income method unchanged. The third option was to revise the sales method as considered in the second option and eliminate the gross income method for purposes of allocating R&E expenditures.
The proposed regulations adopt the last option. This option allows for the provision of an allocation and apportionment method for R&E
The Treasury Department and the IRS have determined that the population of affected taxpayers consists of any U.S. taxpayer with R&E expenditures and foreign operations. There are around 2,500 such taxpayers in currently available tax filings from taxable years 2015-2017. Based on Statistics of Income data for 2014, approximately $40 billion of R&E expenses of such taxpayers were allocated to foreign source income, out of a total of $190 billion in qualified research expenses reported by such taxpayers in that year.
Section 905(c) provides special rules for a foreign tax redetermination (FTR), which is when the amount of foreign tax paid in an earlier year (origin year) is changed in a later year (FTR year). This redetermination may be necessary, for example, because the taxpayer gets a refund or because a foreign audit determines that the taxpayer owes additional foreign tax. Since these additional taxes (or refunds) relate to the origin year, an FTR affects a taxpayer's origin year tax position (as well as FTC carryovers from that year).
Prior to TCJA, FTRs of foreign corporations generally resulted in prospective “pooling adjustments” to foreign tax credits. Under this approach, taxpayers simply added to or reduced the amount of foreign taxes in their foreign subsidiary's FTC “pool” going forward rather than amend the deemed paid taxes claimed on their origin year return. TCJA eliminated the pooling mechanism for taxes (because the adoption of a participation exemption system along with the elimination of deferral made it unnecessary) and replaced it with a system where taxes are deemed paid each year with an inclusion or distribution of previously taxed earnings and profits (“PTEP”).
The 2019 FTC final regulations make clear that an FTR of a United States taxpayer must always be accounted for in the origin year, and that the taxpayer must file an amended return reflecting any resulting change in the taxpayer's U.S. tax liability. Section 905(c) provides tools to enforce this amended return requirement. It suspends the statute of limitations with respect to the assessment of any additional U.S. tax liability that results from an FTR, and imposes a civil penalty on taxpayers who fail to notify the IRS (through an amended return) of a FTR. To reflect the repeal of the pooling mechanism, the proposed regulations generally require taxpayers to account for FTRs of foreign subsidiaries on an amended return that reflects revised foreign taxes deemed paid under section 960 and any resulting change in the taxpayer's U.S. tax liability. However, the 2019 FTC final regulations require U.S. tax redeterminations only by reason of FTRs that affect the amount of foreign tax credit taxpayers claimed in the origin year. The rules do not apply to other tax effects, such as when the FTR changes the amount of earnings and profits the taxpayer's CFC had in the origin year, or affects whether or not the CFC's income qualifies for the high-tax exception under GILTI or subpart F.
The interaction of FTRs and the high-tax exception under GILTI and subpart F increases the importance of filing an origin year amended return. In particular, FTRs can give rise to inaccurate origin year U.S. liability calculations in the absence of an amended return precisely because they can change taxpayers' eligibility for the high-tax exception. Therefore, the proposed regulations provide that the section 905(c) rules cover situations in which the FTR affects not only the amount of FTCs taxpayers claimed in the origin year, but also whether or not their CFC's income qualified for the high-tax exception.
The Treasury Department and the IRS considered two options for expanding section 905(c) to cover the high-tax exception. The first option was to limit section 905(c) to changes in the amount of FTCs. The second option was to provide that section 905(c) applies in connection with the high-tax exceptions under GILTI and subpart F.
The proposed regulations adopt the second option. The first option would lead to frequent occurrences of inaccurate results with respect to the GILTI and subpart F high-tax exceptions because it is common for foreign audits to change the amount of tax paid in a prior year. Furthermore, taxpayers would have an incentive to overpay their CFC's foreign tax in the origin year, claim the high-tax exception to avoid subpart F or GILTI inclusions, wait for the 3 year statute of limitations to pass, and then claim a foreign tax refund with the foreign authorities. Without section 905(c) applying, taxpayers would have no obligation or threat of penalty for not amending the origin year return. Although there are FTC regulations that deny a credit if taxpayers make a noncompulsory payment of tax (
The second option provides a more accurate tax calculation than the first option, and it is instrumental in avoiding abuse. The increased number of amended returns will increase compliance costs for taxpayers, but the Treasury Department and the IRS consider that, in light of the high-tax exception, accurate origin year tax liability calculations necessitate these increased costs; however, the Treasury Department and the IRS solicit comments on this issue.
The Treasury Department and the IRS determined that the proposed regulations potentially affect those U.S. taxpayers that pay foreign taxes and have a redetermination of that tax. Although data reporting the number of taxpayers subject to an FTR in a given year do not exist, some taxpayers currently subject to FTRs will file amended returns. The Treasury Department and the IRS estimate that there are approximately 300 to 600 U.S.
The 2019 FTC final regulations provide a rule that aligns interest income and expense when a U.S. partner makes a loan to the partnership. Under this matching rule, the partner's gross interest income is apportioned between U.S. and foreign sources in each separate category based on the partner's interest expense apportionment ratios. This rule minimizes the artificial increase in foreign source taxable income based solely on offsetting amounts of interest income and expense from a related party loan to a partnership. Comments in response to the 2018 FTC proposed regulations requested an equivalent rule when the partnership makes a loan to a U.S. partner.
The Treasury Department and the IRS considered two options with respect to this rule. The first option was to not provide a rule, because the abuse the Treasury Department and the IRS were concerned about was not relevant with respect to loans from the partnership to the partner. In the absence of a matching rule, the U.S. partner's U.S. source taxable income would be artificially increased but this income is not eligible to be sheltered by FTCs. The second option was to provide an identical rule for loans from the partnership to the partner as was provided in the 2019 FTC final regulations for loans from the partner to the partnership. The proposed regulations adopt the second option. This symmetry helps to ensure that similar economic transactions are treated similarly.
The Treasury Department and the IRS consider the population of affected taxpayers to consist of any U.S. partner in a partnership which has a loan from the partnership to the partner or certain other parties related to the partner. The Treasury Department and the IRS estimate that there are approximately 450 partnerships and 5,000 partners that would be affected by this regulation.
Section 818(f) provides that for purposes of applying the expense allocation rules to life insurance companies, the deduction for policyholder dividends, reserve adjustments, death benefits, and certain other amounts are treated as items that cannot be definitely allocated to an item or class of gross income. That means, in general, that the expenses are apportioned ratably across all gross income.
Under the expense allocation rules, for most purposes, affiliated groups are treated as a single entity, although there are exceptions for certain expenses. The statute is unclear, however, about how affiliated groups are to be treated with respect to the allocation of certain expenses for insurance companies. Depending on the approach, the results could be different because the gross income categories across the affiliated group could be calculated in multiple ways. The Treasury Department and the IRS received comments and are aware that in the absence of further guidance taxpayers are likely to take opposite positions on this treatment. Some taxpayers argue that the expenses described in section 818(f) are apportioned based on the gross income of the entire affiliated group, while others argue that expenses are apportioned on a separate company or subgroup basis taking into account only the gross income of life insurance companies.
The Treasury Department and the IRS are aware of at least five potential methods for allocating section 818(f) expenses in a life-nonlife consolidated group. First, the expenses might be allocated solely among items of the life insurance company that has the reserves (“separate entity method”). Second, to the extent the life insurance company has engaged in a reinsurance arrangement that constitutes an intercompany transaction (as defined in § 1.1502-13(b)(1)), the expenses might be allocated in a manner that achieves single entity treatment between the ceding member and the assuming member (“limited single entity method”). Third, the expenses might be allocated among items of all life insurance members (“life subgroup method”). Fourth, the expenses might be allocated among items of all members of the consolidated group (including both life and non-life members) (“single entity method”). Fifth, the expenses might be allocated based on a facts and circumstances analysis (“facts and circumstances method”).
In response to the request for comments in the 2018 FTC proposed regulations, the Treasury Department and the IRS received comments advocating for certain of the aforementioned allocation methods. The proposed regulations adopt the separate entity method because it is consistent with section 818(f) and with the separate entity treatment of reserves under § 1.1502-13(e)(2). The Treasury Department and the IRS recognize, however, that this method may create opportunities for consolidated groups to use intercompany transactions to shift their section 818(f) expenses and achieve a more desirable foreign tax credit result. Accordingly, the Treasury Department and the IRS request comments on whether a life subgroup method more accurately reflects the relationship between section 818(f) expenses and the income producing activities of the life subgroup as a whole, and whether the life subgroup method is less susceptible to abuse
The Treasury Department and the IRS have determined that the population of affected taxpayers consists of life insurance companies that are members of an affiliated group. The Treasury Department and the IRS have established that there are approximately 60 such taxpayers.
For purposes of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) (“PRA”), there is a collection of information in proposed §§ 1.905-4 and 1.905-5(b).
When a redetermination of U.S. tax liability is required by reason of a foreign tax redetermination (FTR), the proposed regulations generally require the taxpayer to notify the IRS of the FTR and provide certain information necessary to redetermine the U.S. tax due for the year or years affected by the FTR. If there is no change in the U.S. tax liability as a result of the FTR or if the FTR is caused by certain de minimis fluctuations in foreign currency rates, the taxpayer may simply attach the notification to their next filed tax return and make any appropriate adjustments in that year. However, taxpayers are generally required to file an amended return (or an administrative adjustment request in the case of certain partnerships) for the year or years affected by the FTR along with an updated Form 1116 Foreign Tax Credit (Individual, Estate, or Trust) (covered under OMB Control Number 1545-0074 individual, or 1545-0121 estate and trust) or Form 1118 Foreign Tax Credit-Corporations (OMB Control Number 1545-0123), and a written statement providing specific information relating to the FTR. Since the burden for filing amended income tax returns and the Forms 1116 and 1118 are covered under the OMB Control Numbers listed in the prior sentence, the burden estimates for OMB Control Number 1545-1056 only cover the burden for the written statements.
For purposes of the PRA, the reporting burden associated with proposed §§ 1.905-4 and 1.905-5(b) will be reflected in the PRA submission associated with OMB control number 1545-1056, which is set to expire on December 31, 2020. The number of respondents to this collection was estimated at 13,000 and the total estimated burden time was estimated to be 54,000 hours and total estimated monetized costs of $2,430,540 ($2016).
For taxpayers who are required to file an amended return (along with related Form 1116 or Form 1118) in order to report an FTR, and for purposes of the PRA, the reporting burden for filing the amended return will be reflected in OMB control numbers 1545-0123 (relating to business filers, which represents a total estimated burden time, including all related forms and schedules, of 3.157 billion hours and total estimated monetized costs of $58.148 billion ($2017)), 1545-0074 (relating to individual filers, which represents a total estimated burden time, including all related forms and schedules, of 1.784 billion hours and total estimated monetized costs of $31.764 billion ($2017)), and 1545-0121 (relating to estate and trust filers, which represents a total estimated burden time, including all related forms and schedules, of 25,066,693 hours). These overall burden estimates for OMB control numbers 1545-0123, 1545-0074, and 1545-0121 include, but do not isolate, the estimated burden of the foreign tax credit-related forms as a result of the information collection in the proposed regulations. These numbers are therefore unrelated to the future calculations needed to assess the burden imposed by the proposed regulations. These burdens have also been reported for other regulations related to the taxation of cross-border income and the Treasury Department and the IRS urge readers to recognize that these numbers are duplicates and to guard against overcounting the burden that international tax provisions imposed prior to the TCJA.
As a result of the changes made in the TCJA to the foreign tax credit rules generally, and to section 905(c) specifically, the Treasury Department and the IRS anticipate that the number of respondents may increase modestly among taxpayers who file Form 1120 series returns. The possible increase in the number of respondents is due to the elimination of adjustments to pools of post-1986 earnings and profits and post-1986 foreign income taxes as an alternative to filing an amended return following the changes made in the TCJA. These changes to the burden estimate will be reflected in the PRA submission for the renewal of OMB control number 1545-1056 as well as in the OMB control numbers 1545-0074 (for individuals) and 1545-0123 (for business taxpayers).
The estimates for the number of impacted filers with respect to the collections of information described in this Part II of the Special Analyses are based on filers of income tax returns that file a Form 1065, Form 1040, or Form 1120 series because only filers of these forms are generally subject to the collection of information requirement. The IRS estimates the number of impacted filers to be the following:
The Treasury Department and the IRS request comments on all aspects of information collection burdens related to these proposed regulations, including estimates for how much time it would take to comply with the paperwork burdens described in this Part II of the Special Analyses and ways for the IRS to minimize the paperwork burden. No burden estimates specific to the proposed regulations are currently available. The Treasury Department has not estimated the burden, including that of any new information collections, related to the requirements under the proposed regulations. Those estimates would capture both changes made by the TCJA and those that arise out of
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that the proposed regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act.
The proposed regulations provide guidance needed to comply with statutory changes and affect individuals and corporations claiming foreign tax credits. The domestic small business entities that are subject to the foreign tax credit rules in the Code and in the proposed regulations are generally those domestic small business entities that are at least 10 percent corporate shareholders of foreign corporations, and so are eligible to claim dividends-received deductions or compute foreign taxes deemed paid under section 960 with respect to inclusions under subpart F and section 951A from CFCs. Other aspects of these proposed regulations also affect domestic small business entities that operate in foreign jurisdictions or that have income from sources outside of the United States. Based on 2017 Statistics of Income data, the Treasury Department and the IRS computed the fraction of taxpayers owning a CFC by gross receipts size class. The smaller size classes have a relatively small fraction of taxpayers that own CFCs, which suggests that many domestic small business entities would be unaffected by these regulations.
Many of the important aspects of the proposed regulations, including all of the rules in proposed §§ 1.861-8(d)(2)(ii)(B), 1.904-4(c)(7), 1.904-6(f), 1.905-3(b)(2), 1.905-5, 1.954-1, 1.954-2, and 1.965-5(b)(2) apply only to U.S. persons that operate a foreign business in corporate form, and, in most cases, only if the foreign corporation is a CFC. Because it takes significant resources and investment for a business to operate outside of the United States in corporate form, and in particular to own a CFC, the owners of such businesses will infrequently be domestic small business entities, as indicated by the Table. Other provisions in the proposed regulations, including the rules in proposed §§ 1.861-8(d)(2)(v), 1.861-8(e)(16), 1.861-14, 1.904-4(e), 1.1502-4, and 1.1502-21, generally apply only to members of a consolidated group and insurance companies or other members of the financial services industry earning income from sources outside of the United States. It is infrequent for domestic small entities to operate as part of an affiliated group, to be taxed as an insurance company, or to constitute a financial services entity, and also earn income from sources outside of the United States. Consequently, the Treasury Department and the IRS project that the proposed regulations are unlikely to affect a substantial number of domestic small business entities, however adequate data are not available at this time to certify that a substantial number of small entities would be unaffected.
The Treasury Department and the IRS have determined that the proposed regulations will not have a significant economic impact on domestic small business entities. Based on published information from 2013, foreign tax credits as a percentage of three different tax-related measures of annual receipts (see Table for variables) by corporations are substantially less than the 3 to 5 percent threshold for significant economic impact. The amount of foreign tax credits in 2013 is an upper bound on the change in foreign tax credits resulting from the proposed regulations.
Although proposed § 1.905-4 contains a collection of information requirement, the small businesses that are subject to the requirements of proposed § 1.905-4 are domestic small entities with significant foreign operations. The data to assess precise counts of small entities affected by proposed § 1.905-4 are not readily available, but, as the data above suggest, a significant number of small entities are not likely to have significant foreign operations. Further, as demonstrated in the second table in this Part III, foreign tax credits do not have a significant economic impact for small business entities. Therefore, the Treasury Department and the IRS have determined that a substantial number of domestic small business entities will not be subject to proposed § 1.905-4. Moreover, as discussed in this Part III, the proposed regulations do not have a significant economic impact on small entities. Accordingly, it is hereby certified that the requirements of proposed § 1.905-4 will not have a significant economic impact on a substantial number of small entities.
Pursuant to section 7805(f), these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses. The Treasury Department and the IRS also request comments from the public on the certifications in this Part III.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a state, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $154 million. This proposed rule does not include any Federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.
Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on state and local governments, and is not required by statute, or preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order.
Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the
All comments will be available at
The principal authors of the proposed regulations are Karen J. Cate, Jeffrey P. Cowan, Jeffrey L. Parry, Larry R. Pounders, and Suzanne M. Walsh of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
26 U.S.C. 7805.
Section 1.861-14 also issued under 26 U.S.C. 864(e)(7).
Section 1.905-4 also issued under 26 U.S.C. 989(c)(4) and 26 U.S.C. 6689(a).
Section 1.905-4(b)(2)(ii) also issued under 26 U.S.C. 6227(d) and 26 U.S.C. 6241(11).
The revisions read as follows:
(b) * * *
(1) * * *
(ii) * * *
(
(
(4) * * *
(viii) * * *
(
The additions and revisions read as follows:
(a) * * * (1) * * * The term “section 861 regulations” means this section, §§ 1.861-8T, 1.861-9, 1.861-9T, 1.861-10, 1.861-10T, 1.861-11, 1.861-11T, 1.861-12, 1.861-12T, 1.861-13, 1.861-14, 1.861-14T, 1.861-17, and § 1.861-20.
(d) * * *
(2) * * *
(ii) * * *
(B)
(v)
(
(
(B)
(
(
(
(
(
(
(e) * * *
(4) * * *
(ii)
(B)
(C)
(D)
(5)
(6) * * * (i) * * * The deduction for foreign income, war profits and excess profits taxes allowed by section 164 is
(7)
(8)
(ii)
(16)
(g) * * *
(15)
(ii)
(16)
(ii)
(17)
(ii)
(18)
(B) USP's supervision department (the Department) incurs expenses of $1,500x. The Department is responsible for the supervision of its four subsidiaries and for rendering certain services to the subsidiaries, and the Department provides all the supportive functions necessary for USP's foreign activities. The Department performs three principal types of activities. First, the Department performs services outside the United States for the direct benefit of CFC2 for which a fee is paid by CFC2 to USP. The cost to the Department of the services for CFC2 is $900x, which results in a total charge (after a $100x markup) to CFC2 of $1,000x, all of which is foreign source income to USP. Second, the Department provides services related to license agreements that USP maintains with subsidiaries CFC1 and CFC2 and which give rise to foreign source income to USP. The cost of the services is $60x. Third, it performs activities described in § 1.482-9(l)(3)(iii) that are in the nature of shareholder oversight, that duplicate functions performed by the subsidiaries' own employees, and that do not provide an additional benefit to the subsidiaries. For example, a team of auditors from USP's accounting department periodically audits the subsidiaries' books and prepares internal reports for use by USP's management. Similarly, USP's treasurer periodically reviews for the board of directors of USP the
(C) USP also earns the following items of income. First, under section 951(a), USP includes $2,000x of subpart F income that is passive category income. Second, under section 951A and the section 951A regulations (as defined in § 1.951A-1(a)(1)), USP has a GILTI inclusion amount of $2,000x. USP's deduction under section 250 is $1,000x (“section 250 deduction”), all of which is by reason of section 250(a)(1)(B)(i). No portion of USP's section 250 deduction is reduced by reason of section 250(a)(2)(B). Finally, USP also earns $1,000x of fees from CFC2 and receives royalties of $1,000x from CFC1 and CFC2.
(D) Under § 1.861-9T(g)(3), USSub owns assets that generate income described in the residual grouping of gross income from U.S. sources. USP uses the asset method described in § 1.861-12T(c)(3)(ii) to characterize the stock in its CFCs. After application of § 1.861-13(a), USP determines that $5,000x of the stock of each of the three CFCs is assigned to the section 951A category (“section 951A category stock”) in the non-section 245A subgroup; $2,000x of the stock of each of the three CFCs is assigned to the general category in the section 245A subgroup; and $3,000x of the stock of each of the three CFCs is assigned to the passive category in the non-section 245A subgroup. Additionally, under § 1.861-8(d)(2)(ii)(C)(
(ii)
(B)
(C)
(
(
(
(
(
(24) For guidance, see § 1.861-8T(g)
(h)
(2) Paragraphs (d)(2)(ii)(B), (d)(2)(v), (e)(4), (e)(5), (e)(6)(i), (e)(8), (e)(16), and (g)(15) through (g)(18) of this section apply to taxable years that end on or after December 16, 2019. For taxable years that both begin after December 31, 2017, and end on or after December 4, 2018, and also end before December 16, 2019, see § 1.861-8(d)(2)(ii)(B), (e)(4), (e)(5), (e)(6)(i), and (e)(8) as in effect on December 17, 2019.
(d) * * *
(2)* * *
(ii) * * *
(B) For further guidance, see § 1.861-8(d)(2)(ii)(B).
The revisions and additions read as follows:
(a) For further guidance, see § 1.861-9T(a).
(b)
(ii)
(2)
(3) through (7) [Reserved]
(8)
(c)(1)
(2) through (4) [Reserved]
(e) * * *
(9)
(ii)
(iii)
(iv)
(v)
(A)
(B)
(C)
(D)
(E)
(F)
(vi)
(A)
(
(B)
(
(k)
(2) Paragraphs (b)(1)(i), (b)(8), and (e)(9) of this section apply to taxable years that end on or after December 16, 2019. For taxable years that both begin after December 31, 2017, and end on or after December 4, 2018, and also end before December 16, 2019, see § 1.861-9T(b)(1)(i) as contained in 26 CFR part 1 revised as of April 1, 2019].
(b) * * *
(1) * * *
(i)
(8)
(d) Treatment of notes. For further guidance, see § 1.861-12T(d) through (e).
(e) [Reserved]
(f)
(2)
(i)
(B)
(ii)
(B)
(g)
(h) [Reserved]
(i) [Reserved]
(k)
(2) Paragraph (f) this section applies to taxable years that end on or after December 16, 2019. For taxable years that both begin after December 31, 2017, and end on or after December 4, 2018, and before December 16, 2019, see § 1.861-12T(f) as contained in 26 CFR part 1 revised as of April 1, 2019.
(f)
The revisions read as follows:
(d) * * *
(3)
(4) [Reserved]
(e)
(ii) For further guidance, see § 1.861-14T(e)(1)(ii).
(2)
(3)
(4)
(5)
(f)
(g) [Reserved]
(h)
(i) through (j) [Reserved]
(k)
(e)(1)(i) For further guidance, see § 1.861-14(e)(1)(i).
(2)(i) For further guidance, see § 1.861-14(e)(2)(i) through § 1.861-14(e)(2)(ii).
(ii) [Reserved]
(4)
(5) [Reserved]
(h)
(a)
(b)
(2)
(3)
(ii)
(iii)
(iv)
(c)
(d)
(i) A taxpayer's R&E expenditures not apportioned under paragraph (c) of this section are apportioned in the same proportions that:
(A) The amounts of the taxpayer's gross receipts from sales and leases of products (as measured by gross receipts without regard to cost of goods sold) or services that are related to gross intangible income within the statutory grouping (or statutory groupings) and in the residual grouping bear, respectively, to
(B) The total amount of such gross receipts in the class.
(ii) For purposes of this paragraph (d), the amount of the gross receipts used to apportion R&E expenditures also includes gross receipts from sales and leases of products or services of any controlled or uncontrolled party to the extent described in paragraph (d)(3) and (4) of this section.
(iii) The statutory grouping (or groupings) or residual grouping to which the gross receipts are assigned is the grouping to which the gross intangible income related to the sale, lease, or service is assigned. In cases where the gross intangible income of the taxpayer is income not described in paragraph (d)(3) or (4) of this section, the grouping to which the taxpayer's gross receipts and the gross intangible income are assigned is the same. In cases where the taxpayer's gross intangible income is related to sales, leases, or services described in paragraphs (d)(3) or (4) of this section, the gross receipts that will be used for purposes of this paragraph (d) are the gross receipts of the controlled or uncontrolled parties that are exploiting the taxpayer's intangible property. The grouping to which the controlled or uncontrolled parties' gross receipts are assigned is determined based on the grouping of the taxpayer's gross intangible income attributable to the license, sale, or other transfer of intangible property to such controlled or uncontrolled party as described in paragraph (d)(3)(i) or (d)(4)(i) of this section, and not the grouping to which the gross receipts would be assigned if the assignment were based on the income earned by the controlled or uncontrolled party.
(iv) For purposes of applying this section to section 904 as the operative section, because a United States person's gross intangible income cannot include income assigned to the section 951A category, no R&E expenditures of a United States person are apportioned to foreign source income in the section 951A category.
(2)
(3)
(ii)
(iii)
(iv)
(4)
(ii)
(iii)
(iv)
(5)
(e)
(f)
(2)
(3)
(g)
(1)
(ii)
(B)
(
(
(
(2)
(ii)
(B)
(
(
(
(3)
(B)
(C)
(ii)
(B)
(
(
(
(4)
(B)
(C)
(ii)
(B)
(
(
(
(5)
(ii)
(B)
(
(
(
(
(
(h)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(c)
(1) First, by assigning the items of foreign gross income to the groupings under the rules of paragraph (d) of this section;
(2) Second, by allocating and apportioning the deductions that are allowed under foreign law to the foreign gross income in the groupings under the rules of paragraph (e) of this section; and
(3) Third, by allocating and apportioning the foreign income tax by reference to the foreign taxable income in the groupings under the rules of paragraph (f) of this section.
(d)
(2)
(i)
(ii)
(B)
(
(
(
(
(
(
(
(3)
(B)
(
(
(C)
(D)
(ii)
(B)
(C)
(D)
(iii)
(iv)
(e)
(2)
(f)
(g)
(1)
(i) USP and US2 are domestic corporations, which are unrelated;
(ii) USP elects to claim a foreign tax credit under section 901;
(iii) CFC, CFC1, and CFC2 are controlled foreign corporations organized in Country A, and are not reverse hybrids;
(iv) All parties have a U.S. dollar functional currency and a U.S. taxable year and foreign taxable year that corresponds to the calendar year;
(v) No party has expenses for Country A tax purposes or expenses for U.S. tax purposes (other than foreign income tax expense); and
(vi) Section 904 is the operative section, and terms have the meaning provided in this section or §§ 1.904-4 and 1.904-5.
(2)
(ii)
(3)
(ii)
(4)
(ii)
(5)
(ii)
(6)
(ii)
(B)
(C)
(7)
(ii)
(8)
(ii)
(9)
(ii)
(10)
(ii)
(11)
(ii)
(B)
(12)
(ii)
(h)
The revisions and additions read as follows:
(c) * * *
(7) * * * (i)
(ii) * * * If, however, foreign law does not attribute a reduction in taxes to a particular year or years, then the reduction in taxes shall be attributable, on an annual last in-first out (LIFO) basis, to foreign taxes potentially subject
(iii)
(8) * * *
(v)
(vi)
(vii)
(viii)
(B) In Year 2, CFC earns general category income that is not subpart F income or tested income. CFC again has $110x in taxable income for Federal income tax purposes and $100x in taxable income for Country G purposes, and CFC pays $50x of tax to foreign Country G. In Year 3, CFC has no taxable income or earnings. On December 31, Year 3, CFC distributes $60x of its total $120x of earnings and receives a refund of foreign tax of $24x. The $24x refund is a foreign tax redetermination under § 1.905-3(a) that under § 1.905-3(b)(2) requires a redetermination of CFC's Year 1 subpart F income and USP's deemed paid taxes and Year 1 U.S. tax liability. Country G treats the distribution of earnings as out of the 50% tax rate pool of $200x of earnings accumulated in Year 1 and Year 2, as calculated for Country G tax purposes. However, under paragraph (c)(7)(ii) of this section, the distribution, and, therefore, the reduction of tax is treated as first attributable to the $60x of passive category earnings attributable to income previously taxed in Year 1, and none of the distribution is treated as made out of the $60x of earnings accumulated in Year 2 (which is not previously taxed). Because 40 percent (the reduction in tax rates from 50 percent to 30 percent is a 40 percent reduction in the tax) of the $50x of foreign taxes attributable to the $60x of Year 1 passive income as calculated for Federal income tax purposes is refunded, $20x of the $24x foreign tax refund reduces foreign taxes on CFC's Year 1 passive income from $50x to $30x. The other $4x of the tax refund reduces the taxes imposed in Year 2 on CFC's general category income from $50x to $46x.
(C) Under paragraph (c)(7) of this section, in connection with the section 905(c) adjustment USP must redetermine whether its Year 1 subpart F inclusion should be considered high-taxed income. By taking into account the reduction in foreign tax, the inclusion is increased by $20x to $80x, the deemed paid taxes are reduced by $20x to $30x, and the inclusion is not considered high-taxed income ($30x < 34% × $110x). Therefore, USP must treat the revised section 951(a) inclusion and the taxes associated with the section 951(a) inclusion as passive category income and taxes in Year 1. USP must follow the appropriate procedures under § 1.905-4.
(e) * * * (1) * * *
(ii)
(A) Income derived in the active conduct of a banking, financing, or similar business under section 954(h)(3)(A)(i);
(B) Income that is of a kind that would be insurance income as defined in section 953(a)(1) (including related person insurance income as defined in section 953(c)(2) and without regard to the exception in section 953(a)(2) for income that is exempt insurance income under section 953(e));
(C) Income from the investment by an insurance company of its unearned premiums or reserves ordinary and necessary to the proper conduct of the insurance business; or
(D) Passive income as defined in section 904(d)(2)(B) and paragraph (b) of this section as determined before the application of the exception for high-taxed income but after the application of the exception for export financing interest.
(2)
(
(
(
(
(B)
(C)
(ii)
(iii)
(A)
(
(
(B)
(
(
(q)
(2) Paragraphs (c)(7)(i), (c)(7)(iii), (c)(8)(v) through (viii) apply to taxable years ending on or after December 16, 2019. For taxable years that both begin after December 31, 2017, and end on or after December 4, 2018, and also end before December 16, 2019, see § 1.904-4(c)(7)(i) and (c)(7)(iii) as in effect on December 17, 2019.
(3) Paragraphs (e)(1)(ii) and (e)(2) of this section apply to taxable years ending on or after the date the final regulations are filed with the
The revisions and additions read as follows:
(a)
(b)
(1)
(2)
(ii)
(3)
(c)
(d)
(f)
(g)
(h)
(d) * * *
(2)
(f)
(2) Paragraph (d)(2) of this section applies to taxable years ending on or after December 16, 2019.
The addition and revisions read as follows:
(b) * * * (1) * * * See §§ 1.861-8(e)(8), 1.904(b)-3(d)(2), and 1.1502-4(c)(1)(iii) for rules to determine the source and separate category components of a net operating loss.
(j)
(2)
(l)
The revisions and additions read as follows:
(a) * * * For purposes of this section and § 1.905-4, the term foreign tax redetermination means a change in the liability for foreign income taxes, as defined in § 1.960-1(b)(5), or certain other changes described in this paragraph (a) that may affect a taxpayer's U.S. tax liability, including by reason of a change in the amount of its foreign tax credit, the amount of its distributions or inclusions under sections 951, 951A, or 1293, the application of the high-tax exception described in section 954(b)(4) (including for purposes of determining tested income under section 951A(c)(2)(A)(i)(III)), or the amount of tax determined under sections 1291(c)(2) and 1291(g)(1)(C)(ii). * * *
(b) * * *
(2)
(ii)
(iii)
(iv)
(v)
(A)
(
(
(
(
(
(B)
(
(
(C)
(
(
(D)
(
(
(
(E)
(
(
(3)
(d)
(a)
(b)
(ii)
(iii)
(iv)
(v)
(2)
(ii)
(3)
(4)
(A) A foreign tax redetermination occurs while the taxpayer is under examination within the jurisdiction of the Large Business and International Division (or a successor division);
(B) The foreign tax redetermination results in a downward adjustment to the amount of foreign income taxes paid or accrued by the taxpayer or a foreign corporation with respect to which the taxpayer computes an amount of foreign income taxes deemed paid;
(C) The foreign tax redetermination requires a redetermination of U.S. tax liability and accordingly, but for this paragraph (b)(4), the taxpayer would be required to notify the IRS of such foreign tax redetermination under paragraph (b)(1)(ii) of this section (determined without regard to paragraphs (b)(1)(iv) and (v) of this section) or (b)(2)(ii) of this section;
(D) The return for the taxable year for which a redetermination of U.S. tax liability is required is under examination; and
(E) The due date specified in paragraph (b)(1)(ii) or (b)(2) of this section for providing notice of such foreign tax redetermination is not before the later of the opening conference or the hand-delivery or postmark date of the opening letter concerning an examination of the return for the taxable year for which a redetermination of U.S.
(ii)
(B)
(C)
(iii)
(iv)
(5)
(i)
(B) In Year 1, X accrued and paid 100m of Country M income taxes with respect to 400m of foreign source foreign branch category income. The average exchange rate for Year 1 was $1:1m. Also in Year 1, X accrued and paid 50n of Country N income taxes with respect to 150n of foreign source foreign branch category income. The average exchange rate for Year 1 was $1:1n. On its Year 1 Federal income tax return, X claimed a foreign tax credit under section 901 of $150 ($100 (100m translated at $1:1m) + $50 (50n translated at $1:1n)) with respect to its foreign source foreign branch category income.
(C) In Year 2, X accrued and paid 100n of Country N income taxes with respect to 300n of foreign source foreign branch category income. The average exchange rate for Year 2 was $1.50:1n. On its Year 2 Federal income tax return X claimed a foreign tax credit under section 901 of $150 (100n translated at $1.5:1n).
(D) On June 15, Year 5, when the spot rate was $1.40:1n, X received a refund of 10n from Country N, and, on March 15, Year 6, when the spot rate was $1.20:1m, X was assessed by and paid Country M an additional 20m of tax. Both payments were with respect to X's foreign source foreign branch category income in Year 1. On May 15, Year 6, when the spot rate was $1.45:1n, X received a refund of 5n from Country N with respect to its foreign source foreign branch category income in Year 2.
(E) Both the refunds and the assessment are foreign tax redeterminations under § 1.905-3(a). Under § 1.905-3(b)(1), X must redetermine its U.S. tax liability for both Year 1 and Year 2. With respect to Year 1, under paragraph (b)(1)(ii) of this section, X must notify the IRS of the June 15, Year 5, refund of 10n from Country N that increased X's U.S. tax liability by filing an amended return, Form 1118, and the statement required in paragraph (c) of this section for Year 1 by the due date of the original return (with extensions) for Year 5. The amended return and Form 1118 reduces the amount of foreign income taxes claimed as a credit under section 901 and increases X's U.S. tax liability by $10 (10n refund translated at the average exchange rate for Year 1, or $1:1n (see § 1.986(a)-1(c)). With respect to the March 15, Year 6, additional assessment of 20m by Country M, under paragraph (b)(1)(iii) of this section, X must notify the IRS within the time period provided by section 6511, increasing the foreign income taxes available as a credit and reducing X's U.S. tax liability by $24 (20m translated at the spot rate on the date of payment, or $1.20:1m).
(F) With respect to Year 2, under paragraph (b)(1)(ii) of this section, X must notify the IRS by filing an amended return, Form 1118, and the statement required in paragraph (c) of this section for Year 2 that is separate from that filed for Year 1. The amended return, Form 1118, and the statement required in paragraph (c) of this section for Year 2 must be filed by the due date (with extensions) of X's original return for Year 6. The amended return and Form 1118 reduces the amount of foreign income taxes claimed as a credit under section 901 and increases X's U.S. tax liability by $7.50 (5n refund translated at the average exchange rate for Year 2, or $1.50:1n).
(ii)
(c)
(1) The taxpayer's name, address, identifying number, the taxable year or years of the taxpayer that are affected by the foreign tax redetermination, and, in the case of foreign taxes deemed paid, the name and identifying number, if any, of the foreign corporation;
(2) The date or dates the foreign income taxes were accrued, if applicable; the date or dates the foreign income taxes were paid; the amount of foreign income taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each such amount, as provided in § 1.986(a)-1(a) or (b);
(3) Information sufficient to determine any change to the characterization of a distribution, the amount of any inclusion under section 951(a), 951A, or 1293, or the deferred tax amount under section 1291;
(4) Information sufficient to determine any interest due from or owing to the taxpayer, including the amount of any interest paid by the foreign government to the taxpayer and the dates received;
(5) In the case of any foreign income tax that is refunded in whole or in part, the taxpayer must provide the date of each such refund; the amount of such refund (in foreign currency); and the exchange rate that was used to translate such amount when originally claimed as a credit (as provided in § 1.986(a)-1(c)) and the spot rate (as defined in § 1.988-1(d)) for the date the refund was received (for purposes of computing foreign currency gain or loss under section 988);
(6) In the case of any foreign income taxes that are not paid on or before the date that is 24 months after the close of the taxable year to which such taxes relate, the amount of such taxes in foreign currency, and the exchange rate that was used to translate such amount when originally claimed as a credit or added to PTEP group taxes (as defined in § 1.960-3(d)(1));
(7) If a redetermination of U.S. tax liability results in an amount of additional tax due, and the carryback or carryover of an unused foreign income tax under section 904(c) only partially eliminates such amount, the information required in § 1.904-2(f); and
(8) In the case of a pass-through entity, the name, address, and identifying number of each beneficial owner to which foreign taxes were reported for the taxable year or years to which the foreign tax redetermination relates, and the amount of foreign tax initially reported to each beneficial owner for each such year and the amount of foreign tax allocable to each beneficial owner for each such year after the foreign tax redetermination is taken into account.
(d)
(e)
(2)
(f)
(a)
(2)
(b)
(2)
(3)
(c)
(d)
(e)
The revisions and additions read as follows:
(d) * * *
(3) * * *
(iii) * * * In addition, foreign income taxes that have not been paid or accrued because they are contingent on a future distribution of earnings are not taken into account for purposes of this paragraph (d)(3). If, pursuant to section 905(c) and § 1.905-3(b)(2), a redetermination of U.S. tax liability is required to account for the effect of a foreign tax redetermination (as defined in § 1.905-3(a)), this paragraph (d) is applied in the adjusted year taking into
(h) * * * (1)
The additions read as follows:
(h) * * * (2) * * * (i) * * *
(I) Any guaranteed payments for the use of capital under section 707(c); and
(i) * * *
(2) * * * Paragraph (h)(2)(i)(I) of this section applies to taxable years of controlled foreign corporations ending on or after December 16, 2019, and to taxable years of United States shareholders in which or with which such taxable years end.
The addition and revisions read as follows:
(c) * * *
(2) * * * An item of income with respect to a current taxable year does not include an amount included as subpart F income of a controlled foreign corporation by reason of the recharacterization of a recapture account established in a prior U.S. taxable year (and the corresponding earnings and profits) of the controlled foreign corporation under section 952(c)(2) and § 1.952-1(f).
(d) * * *
(3) * * *
(ii) * * *
(A) * * * A current year tax is allocated and apportioned among the section 904 categories under the rules of § 1.904-6. An amount of the current year tax that is allocated and apportioned to a section 904 category is then allocated and apportioned among the income groups within the section 904 category under § 1.861-20 (as modified by § 1.904-6(c)) by treating each income group as a statutory grouping and treating the residual income group as the residual grouping. Therefore, the portion of a current year tax that is attributable to foreign taxable income arising from a transaction that does not result in the recognition of gross income or loss for Federal income tax purposes in the current taxable year is assigned under § 1.861-20(d)(2)(i) to the section 904 category and income group within a section 904 category to which the corresponding U.S. item would be assigned if the event giving rise to the foreign taxable income resulted in the recognition of income or loss under Federal income tax law in that year. Foreign gross income arising from the receipt of a disregarded payment made by a disregarded entity or other foreign branch to its foreign branch owner that is a controlled foreign corporation is assigned to the income group or groups from which the payment is considered to be made under § 1.861-20(d)(3)(ii)(A). Foreign gross income attributable to a base difference, or resulting from the receipt of a disregarded payment made to a foreign branch, is assigned to the residual income grouping under §§ 1.861-20(d)(2)(ii)(B) and 1.861-20(d)(3)(ii)(B). * * *
(C) * * * In such case, under § 1.861-20, the portion of the foreign gross income (as defined in § 1.861-20(b)(5)) that is characterized under Federal income tax principles as a distribution of previously taxed earnings and profits that results in the increase in the PTEP group in the current taxable year is assigned to that PTEP group. If a PTEP group is not treated as an income group under the first sentence of this paragraph (d)(3)(ii)(C), and the rules of § 1.861-20 would otherwise apply to assign foreign gross income to a PTEP group, that foreign gross income is instead assigned to the subpart F income group or tested income group to which the income that gave rise to the previously taxed earnings and profits would be assigned if the income were recognized by the recipient controlled foreign corporation under Federal income tax principles in the current taxable year. * * * That foreign gross income, however, may be assigned to a subpart F income group or tested income group.
(b) * * *
(3) * * *
(iii) * * *
(a) Except as provided in paragraph (b) of this section, §§ 1.960-1 through 1.960-6 apply to each taxable year of a foreign corporation ending on or after December 4, 2018, and to each taxable year of a domestic corporation that is a United States shareholder of the foreign corporation in which or with which such taxable year of such foreign corporation ends.
(b) Section 1.960-1(d)(3)(ii) applies to taxable years of a foreign corporation beginning after December 31, 2019, and to each taxable year of a domestic corporation that is a United States shareholder of the foreign corporation in which or with which such taxable year of such foreign corporation ends. For taxable years of a foreign corporation that end on or after December 4, 2018, and also begin before January 1, 2020, see § 1.960-1(d)(3)(ii) as in effect on December 17, 2019.
The revision and additions read as follows:
(b)
(2)
(c) * * * Section 1.965-5(b)(2) applies to taxable years of foreign corporations that end on or after December 16, 2019, and with respect to a United States person, to the taxable years in which or with which such taxable years of the foreign corporations end.
(a)
(b)
(c)
(1)
(ii)
(iii)
(iv)
(B)
(C)
(
(v)
(2)
(3)
(d)
(2)
(i) Applying all unused foreign taxes which can be carried to a prior year in the order of the taxable years in which those unused foreign taxes arose, beginning with the taxable year that ends earliest, and
(ii) All the unused foreign taxes which can be carried to such prior year from taxable years ending on the same date on a pro rata basis.
(e)
(1)
(ii) The separate taxable income of each member was computed by taking into account the rules under § 1.1502-12. Accordingly, T's intercompany gain of $2,000 is not included in T's taxable income for Year 1. The group's consolidated taxable income (computed in accordance with § 1.1502-11) is $80,000. The consolidated tax liability against which the credit may be taken (computed in accordance with paragraph (c)(3) of this section) is $16,800.
(2)
(f)
(b) * * *
(2) * * *
(iv) * * *
(B) * * * The source and section 904(d) separate category of the CNOL attributable to a member is determined under § 1.1502-4(c)(1)(iii).
26 U.S.C. 7805.
Section 301.6689-1 also issued under 26 U.S.C. 6689(a), 26 U.S.C. 6227(d), and 26 U.S.C. 6241(11).
(g)
(a)
(b)
(1) Five percent of the deficiency (or imputed underpayment) if the failure is for not more than one month, plus
(2) An additional five percent of the deficiency (or imputed underpayment) for each month (or fraction thereof) during which the failure continues, but not to exceed in the aggregate twenty-five percent of the deficiency (or imputed underpayment).
(c)
(d)
(e)
Environmental Protection Agency (EPA).
Proposed rule.
The U.S. Environmental Protection Agency (EPA) is proposing amendments to the National Emission Standards for Hazardous Air Pollutants (NESHAP) for the Miscellaneous Organic Chemical Manufacturing source category. The EPA is proposing decisions concerning the residual risk and technology review (RTR), including proposing amendments pursuant to the technology review for equipment leaks and heat exchange systems, and also proposing amendments pursuant to the risk review to specifically address ethylene oxide emissions from storage tanks, process vents, and equipment leaks. The EPA is also proposing amendments to correct and clarify regulatory provisions related to emissions during periods of startup, shutdown, and malfunction (SSM), including removing general exemptions for periods of SSM, adding work practice standards for periods of SSM where appropriate, and clarifying regulatory provisions for certain vent control bypasses. Lastly, the EPA is proposing to add monitoring and operational requirements for flares that control ethylene oxide emissions and flares used to control emissions from processes that produce olefins and polyolefins; and add provisions for electronic reporting of performance test results and reports, performance evaluation reports, and compliance reports. We estimate that, if finalized, these proposed amendments (not including the potential excess emission reductions from flares) would reduce hazardous air pollutants (HAP) emissions from this source category by 116 tons per year (tpy) and would reduce ethylene oxide emissions from this source category by approximately 10 tpy.
You may send comments, identified by Docket ID No. EPA-HQ-OAR-2018-0746, by any of the following methods:
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For questions about this proposed action, contact Ms. Tegan Lavoie, Sector Policies and Programs Division (E-143-01), Office of Air Quality Planning and Standards, U.S. Environmental Protection Agency, Research Triangle Park, North Carolina 27711; telephone number: (919) 541-5110; fax number: (919) 541-0516; and email address:
The EPA may publish any comment received to its public docket. Multimedia submissions (audio, video, etc.) must be accompanied by a written comment. The written comment is considered the official comment and should include discussion of all points you wish to make. The EPA will generally not consider comments or comment contents located outside of the primary submission (
The
Section IV.B of this preamble summarizes the results of the risk assessment while section IV.C summarizes our proposed decisions regarding the results of the risk assessment, and proposes revisions for storage tanks, process vents, and equipment leaks to reduce emissions of ethylene oxide. Section IV.D of this preamble summarizes the results of our technology review, and proposes revisions for heat exchange systems and equipment leaks. Section IV.E of this preamble summarizes other changes we are proposing, including general regulatory language changes related to the removal of SSM exemptions, electronic reporting, and other minor clarifications identified as part our review of the NESHAP and as part of the other proposed revisions in this proposal. Lastly, section IV.F of this preamble summarizes our rationale for the compliance dates we are proposing.
Table 1 of this preamble lists the NESHAP and associated regulated industrial source category that is the subject of this proposal. Table 1 is not intended to be exhaustive, but rather provides a guide for readers regarding the entities that this proposed action is likely to affect. The proposed standards, once promulgated, will be directly applicable to the affected sources. Federal, state, local, and tribal government entities would not be affected by this proposed action. On July 16, 1992 (57 FR 31576), pursuant to specific listing requirements in CAA section 112(c), the Agency published an initial list of 174 categories of major and area sources that would be subject to MACT emission standards. Following this listing, in a November 7, 1996, document (61 FR 57602), the Agency combined 21 of the 174 source categories originally defined in the
In addition to being available in the docket, an electronic copy of this action is available on the internet. Following signature by the EPA Administrator, the EPA will post a copy of this proposed action at
A redline version of the regulatory language that incorporates the proposed changes is available in the docket for this action (Docket ID No. EPA-HQ-OAR-2018-0746).
The statutory authority for this action is provided by sections 112 and 301 of the CAA, as amended (42 U.S.C. 7401
In the first stage of the CAA section 112 standard setting process, the EPA promulgates technology-based standards under CAA section 112(d) for categories of sources identified as emitting one or more of the HAP listed in CAA section 112(b). Sources of HAP emissions are either major sources or area sources, and CAA section 112 establishes different requirements for major source standards and area source standards. “Major sources” are those that emit or have the potential to emit 10 tpy or more of a single HAP or 25 tpy or more of any combination of HAP. All other sources are “area sources.” For major sources, CAA section 112(d)(2) provides that the technology-based NESHAP must reflect the maximum degree of emission reductions of HAP achievable (after considering cost, energy requirements, and non-air quality health and environmental impacts). These standards are commonly referred to as MACT standards. CAA section 112(d)(3) also establishes a minimum control level for MACT standards, known as the MACT “floor.” The EPA must also consider control options that are more stringent than the floor. Standards more stringent than the floor are commonly referred to as beyond-the-floor standards. In certain instances, as provided in CAA section 112(h), the EPA may set work practice standards where it is not feasible to prescribe or enforce a numerical emission standard. For area sources, CAA section 112(d)(5) gives the EPA discretion to set standards based on generally available control technologies or management practices (GACT standards) in lieu of MACT standards.
The second stage in standard-setting focuses on identifying and addressing any remaining (
The approach incorporated into the CAA and used by the EPA to evaluate residual risk and to develop standards under CAA section 112(f)(2) is a two-step approach. In the first step, the EPA determines whether risks are acceptable. This determination “considers all health information, including risk estimation uncertainty, and includes a presumptive
CAA section 112(d)(6) separately requires the EPA to review standards promulgated under CAA section 112 and revise them “as necessary (taking into account developments in practices, processes, and control technologies)” no less often than every 8 years. In conducting this review, which we call the “technology review,” the EPA is not required to recalculate the MACT floor.
The current NESHAP, herein called the Miscellaneous Organic Chemical Manufacturing NESHAP (MON) for the Miscellaneous Organic Chemical Manufacturing source category was promulgated on November 10, 2003 (68 FR 63852), and codified at 40 CFR part 63, subpart FFFF. As promulgated in 2003, and further amended on July 1, 2005 (70 FR 38562), and July 14, 2006 (71 FR 40316), the MON regulates HAP emissions from miscellaneous organic chemical manufacturing process units (MCPUs) located at major sources. An MCPU includes a miscellaneous organic chemical manufacturing process, as defined in 40 CFR 63.2550(i), and must meet the following criteria: (1) It manufactures any material or family of materials described in 40 CFR 63.2435(b)(1); it processes, uses, or generates any of the organic HAP described in 40 CFR 63.2435(b)(2); and, except for certain process vents that are part of a chemical manufacturing process unit, as identified in 40 CFR 63.100(j)(4), the MCPU is not an affected source or part of an affected source under another subpart of 40 CFR part 63. An MCPU also includes any assigned storage tanks and transfer racks; equipment in open systems that is used to convey or store water having the same concentration and flow characteristics as wastewater; and components such as pumps, compressors, agitators, pressure relief devices, sampling connection systems, open-ended valves or lines, valves, connectors, and instrumentation systems that are used to manufacture any material or family of materials described in 40 CFR 63.2435(b)(1). Sources of HAP emissions regulated by the MON include the following: process vents, storage tanks, transfer racks, equipment leaks, wastewater streams, and heat exchange systems.
As of November 6, 2018, the EPA identified 201 miscellaneous organic chemical manufacturing facilities in operation and subject to the MON standards, herein referred to as “MON facilities”, using methods described in section II.C of this preamble. A complete list of known MON facilities is available in Appendix 1 of the document titled
The EPA used several sources to develop the list of existing MON facilities. All facilities in the 2014 National Emissions Inventory (NEI) and the 2014 Toxics Release Inventory with a primary facility NAICS code beginning with 325, representing the chemical manufacturing sector, were queried to create a comprehensive base facility list. The list was also supplemented using the Office of Enforcement and Compliance Assurance's (OECA) Enforcement and Compliance History Online (ECHO) tool (
To determine which facilities on the comprehensive chemical manufacturing sector facility list were subject to the MON, title V air permits were obtained from each state's online database. In cases where the online database was incomplete, the Region and/or state was contacted for help in obtaining the air permits, and internet searches were performed to determine the status of the facility (
In November 2018, the EPA issued a request, pursuant to CAA section 114, to gather information about process equipment, control technologies, and emissions, and requested performance testing for certain pollutants for one MCPU source emitting ethylene oxide. The facility completed the survey and submitted responses (and follow-up responses) to the EPA between January 2019 and February 2019. The results of the performance testing were received on September 3, 2019, and, therefore, were not included in the risk analysis. The Agency has made the results publicly available in the docket for this rulemaking to provide the public with an opportunity to review the data before promulgation of the rule. Before final promulgation of this rulemaking, the EPA intends to use the collected information to assist the Agency in filling data gaps, establishing the baseline emissions and control levels for purposes of the regulatory reviews, identifying the most effective control measures, and estimating the environmental impacts associated with the regulatory options considered and reflected in this proposed action. The information not claimed as CBI by respondents and received in time to be included in this proposal is available in
We are relying on technical reports and memoranda that the EPA developed for flares used as air pollution control devices in the Petroleum Refinery Sector RTR and New Source Performance Standards (NSPS) (80 FR 75178, December 1, 2015). These technical reports and memoranda can be found in the Petroleum Refinery Sector RTR and NSPS rulemaking docket, Docket ID No. EPA-HQ-OAR-2010-0682. The Petroleum Refinery Sector docket contains several flare-related technical reports and memoranda documenting numerous analyses the EPA conducted to develop the final suite of operational and monitoring requirements for refinery flares. For completeness of the rulemaking record for this action and ease of reference in finding these items in the publicly available refinery sector rulemaking docket, we are including a list of the most relevant technical support documents in Table 1 of the memorandum titled
In addition, the EPA is incorporating into the docket for this rulemaking materials associated with a number of site-specific alternative means of emission limitation (AMEL) requests for facilities electing to use multi-point ground flares (MPGF) as an APCD. These site-specific AMEL requests for MPGF have been approved by the EPA because the MPGF can achieve at least equivalent reductions in emissions to the underlying flare operational standards in various NESHAP and/or NSPS. The EPA receives these AMEL requests because MPGFs are designed to operate above the current maximum permitted velocity requirements for flares in the General Provisions at 40 CFR 63.11(b). Given that the EPA has provided notice and sought comment on certain specific AMEL requests, the underlying AMEL requests submitted by industry, MPGF test data, technical memorandums,
We are also relying on data gathered to support the RTR for ethylene production processes, as well as memoranda documenting the technology review for those processes. Many of the emission sources for ethylene production facilities are similar to MON facilities, and several of the control options analyzed for the MON were also analyzed for the Ethylene Production RTR. The memoranda and background technical information can be found in the Ethylene Production RTR rulemaking docket, Docket ID No. EPA-HQ-OAR-2017-0357.
Furthermore, the risk assessment presented here relies on the use of the 2016 updated ethylene oxide unit risk estimate (URE) for regulatory purposes. The EPA previously requested comment on the use of this URE in the Hydrochloric Acid Production RTR proposed rule (84 FR 1584, February 4, 2019), the comment period for which closed on April 26, 2019. The Agency received a number of comments on the use of the updated ethylene oxide URE. However, ethylene oxide is not emitted by the Hydrochloric Acid Production source category but is emitted by the Miscellaneous Organic Chemical Manufacturing source category. Therefore, the EPA is incorporating these comments into the docket for this rulemaking from Docket ID No. EPA-HQ-OAR-2018-0417 and, along with comments received on this proposal, will address all comments in the response to comments document of this final rulemaking. Note that all comments received in the Hydrochloric Acid Production RTR proposal were at least partially related to risks from ethylene oxide, and, therefore, we are incorporating all comments from that rulemaking into the docket for this action. (Note, additional discussion on the use of the 2016 updated URE for ethylene oxide for this regulatory action is provided in section IV.C.3 in this preamble.)
Lastly, the EPA is incorporating into the docket for this rulemaking all materials associated with the development of the current MON standards from Docket ID No. A-96-04 and Docket ID No. OAR-2003-0121. Publicly available docket materials are available either electronically at
In this section, we describe the analyses performed to support the proposed decisions for the RTR and other issues addressed in this proposal.
As discussed in section II.A of this preamble and in the Benzene NESHAP, in evaluating and developing standards under CAA section 112(f)(2), we apply a two-step approach to determine whether or not risks are acceptable and to determine if the standards provide an ample margin of safety to protect public health. As explained in the Benzene NESHAP, “the first step judgment on acceptability cannot be reduced to any single factor” and, thus, “[t]he Administrator believes that the acceptability of risk under section 112 is best judged on the basis of a broad set of health risk measures and information.” 54 FR 38046, September 14, 1989. Similarly, with regard to the ample margin of safety determination, “the Agency again considers all of the health risk and other health information considered in the first step. Beyond that information, additional factors relating to the appropriate level of control will also be considered, including cost and economic impacts of controls, technological feasibility, uncertainties, and any other relevant factors.”
The EPA notes that it has not considered certain health information to date in making residual risk determinations. At this time, we do not attempt to quantify the HAP risk that may be associated with emissions from other facilities that do not include the source category under review, mobile source emissions, natural source emissions, persistent environmental pollution, or atmospheric transformation in the vicinity of the sources in the category.
The EPA understands the potential importance of considering an individual's total exposure to HAP in addition to considering exposure to HAP emissions from the source category and facility. We recognize that such consideration may be particularly important when assessing noncancer risk, where pollutant-specific exposure health reference levels (
In response to the SAB recommendations, the EPA incorporates cumulative risk analyses into its RTR risk assessments, including those reflected in this proposal. The Agency (1) conducts facility-wide assessments, which include source category emission points, as well as other emission points within the facilities; (2) combines exposures from multiple sources in the same category that could affect the same individuals; and (3) for some persistent and bioaccumulative pollutants, analyzes the ingestion route of exposure. In addition, the RTR risk assessments consider aggregate cancer risk from all carcinogens and aggregated noncancer HQs for all noncarcinogens affecting the same target organ or target organ system.
Although we are interested in placing source category and facility-wide HAP risk in the context of total HAP risk from all sources combined in the vicinity of each source, we are concerned about the uncertainties of doing so. Estimates of total HAP risk from emission sources other than those that we have studied in depth during this RTR review would have significantly greater associated uncertainties than the source category or facility-wide estimates. Such aggregate or cumulative assessments would compound those uncertainties, making the assessments too unreliable.
Our technology review focuses on the identification and evaluation of developments in practices, processes, and control technologies that have occurred since the MACT standards were promulgated. Where we identify such developments, we analyze their technical feasibility, estimated costs, energy implications, and non-air environmental impacts. We also consider the emission reductions associated with applying each development. This analysis informs our decision of whether it is “necessary” to revise the emissions standards. In addition, we consider the appropriateness of applying controls to new sources versus retrofitting existing sources. For this exercise, we consider any of the following to be a “development”:
• Any add-on control technology or other equipment that was not identified and considered during development of the original MACT standards;
• Any improvements in add-on control technology or other equipment (that were identified and considered during development of the original
• Any work practice or operational procedure that was not identified or considered during development of the original MACT standards;
• Any process change or pollution prevention alternative that could be broadly applied to the industry and that was not identified or considered during development of the original MACT standards; and
• Any significant changes in the cost (including cost-effectiveness) of applying controls (including controls the EPA considered during the development of the original MACT standards).
In addition to reviewing the practices, processes, and control technologies that were considered at the time we originally developed (or last updated) the NESHAP, we review a variety of data sources in our investigation of potential practices, processes, or controls to consider. See sections II.C and II.D of this preamble for information on the specific data sources that were reviewed as part of the technology review.
In this section, we provide a complete description of the types of analyses that we generally perform during the risk assessment process. In some cases, we do not perform a specific analysis because it is not relevant. For example, in the absence of emissions of HAP known to be persistent and bioaccumulative in the environment (PB-HAP), we would not perform a multipathway exposure assessment. Where we do not perform an analysis, we state that we do not and provide the reason. While we present all of our risk assessment methods, we only present risk assessment results for the analyses actually conducted (see section IV.B of this preamble).
The EPA conducts a risk assessment that provides estimates of the MIR for cancer posed by the HAP emissions from each source in the source category, the HI for chronic exposures to HAP with the potential to cause noncancer health effects, and the HQ for acute exposures to HAP with the potential to cause noncancer health effects. The assessment also provides estimates of the distribution of cancer risk within the exposed populations, cancer incidence, and an evaluation of the potential for an adverse environmental effect. The eight sections that follow this paragraph describe how we estimated emissions and conducted the risk assessment. The docket for this rulemaking contains the following document which provides more information on the risk assessment inputs and models:
The MON facility list was developed as described in section II.C of this preamble and consists of 201 facilities. The emissions modeling input files were developed using the EPA's 2014 NEI. Two modeling input files were developed, one that contains the whole facility emissions and one that contains only emissions from MON processes, or the source category. For the 201 MON facilities, only 197 had reported HAP emissions in the 2014 NEI. Of the four facilities without HAP emissions, two had reported no HAP data to the 2014 NEI and two had no Emissions Inventory System (EIS) ID and, therefore, no emissions data to pull from the NEI. Of the 197 facilities with reported HAP emissions, three facilities did not report any HAP emissions that could be identified as attributed to MON processes and, therefore, emissions data for these three facilities could not be modeled. Therefore, due to lack of available data, source category risk modeling was not conducted for seven of the 201 MON facilities, which could potentially result in an underestimation of risk for the source category. The complete MON facility list is available in Appendix 1 of the document titled
The EPA created the whole facility modeling file using all HAP emissions records from the 2014 NEI for the list of 197 EIS IDs which had available HAP data. The NEI data were also used to develop the other parameters needed to perform the risk modeling analysis, including the emissions release characteristics, such as stack heights, stack diameters, flow rates, temperatures, and emission release point locations.
The EPA then created the source category modeling input file by identifying the specific NEI emissions records in the whole facility modeling input file that are subject to the MON by reviewing the facilities' title V air permits, unit source classification code (SCC), emission unit descriptions, and process descriptions. The EPA also used SCC codes, emission unit descriptions, and process descriptions to identify units that are not subject to the MON (
The RTR emissions dataset was refined following an extensive quality assurance check of source locations, emission release point parameters, and annual emission estimates. The EPA reviewed the locations of emission release points at each facility and revised each record as needed to ensure that all release points were located within the fenceline of the facility. If an emission release point was located outside of the facility fenceline or on an obviously incorrect location within the fenceline (
The emission release point parameters for stacks in the modeling input files include stack height, exit gas temperature, stack diameter, exit gas velocity, and exit gas flow rate. If emission release point parameters were outside of typical quality assurance range checks or missing, then the air permit was used to try and determine the permitted value. If this information could not be found within the air permit, then a surrogate value was assigned based on either the NAICS code, the regulatory code, or the SCC. In some cases, missing emission release point parameters were calculated using other parameters within the modeling input file. For example, missing exit gas flow rates were calculated using reported diameter and velocity.
Additionally, the EPA compared the emission release point type (
In some cases, the EPA coordinated with Regional offices, state agencies, and/or industry on a specific emission record if it was unknown whether the emissions belonged to a MON process and preliminary risk analysis indicated that this pollutant might be a risk driver. This specific inquiry was done to ensure that only MON emissions were included in the source category modeling file. To further improve the quality of the modeling file, in September 2017, the EPA provided member companies of ACC and ACA with the emissions modeling input records. The emissions records were also sent directly to several companies. This allowed companies the opportunity to review and revise emission values, emission release point parameters, and coordinates, as needed. Any changes received between September 2017 and November 2018 were incorporated into the RTR modeling file. Changes received after November 2018 will be considered for incorporation in the final rule. A list of responses received from the Regional offices, state agencies, and chemical companies can be found in Appendix 1 of the document titled
The available emissions data in the RTR emissions dataset include estimates of the mass of HAP emitted during a specified annual time period. These “actual” emission levels are often lower than the emission levels allowed under the requirements of the current MACT standards. The emissions allowed under the MACT standards are referred to as the “MACT-allowable” emissions. We discussed the consideration of both MACT-allowable and actual emissions in the final Coke Oven Batteries RTR (70 FR 19998-19999, April 15, 2005) and in the proposed and final Hazardous Organic NESHAP RTR (71 FR 34428, June 14, 2006, and 71 FR 76609, December 21, 2006, respectively). In those actions, we noted that assessing the risk at the MACT-allowable level is inherently reasonable since that risk reflects the maximum level facilities could emit and still comply with national emission standards. We also explained that it is reasonable to consider actual emissions, where such data are available, in both steps of the risk analysis, in accordance with the Benzene NESHAP approach. (54 FR 38044, September 14, 1989.)
For this analysis, we have determined that the actual emissions data are reasonable estimates of the MACT-allowable emissions levels for the Miscellaneous Organic Chemical Manufacturing source category. The ability to estimate MACT-allowable emissions from the actual emissions dataset is largely dependent on the format of the standard for a given emissions source as well as the types of controls employed for the source. For further details on the assumptions and methodologies used to estimate MACT-allowable emissions, see Appendix 1 of the document titled
Both long-term and short-term inhalation exposure concentrations and health risk from the source category addressed in this proposal were estimated using the Human Exposure Model (HEM-3).
The air dispersion model AERMOD, used by the HEM-3 model, is one of the EPA's preferred models for assessing air pollutant concentrations from industrial facilities.
In developing the risk assessment for chronic exposures, we use the estimated annual average ambient air concentrations of each HAP emitted by each source in the source category. The HAP air concentrations at each nearby census block centroid located within 50 km of the facility are a surrogate for the chronic inhalation exposure concentration for all the people who reside in that census block. A distance of 50 km is consistent with both the analysis supporting the 1989 Benzene NESHAP (54 FR 38044, September 14, 1989) and the limitations of Gaussian dispersion models, including AERMOD.
For each facility, we calculate the MIR as the cancer risk associated with a continuous lifetime (24 hours per day, 7 days per week, 52 weeks per year, 70 years) exposure to the maximum concentration at the centroid of each inhabited census block. We calculate individual cancer risk by multiplying the estimated lifetime exposure to the ambient concentration of each HAP (in micrograms per cubic meter (μg/m
To estimate individual lifetime cancer risks associated with exposure to HAP emissions from each facility in the source category, we sum the risks for each of the carcinogenic HAP
To assess the risk of noncancer health effects from chronic exposure to HAP, we calculate either an HQ or a target organ-specific hazard index (TOSHI). We calculate an HQ when a single noncancer HAP is emitted. Where more than one noncancer HAP is emitted, we sum the HQ for each of the HAP that affects a common target organ or target organ system to obtain a TOSHI. The HQ is the estimated exposure divided by the chronic noncancer dose-response value, which is a value selected from one of several sources. The preferred chronic noncancer dose-response value is the EPA RfC, defined as “an estimate (with uncertainty spanning perhaps an order of magnitude) of a continuous inhalation exposure to the human population (including sensitive subgroups) that is likely to be without an appreciable risk of deleterious effects during a lifetime” (
For each HAP for which appropriate acute inhalation dose-response values are available, the EPA also assesses the potential health risks due to acute exposure. For these assessments, the EPA makes conservative assumptions about emission rates, meteorology, and exposure location. In this proposed rulemaking, as part of our efforts to continually improve our methodologies to evaluate the risks that HAP emitted from categories of industrial sources pose to human health and the
To assess the potential acute risk to the maximally exposed individual, we use the peak hourly emission rate for each emission point,
To characterize the potential health risks associated with estimated acute inhalation exposures to a HAP, we generally use multiple acute dose-response values, including acute RELs, acute exposure guideline levels (AEGLs), and emergency response planning guidelines (ERPG) for 1-hour exposure durations, if available, to calculate acute HQs. The acute HQ is calculated by dividing the estimated acute exposure concentration by the acute dose-response value. For each HAP for which acute dose-response values are available, the EPA calculates acute HQs.
An acute REL is defined as “the concentration level at or below which no adverse health effects are anticipated for a specified exposure duration.”
ERPGs are “developed for emergency planning and are intended as health-based guideline concentrations for single exposures to chemicals.”
An acute REL for 1-hour exposure durations is typically lower than its corresponding AEGL-1 and ERPG-1. Even though their definitions are slightly different, AEGL-1s are often the same as the corresponding ERPG-1s, and AEGL-2s are often equal to ERPG-2s. The maximum HQs from our acute inhalation screening risk assessment typically result when we use the acute REL for a HAP. In cases where the maximum acute HQ exceeds 1, we also report the HQ based on the next highest acute dose-response value (usually the AEGL-1 and/or the ERPG-1).
For the acute inhalation risk assessment of the Miscellaneous Organic Chemical Manufacturing source category, we used process level-specific acute emissions multipliers, ranging from a factor of 2 to 10. In general, hourly emissions estimates were based on peak-to-mean ratios for 37 emission process groups, with emissions from transfer racks and other emission process groups where sufficient information did not exist to adequately assess peak hourly emissions (
In our acute inhalation screening risk assessment, acute impacts are deemed negligible for HAP for which acute HQs are less than or equal to 1, and no further analysis is performed for these
The EPA conducts a tiered screening assessment examining the potential for significant human health risks due to exposures via routes other than inhalation (
For the Miscellaneous Organic Chemical Manufacturing source category, we identified PB-HAP emissions of polycyclic organic matter (POM) (of which polycyclic aromatic hydrocarbons is a subset), lead compounds, mercury compounds, cadmium compounds, and arsenic compounds, so we proceeded to the next step of the evaluation. Except for lead, the human health risk screening assessment for PB-HAP consists of three progressive tiers. In a Tier 1 screening assessment, we determine whether the magnitude of the facility-specific emissions of PB-HAP warrants further evaluation to characterize human health risk through ingestion exposure. To facilitate this step, we evaluate emissions against previously developed screening threshold emission rates for several PB-HAP that are based on a hypothetical upper-end screening exposure scenario developed for use in conjunction with the EPA's Total Risk Integrated Methodology.Fate, Transport, and Ecological Exposure (TRIM.FaTE) model. The PB-HAP with screening threshold emission rates are arsenic compounds, cadmium compounds, chlorinated dibenzodioxins and furans, mercury compounds, and POM. Based on the EPA estimates of toxicity and bioaccumulation potential, these pollutants represent a conservative list for inclusion in multipathway risk assessments for RTR rules. (See Volume 1, Appendix D at
We derive the Tier 1 screening threshold emission rates for these PB-HAP (other than lead compounds) to correspond to a maximum excess lifetime cancer risk of 1-in-1 million (
In the Tier 2 screening assessment, the location of each facility that exceeds a Tier 1 screening threshold emission rate is used to refine the assumptions associated with the Tier 1 fisher and farmer exposure scenarios at that facility. A key assumption in the Tier 1 screening assessment is that a lake and/or farm is located near the facility. As part of the Tier 2 screening assessment, we use a U.S. Geological Survey (USGS) database to identify actual waterbodies within 50 km of each facility and assume the fisher only consumes fish from lakes within that 50 km zone. We also examine the differences between local meteorology near the facility and the meteorology used in the Tier 1 screening assessment. We then adjust the previously-developed Tier 1 screening threshold emission rates for each PB-HAP for each facility based on an understanding of how exposure concentrations estimated for the screening scenario change with the use of local meteorology and USGS lakes database.
In the Tier 2 farmer scenario, we maintain an assumption that the farm is located within 0.5 km of the facility and that the farmer consumes meat, eggs, dairy, vegetables, and fruit produced near the facility. We may further refine the Tier 2 screening analysis by assessing a gardener scenario to characterize a range of exposures, with the gardener scenario being more plausible in RTR evaluations. Under the gardener scenario, we assume the gardener consumes home-produced eggs, vegetables, and fruit products at the same ingestion rate as the farmer. The Tier 2 screen continues to rely on the high-end food intake assumptions that were applied in Tier 1 for local fish (adult female angler at 99th percentile fish consumption
There are several analyses that can be included in a Tier 3 screening assessment, depending upon the extent of refinement warranted, including validating that the lakes are fishable, locating residential/garden locations for urban and/or rural settings, considering plume-rise to estimate emissions lost above the mixing layer, and considering hourly effects of meteorology and plume rise on chemical fate and transport (a time-series analysis). If necessary, the EPA may further refine the screening assessment through a site-specific assessment.
In evaluating the potential multipathway risk from emissions of lead compounds, rather than developing a screening threshold emission rate, we compare maximum estimated chronic inhalation exposure concentrations to the level of the current National Ambient Air Quality Standard (NAAQS) for lead.
For further information on the multipathway assessment approach, see the
In addition to assessing baseline inhalation risks and screening for potential multipathway risks, we also estimate risks considering the potential emission reductions that would be achieved by the control options under consideration. In these cases, the expected emission reductions are applied to the specific HAP and emission points in the RTR emissions dataset to develop corresponding estimates of risk and incremental risk reductions.
The EPA conducts a screening assessment to examine the potential for an adverse environmental effect as required under section 112(f)(2)(A) of the CAA. Section 112(a)(7) of the CAA defines “adverse environmental effect” as “any significant and widespread adverse effect, which may reasonably be anticipated, to wildlife, aquatic life, or other natural resources, including adverse impacts on populations of endangered or threatened species or significant degradation of environmental quality over broad areas.”
The EPA focuses on eight HAP, which are referred to as “environmental HAP,” in its screening assessment: Six PB-HAP and two acid gases. The PB-HAP included in the screening assessment are arsenic compounds, cadmium compounds, dioxins/furans, POM, mercury (both inorganic mercury and methyl mercury), and lead compounds. The acid gases included in the screening assessment are hydrochloric acid (HCl) and hydrogen fluoride (HF).
HAP that persist and bioaccumulate are of particular environmental concern because they accumulate in the soil, sediment, and water. The acid gases, HCl and HF, are included due to their well-documented potential to cause direct damage to terrestrial plants. In the environmental risk screening assessment, we evaluate the following four exposure media: Terrestrial soils, surface water bodies (includes water-column and benthic sediments), fish consumed by wildlife, and air. Within these four exposure media, we evaluate nine ecological assessment endpoints, which are defined by the ecological entity and its attributes. For PB-HAP (other than lead), both community-level and population-level endpoints are included. For acid gases, the ecological assessment evaluated is terrestrial plant communities.
An ecological benchmark represents a concentration of HAP that has been linked to a particular environmental effect level. For each environmental HAP, we identified the available ecological benchmarks for each assessment endpoint. We identified, where possible, ecological benchmarks at the following effect levels: Probable effect levels, lowest-observed-adverse-effect level, and no-observed-adverse-effect level. In cases where multiple effect levels were available for a particular PB-HAP and assessment endpoint, we use all of the available effect levels to help us to determine whether ecological risks exist and, if so, whether the risks could be considered significant and widespread.
For further information on how the environmental risk screening assessment was conducted, including a discussion of the risk metrics used, how the environmental HAP were identified, and how the ecological benchmarks were selected, see Appendix 9 of the
For the environmental risk screening assessment, the EPA first determined whether any facilities in the Miscellaneous Organic Chemical Manufacturing source category emitted any of the environmental HAP. For the Miscellaneous Organic Chemical Manufacturing source category, we identified emissions of POM, lead compounds, mercury compounds, cadmium compounds, arsenic compounds, HCl, and HF. Because one or more of the environmental HAP evaluated are emitted by at least one facility in the source category, we proceeded to the second step of the evaluation.
The environmental screening assessment includes six PB-HAP, arsenic compounds, cadmium compounds, dioxins/furans, POM, mercury (both inorganic mercury and methyl mercury), and lead compounds. With the exception of lead, the environmental risk screening assessment for PB-HAP consists of three tiers. The first tier of the environmental risk screening assessment uses the same health-protective conceptual model that is used for the Tier 1 human health screening assessment. TRIM.FaTE model simulations were used to back-calculate Tier 1 screening threshold emission rates. The screening threshold emission rates represent the emission rate in tons of pollutant per year that results in media concentrations at the facility that equal the relevant ecological benchmark. To assess emissions from each facility in the category, the reported emission rate for each PB-HAP was compared to the Tier 1 screening threshold emission rate for that PB-HAP for each assessment endpoint and effect level. If emissions from a facility do not exceed the Tier 1 screening threshold emission rate, the facility “passes” the screening assessment, and, therefore, is not evaluated further under the screening approach. If emissions from a facility exceed the Tier 1 screening threshold emission rate, we evaluate the facility further in Tier 2.
In Tier 2 of the environmental screening assessment, the screening threshold emission rates are adjusted to account for local meteorology and the actual location of lakes in the vicinity of facilities that did not pass the Tier 1 screening assessment. For soils, we evaluate the average soil concentration for all soil parcels within a 7.5-km radius for each facility and PB-HAP. For the water, sediment, and fish tissue concentrations, the highest value for each facility for each pollutant is used. If emission concentrations from a facility do not exceed the Tier 2 screening threshold emission rate, the facility “passes” the screening assessment and typically is not evaluated further. If emissions from a
As in the multipathway human health risk assessment, in Tier 3 of the environmental screening assessment, we examine the suitability of the lakes around the facilities to support life and remove those that are not suitable (
To evaluate the potential for an adverse environmental effect from lead, we compared the average modeled air concentrations (from HEM-3) of lead around each facility in the source category to the level of the secondary NAAQS for lead. The secondary lead NAAQS is a reasonable means of evaluating environmental risk because it is set to provide substantial protection against adverse welfare effects which can include “effects on soils, water, crops, vegetation, man-made materials, animals, wildlife, weather, visibility and climate, damage to and deterioration of property, and hazards to transportation, as well as effects on economic values and on personal comfort and well-being.”
The environmental screening assessment for acid gases evaluates the potential phytotoxicity and reduced productivity of plants due to chronic exposure to HF and HCl. The environmental risk screening methodology for acid gases is a single-tier screening assessment that compares modeled ambient air concentrations (from AERMOD) to the ecological benchmarks for each acid gas. To identify a potential adverse environmental effect (as defined in section 112(a)(7) of the CAA) from emissions of HF and HCl, we evaluate the following metrics: The size of the modeled area around each facility that exceeds the ecological benchmark for each acid gas, in acres and km
To put the source category risks in context, we typically examine the risks from the entire “facility,” where the facility includes all HAP-emitting operations within a contiguous area and under common control. In other words, we examine the HAP emissions not only from the source category emission points of interest, but also emissions of HAP from all other emission sources at the facility for which we have data. For this source category, we conducted the facility-wide assessment using a dataset compiled from the 2014 NEI. The source category records of that NEI dataset were flagged within the dataset, as described in section II.C of this preamble: What data collection activities were conducted to support this action? Quality assurance and quality control was performed on the whole facility dataset, which included the flagged source category records. The facility-wide file was then used to analyze risks due to the inhalation of HAP that are emitted “facility-wide” for the populations residing within 50 km of each facility, consistent with the methods used for the source category analysis described above. For these facility-wide risk analyses, the modeled source category risks were compared to the facility-wide risks to determine the portion of the facility-wide risks that could be attributed to the source category addressed in this proposal. We also specifically examined the facility that was associated with the highest estimate of risk and determined the percentage of that risk attributable to the source category of interest. The
Uncertainty and the potential for bias are inherent in all risk assessments, including those performed for this proposal. Although uncertainty exists, we believe that our approach, which used conservative tools and assumptions, ensures that our decisions are health and environmentally protective. A brief discussion of the uncertainties in the RTR emissions dataset, dispersion modeling, inhalation exposure estimates, and dose-response relationships follows below. Also included are those uncertainties specific to our acute screening assessments, multipathway screening assessments, and our environmental risk screening assessments. A more thorough discussion of these uncertainties is included in the
Although the development of the RTR emissions dataset involved quality assurance/quality control processes, the accuracy of emissions values will vary depending on the source of the data, the degree to which data are incomplete or missing, the degree to which assumptions made to complete the datasets are accurate, errors in emission estimates, and other factors. The emission estimates considered in this analysis generally are annual totals for certain years, and they do not reflect short-term fluctuations during the course of a year or variations from year to year. The estimates of peak hourly emission rates for the acute effects screening assessment were based on an emission adjustment factor applied to the average annual hourly emission rates, which are intended to account for emission fluctuations due to normal facility operations.
We recognize there is uncertainty in ambient concentration estimates associated with any model, including
Although every effort is made to identify all of the relevant facilities and emission points, as well as to develop accurate estimates of the annual emission rates for all relevant HAP, the uncertainties in our emission inventory likely dominate the uncertainties in the exposure assessment. Some uncertainties in our exposure assessment include human mobility, using the centroid of each census block, assuming lifetime exposure, and assuming only outdoor exposures. For most of these factors, there is neither an under nor overestimate when looking at the maximum individual risk or the incidence, but the shape of the distribution of risks may be affected. With respect to outdoor exposures, actual exposures may not be as high if people spend time indoors, especially for very reactive pollutants or larger particles. For all factors, we reduce uncertainty when possible. For example, with respect to census-block centroids, we analyze large blocks using aerial imagery and adjust locations of the block centroids to better represent the population in the blocks. We also add additional receptor locations where the population of a block is not well represented by a single location.
There are uncertainties inherent in the development of the dose-response values used in our risk assessments for cancer effects from chronic exposures and noncancer effects from both chronic and acute exposures. Some uncertainties are generally expressed quantitatively, and others are generally expressed in qualitative terms. We note, as a preface to this discussion, a point on dose-response uncertainty that is stated in the EPA's
Cancer UREs used in our risk assessments are those that have been developed to generally provide an upper bound estimate of risk.
Many of the UFs used to account for variability and uncertainty in the development of acute dose-response values are quite similar to those developed for chronic durations. Additional adjustments are often applied to account for uncertainty in extrapolation from observations at one exposure duration (
Uncertainty also exists in the selection of ecological benchmarks for the environmental risk screening assessment. We established a hierarchy of preferred benchmark sources to allow selection of benchmarks for each environmental HAP at each ecological assessment endpoint. We searched for benchmarks for three effect levels (
Although we make every effort to identify appropriate human health effect dose-response values for all pollutants emitted by the sources in this risk assessment, some HAP emitted by this source category are lacking dose-response assessments. Accordingly, these pollutants cannot be included in the quantitative risk assessment, which could result in quantitative estimates understating HAP risk. To help to alleviate this potential underestimate, where we conclude similarity with a HAP for which a dose-response value is available, we use that value as a surrogate for the assessment of the HAP for which no value is available. To the extent use of surrogates indicates appreciable risk, we may identify a need to increase priority for an IRIS assessment for that substance. We additionally note that, generally speaking, HAP of greatest concern due to environmental exposures and hazard are those for which dose-response assessments have been performed, reducing the likelihood of understating risk. Further, HAP not included in the quantitative assessment are assessed
For a group of compounds that are unspeciated (
In addition to the uncertainties highlighted above, there are several factors specific to the acute exposure assessment that the EPA conducts as part of the risk review under section 112 of the CAA. The accuracy of an acute inhalation exposure assessment depends on the simultaneous occurrence of independent factors that may vary greatly, such as hourly emission rates, meteorology, and the presence of a person. In the acute screening assessment that we conduct under the RTR program, we assume that peak emissions from the source category and reasonable worst-case air dispersion conditions (
For each source category, we generally rely on site-specific levels of PB-HAP or environmental HAP emissions to determine whether a refined assessment of the impacts from multipathway exposures is necessary or whether it is necessary to perform an environmental screening assessment. This determination is based on the results of a three-tiered screening assessment that relies on the outputs from models—TRIM.FaTE and AERMOD—that estimate environmental pollutant concentrations and human exposures for five PB-HAP (dioxins, POM, mercury, cadmium, and arsenic) and two acid gases (HF and HCl). For lead, we use AERMOD to determine ambient air concentrations, which are then compared to the secondary NAAQS standard for lead. Two important types of uncertainty associated with the use of these models in RTR risk assessments and inherent to any assessment that relies on environmental modeling are model uncertainty and input uncertainty.
Model uncertainty concerns whether the model adequately represents the actual processes (
Input uncertainty is concerned with how accurately the models have been configured and parameterized for the assessment at hand. For Tier 1 of the multipathway and environmental screening assessments, we configured the models to avoid underestimating exposure and risk. This was accomplished by selecting upper-end values from nationally representative datasets for the more influential parameters in the environmental model, including selection and spatial configuration of the area of interest, lake location and size, meteorology, surface water, soil characteristics, and structure of the aquatic food web. We also assume an ingestion exposure scenario and values for human exposure factors that represent reasonable maximum exposures.
In Tier 2 of the multipathway and environmental screening assessments, we refine the model inputs to account for meteorological patterns in the vicinity of the facility versus using upper-end national values, and we identify the actual location of lakes near the facility rather than the default lake location that we apply in Tier 1. By refining the screening approach in Tier 2 to account for local geographical and meteorological data, we decrease the likelihood that concentrations in environmental media are overestimated, thereby increasing the usefulness of the screening assessment. In Tier 3 of the screening assessments, we refine the model inputs again to account for hour-by-hour plume rise and the height of the mixing layer. We can also use those hour-by-hour meteorological data in a TRIM.FaTE run using the screening configuration corresponding to the lake location. These refinements produce a more accurate estimate of chemical concentrations in the media of interest, thereby reducing the uncertainty with those estimates. The assumptions and the associated uncertainties regarding the selected ingestion exposure scenario are the same for all three tiers.
For the environmental screening assessment for acid gases, we employ a single-tiered approach. We use the modeled air concentrations and compare those with ecological benchmarks.
For all tiers of the multipathway and environmental screening assessments, our approach to addressing model input uncertainty is generally cautious. We choose model inputs from the upper end of the range of possible values for the influential parameters used in the models, and we assume that the exposed individual exhibits ingestion behavior that would lead to a high total exposure. This approach reduces the likelihood of not identifying high risks for adverse impacts.
Despite the uncertainties, when individual pollutants or facilities do not exceed screening threshold emission rates (
The EPA evaluates the following HAP in the multipathway and/or environmental risk screening assessments, where applicable: Arsenic, cadmium, dioxins/furans, lead, mercury (both inorganic and methyl mercury), POM, HCl, and HF. These HAP represent pollutants that can cause adverse impacts either through direct exposure to HAP in the air or through exposure to HAP that are deposited from the air onto soils and surface waters and then through the environment into the food web. These HAP represent those HAP for which we can conduct a meaningful multipathway
In addition to the proposed actions on the risk review and technology review discussed further in this section, we are proposing the following: (1) Adding monitoring and operational requirements for flares that control ethylene oxide emissions and flares used to control emissions from processes that produce olefins and polyolefins, with the option for an owner or operator of a flare outside of this subset to choose to opt in to the proposed requirements in lieu of complying with the current flare standards, and (2) consistent with
The EPA is proposing under CAA section 112(d)(2) and (3) to amend the operating and monitoring requirements for a subset of flares used as APCDs in the Miscellaneous Organic Chemical Manufacturing source category because we have determined that the current requirements for flares in this subset are not adequate to ensure the level of destruction efficiency needed to conform with the MACT standards in the MON. This subset includes flares that either (1) control ethylene oxide emissions, (2) control emissions from processes that produce olefins, or (3) control emissions from processes that produce polyolefins. Flares falling into one of these categories are referred to as the flare “subset” in this preamble, and for clarification, it is our intention that, as part of this proposal, flares controlling propane dehydrogenation (PDH) processes be included in this flare subset since the PDH process produces olefins such as propylene. The EPA is also proposing that, for flares outside of this subset, an owner or operator may choose to comply with the updated standards in lieu of complying with the current flare standards. Therefore, all proposed flare standards in section IV.A.1 of this preamble are intended to apply to only the specified flare subset and to flares at MON facilities where the owner or operator has chosen to opt in to the proposed standards. Flares outside of this subset, or at MON facilities where the owner or operator has chosen not to opt in to the proposed standards, will be subject to the current provisions for flares in the MON standard.
The specified flare subset was selected on the basis that the current requirements for flares may be inadequate to ensure the level of destruction efficiency needed to conform with the MACT standards in the MON. Flares are commonly used within the Miscellaneous Organic Chemical Manufacturing source category. The requirements applicable to flares, which are used to control emissions from various emission sources in the Miscellaneous Organic Chemical Manufacturing source category (
The General Provisions of 40 CFR 63.11(b) specify that flares be: (1) Steam-assisted, air-assisted, or non-assisted; (2) operated at all times when emissions may be vented to them; (3) designed for and operated with no visible emissions (except for periods not to exceed a total of 5 minutes during any 2 consecutive hours); and (4) operated with the presence of a pilot flame at all times. These General Provisions also specify both the minimum heat content of gas combusted in the flare and maximum exit velocity at the flare tip. The General Provisions specify monitoring for the presence of the pilot flame and the operation of a flare with no visible emissions. For other operating limits, 40 CFR part 63, subpart SS, includes an initial flare compliance assessment to demonstrate compliance but specifies no monitoring requirements to ensure continuous compliance. We are proposing to revise the General Provisions table to 40 CFR part 63, subpart FFFF (Table 12), entries for 40 CFR 63.8(a)(4) and 40 CFR 63.11 such that these provisions do not apply to flares in the specified subset, because we are proposing to replace these provisions with new standards we are proposing for flares in the specified subset. We are also proposing at 40 CFR 63.2535(m) to clarify that owners or operators of flares that are not considered to be in the specified subset but are subject to the provisions of 40 CFR 60.18 or 63.11 may elect to comply with the new proposed flare standards in lieu of the provisions of 40 CFR 60.18 or 63.11.
In 2012, the EPA compiled information and test data collected on flares and summarized its preliminary findings on operating parameters that affect flare combustion efficiency in a technical report titled
The remainder of this section of the preamble includes a discussion of requirements that we are proposing for flares in the specified subset used as APCDs in the Miscellaneous Organic Chemical Manufacturing source category, along with impacts and costs associated with these proposed revisions. Specifically, this action proposes that flares in the specified subset operate pilot flame systems continuously and that flares operate with no visible emissions (except for periods not to exceed a total of 5 minutes during any 2 consecutive hours) when the flare vent gas flow rate is below the smokeless capacity of the flare. In addition, this action proposes to consolidate measures related to flare tip velocity and proposes new operational and monitoring requirements related to the combustion zone gas. Further, in keeping with the elimination of the SSM exemption as discussed in section IV.E.1 of this preamble, this action proposes a work practice standard related to the visible emissions and velocity limits during periods when the flare is operated above its smokeless capacity (
The MON references the flare requirements in 40 CFR 63.11(b) (through reference of 40 CFR part 63, subpart G, 40 CFR part 63, subpart SS, and Table 12 to 40 CFR part 63, subpart FFFF), which specify that a flare used as an APCD should operate with a pilot flame present at all times. Pilot flames are proven to improve flare flame stability, and even short durations of an extinguished pilot could cause a
The MON references 40 CFR 63.11(b) (through reference of 40 CFR part 63, subpart G, 40 CFR part 63, subpart SS, and Table 12 to 40 CFR part 63, subpart FFFF), which specifies that a flare used as an APCD should operate with visible emissions for no more than 5 minutes in a 2-hour period. Owners or operators of these flares are required to conduct an initial performance demonstration for visible emissions using EPA Method 22 of Appendix A-7 to 40 CFR part 60 (“Method 22”). We are proposing to remove the cross-reference to the General Provisions for flares in the specified subset and instead cross-reference 40 CFR part 63, subpart CC, to include the limitation on visible emissions. We are also proposing to clarify that the initial 2-hour visible emissions demonstration should be conducted the first time regulated materials are routed to the flare.
With regard to continuous compliance with the visible emissions limitation, we are proposing daily visible emissions monitoring for flares in the specified subset for whenever regulated material is routed to the flare and also visible emissions monitoring for whenever visible emissions are observed from the flare. On days that the flare receives regulated material, we are proposing that owners or operators of flares in the specified subset monitor visible emissions at a minimum of once per day while the flare is receiving regulated material using an observation period of 5 minutes and Method 22. Additionally, whenever regulated material is routed to a flare in the specified subset and there are visual emissions from the flare, we are proposing that another 5-minute visible emissions observation period be performed using Method 22, even if the minimum required daily visible emission monitoring has already been performed. For example, if an employee observes visible emissions, the owner or operator of the flare would perform a 5-minute Method 22 observation to check for compliance upon initial observation or notification of such event. In addition, in lieu of daily visible emissions observations performed using Method 22, we are proposing that owners and operators be allowed to use video surveillance cameras. We believe that video surveillance cameras would be at least as effective as the proposed daily 5-minute visible emissions observations using Method 22.
We are also proposing to extend the observation period for a flare in the specified subset to 2 hours whenever visible emissions are observed for greater than 1 continuous minute during any of the 5-minute observation periods. Refer to 40 CFR 63.2450(e)(5) and 40 CFR 63.670(c) and (h) for these proposed requirements. We acknowledge that operating a flare near the incipient smoke point (the point at which black smoke begins to form within the flame) results in good combustion at the flare tip; however, smoking flares can contribute significantly to emissions of particulate matter that is 2.5 micrometers in diameter or smaller. Thus, while increasing the allowable period for visible emissions may be useful from an operational perspective, we do not believe the allowable period for visible emissions should be increased to more than 5 minutes in any 2-hour period. We solicit comment on the proposed allowable period for visible emissions from flares.
As discussed later in this section, we are proposing additional operational and monitoring requirements for flares in the specified subset that we expect will result in owners or operators of MCPUs installing equipment that can be used to fine-tune and control the amount of assist steam or air introduced at the flare tip such that combustion efficiency of the flare will be maximized. These monitoring and control systems will assist these flare owners or operators to operate near the incipient smoke point without exceeding the visible emissions limit. While combustion efficiency may be highest at the incipient smoke point, it is not significantly higher than the combustion efficiency achieved by the proposed operating limits discussed in section IV.A.1.d of this preamble. As seen in the performance curves for flares, there is very limited improvement in flare performance beyond the performance achieved at the proposed operating limits (see technical memorandum titled
In addition, we are proposing that the owner or operator establish the smokeless capacity of each flare in the specified subset based on design specification of the flare, and that the visible emissions limitation only apply when the flare vent gas flow rate is below its smokeless capacity. We are proposing a work practice standard for the limited times (
For this proposed work practice standard, owners or operators would need to develop a flare management plan for flares in the specified subset that identifies procedures for limiting discharges to the flare as a result of process upsets or malfunctions that cause the flare to exceed its smokeless capacity. In addition, for any flare in the specified subset that exceeds both the smokeless design capacity and visible emissions limit, we are proposing that owners or operators would need to conduct a specific root cause analysis
With regard to the proposed rolling 3-year period for assessing a deviation of the work practice standard, the EPA evaluated the impacts of different frequencies and time periods to the number of events that would be the “backstop” (
This action consolidates provisions related to flare tip velocity for flares in the specified subset. The MON references the flare provisions in 40 CFR 63.11(b) (through reference of 40 CFR part 63, subpart G, 40 CFR part 63, subpart SS, and Table 12 to 40 CFR part 63, subpart FFFF), which specify maximum flare tip velocities based on flare type (non-assisted, steam-assisted, or air-assisted) and the net heating value of the flare vent gas. For MON facilities using flares as APCDs, it is estimated that approximately 90 percent of these flares are either steam- or air-assisted (see the memorandum,
Based on analysis conducted for the Petroleum Refinery Sector final rule, the EPA identified air-assisted test runs with high flare tip velocities that had high combustion efficiencies (see technical memorandum,
In addition, we are proposing the same work practice standard for flare tip velocity during emergency releases (when the flow to the flare exceeds the smokeless capacity of the flare) as we are proposing for visible emissions for flares in the specified subset. Refer to 40 CFR 63.2450(e)(5) and 40 CFR 63.670(o) for these proposed provisions. Specifically, instead of owners and operators meeting the flare tip velocity operating limit at all times for flares in the specified subset, we are proposing that the owner or operator establish the smokeless capacity of each flare based on design specification of the flare, and that the flare tip velocity operating limit would only apply when the flare vent gas flow rate is below its smokeless capacity. We are proposing a work practice standard for flares in the specified subset for the limited times (
For the proposed work practice standard, owners or operators would develop a flare management plan for flares in the specified subset identifying procedures that they intend to follow in order to limit discharges to the flare as
Finally, we are also proposing not to include the provision for the special flare tip velocity equation in the General Provisions at 40 CFR 63.11(b)(6)(i)(A) for non-assisted flares in the specified subset with hydrogen content greater than 8 percent. This equation, which was developed based on limited data from a chemical manufacturer, has very limited applicability for flares used as APCDs in the Miscellaneous Organic Chemical Manufacturing source category because it only provides an alternative for non-assisted flares with large quantities of hydrogen. Available data indicates that approximately 90 percent of the flares used at MON facilities are either steam-assisted or air-assisted. Furthermore, we are proposing compliance alternatives that we believe provide a better way for flares in the specified subset with high hydrogen content to comply with the rule while ensuring proper destruction performance of the flare (see section IV.A.3.d of this preamble for the proposed compliance alternatives). Therefore, for non-assisted flares in the specified subset with hydrogen content greater than 8 percent that are used as ACPDs, we are not proposing to include this special flare tip velocity equation as a compliance alternative. We request comment on the need to include this equation.
The current provisions for flares in 40 CFR 63.11(b) specify that the flare vent gas meet a minimum net heating value of 200 British thermal units per standard cubic foot (Btu/scf) for non-assisted flares and 300 Btu/scf for air- and steam-assisted flares. The MON references these provisions (through reference of 40 CFR part 63, subpart G, 40 CFR part 63, subpart SS, and Table 12 to 40 CFR part 63, subpart FFFF), but neither the General Provisions nor the MON include specific requirements for monitoring the net heating value of the flare vent gas. Moreover, recent flare testing results indicate that the minimum net heating value alone does not address instances when the flare may be over-assisted because it only considers the gas being combusted in the flare and nothing else (
In this proposal, in lieu of requiring compliance with the operating limits for net heating value of the flare vent gas in the General Provisions, we are proposing to cross-reference 40 CFR part 63, subpart CC, to include in the MON a single minimum operating limit for the net heating value in the combustion zone gas (NHVcz) of 270 Btu/scf during any 15-minute period for steam-assisted, air-assisted, and non-assisted flares in the specified subset. Refer to 40 CFR 63.2450(e)(5) and 40 CFR 63.670(e) and (m) for these proposed provisions. The Agency believes, given the results from the various data analyses conducted for the Petroleum Refinery Sector rule, that this NHVcz operating limit promulgated for flares in the Petroleum Refinery Sector source category is also appropriate and reasonable and will ensure flares in the specified subset meet the HAP destruction efficiencies in the standard at all times when operated in concert with the other proposed flare provisions (
Furthermore, in addition to the NHVcz operating limit, we are proposing a net heating value dilution parameter (NHVdil) for certain flares in the specified subset that operate with perimeter assist air. Refer to 40 CFR 63.2450(e)(5) and 40 CFR 63.670(f) and (n) for these proposed provisions. For air-assisted flares, use of too much perimeter assist air can lead to poor flare performance. Furthermore, based on our analysis of the air-assisted flare datasets (see technical memorandum,
We also found that some assist steam lines are purposely designed to entrain air into the lower or upper steam at the flare tip; and for flare tips with an effective tip diameter of 9 inches or more, there are no flare tip steam induction designs that can entrain enough assist air to cause a flare operator to have a deviation from the NHVdil operating limit without first deviating from the NHVcz operating limit. Therefore, we are proposing to allow owners or operators of flares in the specified subset whose only assist air is from perimeter assist air entrained in lower and upper steam at the flare tip and with a flare tip diameter of 9 inches or greater to comply only with the NHVcz operating limit. Steam-assisted flares with perimeter assist air and an effective tip diameter of less than 9 inches would remain subject to the requirement to account for the amount of assist air intentionally entrained within the calculation of NHVdil. However, we recognize that this assist air cannot be directly measured, but the quantity of air entrained is dependent on the assist steam rate and the design of the steam tube's air entrainment system. Therefore, we are proposing provisions to specify that owners or operators of these smaller diameter steam-assisted flares in the specified subset use the steam flow rate and the maximum design air-to-steam ratio of the steam tube's air entrainment system for determining the flow rate of this assist air. Using the maximum design ratio will tend to over-estimate the assist air flow rate, which is conservative with respect to ensuring compliance with the NHVdil operating limit.
Finally, we are proposing that owners or operators record and calculate 15-minute block average values for these parameters. Our rationale for selecting a 15-minute block averaging period is provided in section IV.A.1.e of this preamble. We solicit comment on the proposed revisions related to NHVcz.
Except for the visible emissions operating limits as described in section IV.A.1.b, we are proposing to use a 15-minute block averaging period for each proposed flare operating parameter (
Given the short averaging times for the operating limits, we are proposing special calculation methodologies to enable owners or operators to use “feed forward” calculations to ensure compliance with the operating limits on a 15-minute block average for flares in the specified subset. Specifically, we propose using the results of the compositional analysis determined just prior to a 15-minute block period for the next 15-minute block average. Owners or operators of flares in the specified subset will then know the vent gas properties for the upcoming 15-minute block period and can adjust assist gas flow rates relative to vent gas flow rates to comply with the proposed operating limits. In other words, “feed forward” means that owners or operators would use the net heating value in the vent gas (NHVvg) going into the flare in one 15-minute period to adjust the assist media (
We are also proposing to clarify that when determining compliance with the flare tip velocity and combustion zone operating limits specified in 40 CFR 63.670(d) and (e), the initial 15-minute block period starts with the 15-minute block that includes a full 15 minutes of the flaring event. In other words, we are proposing to clarify that the owner or operator demonstrate compliance with the velocity and NHVcz requirements starting with the block that contains the fifteenth minute of a flaring event; and the owner or operator is not required to demonstrate compliance for the previous 15-minute block in which the event started and contained only a fraction of flow. We solicit comment on these proposed revisions.
In lieu of requiring the composition of the vent gas and the NHVvg to be continuously monitored, we are proposing an alternative monitoring approach for flares in the specified subset that are in dedicated service that have consistent composition and flow. We believe that these types of flares, which have limited flare vent gas streams, do not need to have the same type of ongoing monitoring requirements as those with more variable waste streams. Thus, we are proposing an option that owners or operators can use to demonstrate compliance with the operating requirements for flares in the specified subset that are in dedicated service to a specific emission source, such as a transfer rack operation consistently loading the same material. We are proposing that owners or operators will need to submit an application for the use of this alternative compliance option. We are proposing that the application include a description of the system, characterization of the vent gases that could be routed to the flare based on a minimum of seven grab samples (14 daily grab samples for continuously operated flares), and specification of the net heating value that will be used for all flaring events (based on the minimum net heating value of the grab samples). In other words, for flares in the specified subset that are in dedicated service, we are proposing that the minimum NHVvg determined from the grab samples could be used in the equation at 40 CFR 63.670(m)(1) for all flaring events to determine NHVcz. We are also proposing to allow engineering estimates to characterize the amount of gas flared and the amount of assist gas introduced into the system. For example, we believe that the use of fan curves to estimate air assist rates would be acceptable. We propose that flare owners or operators would use the net heating value determined from the initial sampling phase and measured or estimated flare vent gas and assist gas flow rates, if applicable, to demonstrate compliance with the standards. Refer to 40 CFR 63.2450(e)(5) and 40 CFR 63.670(j)(6) for these proposed provisions. Finally, for owners and operators that must comply with the continuous monitoring requirements, we are proposing additional clarifications and requirements at 40 CFR 63.2450(e)(5) when using a gas chromatograph or mass spectrometer for compositional analysis. We solicit comment on the proposed revisions related to flares in dedicated service.
Pressure-assisted flares are conceptually similar, yet technically different in both design and operation compared to more traditional elevated flare tip designs (
MPGF are often used as secondary flares to control large emissions events that result during periods of SSM. With the elimination of the SSM exemption (see section IV.E.1 of this preamble for additional discussion), proposing requirements for this unique flare type for flares in the specified subset is an important consideration given that some facilities currently use them as APCD. Based on our review of recently approved AMEL requests for MPGF and the underlying data analyses that supported those decisions (see section II.D of this preamble), MPGF can achieve at least equivalent reductions in volatile organic compounds (VOC) and organic HAP to traditional elevated flares; however, different operating requirements are needed for these flare types to ensure a high level of control is achieved given that the individual flare burners are designed to operate at high velocities (
In reviewing the initial MPGF AMEL requests by Dow Chemical and ExxonMobil (80 FR 8023-8030, February 13, 2015), the Agency noted two general conclusions from the test data supporting the AMEL requests that were consistent with 1985 studies
Another unique characteristic of MPGF is that they may use a cross-lighting pilot flame system as a means of ignition to initially combust the waste gases sent to the flare burners on a particular staged array. Thus, we also reviewed the equipment-specific set-ups in the test data that allowed for successful cross-lighting of MPGF. Based on review of the data, it appears that one option would be for facilities to conduct performance demonstrations to demonstrate successful cross-lighting on a minimum of three burners (
Furthermore, in reviewing the site-specific AMEL standards that facilities are complying with for MPGF,
Finally, although we are unaware of any MON facilities that use multi-point elevated flares in the specified flare subset, we recognize that an owner or operator may elect to use this type of flare design in the future. Given the design similarities of a multi-point elevated flare when compared to a MPGF (
The EPA expects that the newly proposed requirements for flares in the specified subset that are discussed in this section will affect flares at 21 facilities nationwide. We assumed that these facilities each operate one flare that either controls ethylene oxide emissions or controls emissions from an olefins and/or polyolefins process. The ACC provided the EPA a distribution of flares by type for 68 MON facility flares at 18 facilities. We used this information to estimate the flare type for each of the 21 flares at MON facilities that control ethylene oxide emissions or produce olefins and/or polyolefins. Based on this information, we estimate that the majority of these flares (about 90 percent) have traditional elevated flare tip designs (
The MON defines several terms applicable to process vents at 40 CFR 63.2550. The current definition of “continuous process vent” excludes “relief valve discharges,” and instead, the MACT standard in the MON recognizes relief valve discharges to be the result of malfunctions. The acronym “PRD” means pressure relief device and is common vernacular to describe the variety of devices regulated as pressure relief valves (see the end of this section for our proposed definitions of pressure relief device and relief valve, to provide clarity). PRDs are designed to remain closed during normal operation. Typically, the Agency considers PRD releases as the result of an overpressure in the system caused by operator error, a malfunction such as a power failure or equipment failure, or other unexpected cause that results in immediate venting of gas from process equipment to avoid safety hazards or equipment damage.
The MON currently regulates PRDs when they are seated through equipment leak provisions that are applied only after the pressure relief occurs (
CAA section 112(d)(1) specifies that the EPA may “distinguish among classes, types, and sizes of sources” when establishing standards. (In establishing standards under CAA section 112(d), the EPA may “distinguish among classes, types, and sizes of sources within a category or sub-category.” CAA section 112(d)(1). See
We evaluated each subcategory of PRDs separately to ensure that a standard continuously applies. Essentially, PRDs that vent to a control system are already complying with the process vent standards and are, thus, presumably, already appropriately controlled. However, PRDs that vent to atmosphere cannot meet the current continuous process vent standards. Therefore, we examined whether it would be feasible to regulate PRDs that vent to atmosphere under CAA section 112(d)(2) and (3). As detailed here, we determined it was feasible to regulate PRDs that vent to atmosphere under CAA section 112(h) and are proposing work practice standards at 40 CFR 63.2480(e) that are intended to reduce the number of PRD releases and will incentivize owners or operators to eliminate the causes of PRD releases to the atmosphere.
No MON facility is subject to numeric emission limits for PRDs that vent to the atmosphere. Further, we do not believe it is appropriate to subject PRDs that vent to the atmosphere to numeric emission limits due to technological and economical limitations that make it impracticable to measure emissions from such PRDs. CAA section 112(h)(1) states that the EPA may prescribe a work practice standard or other requirement, consistent with the provisions of CAA sections 112(d) or (f), in those cases where, in the judgment of the Administrator, it is not feasible to enforce an emission standard. CAA section 112(h)(2)(B) further defines the term “not feasible” in this context as meaning that “the application of measurement technology to a particular class of sources is not practicable due to technological and economic limitations.” We consider it appropriate to establish a work practice standard for PRDs that vent to atmosphere as provided in CAA section 112(h), because the application of a measurement methodology for PRDs that vent to atmosphere is not practicable due to technological and economic limitations. First, it is not practicable to use a measurement methodology for PRD releases that vent to atmosphere. PRDs are designed to remain closed during normal operations and release emissions only during nonroutine and unplanned events, and the venting time can be very short and may vary widely in composition and flow rate. These unique event characteristics make it infeasible to collect a grab sample of the gases when a PRD release occurs, and a single grab sample would also likely not account for potential variation in vent gas composition. Additionally, it would not be cost-effective to construct an appropriate conveyance and install and operate continuous monitoring systems for each individual PRD that vents to atmosphere in order to attempt to quantitatively measure a release event that may occur only a few times in a 3-year period. (See
We also reviewed information about MON facilities to determine how the best performers are minimizing emissions from PRDs that vent to atmosphere. We first reviewed the requirements in the EPA's Chemical Accident Prevention Provisions (40 CFR part 68) and Occupational Safety and Health Administration's (OSHA) Process Safety Management rule (29 CFR 1910.119). These rules focus on planning for and minimizing or preventing scenarios which would result in releases of chemicals. For example, as stated in Appendix C to the OSHA rule, “Process safety management is the proactive identification, evaluation and mitigation or prevention of chemical releases that could occur as a result of failures in process, procedures or equipment.” The rules are applicable to any equipment in the process, and relief valves are identified in each rule as an applicable source to evaluate. The EPA and OSHA rules have similar requirements, except that applicability determination is unique to each rule. Owners or operators are subject to the EPA's Chemical Accident Prevention Provisions at 40 CFR part 68 if a process has more than a threshold quantity of a regulated substance. Regulated substances and their thresholds are listed at 40 CFR 68.130. Owners or operators are subject to OSHA's Process Safety Management rule at 29 CFR 1910.119 if a process involves either a chemical that is above specified threshold quantities (listed in appendix A to 29 CFR 1910.119) or a Category 1 flammable gas or liquid. MON facilities may be subject to the Chemical Accident Prevention Provisions rule, as identified in their title V permit (40 CFR 68.215 requires permits to list part 68 as an applicable requirement, if subject). As a result, we further reviewed this rule for consideration in developing the work practice standard.
The EPA's Chemical Accident Prevention Provisions require a prevention program. Facilities subject to the MON would fall under prevention program 3. Prevention program 3 includes the following: Documentation of process safety information, conducting a hazard analysis, documentation of operating procedures, employee training, on-going maintenance, and incident investigations. The process safety information documented must include information pertaining to the hazards of the regulated substances in the process, the technology of the process, and the process equipment (including relief valves). When conducting the hazard analysis, facilities must identify, evaluate, and control the hazards in the process; controls may consider the application of detection methodologies (
Next, we considered that some companies operating MON facilities also own and operate petroleum refineries and may have established company-wide best practices as a result of specific state and federal requirements. For example, petroleum refineries and chemical plants located in certain counties in California are subject to and complying with specific requirements for PRDs such as the Bay Area Air Quality Management District
Considering our review of the EPA's Chemical Accident Prevention Provisions and company-wide best practices that MON facilities may have implemented, we expect that the best performing MON facilities have implemented a program for PRDs that vent to the atmosphere that consists of using at least three prevention measures and performing root cause analysis and corrective action in the event that a PRD does release emissions directly to the atmosphere. We used this information as the basis of the work practice standards that we are proposing at 40 CFR 63.2480(e). Examples of prevention measures include the following: Flow indicators, level indicators, temperature indicators, pressure indicators, routine inspection and maintenance programs, operator training, inherently safer designs, safety instrumentation systems, deluge systems, and staged relief systems where the initial PRD discharges to a control system.
We are also proposing a limit on the number of PRD releases that would result in a deviation from the work practice standard for PRDs that vent to the atmosphere. We believe setting criteria to determine a deviation is necessary for the work practice to be effective. We considered limits on the number of PRD releases in both 3- and 5-year periods. Based on a Monte Carlo analysis of random rare events (as conducted for the Petroleum Refinery Sector rule
In addition, we believe that it is appropriate to exclude certain types of PRDs that have very low potential to emit based on their type of service, size, and/or pressure from the proposed work practice standard for PRD releases that vent to atmosphere. Both the Chemical Accident Prevention Provisions and the California petroleum refinery PRD rules also exempt or impose simpler requirements for certain PRDs. We are proposing at 40 CFR 63.2480(e)(5) that the following types of PRDs would not be subject to the work practice standard for PRDs that vent to the atmosphere: (1) PRDs with a design release pressure of less than 2.5 pounds per square inch gauge (psig); (2) PRDs in heavy liquid service; (3) PRDs that are designed solely to release due to liquid thermal expansion; and (4) pilot-operated and balanced bellows PRDs if the primary release valve associated with the PRD is vented through a control system. Each of the types of PRDs that we are proposing are not subject to the work practice standard are discussed in greater detail here. With regard to PRDs with a design release pressure of less than 2.5 psig, it is technically infeasible to pipe sources with a release pressure of less than 2.5 psig to a flare (or other similar control system) because the back pressure in the flare header system generally exceeds 2.5 psig. Therefore, we are proposing that PRDs with a design release pressure of less than 2.5 psig are not subject to the work practice standard. With regard to PRDs in heavy liquid service, any release from a PRD in heavy liquid service would have a visual indication of a leak and any repairs to the valve would have to be further inspected and, if necessary, repaired under the existing equipment leak provisions. Therefore, we are proposing that PRDs in heavy liquid service are not subject to the work practice standard. In addition, we are proposing that PRDs designed solely to release due to liquid thermal expansion are not subject to the work practice standard. We expect that releases from these thermal relief valves would be insignificant. Finally, we are also proposing that pilot-operated PRDs (where emissions can be released to the atmosphere through a pilot discharge vent) and balanced bellow PRDs (where emissions can be released to the atmosphere through a bonnet vent) are not subject to the work practice standard, if the primary release valve associated with the pilot-operated or balanced bellows PRD is vented through a control system. Pilot-operated and balanced bellows PRDs are primarily used for pressure relief when the back pressure of the discharge vent may be high or variable. Conventional pressure relief devices act on a differential pressure between the process gas and the discharge vent. If the discharge vent pressure increases, the vessel pressure at which the PRD will open increases, potentially leading to vessel over-pressurization that could cause vessel failure. Balanced bellows PRDs use a bellow to shield the pressure relief stem and top portion of the valve seat from the discharge vent pressure. A balanced bellows PRD will not discharge gas to the atmosphere during a release event, except for leaks through the bonnet vent due to bellows failure or fatigue. Pilot-operated PRDs use a small pilot safety valve that discharges to the atmosphere to effect actuation of the primary valve or piston, which then discharges to a control system. Balanced bellows or pilot operated PRDs are considered a reasonable and necessary means to safely control the primary PRD release.
For all PRDs in organic HAP service, owners or operators would still be required to comply with the leak detection and repair (LDAR) provisions, as they are currently applicable. Therefore, all PRDs that vent to the atmosphere would still perform LDAR to ensure the PRD properly reseats if a release does occur, and PRDs that vent to control systems would still be exempt from LDAR requirements given that if a release were to occur from this specific
Finally, to ensure compliance with the proposed work practice standard for PRDs that vent to the atmosphere, we are also proposing at 40 CFR 63.2480(e)(3) that sources monitor these PRDs using a system that is capable of identifying and recording the time and duration of each pressure release and of notifying operators that a pressure release has occurred. Pressure release events from PRDs that vent to atmosphere have the potential to emit large quantities of HAP. When a pressure release occurs, it is important to identify and mitigate it as quickly as possible. For purposes of estimating the costs of this requirement, we assumed that operators would install electronic monitors on PRDs that vent to atmosphere to identify and record the time and duration of each pressure release. However, we are proposing to allow owners and operators to use a range of methods to satisfy these requirements, including the use of a parameter monitoring system (that may already be in place) on the process operating pressure that is sufficient to indicate that a pressure release has occurred as well as record the time and duration of that pressure release. Based on our cost assumptions, the nationwide capital cost of installing these electronic monitors is $12.7 million, and the annualized capital cost is $1.68 million per year.
We also considered requiring all PRDs to be vented to a control device as a beyond-the-floor requirement. While this would provide additional emission reductions beyond those we are establishing as the MACT floor, these reductions come at significant costs. Assuming 25 percent to 50 percent of PRDs already vent to a control device, the capital cost for controlling the remaining PRDs ranges from $2,540 million to $5,070 million, and the annualized cost ranges from $330 million to $660 million. The incremental cost effectiveness for requiring control of all PRDs that vent to atmosphere compared to the requirements described above exceeds $80 million per ton of HAP reduced. Consequently, we conclude that this is not a cost-effective option.
The EPA is also proposing a requirement that any future installed pilot-operated PRDs be the non-flowing type. As previously noted, under CAA section 112(d)(1), the EPA may “distinguish among classes, types, and sizes of sources” when establishing standards. There are two designs of pilot-operated PRDs: Flowing and non-flowing. When a flowing pilot-operated PRD is actuated, the pilot discharge vent continuously releases emissions; however, when a non-flowing pilot-operated PRD is actuated, the pilot discharge vent does not vent continuously. Although we expect pilot discharge vent emissions to be minimal for both designs, limiting the future use of flowing pilot-operated PRDs is warranted to prevent continuous release of emissions. Therefore, we are proposing at 40 CFR 63.2480(e)(8) to require future installation and operation of non-flowing pilot-operated PRDs at all affected sources.
The terms “pressure release,” “pressure relief device,” and “relief valve” are not defined in the MON; therefore, we are proposing a definition for each of these terms at 40 CFR 63.2550(i) that would apply only to the MON standards. We are proposing to define “pressure release” as the emission of materials resulting from the system pressure being greater than the set pressure of the pressure relief device. This release can be one release or a series of releases over a short time period. We are proposing to define “pressure relief device” as a valve, rupture disk, or similar device used only to release an unplanned, nonroutine discharge of gas from process equipment in order to avoid safety hazards or equipment damage. A pressure relief device discharge can result from an operator error, a malfunction such as a power failure or equipment failure, or other unexpected cause. Such devices include conventional, spring-actuated relief valves, balanced bellows relief valves, pilot-operated relief valves, rupture disks, and breaking, buckling, or shearing pin devices. We are proposing to define “relief valve” as a type of pressure relief device that is designed to re-close after the pressure relief.
We solicit comment on all of the proposed revisions for PRDs. See the technical memorandum titled
For a closed-vent system containing bypass lines that can divert the stream away from the APCD to the atmosphere, the MON requires the owner or operator to either (1) install, maintain, and operate a continuous parametric monitoring system for flow on the bypass line that is capable of detecting whether a vent stream flow is present at least once every 15 minutes or (2) secure the bypass line valve in the non-diverting position with a car-seal or a lock-and-key type configuration. Depending on the emission source, the MON references bypass line requirements in either 40 CFR part 63, subparts G, H, and SS, or 40 CFR part 65, subpart F. Under option (2), the owner or operator is also required to inspect the seal or closure mechanism at least once per month to verify the valve is maintained in the non-diverting position (
The EPA is proposing that emission limits apply at all times consistent with
We reviewed state permit conditions and determined the best performers' permits specify that they meet certain conditions before they open equipment to the atmosphere. The conditions include thresholds regarding the lower explosive limit (LEL) and the mass of gas that may be emitted. Therefore, we are proposing a work practice standard at 40 CFR 63.2455(d)(1)(i) that prior to opening process equipment to the
We also acknowledge that installing a blind flange to prepare equipment for maintenance may be necessary and by doing so, the owner or operator may not be able to meet the proposed maintenance vent conditions mentioned above (
We expect that all MON facilities already have standard procedures in place when performing equipment openings. As such, the only costs incurred are for recordkeeping after each non-conforming event. We are proposing that owners or operators document each circumstance under which the alternative maintenance vent limit is used, providing an explanation as to why other criteria could not be met prior to equipment blinding and an estimate of the emissions that occurred during the equipment blinding process. We calculated the annual costs to be $2,340 per year. We solicit comment on the proposed revisions related to maintenance activities. For additional details and discussion, see the technical memorandum titled
The current definition of “batch process vent” at 40 CFR 63.2550(i) states that “gaseous streams routed to a fuel gas system(s)” are not batch process vents. Gas streams going to fuel gas systems are also exempt from the current definition of “continuous process vent” at 40 CFR 63.2550(i) by referencing 40 CFR 63.107(h)(3). In addition, other MON standards (
As described in section III.C of this preamble, we conducted an inhalation risk assessment for all HAP emitted and multipathway and environmental risk screening assessments on the PB-HAP emitted. We present results of the risk assessment briefly below and in more detail in the document titled
The results of the chronic baseline inhalation cancer risk assessment indicate that, based on estimates of current actual and allowable emissions, the MIR posed by the source category is 2,000-in-1 million driven by ethylene oxide emissions from storage tanks (75 percent), equipment leaks (15 percent), and process vents (8 percent). The total estimated cancer incidence based on actual and allowable emission levels is 0.4 excess cancer cases per year, or 1 case every 2.5 years. The population exposed to cancer risks greater than 100-in-1 million for actual and allowable emissions is approximately 18,000, and the population exposed to cancer risks greater than or equal to 1-in-1 million is approximately 2,900,000 (see Table 4 of this preamble). In addition, the maximum modeled chronic noncancer TOSHI for the source category based on actual and allowable emissions is estimated to be 1.
As presented in Table 4 of this preamble, the estimated worst-case acute exposures to emissions from the Miscellaneous Organic Chemical Manufacturing source category result in a maximum acute HQ of 6 based on the REL for acrolein (the next highest dose-response value for acrolein, the AEGL-1, results in an HQ of 0.2). There are 11 additional instances of acute HQs greater than 1 from the source category. Evaluation of the screening-level acute risk assessment results is provided in a memo to the docket titled
The multipathway risk screening assessment resulted in a maximum Tier 2 cancer SV of 10 for POM for the farmer scenario. The Tier 2 SVs for all other PB-HAP emitted from the source category (mercury compounds, cadmium compounds, and arsenic compounds) were less than 1. The Tier 2 cancer SV for POM means that the maximum cancer risk from exposure to POM emissions through ingestion of farm products is less than 10-in-1 million. No site-specific assessment using TRIM FaTE (which incorporates AERMOD deposition, enhanced soil/water run-off calculations, and model boundary identification) or Tier 3 screening assessment was deemed necessary due to the conservative nature of the Tier 2 screen and the hypothetical construct of the farmer scenario.
In evaluating the potential for multipathway risk from emissions of lead, we compared modeled annual lead concentrations to the primary NAAQS for lead (0.15 µg/m
As described in section III.A of this preamble, we conducted an environmental risk screening assessment for the Miscellaneous Organic Chemical Manufacturing source category for the following pollutants: Arsenic, cadmium, HCl, HF, lead, mercury (methyl mercury and mercuric chloride), and POMs.
In the Tier 1 screening analysis for PB-HAP (other than lead, which was evaluated differently), arsenic and cadmium emissions had no exceedances for any ecological benchmark. Divalent mercury emissions at three facilities had Tier 1 exceedances for the surface soil threshold level (invertebrate and plant communities) by a maximum SV of 10. Methyl mercury emissions at three facilities had Tier 1 exceedances for the surface soil NOAEL (avian ground insectivores and mammalian insectivores) by a maximum SV of 20. POM emissions at four facilities had Tier 1 exceedances for the sediment no-effect level by a maximum SV of 10, and one facility had a Tier 1 exceedance of the sediment threshold level by a maximum SV of 2.
A Tier 2 screening assessment was performed for divalent mercury, methyl mercury, and POM emissions. Neither divalent mercury, methyl mercury, nor POM emissions had a Tier 2 exceedance for any ecological benchmark.
We did not estimate any exceedances of the secondary lead NAAQS.
For HCl and HF, the average modeled concentration around each facility (
Based on the results of the environmental risk screening analysis, we do not expect an adverse environmental effect as a result of HAP emissions from this source category.
An assessment of facility-wide (or “whole facility”) risks was performed as described above to characterize the source category risk in the context of whole facility risks. Whole facility risks were estimated using the NEI-based data described in section III.C of this preamble. The maximum lifetime individual cancer risk posed by the 194 modeled facilities, based on whole facility emissions, is 3,000-in-1 million, with ethylene oxide emissions from fugitive emissions and flares from the Synthetic Organic Chemical Manufacturing, Polyether Polyols Production, and Miscellaneous Organic Chemical Manufacturing source categories driving the risk. Regarding the noncancer risk assessment, the maximum chronic noncancer HI posed by whole facility emissions is estimated to be 7 (for the respiratory system as the target organ), driven by emissions of chlorine and methyl bromide from non-source category sources identified as brominated organic manufacturing.
To examine the potential for any environmental justice issues that might be associated with the source category, we performed a demographic analysis, which is an assessment of risk to individual demographic groups of the populations living within 5 km and within 50 km of the facilities. In the analysis, we evaluated the distribution of HAP-related cancer and noncancer risk from the Miscellaneous Organic Chemical Manufacturing source category across different demographic
The results of the demographic analysis are summarized in Table 5 below. These results, for various demographic groups, are based on the estimated risk from actual emissions levels for the population living within 50 km of the facilities.
The results of the Miscellaneous Organic Chemical Manufacturing source category demographic analysis indicate that emissions from the source category expose approximately 2,900,000 people to a cancer risk at or above 1-in-1 million and no one to a chronic noncancer TOSHI greater than 1. The percentages of the at-risk population in each demographic group (except for White and Non-Hispanic) are similar to or greater than their respective nationwide percentages.
The methodology and the results of the demographic analysis are presented in a technical report,
As noted in section III of this preamble, the EPA sets standards under CAA section 112(f)(2) using “a two-step standard-setting approach, with an analytical first step to determine an ‘acceptable risk' that considers all health information, including risk estimation uncertainty, and includes a presumptive limit on MIR of approximately 1-in-10 thousand” (54 FR 38045, September 14, 1989). For this proposal, the EPA estimated risks based on actual and allowable emissions from the Miscellaneous Organic Chemical Manufacturing source category, and we considered these in determining acceptability.
Under the current NESHAP, the risk results indicate that both the actual and allowable inhalation cancer risks to the individual most exposed are well above 100-in-1 million, which is the presumptive limit of acceptability. The estimated inhalation cancer risk to the individual most exposed to actual or allowable emissions from the source category is 2,000-in-1 million. The estimated incidence of cancer due to inhalation exposures is 0.4 excess cancer cases per year, or 1 excess case every 2.5 years. The population estimated to be exposed to cancer risks greater than 100-in-1 million for actual and allowable emissions is approximately 18,000, and the population estimated to be exposed to cancer risks greater than or equal to 1-in-1 million is approximately 2,900,000.
The estimated maximum chronic noncancer TOSHI from inhalation exposure for this source category is 1, indicating low likelihood of adverse noncancer effects from long-term inhalation exposures.
The multipathway risk assessment results indicated a maximum cancer risk of 10-in-1 million based on ingestion exposures estimated using the health protective risk screening assumptions of a Tier 2 farmer exposure scenario.
The acute risk screening assessment of reasonable worst-case inhalation impacts indicates a maximum acute HQ of 6 for acrolein based on the 1-hour REL. There are 11 additional instances of HQs greater than 1. For acute screening analyses, to better characterize the potential health risks associated with estimated reasonable worst-case acute exposures to HAP, we examine a wider range of available acute health metrics than we do for our chronic risk assessments. This is in acknowledgement that there are generally more data gaps and uncertainties in acute reference values than there are in chronic reference values. Examination of the range of available acute health metrics, in addition to the conservative (health-protective) assumptions built into the screening assessment, leads us to conclude that adverse effects from acute exposure to emissions from this category are not anticipated. More detailed information is provided in the memo to the docket titled
Considering all of the health risk information and factors discussed above, including the uncertainties discussed in section III of this preamble (and taking into account uncertainties in the 2016 updated URE for ethylene oxide and concerns raised by commenters, as discussed in section IV.C.3 of this preamble), the EPA proposes that the risks for this source category under the current MACT provisions are unacceptable. As noted in section II.A of this preamble, when risks are unacceptable, the EPA must determine the emissions standards necessary to reduce risk to an acceptable level without considering costs or technological feasibility. Therefore, we are proposing to revise the NESHAP for the Miscellaneous Organic Chemical Manufacturing (MON) source category pursuant to CAA section 112(f)(2) on the basis for risks being unacceptable.
We evaluated several control options for reducing risks. Based on the results of the risk assessment, we have identified ethylene oxide as the primary contributor to risks. Ethylene oxide is primarily used at MON facilities as a feedstock in the production of miscellaneous chemicals, including alkyl alkanolamines, agrochemical products, ethoxylates, surfactants, and batch-produced polyols and glycols that are not subject to other NESHAP. Information gathered in this rulemaking indicates that, of the nine facilities identified with ethylene oxide emissions from MON processes, three have emissions from process vents, four have emissions from storage tanks, and all nine have emissions from equipment leaks. We did not identify any ethylene oxide emissions from other MON process units (
The current MON standards divide process vents into Group 1 process vents, which require controls, and Group 2 process vents, which generally do not require controls. The Group 1 and Group 2 designations for process vents are based on uncontrolled emissions levels for process vents from batch processes and on flow rate and the total resource index values for process vents from continuous processes. The current MON standard requires uncontrolled Group 1 process vents to reduce total HAP emissions by 98 percent by venting emissions through a closed-vent system to any combination of control devices or to vent emissions through a closed-vent system to a flare. The current MON standard also allows uncontrolled Group 1 batch process vents to be controlled by reducing uncontrolled emissions by 95 percent by venting through a closed-vent system to a recovery device. For process vents, the MON allows use of a design evaluation instead of a performance test to determine the percent reduction of control devices if the total uncontrolled HAP emissions being sent to the control device are less than 10 tpy.
Similarly, the current MON standards divide storage tanks into Group 1 storage tanks, which require control, and Group 2 storage tanks, which generally do not. The Group 1 and Group 2 designation for storage tanks is based on the volume of the storage tank and vapor pressure of the material stored. The current MON standards require uncontrolled Group 1 storage tanks to reduce total HAP emissions by 95 percent by venting emissions through a closed-vent system to any combination of control devices or to vent emissions through a closed-vent system to a flare. The MON allows certain storage tanks to be controlled using the floating roof requirements in 40 CFR part 63, subpart WW, but this option is not applicable to storage tanks containing pure ethylene oxide. For storage tanks, the MON allows use of a design evaluation instead of a performance test to determine the percent reduction of control devices for any quantity of total uncontrolled HAP emissions being sent to the control device.
Results from our risk assessment indicate that, of the source category MIR of 2,000-in-1 million, 8 percent of the risk is from process vent emissions of ethylene oxide and 75 percent of the risk is from storage tank emissions of ethylene oxide. The remaining risk is mostly from equipment leaks. To understand how to best address risk within the source category, we reviewed information gathered for this rulemaking for the three facilities identified with ethylene oxide emissions from process vents and the four facilities identified with ethylene oxide emissions from storage tanks. Of these emission process sources, only one storage tank was classified as Group 1 and was, therefore, required to control emissions. The remaining storage tanks and process vents are classified as Group 2 and are not currently required to control emissions. We note that the Group 1 storage tank contains pure
An example of a control technology that can achieve 99.9-percent reduction of uncontrolled ethylene oxide emissions is packed-tower gas absorbers, also referred to in this proposal as scrubbers. These scrubbers control emissions from MON process vents and storage tanks by absorbing ethylene oxide into aqueous systems. The absorbed ethylene oxide can then be reacted to form glycol or can be recovered for downstream use. These systems can be designed to achieve very high ethylene oxide removal, with information provided by one scrubber vendor claiming that many of these systems achieve 99.9 percent or greater removal of ethylene oxide from vent gas. Information gathered in this rulemaking indicates that MON facilities with ethylene oxide emissions from process vents and storage tanks commonly use scrubbers to control emissions.
Flares used as APCDs are expected to achieve 98-percent HAP destruction efficiencies when designed and operated according to the requirements in the General Provisions. As discussed in section IV.A.1 of this preamble, studies on flare performance indicate that these General Provision requirements are inadequate to ensure proper performance of flares at chemical manufacturing facilities, particularly when either assist steam or assist air is used. It is expected that flares controlling ethylene oxide, which is highly flammable and, therefore, readily controlled by combustion controls, operating under the improved efficiency standards proposed in this preamble would achieve more than the 98-percent destruction efficiency required by the flare standard. While we did not identify any process vents or storage tanks in ethylene oxide service that are being controlled primarily by a flare, it is reasonable to expect that, in the case that these streams were controlled by a flare, these requirements would provide the same level of control as other high efficiency ethylene oxide controls.
Results from our risk assessment indicate that, for the source category MIR of 2,000-in-1 million, approximately 15 percent is from equipment leak emissions of ethylene oxide. We note that the risk at a second facility is also greater than 100-in-1 million (
For light liquid pumps, we identified two options: (1) Lower the leak definition for batch pumps from 10,000 ppm to 1,000 ppm with monthly monitoring or (2) require the use of leakless pumps (
For gas/vapor and light liquid connectors, we identified two options: (1) Require connector monitoring at a leak definition of 500 ppm with annual monitoring or (2) require connector monitoring at a leak definition of 100 ppm with monthly monitoring.
For gas/vapor and light liquid valves, we identified two options: (1) Require leakless valves (
Additional information on all evaluated control options is found in the memorandum titled
In all cases, we are proposing that if information exists that suggests ethylene oxide could be present in these processes, then the process equipment is considered to be in ethylene oxide service unless sampling and analysis is performed to demonstrate that the process equipment does not meet the definition of being in ethylene oxide service. We are proposing sampling and analysis procedures at 40 CFR 63.2492. Examples of information that could suggest ethylene oxide is present in a process stream include calculations based on safety data sheets, material balances, process stoichiometry, or previous test results provided the results are still relevant to the current operating conditions.
Based on the proposed applicability thresholds, we expect that eight facilities will be affected by the proposed ethylene oxide-specific standards. Five of these eight facilities will be subject to the process vent and/or storage tank provisions; specifically, three facilities have process vents in ethylene oxide service and three facilities have storage tanks in ethylene oxide service. All eight facilities are expected to be subject to the equipment leak provisions.
To reduce risks from process vents in ethylene oxide service, we are proposing to either reduce emissions of ethylene oxide by (1) venting emissions through a closed-vent system to a control device that reduces ethylene oxide by greater than or equal to 99.9 percent by weight, or to a concentration less than 1 ppmv for each process vent, or to less than 5 pounds per year for all combined process vents; or (2) venting emissions through a closed-vent system to a flare meeting the proposed flare operating requirements discussed in section IV.A.1 of this preamble. To reduce risks from storage tanks in ethylene oxide service, we are proposing to either reduce emissions of ethylene oxide by (1) venting emissions through a closed-vent system to a control device that reduces ethylene oxide by greater than or equal to 99.9 percent by weight or to a concentration less than 1 ppmv for each storage tank vent; or (2) venting emissions through a closed-vent system to a flare meeting the proposed flare operating requirements discussed in section IV.A.1 of this preamble. Additionally, we propose removing the option to allow use of a design evaluation in lieu of performance testing to demonstrate compliance for both process vents and storage tanks in ethylene oxide service to ensure that the required level of control is achieved. We are also proposing that after promulgation of the rule, owners or operators that choose to control emissions with a non-flare control device conduct an initial performance test according to 40 CFR 63.997 and 40 CFR 63.2450(g) on each existing control device in ethylene oxide service and on each newly installed control device in ethylene oxide service to verify performance at the required level of control. Subsequently, we propose that owners or operators conduct periodic performance testing on non-flare control devices in ethylene oxide service every 5 years.
As previously stated, we are aware that MON facilities with ethylene oxide emissions from process vents and storage tanks commonly use scrubbers to control emissions. Based on our knowledge of these scrubbers, there is a difference in how these scrubbers operate in order to achieve high control efficiencies versus how a normal wet scrubber operates. The higher removal efficiency of ethylene oxide in these scrubbers is based on the absorption of ethylene oxide into the scrubber water and then conversion of ethylene oxide to ethylene glycol. This conversion is dependent on several factors—maintaining an acid environment to catalyze the reaction and having enough residence time in the scrubber for the reaction to occur. We are proposing continuous monitoring of operating parameters for these scrubbers to ensure that the factors needed for the reaction to occur are met, namely liquid-to-gas ratio, pressure drop across the scrubber, liquid feed pressure, liquid temperature, and pH. However, we are aware that several other parameters may also be important to monitor, such as maximum liquid flow rate, tank levels for the reactant and solution feed tanks, and ethylene glycol content of the tanks. We are requesting comment on the operating parameters we have proposed for these scrubbers and whether these additional operating parameters are necessary, and if so, how these parameter limits should be set and at what frequency they should be monitored.
To reduce risks from equipment leaks, we identified two options that we are co-proposing for controlling emissions from MON equipment in ethylene oxide service, referred to here as equipment leak Control Option 1 and equipment leak Control Option 2. These two co-proposed options, presented in Table 6 and summarized here, provide a level of control beyond what is being proposed in the technology review for all MON equipment in HAP service.
In equipment leak co-proposed Control Option 1, we are proposing that all light liquid pumps in ethylene oxide service be monitored monthly at a leak definition of 1,000 ppm, and when a leak is detected, it be repaired as soon as practicable, but not later than 15 calendar days after it is detected. Additionally, under co-proposed Control Option 1, we are proposing that the leak repair exemption available for pumps at 40 CFR 63.1026(b)(3), 40 CFR 63.163(c)(3), and 40 CFR 65.107(b)(3) would not apply to equipment in ethylene oxide service. Also, as part of co-proposed Control Option 1, we are proposing that all gas/vapor and light liquid connectors in ethylene oxide service be monitored annually at a leak definition of 500 ppm, and when a leak is detected, it be repaired as soon as practicable, but not later than 15 calendar days after it is detected.
As an alternative to Control Option 1, we are co-proposing equipment leak Control Option 2. Under co-proposed Control Option 2, we are proposing that more stringent equipment leak standards would apply to the facilities with a MIR greater than 100-in-1 million after imposition of the proposed standards for process vents and storage tanks, as determined by this risk analysis (
We solicit comment on each of the proposed requirements for process vents, storage tanks, and equipment in ethylene oxide service.
Finally, in considering possible control options for equipment leaks, it is important to understand the uncertainties related to the modeled ethylene oxide equipment leak emissions. For Lanxess Corporation, the modeled equipment leak emissions were our best estimate, using component counts from the facility's title V permit application and emission factors, and were not based on measured emissions. Notably, this calculated emission estimate was higher than what was reported to the 2014 NEI and the 2014 Toxics Release Inventory. We used the highest emission estimate in our model run to be conservatively health protective but recognize that this may result in an overestimation of risk. For Huntsman Performance, the modeled equipment leak emissions were also our best estimate, using calculated emissions that were reported to the 2014 NEI, and were also not based on measured emissions. Although Huntsman Performance did report their equipment leak emissions, we do not know which components (
As noted in sections II.A and III.A of this preamble and in the Benzene NESHAP, the EPA sets standards under CAA section 112(f)(2) using a two-step approach, with an analytical first step to determine whether risks are acceptable. This determination “considers all health information, including risk estimation uncertainty, and includes a presumptive limit on maximum individual lifetime [cancer] risk (MIR) of approximately 1 in 10 thousand” (54 FR 38045, September 14, 1989). A MIR of 1-in-10,000 (
In some cases, the health risk measures and information taken together may provide a more realistic description of the magnitude of risk in the exposed population than that provided by the MIR alone. As such, we considered the results of the risk assessment (including the risk estimation uncertainty) and evaluated available control technologies and other measures (including the controls reviewed under the technology review) that could be applied to this source category to reduce the risks due to emissions of ethylene oxide from process vents, storage tanks, and equipment leaks without considering costs or technological feasibility. Additionally, as described previously in section IV.C.2, we are co-proposing two options for control of ethylene oxide emissions from equipment leaks (
Although the post-control risks are greater than 100-in-1 million (
We note that the modeled risks due to emissions of ethylene oxide are sensitive to the URE applied. In this assessment, the modeled risks are largely driven by use of an EPA URE for ethylene oxide that was updated in December 2016 (
The UREs we use in our risk assessments generally provide an upper bound estimate of risk
For the EPA's 2016 ethylene oxide URE, two aspects of uncertainty stand out as potentially contributing to the conservative (
First, the updated IRIS URE for ethylene oxide is based on the upper confidence limit on the slope of the dose response curve. However, according to the 2005
Second, we note that several dose-response models were considered during the 2016 IRIS assessment for two types of cancer: Breast cancer and lymphoid cancer. Considering multiple models ensures the selected model provides the best fit to the exposure data and helps quantify and characterize model and statistical uncertainty. The choice of model also has significant implications for the URE, particularly at the low end of the dose-response range.
With regard to lymphoid cancer, the selected model provided the best fit and satisfied all SAB recommendations.
The EPA concludes that these uncertainties, noted in the 2016 IRIS assessment, provide important context for interpreting whether risks remaining post-control can be considered acceptable. In particular, we note that the central estimate compared to the upper confidence limit could result in a URE 3 times lower than the IRIS URE and an alternative dose-response model for lymphoid cancer could result in a URE 2-3 times lower. While EPA followed SAB recommendations regarding lymphoid model choice, we acknowledge the uncertainty inherent in this model selection, which is important for interpreting risk results. In fact, both the central estimate and an alternative dose-response model combined could result in a URE 5 times lower. This would reduce potential post-control risks to 60- to 100-in-1 million (from 200- to 300-in-1 million).
The updated URE was used in EPA's 2014 National Air Toxics Assessment (NATA). In September 2018, the ACC submitted a Request for Correction under the Information Quality Act asking that the “NATA risk estimates for E.O.
Given the ACC's Request for Correction, in the HCl Production RTR proposed rule, the EPA requested comment on the use of the updated ethylene oxide URE for regulatory purposes (84 FR 1584; February 4, 2019). The comment period for the proposed rule closed on April 26, 2019, and the Agency received a number of comments on the updated ethylene oxide URE and its use for regulatory purposes. Those comments are included in Docket ID No. EPA-HQ-OAR-2018-0417, and the EPA is incorporating those comments into the docket for this rulemaking. Commenters provided comments both in support of and opposed to the 2016 updated URE for ethylene oxide and its use for regulatory purposes. One commenter noted that the application of the URE would have wide-ranging implications on regulatory decision making. Commenters supporting the use of the 2016 updated URE noted that the IRIS assessment for ethylene oxide used the best available science, underwent review by Agency and non-Agency experts, as well as public review, and was published in a peer-reviewed journal. Commenters opposing the use of the 2016 updated URE noted concerns with the model and variables used to estimate pre-1978 worker exposure estimates (and suggested an alternative model and alternative pre-1978 worker exposure estimates that would reflect higher pre-1978 exposures and affect the final URE), and another commenter indicated that they are developing their own cancer dose-response value for ethylene oxide.
In June 2019, the Texas Commission on Environmental Quality (TCEQ) issued a draft document for public review (“Ethylene Oxide Carcinogenic Dose-Response Assessment”), which concluded that “USEPA's ethylene oxide inhalation URF
Because of the robustness of the comments received and their relevance to this rulemaking, the Agency will consider those comments in the final rule for the Miscellaneous Organic Chemical Manufacturing source category. In this proposed rule, we are requesting any additional comments on the use of the 2016 updated URE for ethylene oxide for regulatory purposes beyond those already received for the HCl Production RTR proposed rule (84 FR 1584-1597; February 4, 2019), as well as comments on the use of an alternative URE for ethylene oxide in the final rule for this source category. The EPA believes it is reasonable to assume that, allowing for the uncertainties in the URE, estimated risks for the Miscellaneous Organic Chemical Manufacturing source category could be lower, even potentially lower than the 100-in-1 million benchmark.
It is also important to note that there is considerable uncertainty regarding the estimated equipment leak emissions that are responsible for the remaining modeled risk. As described previously in section IV.C.2 and summarized here, the estimated ethylene oxide equipment leak emissions are based on engineering calculations, not actual measured emissions, and, therefore, it is uncertain whether the proposed controls are appropriate for the actual source(s) of fugitive emissions at these facilities. Furthermore, at Lanxess Corporation, a conservatively high equipment leak emissions estimate was used, and at Huntsman Performance, equipment leak emissions are also thought to be overestimated due to knowledge that the modeled emissions are not entirely from MON equipment. Due to these emissions uncertainties, the post-control MIRs of 300-in-1 million at Huntsman Performance and 200-in-1 million at Lanxess Corporation are likely biased high; the actual MIRs would be expected to be lower at both facilities. Given that the number of people estimated to have a cancer risk greater than 100-in-1 million would be reduced from 18,000 to 300, the incidence would be reduced from 0.4 to 0.1, and considering that the MIR is expected to be lower than 300-in-1 million, we propose that, after application of the ethylene oxide-specific controls for process vents, storage tanks, and equipment leak co-proposed Control Option 1, risks would be acceptable.
Alternatively, additional equipment leak controls (
Finally, we note that the proposed control measures provide for a significant risk reduction. Application of the ethylene oxide-specific controls for process vents and storage tanks would reduce ethylene oxide emissions by an estimated 89 percent for the source category, and the estimated MIR would be reduced from 2,000-in-1 million to 400-in-1 million at Lanxess Corporation, and the next highest estimated MIR would be 300-in-1 million at Huntsman Performance. In both cases, the remaining risk is primarily from equipment leak emissions of ethylene oxide. Subsequent application of equipment leak co-proposed Control Option 1 would further reduce ethylene oxide emissions by 4 percent, for a total estimated 93-percent reduction in ethylene oxide emissions for the source category, with the MIR at Lanxess Corporation being further reduced to 200-in-1 million and the MIR at Huntsman Performance remaining at 300-in-1 million.
In summary, after implementation of the proposed controls for process vents and storage tanks at MON facilities emitting ethylene oxide, as well as implementation of either of the co-proposed control options for equipment leaks, and considering all of the health risk information and factors discussed above, including the uncertainties regarding the equipment leak emissions, the uncertainties inherent in all risk assessments (
The second step in the residual risk decision framework is determination of whether the emission standards proposed to achieve an acceptable risk level would protect public health with an ample margin of safety, or whether more stringent emission standards would be required. In making this determination, we considered the estimate of health risk and other health information, along with additional factors relating to the appropriate level of control, including costs and economic impacts of controls, technological feasibility, uncertainties, and other relevant factors, consistent with the approach of the 1989 Benzene NESHAP. Table 8 of this preamble presents the summary of costs and ethylene oxide emission reductions we estimated for the proposed control options. For details on the assumptions and methodologies used in the costs and impacts analyses, see the technical memoranda titled
For the ample margin of safety analysis, we evaluated the cost and feasibility of available control technologies that could be applied in this source category to further reduce the risks (or potential risks) due to emissions of HAP, considering all of the health risks and other health information considered in the risk acceptability determination described above. We note that we did not identify any other controls for ethylene oxide emission sources so we are considering all the available options to reduce risk.
In the case that we apply the process vent, storage tank, and equipment leak co-proposed Control Option 1 in the first step (
First, in the case of implementing the ethylene oxide equipment leak co-proposed Control Option 2, we compared the costs of co-proposed Control Option 1 to co-proposed Control Option 2 ($76,000 vs. $673,000 total capital investment; $48,000 vs. $148,000 total annualized cost). From the ethylene oxide equipment leak co-proposed Option 1 to Option 2, the MIR would be reduced from 300-in-1 million to 200-in-1 million, the population exposed to cancer risks ≥1-in-1 million would be reduced from 2,300,000 to 2,100,000, and the incidence would remain unchanged at 0.1.
Second, in the case that we expand the applicability of equipment leak co-proposed Control Option 2 so that the more stringent controls would apply to all facilities with equipment in ethylene oxide service, costs were also found to be considerably higher compared to ethylene oxide equipment leak co-proposed Control Option 1 ($76,000 vs. $1,600,000 total capital investment; $48,000 vs. $300,000 total annualized cost). The estimated ethylene oxide emissions reductions are 5.8 tons per year with a cost effectiveness of $51,000 per ton of ethylene oxide. The population exposed to cancer risks greater than or equal to 1-in-1 million would be reduced by 14,000, but there are no additional reductions in the MIR or incidence when expanding these more stringent standards to apply to all facilities with equipment in ethylene oxide service. We solicit comment on whether we should apply the requirements of equipment leak co-proposed Control Option 2 that are specific to the two highest risk facilities more broadly, so that they apply to all facilities with equipment in ethylene oxide service.
Third, we considered control options identified in the technology review (section IV.D of this preamble), which apply to all HAP and are not specific to ethylene oxide. These options include controls for (1) equipment leaks for MON equipment not in ethylene oxide service (options 1 through 4), and (2) heat exchangers. For controls for equipment leaks for MON equipment not in ethylene oxide service (option 1, described in section IV.D.1 of this preamble) and heat exchangers, while cost-effective, neither lowered the source category MIR, incidence, or population exposed to cancer risks ≥1-in-1 million. For equipment leak controls for MON equipment not in ethylene oxide service, options 2, 3, and 4 (described in section IV.D.1 of this preamble) were not cost-effective and did not reduce the source category MIR, incidence, or population exposed to risks ≥1-in-1 million, with the exception of the equipment leak option 3 controls which lowered the population exposed to cancer risks ≥1-in-1 million by approximately 250,000 people.
Based on our ample margin of safety analysis, including all health information and the associated cost and feasibility as discussed above, we propose that the requirements that we are proposing to achieve acceptable risks would also provide an ample margin of safety to protect public health. We are soliciting comment on which of the available control options should be applied in order to provide an ample margin of safety to protect public health.
We do not expect there to be an adverse environmental effect as a result of HAP emissions from this source category, and we are proposing that it is not necessary to set a more stringent standard to prevent, taking into consideration costs, energy, safety, and other relevant factors, an adverse environmental effect.
Sources of HAP emissions regulated by the MON are process vents, storage tanks, transfer racks, equipment leaks, wastewater streams, and heat exchange systems. MON processes can either be batch or continuous operations. Batch operations mean a non-continuous operation involving intermittent or discontinuous feed into equipment and, in general, involve the emptying of the equipment after the operation ceases and prior to beginning a new operation. To inform our technology reviews for these emissions sources, we reviewed the EPA's Reasonably Available Control Technology/Best Available Control Technology/Lowest Achievable Emission Rate (RACT/BACT/LAER) clearinghouse and regulatory development efforts published after the MON for similar sources. (See the memorandum titled
Emissions of HAP (
Depending on the type of equipment, the equipment leak requirements of the MON provide the option of meeting the
The practices, processes, and control technologies considered during MACT development for equipment leaks at MON facilities included LDAR. To identify developments for the technology review, we reviewed the control options that were considered for the proposed MON in 2003. As mentioned previously in section IV.C.2 of this preamble, the EPA conducted a general analysis in the 2011 equipment leaks study
Our technology review for equipment leaks of HAP (
Emissions reductions were estimated for the new developments that we identified using component counts and emission factors. The component counts were derived using data from the original MON rule, which included model component counts for 224 facilities, with 167 using batch processes, 57 using continuous processes, and three not having information. The batch facilities contained 1,049 batch processes, or an average of 6.3 per facility. The continuous facilities contained 88 continuous processes, or an average of 1.5 per facility. These values were scaled to estimate the number of batch and continuous processes for the current count of 201 facilities, resulting in 943 batch processes and 79 continuous processes nationwide. The number of nationwide processes was then multiplied by the component counts to estimate the nationwide component counts. Subsequently, baseline emissions and emissions after implementation of the controls for each component were calculated for continuous and batch processes using the nationwide component counts for continuous and batch processes derived from the 2003 MON analysis and emission factors and leak frequencies for the chemical manufacturing industry from the 2011 equipment leaks study.
Costs were then calculated for the baseline and control options, which reflect the cost to implement an LDAR program for each component. Note that the difference between the costs for the baseline and control options is the incremental cost to comply with the controls. Costs were calculated for the year 2016, and capital costs were annualized using a 5-percent interest rate. Furthermore, because the control options result in chemicals in process lines not leaking and, therefore, not being lost, we present costs both with and without this consideration. To estimate savings in chemicals not being emitted (
We calculated the VOC and HAP cost effectiveness by dividing the incremental annual costs by the emissions reductions. Table 9 of this preamble presents the nationwide costs and impacts for the suite of equipment leak control options considered. See the technical memorandum titled
Based on the costs and emission reductions for each of the options, we determined that option 1 is a cost-effective strategy for further reducing HAP emissions from equipment leaks from MON equipment not in ethylene oxide service, and we are proposing at 40 CFR 63.2480(b)(6) and (c)(10) to revise the MON for equipment leaks to lower the leak definition for pumps in light liquid service at existing batch processes from 10,000 ppmv to 1,000 ppmv with monthly monitoring, pursuant to CAA section 112(d)(6). We are also clarifying at 40 CFR 63.2480(b)(7) and (c)(11) that you must initially monitor for leaks within 30 days after initial startup of the equipment. We solicit comment on these proposed revisions. Considering the high cost per ton estimate, we determined that equipment leak options 2, 3, and 4 are not cost effective for the entire source category; therefore, we are not proposing to revise the MON to reflect the requirements of these options pursuant to CAA section 112(d)(6).
Heat exchangers are devices or collections of devices used to transfer heat from process fluids to another process fluid (typically water) without intentional direct contact of the process fluid with the cooling fluid (
The MON includes an LDAR program for owners or operators of certain heat exchange systems which meets the requirements of 40 CFR 63.104 (National Emission Standards for Organic Hazardous Air Pollutants from the Synthetic Organic Chemical Manufacturing Industry). The LDAR program specifies that heat exchange systems be monitored for leaks of process fluids into cooling water and that owners or operators take actions to repair detected leaks within 45 days. Owners or operators may delay the repair of leaks if they meet the applicable criteria in 40 CFR 63.104. The current MON, for heat exchange systems, allows the use of any method listed in 40 CFR part 136 for sampling cooling water for leaks for the HAP listed in Table 4 to 40 CFR part 63, subpart F, for recirculating systems and Table 9 to 40 CFR part 63, subpart G for once-through systems. A leak in the heat exchange system is detected if the exit mean concentration of HAP (or other representative substance) in the cooling water is at least 1 ppmw or 10 percent greater than (using a one-sided statistical procedure at the 0.05 level of significance) the entrance mean concentration of HAP (or other representative substance) in the cooling water. Furthermore, the MON allows owners or operators to monitor for leaks using a surrogate indicator of leaks (
Our technology review identified one development in LDAR practices and processes for heat exchange systems, the
In order to identify an appropriate Modified El Paso Method leak definition for MON facilities, we identified two rules, TCEQ's HRVOC rule and the Petroleum Refinery Sector rule, both of which incorporate this monitoring method and have leak definitions corresponding to the use of this methodology. We also reviewed data submitted in response to a CAA section 114 request for the Ethylene Production RTR where facilities performed sampling using the Modified El Paso Method.
The Petroleum Refinery Sector rule and TCEQ's HRVOC rule have leak definitions of total strippable hydrocarbon concentration (as methane) in the stripping gas ranging from 3.1 ppmv to 6.2 ppmv. In addition, sources subject to the Petroleum Refinery Sector rule may not delay the repair of leaks for more than 30 days where, during subsequent monitoring, a total strippable hydrocarbon concentration (as methane) in the stripping gas of 62 ppmv or higher is found. In reviewing the Ethylene Production RTR CAA section 114 data, a clear delineation in the hydrocarbon mass emissions data was noticed at 6.1 ppmv of total strippable hydrocarbon (as methane) in the stripping gas. In addition, given that both the leak concentration and water recirculation rate of the heat exchange system are key variables affecting the hydrocarbon mass emissions from heat exchange systems, the overall Ethylene Production RTR CAA section 114 data for all heat exchange systems sampled generally showed lower hydrocarbon mass emissions for leaks at or below 6.1 ppmv of total strippable hydrocarbon (as methane) in the stripping gas compared to leaks found above 6.1 ppmv of total strippable hydrocarbon (as methane) in the stripping gas. Taking into account the range of actionable leak definitions in use by other rules that require use of the Modified El Paso Method currently (
We determined an appropriate leak monitoring frequency by reviewing the current monitoring frequencies that MON facilities are subject to, along with frequencies for the Petroleum Refinery Sector rule and the TCEQ HRVOC rule, and information gathered in the Ethylene Production RTR CAA section 114 survey. As a first step, we reviewed whether it was still reasonable to specify more frequent monitoring for a 6-month period after repair of leaks. Our review of the Ethylene Production RTR CAA section 114 data showed that no leaks were identified during the 6-month period post repair for any of the facilities that reported heat exchange system compliance data that had leaks. Thus, we find that re-monitoring once after repair of a leak, at the monitoring location where the leak was identified, is sufficient from a continuous compliance perspective to demonstrate a successful repair. The monitoring frequencies currently required by MON for where no leaks are found were, thus, considered the base frequencies (
Based on this technology review, we identified the following control option for heat exchanger systems as a development in practice that can be implemented at a reasonable cost: Quarterly monitoring for existing and new heat exchange systems (after an initial 6 months of monthly monitoring) with the Modified El Paso Method and a leak definition of 6.2 ppmv of total strippable hydrocarbon concentration (as methane) in the stripping gas.
We then estimated the impacts of this control option assuming that all 201 MON facilities would be affected by requiring the use of the Modified El Paso Method. As part of our analysis, we assumed owners or operators conducting quarterly monitoring for three or more of these heat exchange systems would elect to purchase a stripping column and FID analyzer and perform in-house Modified El Paso monitoring (because the total annualized costs for in-house Modified El Paso monitoring are less than the costs for contracted services). In addition, we assumed repairs could be performed by plugging a specific heat exchanger tube, and if a heat exchanger is leaking to the extent that it needs to be replaced, then it is effectively at the end of its useful life. Therefore, we determined that the cost of replacing a heat exchanger is an operational cost that would be incurred by the facility as a result of routine maintenance and equipment replacement, and it is not attributable to the control option.
Table 10 of this preamble presents the nationwide impacts for requiring owners or operators to use the Modified El Paso Method and repair leaks of total strippable hydrocarbon concentration (as methane) in the stripping gas of 6.2
Based on the costs and emission reductions for the identified control option, we are proposing to revise the MON for heat exchange systems pursuant to CAA section 112(d)(6). We are proposing at 40 CFR 63.2490(d)(1) to specify quarterly monitoring for existing and new heat exchange systems (after an initial 6 months of monthly monitoring) using the Modified El Paso Method and a leak definition of 6.2 ppmv of total strippable hydrocarbon concentration (as methane) in the stripping gas. We are also proposing at 40 CFR 63.2490(d)(4) a delay of repair action level of total strippable hydrocarbon concentration (as methane) in the stripping gas of 62 ppmv, that if exceeded during leak monitoring, would require immediate repair (
We did not identify any cost-effective developments in practices, processes, or control technologies for process vents, storage tanks, transfer racks, and waste streams that achieve a greater HAP emission reduction beyond the emission reduction already required by MON, with the exception of developments presented in section IV.C of this preamble to specifically control ethylene oxide emissions from process vents and storage tanks. Therefore, we are not proposing any changes to the NESHAP for these emission process groups based on our technology review. For further details on the assumptions and methodologies used in these analyses, see the technical memoranda titled
In addition to the proposed actions described above, we are proposing additional revisions to the NESHAP. We are proposing revisions to the SSM provisions of the MACT rule in order to ensure that they are consistent with the Court decision in
In its 2008 decision in
We are proposing the elimination of the SSM exemption in this rule which appears at 40 CFR 63.2450(a). Consistent with
The EPA has attempted to ensure that the provisions we are proposing to eliminate are inappropriate, unnecessary, or redundant in the absence of the SSM exemption. We are specifically seeking comment on whether we have successfully done so.
We are proposing that emissions from startup and shutdown activities be included when determining if all the standards are being attained. As currently proposed in 40 CFR 63.2450(a)(2), compliance with the emission limitations (including operating limits) in this subpart is required “at all times.” We solicit comment on whether owners and operators in the Miscellaneous Organic Chemical Manufacturing source category will be able to comply with the standards during these times. Emission reductions for process vents and transfer rack operations are typically achieved by routing vapors to an APCD such as a flare, thermal oxidizer, or carbon adsorber. It is common practice in this source category to start an APCD prior to startup of the emissions source it is controlling, so the APCD would be operating before emissions are routed to it. We expect APCDs would be operating during startup and shutdown events in a manner consistent with normal operating periods, and that these APCDs will be operated to maintain and meet the monitoring parameter operating limits set during the performance test.
Periods of startup, normal operations, and shutdown are all predictable and routine aspects of a source's operations. Malfunctions, in contrast, are neither predictable nor routine. Instead they are, by definition, sudden, infrequent, and not reasonably preventable failures of emissions control, process, or monitoring equipment (40 CFR 63.2) (Definition of malfunction). The EPA interprets CAA section 112 as not requiring emissions that occur during periods of malfunction to be factored into development of CAA section 112 standards and this reading has been upheld as reasonable by the Court in
As the Court recognized in
Although no statutory language compels the EPA to set standards for malfunctions, the EPA has the discretion to do so where feasible. For example, in the Petroleum Refinery Sector RTR, the EPA established a work practice standard for unique types of malfunction that result in releases from PRDs or emergency flaring events because the EPA had information to determine that such work practices reflected the level of control that applies to the best performers. 80 FR 75178, 75211-14 (December 1, 2015). The EPA will consider whether circumstances warrant setting standards for a particular type of malfunction in the Miscellaneous Organic Chemical Manufacturing source category, and, if so, whether the EPA has sufficient information to identify the relevant best performing sources and establish a standard for such malfunctions. We also encourage commenters to provide any such information.
In the event that a source fails to comply with the applicable CAA section 112(d) standards as a result of a malfunction event, the EPA would determine an appropriate response based on, among other things, the good faith efforts of the source to minimize emissions during malfunction periods, including preventative and corrective actions, as well as root cause analyses to ascertain and rectify excess emissions.
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.6(e)(1)(i) by adding a separate row for 40 CFR 63.6(e)(1)(i) and changing the “yes” in column 3 to a “no” in which 40 CFR 63.6(e)(1)(i) would no longer be applicable beginning 3 years after publication of the final rule in the
We are also proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.6(e)(1)(ii) by adding a separate row for 40 CFR 63.6(e)(1)(ii) and changing the “yes” in column 3 to a “no” in which 40 CFR 63.6(e)(1)(ii) would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entries for 40 CFR 63.6(e)(3)(i), (ii), (v) through (viii), and (ix) by changing the “yes” in column 3 to a “no” in which these provisions would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.6(f)(1) by changing the “yes” in column 3 to a “no” in which 40 CFR 63.6(f)(1) would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.6(h)(1) by adding a separate row for 40 CFR 63.6(h)(1) and changing the “yes” in column 3 to a “no” in which 40 CFR 63.6(h)(1) would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.7(e)(1) by changing the “yes” in column 3 to a “no” in which 40 CFR 63.7(e)(1) would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entries for 40 CFR 63.8(c)(1)(i) through (iii) by changing the “yes” in column 3 to a “no” in which these provisions would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.8(d) by adding separate rows for 40 CFR 63.8(d)(1) through (3) and changing the “yes” in column 3 to a “no” in which 40 CFR 63.8(d)(3) would no longer be applicable beginning 3 years after publication of the final rule in the
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.10(b)(2)(i), (ii), (iv), and (v) by adding separate rows for each provision and changing the “yes” in column 3 to a “no” in which 40 CFR 63.10(b)(2)(ii), (iv), and (v) would no longer be applicable beginning 3 years after publication of the final rule in the
When applicable, 40 CFR 63.10(b)(2)(iv) requires sources to record actions taken during SSM events when actions were inconsistent with their SSM plan. The requirement is no longer appropriate because SSM plans will no longer be required. The requirement previously applicable under 40 CFR 63.10(b)(2)(iv)(B) to record actions to minimize emissions and record corrective actions is now applicable by reference to 40 CFR 63.2525(l). Finally, when applicable, 40 CFR 63.10(b)(2)(v) requires sources to record actions taken during SSM events to show that actions taken were consistent with their SSM plan. The requirement is no longer appropriate because SSM plans will no longer be required.
We are proposing to revise the General Provisions table (Table 12) entry for 40 CFR 63.10(c)(15) by adding a separate row for this provision and changing column 3 to a “no” in which 40 CFR 63.10(c)(15) would no longer be applicable to CEMS beginning 3 years after publication of the final rule in the
We are proposing to add monitoring requirements at 40 CFR 63.2450(e)(7) for adsorbers that cannot be regenerated and regenerative adsorbers that are regenerated offsite because the MON does not currently include specific monitoring requirements for this type of APCD. We are proposing owners and operators of this type of APCD use dual adsorbent beds in series and conduct daily monitoring. We have prescribed a dual bed system because the use of a single bed does not ensure continuous compliance unless the bed is replaced significantly before breakthrough.
Similar to regenerative adsorbers, in order to monitor performance deterioration, we are proposing measurements of HAP or TOC using a portable analyzer or chromatographic analysis for non-regenerative absorbers. We are proposing that these measurements be taken daily on the outlet of the first adsorber bed in series using a sample port. Furthermore, in order to relieve some monitoring burden, we have included the option to reduce the frequency of monitoring with the portable analyzer from daily to weekly or monthly. If you choose this option, you would first be required to establish an average adsorber bed life. For periods when more than 2 months remain on the bed life, monthly monitoring can be conducted, and when more than 2 weeks remain on the bed life, weekly monitoring can be conducted.
The EPA is proposing that owners and operators of MON facilities submit electronic copies of required flare management plans (at 40 CFR 63.2450(e)(5)(iv)), compliance reports (at 40 CFR 63.2520(e)), performance test reports (at 40 CFR 63.2520(f)), and performance evaluation reports (at 40 CFR 63.2520(g)) through the EPA's Central Data Exchange (CDX) using the Compliance and Emissions Data Reporting Interface (CEDRI). A description of the electronic data submission process is provided in the memorandum,
Additionally, the EPA has identified two broad circumstances in which electronic reporting extensions may be provided. In both circumstances, the decision to accept the claim of needing additional time to report is within the discretion of the Administrator, and reporting should occur as soon as possible. The EPA is providing these potential extensions to protect owners and operators from noncompliance in cases where they cannot successfully submit a report by the reporting deadline for reasons outside of their control. The situation where an extension may be warranted due to outages of the EPA's CDX or CEDRI which precludes an owner or operator from accessing the system and submitting required reports is addressed in 40 CFR 63.2520(h). The situation where an extension may be warranted due to a force majeure event, which is defined as an event that will be or has been caused by circumstances beyond the control of the affected facility, its contractors, or any entity controlled by the affected facility that prevents an owner or operator from complying with the requirement to submit a report electronically as required by this rule is addressed in 40 CFR 63.2520(i). Examples of such events are acts of nature, acts of war or terrorism, or equipment failure or safety hazards beyond the control of the facility.
The electronic submittal of the reports addressed in this proposed rulemaking will increase the usefulness of the data contained in those reports, is in keeping with current trends in data availability and transparency, will further assist in the protection of public health and the environment, will improve compliance by facilitating the ability of regulated facilities to demonstrate compliance with requirements and by facilitating the ability of delegated state, local, tribal, and territorial air agencies and the EPA to assess and determine compliance, and will ultimately reduce burden on regulated facilities, delegated air agencies, and the EPA. Electronic reporting also eliminates paper-based, manual processes, thereby saving time and resources, simplifying data entry, eliminating redundancies, minimizing data reporting errors, and providing data quickly and accurately to the affected facilities, air agencies, the EPA, and the public. Moreover, electronic reporting is consistent with the EPA's plan
There are several additional revisions that we are proposing to 40 CFR part 63, subpart FFFF, to clarify text or correct typographical errors, grammatical errors, and cross-reference errors. These proposed editorial corrections and clarifications are summarized in Table 11 of this preamble.
Amendments to the MON proposed in this rulemaking for adoption under CAA section 112(d)(2) and (3) and CAA section 112(d)(6) are subject to the compliance deadlines outlined in the CAA under section 112(i).
For all of the requirements we are proposing under CAA sections 112(d)(2), (3), and (d)(6), we are proposing all affected sources must comply with all of the amendments no later than 3 years after the effective date of the final rule, or upon startup, whichever is later. For existing sources, CAA section 112(i) provides that the compliance date shall be as expeditious as practicable, but no later than 3 years after the effective date of the standard. (“Section 112(i)(3)'s three-year maximum compliance period applies generally to any emission standard . . . promulgated under [section 112].”
We are proposing new operating and monitoring requirements for flares under CAA section 112(d)(2) and (3). We anticipate that these requirements would require the installation of new flare monitoring equipment and we project most MCPUs would install new control systems to monitor and adjust assist gas (air or steam) addition rates. Similar to the addition of new control equipment, these new monitoring requirements for flares would require engineering evaluations, solicitation and review of vendor quotes, contracting and installation of the equipment, and operator training. Installation of new monitoring and control equipment on flares will require the flare to be taken out of service. Depending on the configuration of the flares and flare header system, taking the flare out of service may also require a significant portion of the MCPU to be shutdown. Therefore, for all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019, we are proposing that it is necessary to provide 3 years after the effective date of the final rule (or upon startup, whichever is later) for owners or operators to comply with the new operating and monitoring requirements for flares. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the new operating and monitoring requirements for flares by the effective date of the final rule (or upon startup, whichever is later).
Under CAA section 112(d)(2) and (3), we are proposing new vent control requirements for bypasses. These requirements would typically require the addition of piping and potentially new control requirements. As these vent controls would most likely be routed to the flare, we are proposing, for all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019, to provide 3 years after the effective date of the final rule for owners or operators to allow coordination of these bypass modifications with the installation of the new monitoring equipment for the flares. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the new vent control requirements for bypasses by the effective date of the final rule (or upon startup, whichever is later).
For atmospheric PRD in HAP service, we are establishing a work practice standard that requires a process hazard analysis and implementation of a minimum of three redundant measures to prevent atmospheric releases. Alternately, owners or operators may elect to install closed-vent systems to route these PRDs to a flare, drain (for liquid thermal relief valves), or other control system. We anticipate that sources will need to identify the most appropriate preventive measures or control approach; design, install, and test the system; install necessary process instrumentation and safety systems; and may need to time installations with equipment shutdown or maintenance outages. Therefore, for all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019, we are proposing a compliance date of 3 years from the effective date of the final rule (or upon startup, whichever is later) for owners or operators to comply with the work practice standards for atmospheric PRD releases. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the work practice standards for atmospheric PRD releases
Under our technology review for equipment leaks under CAA section 112(d)(6), we are revising the leak definition for light liquid pumps at batch processes from 10,000 ppm to 1,000 ppm. Affected sources are currently monitoring light liquid pumps on a monthly basis, and the change we are proposing to lower the leak definition would require no additional equipment and would only result in identifying smaller leaks that require repair. Therefore, we believe that this change could be implemented quickly and are proposing a compliance date of 1 year after the effective date of the final rule, or upon startup, whichever is later, for all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019 to comply with the proposed leak definition for light liquid pumps at batch processes. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the proposed leak definition for light liquid pumps at batch processes by the effective date of the final rule (or upon startup, whichever is later).
As a result of our technology review for heat exchange systems, we are proposing to replace the existing leak definition and monitoring method with a new leak definition and monitoring method. We project some owners and operators would require engineering evaluations, solicitation and review of vendor quotes, contracting and installation of monitoring equipment, and operator training. In addition, facilities will need time to read and understand the amended rule requirements and update standard operating procedures. Therefore, we are proposing that all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019 must comply with the new monitoring requirements for heat exchange systems no later than 3 years after the effective date of the final rule, or upon startup, whichever is later. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the new monitoring requirements for heat exchange systems by the effective date of the final rule (or upon startup, whichever is later).
Additionally, as previously mentioned in this preamble, we are proposing under CAA section 112(f), new provisions for process vents and storage tanks at MON facilities emitting ethylene oxide, as well as proposing to implement one of two co-proposed control options for equipment leaks. The proposed provisions may require additional time to plan, purchase, and install equipment for ethylene oxide control. For example, for process vents, if the affected source cannot demonstrate 99.9-percent control of ethylene oxide emissions, or reduce ethylene oxide emissions to less than 1 ppmv (from each process vent) or 5 pounds per year (for all combined process vents), then a new control system will need to be installed. Therefore, we are proposing a compliance date of 2 years after the effective date of the final rule, or upon startup, whichever is later for all existing affected sources, and all new affected sources that commence construction or reconstruction after April 4, 2002, and on or before December 17, 2019 to comply with the proposed ethylene oxide requirements. For all new affected sources that commenced construction or reconstruction after December 17, 2019, we are proposing owners or operators comply with the ethylene oxide requirements by the effective date of the final rule (or upon startup, whichever is later).
Finally, we are proposing to change the requirements for SSM by removing the exemption from the requirements to meet the standard during SSM periods and by removing the requirement to develop and implement an SSM plan. We are also proposing electronic reporting requirements. We are positing that facilities would need some time to successfully accomplish these revisions, including time to read and understand the amended rule requirements, to evaluate their operations to ensure that they can meet the standards during periods of startup and shutdown, as defined in the rule, and make any necessary adjustments, including making adjustments to standard operating procedures, and to convert reporting mechanisms to install necessary hardware and software. The EPA recognizes the confusion that multiple different compliance dates for individual requirements would create and the additional burden such an assortment of dates would impose. From our assessment of the timeframe needed for compliance with the entirety of the proposed revisions to SSM requirements as well as the new proposed electronic reporting requirements for flare management plans, compliance reports, and performance evaluation reports, the EPA considers a period of 3 years after the effective date of the final rule to be the most expeditious compliance period practicable and, thus, is proposing that all affected sources be in compliance with these revised requirements upon initial startup or within 3 years of the effective date of the final rule, whichever is later. However, we are proposing to provide 60 days after the effective date of the final rule (or upon startup, whichever is later) for owners or operators to comply with the requirement to report performance test results and reports electronically.
There are 201 MON facilities currently operating. A complete list of facilities that are currently subject to the MON is available in Appendix 1 of the document titled
At the current level of control, estimated ethylene oxide emissions from the modeling file were approximately 9.5 tpy from the eight facilities with emission process groups in ethylene oxide service. For co-proposed Control Option 1, we estimated ethylene oxide emissions reductions of 8.8 tpy for equipment leaks, storage tanks, and process vents in ethylene oxide service. For co-proposed Control Option 2, we estimated ethylene oxide emissions reductions of 9.0 tpy for equipment leaks, storage tanks, and process vents in ethylene oxide service.
At the current level of control, we estimate HAP emissions for 194 MON facilities of approximately 2,558 tpy and VOC emissions of approximately 19,719 tpy, based on the MON emissions inventory. We estimate that HAP emissions reductions would range from 52 tpy (based on model plant estimates) to 116 tpy (based on the MON emissions inventory) and VOC emissions reductions range from 283 tpy (based on the MON emissions inventory) to 385 tpy (based on model plant estimates) as a result of the proposed amendments for MON equipment leaks and heat exchange systems. Note, these emissions reductions do not consider the potential excess emissions reductions from flares that could result from the proposed requirements; we estimated flare excess
The nationwide costs of the proposed amendments are presented in Table 12 of this preamble for (1) all MON sources, (2) only MON sources not expected to be affected by the proposed ethylene oxide-specific controls (
The EPA conducted economic impact analyses for this proposal, as detailed in the memorandum,
There are 201 facilities affected by the proposed amendments. Of these, 17 facilities, or 8.5 percent, are small entities. We calculated the cost-to-sales ratios for all the affected facilities to determine (1) the magnitude of the costs of the proposed amendments and (2) whether there would be a significant impact on small entities. To be conservative, we used facility-specific costs without recovery credits. For the two options for all firms the average cost-to-sales ratio is approximately 0.02 percent; the median cost-to-sales ratio is less than 0.01 percent; and the maximum cost-to-sales ratio is approximately 0.89 percent. For large firms, the average cost-to-sales ratio is less than 0.01 percent; the median cost-to-sales ratio is less than 0.01 percent; and the maximum cost-to-sales ratio is approximately 0.47 percent. For small firms, the average cost-to-sales ratio is approximately 0.23 percent, the median cost-to-sales ratio is 0.10 percent, and the maximum cost-to-sales ratio is 0.89 percent. The costs of the proposal are not expected to result in a significant market impact, regardless of whether they are passed on to the purchaser or absorbed by the firms.
EPA did not monetize the benefits from the estimated emission reductions of HAP associated with this proposed action. However, we expect this proposed action would provide benefits associated with HAP emission reductions and lower risk of adverse health effects in communities near facilities subject to the MON.
We solicit comments on this proposed action. In addition to general comments on this proposed action, we are also interested in additional data that may improve the risk assessments and other analyses. We are specifically interested in receiving any improvements to the data in the site-specific emissions profiles used for risk modeling. Such data should include supporting documentation in sufficient detail to allow characterization of the quality and representativeness of the data or information. Section VII of this preamble provides more information on submitting data.
The site-specific emissions profiles used in the source category risk and demographic analyses and instructions are available for download on the RTR website at
If you believe that the data are not representative or are inaccurate, please identify the data in question, provide your reason for concern, and provide any “improved” data that you have, if available. When you submit data, we request that you provide documentation of the basis for the revised values to support your suggested changes. To submit comments on the data downloaded from the RTR website, complete the following steps:
1. Within this downloaded file, enter suggested revisions to the data fields appropriate for that information.
2. Fill in the commenter information fields for each suggested revision (
3. Gather documentation for any suggested emissions revisions (
4. Send the entire downloaded file with suggested revisions in Microsoft® Access format and all accompanying documentation to Docket ID No. EPA-HQ-OAR-2018-0746 (through the method described in the
5. If you are providing comments on a single facility or multiple facilities, you need only submit one file for all facilities. The file should contain all suggested changes for all sources at that facility (or facilities). We request that all data revision comments be submitted in the form of updated Microsoft® Excel files that are generated by the Microsoft® Access file. These files are provided on the RTR website at
Additional information about these statutes and Executive Orders can be found at
This action is a significant regulatory action that was submitted to OMB for review because it raises novel legal or
This action is expected to be an Executive Order 13771 regulatory action. Details on the estimated costs of this proposed rule can be found in the EPA's analysis of the potential costs and benefits associated with this action.
The information collection activities in this proposed rule have been submitted for approval to OMB under the PRA. The Information Collection Request (ICR) document that the EPA prepared has been assigned EPA ICR number 1969.08. You can find a copy of the ICR in the docket for this rulemaking, and it is briefly summarized here.
We are proposing amendments that change the reporting and recordkeeping requirements for several emission sources at MON facilities (
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for the EPA's regulations in 40 CFR are listed in 40 CFR part 9.
Submit your comments on the Agency's need for this information, the accuracy of the provided burden estimates, and any suggested methods for minimizing respondent burden to the EPA using the docket identified at the beginning of this rule. You may also send your ICR-related comments to OMB's Office of Information and Regulatory Affairs via email to
I certify that this action will not have a significant economic impact on a substantial number of small entities under the RFA. This action will impose requirements on the small entities in the NESHAP and associated regulated industrial source category described in section I.A of this preamble. This action is projected to affect 201 facilities, and 17 of these facilities are small entities. For the small entities, the average cost-to-sales ratio is approximately 0.23 percent. Additional details of the associated analysis are presented in the memorandum,
This action does not contain an unfunded mandate of $100 million or more as described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or uniquely affect small governments. The action imposes no enforceable duty on any state, local, or tribal governments.
This action does not have federalism implications. It 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.
This action does not have tribal implications as specified in Executive Order 13175. None of the MON facilities that have been identified as being affected by this action are owned or operated by tribal governments or located within tribal lands. Thus, Executive Order 13175 does not apply to this action.
This action is not subject to Executive Order 13045 because it is not economically significant as defined in Executive Order 12866, and because the EPA does not believe the environmental health or safety risks addressed by this action present a disproportionate risk to children. This action's health and risk assessments are contained in sections III.A and C and sections IV.B and C of this preamble and further documented in the risk report,
This action is not a “significant energy action” because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The overall economic impact of this proposed rule should be minimal for MON facilities and their parent companies (which are engaged in the energy sector).
This action involves technical standards. Therefore, the EPA conducted searches for the Miscellaneous Organic Chemical Manufacturing NESHAP through the Enhanced National Standards Systems Network (NSSN) Database managed by the American National Standards Institute (ANSI). We also contacted voluntary consensus standards (VCS) organizations and accessed and searched their databases. We conducted searches for EPA Methods 1, 1A, 2, 2A, 2C, 2D, 2F, 2G, 3, 3A, 3B, 4, 5, 15, 18, 21, 22, 25, 25A, 25D, 26, 26A, 29 of 40 CFR part 60, appendix A, 301, 305, 316, 320 of 40 CFR part 63, 624, 625 of 40
No applicable VCS were identified for EPA Methods 1A, 2A, 2D, 2F, 2G, 21, 22, 25D, 305, 316, 625, 1624, 1625, 1666, 1671, 5030B, 8260, 8260B, 8260D, 8270C, and 8430 (SW-846). The following five VCS were identified as acceptable alternatives to the EPA test methods for the purpose of this rule.
The EPA proposes to use the VCS ANSI/ASME PTC 19.10-1981 Part 10 (2010), “Flue and Exhaust Gas Analyses,”
Additionally, the EPA proposes to use the VCS ASTM D6420-18, “Standard Test Method for Determination of Gaseous Organic Compounds by Direct Interface Gas Chromatography/Mass Spectrometry,” as an acceptable alternative to EPA Method 18 of appendix A-6 to 40 CFR part 60 with the following caveats. This ASTM procedure has been approved by the EPA as an alternative to EPA Method 18 only when the target compounds are all known and the target compounds are all listed in ASTM D6420 as measurable. We are proposing that ASTM D6420-18 should not be used for methane and ethane because the atomic mass is less than 35; and ASTM D6420 should never be specified as a total VOC method. The ASTM D6420-18 test method employs a direct interface gas chromatograph-mass spectrometer to measure 36 VOCs. The test method provides on-site analysis of extracted, unconditioned, and unsaturated (at the instrument) gas samples from stationary sources.
Also, the EPA proposes to use the VCS ASTM D6784-02 (2008) reapproved, “Standard Test Method for Elemental, Oxidized, Particle-Bound and Total Mercury Gas Generated from Coal-Fired Stationary Sources (Ontario Hydro Method),” as an acceptable alternative to EPA Method 101A of appendix B to 40 CFR part 61 and EPA Method 29 of appendix A-8 to 40 CFR part 60 (portion for mercury only) as a method for measuring mercury. Note that this applies to concentrations of approximately 0.5 to 100 micrograms per normal cubic meter of air. This method describes equipment and procedures for obtaining samples from effluent ducts and stacks, equipment and procedures for laboratory analysis, and procedures for calculating results. This method is applicable for sampling elemental, oxidized, and particle-bound mercury in flue gases of coal-fired stationary sources
In addition, the EPA proposes to use the VCS ASTM D6348-12e1, “Determination of Gaseous Compounds by Extractive Direct Interface Fourier Transform (FTIR) Spectroscopy,”
Furthermore, the EPA proposes to use the VCS ASTM D5790-95 (2012), “Standard Test Method for Measurement of Purgeable Organic Compounds in Water by Capillary Column Gas Chromatography/Mass Spectrometry,” as an acceptable alternative to EPA Method 624 (and for the analysis of total organic HAP in wastewater samples). We are proposing that, for wastewater analyses, this ASTM method should be used with the sampling procedures of EPA Method 25D or an equivalent method to be a complete alternative. The ASTM standard is validated for all of the 21 volatile organic HAP (including toluene) targeted by EPA Method 624 but is also validated for an additional 14 HAP not targeted by the EPA method. This test method covers the identification and simultaneous measurement of purgeable volatile organic compounds. This method is applicable to a wide range of organic compounds that have sufficiently high volatility and low water solubility to be efficiently removed from water samples using purge and trap procedures. We note that because the Cellulose Products Manufacturing proposed rule has already proposed to revise the performance test requirements table (Table 4 to Subpart UUUU of Part 63) to add IBR for ASTM D5790-95 (2012) (see 84 FR 47375), the EPA is not proposing to incorporate this specific aspect of this VCS by reference.
The four ASTM methods (ASTM D6420-18, ASTM D6784-02 (2008) reapproved, ASTM D6348-12e1, and ASTM D5790-95 (2012)) are available both in the docket for this rulemaking and at ASTM International, 1850 M Street NW, Suite 1030, Washington, DC 20036. See
Finally, the search identified 23 other VCS that were potentially applicable for this rule in lieu of the EPA reference methods. After reviewing the available standards, the EPA determined that 23 candidate VCS identified for measuring emissions of pollutants or their surrogates subject to emission standards in the rule would not be practical due to lack of equivalency, documentation, validation data, and other important technical and policy considerations. Additional information for the VCS search and determinations can be found in the memorandum,
The EPA welcomes comments on this aspect of the proposed rulemaking and, specifically, invites the public to identify potentially applicable VCS, and to explain why the EPA should use such standards in this regulation.
The EPA believes that this action does not have disproportionately high and adverse human health or environmental effects on minority populations, low-income populations, and/or indigenous peoples, as specified in Executive Order 12898 (58 FR 7629, February 16, 1994). Our analysis of the demographics of the population with estimated risks greater than 1-in-1 million indicates potential disparities in risks between demographic groups, including the African American, Hispanic or Latino, Over 25 Without a High School Diploma, and Below the Poverty Level groups. In addition, the population living within 50 km of the MON facilities has a higher percentage of minority, lower income, and lower education people when compared to the nationwide percentages of those groups. However, acknowledging these potential disparities, the risks for the source category were determined to be acceptable after implementation of the proposed controls, and emissions reductions from the proposed revisions will benefit these groups the most.
The documentation for this decision is contained in sections IV.B and C of this preamble, and the technical report,
Environmental protection, Air pollution control, Hazardous substances, Incorporation by reference, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Environmental Protection Agency proposes to amend 40 CFR part 63 as follows:
42 U.S.C. 7401,
The revisions and addition read as follows:
(h) * * *
(72) ASTM D5790-95 (2012), Standard Test Method for Measurement of Purgeable Organic Compounds in Water by Capillary Column Gas Chromatography/Mass Spectrometry, IBR approved for § 63.2485(h) and Table 4 to subpart UUUU.
(92) ASTM D6420-18, Standard Test Method for Determination of Gaseous Organic Compounds by Direct Interface Gas Chromatography-Mass Spectrometry, IBR approved for § 63.2450(j).
(98) ASTM D6784-02 (Reapproved 2008), Standard Test Method for Elemental, Oxidized, Particle-Bound and Total Mercury in Flue Gas Generated from Coal-Fired Stationary Sources (Ontario Hydro Method), (Approved April 1, 2008), IBR approved for §§ 63.2465(d), 63.11646(a), 63.11647(a) and (d), tables 1, 2, 5, 11, 12t, and 13 to subpart DDDDD, tables 4 and 5 to subpart JJJJJ, tables 4 and 6 to subpart KKKKK, table 4 to subpart JJJJJJ, table 5 to subpart UUUUU, and appendix A to subpart UUUUU.
(c) * * *
(3) The affiliated operations located at an affected source under subparts GG (National Emission Standards for Aerospace Manufacturing and Rework Facilities), KK (National Emission Standards for the Printing and Publishing Industry), JJJJ (NESHAP: Paper and Other Web Coating), MMMM (NESHAP: Surface Coating of Miscellaneous Metal Parts and Products), and SSSS (NESHAP: Surface Coating of Metal Coil) of this part 63. Affiliated operations include, but are not limited to, mixing or dissolving of coating ingredients; coating mixing for viscosity adjustment, color tint or additive blending, or pH adjustment; cleaning of coating lines and coating line parts; handling and storage of coatings and solvent; and conveyance and treatment of wastewater.
(a) Except as specified in paragraphs (g) through (i) of this section, if you have a new affected source, you must comply with this subpart according to the requirements in paragraphs (a)(1) and (2) of this section.
(b) Except as specified in paragraphs (g) through (i) of this section, if you have an existing source on November 10, 2003, you must comply with the requirements for existing sources in this subpart no later than May 10, 2008.
(g) All affected sources that commenced construction or reconstruction on or before December 17, 2019, must be in compliance with the requirements listed in paragraphs (g)(1) through (6) of this section upon initial startup or [date 3 years after date of publication of final rule in the
(1) The general requirements specified in § 63.2450(a)(2), (e)(4) through (7), (g)(6) and (7), (i)(3), (j)(5)(ii) and (6), (k)(1)(ii), (7), and (8), (t), and (u), § 63.2520(d)(3), (e)(11) through (13), § 63.2525(m) and (n), and § 63.2535(m).
(2) For process vents, the requirements specified in § 63.2455(d), § 63.2520(e)(14), and § 63.2525(p).
(3) For equipment leaks and pressure relief devices, the requirements specified in § 63.2480(e) and (f), § 63.2520(d)(4) and (e)(14), and § 63.2525(q).
(4) For wastewater streams and liquid streams in open systems within an MCPU, the requirements specified in § 63.2485(i)(2)(iii), (n)(2)(vii), and (p) and (q).
(5) For heat exchange systems, the requirements specified in § 63.2490(d), § 63.2520(e)(16), and § 63.2525(r).
(6) The other notification, reports, and records requirements specified in § 63.2500(g), § 63.2520(e)(5)(ii)(D), § 63.2520(e)(5)(iii)(M) and (N), and § 63.2525(l) and (u).
(h) All affected sources that commenced construction or reconstruction on or before December 17, 2019, must be in compliance with the requirements for light liquid pumps in § 63.2480(b)(6) and (c)(10) upon initial startup or [date 1 year after date of publication of final rule in the
(i) All affected sources that commenced construction or reconstruction on or before December 17, 2019, must be in compliance with the ethylene oxide requirements in § 63.2470(b) and (c)(4), § 63.2492, § 63.2493, § 63.2520(d)(5) and (e)(17), § 63.2525(s), Table 1 to this subpart, item 5, Table 2 to this subpart, item 3, Table 4 to this subpart, item 3, and Table 6 to this subpart, item 3 upon initial startup or [date 2 years after date of publication of final rule in the
The revisions and additions read as follows:
(a) You must comply with paragraphs (a)(1) and (2) of this section.
(1) Except as specified in paragraph (a)(2) of this section, you must be in compliance with the emission limits and work practice standards in tables 1 through 7 to this subpart at all times, except during periods of startup, shutdown, and malfunction (SSM), and you must meet the requirements specified in §§ 63.2455 through 63.2490 (or the alternative means of compliance in § 63.2495, § 63.2500, or § 63.2505), except as specified in paragraphs (b) through (s) of this section. You must meet the notification, reporting, and recordkeeping requirements specified in §§ 63.2515, 63.2520, and 63.2525.
(2) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (a)(1) of this section no longer applies. Instead, you must be in compliance with the emission limits and work practice standards in tables 1 through 7 to this subpart at all times, and you must meet the requirements specified in §§ 63.2455 through 63.2490 (or the alternative means of compliance in § 63.2495, § 63.2500, or § 63.2505), except as specified in paragraphs (b) through (u) of this section. You must meet the notification, reporting, and recordkeeping requirements specified in §§ 63.2515, 63.2520, and 63.2525.
(c) * * *
(2) Determine the applicable requirements based on the hierarchy presented in paragraphs (c)(2)(i) through (vi) of this section. For a combined stream, the applicable requirements are specified in the highest-listed paragraph in the hierarchy that applies to any of the individual streams that make up the combined stream. For example, if a combined stream consists of emissions from Group 1 batch process vents and any other type of emission stream, then you must comply with the requirements in paragraph (c)(2)(i) of this section for the combined stream; compliance with the requirements in paragraph (c)(2)(i) of this section constitutes compliance for the other emission streams in the combined stream. Two exceptions are that you must comply with the requirements in table 3 to this subpart and § 63.2465 for all process vents with hydrogen halide and halogen HAP emissions, and recordkeeping requirements for Group 2 applicability or compliance are still required (
(e) * * *
(1) Except when complying with § 63.2485, if you reduce organic HAP emissions by venting emissions through a closed-vent system to any combination of control devices (except a flare) or recovery devices, you must meet the requirements of paragraph (e)(4) of this section, and the requirements of § 63.982(c) and the requirements referenced therein.
(2) Except as specified in paragraph (e)(5) of this section or except when complying with § 63.2485, if you reduce organic HAP emissions by venting emissions through a closed-vent system to a flare, you must meet the requirements of paragraph (e)(4) of this section, and the requirements of § 63.982(b) and the requirements referenced therein.
(3) Except as specified in paragraphs (e)(3)(i) and (ii) of this section, if you use a halogen reduction device to reduce hydrogen halide and halogen HAP emissions from halogenated vent streams, you must meet the requirements of paragraph (e)(4) of this
(i) Beginning on and after [date 60 days after date of publication of final rule in the
(ii) If you use a halogen reduction device other than a scrubber, then you must submit procedures for establishing monitoring parameters to the Administrator as part of your precompliance report as specified in § 63.2520(c)(8).
(4) Beginning no later than the compliance dates specified in § 63.2445(g), the referenced provisions specified in paragraphs (e)(4)(i) through (xvi) of this section do not apply when demonstrating compliance with 40 CFR part 63, subpart SS.
(i) The phrase “Except for equipment needed for safety purposes such as pressure relief devices, low leg drains, high point bleeds, analyzer vents, and open-ended valves or lines” in § 63.983(a)(3) of subpart SS.
(ii) § 63.983(a)(5) of subpart SS.
(iii) The phrase “except during periods of start-up, shutdown and malfunction as specified in the referencing subpart” in § 63.984(a) of subpart SS.
(iv) The phrase “except during periods of start-up, shutdown and malfunction as specified in the referencing subpart” in § 63.985(a) of subpart SS.
(v) The phrase “other than start-ups, shutdowns, or malfunctions” in § 63.994(c)(1)(ii)(D) of subpart SS.
(vi) § 63.996(c)(2)(ii) of subpart SS.
(vii) § 63.997(e)(1)(i) of subpart SS.
(viii) The term “breakdowns” in §§ 63.998(b)(2)(i) of subpart SS.
(ix) § 63.998(b)(2)(iii) of subpart SS.
(x) The phrase “other than start-ups, shutdowns or malfunctions” in § 63.998(b)(5)(i)(A) of subpart SS.
(xi) The phrase “other than start-ups, shutdowns or malfunctions” in § 63.998(b)(5)(i)(C) of subpart SS.
(xii) The phrase “except as provided in paragraphs (b)(6)(i)(A) and (B) of this section” in § 63.998(b)(6)(i) of subpart SS.
(xiii) The second sentence of § 63.998(b)(6)(ii) of subpart SS.
(xiv) § 63.998(c)(1)(ii)(D), (E), (F), and (G) of subpart SS.
(xv) § 63.998(d)(1)(ii) of subpart SS.
(xvi) § 63.998(d)(3)(i) and (ii) of subpart SS.
(5) For any flare that is used to reduce organic HAP emissions from an MCPU, you may elect to comply with the requirements in this paragraph in lieu of the requirements of § 63.982(b) and the requirements referenced therein. However, beginning no later than the compliance dates specified in § 63.2445(g), paragraphs (e)(2) and (f) of this section no longer apply to flares that control ethylene oxide emissions and flares used to control emissions from MCPUs that produce olefins or polyolefins. Instead, if you reduce organic HAP emissions by venting emissions through a closed-vent system to a steam-assisted, air-assisted, non-assisted, or pressure-assisted multi-point flare that controls ethylene oxide emissions or is used to control emissions from an MCPU that produces olefins or polyolefins, then you must meet the applicable requirements for flares as specified in §§ 63.670 and 63.671 of subpart CC, including the provisions in Tables 12 and 13 to subpart CC of this part, except as specified in paragraphs (e)(5)(i) through (xi) of this section. This requirement also applies to any flare using fuel gas from a fuel gas system, of which 50 percent or more of the fuel gas is derived from an MCPU that has processes and/or equipment in ethylene oxide service or that produces olefins or polyolefins. For purposes of compliance with this paragraph, the following terms are defined in § 63.641 of subpart CC: Assist air, assist steam, center steam, combustion zone, combustion zone gas, flare, flare purge gas, flare supplemental gas, flare sweep gas, flare vent gas, lower steam, net heating value, perimeter assist air, pilot gas, premix assist air, total steam, and upper steam.
(i) You may elect to comply with the alternative means of emissions limitation requirements specified in paragraph (r) of § 63.670 of subpart CC in lieu of the requirements in paragraphs (d) through (f) of § 63.670 of subpart CC, as applicable. However, instead of complying with paragraph (r)(3)(iii) of § 63.670 of subpart CC, you must also submit the alternative means of emissions limitation request to the following address: U.S. Environmental Protection Agency, Office of Air Quality Planning and Standards, Sector Policies and Programs Division, U.S. EPA Mailroom (C404-02), Attention: Miscellaneous Organic Chemical Manufacturing Sector Lead, 4930 Old Page Rd., Durham, NC 27703.
(ii) When determining compliance with the flare tip velocity and combustion zone operating limits specified in § 63.670(d) and (e), the initial 15-minute block period starts with the 15-minute block that includes a full 15 minutes of the flaring event.
(iii) Instead of complying with paragraph (o)(2)(i) of § 63.670 of subpart CC, you must develop and implement the flare management plan no later than the compliance dates specified in § 63.2445(g).
(iv) Instead of complying with paragraph (o)(2)(iii) of § 63.670 of subpart CC, if required to develop a flare management plan and submit it to the Administrator, then you must also submit all versions of the plan in portable document format (PDF) to the EPA via the Compliance and Emissions Data Reporting Interface (CEDRI), which can be accessed through the EPA's Central Data Exchange (CDX) (
(v) Substitute “MCPU” for each occurrence of “petroleum refinery.”
(vi) Each occurrence of “refinery” does not apply.
(vii) If a pressure-assisted multi-point flare is used as a control device, then you must meet the following conditions:
(A) You are not required to comply with the flare tip velocity requirements in paragraph (d) and (k) of § 63.670 of subpart CC;
(B) You must substitute “800” for each occurrence of “270” in paragraph (e) of § 63.670 of subpart CC;
(C) You must determine the 15-minute block average NHVvg using only the direct calculation method specified in in paragraph (l)(5)(ii) of § 63.670 of subpart CC;
(D) Instead of complying with paragraph (b) and (g) of § 63.670 of subpart CC, if a pressure-assisted multi-point flare uses cross-lighting on a stage of burners rather than having an individual pilot flame on each burner, then you must operate each stage of the pressure-assisted multi-point flare with a flame present at all times when regulated material is routed to that stage of burners. Each stage of burners that cross-lights in the pressure-assisted multi-point flare must have at least two pilots with a continuously lit pilot flame capable of igniting all regulated material
(E) You must ensure that if a stage of burners on the pressure-assisted multi-point flare uses cross-lighting, that the distance between any two burners in series on that stage is no more than 6 feet; and
(F) You must install and operate pressure monitor(s) on the main flare header, as well as a valve position indicator monitoring system for each staging valve to ensure that the flare operates within the proper range of conditions as specified by the manufacturer. The pressure monitor must meet the requirements in Table 13 of subpart CC of this part.
(viii) If you choose to determine compositional analysis for net heating value with a continuous process mass spectrometer, then you must comply with the requirements specified in paragraphs (e)(5)(viii)(A) through (G) of this section.
(A) You must meet the requirements in § 63.671(e)(2). You may augment the minimum list of calibration gas components found in § 63.671(e)(2) with compounds found during a pre-survey or known to be in the gas through process knowledge.
(B) Calibration gas cylinders must be certified to an accuracy of 2 percent and traceable to National Institute of Standards and Technology (NIST) standards.
(C) For unknown gas components that have similar analytical mass fragments to calibration compounds, you may report the unknowns as an increase in the overlapped calibration gas compound. For unknown compounds that produce mass fragments that do not overlap calibration compounds, you may use the response factor for the nearest molecular weight hydrocarbon in the calibration mix to quantify the unknown component's NHVvg.
(D) You may use the response factor for n-pentane to quantify any unknown components detected with a higher molecular weight than n-pentane.
(E) You must perform an initial calibration to identify mass fragment overlap and response factors for the target compounds.
(F) You must meet applicable requirements in Performance Specification 9 of 40 CFR part 60, appendix B, for continuous monitoring system acceptance including, but not limited to, performing an initial multi-point calibration check at three concentrations following the procedure in Section 10.1 and performing the periodic calibration requirements listed for gas chromatographs in Table 13 of 40 CFR part 63, subpart CC, for the process mass spectrometer. You may use the alternative sampling line temperature allowed under Net Heating Value by Gas Chromatograph in Table 13 of 40 CFR part 63, subpart CC.
(G) The average instrument calibration error (CE) for each calibration compound at any calibration concentration must not differ by more than 10 percent from the certified cylinder gas value. The CE for each component in the calibration blend must be calculated using Equation 1 of this subpart.
(ix) If you use a gas chromatograph or mass spectrometer for compositional analysis for net heating value, then you may choose to use the CE of NHVmeasured versus the cylinder tag value NHV as the measure of agreement for daily calibration and quarterly audits in lieu of determining the compound-specific CE. The CE for NHV at any calibration level must not differ by more than 10 percent from the certified cylinder gas value. The CE for must be calculated using Equation 2 of this subpart.
(x) Instead of complying with paragraph (q) of § 63.670 of subpart CC, you must comply with the reporting requirements specified in § 63.2520(d)(3) and § 63.2520(e)(11).
(xi) Instead of complying with paragraph (p) of § 63.670 of subpart CC, you must keep the flare monitoring records specified in § 63.2525(m).
(6) Beginning no later than the compliance dates specified in § 63.2445(g), the use of a bypass line at any time on a closed vent system to divert a vent stream to the atmosphere or to a control device not meeting the requirements specified in Table 1 through Table 7 of this subpart is an emissions standards deviation. Equipment such as low leg drains and equipment subject to § 63.2480 are not subject to this paragraph (e)(6). Open-ended valves or lines that use a cap, blind flange, plug, or second valve and follow the requirements specified in § 60.482-6(a)(2), (b), and (c) are also not subject to this paragraph (e)(6). You must also comply with the requirements specified in paragraphs (e)(6)(i) through (iv) of this section, as applicable:
(i) If you are subject to the bypass monitoring requirements of § 63.148(f) of subpart G, then you must continue to comply with the requirements in § 63.148(f) of subpart G and the recordkeeping and reporting requirements in § 63.148(j)(2) and (3) of subpart G, and § 63.148(h)(3) of subpart G, in addition to the applicable requirements specified in § 63.2485(q) of this section, the recordkeeping requirements specified in § 63.2525(n), and the reporting requirements specified in § 63.2520(e)(12).
(ii) If you are subject to the bypass monitoring requirements of § 63.172(j) of subpart H, then you must continue to comply with the requirements in § 63.172(j) of subpart H and the recordkeeping and reporting requirements in § 63.118(a)(3) and (4) of
(iii) If you are subject to the bypass monitoring requirements of § 63.983(a)(3) of subpart SS, then you must continue to comply with the requirements in § 63.983(a)(3) of subpart SS and the recordkeeping and reporting requirements in § 63.998(d)(1)(ii) and § 63.999(c)(2) of subpart SS, in addition to the requirements specified in § 63.2450(e)(4), the recordkeeping requirements specified in § 63.2525(n), and the reporting requirements specified in § 63.2520(e)(12).
(iv) If you are subject to the bypass monitoring requirements of § 65.143(a)(3) of subpart G, then you must continue to comply with the requirements in § 65.143(a)(3) of subpart G and the recordkeeping and reporting requirements in § 65.163(a)(1) of subpart G and § 65.166(b) of subpart G; in addition to the applicable requirements specified in § 63.2480(f), the recordkeeping requirements specified in § 63.2525(n), and the reporting requirements specified in § 63.2520(e)(12).
(7) Beginning no later than the compliance dates specified in § 63.2445(g), if you reduce organic HAP emissions by venting emissions through a closed-vent system to an adsorber(s) that cannot be regenerated or a regenerative adsorber(s) that is regenerated offsite, then you must comply with paragraphs (e)(4) and (6) and the requirements in § 63.983, and you must install a system of dual adsorber units in series and comply with the requirements specified in paragraphs (e)(7)(i) through (iii) of this section.
(i) Conduct an initial performance test or design evaluation of the adsorber and establish the breakthrough limit.
(ii) Monitor the HAP or total organic compound (TOC) concentration daily through a sample port at the outlet of the first adsorber bed in series. You must measure the concentration of HAP or TOC using either a portable analyzer, in accordance with Method 21 of 40 CFR part 60, appendix A-7 or Method 25A at 40 CFR part 60, appendix A-7 using propane as the calibration gas.
(iii) Comply with paragraph (e)(7)(iii)(A) of this section, and you may reduce your monitoring frequency according to paragraph (e)(7)(iii)(B) of this section.
(A) The first adsorber in series must be replaced immediately when breakthrough, as defined in § 63.2550(i), is detected between the first and second adsorber. The original second adsorber (or a fresh canister) will become the new first adsorber and a fresh adsorber will become the second adsorber. For purposes of this paragraph, “immediately” means within 8 hours of the detection of a breakthrough for adsorbers of 55 gallons or less, and within 24 hours of the detection of a breakthrough for adsorbers greater than 55 gallons.
(B) In lieu of the daily monitoring, you may reduce your monitoring frequency by establishing the average adsorber bed life. To establish the average adsorber bed life, you must conduct daily monitoring of the HAP or TOC concentration of the first adsorber bed in series until breakthrough, as defined in § 63.2550(i), occurs for the first three adsorber bed change-outs. You must reestablish an average adsorber bed life if you change the adsorbent brand or type, or if any process changes are made that would lead to a lower bed lifetime. Once the average life of the bed is determined, you may conduct ongoing monitoring, as specified in paragraphs (e)(7)(iii)(B)(
(
(
(f)
(g)
(3) * * *
(ii) If you elect to comply with the outlet TOC concentration emission limits in tables 1 through 7 to this subpart, and the uncontrolled or inlet gas stream to the control device contains greater than 10 percent (volume concentration) carbon disulfide, you must use Method 18 or Method 15 to separately determine the carbon disulfide concentration. Calculate the total HAP or TOC emissions by totaling the carbon disulfide emissions measured using Method 18 or 15 and the other HAP emissions measured using Method 18 or 25A.
(5) Section 63.997(c)(1) does not apply. For the purposes of this subpart, results of all initial compliance demonstrations must be included in the notification of compliance status report, which is due 150 days after the compliance date, as specified in § 63.2520(d)(1). If the initial compliance demonstration includes a performance test and the results are submitted electronically via CEDRI in accordance with § 63.2520(f), the process unit(s) tested, the pollutant(s) tested, and the date that such performance test was conducted may be submitted in the notification of compliance status report in lieu of the performance test results. The performance test results must be submitted to CEDRI by the date the notification of compliance status report is submitted.
(6) Beginning no later than the compliance dates specified in § 63.2445(g), in lieu of the requirements specified in § 63.7(e)(1) you must conduct performance tests under such conditions as the Administrator specifies based on representative performance of the affected source for the period being tested. Representative conditions exclude periods of startup and shutdown. You may not conduct performance tests during periods of malfunction. You must record the process information that is necessary to document operating conditions during the test and include in such record an explanation to support that such conditions represent normal operation. Upon request, you must make available to the Administrator such records as may be necessary to determine the conditions of performance tests.
(7) Comply with the requirements in § 63.2450(e)(4), as applicable.
(i)
(2) You must correct the measured concentration for supplemental gases
(3) Beginning no later than the compliance dates specified in § 63.2445(g), paragraphs (i)(1) and (2) no longer apply. Instead, when § 63.997(e)(2)(iii)(C) requires you to correct the measured concentration at the outlet of a combustion device to 3 percent oxygen if you add supplemental combustion air, you must follow the procedures in § 63.997(e)(2)(iii)(C) to perform the concentration correction, except you may also use Method 3A of 40 CFR part 60, appendix A-2 to determine the oxygen concentration.
(j)
(1) Each CEMS must be installed, operated, and maintained according to the applicable Performance Specification of 40 CFR part 60, appendix B, and the applicable Quality Assurance Procedures of 40 CFR part 60, appendix F, and according to paragraph (j)(2) of this section, except as specified in paragraph (j)(1)(i) of this section. For any CEMS meeting Performance Specification 8, you must also comply with appendix F, procedure 1 of 40 CFR part 60. Locate the sampling probe or other interface at a measurement location such that you obtain representative measurements of emissions from the regulated source. For CEMS installed after [date of publication of final rule in the
(i) If you wish to use a CEMS other than a Fourier Transform Infrared Spectroscopy (FTIR) meeting the requirements of Performance Specification 15 to measure hydrogen halide, other than hydrogen chloride, and halogen HAP or CEMS meeting the requirements of Performance Specification 18 to measure hydrogen chloride before we promulgate a Performance Specification for such CEMS, you must prepare a monitoring plan and submit it for approval in accordance with the procedures specified in § 63.8.
(2) * * *
(iii) For CEMS meeting Performance Specification 8 used to monitor performance of a noncombustion device, determine the predominant organic HAP using either process knowledge or the screening procedures of Method 18 on the control device inlet stream, calibrate the monitor on the predominant organic HAP, and report the results as C1. Use Method 18 of appendix A-6 of 40 CFR part 60, Method 320 of appendix A to 40 CFR part 63, ASTM D6420-18 (incorporated by reference, see § 63.14), or any approved alternative as the reference method for the relative accuracy tests, and report the results as C1.
(3) You must conduct a performance evaluation of each CEMS according to the requirements in§ 63.8 and according to the applicable Performance Specification of 40 CFR part 60, appendix B, except that the schedule in § 63.8(e)(4) does not apply, and before [date 60 days after date of publication of final rule in the
(4) The CEMS data must be reduced to operating day or operating block averages computed using valid data consistent with the data availability requirements specified in § 63.999(c)(6)(i)(B) through (D), except monitoring data also are sufficient to constitute a valid hour of data if measured values are available for at least two of the 15-minute periods during an hour when calibration, quality assurance, or maintenance activities are being performed. An operating block is a period of time from the beginning to end of batch operations within a process. Operating block averages may be used only for batch process vent data. In computing operating day or operating block averages to determine compliance with this subpart, you must exclude monitoring data recorded during CEMS breakdowns, out-of-control periods, repairs, maintenance periods, calibration checks, or other quality assurance activities. Out-of-control periods are as specified in § 63.8(c)(7).
(5) If you add supplemental gases, you must comply with paragraphs (j)(5)(i) and (ii) of this section.
(i) Except as specified in paragraph (j)(5)(ii) of this section, correct the measured concentrations in accordance with paragraph (i) of this section and § 63.2460(c)(6).
(ii) Beginning no later than the compliance dates specified in § 63.2445(g), you must use Performance Specification 3 of 40 CFR part 60, appendix B, to certify your oxygen CEMS, and you must comply with procedure 1 of 40 CFR part 60, appendix F. Use Method 3A of 40 CFR part 60, appendix A-2 as the reference method when conducting a relative accuracy test audit.
(6) Beginning no later than the compliance dates specified in § 63.2445(g), in lieu of the requirements specified in § 63.8(d)(3) you must keep the written procedures required by § 63.8(d)(2) on record for the life of the affected source or until the affected source is no longer subject to the provisions of this part, to be made available for inspection, upon request, by the Administrator. If the performance evaluation plan is revised, you must keep previous (
(i) Description of CEMS installation location.
(ii) Description of the monitoring equipment, including the manufacturer and model number for all monitoring equipment components and the span of the analyzer.
(iii) Routine quality control and assurance procedures.
(iv) Conditions that would trigger a CEMS performance evaluation, which must include, at a minimum, a newly installed CEMS; a process change that is expected to affect the performance of the CEMS; and the Administrator's request for a performance evaluation under section 114 of the Clean Air Act.
(v) Ongoing operation and maintenance procedures in accordance with the general requirements of § 63.8(c)(1), (c)(3), (c)(4)(ii), (c)(7), and (c)(8);
(vi) Ongoing recordkeeping and reporting procedures in accordance with the general requirements of § 63.10(c) and (e)(1).
(k)
(1) You must comply with paragraphs (k)(1)(i) and (ii) of this section.
(i) Except as specified in paragraph (k)(1)(ii) of this section, record the results of each calibration check and all maintenance performed on the CPMS as specified in § 63.998(c)(1)(ii)(A).
(ii) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (k)(1)(i) of this section no longer applies. Instead, you must record the results of each calibration check and all maintenance performed on the CPMS as specified in § 63.998(c)(1)(ii)(A), except you must record all maintenance, not just preventative maintenance.
(4) * * *
(iv) Recording the downstream temperature and temperature difference across the catalyst bed as specified in § 63.998(a)(2)(ii)(B)(2) and (c)(2)(ii) is not required.
(7) Beginning no later than the compliance dates specified in § 63.2445(g), the manufacturer's specifications or your written procedures must include a schedule for calibrations, preventative maintenance procedures, a schedule for preventative maintenance, and corrective actions to be taken if a calibration fails. If a CPMS calibration fails, the CPMS is considered to be inoperative until you take corrective action and the system passes calibration. You must record the nature and cause of instances when the CPMS is inoperative and the corrective action taken.
(8) You must comply with the requirements in § 63.2450(e)(4), as applicable.
(l)
(o) You may not use a flare to control halogenated vent streams or hydrogen halide and halogen HAP emissions.
(p) Except as specified in paragraph (t) of this section, opening a safety device, as defined in § 63.2550, is allowed at any time conditions require it to avoid unsafe conditions.
(t) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (p) of this section no longer applies. Instead, you must comply with the requirements specified in § 63.2480(e).
(u)
(a) You must meet each emission limit in Table 1 to this subpart that applies to your continuous process vents, and you must meet each applicable requirement specified in paragraphs (b) through (d) of this section, § 63.2492, and § 63.2493(a) through (c).
(d)
(1) Prior to venting to the atmosphere, remove process liquids from the equipment as much as practical and depressurize the equipment to either: A flare meeting the requirements of § 63.2450(e)(2) or (5), as applicable, or a non-flare control device meeting the requirements in § 63.2450(e)(4) and the requirements specified in § 63.982(c)(2) of subpart SS until one of the following conditions, as applicable, is met.
(i) The vapor in the equipment served by the maintenance vent has a lower explosive limit (LEL) of less than 10 percent.
(ii) If there is no ability to measure the LEL of the vapor in the equipment based on the design of the equipment, the pressure in the equipment served by the maintenance vent is reduced to 5 pounds per square inch gauge (psig) or less. Upon opening the maintenance vent, active purging of the equipment cannot be used until the LEL of the vapors in the maintenance vent (or inside the equipment if the maintenance is a hatch or similar type of opening) is less than 10 percent.
(iii) The equipment served by the maintenance vent contains less than 50 pounds of total volatile organic compounds (VOC).
(iv) If, after applying best practices to isolate and purge equipment served by a maintenance vent, none of the applicable criterion in paragraphs (d)(1)(i) through (iii) of this section can be met prior to installing or removing a blind flange or similar equipment blind, then the pressure in the equipment served by the maintenance vent must be reduced to 2 psig or less before installing or removing the equipment blind. During installation or removal of the equipment blind, active purging of the equipment may be used provided the equipment pressure at the location where purge gas is introduced remains at 2 psig or less.
(2) Except for maintenance vents complying with the alternative in paragraph (d)(1)(iii) of this section, you must determine the LEL or, if applicable, equipment pressure using process instrumentation or portable measurement devices and follow procedures for calibration and maintenance according to manufacturer's specifications.
(3) For maintenance vents complying with the alternative in paragraph (d)(1)(iii) of this section, you must determine mass of VOC in the equipment served by the maintenance vent based on the equipment size and contents after considering any contents drained or purged from the equipment. Equipment size may be determined from equipment design specifications. Equipment contents may be determined using process knowledge.
The revisions read as follows:
(a) You must meet each emission limit in Table 2 to this subpart that applies to you, and you must meet each applicable requirement specified in paragraphs (b) and (c) of this section, § 63.2492, and § 63.2493(a) through (c).
(b) * * *
(5) You may elect to designate the batch process vents within a process as Group 1 and not calculate uncontrolled emissions if you comply with one of the situations in paragraph (b)(5)(i), (ii), or (iii) of this section.
(iii) If you comply with an emission limit using a flare that meets the requirements specified in §§ 63.987 or 63.2450(e)(5), as applicable.
(6) You may change from Group 2 to Group 1 in accordance with either paragraph (b)(6)(i) or (ii) of this section. Before [date 60 days after date of publication of final rule in the
(c) * * *
(2) * * *
(i) To demonstrate initial compliance with a percent reduction emission limit in Table 2 to this subpart FFFF, you must compare the sums of the controlled and uncontrolled emissions for the applicable Group 1 batch process vents within the process, and show that the specified reduction is met. This requirement does not apply if you comply with the emission limits of Table 2 to this subpart FFFF by using a flare that meets the requirements of § 63.987 or 63.2450(e)(5), as applicable.
(ii) When you conduct a performance test or design evaluation for a non-flare control device used to control emissions from batch process vents, you must establish emission profiles and conduct the test under worst-case conditions according to § 63.1257(b)(8) instead of under normal operating conditions as specified in § 63.7(e)(1) or the conditions as specified in § 63.2450(g)(6). The requirements in § 63.997(e)(1)(i) and (iii) also do not apply for performance tests conducted to determine compliance with the emission limits for batch process vents. For purposes of this subpart FFFF, references in § 63.997(b)(1) to “methods specified in § 63.997(e)” include the methods specified in § 63.1257(b)(8).
(v) If a process condenser is used for boiling operations in which HAP (not as an impurity) is heated to the boiling point, you must demonstrate that it is properly operated according to the procedures specified in § 63.1257(d)(2)(i)(C)(4)(ii) and (d)(3)(iii)(B), and the demonstration must occur only during the boiling operation. The reference in § 63.1257(d)(3)(iii)(B) to the alternative standard in § 63.1254(c) means § 63.2505 for the purposes of this subpart. As an alternative to measuring the exhaust gas temperature, as required by § 63.1257(d)(3)(iii)(B), you may elect to measure the liquid temperature in the receiver.
(6)
(9)
(ii)
(D) Before [date 60 days after date of publication of final rule in the
(iii)
(iv)
(c) If collective uncontrolled hydrogen halide and halogen HAP emissions from the process vents within a process are greater than or equal to 1,000 pounds per year (lb/yr), you must comply with the requirements in § 63.2450(e)(4) and the requirements of § 63.994 and the requirements referenced therein, except as specified in paragraphs (c)(1) through (3) of this section.
(d) * * *
(2) Conduct an initial performance test of each control device that is used to comply with the emission limit for HAP metals specified in Table 3 to this subpart. Conduct the performance test
(a) You must meet each emission limit in Table 4 to this subpart that applies to your storage tanks, and except as specified in paragraph (b), you must also meet each applicable requirement specified in paragraphs (c) through (e) of this section, § 63.2492, and § 63.2493(a) through (c).
(b) On and after the compliance dates specified in § 63.2445(i), paragraphs (d) and (e) of this section do not apply to storage tanks in ethylene oxide service as defined in § 63.2550.
(c)
(2) Except as specified in paragraph (c)(4) of this section, when the term “storage vessel” is used in subparts SS and WW of this part 63, the term “storage tank,” as defined in § 63.2550 applies for the purposes of this subpart.
(3) For adsorbers that cannot be regenerated or regenerative adsorbers that are regenerated offsite, you must comply with the monitoring requirements in § 63.2450(e)(7) in lieu of § 63.995(c).
(4) Beginning no later than the compliance dates specified in § 63.2445(i), the exemptions for “vessels storing organic liquids that contain HAP only as impurities” and “pressure vessels designed to operate in excess of 204.9 kilopascals and without emissions to the atmosphere” listed in the definition of “storage tank” in § 63.2550 do not apply for storage tanks in ethylene oxide service.
(e) * * *
(3) You may elect to set a pressure relief device to a value less than the 2.5 psig required in § 63.1253(f)(5) if you provide rationale in your notification of compliance status report explaining why the alternative value is sufficient to prevent breathing losses at all times.
(a) You must comply with each emission limit and work practice standard in table 5 to this subpart that applies to your transfer racks, and you must meet each applicable requirement in paragraph (b) of this section.
The revisions and additions read as follows:
(a) You must meet each requirement in table 6 to this subpart that applies to your equipment leaks, except as specified in paragraphs (b) through (f) of this section. For each light liquid pump, valve, and connector in ethylene oxide service as defined in § 63.2550(i), you must also meet the applicable requirements specified in § 63.2492 and § 63.2493(d) and (e).
(b) Except as specified in paragraphs (b)(6) and (7) of this section, if you comply with either subpart H or subpart UU of this part 63, you may elect to comply with the provisions in paragraphs (b)(1) through (5) of this section as an alternative to the referenced provisions in subpart H or subpart UU of this part.
(1) The requirements for pressure testing in § 63.178(b) or § 63.1036(b) may be applied to all processes, not just batch processes.
(2) For the purposes of this subpart, pressure testing for leaks in accordance with § 63.178(b) or § 63.1036(b) is not required after reconfiguration of an equipment train if flexible hose connections are the only disturbed equipment.
(5) Except as specified in paragraph (b)(6) of this section, for pumps in light liquid service in an MCPU that has no continuous process vents and is part of an existing source, you may elect to consider the leak definition that defines a leak to be 10,000 parts per million (ppm) or greater as an alternative to the values specified in § 63.1026(b)(2)(i) through (iii) or § 63.163(b)(2).
(6) Beginning no later than the compliance dates specified in § 63.2445(h), paragraph (b)(5) of this section no longer applies to pumps in light liquid service. Instead, for all pumps in light liquid service in an MCPU, the instrument reading that defines a leak and requires repair is 1,000 ppmv or greater.
(7) For each piece of equipment that is added to an affected source after December 17, 2019, and for each piece of equipment that replaces equipment at an affected source after December 17, 2019, you must initially monitor for leaks within 30 days after initial startup of the equipment.
(c) Except as specified in paragraphs (c)(10) and (11) of this section, if you comply with 40 CFR part 65, subpart F, you may elect to comply with the provisions in paragraphs (c)(1) through (9) of this section as an alternative to the referenced provisions in 40 CFR part 65, subpart F.
(5) Except as specified in paragraph (c)(10) of this section, for pumps in light liquid service in an MCPU that has no continuous process vents and is part of an existing source, you may elect to consider the leak definition that defines a leak to be 10,000 ppm or greater as an alternative to the values specified in § 65.107(b)(2)(i) through (iii).
(10) Beginning no later than the compliance dates specified in § 63.2445(h), paragraph (c)(5) of this section no longer applies to pumps in light liquid service. Instead, for all pumps in light liquid service in an MCPU, the instrument reading that defines a leak and requires repair is 1,000 ppmv or greater.
(11) For each piece of equipment that is added to an affected source after December 17, 2019, and for each piece of equipment that replaces equipment at an affected source after December 17,
(e) Beginning no later than the compliance dates specified in § 63.2445(g), except as specified in paragraph (e)(4) of this section, you must comply with the requirements specified in paragraphs (e)(1) and (2) of this section for pressure relief devices, such as relief valves or rupture disks, in organic HAP gas or vapor service instead of the pressure relief device requirements of § 63.1030 of subpart UU, § 63.165 of subpart H, or § 65.111 of subpart F. Except as specified in paragraphs (e)(4) and (5) of this section, you must also comply with the requirements specified in paragraphs (e)(3), (6), (7), and (8) of this section for all pressure relief devices.
(1)
(2)
(i) If the pressure relief device does not consist of or include a rupture disk, conduct instrument monitoring, as specified in § 63.1023(b) of subpart UU, § 63.180(c) of subpart H, or § 65.104(b) of subpart F, no later than 5 calendar days after the pressure relief device returns to organic HAP gas or vapor service following a pressure release to verify that the pressure relief device is operating with an instrument reading of less than 500 ppm.
(ii) If the pressure relief device includes a rupture disk, either comply with the requirements in paragraph (e)(2)(i) of this section (and do not replace the rupture disk) or install a replacement disk as soon as practicable after a pressure release, but no later than 5 calendar days after the pressure release. You must conduct instrument monitoring, as specified in § 63.1023(b) of subpart UU, § 63.180(c) of subpart H, or § 65.104(b) of subpart F, no later than 5 calendar days after the pressure relief device returns to organic HAP gas or vapor service following a pressure release to verify that the pressure relief device is operating with an instrument reading of less than 500 ppm.
(iii) If the pressure relief device consists only of a rupture disk, install a replacement disk as soon as practicable after a pressure release, but no later than 5 calendar days after the pressure release. You must not initiate startup of the equipment served by the rupture disk until the rupture disc is replaced. You must conduct instrument monitoring, as specified in § 63.1023(b) of subpart UU, § 63.180(c) of subpart H, or § 65.104(b) of subpart F, no later than 5 calendar days after the pressure relief device returns to organic HAP gas or vapor service following a pressure release to verify that the pressure relief device is operating with an instrument reading of less than 500 ppm.
(3)
(i) You must equip each affected pressure relief device with a device(s) or use a monitoring system that is capable of:
(A) Identifying the pressure release;
(B) Recording the time and duration of each pressure release; and
(C) Notifying operators immediately that a pressure release is occurring. The device or monitoring system must be either specific to the pressure relief device itself or must be associated with the process system or piping, sufficient to indicate a pressure release to the atmosphere. Examples of these types of devices and systems include, but are not limited to, a rupture disk indicator, magnetic sensor, motion detector on the pressure relief valve stem, flow monitor, or pressure monitor.
(ii) You must apply at least three redundant prevention measures to each affected pressure relief device and document these measures. Examples of prevention measures include:
(A) Flow, temperature, liquid level and pressure indicators with deadman switches, monitors, or automatic actuators. Independent, non-duplicative systems within this category count as separate redundant prevention measures.
(B) Documented routine inspection and maintenance programs and/or operator training (maintenance programs and operator training may count as only one redundant prevention measure).
(C) Inherently safer designs or safety instrumentation systems.
(D) Deluge systems.
(E) Staged relief system where the initial pressure relief device (with lower set release pressure) discharges to a flare or other closed vent system and control device.
(iii) If any affected pressure relief device releases to atmosphere as a result of a pressure release event, you must perform root cause analysis and corrective action analysis according to the requirement in paragraph (e)(6) of this section and implement corrective actions according to the requirements in paragraph (e)(7) of this section. You must also calculate the quantity of organic HAP released during each pressure release event and report this quantity as required in § 63.2520(e)(15). Calculations may be based on data from the pressure relief device monitoring alone or in combination with process parameter monitoring data and process knowledge.
(iv) You must determine the total number of release events that occurred during the calendar year for each affected pressure relief device separately. You must also determine the total number of release events for each pressure relief device for which the root cause analysis concluded that the root cause was a force majeure event, as defined in § 63.2550.
(v) Except for pressure relief devices described in paragraphs (e)(4) and (5) of this section, the following release events from an affected pressure relief device are a deviation of the pressure release management work practice standards.
(A) Any release event for which the root cause of the event was determined to be operator error or poor maintenance.
(B) A second release event not including force majeure events from a single pressure relief device in a 3 calendar year period for the same root cause for the same equipment.
(C) A third release event not including force majeure events from a single pressure relief device in a 3 calendar year period for any reason.
(4)
(ii) Before the compliance dates specified in § 63.2445(g), both the closed vent system and control device (if applicable) referenced in paragraph (e)(4)(i) of this section must meet the applicable requirements specified in § 63.982(b) and (c)(2) of subpart SS. Beginning no later than the compliance dates specified in § 63.2445(g), both the closed vent system and control device (if applicable) referenced in paragraph (e)(4)(i) of this section must meet the
(iii) The drain system (if applicable) referenced in paragraph (e)(4)(i) must meet the applicable requirements specified in § 63.2485(e).
(5)
(i) Pressure relief devices in heavy liquid service, as defined in § 63.1020 of subpart UU or § 65.103(f) of subpart F.
(ii) Thermal expansion relief valves.
(iii) Pressure relief devices designed with a set relief pressure of less than 2.5 psig.
(iv) Pilot-operated pressure relief devices where the primary release valve is routed through a closed vent system to a control device or back into the process, to the fuel gas system, or to a drain system.
(v) Balanced bellows pressure relief devices where the primary release valve is routed through a closed vent system to a control device or back into the process, to the fuel gas system, or to a drain system.
(6)
(i) You may conduct a single root cause analysis and corrective action analysis for a single emergency event that causes two or more pressure relief devices installed on the same equipment to release.
(ii) You may conduct a single root cause analysis and corrective action analysis for a single emergency event that causes two or more pressure relief devices to release, regardless of the equipment served, if the root cause is reasonably expected to be a force majeure event, as defined in § 63.2550.
(iii) Except as provided in paragraphs (e)(6)(i) and (ii) of this section, if more than one pressure relief device has a release during the same time period, an initial root cause analysis must be conducted separately for each pressure relief device that had a release. If the initial root cause analysis indicates that the release events have the same root cause(s), the initially separate root cause analyses may be recorded as a single root cause analysis and a single corrective action analysis may be conducted.
(7)
(i) All corrective action(s) must be implemented within 45 days of the event for which the root cause and corrective action analyses were required or as soon thereafter as practicable. If you conclude that no corrective action should be implemented, you must record and explain the basis for that conclusion no later than 45 days following the event.
(ii) For corrective actions that cannot be fully implemented within 45 days following the event for which the root cause and corrective action analyses were required, you must develop an implementation schedule to complete the corrective action(s) as soon as practicable.
(iii) No later than 45 days following the event for which a root cause and corrective action analyses were required, you must record the corrective action(s) completed to date, and, for action(s) not already completed, a schedule for implementation, including proposed commencement and completion dates.
(8)
(f) Beginning no later than the compliance dates specified in § 63.2445(g), the referenced provisions specified in paragraphs (f)(1) through (15) of this section do not apply when demonstrating compliance with this section.
(1) § 63.163(c)(3) of subpart H.
(2) The second sentence of § 63.181(d)(5)(i) of subpart H.
(3) § 63.1026(b)(3) of subpart UU.
(4) The phrase “(except periods of startup, shutdown, or malfunction)” from § 63.1026(e)(1)(ii)(A) of subpart UU.
(5) The phrase “(except during periods of startup, shutdown, or malfunction)” from § 63.1028(e)(1)(i)(A) of subpart UU.
(6) The phrase “(except during periods of startup, shutdown, or malfunction)” from § 63.1031(b)(1) of subpart UU.
(7) The second sentence of § 65.105(f)(4)(i) of subpart F.
(8) § 65.107(b)(3) of subpart F.
(9) The phrase “(except periods of start-up, shutdown, or malfunction)” from § 65.107(e)(1)(ii)(A) of subpart F.
(10) The phrase “(except during periods of start-up, shutdown, or malfunction)” from § 65.109(e)(1)(i)(A) of subpart F.
(11) The phrase “(except during periods of start-up, shutdown, or malfunction)” from § 65.112(b)(1) of subpart F.
(12) The last sentence of § 65.115(b)(1) of subpart F.
(13) The last sentence of § 65.115(b)(2) of subpart F.
(14) The phrase “Except for pressure relief devices needed for safety purposes, low leg drains, high point bleeds, analyzer vents, and open-ended valves or lines” in § 65.143(a)(3) of subpart G.
(15) For flares complying with § 63.2450(e)(5), the following provisions do not apply:
(i) § 63.172(d) of subpart H;
(ii) § 63.180(e) of subpart H;
(iii) § 63.181(g)(1)(iii) of subpart H;
(iv) The phrase “including periods when a flare pilot light system does not have a flame” from § 63.181(g)(2)(i) of subpart H;
(v) § 63.1034(b)(2)(iii) of subpart UU; and
(vi) § 65.115(b)(2) of subpart F.
The revisions and additions read as follows:
(a) You must meet each requirement in table 7 to this subpart that applies to your wastewater streams and liquid streams in open systems within an MCPU, except as specified in paragraphs (b) through (q) of this section.
(f)
(h) * * *
(4) As an alternative to using EPA Method 624 as specified in § 63.144(b)(5)(i)(C), you may use ASTM D5790-95 (2012) (incorporated by reference, see § 63.14) for the analysis of total organic HAP in wastewater samples. If you choose to use ASTM D5790-95 (2012), then you must also use the sampling procedures of EPA Method 25D or an equivalent method.
(i) * * *
(2) * * *
(ii) The transferee must treat the wastewater stream or residual in a biological treatment unit in accordance with the requirement in paragraph (i)(2)(iii) of this section and the requirements of §§ 63.138 and 63.145 and the requirements referenced therein.
(iii) Beginning no later than the compliance dates specified in § 63.2445(g), the requirement of § 63.145(a)(3) no longer applies. Instead, the transferee must comply with the conditions specified in 63.2450(g)(6).
(k) The requirement to correct outlet concentrations from combustion devices to 3 percent oxygen in §§ 63.139(c)(1)(ii) and 63.145(i)(6) applies only if supplemental gases are combined with a vent stream from a Group 1 wastewater stream. If emissions are controlled with a vapor recovery system as specified in § 63.139(c)(2), you must correct for supplemental gases as specified in § 63.2460(c)(6).
(n) * * *
(2) Calculate the destruction efficiency of the biological treatment unit using Equation 4 of this subpart in accordance with the procedures described in paragraphs (n)(2)(i) through (viii) of this section. You have demonstrated initial compliance if E is greater than or equal to 90 percent.
(ii) Except as specified in paragraph (n)(2)(vii) of this section, conduct the demonstration under representative process unit and treatment unit operating conditions in accordance with § 63.145(a)(3) and (4).
(iv) * * *
(A) If the biological treatment process meets both of the requirements specified in § 63.145(h)(1)(i) and (ii), you may elect to replace the F
(vii) Beginning no later than the compliance dates specified in § 63.2445(g), the requirement of § 63.145(a)(3) no longer applies. Instead, you must comply with the conditions specified in 63.2450(g)(6).
(4) For any wastewater streams that are Group 1 for both PSHAP and SHAP, you may elect to meet the requirements specified in table 7 to this subpart for the PSHAP and then comply with paragraphs (n)(1) through (3) of this section for the SHAP in the wastewater system. You may determine the SHAP mass removal rate, in kg/hr, in treatment units that are used to meet the requirements for PSHAP and add this amount to both the numerator and denominator in Equation 4 of this subpart.
(o)
(p)
(q)
(1) § 63.105(d) and (e).
(2) § 63.132(b)(3)(i)(B).
(3) § 63.132(f)(2).
(4) § 63.148(f)(3).
(5) For flares complying with § 63.2450(e)(5), the following provisions do not apply:
(i) § 63.139(c)(3);
(ii) § 63.139(d)(2)(vii)(3);
(iii) § 63.145(j);
(iv) § 63.146(b)(7)(i);
(v) § 63.147(d)(1); and
(vi) § 63.1034(b)(2)(iii).
(a) You must comply with each requirement in Table 10 to this subpart that applies to your heat exchange systems, except as specified in paragraphs (b) through (d) of this section.
(b) Except as specified in paragraph (d) of this section, if you comply with the requirements of § 63.104 as specified in Table 10 to this subpart, then the phrase “a chemical manufacturing process unit meeting the conditions of § 63.100 (b)(1) through (b)(3) of this section” in § 63.104(a) means “an MCPU meeting the conditions of § 63.2435” for the purposes of this subpart.
(c) Except as specified in paragraph (d) of this section, if you comply with the requirements of § 63.104 as specified in Table 10 to this subpart, then the reference to § 63.100(c) in § 63.104(a) does not apply for the purposes of this subpart.
(d) Beginning no later than the compliance dates specified in § 63.2445(g), the requirements of § 63.104 as specified in Table 10 to this subpart and paragraphs (b) and (c) of this section no longer apply. Instead, you must monitor the cooling water for the presence of total strippable hydrocarbon concentration (as methane) that indicate a leak according to paragraph (d)(1) of this section, and if you detect a leak, then you must repair it according to paragraphs (d)(2) and (3) of this section, unless repair is delayed according to paragraph (d)(4) of this section. At any time before the compliance dates specified in § 63.2445(g), you may choose to comply with the requirements in this paragraph in lieu of the requirements of § 63.104 as specified in Table 10 to this subpart and paragraphs (b) and (c) of this section. The requirements in this paragraph do not apply to heat exchange systems that have a maximum cooling water flow rate of 10 gallons per minute or less.
(1) You must perform monitoring to identify leaks of total strippable
(i)
(A) Each cooling tower return line or any representative riser within the cooling tower prior to exposure to air for each heat exchange system.
(B) Selected heat exchanger exit line(s), so that each heat exchanger or group of heat exchangers within a heat exchange system is covered by the selected monitoring location(s).
(ii)
(A) Selected heat exchanger exit line(s), so that each heat exchanger or group of heat exchangers within a heat exchange system is covered by the selected monitoring location(s). The selected monitoring location may be at a point where discharges from multiple heat exchange systems are combined provided that the combined cooling water flow rate at the monitoring location does not exceed 40,000 gallons per minute.
(B) The inlet water feed line for a once-through heat exchange system prior to any heat exchanger. If multiple heat exchange systems use the same water feed (
(iii)
(iv)
(v)
(A) For once-through heat exchange systems for which the inlet water feed is monitored as described in paragraph (d)(1)(ii)(B) of this section, a leak is detected if the difference in the measurement value of the sample taken from a location specified in paragraph (d)(1)(ii)(A) of this section and the measurement value of the corresponding sample taken from the location specified in paragraph (d)(1)(ii)(B) of this section equals or exceeds the leak action level.
(B) For all other heat exchange systems, a leak is detected if a measurement value of the sample taken from a location specified in paragraph (d)(1)(i)(A), (B), or (d)(1)(ii)(A) of this section equals or exceeds the leak action level.
(2) If a leak is detected using the methods described in paragraph (d)(1) of this section, you must repair the leak to reduce the measured concentration to below the applicable leak action level as soon as practicable, but no later than 45 days after identifying the leak, except as specified in paragraph (d)(4) of this section. Repair must include re-monitoring at the monitoring location where the leak was identified according to the method specified in paragraph (d)(1)(iii) of this section to verify that the measured total strippable hydrocarbon concentration is below the applicable leak action level. Repair may also include performing the additional monitoring in paragraph (d)(3) of this section to verify that the total strippable hydrocarbon concentration is below the applicable leak action level. Actions that can be taken to achieve repair include but are not limited to:
(i) Physical modifications to the leaking heat exchanger, such as welding the leak or replacing a tube;
(ii) Blocking the leaking tube within the heat exchanger;
(iii) Changing the pressure so that water flows into the process fluid;
(iv) Replacing the heat exchanger or heat exchanger bundle; or
(v) Isolating, bypassing, or otherwise removing the leaking heat exchanger from service until it is otherwise repaired.
(3) If you detect a leak when monitoring a cooling tower return line under paragraph (d)(1)(i)(A) of this section, you may conduct additional monitoring of each heat exchanger or group of heat exchangers associated with the heat exchange system for which the leak was detected, as provided in paragraph (d)(1)(i)(B) of this section. If no leaks are detected when monitoring according to the requirements of paragraph (d)(1)(i)(B) of this section, the heat exchange system is considered to have met the repair requirements through re-monitoring of the heat exchange system, as provided in paragraph (d)(2) of this section.
(4) You may delay repair when one of the conditions in paragraph (d)(4)(i) or (ii) of this section is met and the leak is less than the delay of repair action level specified in paragraph (d)(4)(iii) of this section. You must determine if a delay of repair is necessary as soon as practicable, but no later than 45 days after first identifying the leak.
(i) If the repair is technically infeasible without a shutdown and the total strippable hydrocarbon concentration is initially and remains less than the delay of repair action level for all monitoring periods during the delay of repair, then you may delay repair until the next scheduled shutdown of the heat exchange system. If, during subsequent monitoring, the delay of repair action level is exceeded, then you must repair the leak within 30 days of the monitoring event in which the leak was equal to or exceeded the delay of repair action level.
(ii) If the necessary equipment, parts, or personnel are not available and the total strippable hydrocarbon concentration is initially and remains less than the delay of repair action level for all monitoring periods during the delay of repair, then you may delay the repair for a maximum of 120 calendar
(iii) The delay of repair action level is a total strippable hydrocarbon concentration (as methane) in the stripping gas of 62 ppmv. The delay of repair action level is assessed as described in paragraph (d)(4)(iii)(A) or (B) of this section, as applicable.
(A) For once-through heat exchange systems for which the inlet water feed is monitored as described in paragraph (d)(1)(ii)(B) of this section, the delay of repair action level is exceeded if the difference in the measurement value of the sample taken from a location specified in paragraph (d)(1)(ii)(A) of this section and the measurement value of the corresponding sample taken from the location specified in paragraph (d)(1)(ii)(B) of this section equals or exceeds the delay of repair action level.
(B) For all other heat exchange systems, the delay of repair action level is exceeded if a measurement value of the sample taken from a location specified in paragraph (d)(1)(i)(A), (B), or (d)(1)(ii)(A) of this section equals or exceeds the delay of repair action level.
To determine if process vents, storage tanks, and equipment leaks are in ethylene oxide service as defined in § 63.2550(i), you must comply with the requirements in paragraphs (a) through (c) of this section, as applicable.
(a) For each batch process vent or continuous process vent stream, you must measure the flow rate and concentration of ethylene oxide of each process vent as specified in paragraphs (a)(1) through (5) of this section.
(1) Measurements must be made prior to any dilution of the vent streams.
(2) Measurements may be made on the combined vent streams at an MCPU or for each separate vent stream.
(3) Method 1 or 1A of 40 CFR part 60, appendix A-1, as appropriate, must be used for the selection of the sampling sites. For vents smaller than 0.10 meter in diameter, sample at one point at the center of the duct.
(4) The gas volumetric flow rate must be determined using Method 2, 2A, 2C, 2D, 2F, or 2G of 40 CFR part 60, appendix A-1 and A-2, as appropriate.
(5) The concentration of ethylene oxide must be determined using Method 18 of appendix A-6 of 40 CFR part 60 or Method 320 of appendix A to 40 CFR part 63.
(b) For storage tanks, you must measure the concentration of ethylene oxide of the fluid stored in the storage tanks using Method 624.1 of 40 CFR part 136 or preparation by Method 5031 and analysis by Method 8260D in the SW-846 Compendium. In lieu of preparation by SW-846 Method 5031, you may use SW-846 Method 5030B, as long as: You do not use a preservative in the collected sample; you store the sample with minimal headspace as cold as possible and at least below 4 degrees C; and you analyze the sample as soon as possible, but in no case longer than 7 days from the time the sample was collected. If you are collecting a sample from a pressure vessel, you must maintain the sample under pressure both during and following sampling.
(c) For equipment leaks, you must comply with the requirements in paragraphs (c)(1) through (4) of this section.
(1) Each piece of equipment within an MCPU that can reasonably be expected to contain equipment in ethylene oxide service is presumed to be in ethylene oxide service unless an owner or operator demonstrates that the piece of equipment is not in ethylene oxide service. For a piece of equipment to be considered not in ethylene oxide service, it must be determined that the percent ethylene oxide content of the process fluid that is contained in or contacts equipment can be reasonably expected to not exceed 0.1 percent by weight on an annual average basis. For purposes of determining the percent ethylene oxide content of the process fluid, you must use Method 18 of 40 CFR part 60, appendix A-6 for gaseous process fluid, and Method 624.1 of 40 CFR part 136 or preparation by Method 5031 and analysis by Method 8260D in the SW-846 Compendium for liquid process fluid. In lieu of preparation by SW-846 Method 5031, you may use SW-846 Method 5030B, as long as: You do not use a preservative in the collected sample; you store the sample with minimal headspace as cold as possible and at least below 4 degrees C; and you analyze the sample as soon as possible, but in no case longer than 7 days from the time the sample was collected.
(2) Unless specified by the Administrator, you may use good engineering judgment rather than the procedures specified in paragraph (c)(1) of this section to determine that the percent ethylene oxide content of the process fluid that is contained in or contacts equipment does not exceed 0.1 percent by weight.
(3) You may revise your determination for whether a piece of equipment is in ethylene oxide service by following the procedures in paragraph (c)(1) of this section, or by documenting that a change in the process or raw materials no longer causes the equipment to be in ethylene oxide service.
(4) Samples used in determining the ethylene oxide content must be representative of the process fluid that is contained in or contacts the equipment.
This section applies beginning no later than the compliance dates specified in § 63.2445(i). In order to demonstrate compliance with the emission limits and work practice standards specified in Tables 1, 2, and 4 to this subpart for process vents and storage tanks in ethylene oxide service, you must meet the requirements specified in paragraphs (a) through (c) of this section. In order to demonstrate compliance with the requirements specified in Table 6 to this subpart for equipment in ethylene oxide service, you must meet the requirements specified in paragraphs (d) and (e) of this section.
(a) For initial compliance, you must comply with paragraphs (a)(1) through (4) of this section, as applicable.
(1) If you choose to reduce emissions of ethylene oxide by venting emissions through a closed-vent system to a flare as specified in table 1, 2, or 4 to this subpart, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must conduct the initial visible emissions demonstration required by § 63.670(h) of subpart CC as specified in § 63.2450(e)(5).
(2) If you choose to reduce emissions of ethylene oxide by venting emissions through a closed-vent system to a non-flare control device that reduces ethylene oxide by greater than or equal to 99.9 percent by weight as specified in table 1, 2, or 4 to this subpart, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must comply with paragraphs (a)(2)(i) through (viii) of this section.
(i) Conduct an initial performance test of the control device that is used to comply with the percent reduction
(ii) Conduct the performance test according to the procedures in § 63.997 and § 63.2450(g). Use Method 18 of appendix A-6 of 40 CFR part 60 or Method 320 of appendix A to 40 CFR part 63 to determine the ethylene oxide concentration. Use Method 1 or 1A of appendix A-1 of 40 CFR part 60 to select the sampling sites at each sampling location. Determine the gas volumetric flowrate using Method 2, 2A, 2C, or 2D of appendix A-2 of 40 CFR part 60. Use Method 4 of appendix A-3 of 40 CFR part 60 to convert the volumetric flowrate to a dry basis.
(iii) Calculate the mass emission rate of ethylene oxide entering the control device and exiting the control device using Equations 5 and 6 of this subpart.
(iv) Calculate the percent reduction from the control device using equation 7 of this subpart. You have demonstrated initial compliance if the overall reduction of ethylene oxide is greater than or equal to 99.9 percent by weight.
(v) If a new control device is installed, then conduct a performance test of the new device following the procedures in paragraphs (a)(2)(i) through (iv) of this section.
(vi) If you vent emissions through a closed-vent system to a scrubber, then you must establish operating parameter limits by monitoring the operating parameters specified in paragraphs (a)(2)(vi)(A) through (E) of this section during the performance test.
(A) Scrubber liquid-to-gas ratio (L/G), determined from the total scrubber liquid inlet flow rate and the exit gas flow rate. Determine the average L/G during the performance test as the average of the test run averages.
(B) Scrubber liquid pH of the liquid in the reactant tank. The pH may be measured at any point between the discharge from the scrubber column and the inlet to the reactant tank. Determine the average pH during the performance test as the average of the test run averages.
(C) Pressure drop of the scrubber column. Determine the average pressure drop during the performance test as the average of the test run averages.
(D) Temperature of the water entering the scrubber column. The temperature may be measured at any point after the heat exchanger and prior to entering the top of the scrubber column. Determine the average inlet water temperature as the average of the test run averages.
(E) Liquid feed pressure to the wet scrubber column. Determine the average liquid feed pressure as the average of the test run averages.
(vii) If you vent emissions through a closed-vent system to a thermal oxidizer, then you must establish operating parameter limits by monitoring the operating parameters specified in paragraphs (a)(2)(vii)(A) and (B) of this section during the performance test.
(A) Combustion chamber temperature. Determine the average combustion chamber temperature during the performance test as the average of the test run averages.
(B) Flue gas flow rate. Determine the average flue gas flow rate during the performance test as the average of the test run averages.
(viii) If you vent emissions through a closed-vent system to a control device other than a flare, scrubber, or thermal oxidizer, then you must notify the Administrator of the operating parameters that you plan to monitor during the performance test prior to establishing operating parameter limits for the control device.
(3) If you choose to reduce emissions of ethylene oxide by venting emissions through a closed-vent system to a non-flare control device that reduces ethylene oxide to less than 1 ppmv as specified in table 1, 2, or 4 to this subpart, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must comply with either paragraph (a)(3)(i) or (ii) of this section.
(i) Install an FTIR CEMS meeting the requirements of Performance Specification 15 to continuously monitor the ethylene oxide concentration at the exit of the control device. Comply with the requirements specified in § 63.2450(j) for your CEMS.
(ii) If you do not install a CEMS under paragraph (a)(3)(i) of this section, you must comply with paragraphs (a)(3)(ii)(A) through (C) of this section.
(A) Conduct an initial performance test of the control device that is used to comply with the concentration requirement at the outlet of the control device.
(B) Conduct the performance test according to the procedures in § 63.997 and § 63.2450(g). Use Method 18 of appendix A-6 of 40 CFR part 60 or Method 320 of appendix A to 40 CFR part 63 to determine the ethylene oxide concentration. You have demonstrated initial compliance if the ethylene oxide concentration is less than 1 ppmv.
(C) Comply with the requirements specified in paragraphs (a)(2)(v) through (viii) of this section, as applicable.
(4) If you choose to reduce emissions of ethylene oxide by venting emissions through a closed-vent system to a non-flare control device that reduces ethylene oxide to less than 5 pounds per year for all combined process vents as specified in table 1 or 2 to this subpart, then you must comply with
(i) Conduct an initial performance test of the control device that is used to comply with the mass emission limit requirement at the outlet of the control device.
(ii) Conduct the performance test according to the procedures in § 63.997 and § 63.2450(g). Use Method 18 of appendix A-6 of 40 CFR part 60 or Method 320 of appendix A to 40 CFR part 63 to determine the ethylene oxide concentration. Use Method 1 or 1A of appendix A-1 of 40 CFR part 60 to select the sampling site. Determine the gas volumetric flowrate using Method 2, 2A, 2C, or 2D of appendix A-2 of 40 CFR part 60. Use Method 4 of appendix A-3 of 40 CFR part 60 to convert the volumetric flowrate to a dry basis.
(iii) Calculate the mass emission rate of ethylene oxide exiting the control device using Equation 6 of this subpart. You have demonstrated initial compliance if the ethylene oxide from all process vents (controlled and uncontrolled) is less than 5 pounds per year when combined.
(iv) Comply with the requirements specified in paragraphs (a)(2)(v) through (viii) of this section, as applicable.
(b) For continuous compliance, you must comply with paragraphs (b)(1) through (6) of this section, as applicable.
(1) If you choose to reduce emissions of ethylene oxide by venting emissions through a closed-vent system to a flare as specified in table 1, 2, or 4 to this subpart, then you must comply with the requirements in §§ 63.983 and 63.2450(e)(4) through (6).
(2) Continuously monitor the ethylene oxide concentration at the exit of the control device using an FTIR CEMS meeting the requirements of Performance Specification 15 and § 63.2450(j). If you use an FTIR CEMS, you do not need to conduct the performance testing required in paragraph (b)(3) of this section or the operating parameter monitoring required in paragraphs (b)(4) through (6) of this section.
(3) Conduct a performance test no later than 60 months after the previous performance test and reestablish operating parameter limits following the procedures in paragraph (a)(2) through (4) of this section. The Administrator may request a repeat performance test at any time.
(4) If you vent emissions through a closed-vent system to a scrubber, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must meet the operating parameter limits specified in paragraphs (b)(4)(i) through (v) of this section.
(i) Minimum scrubber liquid-to-gas ratio (L/G), equal to the average L/G measured during the most recent performance test. Determine total scrubber liquid inlet flow rate with a flow sensor with a minimum accuracy of at least ±5 percent over the normal range of flow measured, or 1.9 liters per minute (0.5 gallons per minute), whichever is greater. Determine exit gas flow rate with a flow sensor with a minimum accuracy of at least ±5 percent over the normal range of flow measured, or 280 liters per minute (10 cubic feet per minute), whichever is greater. Compliance with the minimum L/G operating limit must be determined continuously on an instantaneous basis.
(ii) Maximum scrubber liquid pH of the liquid in the reactant tank, equal to the average pH measured during the most recent performance test. Compliance with the pH operating limit must be determined continuously on an instantaneous basis. Use a pH sensor with a minimum accuracy of ±0.2 pH units.
(iii) Maximum pressure drop across the scrubber column, equal to the average pressure drop measured during the most recent performance test. Compliance with the pressure drop operating limit must be determined continuously on an instantaneous basis. Use pressure sensors with a minimum accuracy of ±5 percent over the normal operating range or 0.12 kilopascals, whichever is greater.
(iv) Maximum temperature of the water entering the scrubber column, equal to the average temperature measured during the most recent performance test. Compliance with the inlet water temperature operating limit must be determined continuously on an instantaneous basis. Use a temperature sensor with a minimum accuracy of ±1 percent over the normal range of the temperature measured, expressed in degrees Celsius, or 2.8 degrees Celsius, whichever is greater.
(v) Minimum liquid feed pressure to the scrubber column, equal to the average feed pressure measured during the most recent performance test. Compliance with the liquid feed pressure operating limit must be determined continuously on an instantaneous basis. Use a pressure sensor with a minimum accuracy of ±5 percent over the normal operating range or 0.12 kilopascals, whichever is greater.
(5) If you vent emissions through a closed-vent system to a thermal oxidizer, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must meet the operating parameter limits specified in paragraphs (b)(5)(i) and (ii) of this section and the requirements in paragraph (b)(5)(iii) of this section.
(i) Minimum combustion chamber temperature, equal to the average combustion chamber temperature measured during the most recent performance test. Determine combustion chamber temperature with a temperature sensor with a minimum accuracy of at least ±1 percent over the normal range of temperature measured, expressed in degrees Celsius, or 2.8 degrees Celsius, whichever is greater. Compliance with the minimum combustion chamber temperature operating limit must be determined continuously on an instantaneous basis.
(ii) Maximum flue gas flow rate, equal to the average flue gas flow rate measured during the most recent performance test. Determine flue gas flow rate with a flow sensor with a minimum accuracy of at least ±5 percent over the normal range of flow measured, or 280 liters per minute (10 cubic feet per minute), whichever is greater. Compliance with the maximum flue gas flow rate operating limit must be determined continuously on an instantaneous basis.
(iii) You must maintain the thermal oxidizer in accordance with good combustion practices that ensure proper combustion. Good combustion practices include, but are not limited to, proper burner maintenance, proper burner alignment, proper fuel to air distribution and mixing, routine inspection, and preventative maintenance.
(6) If you vent emissions through a closed-vent system to a control device other than a flare, scrubber, or thermal oxidizer, then you must comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983, and you must monitor the operating parameters identified in paragraph (a)(2)(viii) of this section and meet the established operating parameter limits to ensure continuous compliance. The frequency of monitoring and averaging time will be determined based upon the information provided to the Administrator.
(c)
(1) The pressure vessel must be designed to operate with no detectable emissions at all times.
(2) Monitor each point on the pressure vessel through which ethylene oxide could potentially be emitted by conducting initial and annual performance tests using Method 21 of 40 CFR part 60, appendix A-7.
(3) Each instrument reading greater than 500 ppmv is a deviation.
(4) Estimate the flow rate and total regulated material emissions from the defect. Assume the pressure vessel has been emitting for half of the time since the last performance test, unless other information supports a different assumption.
(5) Whenever ethylene oxide is in the pressure vessel, you must operate the pressure vessel as a closed system that vents through a closed vent system to a control device as specified in paragraphs (c)(5)(i) through (iii) of this section, as applicable.
(i) For closed vent systems, comply with § 63.2450(e)(4) and (6) and the requirements in § 63.983.
(ii) For a non-flare control device, comply with requirements as specified in paragraph (b) of this section.
(iii) For a flare, comply with the requirements of § 63.2450(e)(5).
(d)
(1) For pumps in ethylene oxide service, you must comply with the requirements in paragraphs (d)(1)(i) through (iii) of this section.
(i) The instrument reading that defines a leak for pumps is 1,000 parts per million or greater.
(ii) The monitoring period for pumps is monthly.
(iii) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after it is detected.
(2) For connectors in ethylene oxide service, you must comply with the requirements in paragraphs (d)(2)(i) through (iii) of this section.
(i) The instrument reading that defines a leak for connectors is 500 parts per million or greater.
(ii) The monitoring period for connectors is once every 12 months.
(iii) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after it is detected.
(3) For each light liquid pump or connector in ethylene oxide service that is added to an affected source, and for each light liquid pump or connector in ethylene oxide service that replaces a light liquid pump or connector in ethylene oxide service, you must initially monitor for leaks within 5 days after initial startup of the equipment.
(4) Pressure relief devices in ethylene oxide service must not vent directly to atmosphere.
(d)
(1) Except as specified in paragraph (d)(3) of this section, for pumps in ethylene oxide service, you must comply with the requirements in paragraphs (d)(1)(i) through (iii) of this section.
(i) The instrument reading that defines a leak for pumps is 1,000 parts per million or greater.
(ii) The monitoring period for pumps is monthly.
(iii) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after it is detected.
(2) Except as specified in paragraph (d)(3) of this section, for connectors in ethylene oxide service, you must comply with the requirements in paragraphs (d)(2)(i) through (iii) of this section.
(i) The instrument reading that defines a leak for connectors is 500 parts per million or greater.
(ii) The monitoring period for connectors is once every 12 months.
(iii) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after it is detected.
(3) If you operate an MCPU at the facility commonly called Huntsman Performance at 5451 Jefferson Chemical Road in Conroe, Texas or Lanxess Corporation at 2151 King Street Extension in Charleston, SC, then you must comply with the requirements in paragraphs (d)(3)(i) and (ii) of this section in lieu of the requirements specified in paragraphs (d)(1) and (2) of this section.
(i) For pumps and valves in ethylene oxide service, you must comply with the requirements in paragraphs (d)(3)(i)(A) through (E) of this section.
(A) You must install and operate leakless pumps as defined in § 63.2550(i), and monitor the pumps annually.
(B) You must comply with either paragraph (d)(3)(i)(B)(
(
(
(C) Valves and pumps must be monitored using the methods specified in § 63.180(b) and (c), § 63.1023(b) and (c), or § 65.104(b) and (c).
(D) For valves and pumps, the instrument reading that defines a leak is any value above the measured background concentration.
(E) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after the leak is detected. A first attempt at repair must be made no later than 5 calendar days after the leak is detected. Following repair, the valve or pump must be returned to operation as required in paragraphs (d)(3)(i)(A) through (D) of this section.
(ii) For connectors in ethylene oxide service, you must comply with the requirements in paragraphs (d)(3)(ii)(A) through (C) of this section.
(A) The instrument reading that defines a leak for connectors is 100 parts per million or greater.
(B) The monitoring period for connectors is once every month.
(C) When a leak is detected, it must be repaired as soon as practicable, but not later than 15 calendar days after the leak is detected. A first attempt at repair must be made no later than 5 calendar days after the leak is detected. Following repair, the connector must be returned to operation as required in paragraphs (d)(3)(ii)(A) and (B) of this section.
(4) For each light liquid pump, valve, or connector in ethylene oxide service that is added to an affected source, and for each light liquid pump, valve, or connector in ethylene oxide service that replaces a light liquid pump, valve, or connector in ethylene oxide service, you must initially monitor for leaks within 5 days after initial startup of the equipment.
(5) Pressure relief devices in ethylene oxide service must not vent directly to atmosphere.
(e) The referenced provisions specified in paragraphs (e)(1) through (15) of this section do not apply when demonstrating compliance with this section.
(1) § 63.163(c)(3) of subpart H.
(2) § 63.163(e) of subpart H.
(3) The second sentence of § 63.181(d)(5)(i) of subpart H.
(4) § 63.1026(b)(3) of subpart UU.
(5) § 63.1026(e) of subpart UU.
(6) The phrase (except during periods of startup, shutdown, or malfunction)” from § 63.1028(e)(1)(i)(A) of subpart UU.
(7) The phrase (except during periods of startup, shutdown, or malfunction)” from § 63.1031(b)(1) of subpart UU.
(8) The second sentence of § 65.105(f)(4)(i) of subpart F.
(9) § 65.107(b)(3) of subpart F.
(10) § 65.107(e) of subpart F.
(11) The phrase (except during periods of start-up, shutdown, or malfunction)” from § 65.109(e)(1)(i)(A) of subpart F.
(12) The phrase (except during periods of start-up, shutdown, or malfunction)” from § 65.112(b)(1) of subpart F.
(13) The last sentence of § 65.115(b)(1) of subpart F.
(14) The last sentence of § 65.115(b)(2) of subpart F.
(15) For flares complying with § 63.2450(e)(5), the following provisions do not apply:
(i) § 63.172(d);
(ii) § 63.180(e);
(iii) § 63.181(g)(1)(iii);
(iv) The phrase “including periods when a flare pilot light system does not have a flame” from § 63.181(g)(2)(i);
(v) § 63.1034(b)(2)(iii); and
(vi) § 65.115(b)(2).
(16) Requirements for maintenance vents in § 63.2455(d).
(b) * * *
(1) You must comply with the emission limitations and work practice standards contained in tables 1 through 7 of this subpart for all HAP that are generated in the MCPU and that are not included in consumption, as defined in § 63.2550. If any vent stream routed to the combustion control is a halogenated vent stream, as defined in § 63.2550, then hydrogen halides that are generated as a result of combustion control must be controlled according to the requirements in § 63.2450(e)(4) and the requirements of § 63.994 and the requirements referenced therein.
(a) For an existing source, you may elect to comply with the percent reduction emission limitations in Tables 1, 2, 4, 5, and 7 to this subpart by complying with the emissions averaging provisions specified in § 63.150, except as specified in paragraphs (b) through (g) of this section.
(g) Beginning no later than the compliance dates specified in § 63.2445(g), § 63.150(f)(2) does not apply when demonstrating compliance with this section.
(b) * * *
(1) You must comply with the requirements in § 63.2450(e)(4) and the requirements in § 63.983 and the requirements referenced therein for closed-vent systems.
(6) * * *
(i) Demonstrate initial compliance with the 95 percent reduction by conducting a performance test and setting a site-specific operating limit(s) for the scrubber in accordance with the requirements in § 63.2450(e)(4) and the requirements of § 63.994 and the requirements referenced therein. You must submit the results of the initial compliance demonstration in the notification of compliance status report. If the performance test report is submitted electronically through the EPA's CEDRI in accordance with § 63.2520(f), the process unit(s) tested, the pollutant(s) tested, and the date that such performance test was conducted may be submitted in the notification of compliance status report in lieu of the performance test results. The performance test results must be submitted to CEDRI by the date the notification of compliance status report is submitted.
(ii) Install, operate, and maintain CPMS for the scrubber as specified in §§ 63.994(c) and 63.2450(k), instead of as specified in § 63.1258(b)(5)(i)(C). You must also comply with the requirements in § 63.2450(e)(4), as applicable.
(a) Except as specified in paragraph (d) of this section, you must submit all of the notifications in §§ 63.6(h)(4) and (5), 63.7(b) and (c), 63.8(e), (f)(4) and (6), and 63.9(b) through (h) that apply to you by the dates specified.
(d)
The revisions and additions read as follows:
(c)
(2) Descriptions of daily or per batch demonstrations to verify that control devices subject to § 63.2450(k)(6) are operating as designed.
(8) For halogen reduction device other than a scrubber, procedures for establishing monitoring parameters.
(d)
(2) * * *
(ii) The results of emissions profiles, performance tests, engineering analyses, design evaluations, flare compliance assessments, inspections and repairs, and calculations used to demonstrate initial compliance according to §§ 63.2455 through 63.2485. For performance tests, results must include descriptions of sampling and analysis procedures and quality assurance procedures. If the performance test report is submitted electronically through the EPA's CEDRI in accordance with paragraph (f) of this section, the process unit(s) tested, the pollutant(s) tested, and the date that such performance test was conducted may be submitted in the notification of compliance status report in lieu of the performance test results. The performance test results must be submitted to CEDRI by the date the notification of compliance status report is submitted.
(3) For flares subject to the requirements of § 63.2450(e)(5), you must also submit the information in this paragraph in a supplement to the Notification of Compliance Status within 150 days after the first applicable compliance date for flare monitoring. In lieu of the information required in § 63.987(b) of subpart SS, the supplement to the Notification of Compliance Status must include flare design (
(4) For pressure relief devices subject to the pressure release management work practice standards in § 63.2480(e)(3), you must also submit the information listed in paragraphs (d)(4)(i) and (ii) of this section in a supplement to the Notification of Compliance Status within 150 days after the first applicable compliance date for pressure relief device monitoring.
(i) A description of the monitoring system to be implemented, including the relief devices and process parameters to be monitored, and a description of the alarms or other methods by which operators will be notified of a pressure release.
(ii) A description of the prevention measures to be implemented for each affected pressure relief device.
(5) For process vents, storage tanks, and equipment leaks subject to the requirements of § 63.2493, you must also submit the information in this paragraph in a supplement to the Notification of Compliance Status within 150 days after the first applicable compliance date. The supplement to the Notification of Compliance Status must identify all process vents, storage tanks, and equipment that are in ethylene oxide service as defined in § 63.2550, the method(s) used to control ethylene oxide emissions from each process vent and storage tank (
(A) For process vents, include all uncontrolled, undiluted ethylene oxide concentration measurements, and the calculations you used to determine the total uncontrolled, undiluted ethylene oxide mass emission rate for the sum of all vent gas streams.
(B) For storage tanks, include the concentration of ethylene oxide of the fluid stored in each storage tank.
(C) For equipment, include the percent ethylene oxide content of the process fluid and the method used to determine it, and identify the location of each leakless pump and valve in operation.
(e)
(2) Statement by a responsible official with that official's name, title, and signature, certifying the accuracy of the content of the report. If your report is submitted via CEDRI, the certifier's electronic signature during the submission process replaces this requirement.
(3) Date of report and beginning and ending dates of the reporting period. You are no longer required to provide the date of report when the report is submitted via CEDRI.
(4) For each SSM during which excess emissions occur, the compliance report must include records that the procedures specified in your startup, shutdown, and malfunction plan (SSMP) were followed or documentation of actions taken that are not consistent with the SSMP, and include a brief description of each malfunction. On and after [date 3 years after date of publication of final rule in the
(5) * * *
(ii) For each deviation from an emission limit, operating limit, and work practice standard that occurs at an affected source where you are not using a continuous monitoring system (CMS) to comply with the emission limit or work practice standard in this subpart, you must include the information in paragraphs (e)(5)(ii)(A) through (D) of this section. This includes periods of SSM.
(A) The total operating time in hours of the affected source during the reporting period.
(B) Except as specified in paragraph (e)(5)(ii)(D) of this section, information on the number, duration, and cause of deviations (including unknown cause, if applicable), as applicable, and the corrective action taken.
(D) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (e)(5)(ii)(B) of this section no longer applies. Instead,
(iii) For each deviation from an emission limit or operating limit occurring at an affected source where you are using a CMS to comply with an emission limit in this subpart, you must include the information in paragraphs (e)(5)(iii)(A) through (N) of this section. This includes periods of SSM.
(A) The start date, start time, and duration in hours that each CMS was inoperative, except for zero (low-level) and high-level checks.
(B) The start date, start time, and duration in hours that each CEMS was out-of-control and a description of the corrective actions taken.
(C) Except as specified in paragraph (e)(5)(iii)(M) of this section, the date and time that each deviation started and stopped, and whether each deviation occurred during a period of startup, shutdown, or malfunction or during another period.
(D) The total duration in hours of all deviations for each CMS during the reporting period, the total operating time in hours of the affected source during the reporting period, and the total duration as a percent of the total operating time of the affected source during that reporting period.
(E) Except as specified in paragraph (e)(5)(iii)(N) of this section, a breakdown of the total duration of the deviations during the reporting period into those that are due to startup, shutdown, control equipment problems, process problems, other known causes, and other unknown causes.
(F) The total duration in hours of CMS downtime for each CMS during the reporting period, and the total duration of CMS downtime as a percent of the total operating time of the affected source during that reporting period.
(I) The monitoring equipment manufacturer(s) and model number(s) and the pollutant or parameter monitored.
(M) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (e)(5)(iii)(C) of this section no longer applies. Instead, report the number of deviation to meet an applicable standard. For each instance, report the start date, start time and duration in hours of each deviation. For each deviation, the report must include a list of the affected sources or equipment, an estimate of the quantity in pounds of each regulated pollutant emitted over any emission limit, a description of the method used to estimate the emissions, and the cause of the deviation (including unknown cause, if applicable), as applicable, and the corrective action taken.
(N) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (e)(5)(iii)(E) of this section no longer applies. Instead, report a breakdown of the total duration in hours of the deviations during the reporting period into those that are due control equipment problems, process problems, other known causes, and other unknown causes.
(7) Include each new operating scenario which has been operated since the time period covered by the last compliance report and has not been submitted in the notification of compliance status report or a previous compliance report. For each new operating scenario, you must report the information specified in § 63.2525(b) and provide verification that the operating conditions for any associated control or treatment device have not been exceeded and that any required calculations and engineering analyses have been performed. For the purposes of this paragraph, a revised operating scenario for an existing process is considered to be a new operating scenario.
(8) For process units added to a PUG, you must report the description and rationale specified in § 63.2525(i)(4). You must report your primary product redeterminations specified in § 63.2525(i)(5).
(11) For each flare subject to the requirements in § 63.2450(e)(5), the compliance report must include the items specified in paragraphs (e)(11)(i) through (vi) of this section in lieu of the information required in § 63.999(c)(3) of subpart SS.
(i) Records as specified in § 63.2525(m)(1) of this section for each 15-minute block during which there was at least one minute when regulated material is routed to a flare and no pilot flame is present. Include the start and stop time and date of each 15-minute block.
(ii) Visible emission records as specified in § 63.2525(m)(2)(iv) for each period of 2 consecutive hours during which visible emissions exceeded a total of 5 minutes.
(iii) The periods specified in § 63.2525(m)(6). Indicate the date and start and end times for each period, and the net heating value operating parameter(s) determined following the methods in § 63.670(k) through (n) of subpart CC as applicable.
(iv) For flaring events meeting the criteria in § 63.670(o)(3) of subpart CC:
(A) The start and stop time and date of the flaring event.
(B) The length of time in minutes for which emissions were visible from the flare during the event.
(C) For steam-assisted, air-assisted, and non-assisted flares, the start date, start time, and duration for periods of time that the flare tip velocity exceeds the maximum flare tip velocity determined using the methods in § 63.670(d)(2) of subpart CC and the maximum 15-minute block average flare tip velocity in ft/sec recorded during the event.
(D) Results of the root cause and corrective actions analysis completed during the reporting period, including the corrective actions implemented during the reporting period and, if applicable, the implementation schedule for planned corrective actions to be implemented subsequent to the reporting period.
(v) For pressure-assisted multi-point flares, the periods of time when the pressure monitor(s) on the main flare header show the burners operating outside the range of the manufacturer's specifications. Indicate the date and start and end times for each period.
(vi) For pressure-assisted multi-point flares, the periods of time when the staging valve position indicator monitoring system indicates a stage should not be in operation and is or when a stage should be in operation and is not. Indicate the date and start and end times for each period.
(12) For bypass lines subject to the requirements § 63.2450(e)(6), the compliance report must include the start date, start time, duration in hours, estimate of the volume of gas in standard cubic feet, the concentration of organic HAP in the gas in parts per million by volume and the resulting mass emissions of organic HAP in pounds that bypass a control device. For periods when the flow indicator is not operating, report the start date, start time, and duration in hours.
(13) For each nonregenerative adsorber and regenerative adsorber that is regenerated offsite subject to the
(14) For any maintenance vent release exceeding the applicable limits in § 63.2455(d)(1), the compliance report must include the information specified in paragraphs (e)(14)(i) through (iv) of this section. For the purposes of this reporting requirement, if you comply with § 63.2455(d)(1)(iv) then you must report each venting event conducted under those provisions and include an explanation for each event as to why utilization of this alternative was required.
(i) Identification of the maintenance vent and the equipment served by the maintenance vent.
(ii) The date and time the maintenance vent was opened to the atmosphere.
(iii) The lower explosive limit in percent, vessel pressure in psig, or mass in pounds of VOC in the equipment, as applicable, at the start of atmospheric venting. If the 5 psig vessel pressure option in § 63.2455(d)(1)(ii) was used and active purging was initiated while the lower explosive limit was 10 percent or greater, also include the lower explosive limit of the vapors at the time active purging was initiated.
(iv) An estimate of the mass in pounds of organic HAP released during the entire atmospheric venting event.
(15) Compliance reports for pressure relief devices subject to the requirements § 63.2480(e) must include the information specified in paragraphs (e)(15)(i) through (iii) of this section.
(i) For pressure relief devices in organic HAP gas or vapor service, pursuant to § 63.2480(e)(2)(i), report the dates for all instrument readings of 500 ppmv or greater.
(ii) For pressure relief devices in organic HAP gas or vapor service subject to § 63.2480(e)(2)(ii), report the dates of instrument monitoring conducted.
(iii) For pressure relief devices in organic HAP service subject to § 63.2480(e)(2)(iii), report each pressure release to the atmosphere, including the start date, start time, and duration of the pressure release and estimate of the mass quantity in pounds of each organic HAP released; the results of any root cause analysis and corrective action analysis completed during the reporting period, including the corrective actions implemented during the reporting period; and, if applicable, the implementation schedule for planned corrective actions to be implemented subsequent to the reporting period.
(16) For each heat exchange system, beginning no later than the compliance dates specified in 63.2445(g), the reporting requirements of § 63.104(f)(2) no longer apply; instead, the compliance report must include the information specified in paragraphs (e)(16)(i) through (v) of this section.
(i) The number of heat exchange systems at the plant site subject to the monitoring requirements in § 63.2490(d).
(ii) The number of heat exchange systems at the plant site found to be leaking.
(iii) For each monitoring location where the total strippable hydrocarbon concentration was determined to be equal to or greater than the applicable leak definitions specified in § 63.2490(d)(1)(v), identification of the monitoring location (
(iv) For leaks that were repaired during the reporting period (including delayed repairs), identification of the monitoring location associated with the repaired leak, the total strippable hydrocarbon concentration in ppmv as methane measured during re-monitoring to verify repair, and the re-monitoring date (
(v) For each delayed repair, identification of the monitoring location associated with the leak for which repair is delayed, the date when the delay of repair began, the date the repair is expected to be completed (if the leak is not repaired during the reporting period), the total strippable hydrocarbon concentration in ppmv as methane and date of each monitoring event conducted on the delayed repair during the reporting period, and an estimate in pounds of the potential strippable hydrocarbon emissions over the reporting period associated with the delayed repair.
(17) For process vents and storage tanks in ethylene oxide service subject to the requirements of § 63.2493, the compliance report must include:
(i) The periods specified in § 63.2525(s)(4). Indicate the date and start and end times for each period.
(ii) If you obtain an instrument reading greater than 500 ppmv of a leak when monitoring a pressure vessel in accordance with § 63.2493(c)(2), submit a copy of the records specified in § 63.2525(s)(5)(ii).
(iii) Reports for equipment subject to the requirements of § 63.2493 as specified in paragraph (e)(9) of this section.
(f)
(1)
(2)
(3)
(g)
(1)
(2)
(3)
(h)
(1) You must have been or will be precluded from accessing CEDRI and submitting a required report within the time prescribed due to an outage of either the EPA's CEDRI or CDX systems.
(2) The outage must have occurred within the period of time beginning five business days prior to the date that the submission is due.
(3) The outage may be planned or unplanned.
(4) You must submit notification to the Administrator in writing as soon as possible following the date you first knew, or through due diligence should have known, that the event may cause or has caused a delay in reporting.
(5) You must provide to the Administrator a written description identifying:
(i) The date(s) and time(s) when CDX or CEDRI was accessed and the system was unavailable;
(ii) A rationale for attributing the delay in reporting beyond the regulatory deadline to EPA system outage;
(iii) Measures taken or to be taken to minimize the delay in reporting; and
(iv) The date by which you propose to report, or if you have already met the reporting requirement at the time of the notification, the date you reported.
(6) The decision to accept the claim of EPA system outage and allow an extension to the reporting deadline is solely within the discretion of the Administrator.
(7) In any circumstance, the report must be submitted electronically as soon as possible after the outage is resolved.
(i)
(1) You may submit a claim if a force majeure event is about to occur, occurs, or has occurred or there are lingering effects from such an event within the period of time beginning five business days prior to the date the submission is due. For the purposes of this paragraph, a force majeure event is defined as an event that will be or has been caused by circumstances beyond the control of the affected facility, its contractors, or any entity controlled by the affected facility that prevents you from complying with the requirement to submit a report electronically within the time period prescribed. Examples of such events are acts of nature (
(2) You must submit notification to the Administrator in writing as soon as possible following the date you first knew, or through due diligence should have known, that the event may cause or has caused a delay in reporting.
(3) You must provide to the Administrator:
(i) A written description of the force majeure event;
(ii) A rationale for attributing the delay in reporting beyond the regulatory deadline to the force majeure event;
(iii) Measures taken or to be taken to minimize the delay in reporting; and
(iv) The date by which you propose to report, or if you have already met the reporting requirement at the time of the notification, the date you reported.
(4) The decision to accept the claim of force majeure and allow an extension to the reporting deadline is solely within the discretion of the Administrator.
(5) In any circumstance, the reporting must occur as soon as possible after the force majeure event occurs.
You must keep the records specified in paragraphs (a) through (t) of this section.
(a) Except as specified in § 63.2450(e)(4), § 63.2480(f), § 63.2485(p) and (q), and paragraph (t) of this section, each applicable record required by subpart A of this part 63 and in referenced subparts F, G, SS, UU, WW, and GGG of this part 63 and in referenced subpart F of 40 CFR part 65.
(e) * * *
(1) * * *
(ii) You control the Group 2 batch process vents using a flare that meets the requirements of §§ 63.987 or 63.2450(e)(5), as applicable.
(f) A record of each time a safety device is opened to avoid unsafe conditions in accordance with § 63.2450(p).
(h) Except as specified in paragraph (l) of this section, for each CEMS, you must keep records of the date and time that each deviation started and stopped, and whether the deviation occurred during a period of startup, shutdown, or malfunction or during another period.
(j) In the SSMP required by § 63.6(e)(3), you are not required to include Group 2 emission points, unless those emission points are used in an emissions average. For equipment leaks, the SSMP requirement is limited to control devices and is optional for other equipment. On and after [date 3 years after date of publication of final rule in the
(l) Beginning no later than the compliance dates specified in § 63.2445(g), paragraph (h) of this section no longer applies. Instead, for each deviation from an emission limit, operating limit, or work practice standard, you must keep a record of the information specified in paragraph (l)(1) through (3) of this section. The records shall be maintained as specified in § 63.10(b)(1).
(1) In the event that an affected unit does not meet an applicable standard, record the number of deviations. For each deviation record the date, time and duration of each deviation.
(2) For each deviation from an applicable standard, record and retain a list of the affected sources or equipment, an estimate of the quantity of each regulated pollutant emitted over any emission limit and a description of the method used to estimate the emissions.
(3) Record actions taken to minimize emissions in accordance with § 63.2450(u) and any corrective actions taken to return the affected unit to its normal or usual manner of operation.
(m) For each flare subject to the requirements in § 63.2450(e)(5), you must keep records specified in paragraphs (m)(1) through (15) of this section in lieu of the information required in § 63.998(a)(1) of subpart SS.
(1) Retain records of the output of the monitoring device used to detect the presence of a pilot flame as required in § 63.670(b) of subpart CC and § 63.2450(e)(5)(vii)(D) for a minimum of 2 years. Retain records of each 15-minute block during which there was at least one minute that no pilot flame is present when regulated material is routed to a flare for a minimum of 5 years. For a pressure-assisted multi-point flare that uses cross-lighting, retain records of each 15-minute block during which there was at least one minute that no pilot flame is present on each stage when regulated material is routed to a flare for a minimum of 5 years.
(2) Retain records of daily visible emissions observations or video surveillance images required in § 63.670(h) of subpart CC as specified in paragraphs (m)(2)(i) through (iv) of this section, as applicable, for a minimum of 3 years.
(i) To determine when visible emissions observations are required, the record must identify all periods when regulated material is vented to the flare.
(ii) If visible emissions observations are performed using Method 22 at 40 CFR part 60, appendix A-7, then the record must identify whether the visible emissions observation was performed, the results of each observation, total duration of observed visible emissions, and whether it was a 5-minute or 2-hour observation. Record the date and start time of each visible emissions observation.
(iii) If a video surveillance camera is used, then the record must include all video surveillance images recorded, with time and date stamps.
(iv) For each 2 hour period for which visible emissions are observed for more than 5 minutes in 2 consecutive hours, then the record must include the date and start and end time of the 2 hour period and an estimate of the cumulative number of minutes in the 2 hour period for which emissions were visible.
(3) The 15-minute block average cumulative flows for flare vent gas and, if applicable, total steam, perimeter assist air, and premix assist air specified to be monitored under § 63.670(i) of subpart CC, along with the date and time interval for the 15-minute block. If multiple monitoring locations are used to determine cumulative vent gas flow, total steam, perimeter assist air, and premix assist air, then retain records of the 15-minute block average flows for each monitoring location for a minimum of 2 years, and retain the 15-minute block average cumulative flows that are used in subsequent calculations for a minimum of 5 years. If pressure and temperature monitoring is used, then retain records of the 15-minute block average temperature, pressure, and molecular weight of the flare vent gas or assist gas stream for each measurement location used to determine the 15-minute block average cumulative flows for a minimum of 2 years, and retain the 15-minute block average cumulative flows that are used in subsequent calculations for a minimum of 5 years.
(4) The flare vent gas compositions specified to be monitored under § 63.670(j) of subpart CC. Retain records of individual component concentrations from each compositional analysis for a minimum of 2 years. If an NHVvg analyzer is used, retain records of the 15-minute block average values for a minimum of 5 years.
(5) Each 15-minute block average operating parameter calculated following the methods specified in § 63.670(k) through (n) of subpart CC, as applicable.
(6) All periods during which operating values are outside of the applicable operating limits specified in § 63.670(d) through (f) of subpart CC and § 63.2450(e)(5)(vii) when regulated material is being routed to the flare.
(7) All periods during which you do not perform flare monitoring according to the procedures in § 63.670(g) through (j) of subpart CC.
(8) For pressure-assisted multi-point flares, if a stage of burners on the flare uses cross-lighting, then a record of any changes made to the distance between burners.
(9) For pressure-assisted multi-point flares, all periods when the pressure monitor(s) on the main flare header show burners are operating outside the range of the manufacturer's specifications. Indicate the date and time for each period, the pressure measurement, the stage(s) and number of burners affected, and the range of manufacturer's specifications.
(10) For pressure-assisted multi-point flares, all periods when the staging valve position indicator monitoring system indicates a stage of the pressure-assisted multi-point flare should not be in operation and when a stage of the pressure-assisted multi-point flare should be in operation and is not. Indicate the date and time for each period, whether the stage was supposed to be open, but was closed or vice versa, and the stage(s) and number of burners affected.
(11) Records of periods when there is flow of vent gas to the flare, but when there is no flow of regulated material to the flare, including the start and stop time and dates of periods of no regulated material flow.
(12) Records when the flow of vent gas exceeds the smokeless capacity of the flare, including start and stop time and dates of the flaring event.
(13) Records of the root cause analysis and corrective action analysis conducted as required in § 63.670(o)(3) of subpart CC, including an
(14) For any corrective action analysis for which implementation of corrective actions are required in § 63.670(o)(5) of subpart CC, a description of the corrective action(s) completed within the first 45 days following the discharge and, for action(s) not already completed, a schedule for implementation, including proposed commencement and completion dates.
(15) Records described in § 63.10(b)(2)(vi) and (xi).
(n) For each flow event from a bypass line subject to the requirements in § 63.2450(e)(6), you must maintain records sufficient to determine whether or not the detected flow included flow requiring control. For each flow event from a bypass line requiring control that is released either directly to the atmosphere or to a control device not meeting the requirements specified in Tables 1 through 7 to this subpart, you must include an estimate of the volume of gas, the concentration of organic HAP in the gas and the resulting emissions of organic HAP that bypassed the control device using process knowledge and engineering estimates.
(o) For each nonregenerative adsorber and regenerative adsorber that is regenerated offsite subject to the requirements in § 63.2450(e)(7), you must keep the applicable records specified in (o)(1) through (4) of this section.
(1) Outlet HAP or TOC concentration for each adsorber bed measured during each performance test conducted.
(2) Daily outlet HAP or TOC concentration.
(3) Date and time you last replaced the adsorbent.
(4) If you conduct monitoring less frequently than daily as specified in 63.2450(e)(7)(iii)(B), you must record the average life of the bed.
(p) For each maintenance vent opening subject to the requirements in § 63.2455(d), you must keep the applicable records specified in (p)(1) through (5) of this section.
(1) You must maintain standard site procedures used to deinventory equipment for safety purposes (
(2) If complying with the requirements of § 63.2455(d))(1)(i) and the lower explosive limit at the time of the vessel opening exceeds 10 percent, identification of the maintenance vent, the process units or equipment associated with the maintenance vent, the date of maintenance vent opening, and the lower explosive limit at the time of the vessel opening.
(3) If complying with the requirements of § 63.2455(d)(1)(ii) and either the vessel pressure at the time of the vessel opening exceeds 5 psig or the lower explosive limit at the time of the active purging was initiated exceeds 10 percent, identification of the maintenance vent, the process units or equipment associated with the maintenance vent, the date of maintenance vent opening, the pressure of the vessel or equipment at the time of discharge to the atmosphere and, if applicable, the lower explosive limit of the vapors in the equipment when active purging was initiated.
(4) If complying with the requirements of § 63.2455(d)(1)(iii), records used to estimate the total quantity of VOC in the equipment and the type and size limits of equipment that contain less than 50 pounds of VOC at the time of maintenance vent opening. For each maintenance vent opening for which the deinventory procedures specified in paragraph (p)(1) of this section are not followed or for which the equipment opened exceeds the type and size limits established in the records specified in this paragraph, identification of the maintenance vent, the process units or equipment associated with the maintenance vent, the date of maintenance vent opening, and records used to estimate the total quantity of VOC in the equipment at the time the maintenance vent was opened to the atmosphere.
(5) If complying with the requirements of § 63.2455(d)(1)(iv), identification of the maintenance vent, the process units or equipment associated with the maintenance vent, records documenting actions taken to comply with other applicable alternatives and why utilization of this alternative was required, the date of maintenance vent opening, the equipment pressure and lower explosive limit of the vapors in the equipment at the time of discharge, an indication of whether active purging was performed and the pressure of the equipment during the installation or removal of the blind if active purging was used, the duration the maintenance vent was open during the blind installation or removal process, and records used to estimate the total quantity of VOC in the equipment at the time the maintenance vent was opened to the atmosphere for each applicable maintenance vent opening.
(q) For each pressure relief device subject to the pressure release management work practice standards in § 63.2480(e), you must keep the records specified in paragraphs (q)(1) through (3) of this section.
(1) Records of the prevention measures implemented as required in § 63.2480(e)(3)(ii).
(2) Records of the number of releases during each calendar year and the number of those releases for which the root cause was determined to be a force majeure event. Keep these records for the current calendar year and the past five calendar years.
(3) For each release to the atmosphere, you must keep the records specified in paragraphs (q)(3)(i) through (iv) of this section.
(i) The start and end time and date of each pressure release to the atmosphere.
(ii) Records of any data, assumptions, and calculations used to estimate of the mass quantity of each organic HAP released during the event.
(iii) Records of the root cause analysis and corrective action analysis conducted as required in § 63.2480(e)(3)(iii), including an identification of the affected facility, a statement noting whether the event resulted from the same root cause(s) identified in a previous analysis and either a description of the recommended corrective action(s) or an explanation of why corrective action is not necessary under § 63.2480(e)(7)(i).
(iv) For any corrective action analysis for which implementation of corrective actions are required in § 63.2480(e)(7), a description of the corrective action(s) completed within the first 45 days following the discharge and, for action(s) not already completed, a schedule for implementation, including proposed commencement and completion dates.
(r) For each heat exchange system, beginning no later than the compliance dates specified in 63.2445(g), the recordkeeping requirements of § 63.104(f)(1) no longer apply; instead, you must keep records in paragraphs (r)(1) through (4) of this section.
(1) Monitoring data required by § 63.2490(d) that indicate a leak, the date the leak was detected, or, if applicable, the basis for determining there is no leak.
(2) The dates of efforts to repair leaks.
(3) The method or procedures used to confirm repair of a leak and the date the repair was confirmed.
(4) Documentation of delay of repair as specified in paragraphs (r)(4)(i) through (iv) of this section.
(i) The reason(s) for delaying repair.
(ii) A schedule for completing the repair as soon as practical.
(iii) The date and concentration of the leak as first identified and the results of all subsequent monitoring events during the delay of repair.
(iv) An estimate of the potential strippable hydrocarbon emissions from the leaking heat exchange system or heat exchanger for each required delay of repair monitoring interval following the procedures in paragraphs (r)(4)(iv)(A) through (D) of this section.
(A) Determine the leak concentration as specified in § 63.2490(d) and convert the stripping gas leak concentration (in ppmv as methane) to an equivalent liquid concentration, in parts per million by weight (ppmw), using equation 7-1 from “Air Stripping Method (Modified El Paso Method) for Determination of Volatile Organic Compound Emissions from Water Sources” Revision Number One, dated January 2003, Sampling Procedures Manual, appendix P: Cooling Tower Monitoring, prepared by Texas Commission on Environmental Quality, January 31, 2003 (incorporated by reference—see § 63.14) and the molecular weight of 16 grams per mole (g/mol) for methane.
(B) Determine the mass flow rate of the cooling water at the monitoring location where the leak was detected. If the monitoring location is an individual cooling tower riser, determine the total cooling water mass flow rate to the cooling tower. Cooling water mass flow rates may be determined using direct measurement, pump curves, heat balance calculations, or other engineering methods. Volumetric flow measurements may be used and converted to mass flow rates using the density of water at the specific monitoring location temperature or using the default density of water at 25 degrees Celsius, which is 997 kilograms per cubic meter or 8.32 pounds per gallon.
(C) For delay of repair monitoring intervals prior to repair of the leak, calculate the potential strippable hydrocarbon emissions for the leaking heat exchange system or heat exchanger for the monitoring interval by multiplying the leak concentration in the cooling water, ppmw, determined in (r)(4)(iv)(A) of this section, by the mass flow rate of the cooling water determined in (r)(4)(iv)(B) of this section and by the duration of the delay of repair monitoring interval. The duration of the delay of repair monitoring interval is the time period starting at midnight on the day of the previous monitoring event or at midnight on the day the repair would have had to be completed if the repair had not been delayed, whichever is later, and ending at midnight of the day the of the current monitoring event.
(D) For delay of repair monitoring intervals ending with a repaired leak, calculate the potential strippable hydrocarbon emissions for the leaking heat exchange system or heat exchanger for the final delay of repair monitoring interval by multiplying the duration of the final delay of repair monitoring interval by the leak concentration and cooling water flow rates determined for the last monitoring event prior to the re-monitoring event used to verify the leak was repaired. The duration of the final delay of repair monitoring interval is the time period starting at midnight of the day of the last monitoring event prior to re-monitoring to verify the leak was repaired and ending at the time of the re-monitoring event that verified that the leak was repaired.
(s) For process vents and storage tanks in ethylene oxide service subject to the requirements of § 63.2493, you must keep the records specified in paragraphs (s)(1) through (5) of this section in addition to those records specified in paragraph (a) of this section. Records for equipment in ethylene oxide service subject to the requirements of § 63.2493 are specified in paragraph (a) of this section.
(1) For process vents, include all uncontrolled, undiluted ethylene oxide concentration measurements, and the calculations you used to determine the total uncontrolled, undiluted ethylene oxide mass emission rate for the sum of all vent gas streams.
(2) For storage tanks, records of the concentration of ethylene oxide of the fluid stored in each storage tank.
(3) For equipment, records of the percent ethylene oxide content of the process fluid and the method used to determine it, and records identifying the location of each leakless pump and valve in operation.
(4) If you vent emissions through a closed-vent system to a non-flare control device, then you must keep records of all periods during which operating values are outside of the applicable operating limits specified in § 63.2493(b)(4) through (6) when regulated material is being routed to the non-flare control device. The record must specify the operating parameter, the applicable limit, and the highest (for maximum operating limits) or lowest (for minimum operating limits) value recorded during the period.
(5) For pressure vessels subject to § 63.2493(c), records as specified in paragraphs (s)(5)(i) through (iv) of this section.
(i) The date of each performance test conducted according to § 63.2493(c)(2).
(ii) The instrument reading of each performance test conducted according to § 63.2493(c)(2), including the following:
(A) Date each defect was detected.
(B) Date of the next performance test that shows the instrument reading is less than 500 ppmv.
(C) Start and end dates of each period after the date in paragraph (s)(5)(ii)(A) of this section when the pressure vessel was completely empty.
(D) Estimated emissions from each defect.
(t) Any records required to be maintained by this part that are submitted electronically via the EPA's CEDRI may be maintained in electronic format. This ability to maintain electronic copies does not affect the requirement for facilities to make records, data, and reports available upon request to a delegated air agency or the EPA as part of an on-site compliance evaluation.
(u) Beginning no later than the compliance dates specified in § 63.2445(g), the referenced provisions specified in paragraphs (u)(1) through (8) of this section do not apply when demonstrating compliance with paragraph (a) of this section.
(1) § 63.103(c)(2)(i) of subpart F.
(2) § 63.103(c)(2)(ii) of subpart F.
(3) The phrase “start-up, shutdown and malfunction and” from § 63.103(c)(3) of subpart F.
(4) The phrase “other than startups, shutdowns, or malfunctions (
(5) The phrase “other than a startup, shutdown, or malfunction” from § 63.152(g)(1)(ii)(C) of subpart G.
(6) The phrase “other than startups, shutdowns, or malfunctions” from § 63.152(g)(1)(iii) of subpart G.
(7) The phrase “other than a startup, shutdown, or malfunction” from § 63.152(g)(2)(iii) of subpart G.
(8) § 63.152(g)(2)(iv)(A) of subpart G.
For any equipment, emission stream, or wastewater stream not subject to §§ 63.2445(g), 63.2450(e)(5) or 63.2493 but subject to other provisions of both this subpart and another rule, you may elect to comply only with the provisions as specified in paragraphs (a) through (l) of this section. You also must identify the subject equipment, emission stream, or wastewater stream, and the provisions with which you will comply, in your notification of compliance status report required by § 63.2520(d).
(d) Compliance with subpart I, GGG, or MMM of this part 63. After the compliance dates specified in § 63.2445, if you have an affected source with equipment subject to subpart I, GGG, or MMM of this part 63, you may elect to comply with the provisions of subpart H, GGG, or MMM of this part 63, respectively, for all such equipment, except the affirmative defense requirements in subparts GGG and MMM no longer apply.
(m) Overlap of subpart FFFF with other regulations for flares. Beginning no later than the compliance dates specified in § 63.2445(g), flares that control ethylene oxide emissions or are used to control emissions from processes that produce olefins and polyolefins, subject to the provisions of 40 CFR 60.18 or 63.11, and used as a control device for an emission point subject to the emission limits and work practice standards in tables 1 through 7 to this subpart are required to comply only with the provisions specified in § 63.2450(e)(5). At any time before the compliance dates specified in § 63.2445(g), flares that are subject to the provisions of 40 CFR 60.18 or 63.11 and elect to comply with the requirements in § 63.2450(e)(5) are required to comply only with the provisions specified in this subpart.
(b) In delegating implementation and enforcement authority of this subpart to a State, local, or tribal agency under 40 CFR part 63, subpart E, the authorities contained in paragraphs (b)(1) through (5) of this section are retained by the Administrator of U.S. EPA and are not delegated to the State, local, or tribal agency.
(5) Approval of an alternative to any electronic reporting to the EPA required by this subpart.
The revisions and additions read as follows:
(i) * * *
(4) Gaseous streams routed to a fuel gas system(s) unless on and after [date 3 years after date of publication of final rule in the
(8) On and after [date 3 years after date of publication of final rule in the
(9) On and after [date 3 years after date of publication of final rule in the
(3) Before [date 3 years after date of publication of final rule in the
(1) For equipment leaks, any equipment that contains or contacts a fluid (liquid or gas) that is at least 0.1 percent by weight of ethylene oxide. If information exists that suggests ethylene oxide could be present in equipment, the equipment is considered to be “in ethylene oxide service” unless sampling and analysis is performed as specified in § 63.2492 to demonstrate that the equipment does not meet the definition of being “in ethylene oxide service”. Examples of information that could suggest ethylene oxide could be present in equipment, include calculations based on safety data sheets, material balances, process stoichiometry, or previous test results provided the results are still relevant to the current operating conditions.
(2) For process vents, each batch and continuous process vent in a process that, when uncontrolled, contains a concentration of greater than or equal to 1 ppmv undiluted ethylene oxide anywhere in the process, and when combined, the sum of all these process vents would emit uncontrolled, undiluted ethylene oxide emissions greater than or equal to 5 lb/yr (2.27 kg/yr). If information exists that suggests ethylene oxide could be present in a batch or continuous process vent, then the batch or continuous process vent is considered to be “in ethylene oxide service” unless an analysis is performed as specified in § 63.2492 to demonstrate that the batch or continuous process vent does not meet the definition of being “in ethylene oxide service”. Examples of information that could suggest ethylene oxide could be present in a batch or continuous process vent, include calculations based on safety data sheets, material balances, process stoichiometry, or previous test results provided the results are still relevant to the current operating conditions.
(3) For storage tanks, storage tanks of any capacity and vapor pressure storing a liquid with a concentration of ethylene oxide greater than or equal to 1 ppmw. If knowledge exists that suggests ethylene oxide could be present in a storage tank, then the storage tank is considered to be “in ethylene oxide service” unless sampling and analysis is performed as specified in § 63.2492 to demonstrate that the storage tank does not meet the definition of being “in ethylene oxide service”. The exemptions for “vessels storing organic liquids that contain HAP only as impurities” and “pressure vessels designed to operate in excess of 204.9 kilopascals and without emissions to the atmosphere” listed in the definition of “storage tank” in this section do not apply for storage tanks that may be in ethylene oxide service. Examples of information that could suggest ethylene oxide could be present in a storage tank, include calculations based on safety data sheets, material balances, process stoichiometry, or previous test results provided the results are still relevant to the current operating conditions.
(6) The end of a process that produces a solid material is either up to and including the dryer or extruder, or for a polymer production process without a dryer or extruder, it is up to and including the die plate or solid-state reactor, except in two cases. If the dryer, extruder, die plate, or solid-state reactor is followed by an operation that is designed and operated to remove HAP solvent or residual HAP monomer from the solid, then the solvent removal operation is the last step in the process. If the dried solid is diluted or mixed with a HAP-based solvent, then the solvent removal operation is the last step in the process.
Natural Resources Conservation Service (NRCS) and the Commodity Credit Corporation (CCC), United States Department of Agriculture.
Interim rule.
The Agriculture Improvement Act of 2018 (the 2018 Farm Bill) made changes to the Environmental Quality Incentives Program (EQIP). This interim rule makes conforming changes to EQIP policies and procedures in the regulations. NRCS has responsibility for administering EQIP using funding, facilities, and authorities of the CCC. EQIP helps agricultural producers conserve and enhance soil, water, air, plants, animals (including wildlife), energy, and related natural resources on their land. Eligible lands include cropland, grassland, rangeland, pasture, wetlands, nonindustrial private forest land, and other agricultural land on which agricultural or forest-related products or livestock are produced and natural resource concerns may be addressed. Participation in the program is voluntary.
We invite you to submit comments on this document. In your comments, include the date, volume, and page number of this issue of the
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All written comments received will be publicly available on
A copy of the draft Environmental Assessment (EA) and Finding of No Significant Impact (FONSI) may be obtained from either of the following websites:
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Donna Hopwood; phone: (202) 720-0675; or email:
The Agriculture Improvement Act of 2018 (2018 Farm Bill) has reauthorized and amended EQIP. EQIP is implemented under the general supervision and direction of the Chief of the Natural Resources Conservation Service (NRCS).
The information below demonstrates how NRCS provides technical and financial assistance to producers through EQIP to—
• Change tillage practices to enhance soil resources by sustaining tilth, moisture control, nutrients, and overall soil health;
• Replace or improve the management of irrigation systems to conserve scarce water resources. EQIP is also used to manage nutrient applications to protect water quality;
• Manage grazing to sustain plant biodiversity and protect rare species and to assure adequate forage is available, thus helping to maintain watershed heath and enhance water quality;
• Apply energy efficient practices that reduce energy consumption (
• Implement conservation practices that sequester carbon or capture methane emissions and greenhouse gases which contribute to climate change;
• Implement conservation practices specific to producers' resource needs, from over 160 available conservation practices, to sustain and improve the health of natural resources on the land and provide public benefits;
• Implement conservation practices in a manner that promotes agricultural production, forest management, and environmental quality as compatible goals;
• Optimize conservation benefits; and
• Help agricultural producers meet Federal, State, and local environmental requirements.
Conservation benefits are reflected in the differences between effects of treatment in comparison to existing or benchmark conditions. Differences may be expressed by reduced nutrients, improved water quality, and reduced soil erosion based upon scientific, quantitative, visual, or other means. NRCS assesses resource conditions through scientifically developed assessment tools and guides that may use client input, planner observation, procedural and deductive methods, and predictive methods. These assessment tools and guides include, but are not limited to, soil erosion prediction tools, wildlife habitat assessment tools, rangeland health assessments, and soil health assessments.
Estimated or projected impacts are used as a basis for applicants to make informed conservation decisions and to help NRCS determine which projects to approve for EQIP assistance.
EQIP was first authorized in 1996, with an initial allocation of $130 million. Since then, through fiscal year (FY) 2018, NRCS has entered into hundreds of thousands of contracts and provided over $15 billion in financial assistance to help agricultural producers apply conservation practices. The agency has evaluated 22 years of program implementation and has assessed opportunities to improve program administration. The changes in this rule are the results of this evaluation and the statutory changes authorized by the 2018 Farm Bill.
NRCS uses a competitive process to achieve the greatest conservation benefits in coordination with EQIP statutory priorities. NRCS establishes National, State, and local priorities and uses scientifically-based ranking tools to assess and rank applications, against these priorities to determine which applications are to be funded. NRCS in the National Office establishes national priorities, and States must incorporate these national priorities along with State and local priorities into the ranking tool used at the State level. These priorities are established with recommendations by State technical committees, priorities identified in State, regional, or national plans and initiatives, and from reports of at-risk wildlife species and designations of threatened or endangered species. NRCS also utilizes funding pools to target EQIP funding to priority resource concerns, such as for the development of wildlife habitat or
Each application submitted for consideration in a given funding pool is ranked using scientifically-based assessment evaluation criteria and tools which provide a relative score that reflects the expected conservation benefit of the proposed project. State Conservationists have the authority to prioritize applications for ranking, which results in only the highest priority applications being ranked and considered for funding. Applications are accepted from producers on a continuous basis; however, NRCS announces funding cutoff deadlines where all ranked applications within a funding pool are considered for funding based upon the ranking scores and availability of funds. Nearly all funding pools are established each fiscal year to ensure environmentally and economically effective distribution of funding through a process of fair and open competition that addresses priority resource concerns.
Each fiscal year, State Conservationists:
• Publish program priorities;
• Allocate available funds to State funding pools;
• Publish associated ranking criteria to State program websites available at:
• Allocate funds to each application pool and adjust funding between pools to address shortages or to redistribute surplus funds, if needed. Statutory allocation levels, such as the requirement to provide at least 50 percent of the funding for livestock and 10 percent of the funding for wildlife, are met as national goals through funding pool opportunities established by State Conservationists.
The statutory changes made by the 2018 Farm Bill include, but are not limited to—
• Expanding the EQIP purpose to include new or expected resource concerns, adapting to, and mitigating against, increasing weather volatility, and addressing drought resiliency measures;
• Changing advance payments from “not more than” to “at least 50 percent” of all costs related to
• Adding a new provision for increased payments for high-priority practices, which provides the State Conservationist the option to designate up to 10 practices to be eligible for increased payments, not to exceed 90 percent of the costs associated with planning, design, materials, equipment, installation, labor, management, maintenance, or training;
• Decreasing the livestock funding minimum from 60 percent to 50 percent for FY 2019 through 2023;
• Increasing the wildlife funding minimum from 5 percent to 10 percent for FY 2019 through 2023;
• Providing a maximum term of 10 years for contracts entered into solely for the establishment of wildlife management practices;
• Authorizing certain entities (including a State, irrigation district, groundwater management district, acequia, land-grant mercedes, or similar entity) which are not producers to be eligible to enter into an EQIP contract for implementation of water conservation or irrigation efficiency practices, and, authorizing the Secretary of Agriculture to waive the adjusted gross income (AGI) and EQIP payment limitations for those contracts. If a waiver is authorized, the Secretary may establish a separate payment limitation for the contract to which the waiver applies;
• Introducing new EQIP Incentive Contracts, which can address up to three priority resource concerns for each of the relevant land uses within State-identified watersheds or other areas of high priority;
• Encouraging streamlined and coordinated procedures between EQIP and Conservation Stewardship Program (CSP), including applications, contracting, conservation planning, conservation practices, and related administrative procedures;
• Authorizing funding for EQIP at:
The Farm Production and Conservation (FPAC) Mission Area hosted a listening session on February 26, 2019, to obtain initial input on 2018 Farm Bill implementation. USDA sought public input regarding changes to programs implemented by the Farm Service Agency, the Risk Management Agency (RMA), and NRCS. NRCS considered stakeholder input when making discretionary decisions regarding program implementation. In addition to encouraging oral testimony, FPAC also encouraged submission of written comments and the comments received have been made available on
NRCS received 35 comments regarding the need to evaluate the impact of water conservation and irrigation efficiency projects on grasslands, fish and wildlife habitat, wetlands, and ground water recharge. Some comments recommended the prioritization of projects that improve agricultural water delivery, limit the expansion of irrigated land, and ensure more water conservation. Others pushed for watershed-wide projects, oversight mechanisms to track fund spending and outcomes, and implementation of an effective project rating system. A few requested additional funding for Western producers who are facing water challenges.
NRCS received 26 comments that underscored the importance of State wildlife funding pools to ensure that EQIP funds are used for species and habitats identified as priorities in State, regional, and national wildlife plans. Some recommended the immediate implementation of the 10-percent-funding increase and using the funds to consider wildlife coexistence practices. Others advocated longer-term contracts, additional wildlife-specific technical assistance, landscape-scale project areas, and fund oversight tools, such as public annual reports.
NRCS received 11 comments on wildlife habitat contracts. The comments pushed for prioritizing longer-term wildlife contracts and ensuring that these contracts only fund practices designed to deliver wildlife habitat benefits. Others recommended working with third parties, such as nongovernmental organizations, to coordinate projects and promote short-term contracts to enhance program outcomes.
NRCS received 16 comments related to administration and program delivery. Many recommended streamlining the program application process, providing additional guidance and information on high priority resource concerns, rankings, and practices, and ensuring fair access for most producers to EQIP funds (
Additionally, support for wildlife habitat projects received the majority of the comments related to the new conservation incentive contracts. NRCS received 11 comments supporting the identification of wildlife habitat as a
NRCS received 11 comments that advocated for outreach and education for organic producers regarding the new EQIP payments for organic initiatives. Some recommended the development of a funding allocation similar to CSP and the consideration of existing organic management plans. Other comments emphasized additional payments during the transition period (from traditional to organic), helpful tools and resources showing how EQIP practices support organic agriculture, and strong support for smaller organic projects.
NRCS received nine comments mostly supporting the Soil Health Demonstration Trial for EQIP projects. Others called for better soil health planning standards, utilization of existing resources (
NRCS received seven comments focusing on increased payments for high-priority practices. Most comments underlined the inclusion of practices that address the goals of State wildlife action plans and other State and local plans involving watershed rehabilitation and drought management. Others recommended careful implementation of the increased payment provision to ensure adequate funding for other EQIP contracts.
NRCS received three comments that recommend ending funding support for the expansion of large livestock operations, and instead, focusing on grazing systems and practices that can benefit wildlife and water quality.
NRCS received three comments pushing for broader producer outreach and immediate implementation of the EQIP advanced payment option. These comments emphasized that outreach needs to include beginning, veteran, and socially disadvantaged producers.
Finally, NRCS received a comment that recommended using the new EQIP provision on precision conservation and agriculture for practice installment and annual payments.
NRCS evaluated the changes made by the 2018 Farm Bill and the comments received during the listening session and is hereby promulgating this interim rule to incorporate the 2018 Farm Bill changes to EQIP program administration. The interim rule adjusts the program regulations to correspond to new statutory language. It also includes changes to streamline program implementation and make the participant's contract responsibilities clearer and more transparent. NRCS is also removing definitions for terms that are not used in the regulation and making other editorial adjustments to improve readability.
The regulation has long been organized into three subparts: (1) Subpart A—General Provisions, (2) Subpart B—Contracts, and (3) Subpart C—General Administration. To improve the readability and clarity of the regulations, NRCS has moved the provisions in § 1466.27, the section addressing administration of the Conservation Innovation Grants (CIG), to subpart C, and moved the sections related to General Administration to a new subpart E, with redesignation of sections appropriate to such a change. To incorporate regulations necessary to implement the new Incentive Contracts under EQIP, NRCS has added a new subpart D. Below is a summary of the changes made to each subpart based on the changes made to EQIP by the 2018 Farm Bill.
Section 1466.1 sets forth the purpose, scope, and objectives of EQIP. Pursuant to changes made by § 2302 of the 2018 Farm Bill, the interim rule updates § 1466.1 to reiterate the updated statutory language. The interim rule also changes the effective date of this section to acknowledge that each EQIP contract is subject to the regulations that are in effect at the time the EQIP contract is enrolled. EQIP's fundamental purpose—assisting agricultural producers with implementing conservation practices to provide environmental benefits and to comply with or avoid environmental regulation—has been broadened to add specifically addressing new or expected resource concerns, adapting to and mitigating against increasing weather volatility, and drought resiliency measures.
Section 1466.2 describes the roles of NRCS, State technical committees, and local working groups. The 2018 Farm Bill amends how EQIP interacts with the Regional Conservation Partnership Program (RCPP) authorized by Subtitle I of Title XII of the Food Security Act of 1985 (known as the 1985 Farm Bill). The 2014 Farm Bill identified EQIP as a covered program under RCPP and authorized the Chief to waive nonstatutory, discretionary provisions and operational procedures under EQIP contracts where EQIP was being implemented through RCPP. However, since the 2018 Farm Bill no longer requires that RCPP be implemented through EQIP or the other covered programs, NRCS removed the regulatory language to this section that addressed EQIP implementation under RCPP. NRCS retains the authority for the Chief to waive nonstatutory, discretionary provisions where the application of that provision to a particular limited situation to be inappropriate and inconsistent with the purposes of the program.
Section 1466.3 sets forth definitions for terms used throughout this regulation. NRCS is amending several definitions to conform to the 2018 Farm Bill amendments and to address other administrative matters. Specifically, this interim rule amends § 1466.3 by adding or modifying the following definitions:
• Animal feeding operation (AFO);
• Eligible land;
• Estimated income foregone;
• Forest management plan;
• High priority area;
• Incentive practice;
• Priority resource concern;
• Semi-public;
• Soil remediation;
• Soil testing; and
• Water management entity.
Given the overlap between the definition for the term “eligible lands” and “agricultural lands,” NRCS has removed the definition for “agricultural lands” to reduce confusion.
Section 1466.4 establishes a list of priorities, consistent with the statute, that describes the types of resource concerns that NRCS has determined to be the greatest opportunity for natural resource conservation. In addition, it allows for change and adaptation to this listing as new information comes to light. The 2018 Farm Bill added “increased weather volatility” as a specific resource concern, and this rulemaking incorporates that change. NRCS made other minor editorial changes to improve style and clarity.
Section 1466.5 generally establishes the basis for NRCS to market EQIP's resource conservation benefits and its
To help producers understand conservation opportunities, the 2018 Farm Bill requires that NRCS establish and maintain a publicly available conservation practice database that provides a compilation and analysis of effective conservation practices and a list of recommended new and effective conservation practices. The 2018 Farm Bill also requires the Secretary to identify available data sets within the Department of Agriculture regarding the use of conservation practices and the effect of such practices on farm and ranch profitability (including such effects relating to crop yields, soil health, and other risk-related factors). NRCS considers estimated economic impact in its conservation planning process, including in the development of conservation practice standards. Since producers must consider the potential estimated economic impact to their particular operation when choosing whether to voluntarily adopt conservation practices through EQIP, NRCS is taking this opportunity to request public comment on how NRCS can best assist producers to understand the potential estimated economic impact of conservation practice adoption to inform their program decisions.
Section 1466.6 lays out the general scope of what EQIP is and does. It sets forth criteria for applicant eligibility, including that the applicant must have control of the land on which EQIP practices are to be implemented. The 2018 Farm Bill also expanded eligibility regarding with whom NRCS can enter into an EQIP contract. In particular, NRCS may enter into EQIP contracts with a State, irrigation district, groundwater management district, acequia, land grant-merced, or similar entity under a streamlined contracting process to implement water conservation or irrigation practices under a watershed-wide project that will effectively conserve water, provide fish and wildlife habitat, or provide for drought-related environmental mitigation, as determined by the Secretary. NRCS has defined these entities as “water management entities.”
NRCS added provisions related to entering contracts with water management entities to implement water conservation or irrigation practices in certain circumstances.
NRCS introduced criteria for approving waivers and applying a different payment limitation to ensure the focus of EQIP assistance remains on practices that directly benefit producers with resource concerns on their operations. Additionally, the criteria help specify how this provision will be implemented, especially since water management entities can apply to RCPP as an eligible partner for irrigation-related infrastructure projects and that these types of projects are also eligible for assistance under the Watershed Protection and Flood Prevention Act.
Therefore, NRCS incorporated into this interim rule criteria for approving payment and AGI waivers, including the number of producers benefitted, whether the project is in conjunction with EQIP assistance being provided to identified producers who require the project in order for the overall project to be successful, and the establishment of a new payment limitation that ensures that such contracts address more site-specific concerns rather than systemic upgrade requirements. More particularly, NRCS has decided to limit these projects by authorizing a new payment limitation for contracts entered into by these specific entities at $900,000 between FY 2019 through FY 2023 if the projects qualify for a payment and AGI waiver. This new payment limitation for these entity-irrigation contracts is twice the payment limitation established for payments under contracts to individual producers.
Since the interim rule authorizes a waiver of the aggregate payment limitation for contracts with water management entities under this section, NRCS specifically requests comments on how this waiver should operate and whether the $900,000 payment limitation has been established at an appropriate level. NRCS believes that this new authority to enter into an EQIP contract directly with water management entities should not conflict or compete with other NRCS assistance opportunities. Additionally, related to identifying the situations where NRCS should provide assistance to these projects, NRCS specifically requests public comment about whether additional parameters are needed for identifying “adjacent lands” eligible for such projects.
Other changes were made to improve style and clarity.
This section describes the requirements of the EQIP plan of operations, which is a component of the EQIP contract. Section 1240E(a)(3) as amended by the 2018 Farm Bill inserted the term “progressive” to describe the implementation of a comprehensive nutrient management plan (CNMP). Therefore, NRCS amends the regulatory provisions to remove the requirement that a participant must have implemented a developed CNMP by the end of the contract but requires that any conservation practices in the EQIP plan of operation must be implemented consistent with a CNMP. Language regarding irrigation-related practices and water conservation was also slightly modified for clarity.
This section describes how NRCS determines eligible conservation practices. NRCS made several minor edits for clarity.
This section describes the use of technical services providers (TSPs). NRCS incorporates use of the TSP acronym to this section.
This section addresses how producer applications are submitted and selected for funding. NRCS makes several minor edits for clarity.
This section identifies elements contained within an EQIP contract and the responsibilities of the participant who is party to the EQIP contract. Also, it addresses EQIP contract funding limitations. To receive payment, an applicant must enter into an EQIP contract. The EQIP contract identifies all financially supported conservation practices to be implemented, their timing and sequence, and the operation and maintenance needed to maintain the conservation practice for its intended lifespan. NRCS amends CNMP language to include “progressive” implementation by removing the requirement that the CNMP must be implemented by the end of the contract and clarifies the timeline parameters for EQIP contract implementation and the consequences for not complying with those parameters. NRCS also incorporates language to waive the
This section addresses the participant's responsibility for conservation practice O&M. NRCS makes only slight grammatical corrections.
This section addresses payment rates and payment eligibility. Section 1240B as amended by the 2018 Farm Bill authorized increased payment rates for certain high-priority practices. The 2018 Farm Bill also authorized increased payment rates for practices that address source water protection. NRCS incorporates these changes by adding a new paragraph authorizing such increased payments.
The 2018 Farm Bill revised section 1240B(d)(7) of the 1985 Farm Bill to authorize States to designate high priority practices that will be eligible for higher payment rates, subject to approval from the Secretary. NRCS at the State level will provide notice of the high priority practices for which a higher payment rate is available based on the criteria identified in section 1240B(d)(7).
This section provides direction on payment eligibility and payment limitations. Due to the change to § 1466.1 noted above, the language regarding date of contract was removed. As stated, any changes made to this section only affect future contracts. Removal of that language reduces wordiness and improves clarity. NRCS updated the payment limitations for organic production from annual limits to an aggregate limit from FY 2019 through FY 2023. NRCS modified the regulatory levels allowed for advance payments to account for changes made in Section 1240B(d)(4)(B) of the 1985 Farm Bill. NRCS made other organizational and editorial adjustments that did not affect the substance of the provisions.
This section sets forth the procedures for when and how an EQIP contract can be modified and sets out the process and consequences of a transfer of land during the term of an EQIP contract. NRCS made several stylistic and organizational changes to improve clarity. NRCS added a paragraph to clarify how NRCS will treat the implementation of conservation practices during any period in which a parcel has been transferred, but contract transfer has not yet been approved. These changes align EQIP transfer provisions more closely with similar CSP provisions.
This section sets forth the policies and procedures for contract termination when the participant violates the terms of an EQIP contract. NRCS clarified that certain violations may place a participant into suspension or debarment. NRCS will follow suspension and debarment requirements at 7 CFR part 1407, including providing any such participant due process prior to suspending or debarring the participant from future eligibility.
Subpart C is revised by moving its provisions to a new subpart E and incorporating provisions addressing the Conservation Innovation Grants (CIG) administration at § 1466.27 as new sections under subpart C.
In addition to organizing the CIG provisions into several sections, this subpart addresses administration of the On-farm Conservation Innovation Trials (OFCIT), which includes the Soil Health Demonstration (SHD) Trial.
The CIG section (formerly 1466.27) has been reorganized into the following six sections, as set forth below.
This section, the former § 1466.27(a), sets forth the definitions of terms to be used consistently throughout this subpart. The term “EQIP eligible” was removed from the definitions section as the term was not used anywhere else in the regulation.
This section, the former § 1466.27(b), sets out the broad policy objectives and criteria for implementing CIG and its related components. NRCS has modified references to the use of online methods to award grants to clarify that there may be multiple competitions each fiscal year. NRCS made various changes to improve the section's structure and style without affecting its substance.
This section, the former § 1466.27(c), sets out how CIG is funded and what payment limitations may apply. The set-aside of up to 10 percent of total CIG funds for historically underserved or veteran farmers or ranchers or community-based organizations has been moved here. NRCS incorporated other edits to improve clarity.
This section, the former § 1466.27(d) through (f), provides the framework for how NRCS administers CIG, including policies and procedures related to awarding CIG grants. Paragraph (a) of this section now identifies that applications should address national or State program priorities as published by NRCS. Paragraph (b) of this section clarifies that any individual or non-federal entity may be eligible for a CIG payment, provided that the payment either directly or indirectly benefits a producer who is eligible for EQIP participation. NRCS adds a paragraph (c) to identify that NRCS will publish annually detailed guidance on how to apply for the grants competitions to address announced national or State program priorities.
This section, the former § 1466.27(g), explains the criteria that NRCS will consider when determining award grantees and award amounts. NRCS made minor changes to the style and structure of the language to set out each step in the awards determination process.
This section, the former § 1466.27(h), details the use of State-level use and distribution of CIG resources. Paragraph (d) clarifies that each State may elect to focus on priority resource concerns for that State.
This section, formerly § 1466.27(i), establishes guidelines for intellectual property rights for any newly patented technology developed under this subpart. NRCS has made minor edits to improve readability.
This section implements and develops OFCIT to test new and innovative approaches to conservation.
This section of focus for OFCIT addresses the ability of soil health strategies to capture and retain carbon.
Subpart D is a new subpart and addresses the new enrollment option, EQIP incentive contracts, as created by section 2304 of the 2018 Farm Bill. This new subpart has the following sections:
This section sets out the process and requirements for high priority areas within each State that form the backdrop for the new incentive contracts.
This section specifies how the incentive contract process will deviate from the standard EQIP contract selection process. In particular, NRCS will identify which practices qualify as incentive practices for each land use within each high priority area based on the priority resource concern(s) identified for that land use. Thus, there is no standard list of practices that will universally apply. It will depend on future determinations by State Conservationist with input from the State Technical Committees as to what the high priority areas are and what the (up to) three priority resource concerns are for each land use within each high priority area. NRCS does maintain a database of practices that apply to resource concerns within each land use, but which of those practices will be high priority will vary based on determinations within each State.
This section lists all the terms and conditions that are required components of an incentive contract. Many of these terms and conditions are similar to those terms and conditions included in a standard EQIP contract; the most notable distinctions are differences to the contract period and payment rates, which are covered in separate sections below.
This section highlights the criteria for setting the term for an incentive contract. Incentive contracts will be for a period from 5 to 10 years.
This section sets the parameters for incentive payments. In addition to the payment for practice implementation, which is similar to the standard EQIP implementation payment, incentive contracts offer annual payments to address operations and maintenance costs as well as income foregone. NRCS also established in this interim rule an aggregate payment limitation of $200,000 for a person or legal entity to conform incentive contract implementation to contracts entered into under the CSP, thus ensuring that the new enrollment option supports a participant's ability to transition to CSP eligibility.
Subpart E of the EQIP regulation was formerly subpart C, and it addresses a participant's responsibility to comply with regulatory measures, to provide NRCS access to lands enrolled in the program for compliance monitoring during the term of the contract, and other general program matters. The 2018 Farm Bill changes do not impact the regulatory provisions at subpart E.
In general, the Administrative Procedure Act (APA, 5 U.S.C. 553) requires that a notice of proposed rulemaking be published in the
• To be made as an interim rule effective on publication, with an opportunity for notice and comment,
• Exempt from the Paperwork Reduction Act (44 U.S.C. ch. 35), and
• To use the authority under 5 U.S.C. 808 related to Congressional review and any potential delay in the effective date.
For major rules, the Congressional Review Act requires a delay in the effect date of 60-days after publication to allow for Congressional Review. This rule is major under the Congressional Review Act, as defined by 5 U.S.C. 804(2). The authority in 5 U.S.C. 808 provides that when an agency finds for good cause that notice and public procedure are impracticable, unnecessary, or contrary to the public interest, that the rule may take effect at such time as the agency determines. Due to the nature of the rule, the mandatory requirements of the 2018 Farm Bill, and the need to implement the regulations expeditiously to provide assistance to producers, NRCS and CCC find that notice and public procedure are contrary to the public interest. Therefore, even though this rule is a major rule for purposes of the Congressional Review Act of 1996, NRCS and CCC are not required to delay the effective date for 60 days from the date of publication to allow for Congressional review. Therefore, this rule is effective on the date of publication in the
NRCS invites interested persons to participate in this rulemaking by submitting written comments or views about the changes made by this interim rule. The most helpful comments reference a specific portion of the regulation, explain the reason for any recommended changes, and include supporting data and references to relevant section of either the 2018 Farm Bill or the 1985 Farm Bill. All comments received on or before the closing date for comments will be considered. NRCS will review and respond to the public comments in the EQIP final rule.
Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasized the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13777, “Enforcing the Regulatory Reform Agenda,” established a federal policy to alleviate unnecessary regulatory burdens on the American people.
The Office of Management and Budget (OMB) designated this rule as economically significant under
Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” requires that in order to manage the private costs required to comply with federal regulations for every new significant or economically significant regulation issued, the new costs must be offset by the elimination of at least two prior regulations. OMB guidance in M-17-21, dated April 5, 2017, specifies that “transfer rules” are not covered by Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.” Transfer rules are Federal spending regulatory actions that cause only income transfers between taxpayers and program beneficiaries. Therefore, this is considered a transfer rule and is not covered by Executive Order 13771.
The 2018 Farm Bill makes several changes to EQIP. The changes include:
• Making a State, irrigation district, groundwater management district, acequia, land grant-mercedes, or similar entity eligible for EQIP payments,
• Requiring targeting of at least 10 percent of EQIP funds to wildlife conservation practices,
• Reducing EQIP funds targeted for livestock to 50 percent, and
• Creating various incentives to address resource concerns in identified watersheds and other high priority areas.
Most of this rule's impacts consist of transfer payments to producers for completed conservation practices under EQIP contracts. The 2018 Farm Bill increases EQIP funding over 2014 Farm Bill funding by 22 percent on an annualized basis to $1.84 billion per year. From FY2014-2018, EQIP was authorized at $8.0 billion, but annual funding restrictions resulted in actual authority being $7.51 billion, for an annualized amount of $1.50 billion. In contrast, the authorized level for EQIP for FY2019-2023 is $9.18 billion
Conservation practices funded through EQIP will continue to:
• Contribute to improvements in soil health and reductions in water and wind erosion on cropland, pasture and rangeland;
• Reduce nutrient losses to streams, rivers, lakes and estuaries;
• Increase wildlife habitat; and
• Provide other environmental benefits.
Further, continued implementation of practices that treat and manage animal waste through EQIP will directly contribute to improvements in water quality and associated improvements in air quality (such as from reduction in methane emissions or reduced risk of algal blooms). NRCS estimates that the cost,
Changes in funding levels for EQIP livestock and wildlife practices will alter to a minor extent the types of conservation practices that are funded. From FY 2014-2018, wildlife practices accounted for 7.6 percent of EQIP funds through wildlife and landscape initiatives and 16 designated wildlife conservation practices. The remaining 2.4 percent increase in funding to wildlife needed to meet the new 10 percent level will likely occur through greater support for existing wildlife initiatives and potentially target additional wildlife habitat development efforts through new initiatives. With respect to livestock, over 60 percent of EQIP funds went to livestock-related practices during FY 2014 through 2018, but the 2018 Farm Bill reduced the target to 50 percent for each of fiscal years 2019 through 2023. With greater EQIP funding overall, the amount of funding being provided for the implementation of livestock conservation practices should not change significantly.
To address increasing demands on the nation's water supply, the 2018 Farm Bill expands EQIP eligibility to water management entities like irrigation districts, ground water management districts, and acequias, along with providing the Secretary with the authority to waive adjusted gross income, contract, and payment limits to encourage continued efforts in agricultural water conservation. In some states, particularly in the West, these water management entities may increase competition for funding and enhance conservation benefits per dollar spent. The impacts, however, on the allocation of EQIP funding will be limited. The 2018 Farm Bill directs NRCS to maintain current funding allocations to states, limiting the impact nationally. Also, NRCS proposes in this rule establishing a payment limit of $900,000 on all contracts with water management entities.
The 2018 Farm Bill establishes incentive contracts to address up to three priority resource concerns for a given watershed, or other region, or area. Contracts will range from a minimum of 5 up to 10 years in length and provide an annual payment and an incentive practice payment. The impact of these new incentive contracts is uncertain, particularly regarding benefits per dollar. Overall, given the current demand for regular enrollment in EQIP, and the currently uncertain impacts that incentive contracts will have, the aggregate benefits from these new incentive contracts may be limited.
Increasing the payment limit for participants in the organic initiative to $140,000 over the period FY 2019 through 2023, will likely have little impact on EQIP program performance. This is because existing organic initiative contracts are usually well below the multi-year payment limit of $80,000 previously set by 2014 Farm Bill. Currently, organic participants who exceed the organic initiative payment limit use other EQIP funding mechanisms. With the increase in the organic initiative limit to $140,000, more organic applicants will be able to make use of the organic initiative and consequently need only compete with other organic operations for funding.
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 this rule, we invite your comments on how to make the rule easier to understand. For example:
• Are the requirements in the rule clearly stated? Are the scope and intent of the rule clear?
• Does the rule contain technical language or jargon that is not clear?
• Is the material logically organized?
• Would changing the grouping or order of sections or adding headings make the rule easier to understand?
• Could we improve clarity by adding tables, lists, or diagrams?
• Would more, but shorter, sections be better? Are there specific sections that are too long or confusing?
• What else could we do to make the rule easier to understand?
The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), generally requires an agency to prepare a regulatory analysis of any rule whenever an agency is required by APA or any other law to publish a proposed rule, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule is not subject to the Regulatory Flexibility Act because no law requires that a proposed rule be published for this rulemaking initiative. Despite the Regulatory Flexibility Act not applying to this rule, the action only affects those entities who voluntarily participate in EQIP and in doing so receive its benefits. Compliance with the provisions of EQIP regulations is only required for those entities who choose to participate in this voluntary program.
The environmental impacts of this rule have been considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508), and the NRCS regulations for compliance with NEPA (7 CFR part 650). The 2018 Farm Bill requires minor changes to NRCS conservation programs, and there are no changes to the basic structure of the programs. The analysis has determined there will not be a significant impact to the human environment and as a result, an environmental impact statement (EIS) is not required to be prepared (40 CFR 1508.13). While OMB has designated this rule as “economically significant” under Executive Order 12866, “. . . economic or social effects are not intended by themselves to require preparation of an environmental impact statement” (40 CFR 1508.14), when not interrelated to natural or physical environmental effects. The Environmental Assessment (EA) and Finding of No Significant Impact (FONSI) are available for review and comment for 30 days from the date of publication of this interim rule in the
Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials that would be directly affected by proposed federal financial assistance. The objectives of the Executive order are to foster an intergovernmental partnership and a strengthened Federalism, by relying on State and local processes for State and local government coordination and review of proposed federal financial assistance and direct federal development. For reasons specified in the final rule related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities in this rule are excluded from the scope of Executive Order 12372.
This rule has been reviewed under Executive Order 12988, “Civil Justice Reform.” This rule will not preempt State or local laws, regulations, or policies unless they represent an irreconcilable conflict with this rule. Before any judicial actions may be brought regarding the provisions of this rule, the administrative appeal provisions of 7 CFR part 11 are to be exhausted.
This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government, except as required by law. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.
This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.
The USDA's Office of Tribal Relations (OTR) has assessed the impact of this rule on Indian Tribes and determined that this rule may have substantial direct Tribal implication that may require Tribal consultation under Executive Order 13175. Tribal consultation for this rule was included in the two 2018 Farm Bill Tribal consultation held on May 1, 2019, at the National Museum of the American Indian, in Washington, DC, and on June 26-28, 2019, in Sparks, NV. For the May 1, Tribal consultation, the portion of the Tribal consultation relative to this rule was conducted by Bill Northey, USDA Under Secretary for the Farm Production and Conservation mission area, as part of the Title II session. There were no specific comments from Tribes on the EQIP rule during the Tribal consultation. If a tribe requests additional consultation, NRCS will work with OTR to ensure meaningful consultation is provided where changes, additions, and modifications identified in this rule are not expressly mandated by legislation.
Separate from Tribal consultation, communication, and outreach efforts are in place to assure that all producers, including Tribes (or their members), are provided information about the regulation changes. Specifically, NRCS obtains input through Tribal Conservation Advisory Councils. A Tribal Conservation Advisory Council may be an existing Tribal committee or department and may also constitute an association of member Tribes organized to provide direct consultation to NRCS at the State, regional, and national levels to provide input on NRCS rules, policies, programs, and impacts on Tribes. Tribal Conservation Advisory Councils provide a venue for agency leaders to gather input on Tribal interests. Additionally, NRCS will be holding several sessions with Indian Tribes and Tribal entities across the country in fiscal year 2019 to describe the 2018 Farm Bill changes to NRCS conservation programs, obtain input about how to improve Tribal and Tribal member access to NRCS conservation assistance, and make any appropriate adjustments to the regulations that will foster such improved access.
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4), requires federal agencies to assess the effects of their regulatory
The title and number of the Federal Domestic Assistance Programs in the Catalog of Federal Domestic Assistance to which this rule applies:
10.912—Environmental Quality Incentives Program.
NRCS and CCC are committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.
Administrative practice and procedure, Animal welfare, Natural resources, Soil conservation, Water resources.
The CCC revises 7 CFR part 1466 to read as follows:
15 U.S.C. 714b and 714c; and 16 U.S.C. 3839aa—3839-8.
(a)
(2) Through EQIP, NRCS provides technical and financial assistance to eligible agricultural producers, including nonindustrial private forest (NIPF) landowners and Indian Tribes, to help implement conservation practices which address soil, water, and air quality; wildlife habitat; nutrient management associated with crops and livestock; pest management; surface and groundwater conservation; irrigation management; drought resiliency measures; adapting to and mitigating against increasing weather volatility; energy conservation; and related resource concerns.
(3) EQIP's financial and technical assistance helps producers comply with environmental regulations and enhance agricultural and forested lands in a cost-effective and environmentally beneficial manner.
(4) The purposes of the program are achieved by planning and implementing conservation practices on eligible land to address identified, new, or expected resource concerns.
(b)
(c)
(a)
(b)
(2) Recommendations from the State Technical Committee and the Tribal Conservation Advisory Council may include but are not limited to:
(i) Recommendations for program priorities and criteria;
(ii) Identification of priority resource concerns;
(iii) Recommendations about which conservation practices will be effective to treat identified priority resource concerns; and
(iv) Recommendations of program payment rates for payment schedules.
(c)
(d)
(e)
The definitions in this section apply to this part and all documents issued in accordance with this part, unless specified elsewhere in this part:
(1) Animals have been, are, or will be stabled or confined and fed or maintained for a total of 45 days or more in any 12-month period; and
(2) Crops, vegetation, forage growth, or post-harvest residues are not sustained in the normal growing season over any portion of the lot or facility.
(1) Has not operated a farm or ranch, or NIPF, or who has operated a farm, ranch, or NIPF for not more than 10 consecutive years. This requirement applies to all members of an entity who will materially and substantially participate in the operation of the farm or ranch.
(2) In the case of a contract with an individual, individually, or with the immediate family, material and substantial participation requires that the individual provide substantial day-to-day labor and management of the farm or ranch, consistent with the practices in the county or State where the farm is located.
(3) In the case of a contract with an entity or joint operation, all members must materially and substantially participate in the operation of the farm or ranch. Material and substantial participation requires that each of the members provide some amount of the management, or labor and management necessary for day-to-day activities, such that if each of the members did not provide these inputs, operation of the farm or ranch would be seriously impaired.
(1) Cropland;
(2) Grassland;
(3) Rangeland;
(4) Pasture land;
(5) Nonindustrial private forest land; and
(6) Other agricultural land (including cropped woodland, marshes, environmentally sensitive areas as identified by NRCS, and agricultural land used for the production of livestock) on which identified or expected resource concerns related to agricultural production that may be addressed by a contract under EQIP as determined by the Chief.
(1) Land held in trust by the United States for individual Indians or Indian Tribes;
(2) Land, the title to which is held by individual Indians or Indian Tribes subject to Federal restrictions against alienation or encumbrance;
(3) Land which is subject to rights of use, occupancy or benefit of certain Indian Tribes; or
(4) Land held in fee title by an Indian, Indian family, or Indian Tribe.
(1) Owns land or an agricultural commodity, product, or livestock; or
(2) Produces an agricultural commodity, product, or livestock.
(1) Individual producer:
(i) A person with direct or indirect gross farm sales not more than the current indexed value in each of the previous 2 fiscal years (adjusted for inflation using Prices Paid by Farmer Index as compiled by National Agricultural Statistical Service), and
(ii) Has a total household income at or below the national poverty level for a family of four, or less than 50 percent of county median household income in each of the previous 2 years (to be determined annually using Commerce Department Data); or
(2) A legal entity or joint operation if all individual members independently qualify under paragraph (1) of this definition.
(1) Is identified at the national, State, or local level as a priority for a particular area of a State; and
(2) Represents a significant concern in a State or region.
(1) Ensure the safety of producers from contaminants in soil;
(2) Limit contaminants in soils from entering agricultural products for human or animal consumption; and
(3) Regenerate and sustain the soil.
(1) Optimal level of constituents in the soil, such as organic matter, nutrients, and the potential presence of soil contaminants (including heavy metals, volatile organic compounds, polycylic aromatic hydrocarbons, or other contaminants), as determined by NRCS; and
(2) Biological and physical characteristics indicative of proper soil functioning.
(1) Technical services provided directly to farmers, ranchers, Indian Tribes, and other eligible entities, such as conservation planning, technical consultation, and assistance with design and implementation of conservation practices; and
(2) Technical infrastructure, including activities, processes, tools, and agency functions needed to support delivery of technical services, such as technical standards, resource inventories, training, education, data, technology, monitoring, and effects analyses.
(1) Certified by NRCS pursuant to 7 CFR part 652 and placed on the approved list to provide technical services to participants; or
(2) Selected by the Department to assist in the implementation of conservation programs covered by this part through a procurement contract, contributions agreement, or cooperative agreement with the Department.
(a) The national priorities in paragraphs (a)(1) through (8) of this section, consistent with statutory resources concerns, include soil quality, water quality and quantity, plants, energy, wildlife habitat, air quality, increased weather volatility, and related natural resource concerns, that may be used in EQIP implementation are:
(1) Reductions of nonpoint source pollution, such as nutrients, sediment, pesticides, or excess salinity in impaired watersheds consistent with
(2) The reduction of surface and ground water contamination;
(3) The reduction of contamination from agricultural sources, such as animal feeding operations;
(4) Conservation of ground and surface water resources, including improvement of irrigation efficiency;
(5) Reduction of emissions, such as particulate matter, nitrogen oxides, volatile organic compounds, and ozone precursors and depleters that contribute to air quality impairment violations of the National Ambient Air Quality Standards;
(6) Reduction in soil erosion and sedimentation from unacceptable levels on eligible land;
(7) Promotion of at-risk species habitat conservation including development and improvement of wildlife habitat; and
(8) Energy conservation to help save fuel, improve efficiency of water use, maintain production, and protect soil and water resources by more efficiently using fertilizers and pesticides.
(b) In consultation with other Federal agencies and Indian Tribes, NRCS may undertake periodic reviews of the national priorities and the effects of program delivery at the State and local levels to adapt the program to address emerging resource issues. NRCS may—
(1) Use the national priorities to guide the allocation of EQIP funds to the NRCS State offices;
(2) Use the national priorities in conjunction with States, Indian Tribes, and local priorities to assist with prioritization and selection of EQIP applications; and
(3) Periodically review and update the national priorities utilizing input from the public, Indian Tribes, other Federal and State agencies, and affected stakeholders to ensure that the program continues to address priority resource concerns.
(a) NRCS conducts outreach activities at the national, State, Tribal, and local levels to ensure that producers whose land has environmental problems or priority resource concerns are aware and informed that they may be eligible to apply for program assistance.
(b) NRCS will make special outreach to eligible producers with historically low participation rates, including but not restricted to, limited resource, socially disadvantaged, small-scale, beginning farmers or ranchers, veteran farmers or ranchers, Indian Tribes, Alaska Natives, and Pacific Islanders.
(c) NRCS provides outreach to ensure producer participation is not limited based on the size or type of operation or production system, including small-scale, specialty crop, and organic production.
(d) NRCS will notify historically underserved producers, at the time of enrollment in the program, of the option to receive advance payments under § 1466.24 of this part and document the election of each of these producers.
(a)
(b)
(1) Be in compliance with the highly erodible land and wetland conservation provisions at 7 CFR part 12;
(2) Be a producer as determined by NRCS;
(3) Have control of the land for the term of the proposed contract unless an exception is made by the Chief in the case of land administered by the Bureau of Indian Affairs (BIA), Indian lands, or other instances in which the Chief determines sufficient assurance of control;
(i) The Chief may determine that land administered by BIA, Indian land, or other such circumstances provides sufficient assurance of control, and
(ii) If the applicant is a tenant of the land involved in agricultural production or forestry management, the Chief may require the applicant to obtain the written concurrence of the landowner to apply a conservation practice;
(4) Agree to implement the EQIP plan of operations according to the provisions and conditions established in the EQIP contract, including the EQIP contract appendix;
(5) Submit an EQIP plan of operations or plan developed for the purposes of acquiring an air or water quality permit, provided these plans contain elements equivalent to those elements required by an EQIP plan of operations and are acceptable to NRCS as being consistent with the purposes of the program;
(6) Supply information, as required by NRCS, to determine eligibility for the program, including but not limited to, information to verify the applicant's status as a historically underserved producer, and payment eligibility as established by 7 CFR part 1400; and
(7) Provide a list of all members of the legal entity and embedded entities along with members' tax identification numbers and percentage interest in the entity.
(c)
(1) Privately owned land;
(2) Publicly owned land where—
(i) The land is a working component of the participant's agricultural or forestry operation,
(ii) The participant has control of the land for the term of the contract, and
(iii) The conservation practices to be implemented on the public land are necessary and will contribute to an improvement in the identified resource concern; or
(3) Indian land.
(d)
(i) The entity is a public or semi-public agency or organization, and
(ii) Its purpose is to assist private agricultural producers manage water distribution systems.
(2) Water conservation or irrigation practices that are the subject of a contract entered into under paragraph (d)(1) of this section shall be implemented on—
(i) Eligible land of a producer; or
(ii) Land that is—
(A) Under the control of the water management entity, and
(B) Adjacent to eligible land of a producer, provided the Chief determines the adjacent land is necessary to support the installation of a practice or system implemented on eligible land.
(3)(i) The Chief may waive the average adjusted gross income limitation set forth in 7 CFR part 1400 or the aggregate payment limitation set forth in § 1466.24 of this part for a contract under paragraph (d)(1) of this section if the Chief determines that the waiver is necessary to fulfill the objectives of the project.
(ii) In determining whether to grant a waiver under this paragraph, the Chief shall consider—
(A) The number of producers who will benefit from the project;
(B) The conservation benefit of the practices involved in the project;
(C) The amount of non-federal assets leveraged to facilitate the project;
(D) The extent to which the project involves progressive implementation of conservation practices; and
(E) Other criteria as determined by NRCS.
(iii) Notwithstanding any waiver of the aggregate payment limitation, a water management entity or individual member thereof shall not receive, in the aggregate, directly or indirectly, payments under this paragraph, in aggregate, in excess of $900,000 for all contracts entered into under this paragraph by the water management entity during the period of fiscal years 2019 through 2023.
(a) All conservation practices in the EQIP plan of operations must be approved by NRCS and developed and carried out in accordance with the applicable NRCS planning and FOTG technical requirements.
(b) The participant is responsible for implementing the EQIP plan of operations according to the approved implementation schedule.
(c) The EQIP plan of operations must include—
(1) A description of the participant's specific conservation objectives to be achieved;
(2) To the extent practicable, the quantitative or qualitative goals for achieving the participant's conservation and natural resource objectives;
(3) A description of one or more conservation practices in the conservation management system, including conservation planning, design, or installation activities to be implemented to achieve the conservation objectives;
(4) A schedule for implementing the conservation practices, including timing, sequence, operation, and maintenance; and
(5) Information that enables evaluation of the effectiveness of the plan of operations in achieving the conservation objectives.
(d) If an EQIP plan of operations includes an animal waste storage or treatment facility to be implemented on an AFO, the participant must agree to develop a CNMP by the end of the contract period, and any conservation practices in the EQIP plan of operation must be implemented consistent with a CNMP.
(e) An EQIP plan of operations on forest land must implement conservation practices consistent with an approved forest management plan.
(f) NRCS may provide a participant with assistance to implement an EQIP plan of operations which includes irrigation-related practices to address a water conservation resource concern only if the participant establishes through documented evidence, including irrigation history, that such assistance will facilitate a reduction in ground or surface water use on the agricultural operation, unless the producer is participating in a watershed-wide project, as approved by NRCS, which will effectively conserve water in accordance with § 1466.20 of this part.
(a) NRCS will determine the conservation practices for which participants may receive program payments and provide a list of eligible practices to the public.
(b) Payment will not be made to a participant for conservation practices that—
(1) Either the applicant or another producer has initiated or implemented prior to application for the program; or
(2) Has been initiated or implemented prior to contract approval, unless a waiver was granted by the Chief prior to the practice implementation.
(c) Unless waived for circumstances as determined by the Chief, a participant is eligible for payments for water conservation and irrigation-related conservation practices only on land that has been irrigated for 2 of the last 5 years prior to application for assistance.
(d) Upon the development of a new technology or management approach that provides a high potential for optimizing conservation benefits, NRCS may approve an interim conservation practice standard that incorporates the new technology or management approach and provide financial assistance for pilot work to evaluate and assess the performance, efficiency, and effectiveness of the new technology or management approach.
(e) NRCS will at least annually consult with State Technical Committees, Tribal Conservation Advisory Councils, local work groups, and other stakeholders to identify conservation practices with appropriate purposes and the criteria for their application to address priorities to establish wildlife habitat including—
(1) Upland wildlife habitat;
(2) Wetland wildlife habitat;
(3) Habitat for threatened and endangered species;
(4) Fish habitat;
(5) Habitat on pivot corners and other irregular areas of a field; and
(6) Other types of wildlife habitat, as determined by NRCS.
(a) NRCS may use the services of qualified third-party TSPs in its delivery of EQIP technical assistance in accordance with 7 CFR part 652.
(b) Participants may obtain technical services from certified TSPs in accordance with 7 CFR part 652.
(c) NRCS retains approval authority of work done by non-NRCS personnel for the purpose of approving EQIP payments.
(a)
(2) NRCS, to the greatest extent practicable, will group applications of similar crop, forestry, and livestock operations for evaluation purposes.
(3) Applications may be accepted on a continuous basis throughout the year.
(4) Producers who are members of a joint operation may file a single application for ranking purposes for the joint operation.
(b)
(1) Will establish ranking pools to address a specific resource concern by geographic area or agricultural operation type with advice from the State Technical Committee, Tribal Conservation Advisory Council, or local working groups;
(2) Will develop an evaluation process using, where applicable, science-based tools to prioritize and rank applications for funding that considers national, State, and local priority resource concerns, taking into account the factors related to conservation benefits to address identified resource concerns through implementation of conservation practices such as:
(i) The degree of cost-effectiveness of the proposed conservation practices;
(ii) The magnitude of the expected conservation benefits resulting from the conservation treatment and the priority of the resource concerns that have been identified at the local, State, and national levels;
(iii) How effectively and comprehensively the project addresses the designated resource concern or resource concerns;
(iv) Use of conservation practices that provide long-term conservation enhancements;
(v) Compliance with Federal, State, Tribal, or local regulatory requirements concerning soil, water, and air quality; wildlife habitat; and ground and surface water conservation;
(vi) Willingness of the applicant to complete all conservation practices in an expedited manner;
(vii) The ability to improve existing conservation practices or systems which are in place at the time the application is accepted, or that complete a conservation system;
(viii) The applicant's meeting O&M requirements for the lifespan of conservation practices previously funded through EQIP; and
(xi) Other locally defined pertinent factors, such as the location of the conservation practice, the extent of natural resource degradation, and the degree of cooperation by local producers to achieve environmental improvements.
(3) May give priority for applications that include water conservation or irrigation-related practices, and consistent with State law in which the applicant's eligible land is located, if the application—
(i) Results in a reduction in water use in the agricultural operation, or
(ii) Includes an agreement by the applicant not to use any associated water savings to bring new land (other than incidental land needed for efficient operations) under irrigation production unless the producer is participating in a watershed-wide project that will effectively conserve water as designated under paragraph (c) of this section;
(4) May not assign a higher priority to the application solely because it would present the least cost to the program if determined that the conservation benefits of two or more applications for payments are comparable;
(5) Will ensure that the ranking score does not give preferential treatment to applications based on size of the operation, income generated from the operation, type of operation, or other factors not related to conservation benefits to address a resource concern unless authorized in this rule;
(6) Will determine through the evaluation process the order in which applications will be selected for funding; and
(7) Will make available to the public all information regarding priority resource concerns, the list of eligible practices, payment rates, and how EQIP is implemented in a State.
(c)
(1) The project area has a current, comprehensive water resource assessment; and
(2) The project plan incorporates one or more of the practices in paragraphs (c)(2)(i) through (iii) of this section:
(i) Water conservation scheduling, water distribution efficiency, soil moisture monitoring, or an appropriate combination thereof,
(ii) Irrigation-related structural or other measures that conserve surface or ground water, including managed aquifer recovery practices, or
(iii) A transition to water-conserving crops, water-conserving crop rotations, or deficit irrigation; and
(3) The project sponsors have consulted relevant State and local agencies.
(d)
(2) If screening factors are used to designate a higher priority for ranking, all eligible applications screened with a higher priority are ranked and considered for funding before ranking applications that are a lower priority.
(3) NRCS is the approving authority for all EQIP contracts.
(a)
(b)
(1) Identify all conservation practices to be implemented, the timing of practice installation, the O&M requirements for the practices, and applicable payments allocated to the practices under the contract;
(2) Have a term for no more than 10 years;
(3) Incorporate all provisions as required by law or statute, including requirements that the participant will—
(i) Not implement any practices on the enrolled land that would defeat the program's purposes,
(ii) Refund any program payments received with interest, and forfeit any future payments under the program, on the violation of a term or condition of the contract, consistent with the provisions of § 1466.26,
(iii) Refund all program payments received on the transfer of the right and interest of the producer in land subject to the contract, unless the transferee of the right and interest agrees to assume all obligations, including O&M of the EQIP contract's conservation practices, consistent with the provisions of § 1466.25,
(iv) Develop and implement any conservation practices identified in an EQIP plan of operations consistent with a CNMP when the EQIP contract includes an animal waste management facility on an AFO,
(v) Implement conservation practices consistent with an approved forest management plan when the EQIP plan of operations includes forest-related practices that address resource concerns on NIPF,
(vi) Supply information as required by NRCS to determine compliance with contract and program requirements, and
(vii) Specify the participant's responsibilities for the O&M of the applied conservation practices, consistent with the provisions of § 1466.22; and
(4) Specify any other provision determined necessary or appropriate by NRCS to achieve the technical requirements of a practice or purposes of the program.
(c)
(d)
(e)
(i) The waiver is in the best interests of the program; and
(ii) The contract involves either—
(A) A joint operation,
(B) A group project, such as for the development of an anaerobic digestor or the improvement of privately owned and operated irrigation systems that benefits multiple producers or a large area of land; or
(C) A water management entity for which NRCS has approved a payment limitation waiver.
(2) A contract for which the Chief has granted a waiver to the contract limitation set forth in paragraph (d) of this section shall be limited to no more than $900,000.
(f)
(a) The contract will incorporate the O&M agreement that addresses the O&M of conservation practices applied under the contract.
(b) NRCS expects the participant to operate and maintain each conservation practice installed under the contract for its intended purpose for the conservation practice lifespan as specified in the O&M agreement.
(c) Conservation practices installed before the contract execution but included in the contract to obtain the conservation benefits agreed upon, must be operated and maintained as specified in the contract and O&M agreement.
(d) NRCS may periodically inspect the conservation practice during the contract duration as specified in the O&M agreement to ensure that O&M requirements are being carried out and that the conservation practice is fulfilling its intended objectives.
(e) If NRCS finds during the contract that a participant is not operating and maintaining practices in an appropriate manner, NRCS may terminate the contract and request a refund of payments made for that conservation practice under the contract.
(a)
(1) The conservation practice cost-effectiveness, implementation efficiency, and innovation;
(2) The degree and effectiveness in treating priority resource concerns;
(3) The number of resource concerns the practice addresses;
(4) The longevity of the practice's conservation benefit;
(5) The conservation practice's ability to assist producers in meeting regulatory requirements; and
(6) Other pertinent local considerations.
(b)
(1) Payment to a participant for performing a practice may not exceed, as determined by NRCS, the maximum payment percentages in paragraphs (b)(1)(i) through (iii) of this section:
(i) Seventy-five percent of the estimated costs incurred by implementing the conservation practice,
(ii) One hundred percent of the estimated income foregone, or
(iii) Both conditions in paragraphs (b)(1)(i) and (ii) of this section, where a producer incurs costs in implementing a conservation practice and foregoes income related to that practice implementation.
(2) In determining the amount and rate of estimated income foregone, NRCS may assign higher significance to conservation practices which promote—
(i) Soil health;
(ii) Water quality and quantity improvement;
(iii) Nutrient management;
(iv) Pest management;
(v) Air quality improvement;
(vi) Wildlife habitat development, including pollinator habitat;
(vii) Invasive species management; or
(viii) Other natural resource concerns of regional or national significance, as determined by NRCS.
(3) Notwithstanding paragraph (b)(1) of this section, a participant that meets the definition of a historically underserved producer under § 1466.3 may be awarded the applicable payment rate and an additional rate that is not less than 25 percent above the applicable rate, provided this increase does not exceed 90 percent of the estimated costs incurred for implementing the conservation practice.
(4) NRCS shall reduce the payments to a participant through EQIP proportionately below the contracted payment rate established by the Chief, so that the total combined payments for a conservation practice from EQIP and other USDA sources does not exceed 100 percent of the estimated costs incurred for implementing or performing the conservation practice.
(5) When NRCS enters into a formal agreement with partners who provide financial support to help implement program initiatives, the Chief shall adjust NRCS program payment percentages to provide practice payment rates to an amount such that the total financial assistance to the participant from NRCS and the partner does not exceed the amount needed to encourage voluntary adoption of the practice. The formal agreement must be approved by NRCS prior to announcement of the program initiative and adjusted payment rates.
(6) NRCS may provide payments for conservation practices on some or all of the operations of a participant related to organic production and the transition to organic production. Payments may not be provided for any costs associated with organic certification, enterprise costs associated with transition to organic production, or for practices or activities that are eligible for financial assistance under the National Organic Program (7 U.S.C. 6523).
(c)
(i) Addresses specific causes of impairment relating to excessive nutrients in ground or surface water;
(ii) Addresses the conservation of water, to advance drought mitigation and declining aquifers;
(iii) Meets other environmental priorities and other priority resource concerns identified in habitat or other area restoration plans; or
(iv) Is geographically targeted to address a natural resource concern in a specific watershed.
(2) Notwithstanding paragraph (b) of this section, in the case of a practice designated as high priority under paragraph (c)(1) of this section a participant may receive an increased amount provided the payment does not exceed 90 percent of the incurred costs estimated for the conservation practice.
(d)
(a)
(2) Except as otherwise provided in § 1466.6, the limitation in paragraph (a)(1) of this section cannot be waived.
(b)
(c)
(1) The provisions in 7 CFR part 1400, Payment Limitation and Payment Eligibility;
(2) Except as otherwise set forth in this part, States, political subdivisions, and entities thereof are not considered to be producers eligible for payment;
(3) In accordance with 7 CFR part 1400, an applicant applying as a joint operation or legal entity must provide a list of all members of the legal entity and joint operation and associated embedded entities, along with the members' tax identification numbers and percentage interest in the joint operation or legal entity, which all legal entities or persons applying, either alone or as part of a joint operation, must provide to be eligible to receive an EQIP payment;
(4) Contracts with Indian Tribes are not subject to payment or contract limitations, provided that—
(i) Indian Tribes certify in writing that no one individual, directly or indirectly, will receive more than the payment limitation,
(ii) Certification provided at the time of enrollment covers the entire contract period, and
(iii) The Tribal entity provides, upon request from NRCS, a listing of individuals and payment made, by Social Security number or other unique identification number, during the previous year for calculation of overall payment limitations, with the conditions in paragraphs (c)(4)(iii)(A) through (C) of this section:
(A) Payment limitations apply to individual Tribal member(s) when applying and subsequently being granted a contract as an individual(s);
(B) American Indians, Alaska Natives, and Pacific Islanders may use another unique identification number for each individual eligible for payment; and
(C) Any individual Tribal member who is identified utilizing a unique identification number as an alternative to a tax identification number will utilize only that identifier for all contracts to which the individual Tribal member receives a payment directly or indirectly;
(5) Any cooperative association of producers that markets commodities for producers is not eligible for payment;
(6) NRCS will confirm eligibility for payments in accordance with 7 CFR part 1400, subpart F, Average Adjusted Gross Income Limitation, prior to contract approval;
(7) To be eligible for payments for conservation practices related to organic production or the transition to organic production:
(i) Participants who are USDA certified organic producers will implement conservation practices that are consistent with an approved organic system plan (OSP), and
(ii) Participants who are transitioning to organic production (including participants who are exempt from certification as defined by the Organic Foods Production Act of 1990) will develop an OSP and implement conservation practices that are consistent with OSP requirements and purposes of the program;
(8) A participant is not eligible for payments for conservation practices on eligible land if the participant receives payments or other benefits for the same practice to address the same resource concern on the same land under any other conservation program administered by USDA; and
(9) Before NRCS approves and issues any EQIP payment, the participant must certify that the conservation practice has been completed in accordance with contract requirements, and NRCS or an approved TSP must certify that the practice has been carried out in accordance with the applicable NRCS FOTG technical standards.
(d)
(2) Eligibility for advance payment is contingent upon the requirement that the participant obtain an NRCS-approved practice design prior to approval of the advance payment.
(3) The participant must expend advanced funds for practice implementation within 90 days from receipt of funds or return the funds to NRCS within a reasonable time as determined by NRCS.
(a) NRCS may modify a contract, if—
(1) The participant agrees to the modification; and
(2) NRCS determines the modified contract continues to meet the purposes of the program.
(b) NRCS may approve a transfer of the contract if—
(1) NRCS receives written notice that identifies the new producer who will take control of the acreage, as required in paragraph (e) of this section;
(2) The new producer meets program eligibility requirements within a reasonable time frame, as specified in the EQIP contract;
(3) The new producer agrees to assume the rights and responsibilities for the acreage under the contract; and
(4) NRCS determines that the purposes of the program will continue to be met despite the original participant's losing control of all or a portion of the land under contract.
(c)(1) Until NRCS approves the transfer of contract rights, the transferee is not a participant in the program and may not receive payment for a conservation practice commenced prior to approval of the contract transfer.
(2) For contract payment purposes, NRCS will consider the transferor to be the participant to whom payments will be made for conservation practices implemented during the pendency of the approval of contract transfer.
(d) NRCS may terminate the entire contract if, within the time specified in the contract, a participant does not provide NRCS with written notice regarding any voluntary or involuntary loss of control of any acreage under the EQIP contract, which includes changes in a participant's ownership structure or corporate form.
(e) Unless NRCS receives timely notice of a loss of control and approves a transfer of contract rights, a participant losing control of any acreage will constitute a violation of the EQIP contract and NRCS may terminate the contract and require a participant to refund all or a portion of any financial assistance provided.
(f) NRCS may not approve a contract transfer and may terminate the contract in its entirety if NRCS determines that the loss of control is voluntary, the new producer is not eligible or willing to assume responsibilities under the contract (including payment rate eligibility), or the purposes of the program cannot be met.
(g) In the event a conservation practice fails through no fault of the participant, NRCS may issue payments to reestablish the practice, at the rates established in accordance with § 1466.23, provided such payments do not exceed the payment limitation requirements as set forth in § 1466.24.
(h) In the case of death, incompetency, or disappearance of any participant, NRCS may, as identified in the EQIP contract—
(1) Terminate the contract;
(2) Make any payments due under this part pursuant to guidance under applicable provisions of 7 CFR parts 707 and 1400 (including payment to successor(s)); or
(3) Take any further action that the Chief determines is fair and reasonable in light of all of the circumstances.
(a) NRCS may terminate a contract—
(1) Without the consent of the participant where NRCS determines that the participant violated the contract; or
(2) With the consent of the participant if NRCS determines that the termination is in the public interest.
(b)(1) NRCS may allow a participant in a contract terminated in accordance with the provisions of paragraph (a) of this section to retain a portion of any payments received appropriate to the effort the participant has made to comply with the contract, or in cases of hardship, when forces beyond the participant's control prevented compliance with the contract.
(2) The condition that is the basis for the participant's inability to comply with the contract must not have existed at the time the contract was executed by the participant.
(3) If a participant believes that such a hardship condition exists, the participant may submit a request with NRCS for relief pursuant to this paragraph and any such request must contain documentation sufficient for NRCS to make a determination that this hardship condition exists.
(c)(1) If NRCS determines that a participant is in violation of the terms of a contract, O&M agreement, or documents incorporated by reference into the contract, NRCS may give the participant a reasonable period of time, as determined by NRCS, to correct the violation and comply with the terms of the contract and attachments thereto.
(2) If a participant continues to be in violation after such reasonable time, NRCS may terminate the EQIP contract in accordance with § 1466.26(f).
(d) Notwithstanding the provisions of paragraph (c) of this section, a contract termination is effective immediately upon a determination by NRCS that the participant—
(1) Submitted false information or filed a false claim;
(2) Engaged in any act, scheme, or device for which a finding of ineligibility for payments is permitted under the provisions of § 1466.35; or
(3) Incurred a violation of the contract provisions that cannot be corrected in a timeframe established by NRCS.
(e) If NRCS terminates a contract due to breach of contract, the participant forfeits all rights to future payments under the contract, pay liquidated damages, and refund all or part of the payments received, plus interest.
(1) NRCS may require a participant to provide only a partial refund of the payments received if a previously installed conservation practice can function independently and is not adversely affected by the violation or the absence of other conservation practices that would have been installed under the contract.
(2) NRCS may reduce or waive the liquidated damages depending upon the circumstances of the case.
(3) When terminating a contract, NRCS may reduce the amount of money owed by the participant by a proportion that reflects the good faith effort of the participant to comply with the contract or the existence of hardships beyond the participant's control that have prevented compliance with the contract.
(4) Any participant whose EQIP contract is terminated under paragraph (d) of this section may be subject to debarment or suspension under 7 CFR part 1407.
(f) NRCS may terminate a contract that provides payments to a participant for conservation practices related to organic production, if NRCS determines that the participant is not implementing practices according to provisions of the contract agreement or does not meet provisions of this part.
In addition to the terms defined in § 1466.3, the definitions in this section apply to this subpart:
(1) A third-party private entity the primary business of which is related to agriculture;
(2) A nongovernmental organization with experience working with agricultural producers; or
(3) A governmental organization.
(a) The purpose of Conservation Innovation Grants (CIG) is to stimulate the development and adoption of innovative conservation approaches and technologies while leveraging Federal investment in environmental enhancement and protection in conjunction with agricultural production. Notwithstanding any limitation of this part, NRCS administers CIG in accordance with this subpart. Unless otherwise provided for in this subpart, grants under CIG are subject to the provisions of 2 CFR part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.
(b) Applications for CIG are accepted from the 50 States, District of Columbia, Commonwealth of Puerto Rico, Guam, Virgin Islands of the United States, American Samoa, and Commonwealth of the Northern Mariana Islands.
(c) NRCS may award grants to applicants either through a national competition or, at the Chief's discretion, separate State-level components, either of which may be offered multiple times each fiscal year.
(d) Applications for CIG should propose innovative projects or activities that—
(1) Demonstrate the use of innovative approaches and technologies to leverage Federal investment in environmental enhancement and protection, in conjunction with agricultural production;
(2) Promote innovative on-the-ground conservation, including pilot projects and field demonstrations of promising approaches or technologies;
(3) Lead to the transfer of conservation technologies, management systems, and innovative approaches (such as market-based systems) into
(e) For NRCS to consider a proposal eligible for CIG funding, the applicant must clearly demonstrate the innovative features of the proposed technology or approach.
(f) An applicant may demonstrate the innovative features of the proposed technology or approach through a variety of means, such as by establishing that it—
(1) Uses a technology or approach that was studied sufficiently to indicate a high probability for success;
(2) Demonstrates, evaluates, and verifies the effectiveness, utility, affordability, and usability of natural resource conservation technologies and approaches in the field;
(3) Adapts and transfers conservation technologies, management, practices, systems, approaches, and incentive systems to improve performance and encourage adoption; or
(4) Introduces proven conservation technologies and approaches to a geographic area or agricultural sector where that technology or approach is not currently in use.
(g) Projects or activities under CIG shall comply with all applicable Federal, Tribal, State, and local laws and regulations throughout the duration of the project.
(a)
(1) CIG funding is available for single- or multi-year projects.
(2) The Chief will determine the funding level for CIG on an annual basis.
(3) CIG funding is made available from EQIP funds made available for EQIP.
(4) The Chief may establish funding limits for individual grants.
(5) The Chief will publicly announce funding for CIG.
(b)
(2) Applicants must provide non-federal funding at least equal to the amount of federal funds requested.
(3) Non-federal funds must be derived from cash or in-kind sources.
(c)
(d)
(a) CIG applications must describe the use of innovative approaches or technologies to address announced national or State program priorities.
(b) NRCS may consider as eligible for CIG any individual or non-federal entity; however, all agricultural producers receiving a direct or indirect payment through participation in a CIG project to address announced national or State program priorities must—
(1) Be in compliance with the highly erodible land and wetland conservation provisions of 7 CFR part 12;
(2) Be a producer as determined by NRCS; and
(3) Have control of the land for the term of the proposed contract unless an exception is made by the Chief in the case of land administered by the Bureau of Indian Affairs (BIA), Indian lands, or other instances in which the Chief determines that there is sufficient assurance of control.
(c) NRCS will annually publish detailed guidance on how to apply for the grants competition(s) to address announced national or State program priorities.
(a) A peer review panel evaluates completed applications based on the application evaluation criteria that address announced national or State program priorities.
(b) The peer review panel forwards compiled application evaluations to a Grant Review Board (Board).
(c) The Board reviews the peer review panel evaluations and considers review comments from State Conservationists. The Board then makes recommendations for awards to the Chief, who makes final selections.
(d) The NRCS National Headquarters makes a grant or cooperative agreement award after the Chief selects a grantee and the grantee agrees to the terms and conditions of the NRCS grant or cooperative agreement document.
(a) NRCS has the option of implementing a State-level CIG component. Except as otherwise indicated of this section, State-level CIG awards follows the requirements of this subpart for national-level CIG awards.
(b) Funding availability, application, and submission information for State competitions are announced through public notices separately from the national program and emphasize projects that cover limited geographic areas including individual farms, multicounty areas, or small watersheds.
(c) The State Conservationist determines the funding level for the State CIG competition and creates a review process for applications that considers various relevant criteria, including any potential conflicts of interest.
(d) NRCS may choose to adhere to the CIG national priorities or select other priority resource concerns.
(a) This section applies to all CIG awardees under this subpart.
(b) Allocation of rights to patents and inventions shall be in accordance with 2 CFR part 200.
(c) Small businesses may retain the principal worldwide patent rights to any invention developed with the support of USDA.
(d) USDA may—
(1) Receive a royalty-free license for Federal Government use,
(2) Reserve the right to require the patentee to license others in certain circumstances, and
(3) Require that anyone exclusively licensed to sell the invention in the United States must normally manufacture it domestically.
(a)
(b)
(1) The extent to which the organization conducts business that is related to agriculture;
(2) The quantity and quality of experience the organization has working with agricultural producers; or
(3) Other factors related to the organization's likelihood to succeed or the proposed trial's likelihood to fulfill the purpose of OFCIT, as determined by the Chief.
(c)
(d)
(1) The extent to which the proposed conservation approach makes use of new or innovative conservation practices, systems, or technology;
(2) The extent to which the proposed conservation approach applies conservation practices, systems, or technology in new or innovative ways, geographic regions, or agricultural sectors; or
(3) The extent to which the proposed conservation approach uses new or innovative processes or financing for implementing conservation practices or activities.
(e)
(1) The participating producer complies with the highly erodible land and wetland conservation provisions of 7 CFR part 12;
(2) The producer controls the land for the term of the proposed OFCIT agreement, unless an exception is made by the Chief in the case of land administered by the BIA, Indian lands, or other instances in which the Chief determines that there is sufficient assurance of control;
(3) The producer is within the income limitations set forth in part 1400, subpart F of this chapter; and
(4) The land subject to the project proposal meets the definition of eligible land under § 1466.3.
(f)
(g)
(2) The contract period in excess of 3 years shall be no longer than reasonably and foreseeably necessary to fulfill the purpose of OFCIT, as determined by the Chief.
(3) When determining whether to set a contract period longer than 3 years, NRCS shall consider whether such a period is appropriate including whether the period supports—
(i) Adaptive management over multiple crops years; and
(ii) Adequate data collection and analysis by a producer or eligible entity to report the natural resource and agricultural production benefits of the new or innovative conservation approaches to the Secretary.
(h)
(i)
(1) Technical assistance to a participating producer or eligible entity with respect to the design, installation, and management of the new or innovative conservation approaches;
(2) Technical assistance to a participating eligible entity with respect to data analyses of the OFCIT; and
(3) Financial assistance to a participating producer (either directly or through an eligible entity) that may include payments to compensate for income foregone, as appropriate to address the increased economic risk potentially associated with new or innovative conservation approaches:
(j)
(a) The Soil Health Demonstration (SHD) shall make use of the OFCIT process, including eligibility requirements, and funding set forth in § 1466.37 to provide incentives to producers to implement conservation practices that improve soil health, increase carbon levels in the soil, or both.
(b) In carrying out SHD, NRCS shall coordinate with eligible entities to establish protocols for measuring carbon levels in the soil and testing carbon levels on land where conservation practices described in paragraph (a) of this section were applied to evaluate gains in soil health as a result of the practices implemented by the producers in the soil health demonstration trial.
(c) For each SHD contract, NRCS shall ensure that appropriate data is collected and analyzed while respecting relevant privacy safeguards by transforming the data into statistical or aggregated form so as not to include any identifiable or personal information of individual producers.
(a) The Chief shall, in consultation with the State Technical Committee, develop a set of high priority areas for each State.
(b) The set of high priority areas described in paragraph (a) of this section must encompass every region within the State.
(c) A high priority area may encompass an entire State or overlap with other high priority areas such that a given parcel of land may exist in multiple high priority areas.
(d) The Chief, in consultation with the State Technical Committee, shall identify up to three priority resource concerns for each land use within a given high priority area.
(e) An identification under paragraph (d) of this section of a priority resource concern for one land use shall not preclude NRCS from identifying the same priority resource concern for a different land use within the same high priority area.
(f) NRCS shall identify which practices qualify as incentive practices for each land use within each high priority area based on the priority resource concern(s) identified for that land use.
(g) NRCS shall make public all determinations made under this section.
(a) NRCS will give priority to applications that address eligible priority resource concerns identified under § 1466.40.
(b) NRCS will evaluate applications relative to other applications for similar agriculture and forest operations.
(c) NRCS shall not select an application for an incentive contract that does not contain at least one qualifying incentive practice as identified under § 1466.40.
(a)
(2) Payment for technical services may be included in the contract pursuant to requirements of this part.
(b)
(1) Identify all incentive practices to be implemented, the timing of practice installation, responsibilities of the participant, the O&M requirements for the practices, and applicable payments allocated to the practices under the contract;
(2) Have a period as set forth in § 1466.43;
(3) Specify any other provision determined necessary or appropriate by NRCS to achieve the technical requirements of a practice or purposes of the program.
(c)
(a) NRCS shall apply science-based criteria to determine an appropriate contract period to achieve desired conservation benefits.
(b) The period determined as appropriate under paragraph (a) of this section shall not be less than 5 years nor exceed 10 years.
(a)
(2) Payments received for technical assistance will be excluded from the limitation in paragraph (a)(1) of this section.
(3) The limitation in paragraph (a)(1) of this section cannot be waived.
(b)
(c)
(d)
(1) O&M of the incentive practice; and
(2) Income foregone by the participant, including payments to address, as appropriate—
(i) Increased economic risk,
(ii) Loss in revenue due to anticipated reductions in yield, and
(iii) Economic losses during transition to a resource-conserving cropping system, resource-conserving crop rotation, or resource-conserving land uses.
A participant may obtain administrative review of an adverse decision under EQIP in accordance with 7 CFR parts 11 and 614. Determination in matters of general applicability, such as payment rates, payment limits, the designation of identified priority resource concerns, and eligible conservation practices are not subject to appeal.
Participants who carry out conservation practices will be responsible for obtaining the authorities, rights, easements, permits, or other approvals necessary for the implementation, operation, and maintenance of the conservation practices in keeping with applicable laws and regulations. Participants will be responsible for compliance with all laws and for all effects or actions resulting from the participant's performance under the contract.
An authorized NRCS representative will have the right to enter land under an NRCS conservation program contract for the purposes of determining eligibility and for ascertaining the accuracy of any representations related to contract performance. Access will include the right to provide technical assistance, determine eligibility, inspect any work undertaken under the contract, and collect information necessary to evaluate the conservation practice performance specified in the contract. The NRCS representative will make an effort to contact the participant prior to the exercising this provision.
(a) If a participant relied upon the advice or action of an authorized NRCS representative and did not know, or have reason to know, that the action or advice was improper or erroneous, NRCS may accept the advice or action as meeting program requirements and may grant relief, to the extent it is deemed desirable by NRCS, to provide a fair and equitable treatment because of the good-faith reliance on the part of the participant. The financial or technical liability for any action by a participant that was taken based on the advice of an NRCS certified non-USDA TSP is the responsibility of the certified TSP and will not be assumed by NRCS when NRCS authorizes payment. Where a participant believes that detrimental reliance on the advice or action of an NRCS representative resulted in ineligibility or a program violation, but the participant believes that a good-faith effort to comply was made, the participant may request equitable relief under 7 CFR 635.3.
(b) If, during the term of an EQIP contract, a participant has been found in violation of a provision of the EQIP contract, the O&M agreement, or any document incorporated by reference through failure to fully comply with that provision, the participant may be eligible for equitable relief under 7 CFR 635.4.
(c) NRCS reserves the right to correct all errors in entering data or the results of computations in an EQIP contract. If a participant does not agree to such corrections, NRCS shall terminate the contract.
(a) Except as provided in paragraph (b) of this section, any payment or portion thereof to any person, joint venture, legal entity, or Tribe will be made without regard to questions of this title under State law and without regard to any claim or lien against the crop, or proceeds thereof, in favor of the owner or any other creditor except agencies of the U.S. Government. The regulations governing offsets and withholdings found at part 1403 of this chapter will be applicable to contract payments.
(b) EQIP participants may assign any payments in accordance with part 1404 of this chapter.
(a) A person, joint operation, legal entity, or Indian Tribe that is determined to have erroneously represented any fact affecting a program determination made in accordance with this part will not be entitled to contract payments and must refund to NRCS all payments, plus interest, determined in accordance with 7 CFR part 1403.
(b) A producer who is determined to have knowingly—
(1) Adopted any scheme or device that tends to defeat the purpose of the program;
(2) Made any fraudulent representation;
(3) Adopted any scheme or device for the purpose of depriving any tenant or sharecropper of the payments to which
(4) Misrepresented any fact affecting a program determination, will refund to NRCS all payments, plus interest, determined in accordance with 7 CFR part 1403, received by such producer with respect to all contracts. The producer's interest in all contracts will be terminated.
(a) A participant in EQIP may achieve environmental benefits that may qualify for environmental credits under an environmental credit-trading program. NRCS asserts no direct or indirect interest on these credits. However, NRCS retains the authority to ensure that EQIP purposes are met. In addition, any requirements or standards of an environmental market program in which an EQIP participant simultaneously enrolls to receive environmental credits must be compatible with the purposes and requirements of the EQIP contract and with this part.
(b) The participant must meet all O&M requirements for EQIP-funded activities, consistent with §§ 1466.21 and 1466.22. Where activities required under an environmental credit agreement may affect the land and conservation practices under an EQIP contract, NRCS recommends that EQIP participants request assistance with the development of a compatibility assessment prior to entering into any credit agreement. The EQIP contract may be modified in accordance with policies outlined in § 1466.25, provided the modification meets EQIP purposes and is in compliance with this part.
(c) EQIP participants may not use EQIP funds to implement conservation practices and activities that the participant is required to establish as a result of a court order. EQIP funds may not be used to satisfy any mitigation requirement for which the EQIP participant is responsible.