[Federal Register Volume 63, Number 196 (Friday, October 9, 1998)]
[Pages 54516-54519]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27231]



Federal Highway Administration
[FHWA Docket No. FHWA 98-4262]

Transportation Equity Act for the 21st Century; Implementation 
Procedures for the Approval and Administration of Projects To Reduce 
the Evasion of Motor Fuel and Other Highway Use Taxes

AGENCY: Federal Highway Administration (FHWA), DOT.

ACTION: Notice; request for comments.


SUMMARY: Over the years, funds have been authorized by the Congress for 
use by the States and the Internal Revenue Service (IRS) to reduce the 
evasion of motor fuel and highway use taxes. This document sets forth 
revised procedures, pursuant to sections 1101 and 1114 of the 
Transportation Equity Act for the 21st Century (TEA-21) (Pub. L. 105-
178, 112 Stat. 107), for allocating these funds to the States and the 
IRS and provides implementation guidance for the approval and 
administration of such projects under 23 U.S.C. 143. The FHWA seeks 
public comment from all interested parties regarding the revised 
funding allocation and administrative procedures described in this 
notice. The procedures described in this notice may be modified based 
on the comments received.

DATES: Comments must be received on or before November 23, 1998.

ADDRESSES: Your signed, written comments must refer to the docket 
number appearing at the top of this document and you must submit the 
comments to the Docket Clerk, U.S. DOT Dockets, Room PL-401, 400 
Seventh Street, SW., Washington, DC 20590-0001. All comments received 
will be available for examination at the above address between 10 a.m. 
and 5 p.m., e.t., Monday through Friday, except Federal holidays. Those 
desiring notification of receipt of comments must include a self-
addressed, stamped envelope or postcard.

FOR FURTHER INFORMATION CONTACT: Mr. Stephen J. Baluch, Office of 
Policy Development, 202-366-0570; or Mr. Wilbert Baccus, Office of the 
Chief Counsel, 202-366-0780; Federal Highway Administration, 400 
Seventh Street, SW., Washington, D.C. 20590. Office hours are from 7:45 
a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal 


Electronic Access

    Internet users can access all comments received by the U.S. DOT 
Dockets, Room PL-401, by using the universal resource locator 
(URL):http://dms.dot.gov. It is available 24 hours each day, 365 days 
each year. Please follow the instructions online for more information 
and help.
    An electronic copy of this document may be downloaded using a modem 
and suitable communications software from the Government Printing 
Office's Electronic Bulletin Board Service at (202)512-1661. Internet 
users may reach the Federal Register's home page at: http//
www.nara.gov/fedreg and the Government Printing Office's database at: 


    Sections 1101 and 1114 of the TEA-21 authorize funding for highway 
use tax evasion projects under 23 U.S.C 143. This notice sets forth 
certain procedures for allocating those funds to the States and 
provides guidance for the approval and administration of projects to 
reduce the evasion of motor fuel and other highway use taxes. Funding 
authorized for highway use tax evasion projects includes $10 million 
for fiscal year (FY) 1998 and $5 million per year for FY 1999 through 
2003, and up to one-fourth of 1 percent of funds apportioned to the 
States for the Surface Transportation Program (STP) for ``initiatives 
to halt the evasion of payment of motor fuel taxes'' (23 U.S.C. 
    In accordance with 23 U.S.C. 143(c), the major part of the funding 
authorized in section 1101(a)(14) of TEA-21 for highway use tax evasion 
projects will be provided to the IRS for the development and 
maintenance of an automated fuel reporting system. The Federal Highway 
Administrator, as delegated by the Secretary of Transportation 
(Secretary), and the Commissioner of the IRS have approved a Memorandum 
of Understanding (MOU) for the purposes of implementing this system. A 
copy of the MOU is provided as an attachment to this notice. The MOU 
establishes the funding to be provided to the IRS. As long as the IRS 
has met the funding needs to establish and operate the automated fuel 
reporting system, pursuant to the Secretary's authority under 23 U.S.C. 
143(b)(2), the IRS may use a portion of the funds for continuation of 
the IRS examination and criminal investigation activities of the Joint 
Federal/State Motor Fuel Tax Compliance Project (or Joint Compliance 
Project), previously funded under the Intermodal Surface Transportation 
Efficiency Act of 1991 (ISTEA), Public Law 102-240, 105 Stat. 1914, or 
for any other activity specified in 23 U.S.C. 143(b).
    All funds not provided to the IRS will be allocated to the States 
for efforts to reduce the evasion of highway use taxes, including 
continued participation in regional motor fuel tax enforcement task 
forces. Nine such task forces have been organized since 1991 covering 
all States, under the coordination and leadership of the IRS district 
offices and State revenue agencies in the nine lead States (California, 
Florida, Indiana, Massachusetts, North Carolina, Nebraska, New Jersey, 
Oregon, and Texas).
    The FHWA intends to distribute the available funds so as to 
provide, if possible, at least half of the annual funding allocation 
that was provided under the ISTEA, that is, $50,000 for lead States and 
$25,000 for all other States and the District of Columbia. In each 
fiscal year, allocations would be made only to States that have 
expended and billed the FHWA for all but 1 year's

[[Page 54517]]

amount of obligated funds. In order for sufficient funds to be 
available to meet this target allocation, the following actions are 

    1. State revenue agencies are encouraged to extend the 
completion date for current projects utilizing unexpended funds (the 
FHWA will grant reasonable extensions of time up to December 2003 
for current projects);
    2. States should submit timely reimbursement vouchers so the 
FHWA can track the balance of unexpended funds for use in making 
annual allocations; and
    3. Funds not obligated by June 30 would not be restored in 
future years.

    The reduced allocations to the States will not be sufficient to 
fully fund some of the expenditure items previously budgeted, such as, 
auditor and investigator salaries, equipment purchases, and 
computerization initiatives. Funding for such items would have to be 
provided from the one-fourth percent allowable use of STP funds by 
mutual agreement between the State transportation and revenue agencies. 
But in any event, the $5 million total available for distribution to 
the States for FYs 1999-2003 should, by judicious use of remaining 
unexpended funds and careful allocation to meet State needs, provide 
sufficient minimum funding for all States to continue participation in 
the activities of the Joint Compliance Project.

Steering Committee

    At the outset of the Joint Compliance Project in 1990, a Steering 
Committee was formed to lend guidance to the regional task forces, 
serve as a clearinghouse for exchanging information among the task 
forces, recommend strategies for expanding the project, review 
progress, and resolve differences among project participants. The FHWA 
plans to continue using the Steering Committee, with at least one 
meeting each year, to assist the States, the IRS, and the task forces 
in adapting to the changing funding situation under TEA-21. Lead States 
should continue to designate a representative and alternate to serve on 
the Steering Committee. In addition, under the MOU to be signed between 
the IRS and the FHWA, the IRS has proposed forming a work group 
comprised of State, industry, and Federal agency participants that will 
develop and monitor an implementation plan for the automated fuel 
reporting system.

Project Requirements

    The following requirements apply to highway use tax evasion 
projects funded from allocated funds under section 1101(b)(14) or from 
STP funds:

    1. Obligation authority--
    a. Allocated funds--Obligation authority will be provided when 
funds are allocated by an FHWA Notice. The funds allocated to a State 
shall remain available to the State revenue agency responsible for 
motor fuel tax enforcement for obligation until June 30 of each fiscal 
year, at which time any unobligated funds will be withdrawn.
    b. STP funds--Funds are available for obligation at the request of 
the State highway agency for the period specified in the law, i.e., for 
a period of up to 3 years following the year authorized. Funds 
obligated shall be included within the obligation limitation 
distributed to the State by the FHWA.
    2. Federal share (allocated funds and STP funds)--
As provided in 23 U.S.C. 143(b)(6), funds are available at 100 percent 
Federal share.
    3. Maintenance of effort certification--
    a. Allocated funds--As specified in 23 U.S.C. 143(b), States 
wishing to receive allocations for tax evasion projects must certify 
that the aggregate expenditure of funds of the State, exclusive of 
Federal funds, for motor fuel tax enforcement activities will be 
maintained at a level which does not fall below the average level of 
such expenditures for its last 2 fiscal years.
    b. STP funds--Maintenance of effort certification is not required.
    4. Task force participation--
    a. Allocated funds--To receive allocations under this program, the 
State revenue agency responsible for enforcement of State motor fuel 
taxes shall sign the Memorandum of Understanding agreeing to 
participate in at least one of the regional task forces. States may 
join one or more task forces to best meet their needs for coordinated 
fuel tax enforcement.
    b. STP funds--Signing the Memorandum of Understanding for 
participation in a regional task force is not required.
    5. Project agreement--
    a. Allocated funds--The State revenue agency shall sign two copies 
of the Project Agreement (FHWA-1548 as amended after July 1, 1998).
    b. STP funds--The State highway agency shall sign the Project 
Agreement (PR-2). (A copy of the Project Agreement forms (FHWA-1548 and 
PR-2) may be obtained from the contacts listed in this notice.)
    6. Project eligibility--
    a. Allocated funds--Funds are available for projects to reduce 
evasion of motor fuel and other highway use taxes.
    b. STP funds--Funds are available for ``initiatives to halt the 
evasion of payment of motor fuel taxes'' (emphasis added) as specified 
in 23 U.S.C. 143(b)(8).
    7. Allowable costs (allocated funds and STP funds)--An estimate of 
costs by category of expenditure shall be attached to the Project 
Agreement. Allowable costs shall be determined in accordance with the 
Office of Management and Budget Circular A-87, ``Cost Principles for 
State, Local and Indian Tribal Governments.'' With respect to travel 
costs, the FHWA project funds may be used:
    a. To reimburse State travel costs for motor fuel tax examination 
and criminal investigation training;
    b. For participation at regional task force meetings and other task 
force activities, such as, joint audits and investigations;
    c. For participation in International Fuel Tax Agreement audit and 
enforcement committee activities;
    d. For participation at meetings of the work group for the 
automated fuel reporting system;
    e. For other cooperative State efforts to foster motor fuel tax 
compliance, such as, the meetings of the Uniformity Committee and the 
annual and regional Federation of Tax Administrators motor fuel 
    f. For participation of lead State representatives at Steering 
Committee meetings; and
    g. For participation of representatives from other States at 
Steering Committee meetings when requested by the Steering Committee or 
to participate in other special activities arranged by the Steering 
    8. Intergovernmental review (allocated funds and STP funds)--The 
State shall comply with the intergovernmental review requirements of 49 
CFR part 17 according to the procedures established by the State.
    9. Environmental impacts (allocated funds and STP funds)--With 
respect to environmental impact and related procedures (23 CFR 771), 
projects are considered to be a categorical exclusion under 23 CFR 
    10. Compliance with planning requirements--Highway use tax evasion 
projects are deemed to be part of the long range plans discussed in 23 
U.S.C. 134 and 135 with respect to enforcement of any highway user 
taxes the revenues from which are used to finance the implementation of 
projects in the plan. Projects should be included in the Transportation 
Improvement Program (TIP) as follows:
    a. Allocated funds--Since funds are allocated to State revenue 
agencies only for the purpose of fuel tax evasion project activities, 
projects are not

[[Page 54518]]

required to be listed in the TIP discussed in 23 U.S.C. 134 and 135.
    b. STP funds--Highway use tax evasion projects carried out by State 
agencies shall be included in the transportation improvement program 
(TIP) described in 23 U.S.C. 135. Highway use tax evasion projects 
carried out by local government agencies within the boundaries of 
metropolitan areas shall be included in the metropolitan TIP described 
in 23 U.S.C. 134.
    11. Project approval (allocated funds and STP funds)--The State 
shall request FHWA approval for projects by submitting a letter to the 
FHWA Division Administrator in the State requesting funds for the 
project along with the following items:
    a. Evidence of completion of the intergovernmental review 
    b. The cost estimate by expenditure category; and
    c. A signed original copy of the Project Agreement.
    12. Project modifications (allocated funds and STP funds)--The 
State shall request in writing the FHWA's approval of the following 
items as necessary:
    a. Revised budget whenever the estimate for a single cost category 
changes by more than 10 percent of the total agreement amount, i.e., 
$5,000 for a $50,000 project;
    b. Proposal for procurement of professional services, including 
identification of the contractor and estimated cost, when the estimated 
cost exceeds $10,000;
    c. Extension of project completion date and reasons for the 
extension; and
    d. Additional funding if required to complete the project.
    13. Progress reports (allocated funds and STP funds)--Annual 
narrative and expenditure reports are required to document progress. 
The report forms covering motor fuel tax examinations/audits, criminal 
investigations, and roadside fuel checks are optional.
    14. Audits (allocated funds and STP funds)--The State shall arrange 
for audits when required by 49 CFR part 90.
    15. Reimbursement--
    a. Allocated funds--State revenue agencies may continue to submit 
vouchers (PR-20) to the Division Administrator for payment.
    b. STP funds--The State transportation agency would submit vouchers 
for payment as part of the current billing process, and the State 
transportation agency would make interagency fund transfers to other 
State (or local) agencies carrying out project activities.

Effective Date

    The procedures described in this notice are effective on the date 
of publication, and may be modified by a subsequent notice based on the 
comments received.

Request for Comments

    The FHWA is requesting public comment from all interested parties 
concerning the funding allocation, the administrative procedures 
described in this notice, or on any suggestions to enhance motor fuel 
tax compliance under this program.
    Comments should be submitted to the docket by the deadline 
indicated in the DATES caption. All comments received before the close 
of business on the comment closing date indicated above will be 
considered and will be available for examination in the docket room at 
the above address. Comments received after the comment closing date 
will be filed in the docket and will be considered to the extent 
practicable. In addition to late comments, the FHWA will also continue 
to file in the docket relevant information that becomes available after 
the comment closing date, and interested persons should continue to 
examine the docket for new material.

    Authority: 23 U.S.C. 315; secs. 1101 and 1114, Pub. L. 105-178, 
112 Stat. 107(1998); and 49 CFR 1.48)

    Issued on: October 2, 1998.
Kenneth R. Wykle,
Federal Highway Administration, Administrator.

Memorandum of Understanding Between the U.S. Department of 
Transportation (DOT) and the Internal Revenue Service (IRS)

    Purpose: The purpose of this Memorandum of Understanding (MOU) 
is to implement the provisions of 23 United States Code (U.S.C.)143, 
relating to highway use tax evasion projects, in particular the 
requirement for the development and maintenance for an excise fuel 
reporting system.
    Background: On June 9, 1998, the President signed the 
Transportation Equity Act for the 21st Century (TEA-21), Public Law 
105-178, authorizing highway, highway safety, transit, and other 
surface transportation programs for the next 6 years. TEA-21, as 
amended, builds on the initiatives established in the Intermodal 
Surface Transportation Efficiency Act of 1991, and combines the 
continuation and improvement of current programs with new 
initiatives to meet America's needs through efficient and flexible 
transportation. A key part of funding these highway improvements is 
the collection of Federal and State revenues used for this purpose.
    Recognizing the need to ensure compliance for revenue 
collection, section 1114 of TEA-21, amended 23 U.S.C. 143 to require 
that the Secretary of Transportation (hereinafter referred to as the 
``Secretary'') shall carry out highway use tax evasion projects in 
accordance with the provisions therein. Section 143 provides that 
the funds made available to carry out highway use tax evasion 
projects may be allocated to the IRS and the States, and that the 
Secretary shall not impose any condition on the use of funds 
allocated to the IRS under this subsection.
    Title 23, U.S.C. Section 143, further limits the use of funds, 
provides for the establishment and operation of an automated fuel 
reporting system, provides for a funding priority, and a MOU between 
the Secretary and IRS for the purposes of the development and 
maintenance by the IRS of an excise fuel reporting system.
    Wherefore, the DOT and the IRS agree that:

I. Automated Excise Fuel Reporting System (the System) a.k.a. Excise 
Fuel Information Reporting System (EXFIRS)

    (A) The IRS shall develop and maintain the system through 
    (1) The IRS believes that a participative process with all 
stakeholders is the best method to use in the design and development 
of ExFIRS. By October 1, 1998, the IRS will form a workgroup with 
participants representing industry, States, the Federal Highway 
Administration (FHWA), and the IRS. The workgroup will be headed by 
the IRS Director, Excise Taxes, and will develop an implementation 
plan to provide for a basic automated excise fuel reporting system, 
and for enhancements that will best serve the stakeholders, 
including industry, the States, the FHWA, other government agencies, 
the IRS, etc.
    (2) Workgroup members will determine the system needs and assist 
the IRS in assembling an implementation plan for use in contracting.
    (3) The IRS will use the most expeditious method to obtain 
qualified contractors to complete the project.
    (4) The implementation plan will be a living document. The plan 
will be monitored by the workgroup on an ongoing basis with 
revisions to the content, scope, timing, as needed.
    (B) The system shall be under the control of the IRS.
    (C) To allow for a transition of funding for the States, the IRS 
projects that the following funding can be made available to the 
States for motor fuel compliance projects:

FY99.......................................................   $1,500,000
FY00.......................................................    1,250,000
FY01.......................................................    1,000,000
FY02.......................................................      750,000
FY03.......................................................      500,000
    Total..................................................    5,000,000

    (D) The system shall be made available for use by appropriate 
State and Federal revenue, tax, and law enforcement authorities, 
subject to section 6103 of the Internal Revenue Code of 1986.

II. Limitation on Use of Funds

    Funds made available to carry out highway use tax evasion 
projects shall be used only:
    (A) to expand efforts to enhance motor fuel tax enforcement;

[[Page 54519]]

    (B) to fund additional IRS staff, but only to carry out 
functions described in this paragraph;
    (C) to supplement motor fuel tax examinations and criminal 
    (D) to develop automated data processing tools to monitor motor 
fuel production and sales;
    (E) to evaluate and implement registration and reporting 
requirements for motor fuel taxpayers;
    (F) to reimburse State expenses that supplement existing fuel 
tax compliance efforts; and
    (G) to analyze and implement programs to reduce tax evasion 
associated with other highway use taxes.

III. Funding Availability and Priority

    (A) The Secretary shall, by Reimbursable Agreement, provide 
available funding to the IRS for the automated fuel reporting system 
and for highway use tax evasion projects as described in 23 U.S.C. 
    (B) The Secretary shall make available sufficient funds for each 
of fiscal years 1998 through 2003 to the IRS to establish and 
operate an automated fuel reporting system as its first priority.

IV. Oversight

    The FHWA Director, Office of Policy Development, and the IRS 
Director, Specialty Taxes, will review the development and 
implementation of highway use tax evasion project activity.

    Dated: September 3, 1998
Kenneth R. Wykle,
Administrator, Federal Highway Administration.

    Dated: September 10, 1998.
Charles O. Rossotti,
Commissioner, Internal Revenue Service.
[FR Doc. 98-27231 Filed 10-8-98; 8:45 am]