On December 13, 2005, the Office of Personnel Management (OPM) published a proposed rule at 70 FR 73646, to revise the Administrative Law Judge Program. On December 21, 2005, OPM republished the proposed rule at 70 FR 75745 due to information that was inadvertently omitted.

The administrative law judge function was established by the Administrative Procedure Act (APA) (Act of June 11, 1946, 60 Stat. 237, as amended), which is codified, in relevant part, in title 5, United States Code (U.S.C.), at sections 556, 557, 1305, 3105, 3344, 4301(2)(D), 5372, and 7521. Administrative law judges preside in formal proceedings requiring a decision on the record after the opportunity for a hearing. The APA requires that this function be carried out in an impartial manner. To ensure objectivity of administrative law judges and to insulate them from improper pressure, the law made these positions independent of the employing agencies in matters of appointment, tenure, and compensation.

The goal of these revised regulations is to streamline the existing administrative law judge regulations as prescribed in title 5, Code of Federal Regulations (CFR), part 930, subpart B. The proposed regulations remove redundant procedures and outdated information, clarify bar membership requirements, and provide for the administrative law judge examination process to be established in a manner similar to other OPM competitive examinations.

During the comment period, OPM received written comments from six Federal agencies; five professional organizations; the exclusive bargaining representative of administrative law judges serving at the Social Security Administration (SSA) and the Department of Health and Human Services (HHS); and seventeen individuals. Based on these comments, OPM adopts several suggestions and clarifies areas where there appeared to be some confusion and misunderstanding. OPM is addressing the comments according to topics identified.

OPM's authority to administer the employment of administrative law judges (formerly called hearing examiners) was created by the APA. Text in section 11(1st) of the APA (5 U.S.C. 1010(1st)) stated that agencies must appoint “qualified and competent” administrative law judges. Although former section 1010(1st) was replaced by 5 U.S.C. 3105 when title 5 was enacted into positive law in 1966, the amendment was not substantive, and the requirement that administrative law judges be qualified and competent continued to apply. See Pub. L. 89-554, sec. 7(a), 80 Stat. 631 (the purpose of sections 1-6 of the 1966 Act, codifying title 5, was “to restate, without substantive change, the laws replaced by those sections on the effective date of this Act [Sept. 6, 1966]”); H.R. Rep. No. 89-901, at 36 (1965) (replacement of 5 U.S.C. 1010(1st) with 5 U.S.C. 3105 did not effect a substantive amendment); S. Rep. No. 89-1380, at 55 (1966) (same). The APA's legislative history, commenting on this requirement, states that the Civil Service Commission, OPM's forerunner, must “fix appropriate qualifications” for administrative law judges and that the agencies must “seek fit persons.” See S. Rep. No. 79-572 (1945), reprinted in Administrative Procedure Act, Legislative History, 79th Congress, 1944-46, S. Doc. No. 79-248, at 187, 215 (1946); H.R. Rep. No. 79-1980 (1946), reprinted in S. Doc. No. 79-248, at 235, 280.

The President has the authority to set standards for individuals entering into the Federal civil service in the executive branch, and to prescribe rules for competitive examinations. 5 U.S.C. 3301, 3304; see also Hampton v. Mow Sun Wong, 426 U.S. 88, 115 n.47 (1976); Am. Fed'n of Govt. Employees v. Hoffman, 543 F.2d 930, 938 (D.C. Cir. 1976). The President delegated his authority to the Director of OPM through Executive Order 10577, Rule II, codified as amended in 5 CFR 2.1(a). Mow Sun Wong, 426 U.S. at 111; Am. Fed'n, 543 F.2d at 938. See also 5 U.S.C. 1104(a)(1), reflecting the President's authority to delegate the authority for competitive examinations to the Director of OPM. Additionally, Congress required OPM to prescribe regulations for competitive service examinations, including the administrative law judge examination. 5 U.S.C. 1302. See also Mow Sun Wong, 426 U.S. at 115 n.47. Under the preceding authorities, OPM is responsible for regulating and conducting competitive examinations for administrative law judges, and for establishing qualification standards for administrative law judge candidates and incumbents that promote the efficiency of the competitive service.

Many commenters challenge OPM's authority to modify the administrative law judge program. These commenters claim that Congress established the administrative law judge position under the APA and only Congress can make the types of changes OPM is proposing. As noted above, we have identified authorities under which OPM administers the administrative law judge program.

Two commenters claim that OPM does not have the authority to approve non-competitive personnel actions for administrative law judges, including but not limited to promotions, transfers, reinstatements, restorations, reassignments, and pay adjustments and that by doing so, OPM violates 5 U.S.C. 7521. OPM's authority to approve movement of administrative law judges such as promotions, reassignments, transfers, reinstatements, restorations, and pay adjustments is prescribed in the existing regulations in §§ 930.204 through 930.210. These regulations are authorized by 5 U.S.C. 1305, which states that OPM may investigate and regulate to give effect to the provisions applicable to administrative law judges in 5 U.S.C. 3105, 3344, 4301, and 5372. OPM has not changed the procedures for approving non-competitive personnel actions, which ensure that such actions are consistent with the statutes cited above.

An agency suggests OPM consider giving agencies the authority to promote, transfer, and detail administrative law judges in excess of 120 days without obtaining OPM's approval. The agency is concerned about being able to bring back a specific judge with the in-depth knowledge of a case after he or she has separated from the agency. OPM is not adopting this suggestion. OPM is responsible for ensuring the independence of administrative law judges, and OPM believes it can best discharge this obligation if it continues to approve these requests. Accordingly, as prescribed in 5 CFR part 930, subpart B, OPM will continue to require agencies to obtain OPM's approval for non-competitive actions such as promotions, reassignments, transfers, reinstatements, restorations, pay adjustments, and details in excess of 120 days. OPM also will continue to work with agencies to fill their vacant administrative law judge positions with qualified administrative law judges as promptly as possible.

One commenter recognizes that OPM has the authority to administer the administrative law judge program; however, the commenter asserts that OPM does not have the authority to re-delegate to agencies the authority to assign an administrative law judge to cases in rotation so far as practicable and to ensure the independence of the administrative law judge. Under the APA, OPM and the employing agencies have responsibilities related to administrative law judges. Although OPM also has the authority, pursuant to 5 U.S.C. § 1305, to issue regulations concerning the requirement in 5 U.S.C. 3105, the employing agency's obligation to assign its administrative law judges to cases in rotation, insofar as practicable, arises directly under the applicable statute, 5 U.S.C. 3105, not pursuant to any re-delegation from OPM. The language with which the commenter took issue was meant to be descriptive rather than prescriptive. OPM is revising § 930.201(e) and (f) to clarify this point.

Under the APA, administrative law judges preside in formal proceedings requiring a decision on the record after an opportunity for a hearing. Administrative law judges must be held to a high standard of conduct so that the integrity and independence of the administrative judiciary is preserved. OPM has a longstanding policy that an administrative law judge applicant or incumbent must have an active bar membership or a current license to practice law (i.e., must be both licensed and authorized to practice law). The purpose of a professional license is to ensure that administrative law judges, like attorneys, remain subject to a code of professional responsibility. These ethical requirements cannot be waived.

Under the current “OPM Examination Announcement No. 318, as amended, Opportunities in the Federal Government as an Administrative Law Judge,” if an applicant wishes to apply for an administrative law judge position the applicant must possess a total of 7 years of experience as an attorney and must be duly licensed and authorized to practice law under the laws of a State, the District of Columbia, the Commonwealth of Puerto Rico, or any territorial court established under the United States Constitution. Applicants must continue to be licensed and authorized to practice law throughout the selection process, including any period on the standing register of eligibles. At the time of appointment, the newly appointed administrative law judge is required to be duly licensed and authorized to practice law. Once appointed, the administrative law judge is expected to maintain the qualifying requirement for a professional license to practice law while serving as an administrative law judge in the Federal competitive service. Additionally, if a retired administrative law judge wishes to return to Federal Service as a senior administrative law judge the retired judge must be duly licensed and authorized to practice law.

OPM is authorized to establish standards for competitive service applicants that will best promote the efficiency of the service. The requirement for administrative law judge applicants and incumbents to be both licensed and authorized to practice law was professionally developed, is supported by a job analysis, and is rationally related to performance in the position to be filled.

The bar license requirement is based on the results of three job analyses of the administrative law judge occupation conducted by OPM's Personnel Research Psychologists in 1990, 1999, and 2002. The job analyses were based on administrative law judge subject matter expert input, and developed and conducted in accordance with the Uniform Guidelines on Employee Selection Procedures .

The results of these studies show that Integrity/Honesty is fundamental for performing the duties of an administrative law judge. In particular, the 2002 study documents the usefulness and job-relatedness of requiring, as minimum qualifications, bar membership and seven (7) years of certain qualifying experience. Accordingly, OPM has determined to adhere to its long-standing position that an administrative law judge applicant must demonstrate he or she is an active member or has judicial status that authorizes the practice of law and requires adherence to his or her State's or jurisdiction's ethical requirements.

In meeting OPM's goal to establish the administrative law judge examination process in a manner similar to other OPM competitive examinations, the requirement that a bar membership applies to both applicants and employees is in accordance with all other OPM qualification standards for the competitive service. Failure at any time (applicant or incumbent) to meet a minimum qualification requirement means the individual is not qualified to perform the duties of the position.

In addition, the requirement for administrative law judge applicants and incumbents to be both licensed and authorized to practice law is historically grounded. The Federal Circuit has found that a qualification requirement's long-standing role in administrative law judge selection is an important factor in evaluating the standard's rationality. See Meeker v. Merit Sys. Protection Bd. , 319 F.3d 1368, 1378 (Fed. Cir. 2003), affirming minimum qualification requirement of seven years of relevant legal experience, and noting “the important role that experience has always played in the selection of ALJs”. At the time the APA was approved, most of the agencies and departments recommended to the Civil Service Commission, OPM's forerunner, that a law degree and bar membership be required of candidates for administrative law judge positions. In subsequent years, a report by the Committee on Hearing Officers of the President's Conference on Administrative Procedure contained recommendations that in addition to legal experience, a law degree and bar membership be required of all candidates. In the early 1960's, following the recommendations by the President's Administrative Conference, the Civil Service Commission established an Advisory Committee to review the entire program. Based on previous recommendations that bar membership be required and the nature of the work, the Advisory Committee made a similar recommendation indicating that the requirement would help ensure that candidates possessed the degree of expertise to perform satisfactorily in the job. The Civil Service Commission adopted the recommendation concerning bar membership and it has been a standard in the Program since 1964.

Minimum qualification requirements do not disappear after an individual is appointed as an administrative law judge. As described in the following discussion of comments, a standard for career-entry promotes the efficiency of the competitive service only if it applies continuously to applicants and incumbents alike.

OPM received comments opposing the license requirement for incumbent administrative law judges. A few commenters claim that the license requirement is a new qualification requirement; therefore, the public must be given an opportunity to comment on it. As discussed above, the license requirement is not a new requirement and the Federal Register notice proposing these regulations is correct in stating that OPM was clarifying bar membership.

The first category of comments states that OPM exceeded its authority under authorizing statutes. This is incorrect. The President has the power to establish qualifications and conditions of employment in the competitive service under 5 U.S.C. 3301 and 3304, and has delegated this standard-setting authority to OPM under Executive Order 10577, Rule II, codified as amended in 5 CFR 2.1(a). See also 5 U.S.C. 1104(a)(1). OPM is required by 5 U.S.C. 1302 to promulgate regulations for competitive service examinations implementing Rule II. The Supreme Court and the District of Columbia Circuit have ruled that where OPM promulgates a standard under 5 U.S.C. 3301 and 5 CFR 2.1(a), OPM requires no further statutory or executive authority for its action. See Mow Sun Wong , 426 U.S. at 113 (holding that where OPM promulgates a standard under 5 U.S.C. 3301 and Rule II, it “may either retain or modify the * * * requirement without further authorization from Congress or the President”); Hoffman , 543 F.2d at 941 n.17 (same). It is nonetheless notable that Congress also expressed its specific intent in the legislative history of section 11 of the APA that OPM be responsible for fixing standards to ensure that qualified and competent administrative law judges are appointed.

Several commenters state that while OPM has the statutory authority to establish qualifications for administrative law judge applicants and appointees, including “active” bar membership requirements, OPM's authority does not extend to incumbent administrative law judges. Under controlling District of Columbia Circuit case law, OPM's authority under 5 U.S.C. 3301 and 5 CFR 2.1(a) extends to establishing ongoing “conditions of employment for civil servants in the executive branch,” not just appointment qualifications. Hoffman , 543 F.2d at 938. A standard for career entry promotes the efficiency of the competitive service only if it applies continuously to applicants and incumbents alike.

According to a second category of comments, even if OPM has the authority to impose a license requirement, its implementation is too broad and not rationally related to OPM's goals. These commenters assert that the representative licensing jurisdictions allow incumbent judges to take an inactive, judicial, or retired status on grounds that they are not actively engaged in the practice of law, so there is no rational basis for OPM to require “active” bar status or a current license to practice law. Some commenters assert that inactive, judicial, or retired status would continue to subject the incumbent to appropriate State bar disciplinary oversight while exempting them from potentially burdensome fees, continuing legal education requirements, and reexamination requirements. One commenter asserts that by taking judicial status in lieu of “active” status, an administrative law judge appropriately remains subject to discipline under State codes of judicial conduct, even if the administrative law judge is no longer subject to rules of professional responsibility applicable to practicing attorneys. Another commenter asserts, conversely, that administrative law judges should be allowed to maintain an inactive status specifically so that they will not be subject to disciplinary oversight by State licensing authorities. Two commenters recommend that if the “active” bar membership or current license requirement is adopted, it should be phased in to allow all incumbent administrative law judges time to come into compliance because of the potential financial burden associated with a change in bar status in some jurisdictions.

We disagree with these comments and recommendations because application of the “active” bar membership or current license requirement to both applicant and incumbent administrative law judges promotes the efficiency of the competitive service. Moreover, as it is not a new requirement, a transition period is not needed.

According to a third category of comments, the license requirement will cause administrative law judges to violate State law. Several commenters state that requiring incumbent administrative law judges to maintain a current license to practice law may cause administrative law judges to violate a provision of the Model Code of Judicial Conduct that bars judges from the practice of law. This argument is misplaced. Canon 4G of the Model Code and related Commentary, when incorporated in the law of the relevant licensing jurisdiction, prohibits a judge only from practicing law “in a representative capacity,” and does not prohibit, or in any way restrict, a judge from maintaining a current license to practice law. In addition, the final regulations accommodate State law by allowing an administrative law judge to take judicial status where he or she is prohibited by State law from taking “active” status.

A fourth category of comments raises a concern that the regulations subject administrative law judges to overlapping ethics and license requirements. The commenters state a concern that if incumbent administrative law judges are required to maintain “active” bar membership or a current license to practice law, they may, under 28 U.S.C. 530B(a), be subject to both the rules of professional responsibility applicable to attorneys practicing in the jurisdiction where the administrative law judge conducts proceedings, and the rules of professional responsibility of the jurisdiction where the administrative law judge is licensed. Pursuant to 28 U.S.C. 530B(c) and the Department of Justice's implementing regulations in 28 CFR 77.2(a), 28 U.S.C. 530B(a) applies only to certain Department of Justice and Independent Counsel officials, and plainly does not apply to any administrative law judge performing a function under 5 U.S.C. 3105.

A fifth category of comments states that the license requirement violates Federalism principles. Two commenters assert that requiring incumbent administrative law judges to maintain a current license to practice law constitutes a Federal infringement on the States' regulation of the legal profession. OPM does not assert in these regulations the authority to preempt State laws governing the licensing of attorneys. Rather, OPM's regulations establish a minimum qualification requirement for an administrative law judge position in the Federal competitive service that incorporates relevant State license requirements. In fact, OPM's regulations avoid conflict with State license requirements by allowing administrative law judges to take a judicial status where State law prohibits an “active” status.

One commenter asserts that requiring incumbent administrative law judges to maintain a current license to practice law in essence gives OPM the authority to make licensing determinations currently made by the States. OPM is not asserting or exercising any authority to license the legal profession in these regulations.

Certain commenters express a concern that by requiring administrative law judges to maintain an “active” bar membership or license to practice law, OPM is defining administrative law judges as persons engaged in the practice of law while performing their official duties. This interpretation is not OPM's position and it is not supported by the text of these regulations.

A sixth category of comments states that the license requirement will allow collateral attacks on administrative proceedings and actions against administrative law judges. Specifically, an agency is concerned that an incumbent administrative law judge's failure to meet the license requirement would encourage a disappointed litigant to collaterally attack the administrative proceedings over which the administrative law judge presides, and could subject the presiding administrative law judge to State bar complaints related to official adjudicative duties, even though under Supreme Court case law, administrative law judges are immune from lawsuits related to the performance of their official duties. This comment is addressed to the commenter's perception of litigation risk associated with including this longstanding requirement in the revised regulations, rather than the merits or appropriateness of the requirement per se. Accordingly, OPM has disregarded this comment.

A seventh category of comments asserts that the requirement for “active” bar membership or a current license to practice law has a retroactive legal effect. OPM disagrees. As OPM has repeatedly stated, these regulations clarify an existing requirement. They have prospective legal effect, consistent with 5 U.S.C. 551(4) and Bowen v. Georgetown Univ. Hosp. , 488 U.S. 204, 208 (1988).

The final category of comments asserts that the license requirement is unconstitutional. Specifically, a commenter asserts that requiring an incumbent administrative law judge to maintain an “active” bar membership or current license to practice law potentially violates the 5th Amendment. OPM disagrees. The license requirement does not effect a deprivation of life, liberty, or property without due process of law. Further, this requirement does not raise an equal protection concern because it does not constitute a classification adversely affecting a category of regulated persons without a rational basis.

OPM has considered all the comments submitted by individuals, professional organizations, agencies, and the exclusive bargaining representative for administrative law judges at SSA and HHS. OPM has not received any compelling argument to change its policy on the professional license requirement for administrative law judges. As we have stated previously, this is not a new requirement but a clarification of a longstanding OPM policy that an administrative law judge must have an “active” bar membership or current license to practice law. The license requirement is a qualification requirement, in addition to the requirement for 7 years of attorney experience, which must be maintained for successful performance as an administrative law judge. It is an on-going permanent requirement for any individual serving in an administrative law judge position.

Consequently, to ensure that the professional license requirement is maintained, OPM is incorporating the professional license requirement in § 930.204(b) of these regulations and as a Condition of Employment in the Qualification Standard for Administrative Law Judges, which applies to both applicants and incumbents. OPM will also incorporate the requirement in the new administrative law judge vacancy announcement. The final rule expressly reaffirms OPM's longstanding requirement that an administrative law judge possess a professional license to practice law and be authorized to practice law. The requirement attaches at the time of application. If the applicant is determined to be eligible, the requirement continues to apply while the applicant is on the administrative law judge competitive register and at the time of appointment. Following appointment, the requirement continues to apply for as long as the appointee continues to serve as an administrative law judge. The requirement would also apply at the time of application to serve and while serving as a senior administrative law judge.

OPM has provided two alternatives in lieu of “active” status, that is, “judicial” and “good standing” status. Judicial status is acceptable in States that prohibit sitting judges from maintaining an “active” status to practice law. Being in “good standing” is also acceptable in lieu of “active” status in States where the licensing authority construes “good standing” to mean having a current license to practice law.

A lengthy description of the administrative law judge examination and its procedures is contained in the existing § 930.203. The method by which examinations are conducted and administered, however, is subject to periodic changes. For that reason, OPM has decided to remove from the regulations the detailed language describing the internal examining process and procedures, such as the language concerning periodic open competition, minimum qualifications, supplemental qualifications, participation in examination procedures, and final rating. OPM has concluded, based upon its experience and expertise, that a better vehicle for addressing this type of information is the vacancy announcement, as prescribed in 5 U.S.C. 3330 and 5 CFR part 330, and as required in all other competitive service vacancy announcements.

Sections 1104, 1302, 3301, and 3304 of title 5, U.S.C., authorize OPM to develop and administer the administrative law judge competitive examination. To maintain the relevance and validity of the examination, OPM has periodically conducted occupational studies of the administrative law judge occupation to revise and update elements of the administrative law judge examination. The administrative law judge examination should be allowed to evolve based on new technology and advances in the state of the art of examination methodology. In order to fulfill its responsibility to develop the administrative law judge examination in the optimal manner, OPM should be in a position to incorporate these advances promptly, without having to amend its regulations. Information on the examination process will be included in the new vacancy announcement for administrative law judge positions. The revised regulations, therefore, do not include detailed information about the examination and related processes.

Since 1963, 5 CFR 337.101(a) has prescribed a general process for scoring competitive examinations, while § 930.203 has prescribed a specialized process for scoring administrative law judge examinations, separate from the default process in § 337.101(a). Prior to 1987, the administrative law judge scoring process was codified in § 930.203(a), and § 337.101(a) contained a cross-reference to § 930.203(a). In 1987 and 1991, however, OPM amended § 930.203 to describe the examination process in additional paragraphs of that section, but OPM did not make a conforming amendment to the cross-reference in § 337.101(a). Because the cross-reference in § 337.101(a) has been out-of-date for several years, and because the revised regulations do not include a detailed description of the examination scoring process, we are replacing the cross-reference with a more general statement that § 337.101(a) applies “except as otherwise provided in this chapter.” Section 930.201(e)(1) of the revised regulations, in turn, states that the use of the examination scoring process published in § 337.101(a) is not required in scoring the administrative law judge examination, consistent with OPM's and the Civil Service Commission's regulatory policy, since 1963, of excepting the administrative law judge examination process from the requirements of § 337.101(a).

Several commenters oppose the removal of the detailed description of the administrative law judge internal examination process and procedures from the regulations and incorporating the information in an administrative law judge vacancy announcement. The commenters assert that this action will weaken the administrative law judge rating and selection process to the detriment of the American public; may not provide uniformity of treatment or adequate opportunity for public review and comment, particularly where criteria may vary from notice to notice; and will be changeable at will without notice and comment by the public. The commenters suggest that OPM continue incorporating the examination process in the regulations to ensure public confidence, and that OPM publish any changes to the examination process for public comment, so that such changes can be fully evaluated.

OPM's course of action, in laying out the detailed description of the examination process and procedures in the new vacancy announcement, is consistent with OPM's practice for other competitive examinations. There has never been any suggestion, in the statutes governing the appointment of administrative law judges, that the examination process and procedures were required to be encompassed in regulations. The examination process and procedures information described in the existing regulations are also described in the current “OPM Examination Announcement No. 318, as amended, Opportunities in the Federal Government as an Administrative Law Judge.” Any significant changes to the administrative law judge examination or examination process will be publicly announced in the vacancy announcement. In addition, OPM is developing a stand-alone administrative law judge qualification standard that will be described and supplemented in the new administrative law judge vacancy announcement. OPM, therefore, is not adopting the suggestion to retain the descriptive language of the examination process and procedures in the regulations.

Several commenters express concern that OPM is eliminating the administrative law judge examination. OPM is not eliminating the administrative law judge examination; in fact, OPM is developing a new administrative law judge examination.

One commenter identifies several factors that the commenter believes are a prerequisite to being an excellent candidate for an administrative law judge position such as decision-making, developing evidence, and assessing credibility. The commenter requests that OPM consider these factors in the examination process for selecting effective administrative law judge candidates. The commenter's suggestion for specific criteria to be used for rating candidates in future administrative law judge examinations is outside the scope of this rulemaking and will not, therefore, be considered in the context of revising these regulations.

Two commenters express a concern related to the conforming revision. The first comment by an agency suggests that the change to 5 CFR 337.101(a) is in conflict with § 930.201(e)(1). OPM disagrees. Section 337.101(a) prescribes a scoring process while allowing alternatives. Section 930.201(e)(1) gives OPM the option to use this scoring process or an alternative, depending on the examining methodology used to develop the administrative law judge competitive examination. The second commenter did not clearly state an objection to the revision and we therefore do not address it.

The revised regulations remove any reference to “OPM Examination Announcement No. 318, as Amended, Opportunities in the Federal Government as an Administrative Law Judge” (Announcement). The Announcement is a vacancy announcement issued in 1993 and amended in 1996 to recruit individuals for administrative law judge positions in the Federal competitive service. It describes the duties of an administrative law judge, the rating process, qualifying education and experience requirements, the rating appeal process, and general information for the applicant. The Announcement is similar to other vacancy announcements used to recruit individuals for positions into the Federal Government, except that it was incorporated by reference in the existing regulations. In the existing regulations, the Announcement is referenced to the extent that it addresses meeting the examination or qualification requirements for an administrative law judge position.

Several commenters oppose the removal of the reference to the Announcement from the regulations. The commenters claim OPM is removing the administrative law judge qualification requirements, omitting qualifying military experience, and eliminating the administrative law judge examination. These commenters suggest OPM retain the Announcement in the regulations.

There appears to be a misunderstanding among commenters that by eliminating the Announcement from the regulations, OPM is eliminating the qualification requirements for administrative law judges. To the contrary, § 930.201(e)(3) of the revised regulations specifically authorizes OPM to issue a qualification standard for administrative law judges. The regulations also prescribe a qualification requirement for “active” bar membership or a current license to practice law. OPM has separately posted for comment, on its Web site, a stand-alone qualification standard prescribing the proposed minimum qualification requirements for administrative law judge positions, including the bar license requirement. When the qualification requirement is finalized, it will again be posted on OPM's Web site, consistent with OPM's practice in publishing other qualification standards. The new administrative law judge vacancy announcement will describe the minimum qualification requirements for administrative law judge positions and provide supplemental information, as needed.

OPM received a consolidated comment submission from the Departments of the Army, Air Force, and Navy; Headquarters, U.S. Marine Corps; and the Department of Homeland Security, U.S. Coast Guard, expressing concern that OPM omitted language to allow military experience as qualifying for an administrative law judge position. It was not OPM's intent, in drafting its proposed qualification standard, to eliminate military experience as qualifying experience for an administrative law judge position. In order to make this principle more clear, OPM is adopting the military services' comments to the extent necessary to reflect differences in terminology between military and civilian legal practice. For additional information, OPM has published on its Web site guidance on how to credit military experience, at http://www.opm.gov/qualifications, and on veterans' preference, at http://www.opm.gov/veterans.

OPM proposed to revise the definition of “superior qualifications” which is covered in the existing § 930.210(g)(2). The definition of “superior qualifications” is redesignated to § 930.202 in the final regulations.

Several commenters oppose the proposed expanded definition for “superior qualifications.” The commenters state that OPM's proposal to add the phrase “special skills that will meet a demonstrated need of the hiring agency” is equivalent to selective certification criteria and suggest OPM remove the phrase from the definition. OPM is adopting the suggestion and is removing this phrase from the superior qualifications definition.

OPM proposed to revise the definition of “removal” for clarity.

Two commenters claim the proposed definition of “removal” violates 5 U.S.C. 7521 because it excludes the phrase “involuntary reassignment, demotion, or promotion to a position other than that of an administrative law judge.” The commenters suggest that OPM retain the existing definition for “removal.” OPM does not object to keeping the existing definition for “removal” and is adopting the suggestion.

OPM proposed to add a new paragraph (i) to § 930.205 to clarify that an agency may reduce the level or rate of basic pay of an administrative law judge for good cause after the Merit Systems Protection Board (MSPB) orders the action, as provided in § 930.211, or to reduce the level of basic pay of an administrative law judge if agreed upon by the administrative law judge with OPM's prior approval. The reason for the proposal is that OPM periodically receives requests from agencies to reduce an administrative law judge's level of basic pay, based on the administrative law judge's voluntary request for personal reasons (e.g., the desire for a position of less responsibility). These requests are thoroughly documented by the agency prior to OPM's approval.

Two commenters oppose OPM's proposed revisions of § 930.205(i), asserting that the revisions violate 5 U.S.C. 7521, Actions against administrative law judges. The commenters suggest that the revisions would allow an agency to negotiate a settlement agreement with the administrative law judge prior to an MSPB “good cause” hearing which may result in a voluntary request for a reduction in pay from the administrative law judge. OPM did not intend such a result in proposing this revision. OPM's regulations governing administrative law judges do not address settlement agreements.

In response to the comments, OPM is revising the proposed language to distinguish with greater precision between a reduction in an administrative law judge's level or rate of basic pay following a disciplinary proceeding, governed by §§ 930.205(i) and 930.211, and a reduction in an administrative law judge's level of basic pay based on a voluntary request for personal reasons. OPM is adding a new paragraph (j) to § 930.205 to describe a reduction in pay based on a voluntary request for personal reasons.

OPM proposed revising § 930.215(c)(5) of the existing regulations, redesignated as § 930.210(c)(3), in order to emphasize a hiring flexibility that allows an agency, with OPM's approval, to fill its administrative law judge positions by reassigning administrative law judges within its workforce, in lieu of selecting a displaced administrative law judge on OPM's priority referral list. The intent of this revision was to emphasize that an agency does have the option of selecting an administrative law judge from other than the OPM priority referral list.

Three commenters oppose the proposed revisions of § 930.210(c)(3). The commenters state that the revisions will permit an agency to circumvent the use of the OPM priority referral list by intra-agency reassignment of administrative law judges or appointment of an administrative law judge from an OPM certificate of eligibles; that it will allow an agency to bypass an adversely affected administrative law judge who has very few opportunities for reappointment, yet who is qualified for appointment at all agencies and in any administrative law judge position at any agency; and that by removing the phrase “extraordinary circumstances” from the existing regulations, the proposed regulations might not allow adequate oversight. After reviewing these comments, OPM is not implementing the proposed hiring flexibility. The existing provision will be restored, except for clarifying language specifically explaining that OPM has the authority “under extraordinary circumstances” to allow an agency to fill a vacant position through competitive examining, promotion, transfer, reassignment, or reinstatement procedures instead of selecting a displaced administrative law judge from OPM's priority referral list.

One commenter suggests that OPM allow administrative law judges on OPM's priority referral list to have two opportunities for declining an offer of full-time employment as an administrative law judge before the administrative law judge's eligibility on the OPM priority referral list terminates. OPM disagrees with this commenter and is not adopting the suggestion. With the limited number of administrative law judge positions open at any given time and the infrequency of vacancies, OPM does not believe it is appropriate for a displaced administrative law judge to have more than one opportunity to decline an offer of full-time employment as an administrative law judge at the pay level held at the time of reduction in force and in the geographical location indicated as acceptable. OPM will continue its long-standing practice of allowing only one full-time employment offer declination before an administrative law judge is terminated from OPM's priority referral list.

OPM has published suitability regulations in 5 CFR part 731 and in the existing administrative law judge regulations in §§ 930.214(c) and 930.216(f). The revised regulations clarify the suitability requirements. The revised provisions appear in §§ 930.204(a), 930.209(b)(3) and 930.211(c)(1).

Two commenters state that the suitability language in the revised § 930.211(c)(1) is a new requirement and object to it. The commenters imply that suitability actions against administrative law judge applicants and incumbents are not consistent with 5 U.S.C. 7521, governing adverse actions. OPM disagrees. Administrative law judge applicants, appointees, and employees, like other competitive service applicants, appointees, and employees, are subject to suitability investigations and determinations. The adverse action provisions in 5 U.S.C. 7521, and the suitability provisions in 5 CFR parts 2, 5, and 731 apply independently to administrative law judges. The suitability requirement is not new and the text of §§ 930.204(a), 930.209(b)(3) and 930.211(c)(1) include only clarifying changes.

The existing regulations state, at § 930.210(b), “An agency may not grant a monetary and honorary award under 5 U.S.C. 4503 for superior accomplishment by an administrative law judge in the performance of adjudicatory functions.” OPM removed the phrase “in the performance of adjudicatory functions” in redesignated § 930.206(b), and added references to 5 U.S.C. 4502 and 4504.

One commenter claims OPM made a substantial change to the regulations on the granting of any award or financial incentives to an administrative law judge. The commenter insists that by eliminating the phrase “in the performance of adjudicatory functions,” OPM strips all possibility of any awards or financial incentives for an administrative law judge, even if the administrative law judge performs executive and management functions in an exemplary manner, devises an innovative administrative technique, or makes a suggestion outside the duties of an administrative law judge that saves an agency thousands of dollars. The commenter claims this is discriminatory and, therefore, urges OPM to retain the existing language.

Under the APA, OPM has the responsibility to ensure the independence of an administrative law judge in matters of appointment, tenure, and compensation, as well as to ensure independent judgments from administrative law judges. See 5 U.S.C. 1305 (authorizing OPM to regulate and investigate agencies to give effect to 5 U.S.C. 3105, 3344, 4301(2)(D), and 5372); Ramspeck v. Fed. Trial Examiners Conf., 345 U.S. 128, 139-142 (1953). An award or discretionary financial incentive of any kind poses an unacceptable risk of interfering with an administrative law judge's judicial independence, and could have the additional effect of circumventing the legal prohibition against performance appraisals. See 5 U.S.C. 4301(2)(D), § 930.211 of OPM's existing regulations, and § 930.206(a) of the final regulations published with this notice. By removing the phrase “in the performance of adjudicatory functions” from the regulations and adding specific references to 5 U.S.C. 4502 and 4504 to the regulations, OPM is clarifying that monetary or honorary awards or financial incentives of any kind, whether granted under Chapter 45 or other authority, are prohibited. OPM is not adopting the commenter's suggestion, and is adding clarifying language to state that honorary, as well as monetary awards and incentives are prohibited.

OPM received two opposing views on the issue of pay for performance for administrative law judges. OPM did not consider either view since the existing law does not permit administrative law judges to be rated on performance.

One commenter suggests that all Federal administrative judges become administrative law judges for consistency and for the best interest of the public. This recommendation is both contrary to the requirements of the APA and outside the scope of these regulations, and cannot be considered.

OPM received several comments requesting the reestablishment of an Office of Administrative Law Judges within OPM. This comment cannot be considered, as it concerns OPM's internal management and organization, a matter outside the scope of these regulations.

The following derivation table has been prepared to make it easier for readers to compare OPM's new rule in part 930, subpart B, with the current regulations.

This proposed rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

I certify that these regulations would not have a significant economic impact on a substantial number of small entities (including small businesses, small organizational units, and small governmental jurisdictions) because they would affect only some Federal agencies and employees.

Title V of the Energy Policy Act of 1992 (Pub. L. 102-486; the Act) established requirements for covered alternative fuel providers (“covered persons”) and States to acquire set percentages of AFVs. (42 U.S.C. 13251(a) and 13257(o)) As of 1999, 90 percent of light-duty motor vehicles acquired by a covered person must be AFVs. As of 2000, 75 percent of light-duty motor vehicles acquired for a State fleet  1 must be AFVs. Section 508 provides for the use of credits in complying with the AFV requirements. (42 U.S.C. 13258) Title V also provides for an exemption process from the AFV requirements. (42 U.S.C. 13251(a)(5) and 13257(i)) As directed by the Act, DOE issued regulations, 10 CFR part 490—Alternative Fuel Transportation Program, to implement the AFV provisions. (61 FR 10622; March 14, 1996).

On August 8, 2005, the Energy Policy Act of 2005, (Pub. L. 109-58; EPACT 2005) was signed into law. In part, EPACT 2005 provides additional flexibility for States and covered persons subject to AFV acquisition requirements under 10 CFR part 490. Specifically, section 703 of EPACT 2005 adds an alternative compliance program (entitled “Alternative Compliance”) under section 514 of title V of the Act. (42 U.S.C. 13263a) Section 514 authorizes DOE to grant to covered persons and States a waiver from the AFV acquisition requirements under section 501 (42 U.S.C. 13251) and section 507(o) (42 U.S.C. 13257(o)), respectively. The statute provides that any State or covered person may apply for an alternative compliance waiver, and that DOE must grant the waiver if the State or covered person demonstrates that its fleet will reduce annual petroleum consumption by an amount equal to the amount of petroleum it would reduce if the fleet's cumulative inventory of AFVs operated 100 percent of the time on alternative fuel (42 U.S.C. 13263a(a) and (b)). (Under the AFV requirements, States are not required to operate AFVs on alternative fuel and covered persons are required to operate their AFVs on alternative fuel only when it is available. (42 U.S.C. 13251(a)(4)) In addition, the State or covered person requesting a waiver must be in compliance with all applicable vehicle emission standards established by the Environmental Protection Agency under the Clean Air Act.

On June 23, 2006, DOE issued a notice of proposed rulemaking (NOPR) to establish procedures for the submission of, and action on, applications for alternative compliance waivers submitted by States and covered persons subject to AFV acquisition requirements under part 490, 71 FR 36034, June 23, 2006. In the NOPR, DOE proposed to add a new subpart I to part 490, which would include provisions regarding the timing of waiver requests and responses by DOE, waiver documentation and application requirements, annual reporting of petroleum reductions, use of credits to offset petroleum reduction shortfalls, rollover of excess petroleum reduction to future years, enforcement for violations, and record retention.

In addition, using its rulemaking authority under title V and section 644 of the DOE Organization Act (42 U.SC. 7254), DOE proposed that States or covered persons may use vehicles that are not part of the “fleet,” such as medium- and heavy-duty vehicles, and excluded light-duty motor vehicles (LDVs), to meet their petroleum reduction requirement. Under the same authority, DOE sought to address a discrepancy in the statutory language between the treatment of States that have section 508 credits versus those that do not. As such, DOE proposed that both States that have section 508 credits and States that do not have section 508 credits would be required to achieve comparable annual petroleum reduction.

DOE received nine sets of written comments from the public. DOE also held a public hearing at DOE headquarters in Washington, DC on July 12, 2006, where the NOPR was discussed and oral comments were received from four industry associations and two fuel provider utility companies subject to 10 CFR Part 490.

Written comments were received from the National Rural Electric Cooperative Association; the California Electric Transportation Coalition; the National Biodiesel Board; Florida Power and Light, a covered fuel provider utility; Southern California Edison, a covered fuel provider utility; the California Natural Gas Vehicle Coalition; NGV America, a natural gas vehicle association; the National Association of Fleet Administrators; and El Paso Electric, a covered fuel provider utility.

Generally, the oral and written comments were supportive of the proposed rulemaking because of the increased flexibility for covered fleets and increased emphasis on petroleum reduction. Commenters, however, provided a variety of suggestions for incorporation into the final rule including comments on how to determine a State's or covered person's cumulative inventory of AFVs, the petroleum reductions eligible for consideration under the alternative compliance program, and the information required for a complete waiver application. The specific issues raised by commenters are addressed in the discussion below.

Under section 514(a) of the Act, any covered person subject to AFV acquisition requirements of section 501 and any State subject to AFV acquisition requirements in 507(o) may petition the Secretary of Energy for a waiver from those requirements. (42 U.S.C. 13263a(a)) Section 514(b)(1)(A) of the Act provides DOE shall grant a waiver for a covered person if the covered person demonstrates a reduction in petroleum consumption equal to the reduction that would result under 100 percent cumulative compliance with the fuel use required in section 501 of the Act. (42 U.S.C. 13263a(b)(1)(A)) Section 514(b)(1)(B) of the Act provides that DOE shall grant a waiver for a State entity granted credits under section 508, if that State demonstrates a reduction in petroleum motor fuel consumption equal to the amount of petroleum the fleet's  2 cumulative inventory of AFVs would reduce if the AFVs operated 100 percent of the time on alternative fuel. (42 U.S.C. 13263(b)(1)(B)) In addition, the party seeking a waiver must be in compliance with all applicable vehicle emission standards established by the Environmental Protection Agency under the Clean Air Act.

Relying on rulemaking authority under title V of the Act and section 644 of the DOE Organization Act (42 U.S.C. 7254), DOE proposed that State fleets, regardless of whether they earned section 508 credits, would be eligible for a waiver if they demonstrated a reduction in petroleum motor fuel consumption equal to the amount of petroleum the fleet's cumulative inventory of required AFV acquisitions would reduce if those required acquisitions operated 100 percent of the time on alternative fuel. The proposed regulation would treat States equally regardless of whether a State was granted credits.

DOE did not receive any comments regarding which entities would be eligible to apply for a waiver. As such, today's final rule permits covered persons, States that have been issued credits, and States that have not been issued credits to apply for a waiver and meet the same requirements.

Consistent with section 514, the proposed rule required both covered persons and State entities to reduce petroleum fuel consumption by an amount equal to the petroleum the fleet's cumulative inventory of AFVs, including required AFV acquisitions in waiver years, would reduce if those vehicles operated 100 percent of the time on alternative fuel. Under the proposal, a fleet's cumulative inventory is equal to the number of previously required AFVs actually in the current fleet, plus the number of AFVs acquisitions that would be required if a waiver were not granted. The inclusion of AFV acquisitions in waiver years when calculating the necessary petroleum reduction is consistent with the statute's purpose of providing States and covered persons compliance flexibility in exchange for achieving the maximum level of petroleum fuel reduction.

If AFV requirements for waiver years were not included in the cumulative AFV count, a waiver in successive years would have rapidly diminishing petroleum reduction requirements, because a fleet granted successive waivers would have fewer and fewer AFVs in its fleet as vehicles are retired. Fewer AFVs in the fleet would result in a lower required petroleum reduction. This result would be unreasonable in light of the petroleum replacement goal of the statute.

DOE received two sets of supportive comments on its interpretation of “cumulative.” A fuel provider association, however, objected to the proposed rule with regard to what is counted toward a State or covered person's baseline for petroleum reduction. The commenter recommended that “cumulative” should mean all the AFVs that a covered person or State would have had in its fleet if it had purchased all the AFVs it was required to purchase—without consideration of previously used vehicle credits or exemptions granted. Otherwise, the commenter stated, a covered person or State that has not previously relied on credits or exemptions would be required to achieve a fuel reduction greater than a comparable covered person or State that previously relied on credits or exemptions.

Consideration of all AFVs, including those requirements addressed through credits and exemptions, is overly restrictive. In employing credits and exemptions, States and covered persons were relying upon part 490. States and covered persons typically rely on credits or exemptions because it is extremely difficult or impossible for them to comply through AFV purchases. If AFV requirements that were previously satisfied through credits or exemptions were included in the waiver calculation, the waiver option would likely be prohibitive for these States and covered persons. The advantage of compliance under the waiver program is that States and covered persons are typically required to reduce petroleum consumption by a greater amount then would occur through compliance with credits or exemptions. Additionally, going forward the alternative compliance option should lead to greater petroleum reduction in fleets that previously relied on exemptions and credits because alternative compliance takes into account AFV purchase requirements waived under the program. Moreover, under a waiver, fleets will not be eligible for exemptions and credits are limited. DOE, therefore, is adopting the eligibility provisions and baseline calculation provision as proposed.

One fleet association requested DOE be more specific about the AFVs required to be used in calculating a fleet's petroleum reduction baseline. Specifically, it requested wording that specifies that the AFVs to be counted are those “acquired for EPAct compliance and included in a prior Annual AFV Acquisition Report for State and Alternative Fuel Provider Fleets (Form DOE/FCVT/101).” DOE recognizes that some fleets may have purchased AFVs outside of the AFV requirements. To address this issue the final rule specifies inclusion of previously required AFVs in a fleet's inventory during the model year for which a waiver is being requested (section 490.803(a)(1)), and AFVs that would have been required in the model year for which a waiver is requested and in previous model years in which a waiver was granted (section 490.803(a)(2)).

As proposed, and as adopted today, calculation of the necessary petroleum reduction is essentially a three step procedure. To calculate the petroleum reduction necessary to obtain a waiver, the State or covered person first calculates the amount of alternative fuel necessary to operate existing required AFVs in a fleet's inventory, assuming operation on alternative fuel 100 percent of the time. Second, the State or covered person calculates the additional amount of fuel that would have been used by AFVs under the requirements for which a waiver is currently being requested plus, calculate any additional amount that would have been used if any previous waivers were not granted. The State or covered person then adds the first and second calculations together. Third, the State or covered person subtracts the fuel use attributed to any existing required AFVs and LDVs acquired in lieu of AFVs under a waiver that are being retired. Again, all calculations are based on alternative fuel use 100 percent of the time. A detailed example of how this works is provided below.

Section 514(b) of the Act states that DOE shall grant a waiver of the AFV acquisition requirements on a showing that a fleet owned, operated, leased or otherwise controlled by a covered person or State entity will achieve a specified petroleum reduction. The term “fleet” is defined to include only covered LDVs. (42 U.S.C. 13211).) However, consistent with the petroleum fuel reduction goals of title V of the Act, DOE also proposed to include petroleum reductions in previously excluded LDVs listed in section 490.3 toward a State's or covered person's annual petroleum reduction target. This provision of the proposal was based on DOE's rulemaking authority under title V and section 644 of the DOE Organization Act (42 U.S.C. 7254). No comments were received with regard to this, and DOE in today's final rule permits covered persons and States to consider reductions in petroleum consumption from LDVs excluded for purposes of calculating a fleet requirement under 10 CFR 490.3.

DOE also proposed to exercise its rulemaking authority under title V and section 644 of the DOE Authorization Act to permit consideration of reductions in fuel consumption from vehicles with a gross vehicle weight rating (gvwr) greater than 8,500 lb, for the purpose of complying with a waiver. DOE received a comment from an industry association saying that adding medium- and heavy-duty vehicles was desirable, while another industry association argued that allowing consideration of petroleum reductions from larger vehicles reduces the momentum of replacing petroleum use in LDVs.

DOE believes that because of limited availability of original equipment manufacturer (OEM) light-duty models for some alternative fuels, particularly gaseous fuels, flexibility provided through the consideration of medium- and heavy-duty vehicles will make the alternative compliance option attractive to more fleets. This, in turn, is likely to lead to somewhat greater petroleum displacement and support of infrastructure for replacement fuels.

For example, in model year 2007 OEM light-duty gaseous fuel offerings are currently limited to just one dedicated natural gas compact sedan. No propane LDVs currently are being offered by an OEM. There are, however, medium- and heavy-duty propane and natural gas OEM offerings and certified conversions from several manufacturers. Encouraging the use of gaseous fuel in medium- and heavy-duty vehicles potentially will also facilitate the use of gaseous fuel in the LDV fleet.

In the NOPR, DOE explained its intent to allow use of reductions in petroleum consumption from excluded vehicles listed in section 490.3 to achieve the requirement, but inclusion of nonroad vehicles was not specifically proposed by DOE. Several of the organizations that participated in DOE's public hearing asked to specifically include petroleum reductions attributable to nonroad vehicles.

Five of the written comments urged DOE to allow the inclusion of nonroad vehicles. One fleet association stated that nonroad vehicles share infrastructure with AFVs and that consideration of nonroad vehicles would further promote replacement fuels. One commenter pointed out that nonroad vehicles can reduce much more petroleum over a vehicle's lifetime than a typical light-duty AFV in a utility fleet. Two other commenters stated that the expansion to nonroad vehicles would be consistent with the regulatory language in part 490 that permits States and covered persons to obtain credits using medium- and heavy-duty vehicles once LDV requirements are met.

Two fuel provider groups were opposed to the consideration of nonroad vehicles. These commenters stated that inclusion of such vehicles would not promote increased use of replacement fuels in on-road motor vehicles, as was the original intent of the statute.

Limited consideration of nonroad vehicles presents an opportunity to reduce petroleum and provide States and covered persons additional compliance flexibility, while also contributing to the development of infrastructure for replacement fuels used by LDVs. In the final rule, DOE is permitting limited consideration of replacement fuels in nonroad vehicles towards petroleum reduction requirements.

Section 490.804(b) of the final rule permits consideration of reductions in petroleum consumption of nonroad vehicles acquired during a waiver year in instances in which the refueling infrastructure established or upgraded during a waiver year that provides replacement fuel for nonroad vehicles also serves to increase the use of replacement fuels in a fleet's light-duty vehicles. For example, during a waiver year if a State or covered person adds new or upgrades existing refueling infrastructure for nonroad vehicles and shows DOE that existing or planned LDV acquisitions will also use the upgraded or new infrastructure, then the petroleum reductions from nonroad vehicles acquired as a result of those additions and upgrades may be used for meeting petroleum reduction requirements.

Generally, DOE views petroleum reductions from nonroad vehicles as a supplemental way for a State or covered person to expand its use of replacement fuel in on-road vehicles, particularly its LDVs. DOE does not view replacement fuel use in nonroad vehicles as a complete or even substantial substitution for a State's or covered person's annual petroleum reduction in its on-road vehicles. As provided in section 490.804(b)(2), DOE will recognize reductions attributable to nonroad vehicles in instances in which a State or covered person has taken reasonable steps to comply with the waiver requirement through reductions of petroleum in on-road motor vehicles.

One fuel provider association and one fuel provider wrote comments supportive of language in the proposed rule that permits applying petroleum reductions achieved in excess of the requirement in one model year to the requirement in a later model year. One fuel association, however, commented that while agreeing with the provision, excess petroleum reduction amounts should not be tradable. It was not DOE's intention to make excess petroleum reductions tradable but rather to provide a fleet further flexibility under the waiver program. To clarify its intent, DOE has added language to the final rule stating that petroleum reduction gallons are not tradable.

Section 490.804 in the final rule requires application by the State or covered person prior to receiving the benefit of rolling over petroleum reductions to satisfy annual requirements. DOE does not intend for a State's or covered person's entire petroleum reduction, or even a substantial amount of annual petroleum reduction, to be met by petroleum reduction rollovers alone. The rollover provision is intended to add compliance flexibility to States or covered persons, particularly those that may have difficulty meeting their annual requirements because of unusual circumstances or circumstances beyond their control. For example, a State or covered person asking for a substantial petroleum rollover would have to show DOE it was subject to technology failures, delivery delays by manufacturers, weather-related disasters, emergencies or other such unusual circumstances that led or may lead to the need for a substantial petroleum reduction rollover. Other reasons for using the petroleum reduction rollovers to meet a substantial percentage of annual petroleum reduction requirements will be considered on a case-by-case basis.

Proposed section 490.803 set forth the minimum information that a State or covered person must provide DOE as part of a waiver application. A reasonable amount of information is needed for DOE to understand the calculation of an applicant's annual petroleum reduction target and the methods that will be used to reduce petroleum. A waiver application must include verifiable data that is sufficient to enable DOE to determine whether a State's or covered person's fleet will achieve the amount of petroleum reduction required for alternative compliance. Information required as proposed includes the model year for the waiver required; numbers of required AFVs existing in the fleet and number of acquisition requirements for the waiver year and previous waiver years; amount of petroleum and non-petroleum fuel, calculated in gges to be used in covered LDVs in the fleet for the waiver year including average fuel use per vehicle; and certification that Clean Air Act requirements are met.

In addition, DOE proposed that an application must include a plan with sufficient information to demonstrate that planned actions are verifiable, involve a reduction in petroleum in the fleet's vehicles, and show a net petroleum reduction equal to the required annual petroleum reduction. Today's final rule adopts the proposed application requirements in § 490.805.

One fuel provider and one fleet association argued that a State or covered person applying for a waiver should not be required to include the amount of fuel used by all of the light-duty vehicles in the fleet because it is overly burdensome and is not a statutory requirement. In response to these commenters, DOE provides in the final rule that States and covered persons need only report fuel used by “covered light-duty vehicles.” A State or covered person need only report fuel use in the vehicles that have been used to calculate the baseline amounts in waiver applications or in AFVs that the fleet acquired for meeting requirements under part 490 previous to the waiver. It should be noted, however, that if DOE needs to verify information or use its enforcement authority, DOE does have the authority to require a fleet to submit such information to obtain an overall perspective on the activities of the fleet related to compliance with subpart I.

DOE also intended by its proposal that a plan provide for petroleum reduction in a State's or covered person's vehicles and not include incentives for third parties. A fleet association and a fuel provider both commented that in proposed section 490.803(d)(2), which would exclude consideration of third party incentives in a reduction plan, use of the phrase “State's or covered person's own vehicles” could be interpreted to preclude leased vehicles. DOE agrees with these commenters. Today's final rule adopts § 490.804 to clarify the reductions of petroleum consumption that are eligible and ineligible for consideration under the waiver program.

As proposed, waiver applications would be required to be submitted to DOE by March 31 in the model year prior to which a waiver is requested. One fleet association and two fuel provider associations stated that the proposed deadline was not sufficient to prepare a waiver request because typically OEMs do not announce availability of new model year vehicles until late summer. Without knowing what vehicle models will be available, States and covered persons cannot project fuel consumption and potential fuel savings. In response to this concern the final rule establishes a March 31 deadline for a State or covered person to register its intent to submit a waiver application to DOE. Fleets that need the new model information may submit their applications to DOE no later than July 31 prior to the model year for which a waiver is sought. If the waiver is not dependent on such OEM information, DOE requires the State or covered person to submit a preliminary intent to apply for a waiver by March 31 and its application for a waiver no later than June 30 prior to the model year for which it seeks a waiver.

Given the timing of today's final rule DOE will consider registrations of intent to submit a waiver received before May 31, 2007. This extension of the registration of intent deadline applies only to applications for MY 2008.

One fuel provider and one fuel provider association commented that the proposed language regarding the use of credits was too restrictive and would prevent use of subpart F credits to offset a shortfall in meeting the petroleum reduction required for a waiver. After carefully considering this issue, DOE has amended the wording in section 490.808 of the final rule to require that a State or covered person “provide documentation that shows a good faith effort to meet the requirements.” DOE has determined that this language provides States and covered persons a reasonable bar for applying for credits to offset a petroleum reduction shortfall, while still promoting the goals of the program.

Consistent with section 514(c) of the Act, DOE proposed a reporting requirement by December 31 following a model year for which a waiver is granted. A State or covered person would meet this requirement by providing DOE a statement certifying the number of petroleum gallons and alternative fuel in gges used by its covered light-duty vehicles and the amount of petroleum reduced in the waiver year due to alternative compliance. In the final rule, DOE eliminates the proposed requirement to report “a baseline quantity of the petroleum motor fuel reduction of the State or covered person during the following model year, if the State or covered person intends to request alternative compliance for that model year.” DOE determined that this information would be redundant with previously collected information. No comments were received on the other aspects of the proposed reporting requirements.

The proposed sanctions for violating a granted waiver reflected the statutory language of section 514(d) of the Act that states that DOE shall revoke the waiver of a State or covered person that fails to comply with the alternative compliance petroleum reduction or reporting requirements. DOE may also impose a civil penalty for any such violation (42 U.S.C. 13264(d)). No comments were received on this, and no changes were made in corresponding provisions in the final rule regarding sanctions.

DOE proposed that it would not grant exemptions to a State under § 490.204 or to a covered person under § 490.308 if the State or covered person has been granted an alternative compliance waiver. Exemptions are based upon lack of alternative fuels and AFVs. The waivers provide sufficient flexibility by allowing States and covered persons to consider a wider range of options for meeting their petroleum reduction requirements. If a State or covered person is granted a waiver, the flexibility provided should alleviate any need for an exemption. DOE did receive a supportive comment on this issue from one industry association but no comments from any others. DOE is not making a change in its position on exemptions in the final rule.

Under proposed § 490.809, a State or covered person would be required to keep all documents pertaining to its application and compliance with a waiver for a minimum of three years following the end of the waiver year. No comments were received on this section and the proposed record retention provision is adopted in the final rule § 490.810.

DOE focused its response to comments on those that are directly relevant to the proposed rule. Other comments included areas that may be covered in future guidance such as a request that DOE standardize inputs and outputs to help with the application process. Yet other comments were clearly outside the scope of this rule and/or DOE's authority, including providing extra credits for light-duty zero emission vehicles; requiring OEMs to make more alternative fuel vehicle products available; and applying petroleum reduction in lieu of the vehicle acquisition requirements in part 490.

Today's final rule has been determined to not be a significant regulatory action under Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (October 4, 1993). Accordingly, this action was not subject to review under that Executive Order by the Office of Information and Regulatory Affairs of the Office of Management and Budget.

DOE has determined that this final rule is covered under the Categorical Exclusion found in the DOE's National Environmental Policy Act regulations at paragraph A.5 of Appendix A to subpart D, 10 CFR part 1021, which applies to rulemaking that amends an existing rule or regulation which does not change the environmental effect of the rule or regulation being amended. Under the final rule, a State entity or alternative fuel provider requesting an alternative compliance waiver must show that in lieu of acquiring AFVs for its covered light-duty vehicle fleet, it would use alternative fuel and/or other replacement fuels in various types of motor vehicles to reduce petroleum fuel consumption by an amount that equals 100 percent alternative fuel use in the fleet's AFVs, including AFVs that would be required in waiver years. The final rule, as authorized by the statute, grants the waiver applicant greater compliance flexibility in exchange for achieving the maximum level of petroleum reduction that would occur if the State or covered person were to comply with the Act's AFV acquisition requirements. Because the amount of petroleum displaced would be the same, the final rule would not change the environmental effect of compliance with part 490. Accordingly, neither an environmental assessment nor an environmental impact statement is required.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires preparation of an initial regulatory flexibility analysis for any rule that by law must be proposed for public comment, unless the agency certifies that the rule, if promulgated, will not have a significant economic impact on a substantial number of small entities. As required by Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” 67 FR 53461 (August 16, 2002), DOE published procedures and policies on February 19, 2003, to ensure that the potential impacts of its rules on small entities are properly considered during the rulemaking process (68 FR 7990). DOE has made its procedures and policies available on the Office of General Counsel's Web site: http://www.gc.doe.gov.

DOE has reviewed today's final rule under the provisions of the Regulatory Flexibility Act and the procedures and policies published on February 19, 2003. The requirements in 10 CFR part 490 apply only to alternative fuel providers with fleets containing at least 50 LDVs (20 of which are centrally fueled or capable of being centrally fueled) and to like-size State fleets in metropolitan statistical areas with a population of more than 250,000. The owners and operators of fleets of this size are not small entities. In addition, the final rule establishes optional procedures for State entities and covered persons that wish to receive a waiver from otherwise applicable AFV acquisition requirements. Alternative compliance does not impose any additional burdens on the entities subject to sections 501 and 507(o) of the Energy Policy Act of 1992. On the basis of the foregoing, DOE certifies that this final rule will not have a significant economic impact on a substantial number of small entities. Accordingly, DOE has not prepared a regulatory flexibility analysis for this rulemaking. DOE's certification and supporting statement of factual basis will be provided to the Chief Counsel for Advocacy of the Small Business Administration pursuant to 5 U.S.C. 605(b).

Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) and the procedures implementing that Act, 5 CFR 1320.1 et seq. , a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. Section 490.805 (“Application for wavier”), section 490.807 (“Reporting requirement”), and § 490.810 (Record retention) contain information collection requirements. DOE did not receive any comments on the information collection requirements of this final rule.

OMB Control Number 1910-5101 is assigned to the alternative fuel transportation program.

The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) generally requires Federal agencies to examine closely the impacts of regulatory actions on State, local, and tribal governments. Subsection 101(5) of title I of that law defines a Federal intergovernmental mandate to include any regulation that would impose upon State, local, or tribal governments an enforceable duty, except a condition of Federal assistance or a duty arising from participating in a voluntary Federal program. Title II of that law requires each Federal agency to assess the effects of Federal regulatory actions on State, local, and tribal governments, in the aggregate, or to the private sector, other than to the extent such actions merely incorporate requirements specifically set forth in a statute. Section 202 of that title requires a Federal agency to perform a detailed assessment of the anticipated costs and benefits of any rule that includes a Federal mandate which may result in costs to State, local, or tribal governments, or to the private sector, of $100 million or more. Section 204 of that title requires each agency that proposes a rule containing a significant Federal intergovernmental mandate to develop an effective process for obtaining meaningful and timely input from elected officers of State, local, and tribal governments.

This final rule provides an alternative compliance option for States and alternative fuel providers subject to AFV acquisition requirements in 10 CFR part 490. The final rule will not result in the expenditure by State, local, and tribal governments in the aggregate, or by the private sector, of $100 million or more in any one year. Accordingly, no assessment or analysis is required under the Unfunded Mandates Reform Act of 1995.

Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule that may affect family well being. The final rule will not impact the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.

Executive Order 13132, “Federalism,” 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have Federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. DOE has examined this final rule and has determined that it will not preempt State law and will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. No further action is required by Executive Order 13132.

With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) Eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) of Executive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) Clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, the final rule meets the relevant standards of Executive Order 12988.

The Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by the Office of Management and Budget (OMB).

OMB's guidelines were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). DOE has reviewed today's final rule under the OMB and DOE guidelines and has concluded that it is consistent with applicable policies in those guidelines.

Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgated or is expected to lead to promulgation of a final rule, and that: (1) Is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use. Today's final regulatory action will not have a significant adverse effect on the supply, distribution, or use of energy and is therefore not a significant energy action. Accordingly, DOE has not prepared a Statement of Energy Effects.

As required by 5 U.S.C. 801, DOE will submit to Congress a report regarding the issuance of today's final rule prior to the effective date set forth at the outset of this notice. The report will state that it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 801(2).

The Secretary of Energy has approved the issuance of this final rule.

The FAA is implementing a new process for streamlining the issuance of ADs related to MCAI. The streamlined process will allow us to adopt MCAI safety requirements in a more efficient manner and will reduce safety risks to the public. This process continues to follow all FAA AD issuance processes to meet legal, economic, Administrative Procedure Act, and Federal Register requirements. We also continue to meet our technical decision-making responsibilities to identify and correct unsafe conditions on U.S.-certificated products.

This AD references the MCAI and related service information that we considered in forming the engineering basis to correct the unsafe condition. The AD contains text copied from the MCAI and for this reason might not follow our plain language principles.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on January 8, 2007 (72 FR 674). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI references Alpha Aviation Service Bulletin AA-SB-28-002, dated June 28, 2006, which states that:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

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

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the AD.

We estimate that this AD will affect 10 products of U.S. registry. We also estimate that it will take about 3 work-hours per product to comply with basic requirements of this AD. The average labor rate is $80 per work-hour. Required parts will cost about $300 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $5,400, or $540 per product.

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

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

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

For the reasons discussed above, I certify this AD:

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

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

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

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD Docket.

You may examine the AD docket on the Internet at http://dms.dot.gov; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone (800) 647-5227) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

The final and temporary regulations that are the subject of the correction are under sections 279, 302, 331, 332, 338, 351, 355, 368, 381, 382, 1081, 1221, 1502, 1563, and 6012 of the Internal Revenue Code.

As published, final and temporary regulations (TD 9264) contain an error that may prove to be misleading and is in need of clarification.

Accordingly, the publication of the final and temporary regulations (TD 9264), which were the subject of FR Doc. 06-4873, is corrected as follows:

On page 30591, in the document heading, the language “RIN 1545-BF26” is corrected to read “RIN 1545-BG49”.

Background

This document amends 26 CFR part 1 to provide rules relating to the deduction for income attributable to domestic production activities under section 199 of the Internal Revenue Code (Code). Section 199 was added to the Code by section 102 of the American Jobs Creation Act of 2004 (Pub. L. 108-357, 118 Stat. 1418), and amended by section 403(a) of the Gulf Opportunity Zone Act of 2005 (Pub. L. 109-135, 119 Stat. 25) and section 514 of the Tax Increase Prevention and Reconciliation Act of 2005 (Pub. L. 109-222, 120 Stat. 345). On June 1, 2006, the IRS and Treasury Department published in the Federal Register final regulations under section 199 (71 FR 31268). Also on June 1, 2006, the IRS and Treasury Department published in the Federal Register temporary and proposed regulations under section 199 providing guidance on certain transactions involving computer software (71 FR 31074 and 71 FR 31128, respectively). Written and electronic comments responding to the temporary and proposed regulations were received. After consideration of the comments, the proposed regulations are adopted as amended by this Treasury decision.

Section 199(a)(1) allows a deduction equal to 9 percent (3 percent in the case of taxable years beginning in 2005 or 2006, and 6 percent in the case of taxable years beginning in 2007, 2008, or 2009) of the lesser of (A) the qualified production activities income (QPAI) of the taxpayer for the taxable year, or (B) taxable income (determined without regard to section 199) for the taxable year (or, in the case of an individual, adjusted gross income (AGI)).

Section 199(c)(1) defines QPAI for any taxable year as an amount equal to the excess (if any) of (A) the taxpayer's domestic production gross receipts (DPGR) for such taxable year, over (B) the sum of (i) the cost of goods sold (CGS) that are allocable to such receipts; and (ii) other expenses, losses, or deductions (other than the deduction under section 199) that are properly allocable to such receipts.

Section 199(c)(4)(A)(i) defines DPGR, in part, to mean the taxpayer's gross receipts that are derived from any lease, rental, license, sale, exchange, or other disposition of qualifying production property (QPP) that was manufactured, produced, grown, or extracted (MPGE) by the taxpayer in whole or in significant part within the United States. Section 199(c)(5) defines QPP to mean: (A) Tangible personal property; (B) any computer software; and (C) any property described in section 168(f)(4) (certain sound recordings).

Section 199(d)(3)(A) provides that any person who receives a qualified payment from a specified agricultural or horticultural cooperative shall be allowed for the taxable year in which such payment is received a deduction under section 199(a) equal to the portion of the deduction allowed under section 199(a) to such cooperative which is (i) allowed with respect to the portion of the QPAI to which such payment is attributable, and (ii) identified by such cooperative in a written notice mailed to such person during the payment period described in section 1382(d).

Section 199(d)(3)(B) provides that the taxable income of a specified agricultural or horticultural cooperative shall not be reduced under section 1382 by reason of that portion of any qualified payment as does not exceed the deduction allowable under section 199(d)(3)(A) with respect to such payment.

Section 199(d)(3)(C) provides that, for purposes of section 199, the taxable income of a specified agricultural or horticultural cooperative shall be computed without regard to any deduction allowable under section 1382(b) or (c) (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).

Section 199(d)(3)(E) provides that, for purposes of section 199(d)(3), the term qualified payment means, with respect to any person, any amount that (i) is described in section 1385(a)(1) or (3), (ii) is received by such person from a specified agricultural or horticultural cooperative, and (iii) is attributable to QPAI with respect to which a deduction is allowed to such cooperative under section 199(a).

Section 199(d)(8) authorizes the Secretary to prescribe such regulations as are necessary to carry out the purposes of section 199, including regulations that prevent more than one taxpayer from being allowed a deduction under section 199 with respect to any activity described in section 199(c)(4)(A)(i).

Section 1.199-3T(i)(6)(ii) provides that gross receipts derived from customer and technical support, telephone and other telecommunication services, online services (such as Internet access services, online banking services, providing access to online electronic books, newspapers, and journals), and other similar services do not constitute gross receipts derived from a lease, rental, license, sale, exchange, or other disposition of computer software.

However, § 1.199-3T(i)(6)(iii) provides two exceptions under which gross receipts derived by a taxpayer from providing computer software to customers for the customers' direct use while connected to the Internet will be treated as being derived from the lease, rental, license, sale, exchange, or other disposition of such computer software. Such gross receipts will be treated as DPGR if all the other requirements of section 199 are met (for example, the taxpayer MPGE computer software in whole or in significant part within the United States).

The exception in § 1.199-3T(i)(6)(iii)(A) applies to a taxpayer that derives gross receipts from providing computer software to customers for the customers' direct use while connected to the Internet (online software) and also derives gross receipts from customers that are unrelated to the taxpayer from the lease, rental, license, sale, exchange, or other disposition of computer software affixed to a tangible medium or downloaded from the Internet. The exception in § 1.199-3T(i)(6)(iii)(B) applies if a taxpayer derives gross receipts from providing online software and an unrelated person derives, on a regular and ongoing basis in the unrelated person's business, gross receipts from the lease, rental, license, sale, exchange, or other disposition of substantially identical software to its customers affixed to a tangible medium or by allowing its customers to download the substantially identical computer software from the Internet.

Section 1.199-3T(i)(6)(iv) defines substantially identical software as computer software that, from a customer's perspective, has the same functional result as the online software and has a significant overlap of features or purpose with the online software. Section 1.199-3T(i)(6)(iv)(B) provides a safe harbor under which all computer software games are deemed to be substantially identical software.

The exceptions outlined in § 1.199-3T(i)(6)(iii) permit gross receipts derived from providing online software to be treated as gross receipts derived from the lease, rental, license, sale, exchange, or other disposition of software. However, because the rules for online software are exceptions, all other provisions of the temporary and final regulations do not necessarily apply to online software. Specifically, § 1.199-3T(i)(6)(iv)(E) provides that the computer software maintenance agreement exception provided in § 1.199-3(i)(4)(i)(B)( 5 ) does not apply to online software. Section 1.199-3(i)(4)(i)(B)( 5 ) provides that a taxpayer may include in DPGR, the gross receipts derived from services performed pursuant to a qualified computer software maintenance agreement.

A commentator suggested that the online software exceptions should apply to transactions where access to computer software is provided over any public or private communications network and not just the Internet. The final regulations adopt this suggestion.

A commentator suggested that the final regulations provide an example where computer software would not be considered substantially identical software. This suggestion has been adopted.

Commentators noted that, in the future, some computer software will only be available over the Internet. In addition, newly developed computer software provided over the Internet may not have a substantially identical counterpart. The IRS and Treasury Department recognize that the computer software industry is evolving and current industry trends may result in a more limited applicability of the online software exceptions provided in the final regulation. However, there are significant differences between transactions which provide customers with access to online software and transactions involving the transfer of software to customers affixed to a tangible medium or by download. Accordingly, in order to give meaning to the statutory language requiring a lease, rental, license, sale, exchange, or other disposition, the online software exceptions have been narrowly tailored and are intended to apply only to gross receipts derived from providing customers access to computer software for the customers' direct use while connected to the Internet and only when the taxpayer (or another person) also derives gross receipts from the lease, rental, license, sale, exchange, or other disposition of the computer software (or substantially identical software) affixed to a tangible medium or by download. The final regulations clarify that, with respect to online software, taxpayers are providing customers with access to the taxpayers' software as opposed to actually transferring the software to customers either affixed to a tangible medium or by allowing them to download the computer software from the Internet.

Commentators suggested that the rule in § 1.199-3T(i)(6)(iv)(E), precluding the application of the qualified computer software maintenance provision to online software, be deleted because it places taxpayers providing access to online software at a competitive disadvantage with taxpayers providing computer software to customers either affixed to a tangible medium or by allowing them to download the computer software from the Internet. In addition, commentators suggest that the advertising exception in § 1.199-3(i)(5) should be extended to include online software. The final regulations do not adopt these suggestions. As previously noted, the online software exceptions have been narrowly tailored and the IRS and Treasury Department do not believe the exceptions should be extended beyond gross receipts derived from providing customers access to computer software for the customers' direct use. Therefore, the final regulations do not extend the exception for qualified computer software maintenance agreements in § 1.199-3(i)(4)(i)(B)( 5 ) or the advertising exception in § 1.199-3(i)(5) to online software.

The final regulations in § 1.199-3(i)(5)(ii)(B) do, however, extend the advertising exception to computer software that is provided to customers either affixed to a tangible medium (for example, a disk or DVD) or by allowing them to download the computer software from the Internet. However, the advertising exception only applies to advertising placed or integrated into software that is either affixed to a tangible medium or provided through download and does not apply to advertising incorporated into online software. In addition, the IRS and Treasury Department have clarified that, except as otherwise provided in § 1.199-3(i)(5)(ii), gross receipts derived from the lease, rental, license, sale, exchange, or other disposition of QPP, a qualified film, or utilities do not include advertising income or product-placement income.

A commentator expressed concern that the exception for qualified computer software maintenance agreements in § 1.199-3(i)(4)(i)(B)( 5 ) does not apply if the taxpayer separately offers maintenance in subsequent years. The mere fact that a taxpayer separately offers maintenance in subsequent years does not preclude eligibility for the exception.

A commentator interpreted the rule in § 1.199-3T(i)(6)(iii)(E) as possibly treating gross receipts derived from the lease, rental, license, sale, exchange, or other disposition of future updates, cyclical releases, and rewrites of the underlying software as non-DPGR if the underlying software is online software. The rule in § 1.199-3T(i)(6)(iii)(E) only provides that the qualified computer software maintenance agreement exception does not apply to online software. Therefore, to the extent a taxpayer providing online software derives gross receipts from the lease, rental, license, sale, exchange, or other disposition of future updates, cyclical releases, and rewrites of the underlying software, the gross receipts are DPGR assuming all the other requirements of § 1.199-3 are met.

A commentator noted that Example 6 in the temporary regulations concludes that the gross receipts derived from storage of customers' data and telephone support are non-DPGR. Example 6 is silent as to the amount of gross receipts derived from the storage of customers' data and telephone support and does not address whether the de minimis exception in § 1.199-3(i)(4)(i)(B)( 6 ) is available. Numerous examples in the final regulations under section 199 also conclude that gross receipts are non-DPGR without reference to the de minimis exception in § 1.199-3(i)(4)(i)(B)( 6 ). However, assuming all the requirements are met, the de minimis exception in § 1.199-3(i)(4)(i)(B)( 6 ) can apply when an example concludes the gross receipts are non-DPGR.

The IRS and Treasury Department received a comment letter on the application of section 199 to agricultural and horticultural cooperatives under § 1.199-6 of the final regulations (71 FR 31312) published on June 1, 2006. The commentator noted that the sentence in § 1.199-6(h) stating that the cooperative may not apply section 199(d)(3) and § 1.199-6 to any portion of the section 199 deduction that is not passed through to its patrons is inconsistent with section 199(d)(3) which has no such limitation. These final regulations amend § 1.199-6(h) to remove the sentence.

In addition, consistent with the change to § 1.199-6(h), these final regulations amend § 1.199-6(l) to remove the phrase, “To the extent a cooperative passes through the section 199 deduction to a patron” and add the phrase, “by the patron.”

The final regulations also amend § 1.199-6(c) to clarify that a cooperative's QPAI is computed without taking into account any deduction allowable under section 1382(b) or (c) (relating to patronage dividends, per-unit retain allocations, and nonpatronage distributions).

Section 199 applies to taxable years beginning after December 31, 2004. These final regulations are applicable for taxable years beginning on or after March 20, 2007. In addition, § 1.199-8(i)(1) provides that, in certain circumstances, a taxpayer may rely on the guidance in Notice 2005-14 (2005-7 IRB 498), see § 601.602(d)(2), the proposed regulations under section 199 that were published in the Federal Register on November 4, 2005 (70 FR 67220), or the final regulations under section 199 that were published in the Federal Register on June 1, 2006 (71 FR 31268). Regardless of which guidance a taxpayer applies, the taxpayer may apply these final regulations to taxable years beginning after December 31, 2004, and before March 20, 2007.

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to this regulation, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal authors of these regulations are Paul Handleman and Lauren Ross Taylor, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

Background and Explanation of Provisions

The Internal Revenue Code of 1986 (Code) provides general nonrecognition treatment for reorganizations described in section 368 of the Code. In addition to complying with the statutory and certain other requirements, to qualify as a reorganization, a transaction generally must satisfy the continuity of interest (COI) requirement. COI requires that, in substance, a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization.

On August 10, 2004, the IRS and Treasury Department published a notice of proposed rulemaking (REG-129706-04) in the Federal Register (69 FR 48429) (2004 proposed regulations) identifying certain circumstances in which the determination of whether a proprietary interest in the target corporation is preserved would be made by reference to the value of the issuing corporation's stock on the day before there is an agreement to effect the potential reorganization. On September 16, 2005, the IRS and Treasury Department published final regulations in the Federal Register (TD 9225, 70 FR 54631) (2005 final regulations) which retained the general framework of the 2004 proposed regulations but made several modifications in response to the comments received regarding the proposed regulations. Specifically, the 2005 final regulations provide that in determining whether a proprietary interest in the target corporation is preserved, the consideration to be exchanged for the proprietary interests in the target corporation pursuant to a contract to effect the potential reorganization is valued on the last business day before the first date such contract is a binding contract (the signing date), if the contract provides for fixed consideration (the signing date rule).

After consideration of comments relating to the 2005 final regulations, the IRS and Treasury Department are revising those regulations as set forth in this Treasury decision. These temporary regulations provide guidance for measuring whether the COI requirement is satisfied. The following sections specifically describe the revisions.

For purposes of determining whether COI is satisfied, the 2005 final regulations require the consideration to be exchanged for the proprietary interests in the target corporation to be valued on the last business day before the first date such contract is a binding contract, if such contract provides for fixed consideration. As noted in the preamble to the 2005 final regulations, the signing date rule is based on the principle that, where a binding contract provides for fixed consideration, the target corporation shareholders can generally be viewed as being subject to the economic fortunes of the issuing corporation as of the signing date. However, if the contract does not provide for fixed consideration, the signing date value of the issuing corporation stock is not relevant for purposes of determining the extent to which a proprietary interest in the target corporation is preserved.

These temporary regulations continue to apply the signing date rule where the contract provides for fixed consideration. If the contract does not provide for fixed consideration, the temporary regulations provide that the signing date rule is not applicable. Further, these temporary regulations clarify that where fixed consideration includes other property that is identified by value, that specified value is the value of such other property to be used in determining whether COI is satisfied.

As noted above, the temporary regulations provide that the signing date rule only applies to contracts that provide for fixed consideration. These temporary regulations modify the definition of fixed consideration.

The 2005 final regulations provide four circumstances in which a contract will be treated as providing for fixed consideration. Generally, under the 2005 final regulations, a contract provides for fixed consideration if (1) the contract states the number of shares of the issuing corporation plus the amount of money and any other property to be exchanged for all proprietary interests in the target corporation; (2) the contract states the number of shares of the issuing corporation plus the amount of money and any other property to be exchanged for each proprietary interest in the target corporation; (3) the contract states the percentage of proprietary interests in the target corporation to be exchanged for stock of the issuing corporation; or (4) the contract states the percentage of each proprietary interest in the target corporation to be exchanged for stock of the issuing corporation.

These temporary regulations combine the first two circumstances into one sentence that defines fixed consideration. No substantive change to these two definitions of fixed consideration is intended with this amendment.

The target corporation shareholders are generally subject to the economic fortunes of the issuing corporation as of the signing date only if the contract specifies the number of shares of the issuing corporation to be exchanged for all or each proprietary interest in the target corporation. Accordingly, the temporary regulations provide that the signing date rule is applicable in these situations. The IRS and Treasury Department request comments regarding whether it is appropriate to include in the definition of fixed consideration a contract that specifies a fixed percentage of the shares of the issuing corporation to be exchanged for all or each proprietary interest in the target corporation.

The temporary regulations eliminate the third and fourth circumstances described in the 2005 final regulations from the definition of fixed consideration. Because these types of transactions do not specify the number of shares of the issuing corporation to be received in the exchange, the target corporation shareholders are not subject to the economic fortunes of the issuing corporation as of the signing date. These provisions were removed because, in such situations, applying the signing date rule may produce inappropriate results.

A commentator noted that a transaction in which a fixed percentage of target corporation shares is exchanged for issuing corporation shares could inappropriately be precluded from satisfying COI due to the application of the signing date rule. For example, if the number of the issuing corporation shares to be received by the target corporation shareholders depends on the value of the issuing corporation shares on the closing date, and the issuing corporation shares appreciate significantly between the signing date and the closing date, the signing date rule could prevent a transaction from satisfying COI notwithstanding the fact that a substantial part of the value of the proprietary interests in the target corporation is exchanged for proprietary interests in the issuing corporation.

Further, the temporary regulations continue to treat a contract that provides for a shareholder election between shares of the issuing corporation stock and the money or other property to be exchanged for the proprietary interests in the target corporation as a contract that provides for fixed consideration in the circumstances described below.

The 2005 final regulations contain a rule generally stating that a contract that permits the target corporation shareholders to elect to receive stock and/or money and/or other property with respect to their target corporation stock will be treated as providing for fixed consideration if the contract also provides the minimum number of shares of the issuing corporation stock and the maximum amount of money or other property to be exchanged for all of the proprietary interests in the target corporation, the minimum percentage of the number of shares of each class of proprietary interests in the target corporation to be exchanged for stock of the issuing corporation, or the minimum percentage (by value) of the proprietary interests in the target corporation to be exchanged for stock of the issuing corporation. The 2005 final regulations further include two special rules prescribing certain assumptions to be made in the determination of whether COI is satisfied in shareholder election cases. For example, in the case in which the contract states the minimum number of shares of the issuing corporation stock and the maximum amount of money or other property to be exchanged for all of the proprietary interests in the target corporation, the determination of whether a proprietary interest in the target corporation is preserved is made by assuming the issuance of the minimum number of shares of each class of stock of the issuing corporation and the maximum amount of money or other property allowable under the contract and without regard to the number of shares of each class of stock of the issuing corporation and the amount of money or other property actually exchanged for proprietary interests in the target corporation.

These temporary regulations treat certain transactions that allow for shareholder elections as providing for fixed consideration regardless of whether the agreement specifies the maximum amount of money or other property, or the minimum amount of issuing corporation stock, to be exchanged in the transaction. As noted above, if the target corporation shareholders can generally be viewed as subject to the economic fortunes of the issuing corporation as of the signing date, it is appropriate to treat the contract as providing for fixed consideration and to apply the signing date rule. The IRS and Treasury Department believe that these circumstances exist in cases where the target corporation shareholders may elect to receive issuing corporation stock in exchange for their target corporation stock at an exchange rate based on the value of the issuing corporation stock on the signing date. For example, if the issuing corporation stock has a value of $1 per share on the last business date before the first date on which the contract is binding, and the agreement provides that the target corporation shareholders may exchange each share of target corporation stock for either $1 or issuing corporation stock (based on the signing date value), the target corporation shareholders that choose to exchange their target corporation stock for stock of the issuing corporation are subject to the economic fortunes of the issuing corporation with respect to such stock as of the signing date. Accordingly, the IRS and Treasury Department believe that it is appropriate in such a case to apply the signing date rule to value the stock of the issuing corporation for purposes of testing whether the transaction satisfies the COI requirement.

Additionally, the IRS and Treasury Department are concerned that the assumptions in the shareholder election rule in the 2005 final regulations may create confusion about whether COI is satisfied based on the delivery of stock that does not in fact preserve the target corporation shareholders' proprietary interest in the target corporation when such result was not intended. For example, the rule might appear to suggest that stock that is redeemed in connection with the potential reorganization will nonetheless be treated as preserving the target corporation shareholders' proprietary interests in the target corporation, although this result would be contrary to Treas. Reg. 1.368-1(e)(1). Further, these assumptions could prevent a transaction from satisfying COI even though a substantial part of the value of the proprietary interests in the target corporation is actually exchanged for proprietary interests in the issuing corporation.

Because of this potential for confusion, and because these assumptions are not relevant to the revised shareholder election provision, the temporary regulations remove the assumptions so that the determination of whether COI is preserved depends on the actual consideration exchanged. Example 9 of the Temporary Regulations has been modified to illustrate the revised rules regarding shareholder elections.

The 2005 final regulations generally provide that a modification of the contract results in a new signing date. However, the 2005 final regulations provide that a modification that has the sole effect of providing for the issuance of additional shares of issuing corporation stock to the target corporation shareholders will not be treated as a modification if the execution of the transaction pursuant to the original agreement would have resulted in the preservation of a substantial part of the value of the target corporation shareholders' proprietary interests in the target corporation if there had been no modification. One commentator suggested that this rule be broadened to include modifications that decrease the money or other property that will be delivered to the target corporation shareholders. These temporary regulations reflect this broadening.

Further, the IRS and Treasury Department believe that the signing date rule should also apply to provide certainty regarding the value of the issuing corporation stock used for purposes of testing COI if the transaction fails to qualify as a tax-free reorganization. For this reason, the IRS and Treasury Department believe that the exception to the modification rule should also be available for certain types of modifications if the transaction fails to satisfy COI at the time of the execution of the contract. Accordingly, these temporary regulations provide that certain contract modifications will not result in a new signing date if the terms of the original contract would have prevented the transaction from qualifying as a reorganization.

The 2005 final regulations provide that contingent consideration will generally prevent a contract from being treated as providing for fixed consideration. However, the 2005 final regulations provide for a limited exception to that general rule. The exception applies to cases in which the contingent consideration consists solely of stock of the issuing corporation and the execution of the potential reorganization would have resulted in the preservation of a substantial part of the value of the target corporation shareholders' proprietary interests in the target corporation if none of the contingent consideration was delivered to the target shareholders. The IRS and Treasury Department received a number of comments regarding the effect of contingent consideration on the application of the signing date rule.

A number of commentators suggested that the scope of the exception should be expanded to include cases in which the delivery of the contingent consideration to the target corporation shareholders does not decrease the ratio of the value of the shares of issuing corporation stock to the value of the money or other property (determined as of the last business day before the first date there is a binding contract) to be delivered to the target corporation shareholders relative to the ratio of the value of the shares of the issuing corporation stock to the value of the money or other property (determined as of the last business day before the first date there is a binding contract) to be delivered to the target corporation shareholders if none of the contingent consideration were delivered to the target corporation shareholders. These temporary regulations modify and expand the applicability of the signing date rule to certain transactions that provide for contingent adjustments (i.e., increases or decreases) to the consideration.

As described above, the signing date rule is based on the principle that, where a binding contract provides for fixed consideration, the target corporation shareholders can generally be viewed as being subject to the economic fortunes of the issuing corporation as of the signing date. The IRS and Treasury Department believe that where this principle holds true, the signing date rule should apply regardless of whether the transaction potentially qualifies as a reorganization, and regardless of whether the contract provides for certain contingent adjustments to the otherwise fixed consideration. Accordingly, these temporary regulations provide that, generally, a contract that otherwise qualifies as providing for fixed consideration will be treated as providing for fixed consideration even if it provides for contingent adjustments to the consideration, and regardless of whether the transaction would have satisfied COI in the absence of any contingent adjustments. However, if the terms of the contingent adjustments potentially prevent the target corporation shareholders from being subject to the economic fortunes of the issuing corporation as of the signing date, the contract will not be treated as providing for fixed consideration.

Accordingly, these temporary regulations provide that a contract will not be treated as providing for fixed consideration if it provides for contingent adjustments to the consideration that prevent (to any extent) the target shareholders from being subject to the economic benefits and burdens of ownership of the issuing corporation as of the signing date. For example, a contract will not be treated as providing for fixed consideration if it provides for contingent adjustments in the event that the value of the stock of the issuing corporation, the value of the assets of the issuing corporation, or the value of any surrogate for either the value of the stock of the issuing corporation or the assets of the issuing corporation increase or decrease after the last business day before the first date there is a binding contract, or if the terms of the contingent adjustment provide that any increase or decrease in the number of shares of the issuing corporation will be computed using any value of the issuing corporation shares after the last business day before the first date the contract is a binding contract.

These temporary regulations also clarify that if the issuing corporation's capital structure is altered and the number of shares of the issuing corporation to be issued to the target corporation shareholders is altered pursuant to a customary anti-dilution clause, the signing date value of the issuing corporation's shares must be adjusted to take this alteration into account.

The IRS and Treasury Department continue to study other issues related to the determination of whether the COI requirement is satisfied.

These temporary regulations are effective March 20, 2007 and apply to transactions occurring pursuant to a binding contract entered into after September 16, 2005. These temporary regulations provide transitional relief for certain transactions occurring pursuant to a binding contract entered into after September 16, 2005, and on or before March 20, 2007. Parties to transactions within the scope of the transitional relief may elect to apply the 2005 final regulations instead of these temporary regulations. Certain parties must adopt consistent treatment to obtain this relief.

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 5 U.S.C. 553(b) and (d) do not apply to these regulations. For applicability of the Regulatory Flexibility Act, please refer to the cross-reference notice of proposed rulemaking published elsewhere in this issue of the Federal Register . Pursuant to section 7805(f) of the Internal Revenue Code, these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Lisa S. Dobson of the Office of the Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.

We encourage you to participate in evaluating this test schedule by submitting comments and related material. If you do so, please include your name and address, identify the docket number for this deviation (CGD01-07-027), 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 they reached us, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. Comments must be received by June 23, 2007, prior to the end of the deviation period so that adjustments to the tested operating schedule may be made, if necessary.

The AK Railroad Bridge has a vertical clearance of 31 feet at mean high water and 35 feet at mean low water in the closed position. The existing operating regulation, listed at 33 CFR 117.747, requires that all bridges across the Raritan River, Arthur Kill, and their tributaries, shall open on signal; except that, from 7:30 a.m. to 10 a.m. and 5 p.m. to 7:30 p.m., the draws may be opened for the passage of vessels for periods no longer than 10 minutes or remain closed for the passage of land traffic for no longer than 10 minutes. The above regulation is no longer applicable or necessary as it pertains to the AK Railroad Bridge because the AK Railroad Bridge has been maintained in the open position for the past 20 years due to the cessation of all railroad train traffic over the bridge.

The owner of the bridge, New York City Economic Development Corporation (NYCEDC), began a bridge rehabilitation program approximately 10 years ago, as part of the region's Full Freight Access Initiative.

Part of the Full Freight Initiative was to once again move freight trains across the bridge to and from the Staten Island Landfill facility and the New York Container Terminal (formerly the Howland Hook Terminal). The New York Container Terminal has already been revitalized and is preparing to receive railroad freight traffic once again.

Recently, the AK Railroad Bridge rehabilitation project was completed in anticipation of renewed rail operations requiring the passage of train traffic across the bridge.

The existing vessel traffic transiting Arthur Kill is comprised of deep draft oceangoing tank vessels, tug assisted barge traffic, other commercial vessels of various sizes, as well as a variety of recreational craft.

The deep draft oceangoing vessel transits are tide dependent in that their ability to maneuver safely requires such vessels to do so primarily on or near slack high tide, unlike barge and tug traffic, which may transit at various stages of the tide.

The bridge owner, NYCEDC, requested that the Coast Guard promulgate bridge operation regulations commensurate with the needs of freight rail operations. The resumption of rail traffic across the AK Railroad Bridge would require the bridge be closed to navigation for short periods several times a day.

The purpose of this temporary deviation is to help determine a bridge operating schedule that will accommodate both Conrail's proposed train schedule as well as future rail operations, while continuing to provide for the present and anticipated needs of navigation.

This deviation will test an alternate drawbridge operation schedule designed to help facilitate the safe coordination of vessel and rail traffic. A variety of factors, such as daily tide variations, the present and anticipated needs of navigation, and train scheduling, will be considered during this temporary test deviation.

After numerous meetings and consultations with rail and marine transportation interests, the Coast Guard has concluded that the most equitable and safe solution to facilitate the presently known and anticipated marine and railroad traffic scheduling needs is to test a fixed daily drawbridge operation schedule making allowances for high water periods which are critical to large vessel transits. In addition, due to the variability of some freight rail movements, accommodation of unscheduled bridge closure requests will be tested.

In anticipation of additional railroad operations, the Coast Guard will continue to evaluate the bridge operating schedule in future rulemakings, as necessary.

The schedule considered in this notice would provide two daily one-hour bridge closure periods on a fixed schedule with a one hour adjustment during certain high tides (as predicted at the Battery, New York). Also, unscheduled bridge closure requests may be granted by the Coast Guard within one to three hours of receipt of the request.

Being able to predict bridge closure periods each day, in advance, would enable both rail and marine interests to schedule accordingly, obviating the need to adjust to different bridge closure times daily. The ability to obtain unscheduled bridge closures will offer some flexibility in rail operations.

This temporary deviation requires the AK Railroad Bridge to remain in the open position at all times except when it is allowed to remain closed for the passage of rail traffic for two one-hour periods at 10 a.m. and 4 p.m., daily, except when high tide occurs during or within one hour after the scheduled closed period. When high tide occurs during the bridge closure period the bridge closure will commence one hour later, at 11 a.m.; when high tide occurs within one hour after the scheduled closure period the bridge closure will commence one hour earlier, at 9 a.m. A schedule of bridge closure periods will be posted on the U.S. Coast Guard's Homeport Web site and published in the Local Notice to Mariners. In addition to the scheduled closure periods, up to two, unscheduled one hour bridge closure periods per day (maximum of twelve per week), may be requested of and may be approved by the Coast Guard within one to three hours of the request. The bridge will remain open for a minimum of two hours between bridge closures for the passage of marine traffic. In the event of bridge operational failure, the bridge owner or operator shall notify the Coast Guard Captain of the Port, New York immediately and shall ensure that a repair crew is on scene at the bridge no later than 45 minutes after the bridge fails, and remains until the bridge has been restored to normal operations or raised and locked in the fully open position.

This deviation from the operating regulations is authorized under 33 CFR 117.35.

The Schedule for Rating Disabilities, 38 CFR Part 4, Appendices A, B, and C have not been updated since July 1, 1988. These Appendices are tools for users of the Schedule for Rating Disabilities. The Appendices reflect changes to the diagnostic criteria in the Schedule for Rating Disabilities.

We have amended the Appendices to add changes to the Schedule for Rating Disabilities since the Appendices were last updated. Additionally, we removed language in Appendix A that showed when a diagnostic code was updated to correct spelling, revise text, or other additional changes, which had no impact on the disability code. Those changes were incorporated within the text when amended. All diagnostic codes in Appendix A will now be categorized by when they were added, removed, whether the criterion was amended, and whether the disability evaluation was amended. We will continue to include the date for historical purposes. We revised Appendices B and C to provide the current diagnostic codes and disability terminology. We will continue to update the Appendices as the Schedule for Rating Disabilities is revised.

This final rule merely replaces inaccurate examples and does not alter the content of the regulations. Accordingly, there is a basis for dispensing with prior notice and comment and the delayed effective date provisions of 5 U.S.C. 553.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This final rule would not affect any small entities. Only VA beneficiaries could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

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 Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB) unless OMB waives such review, as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined not to be a significant regulatory action under Executive Order 12866.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any year. This final rule would have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program numbers and titles for this final are 64.104, Pension for Non-Service-Connected Disability for Veterans and 64.109, Veterans Compensation for Service-Connected Disability.