For additional supplementary information, see the direct final rule published in the Rules and Regulations section of this Federal Register .

This rule is limited to the changes contained in Amendment No. 5 to CoC No. 1014 and does not include other aspects of the HI-STORM 100 design. Because NRC considers this action noncontroversial and routine, the NRC is publishing this proposed rule concurrently as a direct final rule in the Rules and Regulations section of this Federal Register . Adequate protection of public health and safety continues to be ensured. The direct final rule will become effective on March 17, 2008. However, if the NRC receives significant adverse comments on the direct final rule by January 30, 2008, then the NRC will publish a document that withdraws the direct final rule. If the direct final rule is withdrawn, the NRC will address the comments received in response to the proposed revisions in a subsequent final rule. Absent significant modifications to the proposed revisions requiring republication, the NRC will not initiate a second comment period on this action in the event the direct final rule is withdrawn.

A significant adverse comment is a comment where the commenter explains why the rule would be inappropriate, including challenges to the rule's underlying premise or approach, or would be ineffective or unacceptable without a change. A comment is adverse and significant if:

(1) The comment opposes the rule and provides a reason sufficient to require a substantive response in a notice-and-comment process. For example, a substantive response is required when:

(a) The comment causes the NRC staff to reevaluate (or reconsider) its position or conduct additional analysis;

(b) The comment raises an issue serious enough to warrant a substantive response to clarify or complete the record; or

(c) The comment raises a relevant issue that was not previously addressed or considered by the NRC staff.

(2) The comment proposes a change or an addition to the rule, and it is apparent that the rule would be ineffective or unacceptable without incorporation of the change or addition.

(3) The comment causes the NRC staff to make a change (other than editorial) to the rule, CoC, or TS.

For additional procedural information and the regulatory analysis, see the direct final rule published in the Rules and Regulations section of this Federal Register .

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; the Nuclear Waste Policy Act of 1982, as amended; and 5 U.S.C. 553; the NRC is proposing to adopt the following amendments to 10 CFR part 72.

We invite you to submit any written data, views, or arguments regarding this proposed AD. Send your comments to the address listed under the caption ADDRESSES . Include the docket number “FAA-2007-0373, Directorate Identifier 2006-SW-14-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the proposed AD. We will consider all comments received by the closing date and may amend the proposed AD in light of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov , including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this proposed rulemaking. Using the search function of our docket web site, you can find and read the comments to any of our dockets, including the name of the individual who sent or signed the comment. You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78) or you may visit http://dms.dot.gov.

You may examine the docket that contains the proposed AD, any comments, and other information in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Operations office (telephone (800) 647-5527) is located in Room W12-140 on the ground floor of the West Building at the street address stated in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

This document proposes adopting a new AD for the specified Erickson model helicopters. The AD would require determining whether certain tail rotor blade assemblies have an affected serial number or part marking. If a blade assembly has a certain serial number or part marking, the AD would also require initially and repetitively inspecting the tail rotor blade for a crack in the strap and pocket areas. If a crack is found, this AD would also require, before further flight, replacing the blade assembly with an airworthy blade assembly that does not have an affected serial number or part marking. This proposal is prompted by several reports of cracking in the strap or pocket areas of the tail rotor blade. This condition, if not corrected, could result in failure of the tail rotor blade and subsequent loss of control of the helicopter.

We have reviewed Erickson Alert Service Bulletin 64B15-9, Revision B, dated October 6, 2006 (ASB), which describes procedures for determining and inspecting certain marked or serial numbered tail rotor blades. The ASB specifies repetitive inspections not to exceed 6 flight hours for the S-64F model and not to exceed 15 flight hours for the S-64E model. Alternate inspection schedules are also included for “ferry flights” used for delivering the helicopter from one area of operation to another. The “ferry flight” time would be the flight time beginning at the end of the last operation in one area to the beginning of the first operation in another area. If a crack is found in the strap or pocket, the ASB specifies removing and replacing the blade.

We propose to depart from the language of the ASB and propose to use the terms hours time-in-service (TIS) instead of maximum ground-air-ground (GAG) cycles. We propose to define a “ferry flight” as a helicopter flight used for delivering the helicopter from one area of operation to another. During the “ferry flight” the helicopter would not drop off an external load or pick up an external load. A GAG cycle as defined in the ASB for the purposes of these inspections is any maneuver that results in a climb-out similar to one following takeoff. The proposed inspection intervals for the ferry flights were also modified to accommodate a new range of values based on specifications supplied by Erickson. The proposed inspection intervals were determined by multiplying the maximum GAG cycles in the ASB for the given takeoff weight by the flight endurance of 2.5 hours TIS for the Model S-64E and 2.2 hours TIS for the Model S-64F helicopters and rounding the result to a near whole number as deemed appropriate.

This unsafe condition is likely to exist or develop on other helicopters of these same type designs. Therefore, the proposed AD would require for each blade assembly, part number (P/N) 65161-00001-042 or -043, the following actions:

• Within 25 hours TIS, unless done previously, determine if the blade assembly has a serial number listed in the ASB. Also, determine if the blade assembly is marked with an “RS503” near the part number.

• If the blade assembly serial number is not listed in the ASB and does not have “RS503” marked near the part number, no further action would be required by this AD.

• If a blade assembly has either an affected serial number or part marking, before further flight, using a 10-power or higher magnifying glass, inspect both sides of the blade assembly for a crack in the strap and pocket areas paying particular attention to the circled area as depicted in Figure 1 of the ASB.

• If no crack is found, inspect the blade assembly at intervals not to exceed those TIS intervals specified in Table 1 of the AD.

• If a crack is found, before further flight, replace the unairworthy blade assembly with an airworthy FAA approved blade assembly that does not have a serial number listed in the ASB and does not have “RS503” marked near the part number.

The actions would be required to be done by following the specified portions of the ASB described previously.

We estimate that this proposed AD would:

• Affect 20 helicopters of U.S. registry; 13 Model S-64E and 7 Model S-64F;

• Require about 1 work hour to determine whether an affected blade is installed;

• Require about 1 work hour to inspect the blade assembly, assuming about 40 inspections a year for each Model S-64E (total 520) and about 100 inspections a year for each Model S-64F (total 700);

• Require about 4 work hours to replace each tail rotor blade, assuming 10 tail rotor blade assemblies are replaced;

• Cost about $80 per work hour; and

• Cost about $60,000 per blade assembly.

Based on these figures, the estimated total cost impact of the proposed AD on U.S. operators would be $702,400, based on the stated assumptions.

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

For the reasons discussed above, I certify that the proposed regulation:

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

2. Is not a “significant rule” under the 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 draft economic evaluation of the estimated costs to comply with this proposed AD. See the DMS to examine the draft economic evaluation.

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.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

The Commission is reopening the period for public comment on proposed amendments to regulation 150.2. 1 The amendments were proposed on November 21, 2007 and the comment period initially closed on December 21, 2007. 2 The amendments, if adopted by the Commission, would increase the Federal speculative position limits enumerated in regulation 150.2 for all single-month and all-months-combined positions in all commodities except oats, pursuant to parameters specified in Commission regulation 150.5(c). The amendments would also aggregate positions in all designated contract market products that share substantially identical terms with the contracts enumerated in regulation 150.2 for the purposes of ascertaining compliance with the Federal speculative position limits.

By letter dated December 7, 2007, the National Grain and Feed Association, an association representing companies that utilize exchange traded agricultural contracts to manage price and inventory risks, 3 and by letter dated December 14, 2007, the American Bakers Association, an association representing the interests of the wholesale baking industry, 4 requested an extension of the comment period to better develop a response to Commission's proposed amendments. While the Commission has received commentary on the proposed amendments, 5 it believes that it would be appropriate to reopen the comment period to ensure that an adequate opportunity is provided for the submission of additional meaningful and substantive comments. Accordingly, the Commission has determined to reopen the comment period for the proposed amendments to regulation 150.2 to January 21, 2008. The Commission notes that it will give full consideration to any comment received in the interval between the closing and reopening of the comment period for the proposed amendments.

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). OMB has approved, on a temporary basis, the information collections contained in the cross-referenced temporary rule under control number 1545-2091. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by February 29, 2008. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collection of information in this proposed regulation is in §§ 1.468A-3T(h), 1.468A-4T, 1.468A-7T, and 1.468A-8T(d). The information collected under § 1.468A-3T(h) is required to evaluate whether the taxpayer has properly determined the schedule of ruling amounts. The information collected under § 1.468A-7T pertains to the initial election to maintain a qualified nuclear decommissioning trust fund. The information collected under § 1.468A-8T(d) is required to evaluate whether the taxpayer has properly determined the schedule of deduction amounts. The collection of information is mandatory. The likely recordkeepers are owners of nuclear power plants.

Estimated total annual recordkeeping burden: 2,500 hours.

The estimated annual burden per recordkeeper varies depending on individual circumstances, with an estimated average of 25 hours.

Estimated number of recordkeepers: 100.

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

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

The temporary regulations in the Rules and Regulations section of this issue of the Federal Register contain amendments to 26 CFR part 1 providing regulations under section 468A of the Internal Revenue Code of 1986 (Code). Section 468A was amended by section 1310 of the Energy Policy Act of 2005, Public Law 109-58 (119 Stat. 594).

The temporary regulations in the Rules and Regulations section of this issue of the Federal Register amend the Income Tax Regulations (26 CFR part 1) under section 468A of the Internal Revenue Code of 1986 (Code). The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains these proposed regulations.

It has been determined that this notice of proposed rulemaking 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) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. The proposed regulations do not impose a collection of information on small entities. Accordingly, a regulatory flexibility analysis is not required. We request comment on the accuracy of this certification. Pursuant to section 7805(f) of the Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronically generated comments that are submitted timely to the IRS. The IRS and Treasury Department generally request comments on the clarity of the proposed rule and how it may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person who timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

The principal author of these regulations is Patrick S. Kirwan, Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by February 29, 2008. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collection of information in this proposed regulation is in § 1.430(h)(2)-1(e). This information is required in order for a plan sponsor to make an election to use an alternative interest rate for purposes of determining a plan's funding obligations under § 1.430(h)(2)-1. This information is required to obtain or retain benefits. The likely respondents are qualified retirement plan sponsors.

Estimated total annual reporting burden: 54,000 hours.

Estimated average annual burden hours per respondent: 0.75 hours.

Estimated number of respondents: 72,000.

Estimated annual frequency of responses: Occasional.

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

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

This document contains proposed Income Tax Regulations (26 CFR part 1) under sections 430(d), 430(g), 430(h)(2), and 430(i), as added to the Internal Revenue Code (Code) by the Pension Protection Act of 2006 (PPA '06), Public Law 109-280 (120 Stat. 780).

Section 412 provides minimum funding requirements that generally apply for pension plans (including both defined benefit pension plans and money purchase pension plans). PPA '06 makes extensive changes to those minimum funding requirements that generally apply for plan years beginning on or after January 1, 2008. Section 430, which was added by PPA '06, specifies the minimum funding requirements that apply to single employer defined benefit pension plans (including multiple employer plans) pursuant to section 412. 1

Section 430(a) defines the minimum required contribution for a single employer plan as the sum of the plan's target normal cost and the shortfall and waiver amortization charges for the plan year. Under section 430(b), a plan's target normal cost for a plan year is the present value of all benefits expected to accrue or be earned under the plan during the plan year. For this purpose, section 430(b) provides that an increase in any benefit attributable to services performed in a preceding plan year by reason of a compensation increase during the current plan year is treated as having accrued during the current plan year.

One of the amortization charges used in determining the minimum required contribution, the shortfall amortization charge, is determined based on the difference between the plan's funding target and the value of plan assets. Under section 430(d), except as provided in section 430(i)(1) (regarding plans in at-risk status), a plan's “funding target” for a plan year is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.

Section 430(g)(1) provides that all determinations made with respect to minimum required contributions for a plan year (such as the value of plan assets and liabilities) must be made as of the plan's valuation date. Section 430(g)(2) provides that, other than for plans with 100 or fewer participants (determined as provided in section 430(g)(2)(B) and (C)), the valuation date for a plan year must be the first day of the plan year. Under section 430(g)(3), the value of plan assets is generally the fair market value of those assets. However, the value of plan assets may be determined on the basis of the averaging of fair market values, but only if the averaging method is permitted under regulations and satisfies certain other requirements.

Under section 430(g)(4), if a required contribution for a preceding plan year is made after the valuation date for the current plan year, the contribution is taken into account in determining the value of plan assets for the current plan year. For 2009 and future plan years, only the present value (determined as of the valuation date for the current plan year, using the plan's effective interest rate for the preceding plan year) of the contributions made for the preceding plan year is taken into account. If any contributions for the current plan year are made before the valuation date (which could only occur for a small plan with a valuation date that is not the first day of the plan year), plan assets as of the valuation date must exclude (1) those contributions, and (2) interest on those contributions (determined at the plan's effective interest rate for the plan year) for the period between the date of the contribution and the valuation date. Under section 430(h)(2)(A), a plan's effective interest rate for a plan year is defined as the single interest rate that, if used to determine the present value of the benefits taken into account in determining the plan's funding target for the plan year, would result in an amount equal to the plan's funding target determined for the plan year under section 430(d).

Under section 430(h)(1), the determination of any present value or other computation under section 430 is to be made on the basis of actuarial assumptions and methods each of which is reasonable (taking into account the experience of the plan and reasonable expectations) and which, in combination, offer the actuary's best estimate of anticipated experience under the plan.

Section 430(h)(2) specifies the interest rates that must be used in determining a plan's target normal cost and funding target. Under the provision, present value is determined using three interest rates (segment rates), each of which applies to benefit payments expected to be paid during a certain period. The first segment rate applies to benefits reasonably determined to be payable during the 5-year period beginning on the first day of the plan year. The second segment rate applies to benefits reasonably determined to be payable during the 15-year period following the initial 5-year period. The third segment rate applies to benefits reasonably determined to be payable after the end of that 15-year period.

Each segment rate is a single interest rate determined monthly by the Treasury Department on the basis of a corporate bond yield curve. The corporate bond yield curve used for this purpose is to be prescribed monthly by the Treasury Department and is to reflect the average, for the 24-month period ending with the preceding month, of yields on investment grade corporate bonds with varying maturities that are in the top three quality levels available. Under section 430(h)(2)(F), the Secretary of the Treasury is directed to publish each month the corporate bond yield curve and each of the segment rates for the month. In addition, the Secretary is directed to publish a description of the methodology used to determine the yield curve and segment rates to enable plans to make reasonable projections regarding the yield curve and segment rates for future months, based on a plan's projection of future interest rates.

Section 430(h)(2)(G) provides a transition rule for plan years beginning in 2008 and 2009 (other than for plans where the first plan year begins on or after January 1, 2008). Under this transition rule, the interest rates to be used in the valuation are based on a blend of the segment rates and the long-term corporate bond rates used for plan years prior to the effective date of PPA '06. Under section 430(h)(2)(G)(iv), a plan sponsor may elect to have this transition rule not apply. In addition, solely for purposes of determining minimum required contributions under section 430, in lieu of using the segment rates, an employer may elect under section 430(h)(2)(D)(ii) to use interest rates on a yield curve based on the yields on investment grade corporate bonds within the top three quality levels without regard to the 24-month averaging described above.

Section 430(i) requires the application of special assumptions in determining the funding target and target normal cost of a plan in at-risk status. Under section 430(i)(4), a plan is in at-risk status for a year if, for the preceding year: (1) The plan's funding target attainment percentage, determined without regard to the at-risk assumptions, was less than 80 percent (with a transition rule discussed below), and (2) the plan's funding target attainment percentage, determined using the at-risk assumptions (without regard to whether the plan was in at-risk status for the preceding year), was less than 70 percent. Under a transition rule applicable for plan years beginning in 2008, 2009, and 2010, the following percentages apply instead of 80 percent in the first part of the test for determining at-risk status: 65 percent for 2008, 70 percent for 2009, and 75 percent for 2010. In the case of plan years beginning in 2008, the plan's funding target attainment percentage for the preceding plan year is to be determined under rules provided by the Treasury Department.

Under section 430(i)(6), the at-risk rules do not apply if a plan had 500 or fewer participants on each day during the preceding plan year. For this purpose, all defined benefit pension plans (other than multiemployer plans) maintained by the same employer (or a predecessor employer), or by any member of the employer's controlled group, are treated as a single plan.

If a plan is in at-risk status, the plan's funding target and normal cost are determined (under section 430(i)(1) and (2)) using special actuarial assumptions. Under these assumptions, all employees who are not otherwise assumed to retire as of the valuation date, but who will be eligible to elect to commence benefits in the current and 10 succeeding plan years, are assumed to retire at the earliest retirement date under the plan, but not before the end of the current plan year. All employees are assumed to elect the form of retirement benefit available under the plan at that assumed retirement age that results in the highest present value.

The funding target of a plan in at-risk status for a plan year is generally the sum of: (1) The present value of all benefits accrued or earned as of the beginning of the plan year, and (2) in the case of a plan that has been in at-risk status for at least 2 of the 4 preceding plan years, a loading factor. That loading factor is equal to the sum of: (1) $700 multiplied by the number of participants in the plan, plus (2) 4% of the funding target determined without regard to the loading factor. The target normal cost of a plan in at-risk status for a plan year is generally the sum of: (1) The present value of benefits expected to accrue or be earned under the plan during the plan year, determined using the special assumptions described above, and (2) in the case of a plan that has been in at-risk status for at least 2 of the 4 preceding plans years, a loading factor of 4% of the target normal cost determined without regard to the loading factor. If a plan has been in at-risk status for fewer than 5 consecutive plan years, a phase-in rule applies to the determination of the “funding target” and “target normal cost” under section 430(i)(5).

These proposed regulations are the third in a series of proposed regulations under new section 430. 2 These proposed regulations would provide guidance on the determination of assets and liabilities for purposes of applying the new funding rules of section 430. The Treasury Department and the IRS intend to issue additional proposed regulations relating to other portions of the rules under section 430 (including sections 430(a), (c), and (j)) in the first part of 2008. It is expected that those regulations will be effective for plan years beginning on or after January 1, 2009.

Section 1.430(d)-1 would provide rules for determining the funding target and the target normal cost of a plan that is not in at-risk status (within the meaning of section 430(i)). The proposed regulations would provide that the funding target is the present value of all benefits that have been accrued or earned under the plan as of the first day of the plan year, and that the target normal cost for the plan year is the present value of all benefits that accrue or are earned (or that are expected to accrue or to be earned) under the plan during the plan year. Thus, if the actuarial valuation date for the plan year is not the first day of the plan year, the target normal cost will include the benefits actually earned during the year through the valuation date for the plan year plus a projection of benefits that will be earned through the rest of the plan year.

In order to determine the funding target and target normal cost, the future benefits to be paid from the plan must be allocated among prior plan years (in which case they will be taken into account in determining the funding target for the current year), the current plan year (in which case they will be taken into account in determining the target normal cost of the plan for the plan year), and future years. If the amount of a benefit that is expected to be paid is a function of the accrued benefit at the time the benefit is expected to be paid, then the amount taken into account in the funding target is determined by applying that function to the accrued benefit as of the beginning of the plan year and the amount of the benefit taken into account in the target normal cost is determined by applying that function to the increase in the accrued benefit for the plan year. If the amount of a benefit that is expected to be paid is not a function of the accrued benefit at the time the benefit is expected to be paid (for example, certain ancillary benefits), but is a function of the participant's service at that time, then the amount taken into account for purposes of determining the funding target for a plan year is based on a participant's service as of the first day of the plan year and the amount of the benefit that is taken into account in the target normal cost is the increase in that benefit for the plan year based on the additional year of service. If the amount of a benefit that is expected to be paid is neither a function of the accrued benefit at the time the benefit is expected to be paid nor a function of the participant's service at that time, then the portion of the benefit taken into account for purposes of determining the funding target for a plan year is based on the proportion of a participant's service as of the first day of the plan year relative to the service the participant will have when the participant meets the age and service eligibility requirement for the benefit, and the portion of the benefit that is taken into account in the target normal cost is the increase in the proportional benefit for the plan year.

The proposed regulations would provide that the determination of the funding target and the target normal cost for a plan year is not permitted to take into account any limitations or anticipated limitations under section 436. Also, the proposed regulations would provide that plan administrative expenses paid (or expected to be paid) from plan assets for a plan year are not taken into account in determining a plan's target normal cost and funding target for that plan year. With respect to benefits provided by insurance, the proposed regulations would provide that, in general, a plan must reflect the liability for benefits that are funded through insurance contracts held by the plan in the plan's funding target and target normal cost, and must include the value of the corresponding insurance contracts in plan assets. However, an alternative rule is provided in the case of benefits that are funded through certain insurance contracts purchased from an insurance company licensed under the laws of a State. Under this rule, a plan is permitted to exclude benefits provided under such contracts from the plan's funding target and target normal cost and to exclude the corresponding insurance contracts from plan assets, but only to the extent that a participant's or beneficiary's right to receive those benefits is an irrevocable contractual right based on premiums paid to the insurance company prior to the valuation date under the insurance contracts.

The proposed regulations would provide that, except as provided in section 412(d)(2), the funding target and target normal cost are determined based on the plan terms that are adopted no later than the valuation date for the plan year and become effective during that plan year. Thus, the rules of Revenue Ruling 77-2 (1977-1 CB 120) would no longer apply. See § 601.601(d)(2) of this chapter. For example, if an amendment that increases plan liabilities is adopted on or before the plan's valuation date and is effective during the plan year that includes the valuation date, the full increase in liability with respect to the amendment is taken into account as of that year's valuation date. However, with respect to the pre-PPA counterpart to section 412(d)(2) (section 412(c)(8) as in effect prior to amendments made by PPA '06), Rev. Rul. 79-325 (1979-2 CB 190) provides that section 412(c)(8) applies to plan amendments made during the plan year (as well as to plan amendments made within 21/2 months after the end of the plan year), and this same rule applies under the identical statutory provisions of section 412(d)(2). See § 601.601(d)(2) of this chapter. Thus, if an amendment that increases plan liabilities is adopted after the valuation date for a plan year but the amendment is effective during that plan year, the full increase in liability will be taken into account as of the valuation date for that plan year if a section 412(d)(2) election is made, and none of the increase in liability will be taken into account as of the valuation date for that plan year if no section 412(d)(2) election is made. Regardless of whether a section 412(d)(2) election is made, the rules of section 436(c) must be applied in determining whether the amendment is permitted to take effect during the plan year. Section 430 does not contain a corresponding provision to former section 412(c)(12) under which the provisions of a collective bargaining agreement are taken into account for funding purposes before the corresponding plan amendments have been made.

The proposed regulations would require all currently employed plan participants, formerly employed plan participants (including retirees and terminated vested participants), and other individuals currently entitled to benefits under the plan to be included in the valuation. Unlike § 1.412(c)(3)-1(c)(3)(ii), the proposed regulations would not permit exclusion from the valuation of those plan participants who could have been excluded from participation in the plan under the rules of section 410(a). However, the proposed regulations would continue to apply the rules of § 1.412(c)(3)-1(c)(3)(iii) (relating to the exclusion of terminated employees who do not have a vested benefit under the plan but whose service might be taken into account in future years upon rehire) and the rules of § 1.412(c)(3)-1(d)(2) (under which the future participation in the plan of current employees who are not yet participants is permitted to be anticipated).

Section 1.430(d)-1 of the proposed regulations would cross-reference other regulations for the details of the statutorily specified interest rates, mortality tables, and actuarial assumptions that apply to plans in at-risk status. With respect to the actuarial assumptions that are not specified by statute or regulations, the proposed regulations would require that the actuarial assumptions used to determine present value satisfy the section 430(h)(1) requirements to be individually reasonable (taking into account the experience of the plan and reasonable expectations) and, in combination, offer the plan's enrolled actuary's best estimate of anticipated experience under the plan.

The proposed regulations would provide that, once the actuarial assumptions for a plan year are established, they are not permitted to be changed for that plan year (unless the Commissioner determines that the assumptions are unreasonable). Similarly, the proposed regulations would provide that, once the funding method for a plan year is established, it is not permitted to be changed for that plan year (unless the Commissioner determines that the use of the funding method for the plan year is impermissible).

In general, the actuarial assumptions and funding method used by a plan for a plan year are required to be established not later than the due date (with extensions) for the filing of Form 5500, “Annual Return/Report of Employee Benefit Plan,” for that plan year (or not later than the last day of the seventh month after the end of the plan year in the case of a plan not required to file Form 5500). The proposed regulations would provide that the filing of the first actuarial report (Schedule SB) under section 6059 for a plan year that reflects the use of actuarial assumptions and a funding method is treated as the establishment of those assumptions and the funding method for that plan year.

In accordance with section 430(h)(4), the proposed regulations would provide that the plan's actuarial valuation must take into account the probability that future benefits will be paid in optional forms of benefit under the plan, including single sum distributions, determined on the basis of the plan's experience and other relevant assumptions. In addition, the plan's enrolled actuary must take into account any difference in the present value of those future benefit payments that results from the use of actuarial assumptions in determining benefit payments in any such optional forms of benefit that are different from those prescribed by section 430(h).

In the case of a distribution that is subject to section 417(e)(3) and that is determined using the applicable interest rate and applicable mortality table under section 417(e)(3), the proposed regulations would provide that the computation of the present value of that distribution will be treated as having taken into account any difference in present value that results from the use of actuarial assumptions that are different from those prescribed by section 430(h) only if the present value of the distribution is determined by valuing the annuity that corresponds to the distribution using special actuarial assumptions. Under these special assumptions, for the period beginning with the annuity starting date, the current applicable mortality table under section 417(e)(3) is substituted for the mortality table under section 430(h)(3) that would otherwise apply. In addition, under these special actuarial assumptions, the valuation interest rates under section 430(h)(2) are used for all periods (as opposed to the interest rates under section 417(e)(3) which the plan uses to determine the amount of the benefit).

The proposed regulations provide two elective adjustments to this methodology for valuing distributions subject to section 417(e)(3). First, in determining the present value of such a distribution, if a plan uses the generational mortality tables under § 1.430(h)(3)-1(a)(4) or under § 1.430(h)(3)-2, the plan would be permitted to use a 50-50 male-female blend of the annuitant mortality rates under the § 1.430(h)(3)-1(a)(4) generational mortality tables in lieu of the applicable mortality table under section 417(e)(3) that would apply to a distribution with an annuity starting date occurring on the valuation date. Second, a plan would be permitted to make adjustments to reflect differences between the phase-in of the section 430(h)(2) segment rates under section 430(h)(2)(G) and the adjustments to the segment rates under section 417(e)(3)(D)(iii).

In the case of a distribution that is subject to section 417(e)(3) but that is determined as the greater of the benefit determined using the applicable interest rate and the applicable mortality table under section 417(e)(3) and the benefit determined using some basis other than the section 417(e)(3) assumptions, the proposed regulations would provide that the computation of present value must take into account the extent to which the present value of the distribution is greater than the present value determined using the applicable interest rate and applicable mortality table.

In the case of an applicable defined benefit plan described in section 411(a)(13)(C) (such as a cash balance plan), the proposed regulations would provide that, if the distribution is determined under the rules of section 411(a)(13)(A), the amount of the future distribution must be determined by projecting the future interest credits or equivalent amounts under the plan's interest crediting rules to the expected date of payment using reasonable actuarial assumptions. Thus, the present value of a future distribution is not necessarily the current amount of a participant's hypothetical account balance.

The proposed regulations would provide that any reasonable technique can be used to determine the present value of the benefits expected to be paid during a plan year, based on the interest rates and mortality assumptions applicable for the plan year. For example, the present value of a monthly retirement annuity payable at the beginning of each month can be determined using the standard actuarial approximation that reflects 13/24ths of the discounted expected payments for the year as of the beginning of the year and 11/24ths of the discounted expected payments for the year as of the end of the year, or by assuming that the payment is made in the middle of the year.

The proposed regulations would also reflect the provisions of section 430(h)(5), requiring approval of the Commissioner for large changes in actuarial assumptions. In general, this rule applies where the application of the changes in actuarial assumptions results in a decrease in the plan's funding shortfall for the current plan year (disregarding the effect on the plan's funding shortfall resulting from changes in interest and mortality assumptions) that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or more of the funding target of the plan before the change. Thus, for example, if a plan leaves at-risk status and consequently makes changes to its actuarial assumptions (including a return to previously used assumptions) that result in a reduction in the funding shortfall that exceeds $50,000,000, that change in actuarial assumptions would require approval of the Commissioner. In determining whether aggregate unfunded vested benefits exceed $50,000,000, the proposed regulations would provide that multiemployer plans and plans with no unfunded vested benefits are disregarded. In addition, the proposed regulations would provide that the aggregate unfunded vested benefits used to determine premiums for the current plan year (as determined under section 4006(a)(3)(E)(iii) of ERISA) are used for purposes of calculating whether unfunded vested benefits exceed $50,000,000.

Section 1.430(g)-1 would provide rules for a plan's valuation date and the value of plan assets. 3 Under the proposed regulations, except in the case of a small plan, a plan's valuation date is the first day of the plan year. For this purpose, a small plan is defined as a plan sponsored by an employer that had 100 or fewer participants in defined benefit plans (other than multiemployer plans as defined in section 414(f)) sponsored by the employer or members of the employer's controlled group, including active and inactive participants and all other individuals entitled to future benefits. A small plan is permitted to have a valuation date other than the first day of a plan year. The selection of a valuation date by a small plan is part of the plan's funding method and, thus, is permitted to be changed only with the Commissioner's consent. If a plan that was using a valuation date that was not the first day of the plan year is no longer eligible to use that date because the plan is no longer a small plan, the required change of the valuation date to the first day of the plan year is treated as automatically approved and no prior approval of the Commissioner is necessary.

The proposed regulations would provide that plan assets must be valued either at their fair market value on the valuation date or at the “average” value of assets on the valuation date. Under this average value, the value of plan assets is set equal to the average of the fair market value of assets on the valuation date and the adjusted fair market value of assets determined for one or more earlier determination dates. The proposed regulations would provide that the period of time between the valuation date and each of the earlier determination dates must be equal (with a period that is not more than 12 months), and the earliest of these determination dates cannot be earlier than the last day of the 25th month before the valuation date of the plan year. In a typical situation, the earlier determination dates will be the two immediately preceding valuation dates. The proposed regulations would provide that this average of fair market values is increased for contributions included in the plan's asset balance on the current valuation date that were not included in the plan's asset balance on an earlier determination date, and reduced for benefits and administrative expenses paid from plan assets during the same period. 4 After these adjustments, as well as the adjustments described in the following two paragraphs, the resulting average value must be constrained so that it falls between 90 and 110 percent of the fair market value of plan assets.

The proposed regulations would implement the rules of section 430(g)(4) relating to the treatment of contributions for a prior plan year that are made after the valuation date for the current plan year. These rules work in conjunction with the rules of section 430(j)(2) in order to keep employers and plans neutral regarding the timing of contributions that are paid after the end of the plan year. Under section 430(j)(2), the amount of the contribution must be adjusted for interest at the effective interest rate under section 430(h)(2) in order to take into account the delay in contributions (including the period after the end of the year). For this purpose, section 430(g)(4) requires that only the present value of a prior year contribution paid after the valuation date be included in plan assets, so that the value of plan assets for the next plan year is not inflated by reflecting a delayed contribution at full value. This effectively means that the present value of the contribution is the same from the perspective of the employer and the plan, regardless of when it is made. Because the requirement to adjust contributions for delayed payment after the end of the plan year is first effective for plan years beginning in 2008 (except for certain plans with a delayed effective date), the corresponding requirement to include only the present value of a prior year contribution paid after the valuation date is not effective until the second plan year for which section 430 applies to the plan. Thus, this corresponding requirement will become effective in plan years beginning in 2009, except with respect to plans for which the effective date of section 430 is delayed.

The proposed regulations would specify the treatment of current year contributions that are made before the valuation date (which could only occur for small plans with valuation dates other than the first day of the plan year). These contributions, adjusted for interest at the effective interest rate under section 430(h)(2) for the plan year, must be subtracted from plan assets in determining the actuarial value of plan assets. This is similar to the pre-PPA '06 requirement to subtract these contributions from plan assets after adjustment using the plan's valuation interest rate.

The proposed regulations would incorporate the provisions of section 430(l) (involving qualified transfers to health benefit accounts under section 420).

Section 1.430(h)(2)-1 would specify the interest rates that are to be used to determine present value and to make other calculations under section 430. These rates are generally based on the 24-month moving averages of 3 separate segment rates for the month that includes the valuation date (the applicable month). The first segment rate, which is based on the portion of the corporate bond yield curve over the period from 0 to 5 years, applies for purposes of discounting benefits that are expected to be paid during the 5-year period beginning on the valuation date for a plan year. The second segment rate, which is based on the portion of the corporate bond yield curve over the period between 5 and 20 years, applies for purposes of discounting benefit payments that are expected to be paid at least 5 years after the valuation date, but before 20 years. The third segment rate applies to benefit payments that are expected to be paid at least 20 years after the valuation date. Thus, for example, if a series of monthly payments is assumed to be made beginning on the valuation date, the second segment rate will apply to the 61st such payment and the third segment rate will apply beginning with the 241st such payment. 5 Except in the case of a new plan, a transition rule applies for 2008 and 2009 under which these segment rates are blended with the long-term corporate bond rate that applies under pre-PPA law.

The monthly corporate bond yield curve is, with respect to any month, a yield curve that is prescribed by the Commissioner for that month based on yields for that month on investment grade corporate bonds with varying maturities that are in the top three quality levels available. Notice 2007-81 (2007-44 IRB 899) provides guidance on the monthly corporate bond yield curve and related interest rates used to make certain computations related to the funding requirements that apply to single employer defined benefit plans under section 430(h)(2), including a description of the methodology for determining the monthly corporate bond yield curve. See § 601.601(d)(2) of this chapter.

The proposed regulations would reflect the special interest rate for determining a plan's funding target in the case of airlines that make the 10-year amortization election described in section 402(a)(2) of PPA '06, in accordance with section 6615 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 110-28 (121 Stat. 112). The special interest rate does not apply for other purposes such as the determination of the plan's target normal cost.

The proposed regulations describe several elections a plan sponsor is permitted to make in order to use an alternative interest rate rather than the segment rates. These elections are made by providing written notification of the election to the plan's enrolled actuary. Such an election is part of the plan's funding method and, accordingly, may only be adopted or changed with the consent of the Commissioner. Under one such election, a plan sponsor that is using segment rates may elect the use of an alternative month as the applicable month, provided that the alternative month is one of the 4 months that precede the month that includes the valuation date for the plan year. Under another such election, the plan sponsor may elect not to apply the transition rule under which the segment rates are blended with the 30-year Treasury rate for 2008 and 2009. Under the third such election, for purposes of determining the minimum required contribution under section 430 (including the determination of shortfall amortization installments, waiver amortization installments, and the present value of those installments), the plan sponsor may elect to use interest rates under the monthly corporate bond yield curve—which is a set of spot rates for the month preceding the valuation date rather than a 24-month moving average for that month or an alternative applicable month—in lieu of the segment rates. The amount of the funding target calculated in accordance with any of these elections applies for all purposes, including determining the adjusted funding target attainment percentage under section 436 and the applicable limitations under section 404. In the case of the first plan year to which section 430 applies to a plan (the first plan year beginning in 2008 other than for a plan with a delayed section 430 effective date), any of these elections are treated as having been approved by the Commissioner and do not require the Commissioner's specific prior approval.

In the case of a plan sponsor that has elected to use interest rates under the monthly corporate bond yield curve, if with respect to a decrement the benefit is only expected to be paid for one-half of a year (because the decrement was assumed to occur in the middle of the year), the proposed regulations would provide that the interest rate for that year can be determined as if the benefit were being paid for the entire year.

Under the proposed regulations, the effective interest rate determined under section 430(h)(2)(A) is the single interest rate that, if used to determine the present value of the benefits taken into account in determining the plan's funding target for a plan year, would result in an amount equal to the plan's funding target determined for the plan year under section 430(d) as described in § 1.430(d)-1(b)(2) (without regard to calculations for plans in at-risk status under section 430(i)). The effective interest rate is used to adjust plan contributions made on a date other than the valuation date.

Under the proposed regulations, the interest rates used to determine the amount of shortfall amortization installments and waiver amortization installments are determined based on the dates those installments are assumed to be paid, using the same timing rules that apply for purposes of determining the target normal cost. Thus, for a plan that uses the segment rates, the first segment rate applies to the five shortfall amortization installments assumed to be paid during the first five years beginning on the valuation date for the plan year, and the second segment rate applies to the two shortfall amortization installments that are assumed to be paid after that period.

The proposed regulations would provide rules and assumptions for determining the funding target and making other computations for certain defined benefit plans that are referred to as plans in “at-risk” status due to their significantly underfunded status. These rules apply to single employer defined benefit plans (including multiple employer plans) but do not apply to multiemployer plans. The at-risk rules do not apply to small plans. For this purpose, a small plan is defined as a plan sponsored by an employer that had 500 or fewer participants (including both active and inactive participants) in defined benefit plans (other than multiemployer plans) sponsored by the employer or any member of the employer's controlled group on each day during the preceding plan year.

In general, the proposed regulations would provide that a plan is in at-risk status for a plan year if the funding target attainment percentage (FTAP) for the preceding plan year is less than 80% (65%, 70%, and 75%, for plan years beginning in 2008, 2009, and 2010, respectively), 6 and the at-risk FTAP for the preceding plan year is less than 70 percent. For this purpose, the proposed regulations would provide that a plan's FTAP for a plan year is a fraction (expressed as a percentage) determined as: (i) The value of plan assets for the plan year after subtraction of the prefunding balance and the funding standard carryover balance under section 430(f)(4)(B)), divided by (ii) the funding target of the plan for the plan year (determined without regard to section 430(i) and these proposed regulations). The proposed regulations would provide that the at-risk FTAP of a plan for a plan year is determined similarly except that the denominator is the at-risk funding target of the plan for the plan year (but determined without regard to the loading factor discussed in the following paragraph). The proposed regulations would provide that, in the case of a newly established plan, this FTAP and at-risk FTAP determination are assumed to be 100% for years before the plan exists.

In general, in accordance with section 430(i)(1), the proposed regulations would provide that the at-risk funding target and the at-risk target normal cost of the plan for the plan year are generally determined in the same manner as for plans not in at-risk status but using special actuarial assumptions. In addition, the at-risk funding target and the at-risk target normal cost are increased to take into account a loading factor. In any case, the at-risk funding target and the at-risk target normal cost of a plan for a plan year cannot be less than the plan's funding target and target normal cost determined without regard to the at-risk rules. This minimum value is determined on a plan-wide (rather than a participant-by-participant) basis.

The actuarial assumptions used to determine a plan's at-risk funding target for a plan year are the actuarial assumptions that are applied under section 430, with certain modifications as set forth in the proposed regulations. Under these special actuarial assumptions, if an employee would be eligible to commence an immediate distribution upon termination of employment by the end of the plan year that begins 10 years after the end of the current plan year (that is, the end of the 11th plan year beginning with the current plan year), that employee is assumed to terminate and commence an immediate distribution at the earliest retirement date under the plan, or, if later, at the end of the current plan year. (However, the proposed regulations would provide that this special assumption does not apply to the extent the employee is otherwise assumed to retire during the current plan year. Thus, for example, if generally applicable retirement assumptions would provide for a 25% probability that an employee will retire during the current plan year, the special retirement age assumption would require the plan to assume a 75% probability that the employee will retire at the end of the plan year.) For this purpose, the proposed regulations would define the earliest retirement age under the plan as the earliest age at which a participant could terminate employment and receive an immediate distribution. In addition, the special actuarial assumptions in the proposed regulations would provide that all employees are assumed to elect the optional form of benefit available under the plan at the assumed retirement age that would result in the highest present value of benefits.

If a plan that is in at-risk status for the plan year has been in at-risk status for a consecutive period of fewer than 5 plan years, the plan's funding target for the plan year is determined as a blend of the funding target determined as if the plan were not in at-risk status and the funding target determined as if the plan had been in at-risk status for each of the previous 5 plan years. For this purpose, the funding target determined as if the plan had been in at-risk status for each of the previous 5 plan years is determined without applying the loading factor if the plan has not been in at-risk status for two of the last four plan years. The increase in the funding target to reflect the at-risk rules is phased in over 5 years at 20% per year. The proposed regulations provide similar rules for determining the at-risk target normal cost of a plan that has been in at-risk status for fewer than 5 consecutive plan years.

For purposes of applying the rules under section 430(i), the proposed regulations set forth rules for making certain calculations with respect to the first plan year to which section 430 applies to the plan. These rules are generally the same as the rules that apply for that plan year for purposes of section 436.

There is no special rule for determining the at-risk funding target for the plan year preceding the plan year section 430 first applies to the plan. This is because, for a plan to which section 430 applies beginning in 2008, if the plan's FTAP for the preceding plan year was less than the 65% needed to be in at-risk status (pursuant to the transition rule described in section 430(i)(4)(B)), then the at-risk FTAP would necessarily be below the 70% needed for the plan to be in at-risk status (because the at-risk funding target cannot be less than the funding target for a plan that is not in at-risk status). However, plans for which the effective date of section 430 is delayed will have to determine the at-risk funding target for the plan year that precedes the plan year for which section 430 is first effective with respect to the plan.

Section 430 generally applies to plan years beginning on or after January 1, 2008. These regulations are proposed to apply to plan years beginning on or after January 1, 2009. However, in the case of a plan for which the effective date of section 430 is delayed in accordance with sections 104 through 106 of the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780), the regulations are proposed to apply to plan years beginning on or after the date section 430 applies with respect to the plan. For plan years beginning in 2008, plans are permitted to rely on the provisions set forth in these proposed regulations for purposes of satisfying the requirements of section 430.

Under the proposed regulations, any change in a plan's funding method that is made for the first plan year section 430 applies to the plan and that is not inconsistent with the requirements of section 430 would be treated as having been approved by the Commissioner and would not require the Commissioner's specific prior approval. In addition, the Commissioner's specific prior approval is not required with respect to any actuarial assumptions that are adopted for the first plan year for which section 430 applies to the plan and that are not inconsistent with the requirements of section 430. Future guidance will cover procedures for obtaining the Commissioner's approval for changes in funding method and may provide for additional circumstances in which automatic approval is granted.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information imposed by these proposed regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. The estimated burden imposed by the collection of information contained in these proposed regulations is 0.75 hours per respondent. Moreover, this burden is attributable to the flexibility given under the applicable statutory requirements under which a plan sponsor may make any of several elections related to the interest rate used for minimum funding purposes. The written elections under these proposed regulations are made by the plan sponsor upon occasion and will require minimal time to prepare. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department specifically request comments on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .

The principal authors of these regulations are Lauson C. Green and Linda S. F. Marshall, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by February 29, 2008. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in these proposed regulations is in §§ 31.6011(a)-1, 31.6011(a)-4, 31.6011(a)-5, 31.6205-1, 31.6402(a)-2, 31.6413(a)-1, 31.6413(a)-2, and 31.6414-1. This information is required by the IRS to verify compliance with return requirements under section 6011, employment tax adjustments under sections 6205 and 6413, and claims for refund of overpayments of employment taxes under sections 6402 and 6414. This information will be used to determine whether the amount of tax has been reported and calculated correctly. The likely respondents are employers.

Estimated total annual reporting and/or recordkeeping burden: 15,000,000 hours.

Estimated average annual burden per respondent: 10 hours.

Estimated number of respondents: 1,500,000.

Estimated annual frequency of responses: on occasion.

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

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

These proposed regulations are part of the IRS's effort to reduce taxpayer burden by permitting employers to make employment tax adjustments on a separately filed form as soon as an error is ascertained, rather than as a line adjustment on the employer's regularly filed employment tax return.

These proposed regulations amend the Employment Tax Regulations (26 CFR part 31) under section 6011 relating to the requirement to file a return, under sections 6205(a) and 6413(a) relating to the process for making adjustments of underpayments and overpayments, respectively, of employment taxes, under section 6302 relating to deposit obligations, and under sections 6402 and 6414 relating to the process of filing a claim for refund for an overpayment of employment taxes. For purposes of these proposed amendments to the regulations, the term employment taxes means the Federal Insurance Contributions Act (FICA) tax (both the Social Security and Medicare portions) imposed on both the employer and the employee, the Railroad Retirement Tax Act (RRTA) tax imposed on both the employer and employee, and federal income tax withholding (ITW). To the extent that other types of withholding are treated as ITW under section 3402(a) (that is, gambling withholding, pension withholding, and backup withholding as set forth in sections 3402(q)(7), 3405(f), and 3406(h)(10), respectively), these other types of withholding are included in the term “employment taxes”.

Generally, the Internal Revenue Code (Code) requires that interest be paid to the IRS on any underpayment of tax and that interest be allowed and paid to the taxpayer on any overpayment of tax. See sections 6601(a) and 6611(a), respectively. An exception to the general rule, however, applies uniquely to employment taxes. Where an amount other than the correct amount of tax imposed by sections 3101 (employee FICA tax), 3111 (employer FICA tax), 3201 (employee RRTA tax), 3221 (employer RRTA tax), or 3402 (ITW) is reported to the IRS with respect to any payment of wages or compensation, sections 6205(a) and 6413(a) permit employers to make interest-free adjustments for underpayments and overpayments, respectively. Where the correct amount of tax has been reported but not paid, no adjustment to the amount is necessary; accordingly, the interest-free adjustment rules do not apply.

The legislative history of the predecessors to sections 6205 and 6413 indicates that the interest-free adjustment process was envisioned as a way to fix errors made in prior return periods as soon as they were discovered, without the need to go through more burdensome procedures. The adjustment process was designed to permit the employer to adjust, without interest, overpayments and underpayments of tax without the necessity in the former case of requiring the filing of a claim for refund and in the latter case of a notice and demand by the IRS for additional tax. Thus, the legislative history shows that Congress envisioned a process whereby the employer would correct prior errors, separate from the refund and notice and demand processes. Moreover, the legislative history indicates that Congress assumed that an overpayment adjustment would be accepted by the IRS only after the employer had returned to the employee any amount of previously overwithheld tax.

The existing regulations under section 6205(a) set forth the procedures for making interest-free adjustments for underpayments of employment taxes. They provide that if a return is filed and less than the correct amount of employee or employer portions of FICA or RRTA tax is reported and paid, the employer shall adjust the underpayment (a) by reporting the additional amount due as an adjustment on a current return, or (b) by reporting such additional amount on a supplemental return. The IRS has not issued guidance or procedures for filing a supplemental return, other than indicating that the forms used to accept an assessment of employment taxes after an examination (that is, Form 2504, “Agreement and Collection of Additional Tax and Acceptance of Overassessment (Excise or Employment Tax)”, and Form 2504-WC, “Agreement to Assessment and Collection of Additional Tax and Acceptance of Overassessment in Worker Classification Cases (Employment Tax)”) constitute supplemental returns for purposes of permitting the assessment to be made without interest. See Rev. Rul. 75-464 (1975-2 CB 474). Accordingly, outside of the examination context, interest-free adjustments of employment tax are made on a current return. (See § 601.601(d)(2)(ii)(b)).

The reporting of an underpayment of FICA tax or RRTA tax constitutes an interest-free adjustment when the underpayment is reported on a current return only if the current return is filed on or before the last day on which the return is required to be filed for the return period in which the error is ascertained. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. If the amount of the underpayment is paid to the IRS by the due date for reporting the adjustment, it is paid without interest. However, if the underpayment is reported but the amount is not paid when due, interest begins to accrue from the due date for reporting the adjustment. The rules are the same for adjusting underpayments of ITW when less than the correct amount has been withheld, except that adjustments on the current return can only be made on a return for a return period in the same calendar year in which the wages or compensation is paid. Although the regulations do not address it, the relevant forms and instructions permit employers to adjust administrative errors involving ITW, that is, errors involving the inaccurate reporting of the amount withheld, and errors discovered as part of an examination for previous calendar years.

The existing regulations provide that an interest-free adjustment for an underpayment may not be made after a taxpayer has received notice and demand from the IRS for payment of the amount based on an assessment or after a taxpayer has received a Notice of Determination of Worker Classification.

An underpayment adjustment may only be made within the period of limitations for assessment under section 6501(a) (generally 3 years from the date the original return is filed). Section 6501(b)(2) provides that, for purposes of section 6501, employment tax returns reporting FICA tax or ITW for any return period ending with or within a calendar year filed before April 15 of the succeeding calendar year will be deemed filed on April 15 of such succeeding calendar year.

The regulations also provide that where an employer fails to collect the correct amount of employee tax (either the employee share of FICA tax, the employee share of RRTA tax) or ITW with respect to wages or compensation paid during a given return period and discovers that error before it files the return for such return period, the employer is still required to report and pay the correct amount on a timely basis. If the employer fails to report and pay the correct amount, any subsequent correction of that error will not qualify as an interest-free adjustment. However, if the employer files a FICA tax return and should have filed a RRTA tax return, or vice versa, and reports and pays less than the correct amount of tax, an interest-free adjustment may be made by filing the correct type of return for each return period and reporting the additional amount of tax.

The existing regulations under section 6413(a) set forth the procedures for making interest-free adjustments for overpayments of employment taxes. They provide that, if an employer ascertains an overpayment error within the applicable period of limitations on credit or refund, the employer is required to repay or reimburse its employees the amount of overcollected employee FICA tax or employee RRTA tax prior to the due date of the return for the return period after the return period in which the error was ascertained and prior to the expiration of the applicable period of limitations. An error is ascertained when the employer has sufficient knowledge of the error to be able to correct it. An employer “reimburses” an employee by applying the overwithheld amount against taxes to be withheld on future wages. The employer must retain appropriate records to reflect that the employee has been repaid or reimbursed and that the employee has not filed a claim for refund of such tax or that any filed claim has been rejected.

The applicable period of limitations is set forth in section 6511 and is generally 3 years from the date the original return was filed or 2 years from the date the tax was paid, whichever is later. Section 6513(c)(1) provides that, for purposes of section 6511, employment tax returns reporting FICA tax or ITW for any return period ending with or within a calendar year filed before April 15 of the succeeding calendar year will be deemed filed on April 15 of such succeeding calendar year. Section 6513(c)(2) provides that if FICA tax or ITW with respect to remuneration or other amount paid during any return period ending with or within a calendar year is paid before April 15 of the succeeding calendar, for purposes of section 6511 such tax will be deemed paid on April 15 of such succeeding calendar year.

Once an employer repays or reimburses an employee, the employer may report both the employee and employer portions of FICA or RRTA tax as an overpayment on a current return. The reporting of the overpayment constitutes an interest-free adjustment if the overpayment is reported on a current return filed on or before the last day on which the return is required to be filed for the return period following the return period in which the error was ascertained. Because of the requirement to repay or reimburse employees, employers are given an extra return period in which to repay or reimburse their employees and make the adjustment. Similar rules apply for making interest-free adjustments for overpayments of ITW, except that an interest-free adjustment may only be made if the employer ascertains the error and repays or reimburses its employees within the same calendar year that the wages were paid and reports the adjustment on a return for such calendar year. For example, if an employer who is a Form 941 filer discovers an overpayment of ITW on December 15, 2009 for wages paid in June 2009, the employer must repay or reimburse its employees by December 31, 2009 and must report the adjustment on the fourth quarter 2009 Form 941.

An overpayment adjustment under section 6413(a) must be made within the period of limitations for credit or refund of the overpayment, as set forth in section 6511 and described above. The adjustment may be limited in amount under section 6511(b)(2) as described above. An interest-free adjustment for an overpayment may not be made once a claim for refund has been filed.

Currently, an interest-free adjustment, whether for an underpayment or an overpayment, is made by entering the amount as a line adjustment on a current return and including the amount in calculating the current return period's liability on the return. The current return period adjustment can be made on Form 941, “Employer's QUARTERLY Federal Tax Return,” Form 943, “Employer's Annual Tax Return for Agricultural Employees,” Form 944, “Employer's ANNUAL Federal Tax Return,” Form 945, “Annual Return of Withheld Federal Income Tax,” or Form CT-1, “Employer's Annual Railroad Retirement Tax Return,” and on any related Spanish-language returns or returns for U.S. possessions. The return on which the underpayment or overpayment adjustment is entered must include an attached statement explaining the adjustment, designating the return period in which the error occurred, and setting forth such other information as is required by the regulations and by the instructions relating to the return. Form 941c, “Supporting Statement to Correct Information,” qualifies as such attached statement and includes the necessary certifications to establish that the employer has satisfied the requirements to repay or reimburse its employee for overpayment adjustments and to obtain statements that the employee has not filed a claim for refund or that the claim has been rejected.

For overpayments of employment taxes, section 6413(b) permits the filing of a claim for refund when an interest-free adjustment cannot be made. The existing regulations under section 6413(a) provide that an adjustment cannot be made after a claim for refund is filed. Under the regulatory authority in section 6413(b), the IRS has permitted taxpayers to choose between filing a claim for refund pursuant to section 6402(a) and making an interest-free adjustment pursuant to section 6413(a) to correct an overpayment of employment taxes. The preamble to Treasury decision 6472 (1960-2 CB 351), which promulgated the existing regulations, indicated an intent to make the overpayment adjustment process permissive. An extensive evaluation of these regulations in the late 1970's confirmed the optional nature of the overpayment adjustment process, and is reflected in Rev. Rul. 81-310 (1981-2 CB 241). (See § 601.601(d)(2)(ii)( b )).

Under section 6402(a), the IRS, within the applicable period of limitations on credit or refund, may credit the amount of an overpayment, including any interest, against any tax liability of the person who made the overpayment and shall, subject to certain offsets, refund any balance to such person. A claim for refund under section 6402(a) must be filed within the period of limitations on credit or refund as set forth in section 6511. Such refund may be limited in amount pursuant to section 6513(c)(2). Claims for refund are not granted automatically and the IRS is not required to act on the refund claim. Section 6532(a) provides that a taxpayer cannot file a suit for refund before the expiration of 6 months from the date of filing a claim for refund unless the IRS renders a decision on the claim within that time. The taxpayer must file suit within 2 years of the date the claim was disallowed.

The existing regulations under section 6402(a) set out the procedures for filing a claim for refund of overpaid FICA and RRTA taxes. The regulations permit an employer to file a claim for refund for an overpayment of FICA or RRTA tax, but require the employer to include a statement that the employer has repaid the employee's share of FICA or RRTA tax to the employee or has secured the written consent of the employee to allowance of the refund or credit. The employer must retain appropriate records reflecting that it has repaid its employee or obtained the employee's consent and that the employee has not filed a claim for refund of such tax or that any filed claim has been rejected.

Section 6414 permits refunds of ITW only to the extent the amount of the ITW overpayment was not actually deducted and withheld from an employee. The existing regulations under section 6414 set out the procedures for filing a claim for refund of overpaid ITW and are similar to the procedures for filing a claim for refund of overpaid FICA or RRTA tax, except that an employer may not file a claim for an overpayment of ITW for an amount the employer deducted or withheld from an employee.

An employer makes a claim for refund by filing Form 843, “Claim for Refund and Request for Abatement”, with a Form 941c attached (or an equivalent statement). Form 941c includes the amounts to be refunded and the necessary certifications to establish that the employer has repaid the employee or obtained the employee's consent to filing the claim for refund, and has obtained a statement that the employee has not filed a claim for refund or that the claim has been rejected.

The current process for adjusting underpayments or overpayments of employment taxes raises a number of issues both for employers and the IRS, primarily because the current process requires employers to make adjustments to past return periods in connection with the filing of their current returns. The IRS believes it will reduce the burden for taxpayers, as well as improve tax administration, if the adjustment process for employment tax returns is revised by creating a separate “adjusted return” to make adjustments to past return periods that can be filed independently of a return for any other return period.

The proposed amendments change the process by which employers can make interest-free adjustments to correct underpayments or overpayments of employment tax. The proposed amendments to the regulations eliminate the existing process that uses the current return to make adjustments and replace it with a new process which will use a separately filed adjusted return to make adjustments. Unlike Form 941c, the new adjusted return will not be filed as an attachment to a current return and will not affect the liability reported on the current return.

The proposed amendments to the regulations also eliminate any reference to the use of supplemental returns to make adjustments. The proposed amendments provide that Forms 2504 and 2504-WC will be treated as adjusted returns under the same rationale and criteria that they have been treated as supplemental returns under Rev. Rul. 75-464. Thus, corrections reported on these forms following an examination will continue to be eligible for interest-free adjustment treatment. See § 601.601(d)(2)(ii)( b ).

The proposed amendments to the regulations do not affect the existing rules on correcting undercollections of employee tax (either the employee share of FICA or RRTA tax), or ITW when an employer discovers the error during the return period in which the undercollection occurred. In such case, the employer must report and pay the correct amount on a timely basis as if the correct amount of tax had been collected. If the employer fails to report and pay the correct amount, any subsequent correction of that error will not be an interest-free adjustment.

An employer may file an adjusted return correcting an underpayment or an overpayment as soon as the employer ascertains the underpayment or overpayment error, rather than waiting to report the adjustment with the regularly filed employment tax return. The adjusted return for an underpayment may only be filed within the applicable period of limitations for assessing the underpayment, and the adjusted return for an overpayment may only be filed before the 90th day prior to the expiration of the applicable period of limitations on credit or refund. If the original return reporting FICA tax or ITW for the return period in which the wages were paid was timely filed and the taxes were timely paid, the limitations period for both assessment and credit or refund begins to run on April 15 of the year following the year in which the wages were paid and ends three years after that. Thus, for example, if wages are paid on June 6, 2009, and an original employment tax return reporting those wages is filed July 31, 2009 and the reported taxes are timely paid, the period of limitations for assessment or for credit or refund would expire April 15, 2013. An adjusted return reporting an underpayment must be filed by April 15, 2013. An adjusted return reporting an overpayment must be filed by January 15, 2013, the date which is 90 days before the expiration of the period of limitations on credit or refund. A claim for refund for the same overpayment will be timely if filed by April 15, 2013.

The proposed amendments to the regulations provide that an adjustment will be interest-free only if it is reported on an adjusted return within a certain amount of time after it is discovered. Specifically, the adjusted return reporting an underpayment must be filed by the due date of the return for the return period in which the error is ascertained; the amount of the underpayment must be paid by the time the adjusted return is filed, or interest will begin to accrue from the date the adjusted return is filed. In addition, subject to limited exceptions, for underpayments of ITW where the incorrect amount was withheld, an adjusted return may be filed only for errors ascertained during the calendar year in which the wages were paid and must be filed by the due date of the return for the return period in which the error is ascertained. In addition, for overpayments of ITW where the incorrect amount was withheld, the adjusted return may be filed only for errors ascertained during the calendar year in which the wages were paid, the employer must repay or reimburse the employees within the same calendar year that the wages were paid, and the adjusted return must be filed by the due date of the return for the return period following the return period in which the error is ascertained.

The proposed amendments to the regulations also provide that interest-free adjustments for underpayments of FICA tax, RRTA tax, and ITW are available under certain circumstances where the underpayment arises because the employer failed to file an original return. As in the existing regulations, an interest-free adjustment is available if an employer filed a FICA tax return when a RRTA tax return should have been filed, or vice versa. In addition, interest-free adjustment treatment is generally available if an employer failed to file a return for a return period solely because the employer failed to treat any individuals as employees. The latter interest-free adjustment provision was originally proposed in 1992 (EE-12-92, 57 FR 58423) and is being re-proposed as part of these proposed amendments to the regulations. The proposed regulations in EE-12-92 will be withdrawn once these proposed amendments to the regulations are finalized.

To constitute an interest-free adjustment in these circumstances, the employer must file an original return of the correct type for each return period for which the employer failed to file the correct return and report on the return the additional amount of tax. Generally, such reporting will constitute an interest-free adjustment if the return is filed by the due date of the return for the return period in which the error is ascertained. The amount reported must be paid by the time the original return is filed or interest will accrue from that date.

When an overpayment error is ascertained, the proposed amendments to the regulations retain the rule that the employer must repay or reimburse the employee's share of FICA or RRTA tax before making the overpayment adjustment of both the employees' and employer's taxes. Such repayment or reimbursement must occur by the due date of the return for the return period following the return period in which the error is ascertained and within the applicable period of limitations on credit or refund. However, the requirement to repay or reimburse does not apply to the extent that taxes were not withheld from the employee or if, after reasonable efforts, the employer cannot locate the employee; in such case, the employer may make an adjustment for only the employer share of FICA or RRTA tax. The adjusted return reporting the overpayment may only be filed once the employer has repaid or reimbursed its employees to the extent required. The employer must certify on the adjusted return that it has repaid or reimbursed its employees to the extent required. Because repayment or reimbursement of overwithheld ITW must be made within the same calendar year, and annual Forms 943, 944, and 945 are normally filed after the close of the calendar year, there can be no repayment or reimbursement of ITW after filing such annual returns. Thus, no overpayment adjustments of ITW can generally be made for such returns, except for administrative errors, that is, errors involving the inaccurate reporting of the amount actually withheld. Note that in the case of backup withholding reported on Form 945, repayment of erroneous withholding is not required and is permitted only in certain circumstances. See § 31.6413(a)-3.

The proposed amendments to the regulations under section 6302 provide that an employer making an interest-free adjustment must pay the amount of the adjustment by the time it files an adjusted return; such timely payment will satisfy the employer's deposit obligations with respect to the adjustment. In addition, the proposed amendments to the regulations governing agricultural employers (Form 943 filers) provide that for purposes of determining the amount of accumulated taxes in the employer's lookback period (which determines the employer's deposit schedule), adjustments to tax liability made pursuant to the filing of adjusted returns or claims for refund will not be taken into account. This rule is consistent with the rule already in effect with respect to Form 941 and Form 944 filers that adjustments to prior return periods are not taken into account in determining the employment tax liability for such prior return period. See § 31.6302-1T(b)(4).

For interest-free adjustments of underpayments, the amount must be paid when the adjusted return is filed. If the amount is not paid when the adjusted return is filed, interest will begin to accrue as of the date the adjusted return is filed.

Consistent with the legislative history of section 6413, the adjusted overpayment amount will be applied as a credit toward payment of the employer's liability for the calendar quarter (or calendar year for annual returns being adjusted) in which the adjusted return is filed, unless the IRS notifies the employer that the credit will be applied to a different return period or that the employer is not entitled to the adjustment under applicable laws or procedures.

As in the existing regulations, in lieu of making an interest-free adjustment for an overpayment, employers may file a claim for refund pursuant to section 6402 or 6414 for the amount of the overpayment. Furthermore, if an employer cannot make an interest-free adjustment with respect to an overpayment because the period of limitations for claiming a credit or refund for such overpayment will expire within 90 days or because the IRS has otherwise notified the employer that it is not entitled to the adjustment, the employer may recover the overpayment only by filing a claim for refund. The proposed amendments to the regulations under section 6414 continue to provide that an employer can only file a claim for refund for ITW that was not withheld from the employee. Prior to filing a claim for refund under section 6402 for FICA or RRTA tax, employers must either repay or reimburse the employees or obtain the employees' consents to the allowance of the refund, except to the extent that the overpayment does not include taxes withheld from the employee or, after reasonable efforts, the employer cannot locate the employee or the employee will not provide the requested consent. The employer must certify that it has either repaid or reimbursed the employee or obtained the employee's consent to the extent required.

Under the proposed amendments to the regulations, employers will file the prescribed form to claim a refund. However, Form 941c will no longer be used as an attachment to a claim for refund.

This notice of proposed rulemaking also proposes amendments to the regulations for reporting employment taxes under section 6011 to reflect the changes to the adjustment and refund processes. In particular, the proposed amendments remove references to Form 941c from the regulations under section 6011 because Form 941c will no longer be used. The proposed amendments also remove references to other obsolete tax returns, add references to current tax returns in use, and make minor stylistic changes to the text of the regulations.

The proposed amendments also update the section 6011 regulations to conform to current law due to the enactment of section 3510, added to the Code by section 2(b)(1) of the Social Security Domestic Employment Reform Act of 1994 (Public Law 103-387), which mandates annual returns for domestic service employment taxes, and to reflect current procedures. Schedule H (Form 1040), rather than Form 942, is the prescribed form for reporting wages for domestic service in a private home paid in calendar years beginning after December 31, 1994. If an employer is required to file Form 941, Form 943, or Form 944, the employer may choose to report wages with respect to domestic workers on Form 941, Form 943, or Form 944, instead of reporting such wages on Schedule H (Form 1040).

The amendments to the regulations as proposed will be effective on the date they are published as final regulations in the Federal Register .

With respect to the regulations under Code sections 6205, 6302, 6402, 6413, and 6414, the regulations, as proposed, apply to any error ascertained on or after January 1, 2009.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

Because the regulations under section 6302 do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.

The proposed amendments to the regulations under section 6011, 6205, 6402, 6413, and 6414 affect all taxpayers that file employment tax returns. Therefore, the IRS has determined that these proposed amendments will have an impact on a substantial number of small entities.

The IRS has determined, however, that the impact on entities affected by the proposed amendments to the regulations will not be significant. The proposed amendments to the regulations require taxpayers who file employment tax returns and who make interest-free adjustments to their employment taxes for either underpayments or overpayments or who file claims for refund for an overpayment of employment tax to provide an explanation setting forth the basis for the correction or the claim in detail, designating the return period in which the error was ascertained and the return period being corrected, and setting forth such other information as may be required by the instructions to the form. In addition, for adjustments of overpayments and for claims for refund, taxpayers must also obtain and retain the written receipt of the employee showing the date and amount of the repayment, or the written consent of the employee. For purposes of overpayment adjustments and claims for refund of employee FICA and RRTA tax overcollected in an earlier year, the employer must also obtain and retain the written statement from the employee providing that the employee has not claimed refund or credit of the amount of the overcollection, or if so, such claim has been rejected, and that the employee will not claim refund or credit of the amount.

This collection of information is not new to the proposed regulations and has been in existence since the 1960s, when the existing regulations were promulgated. In addition, the proposed amendments to the regulations are being made in conjunction with a project of the Office of Taxpayer Burden Reduction which seeks to revise the process for making corrections to employment tax returns to make it less burdensome to taxpayers. The filing of a claim for refund and the making of an interest-free adjustment pursuant to both the existing and proposed regulations are voluntary on the part of taxpayers.

Based on these facts, the IRS hereby certifies that the collection of information contained in these regulations will not have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required.

Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and the IRS request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing has been scheduled for April 17, 2008, at 10 a.m., in the Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit comments and an outline of the topics to be discussed and the time to be devoted to each topic by March 27, 2008.

A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

The principal author of these proposed regulations is Ligeia M. Donis of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury Department participated in their development.

Accordingly, 26 CFR part 31 is proposed to be amended as follows:

Under section 6103(j)(1)(A), upon written request from the Secretary of Commerce, the Treasury Secretary is to furnish to the Bureau of the Census (Bureau) return information as may be prescribed by Treasury regulations for the purpose of, but only to the extent necessary in, structuring censuses and conducting related statistical activities authorized by law. Section 301.6103(j)(1)-1 of the regulation provides an itemized description of the items of return information authorized to be disclosed for this purpose. Periodically, the disclosure regulation is amended to reflect the changing needs of the Bureau for data for its statutorily authorized statistical activities.

This document contains a proposed regulation authorizing IRS personnel to disclose an additional item of return information that has been requested by the Secretary of Commerce.

A temporary regulation in this issue of the Federal Register amends the Procedure and Administration Regulations (26 CFR part 301) relating to Internal Revenue Code (Code) section 6103(j). The amendments to the regulation contain rules relating to the disclosure of return information reflected on returns to officers and employees of the Department of Commerce for structuring censuses and conducting related statistical activities authorized by law. Specifically, the amendment to the regulation authorizes the IRS to disclose an additional item of return information that has been requested by the Secretary of Commerce that is necessary for the Bureau's annual Survey of Industrial Research and Development.

The text of the temporary regulation also serves as the text of this proposed regulation. The preamble to the temporary regulation explains the proposed regulation.

It has been determined that this notice of proposed rulemaking 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 these regulations, 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 Code, this proposed regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before the proposed regulation is adopted as a final regulation, consideration will be given to any electronic and written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed regulation and how it can be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person who timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

The principal author of this proposed regulation is Glenn Melcher, Office of the Associate Chief Counsel (Procedure & Administration).

Accordingly, 26 CFR part 301 is proposed to be amended as follows:

The Saint Lawrence Seaway Development Corporation (SLSDC) and the St. Lawrence Seaway Management Corporation (SLSMC) of Canada, under international agreement, jointly publish and presently administer the St. Lawrence Seaway Regulations and Rules (Practices and Procedures in Canada) in their respective jurisdictions. Under agreement with the SLSMC, the SLSDC is proposing to amend the joint regulations by updating the Regulations and Rules in various categories. The proposed changes would update the following sections of the Regulations and Rules: Condition of Vessels; Seaway Navigation; and, Information and Reports. The SLSDC is seeking to harmonize the ballast water requirements for vessels transiting the U.S. waters of the Seaway with those currently required by Canadian authorities for transit in waters under Canadian jurisdiction of the Seaway. These updates are necessary to take account of updated procedures which would enhance the safety of transits through the Seaway and eliminate the confusion regarding the requirements for saltwater flushing of ballast tanks containing only residual amounts of water and/or sediment in the binational waters of the Seaway System. Several of the proposed amendments are merely editorial or clarification of existing requirements. Where new requirements or regulations are being proposed, an explanation for such a change is provided below.

Regulatory Notices: Privacy Act: Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review the U.S. Department of Transportation's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit http://www.Regulations.gov .

The SLSDC is proposing to make one amendment to the Condition of Vessels section of the joint Seaway regulations. In § 401.12, “Minimum requirements—mooring lines and fairleads,” the language is modified to provide vessels the option of using mooring lines that are either wire or synthetic based upon the length of the vessel. Since mooring lines can be wire or synthetic some smaller vessels have presented themselves for transit with a mix of mooring wires and/or synthetic lines. Synthetic lines or hawsers are sufficient to moor the smaller vessels and mooring wire is more than capable of mooring the smaller vessels; therefore, the use of either wire or synthetic lines will be acceptable.

Several amendments to the joint regulations pertaining to Seaway Navigation are being proposed. In § 401.34, “Vessels in tow,” the SLSDC is proposing to add a provision that would require every vessel in tow be inspected prior to every transit. The SLSDC is proposing this amendment to ensure navigation safety through inspection of all vessels even when a vessel is in tow. Currently such vessels are being inspected; however, this proposed change will make it a mandatory requirement.

The SLSDC is proposing to amend the joint regulations in § 401.30, “Ballast water and trim.” The proposed amendment seeks to harmonize the requirements for saltwater flushing of ballast water tanks containing residual amounts of ballast water and/or sediment with the requirements already in place for vessels transiting Canadian waters of the Seaway System. Vessels transiting the Seaway traverse Canadian and U.S. waters multiple times en route to ports in the Great Lakes St. Lawrence Seaway System. The proposed amendments would make the requirements for foreign flagged vessels (non U.S. or Canadian flagged) to conduct saltwater flushing of each ballast water tank that contains residual amounts of ballast water and/or sediment the same whether the vessel is transiting U.S. or Canadian waters of the Seaway after having operated outside the Canadian and/or U.S. exclusive economic zone (EEZ). The proposed requirement for saltwater flushing of ballast tanks is intended to mirror the regulations already in effect in waters under Canadian jurisdiction for vessels transiting the Seaway.

Specifically, the SLSDC, in agreement with the SLSMC, proposes to amend the Seaway Regulations and Rules by adding new subsections (f) and (g) to § 401.30, “Ballast water and trim.” These new subsections would require that, as a condition of transiting the Seaway, every foreign flagged vessel (non Canadian or U.S. flagged) must conduct a saltwater flushing of its ballast tanks that contain residual amounts of ballast water in an area 200 nautical miles from any shore before entering waters under Canadian jurisdiction. Saltwater flushing is defined as the addition of mid-ocean water to ballast water tanks: The mixing of the freshwater with residual water and sediment through the motion of the vessel; and the discharge of the mixed water. The resultant residual water remaining in the tank must have a salinity level of at least 30 parts per thousand (ppt). Further, each foreign flagged vessel must maintain the ability to measure salinity levels in each tank onboard the vessel so that final salinities of at least 30 parts per thousand can be ensured. Any vessel that has tanks that fail to reach this salinity level will be required to retain any water in those tanks that is taken onboard in the St. Lawrence River or Great Lakes. The requirements for saltwater flushing would not apply to U.S. or Canadian flagged vessels or to any vessel that has operated exclusively inside the U.S. and/or Canadian EEZ.

In addition, the SLSDC and SLSMC will continue to require that as a mandatory prerequisite for clearance of a commercial vessel for transit of the Seaway System after operating beyond the EEZ, the vessel must agree to comply with the “Code of Best Practices for Ballast Water Management” of the Shipping Federation of Canada dated September 28, 2000.

In light of the amount of interest and activity regarding control of aquatic nuisance species (ANS) at all levels of government, especially in the U.S. Congress and the U.S. Coast Guard, the joint regulations would be reviewed and revised once either national legislation and/or regulations are issued that would pertain directly to this issue.

In § 401.40, “Entering, exiting, or position in lock”, the SLSDC proposes to prohibit a vessel, when it is being cast off in a lock, from departing in a manner that the stern passes the stop symbol on the local wall nearest the closed gates. Occasionally vessels drift backward in the lock while the mooring lines are being released; preventing the vessel's stern from passing the stop symbol will protect the vessel and the lock gates from possible damage.

Other proposed changes made to the joint regulations, including one to the regulations pertaining to Information and Reports, are merely editorial or for clarification purposes.

This proposed regulation involves a foreign affairs function of the United States and therefore Executive Order 12866 does not apply and evaluation under the Department of Transportation's Regulatory Policies and Procedures is not required.

I certify this proposed regulation will not have a significant economic impact on a substantial number of small entities. The Saint Lawrence Seaway Regulations and Rules primarily relate to commercial users of the Seaway, the vast majority of whom are foreign vessel operators. Therefore, any resulting costs will be borne mostly by foreign vessels.

This proposed regulation does not require an environmental impact statement under the National Environmental Policy Act (49 U.S.C. 4321, et reg.) because it is not a major federal action significantly affecting the quality of the human environment. The environmental considerations applicable to the basic substance of this proposed regulation are essentially discussed in the U.S. Coast Guard's Environmental Assessment for its May 17, 1999, “Implementation of the National Invasive Species Act of 1996” rulemaking (64 FR 26672) and the U.S. Coast Guard's Environmental Assessment for its August 31, 2005, “Ballast Water Management for Vessels Entering the Great Lakes That Declare No Ballast Onboard” (71 FR 4605).

The Corporation has analyzed this proposed rule under the principles and criteria in Executive Order 13132, dated August 4, 1999, and has determined that this proposal does not have sufficient federalism implications to warrant a Federalism Assessment.

The Corporation has analyzed this proposed rule under Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 109 Stat. 48) and determined that it does not impose unfunded mandates on State, local, and tribal governments and the private sector requiring a written statement of economic and regulatory alternatives.

This proposed regulation has been analyzed under the Paperwork Reduction Act of 1995 and does not contain new or modified information collection requirements subject to the Office of Management and Budget review.

Accordingly, the Saint Lawrence Seaway Development Corporation proposes to amend 33 CFR part 401, Regulations and Rules, as follows:

Throughout this document, whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

When submitting comments, remember to:

1. Identify the rulemaking by docket number and other identifying information (subject heading, Federal Register date and page number).

2. Follow directions—The EPA may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) part or section number.

3. Explain why you agree or disagree; suggest alternatives and substitute language for your requested changes.

4. Describe any assumptions and provide any technical information and/or data that you used.

5. If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.

6. Provide specific examples to illustrate your concerns, and suggest alternatives.

7. Explain your views as clearly as possible, avoiding the use of profanity or personal threats.

8. Make sure to submit your comments by the comment period deadline identified.

Illinois requested revisions to its ozone SIP which would add five compounds from the list of compounds considered to not be VOC. The State requested the compounds 1,1,1,2,2,3,3-heptafluoro-3-methoxypropane (n-C 3 F 7 OCH 3 ), 3-ethoxy 1,1,1,2,3,4,4,5,5,6,6,6-dodecafluoro-2-(trifluoromethyl)hexane (HFE-7500), 1,1,1,2,3,3,3-heptafluoropropane (HFC-227ea), methyl formate, and t-butyl acetate be added to its list of compounds exempt from VOC requirements. Illinois also requested the addition of special requirements for t-butyl acetate. The compound, t-butyl acetate, will be considered VOC for recordkeeping, emissions reporting, modeling, and inventory requirements, but is not considered VOC for emission limits or content requirements. The special restrictions on t-butyl acetate are listed in a separate section from the listing of compounds exempt from being considered VOCs.

EPA added four compounds, n-C 3 F 7 OCH 3 , HFE-7500, HFC-227ea, and methyl formate, to its list of compounds exempt from VOC requirements on November 29, 2004 (69 FR 69290). EPA also provided special requirements for t-butyl acetate users in a separate November 29, 2004, action (69 FR 69298). Users of t-butyl acetate still must follow the recordkeeping, emissions reporting, modeling, and inventory requirements. However, t-butyl acetate is not considered a VOC for content requirements and emission limits.

Illinois added the four compounds from the EPA plus t-butyl acetate to Title 35 of the Illinois Administration Code Section 211.7150(a), its list of compounds exempt from VOC requirements. It also added Section 211.7150(e), which provides the same unique requirements for t-butyl acetate users as the EPA action did. It is not appropriate for t-butyl acetate to be listed in 211.7150(a) because this compound is not exempt from all VOC requirements as are the other compounds listed there. It should be listed in 211.7150(e) only, so the unique requirements for t-butyl acetate are clear. This would follow the approach EPA took in making these revisions to the Federal definition of VOC through separate actions.

EPA would find the requested revisions approvable if Illinois removes t-butyl acetate from the list of compounds exempt from VOC requirements in 211.7150(a). This would leave it listed only under 211.7150(e) which makes it clear what requirements apply to t-butyl acetate users. EPA would also find it acceptable for Illinois to add a note to section 211.7150(a) that certain compounds listed in section 211.7150(a) are subject to the requirements of 211.7150(e). This would direct t-butyl acetate users to section 211.7150(e) where the special requirements for this compound are stated.

EPA is proposing disapproval of the requested ozone revisions to the Illinois SIP. In the alternative, EPA is proposing approval of ozone revisions to the Illinois SIP if a correction is made to Title 35 of the Illinois Administration Code Section 211.7150(a) to remove t-butyl acetate from the list of compounds exempt from VOC regulations or if it is clearly stated that t-butyl acetate is subject to the requirements of section 211.7150(e). Illinois must submit the supporting documentation of the correction during the comment period for this rule for the alternative, proposed approval to be considered. Illinois has proposed adding language to section 211.7150(a) that states some compounds listed in that section must also follow the restrictions in section 211.7150(e). EPA finds this language acceptable. If Illinois submits the final state rule with language of the proposed state rule, this action should be considered a proposed approval.

Under Executive Order 12866 (58 FR 51735, September 30, 1993), this action is not a “significant regulatory action” and, therefore, is not subject to review by the Office of Management and Budget.

This proposed rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

This proposed action merely proposes to approve state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this proposed rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

Because this rule proposes to approve pre-existing requirements under State law and does not impose any additional enforceable duty beyond that required by State law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).

This action also does not have Federalism implications because it does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely proposes to approve a State rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act.

This proposed rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it proposes approval of a state rule implementing a Federal Standard.

Because it is not a “significant regulatory action” under Executive Order 12866 or a “significant regulatory action,” this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001).

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), 15 U.S.C. 272, requires Federal agencies to use technical standards that are developed or adopted by voluntary consensus to carry out policy objectives, so long as such standards are not inconsistent with applicable law or otherwise impractical. In reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Absent a prior existing requirement for the state to use voluntary consensus standards, EPA has no authority to disapprove a SIP submission for failure to use such standards, and it would thus be inconsistent with applicable law for EPA to use voluntary consensus standards in place of a program submission that otherwise satisfies the provisions of the Clean Air Act. Therefore, the requirements of section 12(d) of the NTTAA do not apply.

Throughout this document, whenever “we,” “us” or “our” is used, we mean the EPA.

Correspondence discussed in this proposal can be found on the internet in the electronic docket for this action. To access the correspondence, please go to http://www.regulations.gov and search for Docket No. EPA-R06-OAR-2007-0554, or contact the person listed in the FOR FURTHER INFORMATION CONTACT paragraph above.

The HGB area consists of Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties. Upon the date of enactment of the 1990 CAA Amendments, the HGB area was classified as a severe ozone nonattainment area for the 1-hour ozone National Ambient Air Quality Standard (NAAQS). 1

On July 18, 1997, EPA, citing continued health concerns with the 1-hour ozone standard, promulgated a new 8-hour ozone NAAQS aimed at better protecting the health of those particularly susceptible to the effects of ozone (62 FR 38856, July 18, 1997). The 8-hour standard is more protective of public health than the older 1-hour standard. On April 30, 2004, we established 8-hour ozone standard designations and classifications for every area in the United States (69 FR 23858). The HGB area was classified as a moderate nonattainment area for the 8-hour ozone standard with an attainment date no later than June 15, 2010. Also on April 30, 2004, we issued a final rule addressing key elements of the program to implement the 8-hour standard (Phase 1 Rule) (69 FR 23951). The classifications and Phase 1 Rule were the subject of litigation, but since mid-2007 it has been clear that the HGB classification under the 8-hour rule will remain in effect. 2

On June 15, 2007, EPA received a request from Governor Perry seeking voluntary reclassification of the HGB area. The Governor requested that EPA reclassify the HGB area from a moderate nonattainment area to a severe nonattainment area under the 8-hour ozone standard. A severe classification is two classification categories higher than the current classification of moderate. This request was made because the State does not believe that it can reduce emissions enough to reach attainment by the current June 2010 attainment date. 3 A severe classification means that the HGB area must attain the 8-hour ozone standard as expeditiously as practicable but no later than June 15, 2019.

EPA is reviewing this request as one made pursuant to section 181(b)(3) of the CAA which provides for “voluntary reclassification” and states that “* * * [t]he Administrator shall grant the request of any State to reclassify a nonattainment area in that State * * * to a higher classification” and that “* * * [t]he Administrator shall publish a notice in the Federal Register of any such request and of action by the Administrator granting the request.”

EPA intends to take a final action granting the State's request for a voluntary reclassification. The plain language of section 181(b)(3) mandates that we approve such a request and, as such, gives the Agency no discretion to deny it.

Upon reclassification, stationary air pollution sources in the HGB ozone nonattainment area will be subject to severe ozone nonattainment area New Source Review (NSR) and Title V permit requirements. The source applicability thresholds for major sources and major source modification emissions will be 25 tons per year for volatile organic compounds (VOC) and nitrogen oxides (NO X ). For new and modified major stationary sources subject to review under Texas Administrative Code Title 30, Chapter 116, Section 116.150 (30 TAC 116.150) in the EPA approved SIP, VOC and NO X emission increases from the proposed construction of the new or modified major stationary sources must be offset by emission reductions by a minimum offset ratio of 1.30 to 1. (See 30 TAC 116 and 40 CFR 52.2270(c)).

EPA believes that when a nonattainment area is reclassified, the CAA attainment demonstration requirements of the new classification supersede those of the previous classification. In other words, once a nonattainment area has been reclassified and as a result has a new statutory attainment deadline, the deadline applicable to the attainment demonstration under the previous classification no longer has any logical, practical or legal significance. Consequently, when HGB is reclassified to severe, any potential for EPA to find the area has failed to submit any required documents pertinent to the attainment demonstration under the previous classification will be moot.

EPA also believes that reclassification would not provide a basis for extending submission deadlines for SIP elements unrelated to the attainment demonstration, that were due for the area's moderate classification. In June 2007 Texas submitted an 8 hour SIP to EPA that included the requirements of (1) a moderate area reasonable further progress demonstration (40 CFR 51.910) which includes contingency control measures if the area fails to meet reasonable further progress (CAA 172(c)(9)), (2) a reasonably available control technology demonstration (40 CFR 51.912), and (3) a 2002 emissions inventory (40 CFR 51.915). Other moderate area SIP requirements are currently being implemented. These include NSR rules (40 CFR part 165) and a vehicle inspection and maintenance program (40 CFR 51.905(a)(1)(i)).

In a letter dated May 21, 2007, in response to questions from the Texas Commission on Environmental Quality (TCEQ), the EPA's Acting Assistant Administrator for Air requested that the Chairman of TCEQ provide to EPA a basis for setting a new deadline for submission of the severe area SIP attainment demonstration and other required elements of the new classification, and that based on this recommendation and documentation, along with other relevant information, EPA would establish a SIP submission date. 4 The Wehrum letter further stated that the submission date should be as soon as practicable but not beyond June 15, 2010. In a July 10, 2007 letter to Texas Governor Rick Perry we also requested that TCEQ provide information to show the amount of time needed for the State to submit its plan as soon as practical and stated that we would work with TCEQ on setting a date for submission of the new SIP obligations and ensuring interim progress in reducing emissions prior to attainment. 5 In a letter dated August 21, 2007, the Executive Director of TCEQ provided a schedule of milestones leading to a SIP adoption date of March 2010. TCEQ stated that the recommended timeline reflects the complex technical work in developing an attainment demonstration; updating emissions inventory data (including reasonable further progress milestones); revising the existing 2005 photochemical modeling; developing a new and more representative 2006 photochemical modeling episode; and developing and adopting effective control strategies. TCEQ also stated that its schedule would allow for a meaningful stakeholder process for developing effective control strategies. 6 If we accept the timing set forth in the Texas letter it suggests to us that April 15, 2010 could be an appropriate date for submission of the revised SIP for the 8-hour ozone standard.

Alternatively, December 15, 2008, (18 months from the request for reclassification), could be considered an appropriate date for submission of the SIP revision to EPA. This date is analogous to the 18 months allowed for SIP submissions pursuant to a SIP call under CAA section 110(k)(5). It is also in keeping with the timeframes set forth in the involuntary reclassifications, which in general have been approximately 12 months from the effective date of a final reclassification. 7 Given these two dates, we are proposing and taking comment on a range of dates from December 15, 2008 to April 15, 2010 for submission of the revised SIP for the 8-hour ozone standard. We request that any comments on the date for submission of the revised SIP be accompanied by justification for the commenter's position. We will review the comments and make a decision on the appropriate SIP submission date in our final action on the reclassification.

A revised SIP for the HGB area must include all the requirements for serious ozone nonattainment area plans such as: (1) Enhanced ambient monitoring (CAA 182(c)(1)), (2) an enhanced vehicle inspection and maintenance program (CAA 182(c)(3)), (3) a clean fuel vehicle program or an approved substitute (CAA 182(c)(4)), and (4) gasoline vapor recovery for motor vehicle refueling emissions (CAA 182(b)(3)  8 ). It must also meet the severe area requirements including: (1) an attainment demonstration (40 CFR 51.908), (2) provisions for reasonably available control technology and reasonably available control measures (40 CFR 51.912), (3) reasonable further progress reductions in VOC and NO X emissions (40 CFR 51.910), (4) contingency measures to be implemented in the event of failure to meet a milestone or attain the standard (CAA 172(c)(9) and 182(c)(9)), (5) transportation control measures to offset emissions from growth in vehicle miles traveled (CAA 182(d)(1)(A)), (6) reformulated gasoline (CAA 211(k)(10)(D)), (7) NSR permits (40 CFR part 165), and (7) fees on major sources if the area fails to attain the standard (CAA 182(d)(3) and 185). See also the requirements for serious and severe ozone nonattainment areas set forth in CAA sections 182(c), 182(d) and 185. Because the HGB area was classified as severe under the 1-hour ozone standard, many of these requirements are currently being implemented.

The revised SIP for the HGB area must also contain adopted regulations to adopt and implement control measures in regulatory form by specified dates sufficient to make required reasonable further progress in emission reductions and to attain the 8-hour ozone NAAQS as expeditiously as practicable but not later than June 15, 2019. The new attainment demonstration should be based on the best information available.

Pursuant to section 181(b)(3) and based on a voluntary request by the state of Texas, we are proposing to grant the request of the Governor of Texas to reclassify the HGB 8-hour ozone nonattainment area from moderate to severe. We are also proposing to set due dates for the submission of a revised SIP addressing the severe area requirements. We are proposing to set a date within the range from December 15, 2008 to April 15, 2010 for the State to submit a revised SIP addressing the CAA severe ozone nonattainment area requirements.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. EPA has determined that the voluntary reclassification would not result in any of the effects identified in Executive Order 12866 section 3(f). Voluntary reclassifications under 181(b)(3) of the CAA are based solely upon requests by the State and EPA is required under the CAA to grant them. These actions do not, in and of themselves, impose any new requirements on any sectors of the economy. In addition, because the statutory requirements are clearly defined with respect to the differently classified areas, and because those requirements are automatically triggered by classification, reclassification cannot be said to impose a materially adverse impact on State, local or tribal governments or communities. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001).

In addition, I certify that this proposed rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). And these actions do not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), because EPA is required to grant requests by States for voluntary reclassifications and such reclassifications in and of themselves do not impose any federal intergovernmental mandate. This proposed rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action does not alter the relationship or the distribution of power and responsibilities established in the CAA.

This proposed rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant. As discussed above, a voluntary reclassification under section 181(b)(3) of the CAA is based solely on the request of a State and EPA is required to grant such a request. In this context, it would thus be inconsistent with applicable law for EPA, when it grants a State's request for a voluntary reclassification to, use voluntary consensus standards. Thus the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) also do not apply. In addition, this proposed rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

Lastly, executive Order 12898 (59 FR 7629, February 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. As stated earlier in this Notice EPA intends to take a final action granting the State's request for a voluntary reclassification. The plain language of section 181(b)(3) of CAA mandates that we “shall” approve such a request if it is made in accordance with the requirements of the Act, and, as such, does not provide the Agency with the discretionary authority to address concerns raised outside the Act, including those contained in Executive Order 12898.

The Debt Collection Improvement Act of 1996 and other statutes provide the tools for administering a centralized program for the collection of delinquent, non-tax and tax debts. The Financial Management Service (FMS), a bureau of the Department of the Treasury, is charged with implementing the Government’s delinquent debt collection program. Since 1996, FMS has collected more than $24.4 billion in delinquent debt. In fiscal year 2006, collections of delinquent debt remained at a constant $3.1 billion.

To collect delinquent debts owed to Federal agencies and states, FMS uses the Treasury Offset Program (TOP). Information on TOP is available at http://fms.treas.gov/debt/index.html . TOP uses both “offsets” and “continuous levies” to collect delinquent debts.

Offset is a process whereby Federal payments are reduced or “offset” to satisfy a person’s overdue Federal debt, child support obligation, or state tax debt. A payee’s name and taxpayer identification number are matched against a Treasury/FMS database of delinquent debtors for automatic offset of funds. Offset funds are then used to satisfy payment of the delinquent debt to the extent allowed by law.

Under the continuous levy program, delinquent Federal tax debts are collected by levying non-tax payments until the debt is satisfied, as authorized by the 1997 Taxpayer Relief Act. The continuous levy program includes levy of some vendor payments (Treasury disbursed and non-Treasury disbursed payments), Federal employee salary payments, the Office of Personnel Management retirement payments, and social security benefit payments. Continuous levy is accomplished through a process almost identical to that of offset. FMS matches delinquent debtor data with payment record data for automated collection of the debt at the time of payment, after the delinquent taxpayer has been afforded due process.

FMS is currently unable to offset or apply a continuous levy to payments made to contractors with delinquent debts when the Governmentwide commercial purchase card is used as the method of payment. When the Governmentwide commercial purchase card is used as the method of payment, the Government does not make a direct payment to the contractor. Instead, the processing bank for the Governmentwide commercial purchase card pays the contractor.

To assess the significance of the problem, FMS and VISA, one of the processing banks, matched VISA payments for Governmentwide purchase card transactions for one year. As a result of the match, FMS determined that approximately $73.5 million dollars of delinquent debts subject to collection under TOP were not collected because the debtors were paid using the Governmentwide commercial purchase card. The individual payments that would otherwise have been collected were all in excess of the micropurchase threshold.

To help increase the collection of delinquent debts owed to the Government, the rule proposes to amend the FAR to require contracting officers to determine whether the Central Contractor Registration (CCR) indicates that the contractor has delinquent debt that is subject to collection under the TOP. If a debt indicator is found, the Governmentwide commercial purchase card is not authorized as a method of payment. The contracting officer is required to check for the flag at the time of contract award, order placement, and again before exercising any options. The rule also proposes to amend the applicable Governmentwide commercial purchase card payment clause at 52.232-36 to advise contractors that the Governmentwide commercial purchase card is not authorized as a method of payment if a debt indicator is included in the CCR for the contractor. The clause is written to allow contracting officers to unilaterally exercise options without having to bilaterally negotiate revisions to the original contract terms and conditions if the debt indicator is subsequently found during the execution of an option. This rule would not apply to individual travel charge cards or centrally billed accounts for travel/transportation services.

This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of Executive Order 12866, Regulatory Planning and Review, dated September 30, 1993. This rule is not a major rule under 5 U.S.C. 804.

The Councils do not expect this proposed rule to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. , because the rule only impacts the method by which a contractor can be paid when the contractor has a delinquent debt. An Initial Regulatory Flexibility Analysis has, therefore, not been performed. We invite comments from small businesses and other interested parties. The Councils will consider comments from small entities concerning the affected FAR Parts 4, 8, 13, 17, 32, and 52 in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 601, et seq. (FAR case 2006-026), in correspondence.

The Paperwork Reduction Act does not apply because the proposed changes to the FAR do not impose information collection requirements that require the approval of the Office of Management and Budget under 44 U.S.C. 3501, et seq.

Therefore, DoD, GSA, and NASA propose amending 48 CFR parts 4, 8, 13, 17, 32, and 52 as set forth below:

1. The authority citation for 48 CFR parts 4, 8, 13, 17, 32, and 52 continues to read as follows:>Authority:

40 U.S.C. 121(c); 10 U.S.C. chapter 137; and 42 U.S.C. 2473(c).

2. Amend section 4.1103 by revising paragraph (a)(3) to read as follows:

(a) * * *

(3) Need not verify registration before placing an order or call if the contract or agreement includes the clause at 52.204-7, or 52.212-4(t), or a similar agency clause, except when payment by the Governmentwide commercial purchase card is contemplated (see 32.1108(b)(2)).

3. Revise section 8.405-7 to read as follows:

Agencies may make payments for oral or written orders by any authorized means, including the Governmentwide commercial purchase card (but see 32.1108(b)(2)).

4. Amend section 13.003 by revising paragraph (e) to read as follows:

(e) Agencies shall use the Governmentwide commercial purchase card and electronic purchasing techniques to the maximum extent practicable in conducting simplified acquisitions (but see 32.1108(b)(2)).

5. Amend section 13.301 by revising the first sentence of paragraph (a) and paragraph (c)(3) to read as follows:

(a) Except as provided in 32.1108(b)(2), the Governmentwide commercial purchase card is authorized for use in making and/or paying for purchases of supplies, services, or construction. * * *

(c) * * *

(3) Make payments, when the contractor agrees to accept payment by the card (but see 32.1108(b)(2)).

6. Amend section 17.207 by revising paragraph (f) to read as follows:

(f) Before exercising an option—

(1) The contracting officer shall make a written determination for the contract file that exercise is in accordance with the terms of the option, the requirements of this section, and Part 6. To satisfy requirements of Part 6 regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract, e.g. —

(i) A specific dollar amount;

(ii) An amount to be determined by applying provisions (or a formula) provided in the basic contract, but not including renegotiation of the price for work in a fixed-price type contract;

(iii) In the case of a cost-type contract, if—

(A) The option contains a fixed or maximum fee; or

(B) The fixed or maximum fee amount is determinable by applying a formula contained in the basic contract (but see 16.102(c));

(iv) A specific price that is subject to an economic price adjustment provision; or

(v) A specific price that is subject to change as the result of changes to prevailing labor rates provided by the Secretary of Labor.

(2) See 32.1108(b)(2) for restrictions on the use of the Governmentwide commercial purchase card as a method of payment when the Central Contractor Registration (CCR) shows a delinquent debt flag.

7. Amend section 32.1108 by revising paragraph (b) to read as follows:

(b)(1) Written contracts to be paid by purchase card should include the clause at 52.232-36, Payment by Third Party, as prescribed by 32.1110(d). However, payment by a purchase card also may be made under a contract that does not contain the clause to the extent the contractor agrees to accept that method of payment.

(2)(i) Contracting officers are required to verify (by looking in CCR) whether the contractor has any delinquent debt subject to collection under the Treasury Offset Program (TOP) program at contract award, order placement, and prior to any option exercise. Information on TOP is available at http://fms.treas.gov/debt/index.html .

(ii) The contracting officer shall not authorize the Governmentwide commercial purchase card as a method of payment when the Central Contractor Registration (CCR) indicates that the contractor has delinquent debt subject to collection under the TOP. In such cases, the contracting officer shall provide alternative payment instructions to the contractor. Contracting officers shall not use the presence of the delinquent debt indicator to exclude a contractor from receipt of the contract, order, or exercised option.

(iii) If a contractor alerts the contracting officer that the CCR debt flag indicator has been changed to no longer show a delinquent debt, the contracting officer may take steps to authorize payment by Governmentwide commercial purchase card.

8. Amend section 52.232-36 by revising the date of the clause and paragraphs (a) and (b) to read as follows:

The International Pacific Halibut Commission (IPHC) and NMFS manage fishing for Pacific halibut ( Hippoglossus stenolepis ) through regulations established under the authority of the Northern Pacific Halibut Act of 1982 (Halibut Act). The IPHC promulgates regulations governing the halibut fishery under the Convention between the United States and Canada for the Preservation of the Halibut Fishery of the Northern Pacific Ocean and Bering Sea (Convention). The IPHC's regulations are subject to approval by the Secretary of State with concurrence from the Secretary of Commerce (Secretary). After approval by the Secretaries of State and Commerce, the IPHC regulations are published in the Federal Register as annual management measures pursuant to 50 CFR 300.62 (March 14, 2007; 72 FR 11792).

The Halibut Act also provides the Council with authority to recommend regulations to the Secretary to allocate harvesting privileges among U.S. fishermen. This process requires the Council to submit a recommendation to the Secretary as a proposed rule for publication in the Federal Register along with supporting analyses as required by other applicable law. The Council has exercised this authority, most notably in the development of its Individual Fishing Quota (IFQ) Program, codified at 50 CFR part 679, and subsistence halibut fishery management measures, codified at 50 CFR 300.65. The Council also has been developing a regulatory program to manage the guided sport charter vessel fishery for halibut. The regulatory program proposed by this action is linked to the overall management of the halibut fisheries by the IPHC and a previous action by the Council and NMFS to establish a guideline harvest level (GHL) for managing the harvest of halibut by the guided sport charter vessel fishery (August 8, 2003; 68 FR 47256).

The harvest of halibut occurs in three basic fisheries—the commercial, sport, and subsistence fisheries. Additional fishing mortality occurs as bycatch or incidental catch while targeting other species and wastage of halibut that are caught but cannot be used for human food.

The IPHC annually determines the amount of halibut that may be removed from the resource without causing biological conservation problems on an area-by-area basis in all areas of Convention waters. It imposes catch limits, however, on only the commercial sector in areas in and off of Alaska. The IPHC estimates the exploitable biomass of halibut using a combination of harvest data from the commercial, recreational, subsistence fisheries, and information collected during scientific surveys and sampling of bycatch in other fisheries. The target amount of allowable harvest for a given area is calculated by multiplying a fixed harvest rate by the estimate of exploitable biomass. This target level is called the total constant exploitation yield (CEY) as it represents the target level for total removals (in net pounds) for that area in the coming year. The IPHC subtracts estimates of all non-commercial removals (sport, subsistence, bycatch, and wastage) from the total CEY. The remaining CEY, after the removals are subtracted, is the maximum catch or “fishery CEY” for an area's directed commercial fixed gear fishery.

This method of determining the commercial fishery's catch limit in an area results in a decrease in the commercial fishery's use of the resource as other non-commercial uses increase their proportion of the total CEY. As conservation of the halibut resource is the overarching goal of the IPHC, it attempts to include all sources of fishing mortality of halibut within the total CEY. This method for determining the limit for the commercial use of halibut has worked well for many years to conserve the halibut resource, provided that the other non-commercial uses of the resource have remained relatively stable and small. Although most of the non-commercial uses of halibut have been relatively stable, growth in the guided sport charter vessel fishery in recent years, particularly in Area 2C, has resulted in the guided sport charter vessel fishery harvesting a larger amount of halibut, thereby reducing the amount available to the commercial fishery.

Currently, the Council's only approved management policy in effect for the charter vessel fisheries is to have separate GHLs for Area 2C and Area 3A (50 CFR 300.65(c)). The GHLs serve as benchmarks for monitoring the charter vessel fishery relative to the commercial fishery and other sources of fishing mortality. The GHLs do not limit the charter vessel fisheries. Although it is the Council's policy that the charter vessel fisheries should not exceed the GHLs, no constraints have been imposed on the charter vessel fisheries for GHLs that have been exceeded in the past.

The Council has discussed the expansion of the charter vessel fishery for halibut since 1993. The GHLs were initially adopted by the Council in 1997 without implementing regulations. The Council stated its intent to maintain a stable charter vessel fishing season without a mid-season closure. If a GHL were exceeded, other management measures would be triggered to take effect in years following attainment of the GHL. The Council envisioned “framework” regulations of increasing restrictiveness depending on the extent to which a GHL was exceeded. Proposed framework regulations were published in 2002 (January 28, 2002; 67 FR 3867); however, NMFS informed the Council later that year that its framework regulations could not be implemented as envisioned. Hence, a final rule establishing the GHLs was published without any restrictive regulations (August 8, 2003; 68 FR 47256).

The GHLs represent a pre-season specification of acceptable annual halibut harvests in the charter vessel fisheries in Areas 2C and 3A. To accommodate some growth in the charter vessel sector while approximating historical harvest levels, the Council recommended GHLs based on 125 percent of the average 1995 through 1999 charter vessel harvest. For Area 2C the GHL was set at 1,432,000 lb (649.5 mt) net weight, and in Area 3A the GHL was set at 3,650,000 lb (1,655.6 mt) net weight. When the Council recommended these GHLs, halibut stocks were considered to be near record high levels of abundance. To accommodate decreases and subsequent increases in abundance, the Council recommended a system of step-wise adjustments in each GHL based on a predetermined uniform measure of stock abundance. The measure used was the CEY determined annually by the IPHC. Specifically, the Council linked a step-wise reduction in the GHL in any one year to the decrease in the CEY as compared to the 1999 through 2000 average CEY. For example, if the halibut stock in Area 2C were to fall from 15 to 24 percent below its 1999 through 2000 average CEY, then the GHL for Area 2C would be reduced by 15 percent. Conversely, as the CEY increased from low levels, the GHL also would increase in the same step-wise manner. However, regardless of how high the CEY may rise above its 1999 through 2000 average, the GHLs were not designed to increase above their maximum amounts. Since 2003 when the GHLs became effective, they have never been reduced below their maximum level because declines in the total CEY have not been sufficient to trigger the first step reduction of the GHLs.

In Area 2C, the commercial, sport and subsistence harvest of halibut over the past 10 years (1997 through 2006) has been estimated by the IPHC to average about 12.454 million lb (5,649.0 mt) per year. Of this annual average total removal from the halibut resource, the commercial fishery accounts for about 76.7 percent, the sport fishery (guided and unguided combined) account for about 19.1 percent, and the remaining 4.2 percent may be attributed to subsistence, bycatch, and wastage combined. Estimates of the subsistence harvest of halibut were made based on surveys conducted by the Alaska Department of Fish and Game (ADF&G) during the past three years and average about 600,000 lb (272.2 mt) per year.

In the most recent three years (2004 through 2006), the annual average of total halibut removals in Area 2C is 14.142 million lb (6,414.7 mt) of which the commercial fishery has taken about 73.8 percent, the sport fishery has taken about 20.7 percent, the subsistence fishery has taken about 4.3 percent, and about 1.2 percent is attributed to bycatch and wastage. The commercial fishery is the primary user of the halibut resource in Area 2C followed by the sport fishery, which together account for almost 95 percent of the total removals from the halibut resource.

In Area 2C, the sport fishery is comprised of guided fishing on charter vessels and unguided angling. Residents of Southeast Alaska and their family and friends are the primary unguided anglers, while non-resident tourists are the main clients for guided fishing on charter vessels. The linkage between guided sport fishing and tourism is apparent from data collected by ADF&G and compiled by IPHC staff. Over the past 10 years (1997 through 2006), the average guided sport harvest of halibut has been 1.431 million lb (649.1 mt) per year and the unguided sport harvest of halibut has amounted to 0.951 million lb (431.4 mt) per year. Proportionately, the guided charter vessel harvest to unguided sport harvest has been a ratio of about 60 to 40. The guided sport harvest has increased in more recent years. Over the past five years (2002 through 2006), the annual guided sport charter vessel harvest amounted to an average 63.9 percent of the total sport harvest of halibut in Area 2C, and in 2005 reached a record 69.8 percent of the total sport harvest. In response, the Council is considering a management program to restrict the charter vessel harvest of halibut.

Since their implementation in 2003, the GHLs for Areas 3A and 2C have been exceeded by the charter vessel halibut harvest in 2004, 2005, and 2006. In Area 2C, based on ADF&G sport fishing survey data, the charter vessel harvest in 2003 was one percent under the GHL, but in 2004 and 2005, it was 22 percent and 36 percent over the GHL, respectively.

The total Area 2C harvest of halibut by the sport fishery in 2006 was 2.537 million lb (1,150.8 mt), based on final ADF&G sport harvest estimates reported in October 2007. Of this amount, the charter fishery harvested 1.812 million lb (821.9 mt) or 71.4 percent and the unguided harvest was 0.725 million lb (328.8 mt) or 28.6 percent. Hence, the charter harvest exceeded its 2006 Area 2C GHL by 380,000 lb (172.4 mt) or 26.5 percent. This overage is substantially less than ADF&G's preliminary projection of 2006 charter harvests made in October 2006. At that time, ADF&G had preliminary projections indicating that the 2006 charter harvest of halibut could be as much as 2.113 million pounds (958.4 mt) or 47 percent above the Area 2C GHL. The ADF&G preliminary projections of the overage of the GHL in 2006 produced responses in 2007 from the Council and the three management agencies involved: IPHC, NMFS, and ADF&G.

At its annual meeting in January 2007, the IPHC adopted a motion to recommend reducing the daily bag limit for anglers on charter vessels in Areas 2C and 3A from two halibut to one halibut during certain time periods. Specifically, for Area 2C, the IPHC recommended that the one-fish daily bag limit should apply to guided anglers from June 15 through July 30. The IPHC recommended this temporary bag limit reduction because it believed its management goals were at risk by the magnitude of the charter halibut harvest in excess of the GHL, especially in Area 2C. This action was not explicitly designed to manage the charter fishery to the Council's GHLs but rather to initiate some control on what appeared to be a constantly increasing charter vessel harvest. The IPHC took this action reluctantly. It stated that its preference was for the Council to resolve the allocation issue between the sport charter and commercial sectors. Moreover, it delayed the effective date of the reduced bag limit to June 15 to afford the Secretary time to resolve the issue under U.S. domestic law with regulations that would achieve “comparable reductions” in halibut harvest by the charter vessel fishery.

In a letter to the IPHC on March 1, 2007, the Secretary of State, with concurrence from the Secretary, rejected the recommended one-fish daily bag limit in Areas 2C and 3A, and indicated that appropriate reduction in the charter vessel harvest in these areas would be achieved by a combination of ADF&G and NMFS regulatory actions. For Area 2C, the State of Alaska Commissioner of Fish and Game (hereafter, State Commissioner) issued an emergency order to prohibit retention of fish by charter vessel guides and crew members (No. 1-R-02-07). This emergency order was similar to one issued for 2006. This action was intended, in conjunction with other measures, to reduce the 2007 charter vessel harvest of halibut to levels comparable to the IPHC-recommended bag limit reduction which was estimated to range from 397,000 (180.1 mt) pounds to 432,000 pounds (195.9 mt).

Regulatory action to remedy this problem by June 2007 required the Secretary, through NMFS, to develop regulations independent of the Council process. The analysis of alternative restrictions had an explicit goal of finding the best alternative that would reduce sport fishing mortality of halibut in the charter vessel sector in Area 2C to a level comparable to the level that would have been achieved by the IPHC-recommended regulations and in a manner that would minimize adverse impacts on the charter fishery, its sport fishing clients, the coastal communities that serve as home ports for this fishery, and on fisheries for other species. The preferred alternative selected by NMFS maintained the traditional two-fish daily bag limit provided that at least one of the harvested halibut has a head-on length of no more than 32 inches (81.3 cm). If a charter vessel angler retains only one halibut in a calendar day, that fish may be of any length. Regulations implementing this partial maximum size limit were published on June 4, 2007 (72 FR 30714).

The Council also was considering management alternatives for the charter vessel halibut fishery in Area 2C during the first half of 2007. Unlike the IPHC, ADF&G, and NMFS actions, however, the Council's alternatives were designed specifically to maintain the charter vessel fishery to its GHL. In June 2007, the Council adopted a preferred alternative that contained two options. The Council recommended that the selection between the options depend on whether the CEY decreases substantially for 2008. As explained above, the GHLs for Area 2C and 3A are linked to the CEY determined annually by the IPHC as a basis for setting the commercial fishery catch limits in these areas. A substantial decrease in the CEY could cause the GHL for Area 2C to decrease from its current 1.432 million lb (649.5 mt) to 1.217 million lb (552.0 mt). Not knowing in June 2007 how the GHL may be affected by IPHC action in January 2008, the Council recommended a suite of charter vessel fishery restrictions if the GHL remains the same in 2008 (Option A) and a different, more restrictive, suite of restrictions if the GHL decreases in 2008 (Option B). This Council recommendation is the basis for this proposed regulatory action.

As recommended by the Council in June 2007, this action proposes management measures to reduce the charter vessel fishery harvest of halibut in Area 2C to the GHL under two scenarios—Option A if the GHL for this area remains the same in 2008, and Option B if the GHL decreases in 2008. NMFS encourages public comment on all regulatory options to maximize the ability of NMFS to achieve the intent of the Council to limit the catch of the guided sport charter vessel fishery in Area 2C to the GHL while minimizing the adverse impacts on the charter fishery, its sport fishing clients, the coastal communities that serve as home ports for this fishery, and on fisheries for other species. In brief, the specific options recommended by the Council are as follows:

Option A management measures for the charter vessel halibut fishery in Area 2C.

• Two fish daily bag limit provided that one fish is no more than 32 inches (81.3 cm) in length (existing regulation at 50 CFR 300.65(d));

• A charter vessel guide, a charter vessel operator, and crew of a charter vessel must not catch and retain halibut during a charter fishing trip;

• The number of lines used to fish for halibut must not exceed six or the number of charter vessel anglers onboard the charter vessel, whichever is less; and

• The combined number of halibut that may be harvested by a charter vessel angler in Area 2C during a calendar year must not exceed four fish.

Option B management measures for the charter vessel halibut fishery in Area 2C.

• The number of halibut caught and retained by each charter vessel angler in Area 2C is limited to no more than one halibut per calendar day;

• A charter vessel guide, a charter vessel operator, and crew of a charter vessel must not catch and retain halibut during a charter fishing trip; and

• The number of lines used to fish for halibut must not exceed six or the number of charter vessel anglers onboard the charter vessel, whichever is less.

The following management measures were recommended by the Council if the GHL remains unchanged in 2008. If implemented, the proposed regulations would remain in effect until changed by a new Federal regulatory action.

Daily bag and maximum size limit. The existing regulation (at 50 CFR 300.65(d)) in effect since June 1, 2007 (72 FR 30714, June 4, 2007), reads as follows:

Before June 1, 2007, the daily catch limit applicable to charter vessel anglers was the same as that which applies to all sport fishing for halibut in Alaska, which is two halibut of any size per person. This two-fish daily bag limit for sport fishermen is an IPHC regulation (section 25(2)(b) at 72 FR 11801; March 14, 2007) first imposed in 1975. The NMFS regulation in June 2007 simply supplemented the traditional two-fish bag limit with the additional requirement that one of the two fish must be no more than 32 inches (81.3 cm) in length. If only one halibut is retained, it may be of any length.

No substantive change in this requirement is proposed by Option A. Minor changes in the text are proposed, however, due to other changes proposed in this action. Specifically, § 300.65(d) would have a new heading that would move the text currently at § 300.65(d) to § 300.65(d)(1), and that would have a new heading specifying “daily bag limit in Area 2C.” As a result, the existing introductory phrase, “In Commission Regulatory Area 2C” would be removed as redundant. In addition, the second sentence of the paragraph would be changed by substituting the phrase, “If a charter vessel angler” for the existing phrase “If a person sport fishing on a charter vessel in Area 2C.” This change is proposed because a new definition of “charter vessel angler” is proposed and reiterating “in Area 2C” is unnecessary due to the new paragraph heading that already makes clear the geographic application of the regulation.

No harvest by skipper and crew. A new Federal restriction is proposed prohibiting the harvest of halibut by the charter vessel guide, the charter vessel operator, and the charter vessel crew during a charter vessel fishing trip. The language of the Council's motion adopting this recommendation reads, “no harvest by skipper and crew when clients are on board the charter vessel.” Although a sport fishing guide on a charter vessel in Area 2C is likely to be the same person as the “skipper,” captain, or operator of the vessel, in some cases the skipper and guide could be different persons. Hence, this proposed rule makes clear the Council's intent of applying this restriction to all persons-guide, skipper or operator, and crew-involved with the delivery of onboard services to the charter vessel angler.

The proposed regulation deviates from the Council's adopted motion language also in that the phrase “when clients are on board” is not used in the proposed regulation. Instead, the proposed regulation would limit the skipper and crew harvesting prohibition to a charter vessel fishing trip. A new definition is proposed in this action for “charter vessel fishing trip” which describes the period from the first deployment of fishing gear from a charter vessel until the offloading of any charter vessel angler or halibut. Also, an existing definition of “charter vessel” (at § 300.61) describes such a vessel as one “used for hire in sport fishing for halibut, but not including a vessel without a hired operator.” Hence, the effect of the proposed regulation would be the same as that intended by the Council, which is to prohibit retention of halibut caught by the guide, skipper, and crew on a charter vessel, but not to impose this restriction when no clients or charter vessel anglers are onboard. A vessel without clients or paying anglers onboard is, by definition, not a charter vessel. Therefore, guides, skippers, and crew would not be prevented from sport fishing for halibut for themselves when they are not on a charter vessel fishing trip.

The Council recommended this restriction to make it more specific to halibut harvest on charter vessels in Area 2C. As discussed above, the State Commissioner's emergency order prohibiting the retention of all fish by the skipper and crew of a charter vessel in Area 2C was implemented in 2007. The State Commissioner could not make his emergency order apply only to halibut because he has no authority under the Halibut Act to directly regulate halibut fishing. A comprehensive application of the emergency order to all fish effectively prevented charter vessel skippers and crews from harvest of salmon, rockfish, lingcod, and other species. Charter vessel operators requested relief from this comprehensive prohibition on skipper and crew harvests by having a Federal prohibition on skipper and crew harvest apply only to halibut. Assuming that the State Commissioner does not reissue his earlier emergency order for other reasons, this action would relieve charter vessel skippers and crew from the more comprehensive prohibition against retention of all fish on charter vessels but would impose this prohibition on the retention of halibut.

The Council's original analysis of alternatives, prepared for its meeting in June 2007, indicated that the daily bag/maximum size limit and prohibition on skipper/crew harvest of halibut together would reduce the charter vessel harvest in Area 2C to 115 percent to 106 percent of the GHL (Table 15 in EA/RIR/IRFA, see ADDRESSES ). The fact that these management measures would fall short of achieving the GHL is not surprising as they were designed by NMFS and ADF&G and implemented in 2007 for a different purpose-not to achieve the GHL, but instead to reduce charter vessel halibut harvests to a comparable extent to what would have been realized under the IPHC recommendation.

In October 2007, ADF&G published its final estimate of charter vessel harvests in Area 2C. This final estimate indicated fewer halibut were being harvested by the charter vessel sector in 2006 than had been preliminarily estimated by ADF&G a year earlier. In fact, the revised ADF&G estimate for 2006 showed the first decrease in the growth of halibut pounds harvested by charter vessels since 1999. The agency's preliminary estimate of the 2006 charter vessel halibut harvest in Area 2C in October 2006 of 2.113 million lb (958.4 mt) was reduced in its final estimate in October 2007 to 1.812 million lb (821.9 mt). The Council staff subsequently reviewed its analysis in light of these new harvest data for 2006 and submitted a supplement to the EA/RIR/IRFA (Appendix IV to the EA/RIR/IRFA, see ADDRESSES ). The supplement revises Table 15 (Table A4-1 in Appendix IV). This table estimates the impact of each management option under the action alternative on the total amount of halibut harvested by the sport charter vessel fishery in 2006 relative to the current GHL if that management option had been in place in 2006. The revised analysis indicates that the daily bag/maximum size limit and prohibition on skipper/crew harvest of halibut together would reduce the charter vessel harvest in Area 2C to a range of 101 percent to 93 percent of the GHL. By weight, this expected harvest would be in the range of 1.448 million lb (656.8 mt) to 1.333 million lb (604.6 mt). This range would bracket the current GHL in Area 2C which is 1.432 million lb (649.5 mt). It is important to note that although the daily bag/maximum size limit and prohibition on skipper/crew harvest of halibut together would appear from the analysis to achieve the GHL, the analysis does not account for possible changes in fishing effort between 2006 and 2008.

When ADF&G presented its final estimate of the 2006 charter vessel harvest to the Council in October 2007, the Council decided not to reconsider its June 2007 recommendation which this action proposes to implement with Federal regulations. However, NMFS is particularly interested in public comment on these proposed regulations in light of the new final estimate of 2006 harvests of halibut by the charter vessel sector and the revised analysis of the potential effect of the proposed management measures, as indicated in the above paragraph. The intent of particularly soliciting public comment on this and other specific issues in this action is to maximize the ability of NMFS to achieve the intent of the Council to limit the catch of the guided sport charter vessel fishery in Area 2C to the GHL while minimizing the adverse impacts on the charter fishery, its sport fishing clients, the coastal communities that serve as home ports for this fishery, and on fisheries for other species. Based on public comment, and to achieve the intent of the Council and minimize adverse impacts, NMFS may implement either Option A or Option B in their entirety, or some portion of either option.

Line limits. A new Federal restriction is proposed that would limit the number of lines that could be fished from a charter vessel to six or the number of charter vessel anglers onboard the charter vessel, whichever is less. The existing IPHC gear limitation for a person sport fishing for halibut is a single line with no more than two hooks attached, or a spear (section 25(1) at 72 FR 11801). Hence, this restriction would prevent more than six charter vessel anglers on a vessel from fishing at the same time. This restriction is not viewed as onerous, however, because the charter vessels and charter vessel skippers in Southeast Alaska (Area 2C) typically are licensed by the U.S. Coast Guard to carry no more than six passengers. In addition, existing State of Alaska regulations (at 5 AAC 47.030(b)) limit the number of lines fished from a charter vessel generally to the number of clients onboard the vessel. A six-line limit has been in Alaska regulations since 1983, and limiting the number of lines fished to the number of clients onboard has been a requirement since 1997. The proposed line limits would reflect the existing Alaska regulations in Federal regulations specifically for halibut fishing.

Annual catch limit. The proposed annual catch limit of four halibut would impose a new restriction on each charter vessel angler in Area 2C of two daily bag limits of halibut per year. A sport fishing guide or charter vessel operator also would be responsible to know how many halibut each of his clients had previously harvested on a charter vessel that year and limit a charter vessel angler's harvest if necessary. For example, if a charter vessel angler arrives for a charter vessel fishing trip, the charter vessel guide would be required, before the trip begins, to record the number of halibut caught and retained year-to-date by each angler on the charter vessel (see discussion of recordkeeping and reporting below). A charter vessel angler who begins the trip with three halibut already harvested that year would be limited to only one additional halibut regardless of the two halibut daily bag limit.

No exceptions are proposed for this annual catch limit. This restriction would apply equally to youth anglers under 16 years of age who are not required to have an Alaska sport fishing license, anglers who are over 60 years of age, and anglers who are disabled veterans, both of which may have special Alaska sport fishing licenses. The proposed annual catch limit, however, would apply only to charter vessel anglers. Halibut harvested by non-guided sport fishermen would not count toward the proposed four-fish annual catch limit. Likewise, a charter vessel angler who has harvested her annual catch limit would be allowed to continue sport fishing for halibut as a non-guided angler subject to the existing two-halibut per day catch limit.

The analysis indicates that the proposed annual catch limit would reduce the charter vessel harvest by an estimated 0.335 million lb (151.9 mt). In conjunction with the other management measures under Option A, the anticipated effect of this restriction would be a reduction in total charter vessel harvests in Area 2C to a range of 84 percent to 78 percent of the current GHL (Table A4-1 of Appendix IV of the EA/RIR/IRFA). In terms of weight, the supplement to the analysis predicts (based on 2006 data) a charter vessel halibut harvest in Area 2C of between 1.208 million lb (547.9 mt) and 1.111 million lb (503.9 mt). Harvests in this range would be less than the current GHL in Area 2C, which is 1.432 million lb (649.5 mt).

The Council considered but did not recommend more liberal annual catch limits of five halibut and six halibut which would allow a total charter vessel harvest in Area 2C closer to the GHL. According to the supplement of the analysis, the predicted harvest under the Option A management measures using a six-halibut annual catch limit instead of a four-halibut annual catch limit would range from 1.386 million lb (628.7 mt) to 1.276 million lb (578.8 mt), and using a five-halibut annual catch limit instead of a four-halibut annual catch limit would range from 1.313 million lb (595.6 mt) to 1.209 million lb (548.4 mt). NMFS is particularly interested in public comment on these annual catch limits (6, 5, and 4 halibut) given the new final estimate of 2006 charter vessel harvest. The intent of particularly soliciting public comment on this and other specific issues in this action is to maximize the ability of NMFS to achieve the intent of the Council to limit the catch of the guided sport charter vessel fishery in Area 2C to the GHL while minimizing the adverse impacts on the charter fishery, its sport fishing clients, the coastal communities that serve as home ports for this fishery, and on fisheries for other species. Based on public comment, and to achieve the intent of the Council and minimize adverse impacts, NMFS may implement an annual catch limit of 6, 5, or 4 halibut, or no annual limit.

Recordkeeping and reporting. The Area 2C annual catch limit for charter vessel anglers proposed under Option A would require new recordkeeping and reporting requirements for charter vessel anglers and guides. This information collection is necessary to monitor and enforce the area specific annual catch limit. Charter vessel guides and anglers are individually and collectively responsible for the accuracy and completeness of recorded information on halibut caught and retained. The Council, NMFS, and ADF&G stressed the importance of minimizing reporting burden on the charter vessel industry and developed a proposed information collection program that allows for the recording of necessary information in the existing ADF&G Saltwater Sport Fishing Charter Trip Logbook and on existing State of Alaska sport fishing licenses or catch cards.

Each charter vessel angler would be required to record on the back of his or her State of Alaska Sport Fishing License or catch card the date and number of halibut caught and retained in Area 2C. This information is necessary to monitor retained catch relative to the annual catch limit and to provide information to a charter vessel guide on the number of halibut retained to date during a calendar year so that the angler's annual catch limit is not exceeded during a charter vessel fishing trip. Each angler who retains halibut catch from Area 2C would be required to retain his or her license or catch card for a period of three years from the date of the latest Area 2C halibut entry. Maintenance of these records is necessary in the event that NMFS Enforcement needs to verify the number of retained halibut catch recorded by the angler or compare an angler's record of retained halibut with the number of retained halibut in Area 2C as recorded by charter vessel guides for that angler in the ADF&G Saltwater Sport Fishing Charter Trip Logbook.

Information recorded in the ADF&G Saltwater Sport Fishing Charter Trip Logbook on the number of halibut caught and retained in Area 2C by each charter vessel angler would be used by NMFS to monitor and enforce the annual catch limit. Specific logbook information requirements are summarized below for charter vessel guides and anglers.

The ADF&G Saltwater Sport Fishing Charter Trip Logbook data sheets would be required to be submitted to the appropriate ADF&G office and according to the time schedule described in the instructions at the beginning of the logbook.

The following management measures were recommended by the Council if the GHL decreases in Area 2C in 2008 to 1.217 million lb (552.0 mt). If implemented, the proposed regulations would remain in effect until changed by a new Federal regulatory action.

One-fish daily bag limit. This restriction would substitute a daily catch limit for a charter vessel angler of one halibut per day of any size for the existing daily catch limit of two halibut per day providing one of the two fish is no longer than 32 inches (81.3 cm). This restriction would be more onerous than the management measures described above under Option A. The Council reasoned that this more restrictive action would be necessary if the GHL in Area 2C were to decrease in 2008 to 1.217 million lb (552.0 mt). In conjunction with the proposed restrictions on harvest by skipper and crew and line limits, the Option B management measures are estimated to reduce the charter vessel harvest to a range of 76 percent to 53 percent of the current Area 2C GHL, or to a range of 63 to 89 percent of the reduced GHL. By weight, the estimated effect of the Option B management measures would be to allow a charter vessel harvest of from 1.089 million lb (494.0 mt) to 0.762 million lb (345.6 mt).

No harvest by skipper and crew. This restriction would be the same as that described above under Option A.

Line limits. This restriction would be the same as that described above under Option A.

An Initial Regulatory Flexibility Analysis (IRFA) was prepared, as required by section 603 of the Regulatory Flexibility Act. The IRFA describes the economic impact that this proposed rule, if adopted, would have on directly regulated small entities. A copy of this analysis and its updated supplement are available from NMFS (see ADDRESSES ). A description of this action, why it is being considered, and the legal basis for this action are discussed above. The proposed action would implement one of two management options—Option A or Option B, or portions thereof, as described above—for the charter vessel halibut fishery in Area 2C. A summary of the analysis follows.

In 2006, 696 vessels operated as charter vessels in Area 2C. All of these operations are believed to be small entities, with annual gross revenues of less than the limit of $6.5 million dollars for charter vessels. The largest companies involved in the fishery, lodges or resorts that offer accommodations as well as an assortment of visitor activities, may be large entities under the Small Business Administration size standard. Key informant interviews have indicated that the absolute largest of these companies may gross more than $6.5 million per year, but that it was also possible for all of the entities involved in the charter vessel halibut of harvest to have grossed less than this amount. The number of small entities is likely to be overestimated because of the limited information on vessel ownership and operator revenues. However, it is likely that nearly all entities qualify as small businesses.

The demand for sport fishing on charter vessels depends on a number of factors including the number of halibut a charter vessel angler may catch and retain in a year or in a day. The proposed annual catch limit on charter vessel anglers under Option A may reduce demand for trips that target halibut. An annual catch limit may reduce the demand for multi-day trips and affect remote fishing lodges more than day-trip operators. Other species of bottom fish and salmon also are targeted by charter vessels. Some charter vessel operators also may have non-fishing business taking passengers for whale watching, bird watching or general sightseeing trips. A larger effect on the demand for charter vessel fishing trips may be experienced under reduced GHL, which would impose a one-halibut daily catch limit under Option B. The current daily catch limit is two halibut per day providing one of the fish is no more than 32 inches (81.3 cm) in length.

Prohibiting the harvest of halibut by charter vessel guides and crew may reduce the their overall compensation because the ability to harvest fish while working is sometimes considered part of their compensation. As discussed above, the State Commissioner has issued an emergency order in recent years to prohibit retention of fish by charter vessel guides and crew members (No. 1-R-02-07). This emergency order was comprehensive in that all fish were covered by the emergency order, and not just halibut. A Federal prohibition on charter vessel guide and crew harvest of halibut in Area 2C would be specific to halibut and therefore would be less restrictive and have less of an economic impact than has been experienced under the current State of Alaska emergency order.

Little information is available on charter vessel operations or on how charter vessel anglers and operators may respond to proposed changes. It is not possible to predict quantitatively the impact on gross or net revenues, or on entry or exit from the industry. This proposed action is expected to reduce the amount of halibut harvested by charter vessels relative to what they have harvested in recent years. The regulatory burden is expected to be highest for the smallest firms, those involved in multiple trips per day, those who offer multiday packages, and those who are unable to target species other than halibut. These operators may face reduced profits or losses. Key informant interviews indicated that profit margins in the industry are small for some operators and that the proposed management options could reduce or eliminate those margins and force some operators out of business.

NMFS has examined two alternatives to this action: the no-action or status quo alternative, and the action alternative. Alternative 1, the status quo, would retain the two-fish bag limit with one of the two fish less than or equal to 32 inches (83.1 cm) in length, without changes. Alternative 2, the action alternative, considered 13 options for different combinations of management measures to restrict the charter halibut harvest to the Area 2C GHL. The options included limiting vessels to one trip per day; restricting harvest by guide and crew while clients are onboard; limiting the number of lines to six per vessel, not to exceed the number of paying clients onboard; daily bag limits of one or two fish (including sub-options for size limit slots and specific months when the bag limit would apply); and annual harvest limits of four, five, or six fish per charter angler. Two preferred options (Option A and Option B) were selected by considering different combinations of management measures that would minimize the impacts on small entities while still meeting the management objective of restricting the charter vessel harvest of halibut to the GHL.

This proposed rule has been determined to be not significant for the purposes of Executive Order (E.O.) 12866.

This proposed rule complies with the Halibut Act and the Secretary's authority to implement allocation measures for the management of the halibut fishery.

This proposed rule contains a collection-of-information requirement subject to review and approval by OMB under the Paperwork Reduction Act (PRA). This requirement has been submitted to OMB for approval. The public reporting burden for charter vessel guide respondents to fill out and submit logbook data sheets is estimated to average five minutes per response. The public reporting burden for charter vessel anglers to sign the logbook, record the number of halibut caught and retained in Area 2C on an Alaska Sport Fishing License or catch card, and retain that document is estimated to average 2 minutes per response. These estimates include the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection-of-information.

Public comment is sought regarding whether this proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collection of information, including through the use of automated collection techniques or other forms of information technology. Send comments on these or any other aspects of the collection of information to NMFS Alaska Region (see ADDRESSES ) and by e-mail to David_Rostker@omb.eop.gov or fax to (202) 395-7285.

Notwithstanding any other provision of the law, no person is required to respond to, and no person shall be subject to penalty for failure to comply with, a collection-of-information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB control number.

This proposed action is consistent with E.O. 12962 which directs Federal agencies to improve the quantity, function, sustainable productivity, and distribution of aquatic resources for increased recreational fishing opportunities “to the extent permitted by law and where practicable.” This E.O. does not diminish NMFS's responsibility to address allocation issues, nor does it require NMFS or the Council to limit their ability to manage recreational fisheries. E.O. 12962 provides guidance to NMFS to improve the potential productivity of aquatic resources for recreational fisheries. This proposed rule does not diminish that productivity or countermand the intent of E.O. 12962.

For the reasons set out in the preamble, NMFS proposes to amend 50 CFR part 300 as follows: