The Foreign Agricultural Service, under a delegation of authority from the Secretary of Agriculture, administers the Dairy Tariff-Rate Import Quota Licensing Regulation codified at 7 CFR 6.20-6.37 that provides for the issuance of licenses to import certain dairy articles under tariff-rate quotas (TRQs) as set forth in the Harmonized Tariff Schedule of the United States. These dairy articles may only be entered into the United States at the low-tier tariff by or for the account of a person or firm to whom such licenses have been issued and only in accordance with the terms and conditions of the regulation.

Licenses are issued on a calendar year basis, and each license authorizes the license holder to import a specified quantity and type of dairy article from a specified country of origin. The Import Policies and Programs Division, Foreign Agricultural Service, U.S. Department of Agriculture, issues these licenses and, in conjunction with the U.S. Customs Service, monitors their use.

The regulation at 7 CFR 6.34(a) states: “Whenever a historical license (Appendix 1) is not issued to an applicant pursuant to the provisions of § 6.23, is permanently surrendered, or is revoked by the Licensing Authority, the amount of such license will be transferred to Appendix 2.” Section 6.34(b) provides that the cumulative annual transfers will be published in the Federal Register . Accordingly, this document sets forth the revised Appendices for the 2002 tariff-rate quota year.

The regulations in 9 CFR part 94 (referred to below as the regulations) govern the importation of certain animals and animal products into the United States in order to prevent the introduction of various animal diseases, including rinderpest, foot-and-mouth disease (FMD), African swine fever (ASF), hog cholera, and swine vesicular disease. These are dangerous and destructive communicable diseases of ruminants and swine. Section 94.8 of the regulations lists regions of the world where ASF exists or is reasonably believed to exist. Section 94.8 also restricts the importation of pork and pork products into the United States from the listed regions.

On December 10, 2001, we published in the Federal Register (66 FR 63633-63634, Docket No. 01-026-1) a proposal to amend the regulations by removing Portugal from the list in § 94.8 of regions where ASF exists.

We solicited comments concerning our proposal for 60 days ending February 8, 2002.

We did not receive any comments. Therefore, for the reasons given in the proposed rule, we are adopting the proposed rule as a final rule, without change.

This is a substantive rule that relieves restrictions and, pursuant to the provisions of 5 U.S.C. 553, may be made effective less than 30 days after publication in the Federal Register . This rule removes certain restrictions on the importation of pork or pork products into the United States from Portugal. We have determined that approximately 2 weeks are needed to ensure that Animal Plant Health Inspection Service personnel at ports of entry receive official notice of this change in the regulations. Therefore, the Administrator of the Animal and Plant Health Inspection Service has determined that this rule should be made effective 15 days after publication in the Federal Register .

This rule has been reviewed under Executive Order 12866. For this action, the Office of Management and Budget has waived its review process required under Executive Order 12866.

We are amending the regulations to remove Portugal from the list of regions where ASF exists. We are taking this action because Portugal is now free of ASF. This action relieves restrictions due to ASF on the importation of pork and pork products into the United States from Portugal. However, because Portugal is on the list of regions where hog cholera exists and the list of regions that are subject to certain restrictions because of their proximity to or trading relationships with rinderpest- or FMD-affected countries, Portugal continues to be subject to certain restrictions regarding the importation into the United States of pork and pork products.

The following analysis addresses the economic effect of this rule on small entities, as required by the Regulatory Flexibility Act.

Entities in the United States likely to be affected by this rule include those engaged in the production of swine and processed pork products. Since Portugal has never exported pork or pork products to the United States, we anticipate that this rule will have no economic effect on U.S. swine importers, hog meat processors, hog producers, or any other entities, large or small. However, should Portugal commence the exportation of pork and pork products to the United States, restrictions on the importation of pork and pork products into the United States from Portugal will still be in place because Portugal is on the list of regions where hog cholera exists and the list of regions that are subject to certain restrictions because of their proximity to or trading relationships with rinderpest-or FMD-affected countries. Given those continuing restrictions, we believe any potential imports of processed pork and pork products from Portugal would be minimal. Likewise, because any potential increase in imports of processed pork and pork products from Portugal would be slight, the potential effect on U.S. swine producers and processors of pork is expected to be minimal.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

This final rule contains no information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The final regulations that are the subject of this correction became effective on December 3, 2001. The final rule, published November 2, 2001 (66 FR 55732), added Part 63, Disposal of High-Level Radioactive Wastes in a Geologic Repository at Yucca Mountain, Nevada, to the NRC's regulations, and made conforming amendments to other parts of 10 CFR Chapter 1. One of the conforming amendments included in the final rule was intended to amend § 2.714(d) to include a cross-reference to the new part 63. However, as a result of that amendment, paragraphs (d)(1) and (d)(2) were inadvertently removed from the NRC's regulations at § 2.714(d). The NRC did not intend to remove these paragraphs.

As published, the final regulations erroneously omit two paragraphs of § 2.714(d) which address the consideration by a ruling body of a petition to intervene in, or a request for a hearing on, a licensing proceeding. This correction restores those paragraphs to 10 CFR part 2, Subpart G.

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

Interested persons are invited to submit such written data, views, or arguments as they may desire. Communications should identify the regulatory docket or notice number and be submitted in duplicate to the address specified above. All communications received on or before the closing date for comments will be considered by the Administrator. The special conditions may be changed in light of the comments received. All comments received will be available in the Rules Docket for examination by interested persons, both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerning this rulemaking will be filed in the docket. Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must include a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. CE182.” The postcard will be date stamped and returned to the commenter.

On November 13, 2001, S-TEC Corporation, One S-TEC Way, Mineral Wells Airport, Mineral Wells, Texas 76067, made an application to the FAA for a new Supplemental Type Certificate for the Raytheon (Beechcraft) Models V35, V35A (to S/N 8872), S35, 35-C33A, E33A, and E33C (up to S/N CE-249 and CJ-14) airplane. The airplane is currently approved under Type Certificate No. 3A15. The proposed modification incorporates a novel or unusual design feature, such as digital avionics consisting of an EFIS, that is vulnerable to HIRF external to the airplane.

Under the provisions of 14 CFR part 21, § 21.101, S-TEC Corporation must show that the Raytheon (Beechcraft) Models V35, V35A (to S/N 8872), S35, 35-C33A, E33A, and E33C (up to S/N CE-249 and CJ-14) airplane meets the following provisions, or the applicable regulations in effect on the date of application for the change to the Raytheon (Beechcraft) Models V35, V35A (to S/N 8872), S35, 35-C33A, E33A, E33C (up to S/N CE-249 and CJ-14): CAR 3 May 15, 1957, through Amendment 3-8, FAR 23.1309, 23.1311, 23.1321 as amended by Amendment 49, and the special conditions adopted by this rulemaking action.

If the Administrator finds that the applicable airworthiness standards do not contain adequate or appropriate safety standards because of novel or unusual design features of an airplane, special conditions are prescribed under the provisions of § 21.16.

Special conditions are normally issued in accordance with § 11.38 and become a part of the type certification basis in accordance with § 21.101.

Special conditions are initially applicable to the model for which they are issued. Should the applicant apply for a supplemental type certificate to modify any other model already included on the same type certificate to incorporate the same novel or unusual design feature, the special conditions would also apply to the other model under the provisions of § 21.101.

S-TEC Corporation plans to incorporate certain novel and unusual design features into an airplane for which the airworthiness standards do not contain adequate or appropriate safety standards for protection from the effects of HIRF. These features include EFIS, which are susceptible to the HIRF environment, that were not envisaged by the existing regulations for this type of airplane.

Protection of Systems from High Intensity Radiated Fields (HIRF): Recent advances in technology have given rise to the application in aircraft designs of advanced electrical and electronic systems that perform functions required for continued safe flight and landing. Due to the use of sensitive solid state advanced components in analog and digital electronics circuits, these advanced systems are readily responsive to the transient effects of induced electrical current and voltage caused by the HIRF. The HIRF can degrade electronic systems performance by damaging components or upsetting system functions.

Furthermore, the HIRF environment has undergone a transformation that was not foreseen when the current requirements were developed. Higher energy levels are radiated from transmitters that are used for radar, radio, and television. Also, the number of transmitters has increased significantly. There is also uncertainty concerning the effectiveness of airframe shielding for HIRF. Furthermore, coupling to cockpit-installed equipment through the cockpit window apertures is undefined.

The combined effect of the technological advances in airplane design and the changing environment has resulted in an increased level of vulnerability of electrical and electronic systems required for the continued safe flight and landing of the airplane. Effective measures against the effects of exposure to HIRF must be provided by the design and installation of these systems. The accepted maximum energy levels in which civilian airplane system installations must be capable of operating safely are based on surveys and analysis of existing radio frequency emitters. These special conditions require that the airplane be evaluated under these energy levels for the protection of the electronic system and its associated wiring harness. These external threat levels, which are lower than previous required values, are believed to represent the worst case to which an airplane would be exposed in the operating environment.

These special conditions require qualification of systems that perform critical functions, as installed in aircraft, to the defined HIRF environment in paragraph 1 or, as an option to a fixed value using laboratory tests, in paragraph 2, as follows:

(1) The applicant may demonstrate that the operation and operational capability of the installed electrical and electronic systems that perform critical functions are not adversely affected when the aircraft is exposed to the HIRF environment defined below:

(2) The applicant may demonstrate by a system test and analysis that the electrical and electronic systems that perform critical functions can withstand a minimum threat of 100 volts per meter, peak electrical field strength, from 10 kHz to 19 GHz. When using this test to show compliance with the HIRF requirements, no credit is given for signal attenuation due to installation.

A preliminary hazard analysis must be performed by the applicant, for approval by the FAA, to identify either electrical or electronic systems that perform critical functions. The term “critical” means those functions whose failure would contribute to, or cause, a failure condition that would prevent the continued safe flight and landing of the airplane. The systems identified by the hazard analysis that perform critical functions are candidates for the application of HIRF requirements. A system may perform both critical and non-critical functions. Primary electronic flight display systems, and their associated components, perform critical functions such as attitude, altitude, and airspeed indication. The HIRF requirements apply only to critical functions.

Compliance with HIRF requirements may be demonstrated by tests, analysis, models, similarity with existing systems, or any combination of these. Service experience alone is not acceptable since normal flight operations may not include an exposure to the HIRF environment. Reliance on a system with similar design features for redundancy as a means of protection against the effects of external HIRF is generally insufficient since all elements of a redundant system are likely to be exposed to the fields concurrently.

As discussed above, these special conditions are applicable to the Raytheon (Beechcraft) Models V35A (to S/N 8872), S35, 35-C33A, E33A, E33C (up to S/N CE-249 and CJ-14) airplane. Should S-TEC Corporation apply at a later date for a supplemental type certificate to modify any other model on the same type certificate to incorporate the same novel or unusual design feature, the special conditions would apply to that model as well under the provisions of § 21.101.

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

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

The authority citation for these special conditions is as follows:

The FAA has determined that notice and opportunity for prior public comment hereon are impracticable because these procedures would significantly delay certification and thus delivery of the affected airplanes. In addition, the substance of these special conditions has been subject to the public comment process in several prior instances with no substantive comments received. The FAA therefore finds that good cause exists for making these special conditions effective upon issuance; however, the FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. The most helpful comments reference a specific portion of the special conditions, explain the reason for any recommended change, and include supporting data. We ask that you send us two copies of written comments.

We will file in the docket all comments we receive, as well as a report summarizing each substantive public contact with FAA personnel concerning these special conditions. The docket is available for public inspection before and after the comment closing date. If you wish to review the docket in person, go to the address in the ADDRESSES section of this preamble between 7:30 a.m. and 4 p.m., Monday through Friday, except Federal holidays.

We will consider all comments we receive on or before the closing date for comments. We will consider comments filed late if it is possible to do so without incurring expense or delay. We may change these special conditions in light of the comments we receive.

If you want the FAA to acknowledge receipt of your comments on this proposal, include with your comments a pre-addressed, stamped postcard on which the docket number appears. We will stamp the date on the postcard and mail it back to you.

On March 20, 2002, ElectroSonics, 4391 International Gateway, Columbus, Ohio, applied for a Supplemental Type Certificate (STC) to modify Cessna Model 501 and 551 series airplanes. The Cessna Model 501 and 551 series airplanes are normal category turbine powered airplanes. The Cessna Model 501 series airplanes are powered by two Pratt & Whitney JT15D-1(A/B) turbofan engines and have a maximum takeoff weight of 11,850 pounds. These airplanes operate with either a 1-pilot or 2-pilot crew and can hold up to 8 passengers. The Cessna Model 551 series airplanes are powered by two Pratt & Whitney JT15D-4 turbofan engines and have a maximum takeoff weight of 12,500 pounds. These airplanes operate with either a 1-pilot or 2-pilot crew and can hold up to 10 passengers. The modification incorporates the installation of Innovative Solutions & Support Air Data Display Units (ADDU). The ADDU is a replacement for the existing analog flight instrumentation, while also providing additional functional capability and redundancy in the system. The avionics/electronics and electrical systems installed in this airplane have the potential to be vulnerable to high-intensity radiated fields (HIRF) external to the airplane.

Under the provisions of 14 CFR 21.101, ElectroSonics must show that the Cessna Model 501 and 551 series airplanes, as modified to include the new air data display units, continue to meet the applicable provisions of the regulations incorporated by reference in Type Certificate No. A27CE, or the applicable regulations in effect on the date of application for the change. The regulations incorporated by reference in the type certificate are commonly referred to as the “original type certification basis.” The regulations included in the certification basis for the Cessna 501 airplanes include part 23 of the Federal Aviation Regulations effective February 1, 1965, as amended by Amendments 23-1 through 23-16, with certain exceptions, and section 23.1385 as amended through Amendment 23-20; part 25, effective February 1, 1965, as amended by Amendments 25-1 through 25-37, with certain exceptions; part 36, effective December 1, 1969, as amended by Amendments 36-1 through 36-5; SFAR 27, Fuel Venting (replaced by part 34, effective September 10, 1990); plus additional requirements listed in the type certificate data sheet that are not relevant to these special conditions.

The regulations included in the certification basis for the Cessna Model 551 series airplanes include part 23 of the Federal Aviation Regulations effective February 1, 1965, as amended by Amendments 23-1 through 23-16, with certain exceptions, sections 23.1143(e) and 23.1385(c) as amended through Amendments 23-18, and sections 23.1301 and 23.1335 as amended by Amendments through 23-20; part 25 effective February 1, 1965, as amended by Amendments 25-1 through 25-37 with certain exceptions, and sections 25.901(c), 25.903(e)(3), and 25.1351(d) as amended through Amendments 25-41; part 36, effective December 1, 1969, as amended by Amendments 36-1 through 36-6; SFAR 27, as amended by Amendments 27-1 through 27-3, Fuel Venting (replaced by part 34, effective September 10, 1990). For the Bendix EFS-10, Sperry EDZ-600, Sperry EDZ-601, and Sperry EDZ-603 electronic flight instrument systems only, compliance has been shown with the following regulations: sections 25.1301, 25.1303(b), and 25.1322 as amended through Amendment 25-38; sections 25.1309, 25.1321(a), (b), (d), and (e), 25.1331, 25.1333, and 25.1335 as amended through Amendments 25-41; plus additional requirements listed in the type certificate data sheet that are not relevant to these special conditions.

If the Administrator finds that the applicable airworthiness regulations (that is, 14 CRF part 25, as amended) do not contain adequate or appropriate safety standards for the Cessna Model 501 and 551 series airplanes modified by ElectroSonics because of a novel or unusual design feature, special conditions are prescribed under the provisions of § 21.16.

In addition to the applicable airworthiness regulations and special conditions, these Cessna Model 501 and 551 series airplanes must comply with the fuel vent and exhaust emission requirements of 14 CFR part 34 and the noise certification requirements of part 36.

Special conditions, as defined in 14 CFR 11.19, are issued in accordance with § 11.38, and become part of the type certification basis in accordance with § 21.101(b)(2).

Special conditions are initially applicable to the model for which they are issued. Should ElectroSonics apply at a later date for a supplemental type certificate to modify any other model already included on the same type certificate to incorporate the same novel or unusual design feature, these special conditions would also apply to the other model under the provisions of § 21.101(a)(1).

As noted earlier, the Cessna Model 501and 551 series airplanes modified by ElectroSonics will incorporate dual air data display unit systems that will perform critical functions. These systems may be vulnerable to high-intensity radiated fields (HIRF) external to the airplane. The current airworthiness standards of (14 CFR part 25) do not contain adequate or appropriate safety standards that address protecting this equipment from the adverse effects of HIRF. Accordingly, this system is considered to be a novel or unusual design feature.

There is no specific regulation that addresses protection requirements for electrical and electronic systems from HIRF. Increased power levels from ground-based radio transmitters and the growing use of sensitive avionics/electronics and electrical systems to command and control airplanes have made it necessary to provide adequate protection.

To ensure that a level of safety is achieved that is equivalent to that intended by the regulations incorporated by reference, special conditions are needed for the Cessna Model 501 and 551 series airplanes modified by ElectroSonics to include the dual air data display unit systems. These special conditions require that new avionics/electronics and electrical systems that perform critical functions be designed and installed to preclude component damage and interruption of function due to both the direct and indirect effects of HIRF.

With the trend toward increased power levels from ground-based transmitters, plus the advent of space and satellite communications coupled with electronic command and control of the airplane, the immunity of critical avionics/electronics and electrical systems to HIRF must be established.

It is not possible to precisely define the HIRF to which the airplane will be exposed in service. There is also uncertainty concerning the effectiveness of airframe shielding for HIRF. Furthermore, coupling of electromagnetic energy to cockpit-installed equipment through the cockpit window apertures is undefined. Based on surveys and analysis of existing HIRF emitters, an adequate level of protection exists when compliance with the HIRF protection special condition is shown with either paragraph 1 OR 2 below:

1. A minimum threat of 100 volts rms (root-mean-square) per meter electric field strength from 10 KHz to 18 GHz.

a. The threat must be applied to the system elements and their associated wiring harnesses without the benefit of airframe shielding.

b. Demonstration of this level of protection is established through system tests and analysis.

2. A threat external to the airframe of the field strengths indicated in the table below for the frequency ranges indicated. Both peak and average field strength components from the table below are to be demonstrated.

The threat levels identified above are the result of an FAA review of existing studies on the subject of HIRF, in light of the ongoing work of the Electromagnetic Effects Harmonization Working Group of the Aviation Rulemaking Advisory Committee.

As discussed above, these special conditions are applicable to Cessna Model 501 and 551 series airplanes modified by ElectroSonics to include Innovative Solutions & Support Air Data Display Units. Should ElectroSonics apply at a later date for a supplemental type certificate to modify any other model included on the same type certificate to incorporate the same novel or unusual design feature, these special conditions would apply to that model as well under the provisions of 14 CFR 21.101(a)(1).

This action affects only certain novel or unusual design features on the Cessna Model 501 and 551 series airplanes modified by ElectroSonics. It is not a rule of general applicability and affects only the applicant who applied to the FAA for approval of these features on the airplane.

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

The authority citation for these special conditions is as follows:

A final rule airworthiness directive (FR Doc. 02-5003) applicable to General Electric Company GE90 series turbofan engines, was published in the Federal Register on March 4, 2002 (67 FR 9582). The following corrections are needed:

Section 207 of the Foster Care Independence Act of 1999 (Pub. L. 106-169) amended title XI of the Act by adding section 1129A to help prevent and respond to fraud and abuse in SSA's programs and operations. Section 1129A provides for the imposition by SSA of a penalty on an individual who makes, or causes to be made, a statement or representation of a material fact that the person knows or should know is false or misleading or omits a material fact, or that the person makes with a knowing disregard for the truth. The statement must be made for use in determining eligibility for or the amount of benefits under title II or XVI. The penalty is nonpayment for 6, 12 or 24 months of benefits under title II that would otherwise be payable to the person and ineligibility for the same period of time for cash benefits under title XVI (including State supplementary payments made by SSA according to § 416.2005).

Section 207 of Pub. L. 106-169 directs the Commissioner of Social Security to develop rules prescribing the administrative process for making determinations under section 1129A, including when periods of penalty shall commence, and providing guidance on the exercise of discretion as to whether the penalty should be imposed in particular cases. Consequently, we published interim final rules on July 10, 2000, which added new rules at §§ 404.459 and 416.1340 to reflect and implement section 1129A. We provided a 60-day period for interested individuals and organizations to comment. Summaries of the comments we received and our responses thereto are set out later in this preamble. After consideration of all the comments received, we have decided not to revise the interim final rules we published on July 10, 2000.

Section 1129A of the Act applies to statements and representations made on or after December 14, 1999, the date of enactment of the Foster Care Independence Act of 1999.

In our interim final rules, we added new §§ 404.459 and 416.1340 to our regulations. The organization and wording of these two sections are essentially identical. These sections make it clear, and as Congress provided, that if an individual knowingly (knew or should have known or acted with knowing disregard for the truth) made a false or misleading statement with respect to one program, the penalty shall apply to benefits under both the title II and XVI programs. Applying the penalty to both programs helps protect the integrity of both programs from further fraud by the same person and helps to maintain public confidence in the integrity of our programs. A subsection-by-subsection discussion of these rules follows.

Subsection (a) describes the conditions under which you will be subject to a penalty by SSA for knowingly making a false or misleading statement of a material fact.

Subsection (b) explains that the penalty is both nonpayment of benefits under title II and ineligibility for cash benefits under title XVI. When we impose a penalty on you, you cannot receive benefits under either title II or title XVI even if the false or misleading statement was made in connection with benefits under only one of the two programs. We further explain that, as provided by the law, if we impose a penalty on your title XVI benefits, you also will not be eligible to receive State supplementary payments that SSA pays by agreement with the State.

Subsection (c) explains how long the penalty for making a false or misleading statement will last. As provided in section 1129A, the penalty will last six consecutive months the first time we penalize you, twelve consecutive months the second time we penalize you, and twenty-four consecutive months the third or subsequent times we penalize you. The penalty will not begin to run until you would otherwise be eligible for payment of benefits under either title II or title XVI. You will be ineligible to receive benefits at any time during the penalty period. If more than one penalty period has been imposed but they have not yet run, the penalties will run consecutively, not concurrently.

Subsection (d) explains, as provided in section 1129A, that the imposition of a penalty will affect only your own eligibility for benefits under titles II and XVI. If we impose a penalty on you, the penalty will not affect the eligibility or amount of benefits payable under titles II or XVI to another person. For example, another person (such as your spouse or child) may be entitled to benefits under title II based on your earnings record. Benefits would still be payable to that person to the extent that you would be receiving such benefits if the penalty had not been imposed. As another example, if you are receiving title II benefits that are limited under the family maximum provision (§ 404.403) and we stop your benefits because we impose a penalty on you, we will not increase the benefits of other family members who are limited by the family maximum provision simply because you are not receiving benefits as a result of the penalty. As a third example, if you and your spouse are receiving title XVI benefits, those benefit payments to your spouse based on the benefit rate for a couple will not be affected because of the penalty. Your spouse will continue to receive one half of the couple rate.

Section 1129A also specifically provides that the imposition of a penalty will not affect your eligibility for Medicare and Medicaid benefits (titles XVIII and XIX of the Act).

Subsection (e) explains that to impose a penalty on you, we must find that you knowingly made a false or misleading statement or omitted a material fact. “Knowingly” means that you knew or should have known that the statement was false or misleading or omitted a material fact, or you made the statement with a knowing disregard for the truth. We will base our decision to impose a penalty on the evidence and the reasonable inferences that can be drawn from that evidence, not on mere speculation or suspicion. In determining whether you knowingly made a false or misleading statement or omitted a material fact, we will consider all of the evidence in the record, including any physical, mental, educational, or linguistic limitations (including any lack of facility with the English language) which you may have had at the time. In determining whether you acted knowingly, we will also consider the significance of the statement in terms of its likely impact on your benefits under titles II and/or XVI.

The Office of the Inspector General may investigate your false or misleading statement for fraud for civil monetary penalty purposes (see section 1129 of the Act) and you may be prosecuted civilly or criminally by the United States Attorney's Office. We may impose a penalty under these rules in addition to any other penalties that may be prescribed by law.

Subsection (f) explains that if you disagree with our initial determination to impose a penalty, you have the right to request reconsideration of the penalty decision, as discussed in §§ 404.907 and 416.1407. If you do request reconsideration, you will be able to present your case in one of three ways:

1. Case review—We will give you an opportunity to review the evidence in our files and then to present oral and written evidence to us;

2. Informal conference—In addition to following the procedures of a case review, we will give you an opportunity to present witnesses; and

3. Formal conference—In addition to following the procedures of an informal conference, we will give you an opportunity to request us to subpoena adverse witnesses and relevant documents and to cross-examine adverse witnesses.

After reconsideration, if you do not agree with our reconsidered determination you may follow the normal administrative and judicial review process by requesting a hearing before an administrative law judge, Appeals Council review and Federal court review, as described in §§ 404.900 and 416.1400.

Subsection (g) explains when the penalty period begins and ends. That section explains that the penalty period will not begin until the month you would otherwise be eligible to receive payments under either title II or title XVI. In addition, the point at which the penalty period begins may depend on whether you request reconsideration of our initial determination to penalize you. If you do not request reconsideration, the penalty period will begin no earlier than the first day of the second month following the month in which the time limit for requesting reconsideration ends. If you request reconsideration and our reconsidered determination does not change our original decision to penalize you, the penalty period will begin no earlier than the first day of the second month following the month we notify you of our reconsidered determination. The penalty period ends on the last day of the final month of the penalty period. Once a penalty period begins it will run continuously even if payments are intermittent.

As noted above, on July 10, 2000 we published the interim final rules in the Federal Register at 65 FR 42283 and provided a 60-day comment period. We received comments from twenty-five individuals and organizations. Some of the comments, however, pertained to matters that were not within the scope of these proposed rules. We do not address them in this preamble. Following are summaries of the comments and our responses to them.

Comment: Thirteen of the comments concerned what was perceived as vagueness in the regulation, including the meaning of the phrase “knew or should have known.” The commenters thought more specific guidelines and instructions are necessary in order to make the process fair and equitable. One commenter specifically mentioned that much of the information SSA makes available to the public is not readily accessible to those with visual impairments so the use of the phrase “should have known” may be suspect. Several others were concerned about how individuals with mental impairments may be adversely affected by the phrase “should have known” and believe SSA should monitor these actions closely to ensure equity. They were all concerned that the lack of detailed definitions and guidelines in the regulation may cause SSA to find that an individual should have known something when the impairment prevented the person from knowing the information.

Response: Section 1129A of the Act specifically provides for the imposition by SSA of a penalty if a person makes a statement or representation “that the person knows or should know is false or misleading.” These rules provide that, in determining whether a person “knew or should have known,” we will consider all the evidence in the record, including any physical, mental, educational, or linguistic limitations (including any lack of facility with the English language) that the person may have had at the time. In addition, the rules provide that a decision to impose a penalty will be documented with the basis and rationale for that decision and will be based on the evidence and the reasonable inferences that can be drawn from that evidence, not on speculation or suspicion.

Further, operating instructions provide guidelines for SSA personnel to follow when making a determination that a person knew or should have known that a statement was false or misleading. In addition to considering any physical or mental impairment, these guidelines instruct personnel to consider the significance of the false or misleading statement in terms of its likely impact on the person's benefits, and the individual's:

• Understanding of reporting requirements;

• Knowledge of events that have occurred and should have been reported;

• Efforts to comply with requirements;

• Understanding of the obligation to return payments not due;

• Ability to understand and comply with reporting requirements;

• Experience in dealing with government agencies;

• Past history of providing inaccurate information; and

• Understanding of the language used by SSA.

We also note that a determination to impose an administrative sanction is an initial determination. Accordingly, an individual may follow the normal administrative and judicial review process by requesting reconsideration, a hearing before an administrative law judge, Appeals Council review and Federal Court review. A separate component of SSA will also review all penalty determinations to ensure uniformity in applying these instructions.

In developing these rules, instructions, and procedures, we have taken into account both the need for SSA to deal effectively with those situations in which individuals knowingly provide false and material evidence and the need to ensure that all claimants and beneficiaries are treated fairly.

Comment: Five comments were from people who work with individuals who are disabled and want to return to work. They believe there is “widespread ignorance” of the fact that people receiving disability benefits need to report income from work. They also believe that many reports of attempted work are not acted upon by SSA. They are concerned that failure to report income and incorrect processing by SSA personnel may lead to penalties against “innocent” individuals.

Response: A penalty will only be imposed when a person knowingly makes or causes to be made a statement or representation that is false or misleading or omits a material fact. A penalty will not be imposed solely because an individual has failed to make a report of work activity.

Comment: One commenter agreed that a penalty should be imposed if a person lies or makes a misleading statement about his or her medical condition if it is clearly in contrast with medical evidence. However, the commenter believes that a misleading statement about his or her personal life and activities should not be punishable.

Response: A penalty will only be imposed when a person knowingly makes a false or misleading statement of a material fact for use in determining any right to or the amount of benefits under titles II or XVI. Statements not related to eligibility for benefits or payment amounts will not cause a penalty.

Comment: Another commenter noted that benefits will continue while we make a reconsideration determination. After the reconsideration, the penalty will start the second month after notice of our reconsidered determination. He asks whether benefits will continue through higher levels of appeal or if this option was intentionally omitted for this procedure. He suggests that, if the intent is to reduce fraud and abuse of the system, this same philosophy should be applied to cessation and childhood redetermination cases that allow benefits to continue until all avenues of appeal are exhausted.

Response: As required by section 223 of the Act, disability benefit payments may continue beyond the reconsideration level during appeals of disability cessation decisions. This benefit continuation does not apply to non-medical decisions such as the decision to impose a penalty. For a penalty period of non-payment, the benefit payments will stop beginning the second month after we send notice of our reconsidered determination.

Comment: One commenter was concerned about whether a penalty could apply to an SSA employee who makes a false or misleading statement or an omission of a material fact. He was concerned that the definition could apply to employees who omit a material fact by neglecting to follow written procedures. He thought this would place an additional burden on personnel by “adding an extra level of meticulousness” in preparing decisions and work products. Finally, he asks whether this regulation will require that a person who witnesses an act which could cause a penalty must report such an act and whether SSA will defend the reporting person in the event of civil action against the reporter.

Response: These regulations apply to people who claim benefits under title II or title XVI of the Act and make or cause to be made, a false or misleading statement of a material fact in connection with that claim. They do not impose any additional requirements on SSA employees and how they perform their official duties. Rules of employee conduct are not affected by these regulations in any way. Finally, these changes do not impose any new reporting requirement on any individuals.

Comment: One commenter was concerned about the financial effect the penalty will have on the individual. He believes that SSA has been able to recover its overpayments in the past using current methods and that imposing a penalty on an individual may result in the individual being placed on public assistance.

Response: Section 207 authorizes the Commissioner to impose a penalty to help prevent and respond to fraud and abuse in SSA's programs. These penalties are intended to deter individuals from providing false or misleading information about material facts in connection with a claim for benefits. Penalties will have little, if any, effect on the collection of overpayments. By law, Social Security benefits under title II and title XVI are paid only if certain eligibility requirements are met. SSA must ensure that those requirements are met based on proven facts. The penalty process is intended to help deter people from trying to meet those requirements fraudulently. It is possible that a person who does not meet the requirements for Social Security payments may qualify for public assistance just as he or she does now. We do not expect this change to have any substantial effect on the number of people on public assistance.

Comment: One commenter believes that a penalty should continue until all benefits obtained as a result of the false or misleading statement or omission of a material fact are recovered. She also believes that a penalty should apply to all individuals on a record, not just the person being sanctioned.

Response: This regulation is a result of a legislated change in the Social Security Act. The legislation itself prescribes the length of the penalty period. The length of the period is not affected by the amount of the benefits involved nor by the time required to recover any overpayment. The legislation also specifically states that the penalty will affect only the individual who makes, or causes to be made, the false or misleading statement.

Comment: One comment proposed that administrative law judges should be allowed to impose penalties.

Response: Any SSA employee may identify a case where a penalty may be appropriate and this may lead to the initiation of the penalty process. The decision to impose the penalty, however, is an initial determination. In order to allow the claimant the full range of appeal rights, this decision will be made at the initial level by the claims representative. The claims representative will also issue the notice of penalty and input the suspension action.

For the reasons discussed above, we have not changed the interim final rules based on the public comments. Therefore, the interim final rules adding 20 CFR 404.459 and 416.1340 published in the Federal Register (65 FR 42283) on July 10, 2000 are adopted as final without change.

The Office of Management and Budget has reviewed these final rules in accordance with Executive Order (E.O.) 12866, as amended by E.O. 13258.

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

This final rule imposes no reporting or recordkeeping requirements requiring clearance by the Office of Management and Budget.

In the Federal Register of August 15, 2001 (66 FR 42809), FDA published a proposed rule to reclassify the endolymphatic shunt tube with valve from class III (premarket approval) into class II (special controls) based on new information regarding this device. FDA also identified the document entitled “Class II Special Controls Guidance Document: Endolymphatic Shunt Tube With Valve; Guidance for Industry and FDA” as the special control capable of providing reasonable assurance of safety and effectiveness for this device.

Interested persons were invited to comment on the proposed rule by November 13, 2001. FDA received one comment. The comment, from the petitioner, Hood Laboratories, supported the proposed reclassification.

Based on a review of the available information referenced in the preamble to the proposed rule and placed on file in FDA's Dockets Management Branch, FDA concludes that the guidance document entitled “Class II Special Controls Guidance Document: Endolymphatic Shunt Tube With Valve; Guidance for Industry and FDA,” in conjunction with general controls, provides reasonable assurance of the safety and effectiveness of this device. Elsewhere in this issue of the Federal Register , FDA is announcing the availability of the guidance document.

The agency has determined under 21 CFR 25.34(b) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

FDA has examined the impacts of the final rule under Executive Order 12866, and the Regulatory Flexibility Act (5 U.S.C 601-612) (as amended by subtitle D of the Small Business Regulatory Fairness Act of 1996 (Public Law 104-121)), and the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs agencies 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). The agency believes that this final rule is consistent with the regulatory philosophy and principles identified in the Executive order. In addition, the final rule is not a significant regulatory action as defined by the Executive order and so is not subject to review under the Executive order.

The Regulatory Flexibility Act requires agencies to analyze regulatory options that would minimize any significant impact of a rule on small entities. Reclassification of the endolymphatic shunt tube with valve from class III will relieve all manufacturers of these devices of the cost of complying with the premarket approval requirements in section 515 of the act.

FDA believes that Hood Laboratories is the only manufacturer of the endolymphatic shunt tube with valve and Hood Laboratories states that they are in compliance with special controls proposed for this device. Therefore, the special controls will not impose significant new costs on the affected manufacturer. Because reclassification will reduce regulatory costs with respect to the endolymphatic shunt tube with valve, it will impose no significant economic impact on any small entities, and it may permit small potential competitors to enter the marketplace by lowering their costs. The agency therefore certifies that this final rule will not have a significant economic impact on a substantial number of small entities. In addition, this final rule will not impose costs of $100 million or more on either the private sector or State, local, and tribal governments in the aggregate, and therefore a summary statement of analysis under section 202(a) of the Unfunded Mandates Reform Act of 1995 is not required.

FDA has analyzed this final rule in accordance with the principles set forth in Executive Order 13132. FDA has determined that the 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, the agency has concluded that the 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.

FDA concludes that this final rule contains no collections of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

The Departments of State and Defense, in consultation with the Department of Commerce and other U.S. Government agencies, are reviewing items controlled on the U.S. Munitions List (USML) in order to ensure that the list of defense articles and defense services controlled pursuant to the International Traffic in Arms Regulations is up-to-date and appropriately reflects current U.S. security and foreign policy interests. Consistent with the policy announced by the United States at the May 2000 NATO Ministerial meeting, the Executive Branch initiated a procedure that involves a four-year review cycle, whereby one-quarter of the USML is reviewed each year. This policy and procedure is consistent with Section 38(f) of the Arms Export Control Act (AECA), which states that the President shall periodically review the items on the USML to determine what items, if any, no longer warrant export controls under Section 38. Five categories are currently under review: Categories I, V, VIII, XIV and XVI. This rulemaking concerns the results of the Category I review. The results pertaining to the remaining four categories will be published upon completion of inter-agency review. With regard to Category I, no substantive additions or deletions of the articles and services controlled under this heading by Category I are being made. But, there are substantial changes in the title and in the text that are designed to provide greater clarity and precision for defense industry exporters and closer scrutiny and reporting of certain items ( e.g., automatic weapons and accessories, such as silencers), and to consolidate various other provisions of the ITAR relating to firearms. Specifically, the new title of this category is “Firearms, Close Assault Weapons and Combat Shotguns.” Category I is being amended to move fully automatic firearms from paragraph (a) to paragraph (b) and combat shotguns from paragraph (a) to (d). The components, parts, accessories and attachments currently in paragraph (d) are moved to a new paragraph (h). The silencers and suppressors in paragraph (b) are re-designated as Significant Military Equipment (SME) and moved to paragraph (e), with the remainder of the items currently in paragraph (b) moving to a new paragraph (f). The barrels, cylinders, receivers (frames) and breech mechanisms in paragraph (d) are moved to a new paragraph (g). The technical data and defense services currently in (e) are moved to a new paragraph (i). The text from § 121.9 is moved to a new paragraph (j) and a Note at the end of the category. Section 121.9 is being reserved.

This amendment involves a foreign affairs function of the United States and, therefore, is not subject to the procedures required by 5 U.S.C. 533 and 554. It is exempt from review under Executive Order 12866 but has been reviewed internally by the Department to ensure consistency with the purposes thereof. This rule does not require analysis under the Regulatory Flexibility Act or the Unfunded Mandates Reform Act. It has been found not to be a major rule within the meaning of the Small Business Regulatory Enforcement Act of 1966. It will not have substantial direct effects on the States, the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant application to Executive Orders 12372 and 13123. However, interested persons are invited to submit written comments to the Department of State, Office of Defense Trade Controls, ATTN: Regulatory Change, USML Part 121, 12th Floor, SA-1, Washington, D.C. 20522-0112. Such persons must be registered with the Department's Office of Defense Trade Controls (DTC) pursuant to the registration requirements of section 38 of the Arms Export Control Act.

On January 18, 2001, the IRS published in the Federal Register proposed regulations (REG-115560-99, 66 FR 4751) addressing various issues concerning qualified covered call (QCC) options under section 1092(c)(4). No requests to speak at a public hearing were received, and no public hearing was held.

The proposed regulations provide that equity options with flexible terms (FLEX options) may be QCC options as long as they satisfy the general rules for QCC treatment described in section 1092(c)(4), are not for a term of longer than one year, and meet other specified requirements. In addition, an equity option with standardized terms must be outstanding for the underlying equity. For purposes of applying the general rules, the bench marks will be the same as those for an equity option with standardized terms on the same stock having the same applicable stock price.

The proposed regulations also provide that certain over-the-counter (OTC) options may be QCC options so that OTC options that are economically similar to FLEX options may receive the same tax treatment as FLEX options. Specifically, the proposed regulations provide that an OTC option is eligible for QCC treatment if it is entered into with a person registered with the Securities and Exchange Commission (SEC) as a broker-dealer or alternative trading system and meets the same requirements for QCC treatment that apply to FLEX options.

The proposed regulations further provide that equity options with standardized terms with maturities of longer than one year cannot be QCC options.

Comments were requested about the proposed one-year limit for all QCCs, including a discussion of time limitations in general. If a commentator recommended a time limitation greater than one year or recommended that there be no time limitation, a detailed, comprehensive description of possible solutions to the problem of increased risk reduction caused by longer term options was requested. Commentators were also asked to address the administrability of any proposed solutions.

After revisions to take into account several of the comments submitted, the proposed regulations are adopted by this Treasury decision.

Four commentators responded to the request for comments. Two of the commentators addressed only the proposed 1-year limitation applicable to all QCC options. A third commentator addressed the proposed 1-year limit as well as a number of other issues. The fourth commentator focused on issues other than the proposed 1-year limitation.

A number of commentators object to the proposal to limit QCC treatment to options with a duration of one year or less. These commentators note that the statute does not contain any limitation on the maximum term for QCCs and argue that a one-year limitation would be overly harsh. Among other things, they note that a strict one-year rule would preclude QCC status for even out-of-the-money options. One commentator notes that section 1092(c)(4) does not remove a QCC option completely from the straddle rules. Paragraphs (c)(4)(E) and (f) of section 1092 provide special limitations on QCCs for recognition of loss and suspension of holding period. 1 This commentator suggests that these rules limit the extent to which longer-term QCCs would lead to results inconsistent with the purposes of section 1092.

In response to the request in the preamble to the proposed regulation for alternative regimes to address the increased risk reduction created by longer-term options, two commentators suggest an adjustment to the “applicable stock price” to reflect forward pricing concepts. These commentators suggest that the unadjusted applicable stock price, as determined on the date the option is granted, be multiplied by a simple adjusting factor to produce an applicable stock price adjusted for the passage of time. For each additional term year, the factor would be increased by 5%. For example, the factor for a one-to-two year option would be 105%, and the factor for a two-to-three year option would be 110%. The adjusted applicable stock price would then be used to determine the applicable benchmarks and the lowest permitted QCC strike price. The commentators prefer, however, no limitation on the term of QCC options.

Proposed § 1.1092(c)-1(c)(1)(ii) requires a QCC option to have “a single fixed strike price stated as a dollar amount.” One commentator suggests that this phrase does not account for adjustments to the strike price due to certain corporate events, such as stock splits, stock dividends, spin-offs, mergers, or substantial cash dividends that reduce the market value of the stock by at least 10%. For example, a strike price might not be considered fixed if the underlying stock split two-for-one and the option's strike price were adjusted to one-half of its original strike price. The commentator recommends that the language be modified to account for these events.

Proposed § 1.1092(c)-1(c)(2)(i) provides that to determine whether a FLEX option is deep in the money, the taxpayer must use the same lowest qualified benchmark that is used for a standardized option on the same stock having the same applicable stock price. One commentator argues that the language in the proposed regulation is ambiguous. The commentator suggests that the language in the proposed regulation be changed to provide that the lowest qualified benchmark for a FLEX option is equal to the lowest available strike price at which a standardized call option can be written without being deep in the money.

Under § 1.1092(c)-1(c)(1)(iv) of the proposed regulation, a FLEX option can be a QCC option only if “[a]n equity option with standardized terms is outstanding for the underlying equity.” Under exchange rules, trading in a FLEX option cannot be authorized unless trading in a standardized option on the same stock has been authorized. Although a commentator believes it unlikely that a FLEX option would be written on a stock for which there were no outstanding standardized options, the commentator sees no reason to impose this restriction. Thus, the commentator recommends that the word “available” be substituted for the word “outstanding.”

Under proposed § 1.1092(c)-1(d)(3), an equity option with standardized terms is defined as “an equity option that is traded on a national securities exchange registered with the Securities and Exchange Commission and that is not an equity option with flexible terms.” One commentator notes that there is no definition of “equity option” and wonders whether the definition of equity option in section 1256(g) applies here. That definition would include options on narrow based indexes. In addition, because an equity option with standardized terms is defined as a negative (i.e., anything that is not a FLEX option), if the exchanges approve a new option product that does not meet the definition of FLEX option, that product might meet the definition of a standardized option, thus affecting the application of the regulations for FLEX options. The commentator did not provide alternative regulatory language.

Under proposed § 1.1092(c)-3(c)(2)(i), a qualifying OTC option must be “entered into with” a person registered with the SEC as a broker-dealer. One commentator is concerned that this phrase implies that the broker-dealer must act as a principal in the transaction. The commentator requests that the language be modified to say that the broker-dealer may be a principal to the transaction or may serve as an agent.

One commentator requests that banks be added to the list of parties with or through whom a QCC transaction may be effected. The commentator notes that under the Gramm-Leach-Bliley Act, Public Law 106-102, 113 Stat. 1338 (1999), banks will be required to interpose a broker-dealer registered with the SEC in transactions with customers who are not “qualified investors.” Banks will be permitted to function as broker-dealers with respect to “qualified investors.”

The commentator suggests defining a bank as a “bank within the meaning of section 3(a)(6) of the Securities Exchange Act of 1934 and the regulations adopted thereunder.” The commentator argues that any such bank would be subject to a banking regulatory authority within the United States and would generally be subject to record-keeping requirements.

As originally enacted in 1981, section 1092 did not apply to stock or to options on stock. In the legislative history to the Tax Reform Act of 1984, the House Ways and Means Committee stated that taxpayers had attempted to exploit the exemption from the loss-deferral rule for exchange-traded stock options to defer tax on income from unrelated transactions. H. Rep. No. 432, 98th Cong., 2d Sess. 1266 (1984). The Committee stated that a typical abusive stock option straddle “involves the acquisition of ‘deep-in-the-money’ offsetting option positions. Regardless of whether the value of the underlying stock increases or decreases, one option position will result in a loss that can be realized for tax purposes, while the other position results in a gain of approximately equal size that can be deferred until the next year.” Id. In response to these concerns, Congress generally ended the exemption from the straddle rules for stock and exchange-traded options.

The House Ways and Means Committee noted, however, that the extension of the straddle rules to stock options and stock would affect the widely used investment strategy of writing call options on stock owned by the taxpayer. The Committee stated that it might be appropriate to exempt transactions that were undertaken primarily to enhance the taxpayer's investment return on the stock and not to reduce the taxpayer's risk of loss on the stock. Congress therefore amended section 1092 to permit a taxpayer owning stock and writing a covered call option generally to avoid straddle treatment if certain conditions were met. One condition was that the strike price of the call could not be less than a statutorily-prescribed level relative to the market price of the underlying stock. In establishing this exception to the straddle rules, Congress granted the Secretary broad regulatory authority to modify section 1092 to take account of changes in the practices of options exchanges or to prevent tax avoidance.

Since 1984, numerous changes have occurred in the practices of options exchanges. In 1984, no exchange-traded option had a term of greater than nine months. By contrast, certain exchange-traded options currently may have terms of up to 33 months. In light of these changes, the IRS and Treasury have considered certain economic characteristics of qualified covered call transactions as they relate to the risk reduction effects of longer-term options.

One way of looking at the risk reduction effect of a covered call option focuses on the day-to-day (or intra-day) relative changes in value of the stock and the option. In general, the values of stock and a written call option on the stock vary inversely when viewed from the perspective of the person owning the stock and writing a call option. Each movement in the stock price produces a movement in the value of the written call that, at least partially, offsets the change in value of the long position in the stock.

Modern option pricing literature describes this relationship between the change in value of the underlying stock and the change in value of the option using the parameter “Delta”. If a change in value of the stock results in an equal movement in the value of the option, Delta equals 1. If the change in value of the option is less than the change in value of the stock, then Delta is less than 1. From the perspective of a call option writer, because of the inverse relationship between changes in stock price and changes in option value described above, Delta represents the amount of offset that a change in stock value has upon the value of the written call option. Delta values vary with a number of factors, including the extent to which the option is in or out of the money and the term of the option. All else being equal, longer-term options have higher Delta values and, therefore, have a greater risk reduction potential than short-term options with respect to movements in stock prices.

Another economic characteristic of longer-term covered call options is increased potential for the immediate recognition of a stock loss and the deferral of any gain arising from a related option. As noted above, when section 1092(c)(4) was enacted, no qualified covered call option had a term of more than nine months, and the mismatch for a QCC thus could not have spanned more than one taxable year. With the advent of longer-term options, the potential for a mismatch between a loss and the deferral of related income can extend over many taxable years, which may not have been contemplated by Congress when the QCC provisions were enacted.

After reviewing taxpayers' comments received in light of these economic considerations, the IRS and Treasury have decided to adopt a forward pricing approach for the determination of the applicable stock price for an option with a term greater than 12 months. To determine the applicable stock price for an option with a term greater than 12 months, taxpayers are required to multiply the statutory applicable stock price by a factor, which represents a noncompounded two percent per quarter increase in the applicable strike price. Based on certain assumptions regarding the volatility of the underlying stock and the risk-free interest rate, the use of such factors for options with a relatively short term (i.e., 33 months or less) will produce Deltas that are generally similar to those for a nine-month option with no adjustment to the applicable strike price. Because no exchange-traded option currently has a term of more than 33 months, and because the application of the approach set forth above to options with terms longer than 33 months may permit the use of such options for tax avoidance, the IRS and Treasury believe that it would be inappropriate to extend this approach to such options. Thus, no option will constitute a qualified covered call option if it has a term of greater than 33 months. Additional guidance about the maximum term limit may be provided by the Commissioner in guidance published in the Internal Revenue Bulletin. This could occur, for example, if the option exchanges commence trading of equity options with standardized terms that expire more than 33 months after the date of issuance.

The definition of a QCC option also affects a number of other Code sections. These are generally provisions that require a taxpayer to bear economic risk with respect to an asset for purposes of establishing a requisite holding period in the asset. See sections 246(c)(1), 852(b)(4)(C), 857(b)(8)(B), 901(k)(5), 1059(d)(3), and 1259(c)(3)(A)(iii). The IRS and the Treasury have taken into account the interaction of the QCC qualification rules and these other Code sections in light of the risk reduction potential of longer-term options. If, however, experience suggests that longer-term QCC options are being exploited to achieve risk reduction while allowing taxpayers to establish holding periods in ways that are inconsistent with another Code provision (e.g., section 1259), the IRS and Treasury may reconsider the issue of term limitations for QCCs, either generally for purposes of section 1092 or specifically for purposes of such other Code provision.

After consideration of the comment submitted, a definition for “single fixed strike price” is added at § 1.1092(c)-4(d), providing that adjustments to the strike price for certain significant corporate events subsequent to the writing of the option will not cause the option to fail the requirement of a single fixed strike price. The definition is intended to cover adjustments to the strike price made under Section 11 of Article VI of the Options Clearing Corporation By-Laws.

After consideration of the comment submitted, examples have been added at § 1.1092(c)-2(c)(2)(ii) to clarify that the lowest qualified benchmark for a FLEX option is the same as the lowest qualified benchmark for an equity option with standardized terms on the same stock having the same applicable stock price.

After consideration of the comment submitted, the language is finalized as proposed.

This provision was inserted in the proposed regulation for two reasons. The first reason was to provide benchmarks for FLEX options. Because FLEX option strike prices can be written in one penny intervals, without this provision every FLEX option would be deep-in-the-money if the strike price were one penny less than the applicable stock price. By tying every FLEX option to a standardized option, the benchmarks are the strike prices set by the exchanges for standardized options. For this purpose, an authorized standardized option would suffice.

The second reason underlying this provision is to facilitate the discovery of attempts to use off-market pricing of FLEX options or qualifying OTC options as a method of effecting collateral transactions. If a FLEX option or qualifying OTC option were written for an off-market premium, that would warn of the potential for the existence of one or more other transactions. For example, a qualifying OTC option might be written by a corporation and held by a shareholder. If the premium were excessively low compared to that for a standardized option on that same stock, the additional value received by the holder might be appropriately characterized as a dividend. Thus, with an outstanding standardized option on the same stock, the existence of an excessively low premium for a FLEX option would be more transparent.

After consideration of the comment submitted, a new definition for “equity option with standardized terms” is provided at § 1.1092(c)-4(b). The factors listed in this section were based on the rules of the exchanges establishing required provisions of exchange-traded equity options.

After consideration of the comment submitted, a clarification is added to § 1.1092(c)-4(c)(2)(i) to explain that the broker-dealer may be a principal to the transaction or can serve as an agent.

After consideration of the comment submitted and review of the recordkeeping requirements of 12 CFR 12.3, 12 CFR 208.34, and 12 CFR 344.4, banks that are required to comply with these recordkeeping requirements are added to the list of parties with or through whom a qualifying over-the-counter option may be transacted.

Section § 1.1092(c)-1 was redesignated § 1.1092(c)-2 to facilitate the insertion of the general term limitations applying to all QCC options. The definitions in former § 1.1092(c)-1(d) were moved to § 1.1092(c)-4 to facilitate consolidation of definitions that apply to QCC options.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the only category of small entities likely to be affected are small broker-dealers or small federally-regulated financial institutions who may be included among the financial intermediaries implementing the changes effected by these regulations. The requirements contained in these regulations do not impose more than a minimal compliance burden because the required changes in computer programs and back office procedures are insignificant. In addition, these regulations do not impose any recordkeeping or reporting requirements and therefore impose minimal compliance costs, if any, upon any small entities that may be affected. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

The principal authors of these regulations are Pamela Lew, Office of Associate Chief Counsel (Financial Institutions and Products) and Viva Hammer, Office of Tax Policy (Department of Treasury). However, other personnel from the IRS and Treasury Department participated in their development.

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 number 1545-1678. Responses to this collection of information are mandatory.

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

The estimated burden for the reporting in these regulations is reflected in the burden for Form 1098-E.

Estimated total annual reporting burden for 2000 for Form 1098-E: 483,098 hours.

Estimated number of responses for 2000 for Form 1098-E: 9,661,965.

Estimated average annual burden hours per response for Form 1098-E: 3 minutes.

Comments concerning the accuracy of this burden and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224, and to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

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

This document contains amendments to the Income Tax Regulations (26 CFR part 1) relating to information reporting requirements under section 6050S. The Taxpayer Relief Act of 1997 (Public Law 105-34 (111 Stat. 788) (TRA '97)) added section 221 of the Internal Revenue Code (Code) to allow certain taxpayers who pay interest on qualified education loans to claim a Federal income tax deduction for their interest payments. In general, as enacted by TRA '97, a deduction is allowed for interest payments made during the first 60 months in which interest payments are required on a qualified education loan. However, no interest deduction is allowed for any interest paid before January 1, 1998. On January 21, 1999, the IRS issued proposed regulations (REG-116826-97) under section 221. See 64 FR 3257 (1999). Section 221 was amended by the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16 (115 Stat. 38)) to eliminate the limitation on the number of months during which interest paid on a qualified education loan is deductible, effective for interest paid after December 31, 2001, and to allow a deduction for voluntary payments of interest.

TRA '97 also added section 25A of the Code to provide the Hope Scholarship Credit and the Lifetime Learning Credit (education tax credit). In general, the education tax credit allows certain taxpayers who pay qualified tuition and related expenses to an eligible educational institution to claim a nonrefundable credit against their Federal income tax liability. On January 6, 1999, the IRS issued proposed regulations (REG-106388-01) under section 25A. See 64 FR 794 (1999).

In addition, TRA '97 added section 6050S of the Code. Section 6050S was amended by the Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-206 (112 Stat. 685) (RRA '98)) and Public Law 107-131 (115 Stat. 2410). In general, section 6050S requires certain payees who receive payments of interest on one or more qualified education loans to file information returns and to furnish written information statements to assist taxpayers and the IRS in determining any interest deduction allowable under section 221. In addition, section 6050S requires eligible educational institutions to file information returns and to furnish written information statements to assist taxpayers and the IRS in determining any education tax credit allowable under section 25A (as well as other tax benefits for higher education expenses). See H.R. Conf. Rept. No. 599, 105th Cong., 2d Sess., pp. 319-320 (1998). Similarly, section 6050S requires any person engaged in a trade or business of making payments to any individual under an insurance agreement as reimbursements or refunds of qualified tuition and related expenses to file information returns and to furnish written information statements.

Section 6050S(b) provides that the information return filed by payees who receive payments of interest on qualified education loans must contain: (1) The name, address, and taxpayer identification number (TIN) of the individual with respect to whom payments of interest on qualified education loans were received; (2) the aggregate amount of interest received for the calendar year from such individual; and (3) such other information as the Secretary may prescribe.

The IRS has published several notices describing the information reporting requirements for payees who receive interest on qualified education loans during the years 1998, 1999, 2000, and 2001. See Notice 98-7 (1998-3 I.R.B. 54), Notice 98-54 (1998-46 I.R.B. 25), Notice 99-37 (1999-30 I.R.B. 124), and Notice 2000-62 (2000-51 I.R.B. 587).

A notice of proposed rulemaking under section 6050S (REG-105316-98) was published in the Federal Register (65 FR 37728) on June 16, 2000, addressing the information reporting requirements for eligible educational institutions and insurers and payees who receive interest on qualified education loans. A public hearing was held on the proposed regulations on February 13, 2001. The IRS received written and electronic comments responding to the notice of proposed rulemaking.

The IRS and the Treasury Department have determined that the proposed regulations in § 1.6050S-1 addressing the information reporting requirements for eligible educational institutions and insurers should be withdrawn and that new proposed regulations should be issued. The IRS will issue proposed regulations in § 1.6050S-1 in a separate document. The proposed regulations in § 1.6050S-2 addressing the information reporting requirements for payees who receive payments of interest on qualified education loans are adopted as amended by this Treasury decision and redesignated as § 1.6050S-3. The comments received in connection with these regulations and the revisions are discussed in the “Explanation of Provisions and Summary of Comments” of this preamble.

Temporary regulations (66 FR 10191) and a notice of proposed rulemaking by cross reference (REG-107186-00) (66 FR 10247) under section 6050S were published in the Federal Register on February 14, 2001. Those regulations allow eligible educational institutions and payees who receive interest on qualified education loans to furnish information statements electronically to students and borrowers, respectively, if certain requirements are met. The temporary regulations for eligible educational institutions were designated as § 1.6050S-1T, and the temporary regulations for payees were designated as § 1.6050S-2T. The IRS and the Treasury Department have determined that those regulations should be finalized in a separate document. However, this Treasury decision redesignates § 1.6050S-1T and § 1.6050S-2T as § 1.6050S-2T and § 1.6050S-4T, respectively.

The proposed regulations require any person engaged in a trade or business that receives from any payor interest of $600 or more for any calendar year on one or more qualified education loans (as defined in section 221(e)(1) and the regulations thereunder) (a payee) to file a Form 1098-E, “Student Loan Interest Statement,” with the IRS. Under the proposed regulations, a payee must report the name, address, and taxpayer identification number (TIN) of the payee; the name, address, and TIN of the payor; and the aggregate amount of interest received during the calendar year from the payor. The final regulations retain these rules. As explained in the preamble to the proposed regulations, a payee may be the lender, the holder of the loan, or the loan servicer.

Consistent with TRA '97, the proposed regulations provide that a payee is required to report interest payments received on a qualified education loan during only the first 60 months in which interest payments are required on the loan. The Economic Growth and Tax Relief Reconciliation Act of 2001 repealed the limitation on the number of months during which interest paid on a qualified education loan is deductible, effective for interest paid after December 31, 2001. Therefore, the final regulations eliminate the 60-month reporting period, so that payees must continue to report annually interest payments on qualified education loans.

The proposed regulations provide that, in determining the aggregate amount of interest payments to be reported by a payee, the term interest includes stated interest, loan origination fees (other than any fees for services), and capitalized interest as described in the regulations under section 221. Several commentators requested that other fees, such as insurance, be treated as deductible interest for purposes of section 221. In addition, several commentators requested clarification of, or changes to, the manner in which payments are allocated to interest, the definition of qualified education loans , and the ability to estimate capitalized interest. These comments were not considered in these regulations, which address only the information reporting requirements for interest payments on qualified education loans under section 221, but the comments will be considered in finalizing the regulations under section 221.

Section 6050S(f) requires that, in the case of any person who receives any amount on behalf of another person, only the first person receiving the amount is required to comply with the information reporting requirements. Based on section 6050S(f), the proposed regulations provide that if a payee contracts with another person to receive or collect interest payments on a qualified education loan on its behalf, the other person must comply with the information reporting requirements. Commentators requested clarification of how this rule would apply if a payee contracts with multiple parties, such as a billing service and a collection agent. Other commentators requested clarification of the rule for noncontractual arrangements and how the rule would apply if the person receiving the payments does not ordinarily possess the payor information required to file information returns ( e.g., a lock-box agent, a bankruptcy trustee, or a collection agency). The commentators suggested that the regulations provide that if a person collects or receives payments on a qualified loan on behalf of another person (whether or not a formal contract exists), the person collecting or receiving the payments must satisfy the reporting requirements, unless the other person does not possess the information needed to comply with the reporting requirements. This recommendation is consistent with the provisions of section 6050H and the regulations thereunder; therefore, the final regulations adopt this recommendation.

Several commentators requested that the final regulations permit a payee to contract with a third party to file Forms 1098-E, “Student Loan Interest Statement,” and to furnish the information statements. The general instructions to Form 1099 and Form 1098 allow a filing agent if certain requirements are met. Therefore, the final regulations do not need to adopt this recommendation.

Several commentators requested that the final regulations eliminate the requirement that a payee furnish certain instructions to a payor with the information statement. The commentators explained that the instructional language implies that the payee is able to provide tax assistance. The instructions that a payee is required to furnish with the information statement alert the payor to the limitations on the deductibility of reported interest. In addition, the instructions clearly state that the payor should refer to the IRS forms and publications for information regarding the deductibility of reported interest. Therefore, the final regulations do not eliminate the required instructions; however, the regulations clarify that the payor should refer to the IRS forms and publications, and not the payee, for tax information.

The proposed regulations provide that the information statement must include the name, address, and phone number of the individual who is the information contact for the payee that filed the Form 1098-E. It is often not feasible for payees to identify a specific individual as the information contact. Therefore, the final regulations provide that the information statement must include the name, address, and phone number of an office or department of the payee as the information contact.

Other commentators requested that the final regulations provide specific rules for reporting interest payment adjustments made after information returns have been filed with the IRS. The commentators stated that requiring reporting of adjustments to interest previously reported would be overly burdensome. The final regulations do not need to include specific rules because additional interest payments received in a subsequent year that relate to interest payments reported in a prior year are reportable in the year of receipt. Further, a payee is not required to report reimbursements or refunds of interest payments previously reported. However, a payee should file corrected information returns to report interest payments that were incorrectly reported in a prior year.

The proposed regulations provide that the regulations will apply to information returns required to be filed, and information statements required to be furnished, after December 31, 2001. Several comments were received on the proposed effective date. Several commentators recommended that the final regulations apply to new loans made on or after January 1 of the year that is 24 months after publication of the final regulations and that loans made before that date remain subject to the requirements in Notice 98-7, as modified. Other comments requested a period of at least 12 months after publication of final regulations to make programming changes to implement required reporting with respect to loan origination fees and capitalized interest.

Further comments requested that the reporting requirements in Notice 98-7, as modified, continue for information returns required to be filed, and information statements required to be furnished, for interest payments received during calendar year 2002 (for which the returns and statements are required to be filed and furnished in 2003). In general, the final regulations do not impose any significant reporting requirement beyond the reporting currently required by Notice 98-7, as modified, and Form 1098-E. However, in response to comments, the IRS and the Treasury Department extend Notice 98-7, as modified, for the calendar year 2002. Therefore, the final regulations apply to information returns required to be filed, and information statements required to be furnished, after December 31, 2003 (for interest payments received during calendar year 2003). In addition, in order to provide additional time for payees to implement reporting of loan origination fees and capitalized interest, the final regulations provide that a payee is not required to report payments of such amounts as interest for qualified education loans made before January 1, 2004.

The final regulations amend the regulations under section 6011(e) to require payees who are required to file 250 or more Forms 1098-E to file on magnetic media.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. A final regulatory flexibility analysis has been prepared for the collection of information in this Treasury decision. This analysis is set forth in this preamble under the heading “Final Regulatory Flexibility Analysis.” Pursuant to section 7805(f), the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The collection of information contained in § 1.6050S-3 is needed to assist the IRS and taxpayers in determining the amount of any interest deduction allowable under section 221. The objectives of these regulations are to provide uniform, practicable, and administrable rules under section 6050S. The types of small entities to which the regulations may apply are certain payees (e.g., a lender, a holder of the loan, or a loan servicer) who receive interest payments of $600 or more on qualified education loans.

There are no known Federal rules that duplicate, overlap, or conflict with these regulations. The regulations are considered to have the least economic impact on small entities of all alternatives considered.

Moreover, the regulations requiring filing Forms 1098-E on magnetic media impose no additional reporting or recordkeeping and only prescribe the method of filing information returns that are already required to be filed. Further, these regulations are consistent with the statutory requirement that a payee is not required to file Forms 1098-E on magnetic media unless required to file at least 250 or more returns during the year. Finally, the economic impact caused by requiring Forms 1098-E on magnetic media should be minimal because most payee's operations are computerized. Even if their operations are not computerized, the incremental cost of magnetic media reporting should be minimal in most cases because of the availability of computer service bureaus. In addition, the existing regulations under section 6011(e) provide that the IRS may waive the magnetic media filing requirements on a showing of hardship. The waiver authority will be exercised so as not to unduly burden payees lacking both the necessary data processing facilities and access at a reasonable cost to computer service bureaus.

The principal author of the regulations is Donna Welch, Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. However, other personnel from the IRS and the Treasury Department participated in the development of the regulations.

On March 20, 2002, we published a notice of proposed rulemaking (NPRM) entitled “Anchorages and Security Zones; Oahu, Maui, Hawaii, and Kauai, HI” in the Federal Register (67 FR 12938). We did not receive any letters commenting on the proposed rule. No public hearing was requested and none was held.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less that 30 days after publication in the Federal Register . Delaying this rule would be contrary to the public interest since immediate action is needed to protect persons, vessels, and facilities in various areas on the islands of Oahu, Maui, Hawaii, and Kauai, HI from acts of sabotage, terrorist attack, or other subversive acts. Under these circumstances, following the normal rulemaking procedures would be impracticable.

Recent terrorist incidents in New York and Washington, DC have called for the implementation of additional measures to protect national security interests. This rule is similar to a rule published January 31, 2002 (67 FR 4656), creating security zones in these areas until April 19, 2002. This rule is intended to provide for the safety and security of the public, maritime commerce, and transportation, by establishing security zones in designated harbors, anchorages, facilities, and adjacent navigable waters of the Unites States.

The zones provide the Captain of the Port Honolulu with the means to adequately respond to acts of sabotage, terrorist attack, and any other subversive acts. These security zones extend from the surface of the water to the ocean floor. Entry into these zones is prohibited unless authorized by the Coast Guard Captain of the Port Honolulu.

The Coast Guard did not receive any comments following our publication of the notice of proposed rulemaking (67 FR 12938, March 20, 2002). Therefore, we are adopting the proposed rule without changes.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT)(44 FR 11040, February 26, 1979).

The Coast Guard expects the economic impact of this rule to be so minimal that a full Regulatory Evaluation under paragraph 10e of the regulatory policies and procedures of DOT is unnecessary. This expectation is based on the geographic zone sizes are the minimum necessary to adequately protect the public, maritime commerce, and transportation. Any vessel may request permission from the Captain of the Port to enter into or move within the zones. Any inconvenience experienced by persons or vessels will be brief and minimal in light of the measures necessary to protect the public, maritime commerce, and transportation from sabotage, terrorist attack, and other subversive acts.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. For the same reasons discussed under Regulatory Evaluation above, the Coast Guard expects the impact of this regulation to be minimal.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule will have a significant economic impact on it, please submit a comment (see ADDRESSES -) explaining why you think it qualifies and how and to what degree this rule will economically affect it.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The 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 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

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

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

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

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it will 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. We invite your comments on how this rule might impact tribal governments, even if that impact may not constitute a “tribal implication” under the Order

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that, under figure 2-1, paragraph (34)(g), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

We encourage you to participate in this rulemaking by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this rulemaking (CGD01-01-227), indicate the specific section of this document to which each comment applies, and give the reason for each comment. Please submit all comments and related material in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying. If you would like to know your comments reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this interim rule in view of them.

We do not now plan to hold a public meeting. However, you may submit a request for a meeting by writing to Marine Safety Office Boston at the address under ADDRESSES explaining why one would be beneficial. If we determine that a public meeting would aid this rulemaking, we will hold one at a time and place announced by a separate notice in the Federal Register .

A notice of proposed rulemaking (NPRM) was published on January 18, 2002 in the Federal Register (67 FR 2614). The comment period in that NPRM expired February 28, 2002. The Coast Guard is now proceeding to implement the proposal with changes on an interim basis, allowing for further public comment until June 28, 2002 for consideration in development of the final rule.

The September 11, 2001 terrorist attacks on New York City and Washington, DC inflicted catastrophic human casualties and property damage. National security and intelligence officials warn that future terrorist attacks are likely. Due to these heightened security concerns, safety and security zones are prudent for vessels that may be likely targets of terrorist acts. This interim rule establishes safety and security zones for vessels the Captain of the Port (COTP) Boston determines are in need of a Coast Guard escort (“Escorted Vessels” or “EVs”).

The safety and security zones would prohibit entry into or movement in all waters 1000 yards ahead or astern, and 100 yards on each side of any EV in the following waters of the Boston Captain of the Port Zone: All waters of Boston Inner Harbor, including the waters of the Mystic River, Chelsea River, and Reserved Channel west of a line running from Deer Island Light, at position 42°20′25″ N, 070°57′15″ W, to Long Island, at position 42°19′48″ N, 070°57′15″ W, and west of the Long Island Bridge, running from Long Island to Moon Head. For the purposes of this rule, EVs operating in Boston Harbor include any vessel (as defined under 46 U.S.C. section 2101) deemed to be in need of an escort due to increased security risks present and identified by the COTP under the circumstances.

Whether a vessel is considered an EV is determined by the Captain of the Port Boston based on the potential threat posed by the vessel (or cargo aboard) to the safety and/or security to the maritime community, the crews or passengers of the EVs, and the surrounding communities from subversive or terrorist attack.

The safety and security zones are necessary to protect the EVs, their crews and/or passengers, others in the maritime community, and the surrounding local communities from subversive or terrorist attack against a vessel which could, by the nature of its cargo or the destructive capability of the vessel structure itself, potentially inflict a large number of casualties or otherwise have a serious negative impact on vessels, the port, or the environment. Since large commercial vessels fall into the description above, it is expected that the vast majority of vessels this rule is used to protect will be large commercial vessels restricted to the Boston ship channel.

The COTP Boston anticipates some impact on vessel traffic due to this regulation. However, as discussed in the Regulatory Evaluation section below, the impact is anticipated to be minimal. In addition, the safety and security zones are deemed necessary for the protection of life and property within the COTP Boston zone. Public notifications will be made prior to the effective period of this regulation via local notice to mariners. Marine information broadcasts will be utilized to notify the public of EV transits.

No person or vessel may enter or remain in a prescribed safety or security zone at any time without the permission of the COTP. Each person or vessel in a safety or security zone shall obey any direction or order of the COTP or Coast Guard representative on scene. The COTP may take possession and control of any vessel in a security zone and/or remove any person, vessel, article or thing from a security zone. No person may board, take or place any article or thing on board any vessel or waterfront facility in a security zone without permission of the COTP.

Any violation of any safety or security zone herein is punishable by, among others, civil penalties (not to exceed $25,000 per violation, where each day of a continuing violation is a separate violation), criminal penalties (imprisonment for not more than 10 years and a fine of not more than $100,000), in rem liability against the offending vessel, and license sanctions. This regulation is under the authority contained in 50 U.S.C. 191, 33 U.S.C. 1223, 1225 and 1226.

The Coast Guard received 22 comments from the public regarding this proposal. All comments received were considered in the development of this interim final rule (IFR). Some changes implemented in the IFR are a result of inter-Coast Guard evaluations of how to better employ and enforce the regulation. A significant number of the changes are the result of comments and recommendations of stakeholders in the COTP Boston zone. These stakeholders include maritime industry, marina operators, the maritime law community, recreational boaters, the Massachusetts Port Authority, and the commercial fishing industry. The comments and respective changes (if any) are addressed below.

The original proposed safety and security zones published in the Federal Register (67 FR 2614, January 18, 2002) were developed to protect High Interest Vessels (HIVs). Since that time the definition of HIVs for the purposes of Coast Guard maritime security operations and this regulation have diverged. As a result, vessels in need of protection under this regulation have been termed “Escorted Vessels.” Additionally, in the proposal we provided examples of cargoes and vessel types that might be considered HIVs. The list was not exclusive, but was meant to provide examples of the types of vessels which may be considered high risk. These examples were not essential to the regulation and created some confusion among the public. As a result they have been removed, since the intent of the regulation is to allow the COTP the flexibility to protect any vessel found to be in need of such protection.

Many comments stated concerns with the potential application of these safety and security zones to vessels at anchor. Some comments thought this would make the regulation applicable to moored vessels as well. It was determined that vessels to which this regulation would apply would not be allowed to anchor within Boston Harbor, and in fact would be required to anchor in Broad Sound well offshore of Boston Harbor if they anchored at all. In addition, the regulation was originally designed to fill a need to protect and provide escorts for moving vessels. As a result, all references to anchored vessels have been removed from the proposal.

Many comments raised concerns with EVs transiting the narrow channels and harbors of Salem and Weymouth. These comments raised concerns that other vessels located in the channels would have insufficient room to maneuver out of the way of an oncoming EV and associated safety and security zones. Due to the infrequent nature of commercial vessel transits in these two areas, coupled with the highly infrequent nature of the COTP designating EVs, we have determined that benefits of this regulation do not outweigh the enforcement complications of these safety and security zones in these areas. As a result this rule will only be effective in Boston Harbor, and will not be effective in Salem Harbor and the Weymouth Fore River, as originally proposed. Should the need arise, the Coast Guard will enact temporary regulations to protect vessels in these areas.

Some comments presented concerns with the moving safety and security zones having an impact on recreational vessels attempting to transit the Charles River Dam during an EV transit. This regulation will be used to protect vessels deemed to be in need of escort protection by the COTP Boston. If the COTP needed to protect a vessel transiting in the vicinity of the Charles River Dam, other vessels would have to wait for the EV to pass or request permission to transit in its vicinity. However, it is expected that the vast majority of such vessels will be large commercial vessels restricted to the Boston Ship Channel. In this case we have determined that the zones are not large enough to extend from the main ship channel to the Charles River Dam.

Some comments raised concerns that as soon as an EV entered the Boston Harbor, all vessels would have to “freeze” in place. Traditionally, the Coast Guard grants access to vessels wishing to transit through a safety and security zone as long as the vessel does not pose a safety or security risk to the commercial vessel in transit, and would plan to do the same with this regulation. However, to further aid enforcement and the public we have determined that reducing the zone from 200 to 100 yards on each side of an EV will provide adequate protection for EVs and at the same time reduce the number of requests to the Coast Guard representative on scene from vessels wishing to enter the moving zones, easing the enforcement burden on escorting assets and allowing more space to navigate outside the zones.

Some comments stated a desire to regulate the arrival and departure times of EVs around periods of high recreational boating activity. We have determined this is not practical. Large commercial vessels are dependant upon many (sometimes unpredictable) variables including tidal schedules, quantities of cargo at marine facilities, and the arrivals and departures of other vessels, making the management of their arrivals highly difficult to accomplish. Attempting to manage their transits in this manner would cause undue burden on marine industry and negative impacts upon the flow of commerce.

Some comments stated concerns that this regulation would impact marinas by forcing tenants to vacate their moorings and slips each time an EV moving zone passed over their marina. The COTP does not intend to force stationary moored boats to move each time an EV safety and security zone passes over them, and will not do so unless a security risk is identified at that marina. In this case the Coast Guard would only remove the boat or person deemed to be a security risk. The spirit of the regulation is to prevent vessels from approaching the EV inside the zone without Coast Guard permission.

Some comments expressed concerns over how the moving EV zone would impact harbor dock workers and waterfront facilities. Again, the Coast Guard does not intend to interfere with events occurring in stationary locations (as with the marinas) unless a specific security risk is identified on shore. In this case the Coast Guard would address only that specific risk.

Some comments relayed interest in how the Coast Guard plans to inform the public of the specifics of this regulation. The Coast Guard plans to conduct a public outreach program through the local Port Operators Group, yacht club meetings, pamphlet distribution to mariners and industry utilizing the Coast Guard Auxiliary, Local Notice to Mariners, and safety marine information broadcasts.

Some comments stated concerns over how this regulation would impact the placement of lobster traps. The Captain of the Port anticipates minimal impact on lobstermen as with all other waterway users. Since the safety and security zones are moving, the lobstermen may simply wait the short time it takes for the vessel to pass or request to pass through the zone from the Coast Guard representative on scene.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT)(44 FR 11040, February 26, 1979).

The Coast Guard expects the economic impact of this rule to be so minimal that a full Regulatory Evaluation under paragraph 10e of the regulatory policies and procedures of DOT is unnecessary.

Although this regulation will prevent traffic from moving within a portion of Boston Harbor during EV transits, the effect of this regulation will not be significant due to the minimal time that vessels will be restricted from the area. Further, vessels can pass safely around the zones at most points in the Harbor, vessels will only have to wait a short time for the EV to pass if they cannot safely pass outside the zones, and advance notifications will be made to the local maritime community by marine information broadcasts.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), the Coast Guard considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This interim rule will affect the following entities, some of which may be small entities: The owners or operators of vessels intending to transit or anchor in a portion of Boston Harbor during EV transits. This rule will not have a significant economic impact on a substantial number of small entities due to the following factors: (1) The minimal time that vessels will be restricted from the area of the zones, (2) vessels can pass safely around the zones at most points in Boston Harbor, (3) vessels will only have to wait a short time for the EV to pass if they cannot safely pass outside the zones, (4) and advance notifications will be made to the local maritime community by marine information broadcasts. If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this interim rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), the Coast Guard wants to assist small entities in understanding this interim rule so that they can better evaluate its effects on them and participate in the rulemaking. 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 LT Dave Sherry at the address listed under ADDRESSES.

This interim rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

The Coast Guard has analyzed this interim rule under Executive Order 13132 and has determined that this rule does not have implications for federalism under that Order.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) governs the issuance of Federal regulations that require unfunded mandates. An unfunded mandate is a regulation that requires a State, local, or tribal government or the private sector to incur direct costs without the Federal Government's having first provided the funds to pay those costs. This interim rule would not impose an unfunded mandate.

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

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

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

This interim rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. A rule with tribal implications has 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 Coast Guard has considered the environmental impact of this interim rule and concluded that, under figure 2-1, (34)(g), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

We did not publish a notice of proposed rulemaking (NPRM) for this rule. Under 5 U.S.C. 553(b)(B), the Coast Guard finds good cause exists for not publishing an NPRM. Publishing an NPRM would be contrary to public policy because immediate action is needed to protect mariners from potential hazards associated with the Marine Corps' exercises. The final schedule for this event was not finalized and communicated to the Coast Guard in sufficient time to allow for a comment period.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Information regarding the precise location and other logistical details surrounding the event were not provided until a date fewer than 30 days before the event. Delaying the effective date of this rule would be contrary to the public interest and would not allow the Coast Guard to aid in maintaining the safety of the exercise participants and users of the waterway.

This safety zone is necessary to close a portion of a navigable waterway for an exercise conducted by the U.S. Marine Corps on the Colorado River between Yuma, Arizona and Blythe, California. This event will take place April 18-19, 22-26, 29-30, 2002 and May 1, 2002 from 6 a.m. to 6 p.m. (MST). This exercise will include the placement of a temporary bridge linking the California side to the Arizona side of the river, the transportation of military equipment, and the movement of Marine Corps personnel.

The safety zone includes a 400-yard radius around the following coordinate: 33°22′49″ N and 114°42′22″ W. The closure of this section of the Colorado River is necessary to prevent vessel traffic from transiting near the Marine Corps exercise and transiting under the temporary bridge. This temporary safety zone is also necessary to provide for the safety of the Marine Corps personnel, military equipment, and the temporary bridge and also to protect other vessels and users of the waterway. Persons and vessels are prohibited from entering into, transiting through, or anchoring within this safety zone unless authorized by the Captain of the Port or his representative.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Transportation (DOT)(44 FR 11040, February 26, 1979). The Coast Guard expects the economic impact of this rule to be so minimal that a full Regulatory Evaluation is unnecessary.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. The exercise will be located in Cibola National Wildlife Refuge, which should not affect any small entities, and the Coast Guard is unfamiliar with any commercial vessel traffic that transits through this section of the Colorado River.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule and have determined that this rule does not have implications for federalism.

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 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

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

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

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

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

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. It has not been designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that under figure 2-1, paragraph (34)(g), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation, because we are establishing a safety zone. A “Categorical Exclusion Determination” is available in the docket for inspection or copying where indicated under ADDRESSES.

The Commission adopted a Second Report and Order , WT Docket No. 00-32, FCC 02-47, on February 14, 2002, and released on February 27, 2002. An effective date of May 9, 2002, was set by the Commission, 67 FR 17009, April 9, 2002. The Second Report and Order allocated 50 megahertz of spectrum in the 4940-4990 MHz band (4.9 GHz band) for fixed and mobile services (except aeronautical mobile service) and designates this band for use in support of public safety. The allocation and designation provide Public safety users with additional spectrum to support new broadband applications. This document delays that effective date from May 9, 2002, until May 13, 2002.

The IFQ Program, a limited access management system for the fixed gear Pacific halibut ( Hippoglossus stenolepis ) and sablefish ( Anoplopoma fimbria ) fisheries off Alaska, was approved by NMFS in January 1993, and fully implemented beginning in March 1995. The IFQ Program limits access to the halibut and sablefish fisheries to those persons holding QS in specific management regions. The IFQ Program for the sablefish fishery is implemented by the FMPs and Federal regulations under authority of the Magnuson-Stevens Act. The IFQ Program for the halibut fishery is implemented by Federal regulations under the authority of the Halibut Act.

A detailed discussion providing specific examples of the effect of this final rule on the IFQ Program may be found in the preamble to the proposed rule, published October 12, 2001 (66 FR 52090).

The IFQ Program contains a number of provisions designed to promote an owner-operator IFQ fishing fleet. An exception to the owner-operator provisions allows initial recipients of category B, C, or D (catcher vessel) QS (hereafter QS holder) to hire a skipper to fish the IFQ derived from the QS, provided the QS holder owns at least 20 percent of the vessel on which the IFQ is being used to fish for IFQ species. This final rule will allow a QS holder to substitute indirect ownership of a vessel through corporate or other ties for direct vessel ownership by the QS holder for purposes of hiring a skipper to fish the QS holder’s IFQ. This final rule also will allow corporate QS holders to employ a hired skipper on a vessel owned by a shareholder in the corporation. The purpose of this action is to revise IFQ Program regulations to explicitly reflect management practices that have been in effect since the IFQ Program started in 1995.

This final rule allows a QS holder to continue to hire a skipper through a corporation or partnership provided that certain minimum levels of vessel ownership are maintained by an individual QS holder who is a shareholder in a corporation or a partner in a partnership. Existing regulations require an individual QS holder to maintain a minimum of 20-percent ownership interest in the vessel (see 64 FR 24960, May 10, 1999). These regulations prevent a QS holder from employing a hired skipper unless the QS holder directly owns at least 20 percent of the vessel on which the hired skipper will fish the QS holder’s IFQ.

This final rule extends the 20-percent ownership standard to QS holders who indirectly own a vessel through a corporation, partnership, or other entity. For example, a QS holder who is a shareholder in a corporation will be allowed to employ a hired skipper to fish his or her IFQ aboard a vessel wholly owned by that corporation provided that the QS holder had at least 20- percent ownership in the corporation that owns the vessel. This means a QS holder can meet the 20-percent minimum ownership standard indirectly as a shareholder of a corporation, a partner in a partnership, or a member of another entity. However, this final rule prevents a QS holder from employing hired skippers through corporations in which they are nominal shareholders.

Minimum ownership interest is determined by multiplying the percentage of ownership that a QS holder has in a corporation, partnership, or other entity by the percentage of ownership that a corporation, partnership, or other entity has in the vessel on which a hired skipper is employed. This final rule codifies the existing management policy and methodology currently used by NMFS to determine the ownership interest a QS holder has in a vessel. The following are two examples of how this final rule will be implemented:

This final rule holds individual QS holders who are indirect corporate vessel owners to the same ownership standards as those required of direct individual vessel owners. This will allow existing business practices to continue since many QS holders own their vessels through a corporation to minimize personal liability. Without this final rule, QS holders would be unable to meet minimum standards for direct vessel ownership while maintaining the advantages that corporate vessel ownership provides.

Likewise, this final rule allows corporations, partnerships, or other entities that are QS holders to employ a hired skipper on board a vessel owned by a shareholder. This final rule requires the corporate QS holder to maintain certain minimum levels of interest, or affiliation, with the vessel on which a hired skipper is employed. However, this final rule does not require the corporate QS holder to maintain an ownership interest in the shareholder’s vessel.

Minimum interest, or affiliation, is determined by multiplying the percentage of ownership that a person has in a corporation, partnership, or other entity by the percentage of ownership that person has in the vessel on which a hired skipper is employed. Again, this final rule codifies the existing management policy and methodology used by NMFS for this situation. The following are two examples of how this final rule will be implemented:

To prevent excessive consolidation of QS and promote an owner-operator IFQ fleet, the IFQ Program restricts the extent to which corporations, partnerships, and other collective entities can hold catcher vessel QS. The regulations pertaining to collective QS holdings provide that any “change” in a corporation, partnership, or other entity, will cause the QS to cease generating annual IFQ for harvesting IFQ halibut or sablefish until the QS is transferred to a qualified individual (see 50 CFR 679.42(j)). The regulations define a “change” in a corporation, partnership, or other collective entity to mean the addition of a shareholder or partner to the collective entity. By defining such a “change,” the Council clearly expressed its intent to limit the ability of collective entities to hold catcher vessel QS and use indefinitely the resulting IFQ.

This final rule revises the definition of “a change in the corporation or partnership” to state that for estates holding QS, a “change” occurs with the final or summary distribution of the estate. The effective date of that change is the date of determination of a legal heir, if the previous QS holder died intestate, or the date of the order for distribution of the estate, if the previous QS holder had testamentary documents. Under this final rule, the estate is required to transfer any estate-held QS to a qualified individual upon a change in the estate. This final rule limits the ability of estates to hold QS and fish the resulting IFQ indefinitely and thereby meets the intent of the IFQ Program and the Council to maintain an owner-operator fleet in the fixed gear fisheries for Pacific halibut and sablefish.

The IFQ Program limits the amount of QS a person may use to harvest IFQ species. In the original implementing regulations for the IFQ Program (58 FR 59375, November 9, 1993), use limits are expressed as percentages of the QS pool. The total amount of QS is used as a basis for the annual determination of IFQ for each QS holder. Because the size of the QS pool may vary from year to year, a use limit expressed as a percentage of the QS pool results in a variable use limit. Consequently, a fisherman’s QS holdings that have reached the limit in one year may actually exceed the limit in a subsequent year without the fisherman having acquired any additional QS. In 1997, all halibut use limits were revised to be expressed in numbers of QS units based on the 1996 QS pool (62 FR 7947, February 21, 1997). The revised halibut use limits provide a fixed limit that does not change according to the size of the QS pool.

This final rule standardizes the application of use limits for halibut and sablefish. This provides sablefish QS holders with the same benefit of a stable use limit so that they can manage their fishing businesses in a more rational manner. This final rule revises the sablefish use limit percentages to 3,229,721 units of sablefish QS, and the IFQ regulatory area SE sablefish use limit percentages to 688,485 units of sablefish QS.

This final rule does not change the amount of QS that a person could use. It simply sets those limits in QS units, instead of as a percentage of the QS pool.

NMFS invited public comment on the proposed rule implementing Amendments 54/54 from October 12, 2001, through November 26, 2001 (66 FR 52090, October 12, 2001). No comments were received.

During the course of preparing this final rule, several corrections were made to the final rule to better reflect the original intent of Amendments 54/54. The changes made in this final rule correctly reflect the intent of the Council and previous regulatory action approved by NMFS. These changes also reflect the current management practices used by NMFS when determining the level of indirect ownership or corporate affiliation that must exist between the QS holder and the vessel on which a hired skipper is employed. These changes correct the mathematical methodology used to determine the level of indirect ownership or affiliation and do not affect the nature of the proposed rule or the intent of the Council.

The first change in the final rule regulatory language concerns the determination of ownership interest for purposes of meeting the 20-percent minimum ownership interest requirement. The regulatory language in the proposed rule (66 FR 52090, October 12, 2001) for 50 CFR 679.42(i)(3) did not adhere to the Council’s intent to require that initial recipients of category B, C, or D quota share must maintain a minimum of a 20-percent ownership interest in the vessel that employs a hired skipper. The proposed rule regulatory language did not use a multiplicative approach for purposes of determining the level of indirect ownership. Currently, NMFS uses a multiplicative rule for determining the level of interest or corporate affiliation that must exist between the QS holder and the vessel on which a hired skipper is employed. The final rule language has been changed to adhere to the existing management practices that Amendments 54/54 were intended to codify.

The second change in the final rule regulatory language changes the numbering of a new paragraph at 50 CFR 679.42(j)(6) to 50 CFR 679.42(j)(7). The Code of Federal Regulations was amended recently to include a paragraph (j)(6), and the new paragraph in the final rule is added at (j)(7) of § 679.42.

The third change in the final rule regulatory language concerns the use of a hired skipper aboard a vessel that is owned by an individual that has an affiliation with a corporate QS holder through membership in a corporation, partnership, or other entity. The regulatory language in the proposed rule (66 FR 52090, October 12, 2001) for 50 CFR 679.42(j)(6) (now (j)(7)) did not adhere to the Council’s intent to require that initial recipients of category B, C, or D QS must maintain a minimum 20- percent interest in the vessel before those initial QS recipients could hire a skipper to fish their IFQ on that vessel. The proposed rule regulatory language did not use a multiplicative approach for purposes of determining the level of indirect ownership. Currently, NMFS uses a multiplicative rule for determining the level of interest or corporate affiliation that must exist between the QS holder and the vessel on which a hired skipper is employed. The final rule language has been changed to adhere to the existing management practices that Amendments 54/54 were intended to codify.

The fourth change clarifies that the effective date of a change for purposes of transferring estate-held QS to a qualified individual includes situations when a person dies intestate (date of determination of a legal heir) and when a person dies with testamentary documents (date of the order for distribution of the estate). Regulatory text was added to § 679.42(j)(3) to reflect that clarification.

All the changes in the regulatory language from the proposed rule are consistent with Council intent. Failing to make these changes would frustrate Council intent to maintain an owner-operator component to the IFQ fishery and maintain more than a nominal relationship between the QS holder and the vessel on which a hired skipper is employed. These changes are corrections to the regulatory language describing the methodology used to determine interest in a vessel. These clarifications do not represent new policy and are necessary to reflect the current management practices used by NMFS to determine the level of indirect ownership or corporate affiliation that must exist between the QS holder and the vessel on which a hired skipper is employed.

The Administrator, Alaska Region, NMFS, has determined that these FMP amendments for sablefish and regulatory amendments for Pacific halibut are necessary for the conservation and management of the Pacific halibut and sablefish fixed-gear IFQ fishery and that they are consistent with the Magnuson-Stevens Act, Halibut Act, and other applicable laws.

NMFS prepared a FRFA that describes the impact this final rule would have on small entities. A copy of this analysis is available from NMFS (see ADDRESSES).

This final rule makes three changes to the IFQ program that are necessary to ensure the program continues to be managed in a manner intended by the Council. These changes (1) specify the vessel ownership level for purposes of hiring a skipper to fish the QS holder’s IFQ; (2) revise the definition of “a change in the corporation or partnership” to clarify when estates must distribute QS being held; and (3) revise sablefish QS limit to be expressed as a specific number rather than as a percentage. The overall impact of these amendments on small entities is as follows: First, the indirect ownership provisions, while conceivably keeping some QS off the open market, will provide fishermen who hold initial allocations of catcher vessel QS an additional option for using their QS; second, the change in the definition of a “change in the corporation or partnership” to include language specific to estates will benefit small entities by placing more QS on the market than would otherwise occur when estates, as with all non-individual non-corporate entities, eventually divest themselves of QS; and finally, the revision of the sablefish QS use limits will allow QS holders to manage their QS holdings more efficiently by providing a stable use limit that does not change with changes in the QS pool.

These actions would potentially affect all holders of initially allocated QS in categories B, C, or D in the IFQ Program. The maximum number of affected fishermen could be approximately 3,900 persons, both individual and collective entities, who, as of January 2001, hold category B, C, or D category QS and, by virtue of having received initial allocations, are eligible to hire skippers. The impact of this action would be to create explicit regulatory authority for current NMFS policy. This would give QS holders, whether collective entities or individuals who are partners or shareholders in collectively owned vessels, an additional option to use the hired skipper provisions of the IFQ Program. At present, NMFS has no reliable data indicating how many individual QS holders may be shareholders or partners in collective entities or how many collective entities may have individual members who own fishing vessels. These data are not currently collected as they are not required for managing the existing program. Also, at present, NMFS does not have available the full data necessary to determine the extent to which this action may impact small entities.

The IRFA considered alternatives that would have maintained the status quo or adopted the changes described in this action and analyzed the effect of those alternatives on small entities. The alternatives considered in the IRFA were developed in response to public comments and participation in the Council process. The changes described in this final rule are the same as the alternative developed in the IRFA. NMFS is not aware of any alternatives in addition to those considered in this action that would accomplish the objectives of the Magnuson-Stevens Act and other applicable statutes while further minimizing the economic impact of the rule on small entities.

No public comments were received during the comment period on the IRFA or the economic impact of the rule generally and, therefore, no changes were made to the analysis based on public comment.

No new reporting, recordkeeping, or compliance requirements are imposed by this final rule.

This final rule has been determined to be not significant for the purposes of Executive Order 12866.