Section 5304 of title 5, United States Code, authorizes locality pay for General Schedule (GS) employees with duty stations in the United States and its territories and possessions. The Non-Foreign Area Retirement Equity Assurance Act of 2009 (NAREA), Public Law 111-84, title XIX, subtitle B (October 28, 2009), extended locality pay to the States of Alaska and Hawaii and the U.S. territories and possessions effective in January 2010. While the statute included a sense of Congress that one locality pay area cover the entire State of Alaska and one cover the entire State of Hawaii, it did not actually establish any new locality pay areas.

Section 5304(f) of title 5, United States Code, authorizes the President's Pay Agent (the Secretary of Labor, the Director of the Office of Management and Budget, and the Director of the Office of Personnel Management) to determine locality pay areas. The boundaries of locality pay areas must be based on appropriate factors, which may include local labor market patterns, commuting patterns, and the practices of other employers. The Pay Agent must give thorough consideration to the views and recommendations of the Federal Salary Council (Council), a body composed of experts in the fields of labor relations and pay policy and representatives of Federal employee organizations. The President appoints the members of the Council, which submits annual recommendations to the Pay Agent about the locality pay program.

The Federal Salary Council has been unable to meet to consider what locality pay areas should be established for the States of Alaska and Hawaii and the U.S. territories and possessions. Since establishing locality pay areas by regulation takes a substantial amount of time, we are publishing this interim rule now, even though the Council has not yet met, to insure these new locality pay areas are established in time for the January 2011 pay adjustments. We are hopeful the Council will be able to meet during the comment period for these regulations to formulate and submit recommendations.

In the absence of Council recommendations, the Pay Agent has concluded that separate locality pay areas should be established for the States of Alaska and Hawaii. We have non-Federal salary survey data collected under the National Compensation Survey (NCS) that can be used to set and adjust locality pay rates for these locations. This is the same survey source currently used in the other locality pay areas. In fact, the Council's recommendation letter of November 4, 2009, included a pay disparity for Alaska (based on a survey of Anchorage) of 54.98 percent and a pay disparity for Hawaii (based on a survey of Honolulu) of 38.41 percent. These measures were generated using the methodology adopted by the Council and the Pay Agent and salary surveys conducted by the Bureau of Labor Statistics (BLS) and both are well above the Rest of U.S. locality pay area pay disparity of 27.81 percent included in our 2009 annual report to the President. Establishing single pay areas for all of Alaska and all of Hawaii also coincides with a sense of Congress provision that these locations each be covered by a single separate locality pay area. Since it is not feasible for BLS to conduct salary surveys using the current survey methods at current budget levels in additional locations in Alaska, Hawaii, or the U.S. territories and possessions, the Pay Agent concludes Alaska and Hawaii should become whole-State locality pay areas and the other locations should be part of the Rest of U.S. (RUS) locality pay area. This decision may be revisited if the Federal Salary Council makes a different recommendation when it next convenes.

This rule will affect rates of pay for about 44,100 civilian white-collar employees in the States of Alaska and Hawaii, the Commonwealths of Puerto Rico and the Northern Mariana Islands, Guam, the U.S. Virgin Islands, and other U.S. possessions. Under the rule, approved locality pay rates would likely be higher than in the RUS locality pay area for employees in Alaska and Hawaii. Federal civilian white-collar employees in the U.S. territories and possessions will be covered by the RUS locality pay rate.

Pursuant to 5 U.S.C. 553(b)(3)(B), I find that good cause exists for waiving the general notice of proposed rulemaking. Notice is being waived to comply with the intent of Congress that employees affected by the NAREA in Alaska and Hawaii have separate locality pay areas established for January 2011 pay adjustments. In addition, notice is being waived to ensure that employees in the U.S. territories and possessions who are affected by the NAREA are included in the RUS locality pay area in time for the January 2011 pay adjustments. I find that provision of the general notice of proposed regulations is both impracticable and unnecessary in this instance because Congress has indicated its intent that these changes be effected in time for the January 2011 pay adjustments, and because the process of promulgating proposed and final rules to establish these changes would introduce unnecessary delay resulting in effecting these changes beyond the date on which the January 2011 pay adjustments take effect. In addition, since the latest available data indicates that, for Alaska and Hawaii, the locality pay rates will be higher than that for the RUS locality pay area, the process of promulgating proposed and final rules would be contrary to the public interest in that it would cause unnecessary delay in applying the higher locality pay rates in these areas in time for the January 2011 pay adjustments.

The Office of Management and Budget has reviewed this rule in accordance with E.O. 12866.

This document does not contain proposed information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13.

I certify that these regulations will not have a significant economic impact on a substantial number of small entities because they will apply only to Federal agencies and employees.

In 2000, the FDIC clarified the scope of its statutory authority as conservator or receiver to disaffirm or repudiate contracts of an insured depository institution with respect to transfers of financial assets by an IDI in connection with a securitization or participation when it adopted a regulation codified at 12 CFR 360.6 (the “Securitization Rule”). This rule provided that the FDIC as conservator or receiver would not use its statutory authority to disaffirm or repudiate contracts to reclaim, recover, or recharacterize as property of the institution or the receivership any financial assets transferred by an IDI in connection with a securitization or in the form of a participation, provided that such transfer met all conditions for sale accounting treatment under generally accepted accounting principles (“GAAP”). The rule was a clarification, rather than a limitation, of the repudiation power. Such power authorizes the conservator or receiver to breach a contract or lease entered into by an IDI and be legally excused from further performance, but it is not an avoiding power enabling the conservator or receiver to recover assets that were previously sold and no longer reflected on the books and records on an IDI.

The Securitization Rule provided a “safe harbor” by confirming “legal isolation” if all other standards for off balance sheet accounting treatment, along with some additional conditions focusing on the enforceability of the transaction, were met by the transfer in connection with a securitization or a participation. Satisfaction of “legal isolation” was vital to securitization transactions because of the risk that the pool of financial assets transferred into the securitization trust could be recovered in bankruptcy or in a bank receivership. If the transfer satisfied this condition, the Securitization Rule confirmed that the transferred assets were “legally isolated” from the IDI in an FDIC conservatorship or receivership. The Securitization Rule, thus, addressed only purported sales which met the conditions for off balance sheet accounting treatment under GAAP.

Since its adoption, the Securitization Rule has been relied on by securitization participants as assurance that investors could look to securitized financial assets for payment without concern that the financial assets would be interfered with by the FDIC as conservator or receiver. However, the implementation of new accounting rules has created uncertainty for securitization participants.

On June 12, 2009, the Financial Accounting Standards Board (“FASB”) finalized modifications to GAAP through Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140 (“FAS 166”) and Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (“FAS 167”) (the “2009 GAAP Modifications”). The 2009 GAAP Modifications are effective for annual financial statement reporting periods that begin after November 15, 2009. The 2009 GAAP Modifications made changes that affect whether a special purpose entity (“SPE”) must be consolidated for financial reporting purposes, thereby subjecting many SPEs to GAAP consolidation requirements. These accounting changes may require some IDIs to consolidate an issuing entity to which financial assets have been transferred for securitization onto their balance sheets for financial reporting purposes primarily because an affiliate of the IDI retains control over the financial assets. 1 Given the 2009 GAAP Modifications, legal and accounting treatment of a transaction may no longer be aligned. As a result, the safe harbor provision of the Securitization Rule may not apply to a transfer in connection with a securitization that does not qualify for off balance sheet treatment.

FAS 166 also affects the treatment of participations issued by an IDI, in that it defines participating interests as pari-passu pro-rata interests in financial assets, and subjects the sale of a participation interest to the same conditions as the sale of financial assets. Statement FAS 166 provides that transfers of participation interests that do not qualify for sale treatment will be viewed as secured borrowings. While the GAAP modifications have some effect on participations, most participations are likely to continue to meet the conditions for sale accounting treatment under GAAP.

In 2005 Congress enacted Section 11(e)(13)(C)  2 of the Federal Deposit Insurance Act (the “FDI Act”). 3 In relevant part, this paragraph provides that generally no person may exercise any right or power to terminate, accelerate, or declare a default under a contract to which the IDI is a party, or obtain possession of or exercise control over any property of the IDI, or affect any contractual rights of the IDI, without the consent of the conservator or receiver, as appropriate, during the 45-day period beginning on the date of the appointment of the conservator or the 90-day period beginning on the date of the appointment of the receiver. If a securitization is treated as a secured borrowing, Section 11(e)(13)(C) could prevent the investors from recovering monies due to them for up to 90 days. Consequently, securitized assets that remain property of the IDI (but subject to a security interest) would be subject to the stay, raising concerns that any attempt by securitization noteholders to exercise remedies with respect to the IDI's assets would be delayed. During the stay, interest and principal on the securitized debt could remain unpaid. The FDIC has been advised that this 90-day delay would cause substantial downgrades in the ratings provided on existing securitizations and could prevent planned securitizations for multiple asset classes, such as credit cards, automobile loans, and other credits, from being brought to market.

The FDIC believes that several of the issues of concern for securitization participants regarding the impact of the 2009 GAAP Modifications on the eligibility of transfers of financial assets for safe harbor protection can be addressed by clarifying the position of the conservator or receiver under established law. Under Section 11(e)(12) of the FDI Act, 4 the conservator or receiver cannot use its statutory power to repudiate or disaffirm contracts to avoid a legally enforceable and perfected security interest in transferred financial assets. This provision applies whether or not the securitization meets the conditions for sale accounting. The Rule clarifies that prior to repudiation or, in the case of a monetary default, prior to the date on which the FDIC's consent to the exercise of remedies becomes effective, required payments of principal and interest and other amounts due on the securitized obligations will continue to be made. In addition, if the FDIC decides to repudiate the securitization transaction, the FDIC will pay damages equal to the par value of the outstanding obligations, less prior payments of principal received, plus unpaid, accrued interest through the date of repudiation. The payment of such damages will discharge the lien on the securitization assets. This clarification in paragraphs (d)(4) and (e) of the Rule addresses certain questions that were raised about the scope of the stay codified in Section 11(e)(13)(C).

An FDIC receiver generally makes a determination of what constitutes property of an IDI based on the books and records of the failed IDI. Given the 2009 GAAP Modifications, there may be circumstances in which a sale transaction will continue to be reflected on the books and records of the IDI because the IDI or one of its affiliates continues to exercise control over the assets either directly or indirectly. The Rule provides comfort that conforming securitizations which do not qualify for off balance sheet treatment will have access to the assets in a timely manner irrespective of whether a transaction is viewed as a legal sale.

If a transfer of financial assets by an IDI to an issuing entity in connection with a securitization is not characterized as a sale and is properly perfected, the securitized assets will be viewed as subject to a perfected security interest. This is significant because the FDIC as conservator or receiver is prohibited by statute from avoiding a legally enforceable and perfected security interest, except where such an interest is taken in contemplation of insolvency or with the intent to hinder, delay, or defraud the institution or the creditors of such institution. 5 Consequently, the ability of the FDIC as conservator or receiver to reach financial assets transferred by an IDI to an issuing entity in connection with a securitization, if such transfer is characterized as a transfer for security, is limited by the combination of the status of the entity as a secured party with a perfected security interest in the transferred assets and the statutory provision that prohibits the conservator or receiver from avoiding a legally enforceable and perfected security interest.

Thus, for securitizations that are consolidated on the books of an IDI, the Rule provides a safe harbor in a conservatorship or receivership. There are two situations in which consent to expedited access to transferred assets will be given—(i) monetary default under a securitization by the FDIC as conservator or receiver or (ii) repudiation by the FDIC of the securitization agreements pursuant to which the financial assets were transferred. The Rule provides that in the event the FDIC is in monetary default under the securitization documents due to its failure to pay or apply collections from the financial assets received by it in accordance with the securitization documents and the default continues for a period of ten (10) business days after written notice to the FDIC, the FDIC will be deemed to consent pursuant to Sections 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C. 1825(b)(2) to the exercise of contractual rights under the documents on account of such monetary default, and such consent shall constitute satisfaction in full of obligations of the IDI and the FDIC as conservator or receiver to the holders of the securitization obligations.

The Rule also provides that in the event the FDIC repudiates the securitization asset transfer agreement, the FDIC shall have the right to discharge the lien on the financial assets included in the securitization by paying damages in an amount equal to the par value of the obligations in the securitization on the date of the appointment of the FDIC as conservator or receiver, less any principal payments received by the investors through the date of repudiation, plus unpaid, accrued interest through the date of repudiation. The payment of accrued interest is dependent on whether the FDIC has received those funds through payments on the financial assets. If such damages are not paid within ten (10) business days of repudiation, the FDIC will be deemed to consent pursuant to Sections 12 U.S.C. 1821(e)(13)(C) and 12 U.S.C. 1825(b)(2) to the exercise of contractual rights under the securitization agreements.

The Rule also confirms that, if the transfer of the assets in a securitization is viewed as a sale for accounting purposes (and thus the assets are not reflected on the books of an IDI), the FDIC as receiver will not, in the exercise of its authority to disaffirm or repudiate contracts, reclaim, recover, or recharacterize as property of the institution or the receivership the transferred assets. However, this safe harbor only applies if the transactions comply with the requirements set forth in paragraphs (b) and (c) of the Rule.

Pursuant to 12 U.S.C. 1821(e)(13)(C), no person may exercise any right or power to terminate, accelerate, or declare a default under a contract to which the IDI is a party, or to obtain possession of or exercise control over any property of the IDI, or affect any contractual rights of the IDI, without the consent of the conservator or receiver, as appropriate, during the 45-day period beginning on the date of the appointment of the conservator or the 90-day period beginning on the date of the appointment of the receiver. In order to address concerns that the statutory stay could delay repayment of investors in a securitization or delay a secured party from exercising its rights with respect to securitized financial assets, the Rule provides for consent by the conservator or receiver or, if the FDIC is acting as servicer, for the agreement of the FDIC in that capacity, to continue making required payments under the securitization documents and continued servicing of the assets. In addition, the Rule allows for the exercise of self-help remedies during the stay period of 12 U.S.C. 1821(e)(13)(C) ten (10) business days after notice is given following a monetary default by the FDIC or, in the event that the FDIC does not timely pay repudiation damages.

The FDIC recognizes that, as a practical matter, the scope of the comfort that is provided by the Rule is more limited than that provided in the Securitization Rule. However, the FDIC believes that the requirements are necessary to support sustainable securitizations. The safe harbor is not exclusive, and it does not address any transactions that fall outside the scope of the safe harbor or that fail to comply with one or more safe harbor conditions. The FDIC believes that its safe harbor should promote responsible financial asset underwriting and increase transparency in the market.

On November 12, 2009, the FDIC issued an Interim Final Rule amending 12 CFR 360.6, Treatment by the Federal Deposit Insurance Corporation as Conservator or Receiver of Financial Assets Transferred by an Insured Depository Institution in Connection With a Securitization or Participation, to provide for safe harbor treatment for participations and securitizations until March 31, 2010, which was further amended, on March 11, 2010, by a Final Rule extending the safe harbor until September 30, 2010 (as so amended, the “Transition Rule”). Under the Transition Rule, all existing securitizations as well as those for which transfers were made or, for revolving trusts, for which beneficial interests were issued, on or prior to September 30, 2010, were permanently “grandfathered” so long as they complied with the pre-existing Section 360.6.

At its December 15, 2009 meeting, the Board adopted an Advance Notice of Proposed Rulemaking (“ANPR”) and, at its May 11, 2010 meeting, the Board adopted a Notice of Proposed Rulemaking (“NPR”), each of which sought public comment on the scope of amendments to Section 360.6 as well as on the requirements for the application of the safe harbor. The FDIC considered all of the comments received in response to the ANPR in formulating the NPR. The NPR and the public comments received are discussed below in Sections III and IV.

The FDIC, as deposit insurer and receiver for failed IDIs, has a unique responsibility and interest in ensuring that residential mortgage loans and other financial assets originated by IDIs are originated for long-term sustainability. The supervisory interest in origination of quality loans and other financial assets is shared with other bank and thrift supervisors. Nevertheless, the FDIC's responsibilities to protect insured depositors and resolve failed insured banks and thrifts and its responsibility to the DIF require that when the FDIC provides a safe harbor consenting to special relief from the application of its receivership powers, it must do so in a manner that fulfills these responsibilities.

The evident defects in many subprime and other mortgages originated and sold into securitizations requires attention by the FDIC to fulfill its responsibilities as deposit insurer and receiver in addition to its role as a supervisor. The defects and misalignment of incentives in the securitization process for residential mortgages were a significant contributor to the erosion of underwriting standards throughout the mortgage finance system. While many of the troubled mortgages were originated by non-bank lenders, insured banks and thrifts also made many troubled loans as underwriting standards declined under the competitive pressures created by the returns achieved by lenders and service providers through the “originate to distribute” model.

Defects in the incentives provided by securitization through immediate gains on sale for transfers into securitization vehicles and fee income directly led to material adverse consequences for insured banks and thrifts. Among these consequences were increased repurchase demands under representations and warranties contained in securitization agreements, losses on purchased mortgage and asset-backed securities, severe declines in financial asset values and in mortgage- and asset-backed security values due to spreading market uncertainty about the value of structured finance investments, and impairments in overall financial prospects due to the accelerated decline in housing values and overall economic activity. These consequences, and the overall economic conditions, directly led to the failures of many IDIs and to significant losses to the DIF. In this context, it would be imprudent for the FDIC to provide consent or other clarification of its application of its receivership powers without imposing requirements designed to realign the incentives in the securitization process to avoid these devastating effects.

The FDIC's adoption of 12 CFR 360.6 in 2000 facilitated legal and accounting analyses that supported securitization. In view of the accounting changes and the effects they have upon the application of the Securitization Rule, it is crucial that the FDIC provide clarification of the application of its receivership powers in a way that reduces the risks to the DIF by better aligning the incentives in securitization to support sustainable lending and structured finance transactions.

The Rule is fully consistent with the position of the FDIC in the Final Covered Bond Policy Statement of July 15, 2008. In that Policy Statement, the FDIC Board of Directors acted to clarify how the FDIC would treat covered bonds in the case of a conservatorship or receivership with the express goal of thereby facilitating the development of the U.S. covered bond market. As noted in that Policy Statement, it served to “define the circumstances and the specific covered bond transactions for which the FDIC will grant consent to expedited access to pledged covered bond collateral.” The Policy Statement further specifically referenced the FDIC's goal of promoting development of the covered bond market, while protecting the DIF and prudently applying its powers as conservator or receiver. 6

The Rule is also consistent with the amendments to Regulation AB proposed by the Securities and Exchange Commission (“SEC”) on April 7, 2010 (as so proposed to be amended, “New Regulation AB”). The proposed amendments represent a significant overhaul of Regulation AB and related rules governing the offering process, disclosure requirements and ongoing reporting requirements for securitizations. New Regulation AB would establish extensive new requirements for both SEC registered publicly offered securitization and many private placements, including disclosure of standardized financial asset level information, enhanced investor cash flow modeling tools and on-going information reporting requirements. In addition New Regulation AB requires certain certifications to the quality of the financial asset pool, retention by the sponsor or an affiliate of a portion of the securitization securities and third party reports on compliance with the sponsor's obligation to repurchase assets for breach of representations and warranties as a precondition to an issuer's ability to use a shelf registration. The disclosure and retention requirements of New Regulation AB are consistent with and support the approach of the Rule.

To ensure that IDIs are sponsoring securitizations in a responsible and sustainable manner, the Rule imposes certain conditions on securitizations that are not grandfathered by the Rule's transition provision and additional conditions on non-grandfathered securitizations that include residential mortgages (“RMBS”), including those that qualify as true sales, as a prerequisite for the FDIC to grant consent to the exercise of the rights and powers listed in 12 U.S.C. 1821(e)(13)(C) with respect to such financial assets. To qualify for the safe harbor provision of the Rule, the conditions must be satisfied for any securitization (i) for which transfers of financial assets were made on or after December 31, 2010 or (ii) from a master trust or revolving trust established after adoption of the Rule, or from an open commitment not in effect on the date of adoption of the Rule or which otherwise does not qualify to be grandfathered under the transition provisions.

On January 7, 2010, the FDIC published its Advance Notice of Proposed Rulemaking Regarding Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an IDI in Connection with a Securitization or Participation After March 31, 2010 in the Federal Register (75 FR 935 (Jan. 7, 2010)) soliciting public comment to proposed amendments to the Securitization Rule. On May 17, 2010, the FDIC published its Notice of Proposed Rulemaking Regarding Treatment by the FDIC as Conservator or Receiver of Financial Assets Transferred by an IDI in Connection with a Securitization or Participation After September 30, 2010 (75 FR 27471 (May 17, 2010)). The NPR solicited public comment on the Proposed Rule for 45 days.

The FDIC received 22 comment letters on the Proposed Rule and held one teleconference at which details of the NPR were discussed. The letters included comments from trade associations, banks and rating agencies, among others.

Several entities commented specifically on the need for greater disclosure, and the comments included support for the requirement of loan level data for residential mortgage loans. In addition, support was expressed for risk retention; however, there were differing views as to the level of required risk retention.

A number of commenters had objections to the Proposed Rule. Objections fell mainly into the following categories: (1) With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FDIC should only adopt conditions jointly with the other federal regulators; (2) certain criteria were deemed to be too qualitative in nature; (3) certain conditions were viewed as potentially increasing costs to IDIs; and (4) the remedies available under the safe harbor and legal isolation were perceived as lacking clarity.

Joint action by the agencies. The FDIC undertook to revise its safe harbor in light of accounting changes that came into effect for reporting periods after November 15, 2009. At that point in time, the outcome of financial regulatory reform proposals was unclear. The FDIC did not delay its efforts because the accounting and legal bases for the pre-existing safe harbor did not apply after November 2009. Given the changed facts, industry urged the FDIC to evaluate the safe harbor and provide guidance in light of the 2009 GAAP Modifications.

Beginning in the fall of 2009, FDIC staff discussed differing approaches to the safe harbor regulation with the staff of all relevant federal financial regulators and the Department of Treasury. Accordingly, earlier this year the Securities and Exchange Commission proposed New Regulation AB to govern required disclosures for shelf registrations and private placements that were fully consistent with the additional transparency requirements contained in the Proposed Rule. As a result, the Rule and the SEC's proposed regulations are fully consistent.

Nothing in the Rule is inconsistent with the Dodd-Frank legislation. The provisions of the Dodd-Frank legislation substantively address only the risk retention requirements and, pending further regulatory action, require five percent risk retention. This is fully consistent with the Rule as well.

Section 941 of Dodd-Frank requires the federal banking agencies, including the FDIC, and the SEC to jointly prescribe regulations to require any securitizer to retain an economic interest in a portion of the credit risk for any assets involved in a securitization. Dodd-Frank also requires regulations addressing retention of credit risk for residential mortgages, and requires the agencies to define “qualified residential mortgages” which are exempt from risk retention. Section 941 authorizes the rulemaking agencies to consider whether additional exemptions, exceptions, or adjustments are appropriate. The regulations covering securitizations involving residential mortgages must be jointly issued by the foregoing agencies along with the Secretary of the Department of Housing and Urban Development and the Federal Housing Finance Agency. These regulations must be adopted within 270 days of enactment of the Dodd-Frank legislation. In order to assure consistency between the Rule and these required interagency regulations, the Rule provides that upon the effective date of final regulations required by Section 941(b), such final regulations shall exclusively govern the requirement to retain an economic interest in a portion of the credit risk of the financial assets under the Rule.

An important consideration is that different regulatory agencies have different regulatory jurisdiction. The FDIC has regulatory jurisdiction over the rules applied in the resolution of failed IDIs, as the SEC has jurisdiction over disclosure requirements under the securities laws. In exercising their different responsibilities, the agencies may have to adopt rules addressing the same issues within their regulatory mandate. In those cases, those rules should be harmonized except where differences are appropriate to accomplish their different regulatory missions. For the FDIC's safe harbor rule, the FDIC is setting the conditions that define how it will apply its receivership powers and, thereby, what types of transactions will be entitled to the safe harbor protecting them from application of certain of those powers. This was precisely what the FDIC did in 2000 when it adopted the original version of Section 360.6. The interagency risk retention rule required by the Dodd-Frank legislation will not address all of the issues relevant to the application of those receivership rules or to the availability of the safe harbor. In exercising the FDIC's regulatory jurisdiction, the Rule addresses risk retention as well as the other components of the safe harbor whereas the interagency rule will solely address risk retention.

Certain criteria were too qualitative in nature. A number of commenters noted that reliance on qualitative criteria or requirements for continuing actions, such as ongoing disclosures, would make it more difficult to de-link the rating of a securitization from that of the sponsor. It is a debatable proposition that rating agencies cannot evaluate qualitative information when they must rely on changing, qualitative information in any ongoing surveillance of a rating. Nonetheless, the Rule reflects revisions from the text of the Proposed Rule and ties disclosures and many other requirements solely to the contractual terms of the securitization documents. This will permit a clearer assessment of whether a transaction meets the conditions in the Rule. Certain other conditions included in the Proposed Rule that were asserted to be vague were also modified to clarify terminology and respond to the concerns expressed in comments.

Conditions potentially increase costs for IDIs. Comments received in opposition to the conditions included disagreement that such requirements would serve to promote more long-term sustainability for loans and other financial assets originated by IDIs and assertions that the conditions would impose additional costs on IDIs and competitively disadvantage IDIs in relation to non-regulated securitization sponsors.

These comments reflect a misunderstanding of the purpose of the conditions. The conditions are designed to provide greater clarity and transparency to allow a better ongoing evaluation of the quality of lending by banks and reduce the risks to the DIF from opaque securitization structures and the poorly underwritten loans that led to the onset of the financial crisis. In addition, these comments fail to recognize that securitization as a viable liquidity tool in mortgage finance will not return without greater transparency and clarity because investors have experienced the difficulties provided by the existing model of securitization. However, greater transparency is not solely for investors, but will serve to more closely tie the origination of loans to their long-term performance by requiring disclosures of that performance. These conditions are supported by New Regulation AB.

Remedies available under the safe harbor and legal isolation. A number of commenters were concerned that damages payable for repudiation of securitization transfer agreements would not include payment of interest to the date of repudiation. The Rule has been revised to specifically include in the calculation of repudiation damages accrued interest through the date of repudiation, to the extent received through payments on financial assets through the date of repudiation.

Credit rating agencies expressed concern that in the absence of clarification by the FDIC regarding the continuation of payments after an IDI's failure and the payment of damages in the event of repudiation, an IDI securitization might need to be linked to the IDI's credit rating. The Rule addresses these issues in its provisions consenting to payments being made prior to repudiation and in its provisions relating to the amount of damages payable in the event of repudiation by a conservator or receiver.

Some commenters also objected to the safe harbor's reliance on the accounting treatment of the transfers of financial assets being securitized and were critical of the Rule's treatment of financial assets that did not obtain off balance sheet accounting treatment as property of an insolvent IDI. Commenters suggested that the FDIC focus instead on a legal sale analysis in determining whether a transfer of assets was eligible for the safe harbor.

The FDIC has rejected this position because the Securitization Rule as adopted in 2000, as well as the FDIC's longstanding evaluation of the assets potentially subject to receivership powers, has been based on the treatment of those assets as on or off balance sheet. This was explicitly stated in the Securitization Rule. Moreover, it is appropriate for the FDIC to rely on the books and records of a failed IDI in administering a conservatorship or receivership and consider how to apply a safe harbor for assets that are deemed part of the IDI's balance sheet under GAAP.

Objections to the treatment of securitization transfers that do not meet the requirements for off balance sheet treatment under the new accounting rules are misplaced. Prior to the Securitization Rule, securitization transactions were typically treated as secured transactions or sales. As a result, under the Rule, if the transfer does not meet the standards for off balance sheet treatment, the FDIC will consider the transaction as a secured transaction if it meets the requirements imposed on such transactions under the Rule and state law. In this way, investors in securitization transactions that do not qualify for off balance sheet treatment may still receive benefits of expedited access to the securitized financial assets if they meet the conditions specified in the Rule.

Comments relating to specific provisions of the NPR are discussed below in the description of the Rule.

The Rule replaces the Securitization Rule as amended by the Transition Rule. Paragraph (a) of the Rule sets forth definitions of terms used in the Rule. It retains many of the definitions previously used in the Securitization Rule but modifies or adds definitions to the extent necessary to accurately reflect current industry practice in securitizations. Pursuant to these definitions, the safe harbor does not apply to certain government sponsored enterprises (“Specified GSEs”), affiliates of certain such enterprises, or any entity established or guaranteed by those GSEs. In addition, the Rule is not intended to apply to the Government National Mortgage Association (“Ginnie Mae”) or Ginnie Mae-guaranteed securitizations. When Ginnie Mae guarantees a security, the mortgages backing the security are assigned to Ginnie Mae, an entity owned entirely by the United States government. Ginnie Mae's statute contains broad authority to enforce its contract with the lender/issuer and its ownership rights in the mortgages backing Ginnie Mae-guaranteed securities. In the event that an entity otherwise subject to the Rule issues both guaranteed and non-guaranteed securitizations, the securitizations guaranteed by a Specified GSE are not subject to the Rule.

Paragraph (b) of the Rule imposes conditions to the availability of the safe harbor for transfers of financial assets to an issuing entity in connection with a securitization. These conditions make a clear distinction between the conditions imposed on RMBS from those imposed on securitizations for other asset classes. In the context of a conservatorship or receivership, the conditions applicable to all securitizations will improve overall transparency and clarity through disclosure and documentation requirements along with ensuring effective incentives for prudent lending by requiring that the payment of principal and interest be based primarily on the performance of the financial assets and by requiring retention of a share of the credit risk in the securitized loans.

The conditions applicable to RMBS are more detailed and include additional capital structure, disclosure, documentation and compensation requirements as well as a requirement for the establishment of a reserve fund. These requirements are intended to address the factors that caused significant losses in current RMBS securitization structures as demonstrated in the recent crisis. Confidence can be restored in RMBS markets only through greater transparency and other structures that support sustainable mortgage origination practices and require increased disclosures. These standards respond to investor demands for greater transparency and alignment of the interests of parties to the securitization. In addition, they are generally consistent with industry efforts while taking into account proposed legislative and regulatory initiatives.

For all securitizations, the benefits of the Rule should be available only to securitizations that are readily understood by the market, increase liquidity of the financial assets and reduce consumer costs. Consistent with New Regulation AB, the documents governing the securitization will be required to provide that there be financial asset level disclosure as appropriate to the securitized financial assets for any resecuritizations (securitizations supported by other securitization obligations). These disclosures must include full disclosure of the obligations, including the structure and the assets supporting each of the underlying securitization obligations, and not just the obligations that are transferred in the re-securitization. This requirement applies to all re-securitizations, including static re-securitizations as well as managed collateralized debt obligations.

The Rule provides that securitizations that are unfunded or synthetic transactions are not eligible for expedited consent under the Rule. To support sound lending, the documents governing all securitizations must require that payments of principal and interest on the obligations be primarily dependent on the performance of the financial assets supporting the securitization and that such payments not be contingent on market or credit events that are independent of the assets supporting the securitization, except for interest rate or currency mismatches between the financial assets and the obligations to investors.

For RMBS only, the Rule limits the capital structure of the securitization to six tranches or less to discourage complex and opaque structures. The most senior tranche could include time-based sequential pay or planned amortization and companion sub-tranches, which are not viewed as separate tranches for the purpose of the six tranche requirement. This condition will not prevent an issuer from creating the economic equivalent of multiple tranches by re-securitizing one or more tranches, so long as they meet the conditions set forth in the rule, including adequate disclosure in connection with the re-securitization. In addition, RMBS cannot include leveraged tranches that introduce market risks (such as leveraged super senior tranches). Although the financial assets transferred into an RMBS will be permitted to benefit from asset level credit support, such as guarantees (including guarantees provided by governmental agencies, private companies, or government-sponsored enterprises), co-signers, or insurance, the RMBS cannot benefit from external credit support at the issuing entity or pool level. It is intended that guarantees permitted at the asset level include guarantees of payment or collection, but not credit default swaps or similar items. The temporary payment of principal and interest, however, can be supported by liquidity facilities. These conditions are designed to limit both the complexity and the leverage of an RMBS and therefore the systemic risks introduced by them in the market. In addition, the Rule provides that the securitization obligations can be enhanced by credit support or guarantees provided by Specified GSEs. However, as noted in the discussion of the definitions above, a securitization that is wholly guaranteed by a Specified GSE is not subject to the Rule and thus not eligible for the safe harbor.

Comments in response to the NPR expressed concern that a limitation on the number of tranches of an RMBS would negatively affect the ability of securitizations to meet investor objectives and maximize offering proceeds. In addition, commenters argued that there should be no restriction on external third party pool level credit support, while one commenter stated that guarantees in RMBS transactions should be permitted at the loan level only if issued by regulated third parties with proven capacity to ensure prudent loan origination and satisfy their obligations.

In formulating the Rule, the FDIC was mindful of the need to permit innovation and accommodate financing needs, and thus attempted to strike a balance between permitting multi-tranche structures for RMBS transactions, on the one hand, and promoting readily understandable securitization structures and limiting overleveraging of residential mortgage assets, on the other hand.

The FDIC is of the view that permitting pool level, external credit support in an RMBS can lead to overleveraging of assets, as investors might focus on the credit quality of the credit support provider as opposed to the sufficiency of the financial asset pool to service the securitization obligations. However, the Rule has been revised to permit pool level credit support by Specified GSEs.

Finally, although the Rule excludes unfunded and synthetic securitizations from the safe harbor, the FDIC does not view the inclusion of existing credit lines that are not fully drawn in a securitization as causing such securitization to be an “unfunded securitization.” The provision is intended to emphasize that the Rule applies only where there is an actual transfer of financial assets. In addition, to the extent an unfunded or synthetic transaction qualifies for treatment as a qualified financial contract under Section (11)(e) of the FDI Act, it would not need the benefits of the safe harbor provided in the Rule in an FDIC receivership. 7

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Emergency AD No. 2010-0043R1-E, dated March 26, 2010, to correct an unsafe condition for the specified Eurocopter model helicopters. EASA advises of the loss of the right-hand (RH) hydraulic power system on an AS332L2 helicopter. The pilot saw the hydraulic system “low level” warning light come on during the approach phase. Investigation revealed a hydraulic fluid leak from the hydraulic pump casing due to deterioration of the pump seals resulting from an incorrectly positioned compensating piston liner. EASA states that this non-compliant repair process was used by the following repair stations: HELIKOPTER SERVICE, ASTEC HELICOPTER SERVICE, and HELI-ONE. They further state that if this condition occurs on both pumps of a helicopter, it could result in loss of the RH and left-hand (LH) hydraulic power systems and consequently may lead to the loss of helicopter controllability.

Eurocopter has issued an Emergency Alert Service Bulletin (EASB) with two numbers (01.00.78 and 01.00.43), dated March 11, 2010. EASB No. 01.00.78 applies to United States type-certificated Model AS332C, L, L1, and L2 helicopters; civil Model AS332C1 not type-certificated in the United States; and military Model AS332B, B1, M, M1, and F1 helicopters that are not type-certificated in the United States. EASB No. 01.00.43 applies to military Model AS532A2, U2, UC, AC, UL, AL, SC, and UE helicopters that are not type-certificated in the United States. The EASB specifies identifying affected hydraulic pumps, prohibiting flights for all helicopters fitted with two of the affected hydraulic pumps until at least one of the affected pumps is replaced, replacing all affected hydraulic pumps with airworthy pumps within 10 months, and returning any affected hydraulic pump to have it checked and, where necessary, reconditioned.

EASA classified this EASB as mandatory and issued EASA Emergency AD No. 2010-0043R1-E, dated March 26, 2010, to ensure the continued airworthiness of these helicopters.

These helicopters have been approved by the aviation authority of France and are approved for operation in the United States. Pursuant to our bilateral agreement with France, EASA, their technical representative, has notified us of the unsafe condition described in the EASA AD. We are issuing this AD because we evaluated all information provided by EASA and determined the unsafe condition exists and is likely to exist or develop on other helicopters of these same type designs.

We refer to flight hours as hours time-in-service (TIS). We require each affected hydraulic pump be replaced with an airworthy pump within 15 hours TIS. We do not use the calendar date used in the EASA AD because that date has already passed.

This unsafe condition is likely to exist or develop on other helicopters of the same type design. Therefore, this AD is being issued to prevent loss of the hydraulic power system and subsequent loss of control of the helicopter. This AD requires, within 15 hours TIS, replacing each affected hydraulic pump with an airworthy hydraulic pump or, if the replacement hydraulic pump is one to which this AD applies, the hydraulic pump must have been overhauled or repaired after February 1, 2010.

The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the controllability of the helicopter. Therefore, replacing each affected hydraulic pump with an airworthy hydraulic pump is required within 15 hours TIS, a very short compliance time, and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

We estimate that this AD will affect about 6 helicopters of U. S. registry. We also estimate that it will take about 1/2 work-hour to review maintenance records for the presence of an affected hydraulic pump and 2 work-hours to change out a hydraulic pump. The average labor rate is $85 per work-hour. Required parts will cost about $40,448 to replace a hydraulic pump. Based on these figures, we estimate the cost of this AD on U.S. operators is $122,109, assuming 3 hydraulic pumps are replaced.

This AD is a final rule that involves requirements that affect flight safety and was not preceded by notice and an opportunity for public comment; however, we invite you to submit any written data, views, or arguments regarding this AD. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2010-0907; Directorate Identifier 2010-SW-044-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the AD. We will consider all comments received by the closing date and may amend the 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 AD. Using the search function of the docket Web site, you can find and read the comments to any of our dockets, including the name of the individual who sent 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).

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

For the reasons discussed above, I certify that the 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 an economic evaluation of the estimated costs to comply with this AD. See the AD docket to examine the 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.

This rule amends title 14 of the Code of Federal Regulations, part 97 (14 CFR part 97), by establishing, amending, suspending, or revoking SIAPS, Takeoff Minimums and/or ODPS. The complete regulators description of each SIAP and its associated Takeoff Minimums or ODP for an identified airport is listed on FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and 14 CFR 97.20. The applicable FAA Forms are FAA Forms 8260-3, 8260-4, 8260-5, 8260-15A, and 8260-15B when required by an entry on 8260-15A.

The large number of SIAPs, Takeoff Minimums and ODPs, in addition to their complex nature and the need for a special format make publication in the Federal Register expensive and impractical. Furthermore, airmen do not use the regulatory text of the SIAPs, Takeoff Minimums or ODPs, but instead refer to their depiction on charts printed by publishers of aeronautical materials. The advantages of incorporation by reference are realized and publication of the complete description of each SIAP, Takeoff Minimums and ODP listed on FAA forms is unnecessary. This amendment provides the affected CFR sections and specifies the types of SIAPs and the effective dates of the, associated Takeoff Minimums and ODPs. This amendment also identifies the airport and its location, the procedure, and the amendment number.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP, Takeoff Minimums and ODP as contained in the transmittal. Some SIAP and Takeoff Minimums and textual ODP amendments may have been issued previously by the FAA in a Flight Data Center (FDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP and Takeoff Minimums and ODP amendments may require making them effective in less than 30 days. For the remaining SIAPS and Takeoff Minimums and ODPS, an effective date at least 30 days after publication is provided.

Further, the SIAPs and Takeoff Minimums and ODPS contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPS and Takeoff Minimums and ODPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs, Takeoff Minimums and ODPs, and safety in air commerce, I find that notice and public procedures before adopting these SIAPS, Takeoff Minimums and ODPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26,1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This rule amends Title 14, Code of Federal Regulations, Part 97 (14 CFR part 97) by amending the referenced SIAPs. The complete regulatory description of each SIAP is listed on the appropriate FAA Form 8260, as modified by the National Flight Data Center (FDC)/Permanent Notice to Airmen (P-NOTAM), and is incorporated by reference in the amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of Title 14 of the Code of Federal Regulations.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. This amendment provides the affected CFR sections and specifies the types of SIAP and the corresponding effective dates. This amendment also identifies the airport and its location, the procedure and the amendment number.

This amendment to 14 CFR part 97 is effective upon publication of each separate SIAP as amended in the transmittal. For safety and timeliness of change considerations, this amendment incorporates only specific changes contained for each SIAP as modified by FDC/P-NOTAMs.

The SIAPs, as modified by FDC P-NOTAM, and contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these changes to SIAPs, the TERPS criteria were applied only to specific conditions existing at the affected airports. All SIAP amendments in this rule have been previously issued by the FAA in a FDC NOTAM as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for all these SIAP amendments requires making them effective in less than 30 days.

Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making these SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Orion Corp., Orionintie 1, 02200 Espoo, Finland, filed a supplement to NADA 141-267 for DEXDOMITOR (dexmedetomidine hydrochloride). The supplemental NADA provides for veterinary prescription use of dexmedetomidine hydrochloride injectable solution as a preanesthetic to general anesthesia in cats. The supplemental application is approved as of August 16, 2010, and the regulations in 21 CFR 522.558 are amended to reflect the approval.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), summaries of the safety and effectiveness data and information submitted to support approval of these applications may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

Under section 512(c)(2)(F)(iii) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(iii)), this approval qualifies for 3 years of marketing exclusivity beginning on the date of approval.

The agency has determined under 21 CFR 25.33 that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Pharmacia & Upjohn Co., a Division of Pfizer, Inc., 235 East 42d St., New York, NY 10017, filed supplements to NADA 125-476 for use of liquid MGA 500 (melengestrol acetate) and RUMENSIN (monensin, USP) single-ingredient Type A medicated articles to make two-way Type C medicated feeds and to NADA 138-870 for use of liquid MGA 500, RUMENSIN, and TYLAN (tylosin phosphate) single-ingredient Type A medicated articles to make three-way Type C medicated feeds for heifers fed in confinement for slaughter. The supplemental NADAs provided for use of increased levels of monensin, previously approved for single-ingredient monensin Type C medicated feeds under NADA 95-735 (72 FR 653, January 8, 2007). The supplements were approved in October 2009 and the regulations were amended in § 558.342 (21 CFR 558.342) (74 FR 59911, November 19, 2009; 74 FR 61029, November 23, 2009).

Labeling submitted with these supplements also provided for use of a dry MGA 200 Type A medicated article in formulating both the two-way and three-way combination feeds with increased levels of monensin. This was consistent with the February 2009 supplemental approvals under NADA 125-476 and NADA 138-870 of these same two-way and three-way combinations using dry MGA 200 for conditions of use that had been originally approved under Pharmacia & Upjohn Co.'s NADA 124-309 and NADA 138-792. Approval of these supplements in this manner was intended, in part, to simplify administration of the two-way and three-way combinations under a single NADA file for each combination and to treat Pharmacia & Upjohn's applications in a manner consistent with similar applications held by other sponsors. As of February 2009, NADA 124-309 and NADA 138-792 no longer contained the most current approved labeling and were administratively considered part of NADA 125-476 and NADA 138-870, respectively.

FDA has noticed that the regulations in § 558.342 contain entries for use of monensin in these two-way and three-way combinations at the lower use levels. At this time, the regulations are being amended to reflect the conditions of use described in labeling approved in October 2009 under NADA 125-476 and NADA 138-870. These amendments are being made to improve the accuracy of the regulations.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Paperwork Reduction Act

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2176. The collection of information in these final regulations is in § 1.6109-2(d) and (e). This information is required in order for the IRS to issue identifying numbers to tax return preparers who are eligible to receive them.

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

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 final amendments to regulations under section 6109 of the Code relating to furnishing a tax return preparer's identifying number on tax returns and claims for refund of tax. Section 6109(a)(4) requires tax return preparers to furnish on tax returns and claims for refund of tax an identifying number, as prescribed, to ensure proper identification of the preparer, the preparer's employer, or both. In addition, section 6109(c) authorizes the Secretary “to require such information as may be necessary to assign an identifying number to any person.” The requirement to furnish an identifying number on tax returns and claims for refund of tax applies to information returns described in § 301.7701-15(b)(4) and to electronically filed tax returns.

In 2009 the IRS conducted a comprehensive review of tax return preparers, culminating in Publication 4832, Return Preparer Review (Rev. 12-2009) (the Report). The Report recommended that tax return preparers be required to obtain and use a preparer tax identification number (PTIN) as the exclusive preparer identifying number. The Report also recommended that the IRS establish new eligibility standards to prepare tax returns—including testing, continuing education, and Federal tax compliance checks. The proposed regulations adopted several of the recommendations made in the Report. The Treasury Department and the IRS conclude that adopting these provisions in the final regulations will increase tax compliance and help to ensure that tax return preparers are knowledgeable, skilled, and ethical.

To implement recommendations made in the Report, on March 26, 2010, the Treasury Department and the IRS published in the Federal Register (75 FR 14539) a notice of proposed rulemaking (REG-134235-08) proposing amendments to § 1.6109-2 regarding the identifying number that a tax return preparer must furnish on tax returns and claims for refund of tax. A public hearing was held on the proposed regulations on May 6, 2010. The IRS received written public comments responding to the proposed regulations.

Over 200 written comments were received in response to the notice of proposed rulemaking. All comments were considered and are available for public inspection. Most of the comments are summarized in this preamble.

The final regulations adopt the proposed amendments to § 1.6109-2, which provide that for tax returns or refund claims filed after December 31, 2010, tax return preparers must obtain and exclusively use the identifying number prescribed by the IRS in forms, instructions, or other guidance, rather than a social security number (SSN), as the identifying number to be included with the tax return preparer's signature on a tax return or claim for refund. Prior to these final regulations, the identifying number of a tax return preparer was the tax return preparer's SSN or an alternative number as prescribed by the IRS. The alternative number that the IRS has prescribed is a PTIN. After December 31, 2010, tax return preparers can only use a PTIN (or other number that the IRS prescribes in the future as a replacement to the PTIN) and may not use an SSN as a preparer identifying number unless the IRS directs otherwise. For tax returns or claims for refund filed before January 1, 2011, the identifying number of a tax return preparer will remain the preparer's SSN or PTIN.

The requirement to use a PTIN will allow the IRS to better identify tax return preparers, centralize information, and effectively administer the rules relating to tax return preparers. The final regulations will also benefit taxpayers and tax return preparers and help maintain the confidentiality of SSNs. Most of the comments received on the notice of proposed rulemaking support the requirement to use a PTIN as the exclusive identifying number for tax return preparers beginning next year.

Under the final regulations, a tax return preparer must sign and furnish a PTIN on a tax return or claim for refund if the tax return preparer has primary responsibility for the overall substantive accuracy of the preparation of the tax return or claim for refund. If a signing tax return preparer has an employment arrangement or association with another person, then that other person's employer identification number (EIN) must also be included on the tax return or refund claim.

Tax return preparers who are required but fail to include a PTIN on a tax return or refund claim, or fail to include the EIN of any person with whom they have an employment arrangement or association, are subject to a penalty under section 6695(c), unless the failure to include an identifying number is due to reasonable cause and not due to willful neglect.

The proposed regulations provided that for purposes of the provisions of § 1.6109-2 that would be applicable after December 31, 2010, the term tax return preparer means any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax. The proposed regulations further provided that a tax return preparer for purposes of these provisions excludes an individual who is not defined as a nonsigning tax return preparer in § 301.7701-15(b)(2). A nonsigning tax return preparer is defined in § 301.7701-15(b)(2) as any tax return preparer who, while not a signing tax return preparer (the individual who has the primary responsibility for the overall substantive accuracy of the preparation of a tax return or claim for refund of tax), prepares all or a substantial portion of a tax return or claim for refund.

Some commentators recommended that individuals who prepare or assist in preparing all or substantially all of a tax return or claim for refund should not be required to obtain a PTIN if they do not sign the tax return or claim for refund and if they act under the supervision of another tax return preparer who substantively reviews the tax return or claim for refund and signs it. Commentators explained, for example, that in some accounting firms, employees who have passed the Uniform Certified Public Accountant Examination and are working toward their license as a certified public accountant are often involved in, or assist with, the preparation of tax returns. Although these employees do not sign tax returns or claims for refund as a tax return preparer, under the regulations as proposed, they are tax return preparers who must have a PTIN after December 31, 2010, if they prepare all or substantially all of a tax return or claim for refund. The commentators proposed an exemption for these individuals.

The Chief Counsel for Advocacy of the Small Business Administration (SBA) submitted similar comments, on behalf of small businesses, on the proposed amendments to § 1.6109-2 as applied to tax return preparers who do not sign tax returns or claims for refund, in particular the provisions requiring tax return preparers to obtain and renew a PTIN as the IRS may prescribe. The SBA heard from small accounting firms that those firms would incur a substantial financial burden if the regulations include certified public accountant candidates and other paraprofessional employees who are involved in tax return preparation under the supervision of a certified public accountant who is a signing tax return preparer. The SBA also observed that requiring these individuals to register with the IRS as tax return preparers would not improve the accuracy of tax returns prepared in small accounting firms because the firms and certified public accountants within these firms are already subject to ethical and competency rules administered by state boards of accountancy, as well as Treasury Department Circular No. 230, 31 CFR Part 10. The SBA recommended that the regulations either exclude outright employees of firms engaged in certified public accountancy who are nonsigning tax return preparers or exclude these employees if they are supervised by a certified public accountant, attorney, or enrolled agent.

These final regulations are intended to address two overarching objectives. The first overarching objective is to provide some assurance to taxpayers that a tax return was prepared by an individual who has passed a minimum competency examination to practice before the IRS as a tax return preparer, has undergone certain suitability checks, and is subject to enforceable rules of practice. The second overarching objective is to further the interests of tax administration by improving the accuracy of tax returns and claims for refund and by increasing overall tax compliance.

The final regulations define a tax return preparer in § 1.6109-2(g) as an individual who prepares for compensation, or assists in preparing, all or substantially all of a tax return or claim for refund of tax. The final regulations retain this definition from the proposed regulations without including the requested exemption. It is critical to the IRS's tax administration efforts that, in the first instance, the IRS is readily able to identify all individuals who are involved in preparing all or substantially all of a tax return or claim for refund. Additionally, by requiring regular renewal of a PTIN, tax return preparers will confirm their continuing competence and suitability to be tax return preparers. Accordingly, were the Treasury Department and the IRS to provide an exemption in these regulations for a sizeable segment of tax return preparers, it would undercut effective oversight by the IRS of the tax return preparer community. An exemption for some tax return preparers, as requested in the comments, would allow the exempt individuals to prepare tax returns and claims for refund without identifying themselves to the IRS as tax return preparers and without undergoing competency examinations and suitability checks and being subject to enforceable rules of practice.

In the proposed regulations, no distinction was made between tax return preparers licensed by a state authority as tax return preparers and unlicensed tax return preparers. A number of comments were received from state-licensed tax return preparers, particularly from those who are Licensed Tax Preparers or Licensed Tax Consultants in Oregon. These comments almost uniformly requested that state-licensed tax return preparers be “grandfathered” into the regulations and not be required to apply for a PTIN, renew an existing PTIN, or comply with requirements that the IRS may prescribe to obtain or renew a PTIN after December 31, 2010. Other commentators asked that the IRS consider an exemption from the regulations for tax return preparers who have been preparers for a certain period of years or who prepare annually a volume of tax returns below a certain (relatively small) number. Some commentators, however, were opposed to exemptions or grandfather provisions.

The Report discussed at some length state licensing and regulation of tax return preparers, including state-by-state descriptions, but in the Report's recommendations, exemptions were not made for tax return preparers licensed or otherwise regulated under a state program. The Report also concluded that the IRS would not provide “grandfather” exemptions based on experience in preparing tax returns. The proposed regulations, consistent with the Report's recommendations, did not include any exemption for state-based licensure, length of experience, or number of tax returns prepared.

After careful consideration of the comments received on this issue, the final regulations do not include any exemption for state-based licensure, length of experience, or number of tax returns prepared. The Treasury Department and the IRS conclude that tax return preparers who prepare tax returns and claims for refund for compensation should be subject to uniform standards of qualification and practice. When obtaining the services of a tax return preparation business, taxpayers should be assisted by tax return preparers subject to the same Federal regulations, regardless of a taxpayer's state of residence or variable circumstances such as the size of the business or the number of years a tax return preparer has been in the industry.

The proposed regulations did not include volunteers and other unpaid tax return preparers as tax return preparers required to obtain a PTIN. Consistent with the definition of a tax return preparer under section 7701(a)(36), which requires a compensation element for an individual to be a tax return preparer, the definition of tax return preparer in the proposed regulations excluded an individual described in § 301.7701-15(f), which lists, among others, any individual who provides assistance in the preparation of tax returns as part of a Volunteer Income Tax Assistance (VITA), Tax Counseling for the Elderly (TCE), or Low-Income Taxpayer Clinic (LITC) program. Section 301.7701-15(f)(1)(xii) also excludes from the definition of a tax return preparer anyone who prepares a tax return or claim for refund without an explicit or implicit agreement for compensation. An insubstantial gift, favor, or service received for the preparation of a tax return or refund claim is not considered compensation.

Several commentators recommended that the final regulations require volunteer tax return preparers to obtain a PTIN. According to the commentators, putting volunteers under the regulations would provide several benefits, including increased tax compliance and improvement of the volunteer programs. Although commentators suggested that the PTIN and other requirements applicable to paid tax return preparers also apply to volunteers, it was noted that associated fees could be waived for volunteers. The comments also noted that extending the regulations to all tax return preparers who hold themselves out to the public as tax return preparers would unambiguously include individuals who prepare tax returns for customers purportedly for “free” but incident to a customer's purchase of a product or other service.

The final regulations adopt the same definition of tax return preparer as in the proposed regulations. The Treasury Department and the IRS conclude that the final regulations are properly limited to paid tax return preparers. The focus on paid tax return preparation in the Report and in these regulations is consistent with both the current reality of tax return preparation and applicable legal provisions, including § 301.7701-15(f). As noted by the figures in the Report, volunteer tax return preparers are a small fraction of all tax return preparers and the tax returns prepared by volunteers are a small fraction of all prepared tax returns.

Only volunteers or other truly unpaid tax return preparers, however, are not tax return preparers for purposes of these regulations. As an example, individuals who prepare tax returns without compensation for relatives or friends as a personal favor are not within the definition of the term tax return preparer.

The Treasury Department and the IRS conclude that arrangements for tax return preparation as part of a sales transaction are inherently agreements to prepare tax returns for compensation under these regulations, notwithstanding any claim by tax return preparers that the tax return or refund claim preparation is not separately compensated. No change in these regulations is necessary to reflect this result. As a result, an individual who, in connection with a sale of goods or services, prepares all or substantially all of a tax return or claim for refund filed after December 31, 2010, and who does not furnish a valid PTIN on the tax return or claim for refund may be liable for the section 6695(c) penalty, unless the failure to furnish a valid PTIN was due to reasonable cause and not due to willful neglect.

The proposed regulations did not specifically include any provisions on commercially available tax return preparation software or software developers. Several commentators expressed the concern that some tax return preparers use tax return preparation software to prepare multiple “self-prepared” tax returns for clients in order to hide the tax return preparers' involvement and avoid identifying themselves on the tax returns. The commentators proposed that the final regulations include limits on the purchase or use of software, such as a requirement built into the software to enter a PTIN to use the software to prepare more than one tax return.

The final regulations do not include any provisions with respect to software. Software developers are not tax return preparers for purposes of these final regulations, and the regulation of software is beyond the scope of these amendments to § 1.6109-2.

Under the proposed regulations, the amendments to § 1.6109-2 would apply to tax returns and claims for refund filed after December 31, 2010. For tax returns and claims for refund filed before then, the existing provisions of § 1.6109-2 apply. Some commentators questioned whether, as a matter of implementation, January 1, 2011, is a realistic date for the requirements of these regulations. The final regulations maintain the distinction between tax returns and claims for refund filed on or before December 31, 2010, and those filed after that date. To the extent a transitional period may be necessary, the Treasury Department and the IRS may, under § 1.6109-2(h) of the final regulations, prescribe in other guidance interim procedures for tax return preparers to apply for a PTIN or register with the IRS.

The proposed regulations did not specifically address foreign tax return preparers who prepare tax returns or refund claims. A frequent question in the public comments was whether the regulations as proposed would apply to foreign tax return preparers. These commentators also asked whether foreign tax return preparers who do not have an SSN will be eligible for a PTIN. Currently, both Form W-7P, “Application for Preparer Tax Identification Number,” and the existing online process at http://www.irs.gov that can be used to apply for a PTIN require an applicant to provide the applicant's SSN. Many foreign tax return preparers are uncertain as to how they will obtain a PTIN, if they are required to have a PTIN.

The final regulations apply to tax return preparers regardless of United States or foreign citizenship or residency. The IRS will establish a process to obtain a PTIN for tax return preparers who do not have SSNs. The Treasury Department and the IRS intend to issue transitional guidance before December 31, 2010, which describes the process to obtain a PTIN for foreign and other tax return preparers who do not have SSNs.

The proposed regulations provided that, in applying for a PTIN, tax return preparers must pay a user fee that the IRS prescribes in forms, instructions, or other guidance. The proposed regulations also provided for the IRS to prescribe the manner for renewing a PTIN, including the payment of a user fee. Some commentators objected to the proposed requirement of a user fee to obtain or renew a PTIN. Sole proprietors and small preparation firms commented that a user fee, combined with the potential costs of minimum competency testing and for continuing education, would materially increase their business expenses.

The final regulations adopt the proposed provisions under which the IRS may prescribe requirements to apply for or renew a PTIN, including the payment of a user fee. By statute (31 U.S.C. 9701), Congress authorized Federal agencies to establish user fees. The Treasury Department and the IRS will prescribe in regulations the requirement to pay a user fee, the amount of any fee, and the time and manner of payment. A user fee to obtain or renew a PTIN will be necessary to recover the costs that the IRS will incur to implement and administer the processes to apply for and renew a PTIN. The amount of a user fee will be reasonable and based on accepted methods of calculation that reflect the costs to the government, the value of the service to the recipient, the public policy or interest served, and other relevant factors.

The requirement to obtain a PTIN applies to individuals who for compensation prepare, or assist in preparing, all or substantially all of a tax return or claim for refund. Section 1.6109-2(g) of the proposed regulations identified the following non-exclusive list of factors to determine whether an individual prepared or assisted in preparing all or substantially all of a tax return or claim for refund:

The complexity of the work performed by the individual relative to the overall complexity of the tax return or claim for refund of tax;

The amount of the items of income, deductions, or losses attributable to the work performed by the individual relative to the total amount of income, deductions, or losses required to be correctly reported on the tax return or claim for refund of tax; and

The amount of tax or credit attributable to the work performed by the individual relative to the total tax liability required to be correctly reported on the tax return or claim for refund of tax.

Examples are included in the proposed regulations to illustrate the provisions of paragraph (g). The final regulations retain these provisions, including the examples, consistent with the definition of a tax return preparer adopted in paragraph (g) of the final regulations. As explained, this definition of tax return preparer for purposes of these regulations is necessary for meaningful oversight of tax return preparation. The factors in paragraph (g) provide guidance for applying the test of whether an individual has prepared or assisted with preparing all or substantially all of a tax return or claim for refund. Paragraph (g) of the final regulations, however, also adds a sentence not in the proposed regulations to clarify that the preparation of a form, statement, or schedule, such as Schedule EIC (Form 1040), “Earned Income Credit,” may constitute the preparation of all or substantially all of a tax return or claim for refund based on the application of the factors in paragraph (g).

Paragraph (h) of the final regulations clarifies that the IRS may specify in other appropriate guidance the returns, schedules, and other forms to which these regulations will apply.

As provided in the proposed regulations, to obtain a PTIN or other prescribed identifying number, a tax return preparer must be an attorney, certified public accountant, enrolled agent, or registered tax return preparer authorized to practice before the IRS under 31 U.S.C. 330 and Circular 230. This requirement will apply after December 31, 2010, unless the IRS prescribes exceptions, such as for a transitional period, as necessary for effective tax administration. A number of the comments noted a concern that the term registered tax return preparer is likely to cause confusion in the marketplace for tax return preparation. The commentators are concerned that this designation for a certain group of tax return preparers, when listed with attorneys, certified public accountants, and enrolled agents, may lead the public to mistakenly infer that registered tax return preparers have credentials and qualifications similar to those of attorneys, certified public accountants, and enrolled agents. Several commentators observed that some registered tax return preparers might even attempt to exploit this confusion to their commercial advantage. To avoid the potential for misperception, the commentators advocate that the IRS explain the distinctions between registered tax return preparers and other practitioners authorized to practice before the IRS under Circular 230. At least one commentator also recommended changing the term to “authorized tax return preparers.”

The final regulations adopt the term registered tax return preparer. The Treasury Department and the IRS conclude that the term does not reasonably imply that registered tax return preparers are authorized to practice law or certified public accountancy or act as enrolled agents or that the term will cause material confusion or misunderstanding by the public.

The role of registered tax return preparers and their authority to practice before the IRS will be addressed in amendments to Circular 230. The requirements and process to become a registered tax return preparer will be set forth in forms, instructions, and other appropriate guidance. In that regard, some commentators that employ tax return preparers requested that the IRS allow the employers to mass register their employees (with a means for employers to subsequently validate through the IRS an employee's standing as a registered tax return preparer with a current PTIN). The purpose of these final regulations, however, is not to provide guidance on the specific process for registration.

It has been determined that these final regulations are 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 has been determined that a final regulatory flexibility analysis under 5 U.S.C. 604 is required for this final rule. The analysis is set forth under the heading, “Final Regulatory Flexibility Analysis.”

Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. The Chief Counsel for Advocacy submitted comments on the notice of proposed rulemaking, which are discussed elsewhere in this preamble.

When an agency either promulgates a final rule that follows a required notice of proposed rulemaking or promulgates a final interpretative rule involving the internal revenue laws as described in 5 U.S.C. 603(a), the Regulatory Flexibility Act (5 U.S.C. chapter 6) requires the agency to “prepare a final regulatory flexibility analysis.” A final regulatory flexibility analysis must, pursuant to 5 U.S.C. 604(a), contain the five elements listed in this final regulatory flexibility analysis. For purposes of this final regulatory flexibility analysis, a small entity is defined as a small business, small nonprofit organization, or small governmental jurisdiction. 5 U.S.C. 601(3)-(6). The Treasury Department and the IRS conclude that the final regulations (together with other contemplated guidance provided for in these regulations) will impact a substantial number of small entities and the economic impact will be significant.

The final regulations are necessary for tax administration. The final regulations are needed to identify tax return preparers and the tax returns and claims for refund that they prepare, to aid the IRS's oversight of tax return preparers, and to administer requirements intended to ensure that tax return preparers are competent, trained, and conform to rules of practice. Mandating a single type of identifying number for all tax return preparers and assigning a prescribed identifying number to registered tax return preparers is critical to effective oversight.

Taxpayers' reliance on paid tax return preparers has grown steadily in recent decades, and a large number of U.S. taxpayers rely on paid tax return preparers for assistance in meeting the taxpayers' income tax filing obligations. Beyond preparing tax returns, tax return preparers also help educate taxpayers about the tax laws and facilitate electronic filing. Tax return preparers provide advice to taxpayers, identify items or issues for which the law or guidance is unclear, and inform taxpayers of the benefits and risks of positions taken on a tax return, and the tax treatment or reporting of items and transactions. Competent tax return preparers who are well educated in the rules and subject matter of their field can prevent costly errors, potentially saving a taxpayer from unwanted problems later on and relieving the IRS from expending valuable examination and collection resources.

Given the important role that tax return preparers play in Federal tax administration, the IRS has a significant interest in being able to accurately identify tax return preparers and monitor their tax return preparation activities. The final regulations, therefore, enable the IRS to more accurately identify tax return preparers and improve the IRS's ability to associate filed tax returns and refund claims with the responsible tax return preparer. The final regulations are intended to accomplish this result, and thereby advance tax administration, by requiring all individuals who are paid to prepare all or substantially all of a tax return or claim for refund of tax to obtain a preparer identifying number prescribed by the IRS. Pursuant to the final regulations, the IRS will require individuals who sign tax returns or claims for refund to furnish the tax return preparer's PTIN on a tax return or claim for refund when the return or refund claim is signed. The final regulations also provide that the IRS may require tax return preparers to apply for, and regularly renew, their PTINs. Under the final regulations, the IRS may prescribe a user fee payable when applying for a number and for renewal.

The IRS did not receive specific comments from the public responding to the initial regulatory flexibility analysis in the proposed regulations that preceded these final regulations. The IRS did receive comments from the public on the proposed amendments to § 1.6109-2. A summary of the comments is set forth elsewhere in this preamble, along with the Treasury Department's and the IRS's assessment of the issues raised in the comments and descriptions of any revisions resulting from the comments.

The final regulations apply to individuals who prepare tax returns and claims for refund of tax. The estimated number of paid tax return preparers is as high as 1.2 million, which means the final regulations are likely to impact a large number of individuals. Most paid tax return preparers are employed by firms. A substantial number of paid tax return preparers are employed at small tax return preparation firms or are self-employed tax return preparers. Any economic impact of these regulations on small entities generally will be on self-employed tax return preparers who prepare and sign tax returns or on small businesses that employ one or more individuals who prepare tax returns.

The appropriate NAICS codes for PTINs are those that relate to tax preparation services (NAICS code 541213), other accounting services (NAICS code 541219), offices of lawyers (NAICS code 541110), and offices of certified public accountants (NAICS code 541211). Entities identified as tax preparation services and offices of lawyers are considered small under the SBA's size standards (13 CFR 121.201) if their annual revenue is less than $7 million. Entities identified as other accounting services and offices of certified public accountants are considered small under the SBA's size standards if their annual revenue is less than $8.5 million. The IRS estimates that approximately 70 to 80 percent of the individuals subject to these final regulations are tax return preparers operating as, or employed by, small entities.

The final regulations do not directly impose any reporting, recordkeeping, or similar requirements on any small entities. Rather, the final regulations provide that the IRS may prescribe in forms, instructions, or other guidance (including regulations) requirements for PTINs issued to tax return preparers, regular renewal of PTINs, and payment of a user fee when applying for or renewing a PTIN. In addition, other guidance may require certain tax return preparers to complete competency testing, complete continuing education courses, and adhere to established rules of practice governing attorneys, certified public accountants, enrolled agents, enrolled actuaries, and enrolled retirement plan agents.

Applying for a PTIN and subsequent renewal will require reporting of certain information, but they are not expected to require recordkeeping. No particular or special professional skills will be necessary. These activities also will not require the purchase or use of any special business equipment or software. To the extent it will be necessary to apply for a PTIN (or similar identifying number that may subsequently replace a PTIN) online at http://www.irs.gov , most if not all tax return preparation businesses have computers and Internet access. The IRS estimates that applying for a PTIN will take 10 to 20 minutes per individual, with an average of 15 minutes per individual.

Under amendments to Circular 230 that the IRS will issue to implement recommendations in the Report, tax return preparers who apply to be registered tax return preparers and who regularly renew their status may be subject to recordkeeping requirements because they may be required to maintain specified records, such as documentation and educational materials relating to completion of continuing education courses. These requirements do not involve any specific professional skills other than general recordkeeping abilities already needed to own and operate a small business or to competently act as a tax return preparer. It is estimated that tax return preparers will annually spend approximately 30 minutes to 1 hour in maintaining records relating to the continuing education requirements, depending on individual circumstances.

A separate regulation addressing reasonable user fees has been proposed. Tax return preparers may be required to pay a user fee when first applying for a PTIN and at every renewal. Small entities may be affected by these costs if the entities choose to pay some or all of these fees for their employees.

Under the amendments to Circular 230, tax return preparers may also incur costs for commercial continuing education courses and minimum competency examinations, plus incidental costs, such as for travel and accommodations, in order to maintain their status as registered tax return preparers under Circular 230. Course prices can vary greatly, from free to hundreds of dollars. Many small tax return preparation firms may choose, as with the user fee, to bear these costs for their employees. In some cases, small entities may lose sales and profits while their employed tax return preparers attend training or educational classes or are studying and sitting for examinations. Some small entities that employ tax return preparers may even need to alter their business operations if a significant number of their employees cannot satisfy the necessary registration and competency requirements. The Treasury Department and the IRS conclude, however, that only a small percentage of small entities, if any, may need to cease doing business or radically change their business model due to the final regulations.

Although each of the reporting and recordkeeping requirements and the costs identified above (in connection with the final regulations and the other anticipated guidance necessary to implement the Report) is not expected to singly result in a significant economic impact, taken together it is anticipated that they may have a significant economic impact on a substantial number of small entities.

The Treasury Department and the IRS are not aware of any steps that could be taken to minimize the economic impact on small entities that would also be consistent with the objectives of these final regulations. These regulations do not impose any more requirements on small entities than are necessary to effectively administer the internal revenue laws. Further, the regulations do not subject small entities to any requirements that are not also applicable to larger entities covered by the regulations.

The Treasury Department and the IRS have determined that there are no viable alternatives to the final regulations that would enable the IRS to accurately identify tax return preparers, other than through the use of a PTIN, as provided in the regulations.

The Treasury Department and the IRS considered alternatives at multiple points. These final regulations are, in large measure, an outgrowth of, and in part carry out, the Report, which extensively reviewed different approaches to improving how the IRS oversees and interacts with tax return preparers. As part of the Report, the IRS received a large volume of comments on the issue of increased oversight of tax return preparers generally and on the proposed recommendation requiring tax return preparers to use a uniform prescribed identifying number. The comments were received from all categories of interested stakeholders, including tax professional groups representing large and small entities, IRS advisory groups, tax return preparers, and the public. The input received from this large and diverse community overwhelmingly expressed support for the proposed requirements.

Among the alternatives contemplated at the time were:

(1) Requiring all paid tax return preparers to comply with the ethical standards in Circular 230 or an ethics code similar to Circular 230, but not requiring any paid preparers to demonstrate their qualification and competency;

(2) Requiring tax return preparers who are not currently authorized to practice before the IRS to register with the IRS, complete annual continuing education requirements, and meet certain ethical standards, but not to pass a minimum competency examination;

(3) Requiring all paid tax return preparers to pass a minimum competency examination and meet other registration requirements; and

(4) Requiring all paid tax return preparers who are not currently authorized to practice before the IRS to pass a minimum competency examination and meet other registration requirements, but “grandfather in” tax return preparers who have accurately and competently prepared tax returns for a certain period of years.

These and other issues were raised in the public comments to the proposed regulations and were carefully considered in developing the final regulations. After consideration of all of the various alternatives and the responses received in the public comment process, the Treasury Department and the IRS conclude that the provisions of the final regulations will most effectively promote sound tax administration. Establishing a single, prescribed identifying number for tax return preparers will enable the IRS to accurately identify tax return preparers, match preparers with the tax returns and claims for refund they prepare, and better administer the tax laws with respect to tax return preparers and their clients.

Under the final regulations and the additional guidance described, the IRS will establish a process intended to assign PTINs only to qualified, competent, and ethical tax return preparers. The testing requirements that may be set forth in other guidance will establish a benchmark of minimum competency necessary for tax return preparers to obtain their professional credentials, while the purpose of the continuing education provisions is to require tax return preparers to remain current on the Federal tax laws and continue to develop their tax knowledge. The extension in other, prospective guidance of the rules in Circular 230 to any paid tax return preparer will require all practitioners to meet certain ethical standards and allow the IRS to suspend or otherwise appropriately discipline tax return preparers who engage in unethical or disreputable conduct. Accordingly, the implementation of qualification and competency standards is expected to increase tax compliance and allow taxpayers to be confident that the tax return preparers to whom they turn for assistance are knowledgeable, skilled, and ethical.

The principal author of these final regulations is Stuart Murray of the Office of the Associate Chief Counsel, Procedure and Administration.

This document contains final regulations relating to the imposition of a user fee to apply for or renew a PTIN and the reorganization of the effective date provisions under §§ 300.0 through 300.8. Section 300.9 establishes a $50 user fee to apply for or renew a PTIN. The Independent Offices Appropriations Act of 1952 (IOAA), which is codified at 31 U.S.C. 9701, authorizes agencies to prescribe regulations establishing user fees for services provided by the agency. Regulations prescribing user fees are subject to the policies of the President, which are currently set forth in the Office of Management and Budget Circular A-25 (the OMB Circular), 58 FR 38142 (July 15, 1993). The OMB Circular requires agencies seeking to impose user fees for providing special benefits to identifiable recipients to calculate the full cost of providing those benefits.

On September 30, 2010, the Treasury Department and the IRS published in the Federal Register final regulations under section 6109 (TD 9501) that require tax return preparers who prepare all or substantially all of a tax return or claim for refund to use a PTIN as their identifying number. These regulations also provide that to be eligible to receive a PTIN, a tax return preparer must be an attorney, certified public accountant, enrolled agent, or registered tax return preparer.

On July 23, 2010, the Treasury Department and the IRS published in the Federal Register (75 FR 43110) a notice of proposed rulemaking (REG-139343-08) proposing amendments to part 300 of title 26 of the Code of Federal Regulations. New § 300.9 of these regulations proposed to establish a $50 user fee to apply for or renew a PTIN. These regulations do not include any fees charged by the vendor, which vendor fee is now calculated to be $14.25. Additionally, these regulations proposed to reorganize the effective date provisions of §§ 300.0 through 300.8. A public hearing regarding the proposed regulations was held on August 24, 2010. The IRS also received written public comments in response to the proposed regulations.

After careful consideration of all written public comments and statements made during the public hearing, the Treasury Department and the IRS have decided to adopt without modification the proposed regulations that establish a $50 user fee to apply for or renew a PTIN, recovering the full cost to the IRS for administering the PTIN application and renewal program. The Treasury Department and the IRS also have decided to adopt without modification the proposed regulations reorganizing the effective date provisions under §§ 300.0 through 300.8.

Over 10,000 written comments were received in response to the notice of proposed rulemaking. The comments were considered and are available for public inspection upon request. The comments related to the $50 user fee to apply for or renew a PTIN, the related PTIN regulations under section 6109, or the proposed amendments to regulations governing practice before the IRS under 31 CFR part 10 (Circular 230). No comments were received regarding the reorganization of the effective date provisions. Many of the comments are summarized in this preamble.

To the extent comments received with respect to the user fee regulation raise issues pertaining to the PTIN regulations under section 6109 or Circular 230, the Treasury Department and the IRS are considering and addressing those comments in connection with the relevant regulations. Accordingly, the summary of comments below addresses only those comments that seek modification or clarification of the user fee as set forth in the proposed regulations.

The Treasury Department and the IRS received numerous comments stating that tax return preparers who are attorneys, certified public accountants, or enrolled agents already are required to maintain licenses and pay numerous fees associated with obtaining and maintaining their licenses. Some commentators also stated that regulation of currently unenrolled tax return preparers or imposing a user fee to apply for or renew a PTIN for currently unenrolled tax return preparers was acceptable, but individuals who are regulated currently should not be required to obtain a PTIN or pay a user fee. Other similar comments requested that licensed tax consultants in Oregon be grandfathered into the new regulatory scheme and that individuals who currently have a PTIN be exempt from the requirements to apply for and renew a PTIN.

Having a PTIN is a special benefit that allows specified tax return preparers to prepare all or substantially all of a tax return or claim for refund for compensation. The OMB Circular encourages user fees for government-provided services that confer special benefits on identifiable recipients over and above those benefits received by the general public. A user fee must be set at an amount that allows the agency to recover the full cost of providing the special services unless the Office of Management and Budget grants an exception.

The same special benefit is conferred on all persons who obtain a PTIN, and the cost to the government is the same for providing PTINs to attorneys, certified public accountants, and enrolled agents as it is for providing PTINs to formerly unenrolled tax return preparers. Under the OMB Circular, absent special approval, the IRS must recover the full costs for providing the special benefits associated with a PTIN. The IRS cannot charge a user fee solely to tax return preparers who are not otherwise licensed as an attorney, certified public accountant, or enrolled agent. Although many comments sought exceptions to the user fee, one commentator encouraged the Treasury Department and the IRS to maintain a uniform user fee for obtaining a PTIN. Consequently, the Treasury Department and the IRS are adopting the proposed regulations and requiring all tax return preparers to pay a user fee to apply for or renew a PTIN.

The Treasury Department and the IRS received a comment that the proposed regulations do not comply with the provisions of IOAA because a PTIN is not a service or thing of value to a tax return preparer. The commentator also stated that the proposed regulations do not comply with the general policies for implementing user fees, as provided in the OMB Circular, because providing a PTIN to a tax return preparer benefits the general public by tracking incompetent and unscrupulous tax return preparers and that the IRS already meets a goal of the OMB Circular because it is already self-sustaining, as the IRS collects more taxes than it costs to run the agency.

The IOAA authorizes agencies to prescribe regulations that establish charges for services provided by the agency. The charges must be fair and must be based on the costs to the government, the value of the service to the recipient, the public policy or interest served, and other relevant facts. The IOAA provides that regulations implementing user fees are subject to policies prescribed by the President; these policies are currently set forth in the OMB Circular. The OMB Circular encourages user fees for government-provided services that confer benefits on identifiable recipients over and above those benefits received by the general public. Under the OMB Circular, an agency that seeks to impose a user fee for government-provided services must calculate the full cost of providing those services.

The user fee was determined to be consistent with the IOAA and the OMB Circular. A PTIN both confers a special benefit on an identifiable recipient and is a service or thing of value to a tax return preparer. A PTIN confers a special benefit because without a PTIN, a tax return preparer could not receive compensation for preparing all or substantially all of a federal tax return or claim for refund. Because only attorneys, certified public accountants, enrolled agents, and registered tax return preparers are eligible to obtain a PTIN, only a subset of the general public is entitled to a PTIN and the special benefit of receiving compensation for the preparation of a return that it confers. This analysis is consistent with the current practice of charging a user fee on individuals seeking to become enrolled agents. Being an enrolled agent confers special benefits; and, therefore, the IRS currently charges a user fee on applicants seeking those special benefits.

Further, while it is anticipated that requiring tax return preparers to obtain a PTIN will benefit tax administration generally, only the tax return preparer who receives the PTIN can take advantage of the special benefit associated with having a PTIN. The OMB Circular provides that a government agency should recover the full cost of providing a special benefit when the general public receives a benefit as a necessary consequence of the government providing a special benefit to an identifiable recipient.

The OMB Circular also provides that one of the objectives of establishing a user fee is to “ensure that each service, sale, or use of Government goods or resources provided by an agency to specific recipients be self-sustaining.” As described above, the issuance of a PTIN provides a special benefit to the specific tax return preparer who receives the PTIN. The administration of the PTIN application and renewal program requires the use of IRS services, goods, and resources. For the PTIN application and renewal program to be self-sustaining, the IRS must charge a user fee to recover the costs of providing the special benefits associated with PTIN. The fact that the IRS collects tax revenue for use by the government as a whole does not affect the analysis of whether the PTIN application and renewal program is self-sustaining. Thus, the Treasury Department and the IRS are complying with the provisions of the IOAA and the OMB Circular by implementing a user fee to recover the costs associated with the issuance of PTINs.

Several commentators objected to renewing their PTIN on a yearly basis and requested longer renewal periods. At this time the Treasury Department and the IRS have determined that an annual renewal of a PTIN is the most effective procedure. The user fee to renew a PTIN is, however, part of the larger implementation of recommendations in Publication 4832, “Return Preparer Review,” which was published on January 4, 2010, to be effective for the 2011 Federal tax filing season (January-April 2011). These recommendations include revisions to Circular 230 implementing the registered tax return preparer program and revisions to the regulations under section 6109 requiring all tax return preparers to obtain and use a PTIN as their identifying number. As these programs are implemented, the IRS will continually monitor their administration and make appropriate adjustments to increase effectiveness. Thus, in the future, the Treasury Department and the IRS will review the requirement to annually renew a PTIN and will make modifications, as appropriate.

Many commentators objected to the amount of the user fee. Some stated that the user fee should be smaller or that tax return preparers who prepare a limited number of returns should pay a smaller user fee. Other commentators characterized the user fee as a tax or a revenue raiser.

As stated earlier in this preamble, under the OMB Circular, the IRS must recover the full cost of providing a PTIN. The full cost to the government to administer the PTIN application and renewal program was calculated to be $50 per application or renewal. The user fee does not provide funds beyond the cost to process PTIN applications. Thus, the user fee to apply for or renew a PTIN does not provide additional revenue to the IRS that can be allocated to other programs. The PTIN user fee merely offsets costs the IRS incurs to provide the special benefits associated with having a PTIN.

The cost of processing PTIN applications is not affected by the number of tax returns that a tax return preparer prepares during a given tax season. For example, the cost to the IRS to process the PTIN applications of individuals who prepare over 500 tax returns per year, approximately 100 tax returns per year, or under 10 tax returns per year is the same. The IRS will perform the same tax compliance and suitability checks on these individuals and will provide these individuals with the same PTIN support services. The IRS must also maintain the same data in its PTIN database regarding these individuals and develop the same reconsideration process for these individuals in the event their PTIN applications are denied. Because the cost to the IRS is not dependent on the quantity of returns that an individual tax return preparer prepares, the final regulations adopt the $50 user fee for all tax return preparers to apply for or renew a PTIN.

Some commentators stated that the $50 user fee will be a burden on their businesses or that the cost to apply for or renew a PTIN will be passed on to clients. The IRS recognizes that some individuals who prepare a small number of tax returns may stop preparing tax returns or that the PTIN user fee may be passed on to clients. The IRS, however, believes that the implementation of the registered tax return preparer program and the requirement to use a PTIN as provided in the section 6109 regulations will benefit taxpayers and tax administration as a whole. The registered tax return preparer program will ensure that tax return preparers meet and maintain a minimum level of competency. The requirement to use a PTIN will provide the IRS an effective way to monitor tax return preparers and enforce the regulation of tax return preparers. The Treasury Department and the IRS believe that a user fee to apply for or renew a PTIN is necessary to recover the cost that the IRS will incur to implement and administer the PTIN application and renewal program.

Other commentators suggested that the user fee to apply for or renew a PTIN would cause some tax return preparers to revert to using their social security number when preparing tax returns rather than a PTIN, which would contravene the identity protection currently provided by PTINs. The regulations under section 6109, however, require tax return preparers to use a PTIN as their sole identifying number when preparing tax returns or claims for refund for compensation. Thus, tax return preparers are not allowed to use their social security numbers as an identifying number when preparing tax returns or claims for refund.

Several commentators objected to providing identifying information to the third party vendor, and numerous commentators objected to paying a separate fee to the vendor.

The third party vendor is statutorily and contractually obligated to protect all personally identifiable information. The vendor is subject to the confidentiality and disclosure provisions of section 6103. The vendor also must comply with the provisions of the Federal Information Security Management Act; the E-Government Act of 2002; IRS Acquisitions Procedures; the Federal Acquisitions Regulations; the Taxpayer Browsing Protection Act of 1997; and the Privacy Act of 1974, which is codified at 5 U.S.C. 552a, regarding all non-tax information. The vendor must comply with numerous policies of the Office of Management and Budget, including OMB Circular No. A-130, Security and Federal Automated Information Resources Appendix III; OMB Circular policy M-06-16, Protection of Sensitive Agency Information; OMB Circular Policy M-06-15, Safeguarding Personally Identifiable Information; and OMB Circular Policy M-06-19, Reporting Incidents Involving Personally Identifiable Information.

The vendor faces significant consequences for the unauthorized inspection or disclosure of confidential tax information. These consequences include, among others, that an officer or employee of the vendor may be subject to civil damages; civil or criminal sanctions, such as sanctions imposed by 18 U.S.C. 641 and 3571; or penalties as prescribed in sections 7213, 7213A, and 7431.

The vendor's fee, currently set at $14.25, covers the costs incurred by the vendor to administer the application and renewal process. These costs are separate from the costs to the IRS for administering the PTIN application and renewal program, which are recovered in the $50 user fee. The respective fees pay for different aspects of administering the PTIN program, each of which is essential to providing PTINs to tax return preparers. Additionally, under the vendor's contract with the IRS, the vendor's fee is reviewed and approved by the IRS.

After consideration of all of the public comments and statements made during the public hearing, the Treasury Department and the IRS have adopted the proposed regulations in full.

The Administrative Procedure Act provides that substantive rules generally will not be effective until thirty days after the final regulations are published in the Federal Register (5 U.S.C. 553(d)). Final regulations may be effective prior to thirty days after publication if the publishing agency finds that there is good cause for an earlier effective date.

This regulation is part of the IRS' effort to implement the recommendations in the “Return Preparer Review.” The review concluded that obtaining more complete and accurate information on individual tax return preparers and improved IRS oversight of tax return preparers and their preparation of tax returns and claims for refund is necessary for effective tax administration. The PTIN is the mechanism that allows the IRS to obtain more complete and accurate information on tax return preparers. Thus, the issuance of a PTIN is a threshold requirement to implementing the recommendations in the report.

This regulation must be effective significantly in advance of the beginning of the 2011 filing season to enable the IRS to charge a user fee to recover the cost of administering the program under which all individuals who prepare all or substantially all of a tax return or claim for refund of tax are required to obtain a PTIN for use during the 2011 Federal tax filing season. For all tax return preparers to receive a PTIN prior to the 2011 filing season, the IRS must begin registering preparers as quickly as possible. Thus, the Treasury Department and the IRS find that there is good cause for these regulations to be effective upon the publication of a Treasury decision adopting these rules as final regulations in the Federal Register .

It has been determined that these final regulations are a significant regulatory action as defined in Executive Order 12866.

It has been determined that a final regulatory flexibility analysis under 5 U.S.C. 604 is required for this final rule. The analysis is set forth under the heading, “Final Regulatory Flexibility Analysis.”

Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. The Chief Counsel for Advocacy did not submit comments on the notice of proposed rulemaking.

When an agency either promulgates a final rule that follows a required notice of proposed rulemaking or promulgates a final interpretative rule involving the internal revenue laws as described in 5 U.S.C. 603(a), the Regulatory Flexibility Act (5 U.S.C. chapter 6) requires the agency to “prepare a final regulatory flexibility analysis.” A final regulatory flexibility analysis must, pursuant to 5 U.S.C. 604(a), contain the five elements listed in this final regulatory flexibility analysis. For purposes of this final regulatory flexibility analysis, a small entity is defined as a small business, small nonprofit organization, or small governmental jurisdiction. 5 U.S.C. 601(3)-(6). The Treasury Department and the IRS conclude that the final regulations (together with other contemplated guidance provided for in these regulations) will impact a substantial number of small entities and the economic impact will be significant.

The final regulations are necessary to recover the full cost to the IRS associated with administering the PTIN application and renewal program and providing the special benefits that are associated with obtaining a PTIN.

The Treasury Department and the IRS are implementing regulatory changes that increase the oversight of the tax return preparer industry. These regulatory changes are based upon findings and recommendations made by the IRS in the “Return Preparer Review.” Based upon findings in the review, all individuals who prepare all or substantially all of a tax return or claim for refund will be required to use a PTIN as their identifying number. Except as provided in any transitional period, only attorneys, certified public accountants, enrolled agents, or registered tax return preparers may apply for a PTIN. Thus, only attorneys, certified public accountants, enrolled agents, and registered tax return preparers will be eligible to prepare all or substantially all of a tax return or claim for refund. By limiting the individuals who may prepare all or substantially all of a tax return or claim for refund to individuals who have a PTIN, the IRS is providing a special benefit to the individuals who obtain a PTIN.

The objective of the final regulations is to recover the costs to the government that are associated with providing this special benefit. The costs to the government include the development and maintenance of the IRS information technology system that interfaces with the vendor; the development and maintenance of internal applications; IRS customer service support activities, which include development and maintenance of an IRS Web site and call center staffing; and personnel, administrative, and management support needed to evaluate and address tax compliance issues, investigate and address conduct and suitability issues, and otherwise support and enforce the programs that require individuals to apply for or renew a PTIN.

A summary of the comments is set forth elsewhere in this preamble, along with the Treasury Department's and the IRS' assessment of the issues raised in the comments.

The final regulations affect all individuals who want to become a registered tax return preparer under the new oversight rules in Circular 230. Only individuals, not businesses, can practice before the IRS or become a registered tax return preparer. Thus, the economic impact of these regulations on any small entity generally will be a result of applicants and registered tax return preparers owning a small business or a small entity employing applicants or registered tax return preparers.

The final regulations further affect all individual tax return preparers who are required to apply for or renew a PTIN. Only individuals, not businesses, can apply for or renew a PTIN. Thus, the economic impact of these regulations on any small entity generally will be a result of an individual tax return preparer who owns a small business and who is required to apply for or renew a PTIN, or a small business otherwise employing an individual tax return preparer who is required to apply for or renew a PTIN, to prepare all or substantially all of a tax return or claim for refund.

The appropriate NAICS codes for the registered tax return preparer program and PTINs are those that relate to tax preparation services (NAICS code 541213), other accounting services (NAICS code 541219), offices of lawyers (NAICS code 541110), and offices of certified public accountants (NAICS code 541211). Entities identified as tax preparation services and offices of lawyers are considered small under the Small Business Administration size standards (13 CFR 121.201) if their annual revenue is less than $7 million. Entities identified as other accounting services and offices of certified public accountants are considered small under the Small Business Administration size standards if their annual revenue is less than $8.5 million. The IRS estimates that approximately 70 to 80 percent of the individuals subject to these proposed regulations are tax return preparers operating as or employed by small entities.

No reporting or recordkeeping requirements are projected to be associated with the final regulation.

The Treasury Department and the IRS are not aware of any steps that could be taken to minimize the economic impact on small entities that would also be consistent with the objectives of these final regulations. These regulations do not impose any more requirements on small entities than are necessary to effectively administer the internal revenue laws. Further, the regulations do not subject small entities to any requirements that are not also applicable to larger entities covered by the regulations.

The Treasury Department and the IRS have determined that there are no viable alternatives to the final regulations.

The IOAA authorizes the charging of user fees for agency services, subject to policies designated by the President. The OMB Circular implements presidential policies regarding user fees and encourages user fees when a government agency provides a special benefit to a member of the public. As Congress has not appropriated funds to the registered tax return preparer program or the PTIN application and renewal program, there are no viable alternatives to the imposition of user fees.

The principal author of these final regulations is Emily M. Lesniak, Office of the Associate Chief Counsel (Procedure and Administration).

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to those engaged in the following activities:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site at http://www.gpoaccess.gov/ecfr .

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2009-0616 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before November 29, 2010. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit a copy of your non-CBI objection or hearing request, identified by docket ID number EPA-HQ-OPP-2009-0616, by one of the following methods:

• Federal eRulemaking Portal : http://www.regulations.gov . Follow the on-line instructions for submitting comments.

• Mail : Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

• Delivery : OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket Facility's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In the Federal Register of October 26, 2009 (74 FR 55003) (FRL-8794-2), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 9F7543) by Elanco Animal Health (A Division of Eli Lilly & Company), 2001 West Main Street, Greenfield, IN 46140. The petition requested that 40 CFR 180.495 be amended by reducing established tolerances for residues of the insecticide spinosad, a fermentation product of Saccharopolyspora spinosa , which consists of two related active ingredients: Spinosyn A (Factor A: CAS No. 131929-60-7) or 2-[(6-deoxy-2,3,4-tri- O -methyl-a- L -manno-pyranosyl)oxy]-13-[[5-(dimethylamino)-tetrahydro-6-methyl-2 H -pyran-2-yl]oxy]-9-ethyl-2,3,3a,5a,5b,6,9,10,11,12,13,14,16a,16b-tetradecahydro-14-methyl-1 H -as-Indaceno[3,2-d]oxacyclododecin-7,15-dione; and Spinosyn D (Factor D; CAS No. 131929-63-0) or 2-[(6-deoxy-2,3,4-tri- O -methyl-a- L -manno-pyranosyl)oxy]-13-[[5-(dimethyl-amino)-tetrahydro-6-methyl-2 H -pyran-2-yl]oxy]-9-ethyl-2,3,3a,5a,5b,6,9,10,11,12,13,14,16a,16b-tetradecahydro-4,14-methyl-1 H -as-Indaceno[3,2-d]oxacyclododecin-7,15-dione, in or on milk from 7 parts per million (ppm) to 5 ppm; milk, fat from 80 ppm to 40 ppm; cattle, goat, and sheep, fat from 50 ppm to 30 ppm; hog, meat from 1.5 ppm to 0.2 ppm; hog, meat byproducts from 8 ppm to 0.6 ppm; and hog, fat from 33 ppm to 2.0 ppm. The petition additionally requested increases in the existing tolerances for residues of spinosad in or on poultry meat byproducts from 0.1 ppm to 0.2 ppm and poultry, fat from 1.3 ppm to 1.5 ppm. That notice referenced a summary of the petition prepared by Elanco Animal Health, the registrant, which is available in the docket, http://www.regulations.gov . There were no comments received in response to the notice of filing.

Based upon review of the data supporting the petition, EPA has concluded that revision of the proposed tolerances in or on hog, fat from 2.0 ppm to 5.0 ppm; hog, meat from 0.2 ppm to 0.50 ppm; hog, meat byproducts from 0.6 ppm to 2.0 ppm; poultry, meat byproducts from 0.10 ppm to 0.20 ppm is necessary and revision of the currently-established ruminant fat (i.e., cattle, goat, and sheep) and poultry, fat tolerances, as proposed by Elanco Animal Health in the petition, is unnecessary. The reason for these changes are explained in Unit IV.D.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue....”

Consistent with section 408(b)(2)(D) of FFDCA, and the factors specified in section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for spinosad including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with spinosad follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. Spinosad has low acute toxicity via the oral and dermal routes of exposure. It is not a dermal sensitizer, nor inhalation, primary eye, or primary skin irritant. In subchronic toxicity studies conducted in mice treatment-related findings included vacuolation of cells of the lymphoid organs, liver, kidney, stomach, female reproductive tract, and epididymis, and less severely in the heart, lung, pancreas, adrenal cortex, bone marrow, tongue, pituitary gland, and anemia. In rats, thyroid follicle epithelial cell vacuolation, anemia, multifocal hepatocellular granuloma, cardiomyopathy, and splenic histiocytosis were observed following subchronic exposure, in dogs microscopic changes in a variety of tissues, anemia, and possible liver damage were seen with short-term repeated dosing. In a chronic feeding study in dogs, increases in serum alanine aminotransferase, aspartate aminotransferase, and triglycerides levels, and the presence of tissue abnormalities, including vacuolated cell aggregations, arteritis, and glandular cell vacuolation (parathyroid) were seen. Vacuolation of thyroid follicular cells, increased absolute and relative thyroid weights were observed in a chronic oral toxicity study in rats. Spinosad is classified as “not likely to be carcinogenic to humans” based on lack of evidence for carcinogenicity of spinosad in mice and rats. No neurotoxic effects were seen in the acute or subchronic neurotoxicity study in rats. In developmental toxicity studies, there is no evidence of increased susceptibility following in utero exposures in rats and rabbits. In the 2-generation reproduction study, no adverse effects were observed on the offspring at dose levels that produced parental toxicity.

Specific information on the studies received and the nature of the adverse effects caused by spinosad as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found at http://www.regulations.gov in document “Spinosad and Spinetoram. Human-Health Risk Assessment for Direct-Spray Use on Poultry and Discontinuation by Voluntary Cancellation of the Cattle Pour-On and Direct Cattle Spray Registrations,” p. 12 in docket ID number EPA-HQ-OPP-2009-0616.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors (U/SF) are used in conjunction with the POD to calculate a safe exposure level - generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD) - and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm .

A summary of the toxicological endpoints for spinosad used for human risk assessment can be found at http://www.regulations.gov in document “Spinosad and Spinetoram. Human-Health Risk Assessment for Direct-Spray Use on Poultry and Discontinuation by Voluntary Cancellation of the Cattle Pour-On and Direct Cattle Spray Registrations,” p. 5 in docket ID number EPA-HQ-OPP-2009-0616.

The Agency has concluded that spinosad should be considered toxicologically identical to another pesticide, spinetoram. This conclusion is based on the following: Spinetoram and spinosad are large molecules with nearly identical structures; and the toxicological profiles for each are similar (generalized systemic toxicity) with similar doses and endpoints chosen for human-health risk assessment. Spinosad and spinetoram should be considered toxicologically identical in the same manner that metabolites are generally considered toxicologically identical to the parent. Although, as just stated, the doses and endpoints for spinosad and spinetoram are similar, they are not identical due to variations in dosing levels used in the spinetoram and spinosad toxicological studies. EPA compared the spinosad and spinetoram doses and endpoints for each exposure scenario and selected the lower of the two doses for use in human risk assessment.

1. Dietary exposure from food and feed uses . In evaluating dietary exposure to spinosad/spinetoram, EPA considered exposure under the petitioned-for tolerances as well as all existing spinosad/spinetoram tolerances in 40 CFR 180.495 and 180.635. EPA assessed dietary exposures from spinosad in food as follows:

i. Acute exposure . Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

No such effects were identified in the toxicological studies for spinosad; therefore, a quantitative acute dietary exposure assessment is unnecessary.

ii. Chronic exposure . In conducting the chronic dietary exposure assessment EPA used the food consumption data from the United States Department of Agriculture (USDA) 1994-1996 and 1998 Continuing Survey of Food Intake by Individuals (CSFII). As to residue levels in food, the chronic analysis assumed 100 percent crop treated (PCT) for all food crop commodities excluding those listed below where PCT estimates were incorporated to refine the livestock dietary burden estimates; used average field-trial residues for apple, Brassica leafy vegetables, citrus, fruiting vegetables, herbs, banana, grape, several cereal grains, and strawberry; used tolerance-level residues for the remaining food crop commodities; and used Dietary Exposure Evaluation Model DEEM( TM ) (ver. 7.81) default processing factors for all commodities excluding orange juice, field corn (meal, starch, flour, and oil), grape juice, and wheat (flour and germ) where the results from processing factors were assumed; and modeled drinking water estimates. Tolerance level hog and poultry residues were assumed while the ruminant residue estimates were refined through the incorporation of average residues from the feeding/dermal magnitude of the residue studies and incorporation of the following projected combined spinosad/spinetoram PCT estimates to refine the ruminant dietary burden: Leaves of root and tuber vegetables - 50%; grain sorghum grain - 5%; soybean seed - 5%; and sweet corn forage - 39%.

Spinosad is registered for application to all of the same crops as spinetoram, with similar pre-harvest and retreatment intervals, and application rates greater than or equal to spinetoram. Further, both products control the same pest species. For this reason, EPA concluded it would overstate exposure to assume that residues of both spinosad and spinetoram would appear on the same food. Rather, EPA aggregated exposure by either assuming that all commodities contain spinosad residues (because side-by-side spinetoram and spinosad residue data indicated that spinetoram residues were less than or equal to spinosad residues) or summing the percentage of a crop that would be treated with spinosad and the percentage that would be treated with spinetoram.

iii. Cancer . Based on the lack of evidence of carcinogenicity in rats and mice, EPA has classified spinosad as “not likely to be carcinogenic to humans;” therefore a quantitative exposure assessment to evaluate cancer risk is unnecessary.

iv. Anticipated residue and PCT information . Section 408(b)(2)(E) of FFDCA authorizes EPA to use available data and information on the anticipated residue levels of pesticide residues in food and the actual levels of pesticide residues that have been measured in food. If EPA relies on such information, EPA must require pursuant to FFDCA section 408(f)(1) that data be provided 5 years after the tolerance is established, modified, or left in effect, demonstrating that the levels in food are not above the levels anticipated. For the present action, EPA will issue such data call-ins as are required by FFDCA section 408(b)(2)(E) and authorized under FFDCA section 408(f)(1). Data will be required to be submitted no later than 5 years from the date of issuance of these tolerances.

Section 408(b)(2)(F) of FFDCA states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if:

• Condition a: The data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain the pesticide residue.

• Condition b: The exposure estimate does not underestimate exposure for any significant subpopulation group.

• Condition c: Data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area.

In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of PCT as required by FFDCA section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

Tolerance level hog and poultry residues were assumed while the ruminant residue estimates were refined through the incorporation of average residues from the feeding/dermal magnitude of the residue studies and incorporation of the following projected combined spinosad/spinetoram PCT estimates to refine the ruminant dietary burden uses as follows: 39% sweet corn forage; 50% leaves of root and tuber vegetables; 5% sorghum grain; and 5% soybean seed meal.

In most cases, EPA uses available data from USDA/National Agricultural Statistics Service (USDA/NASS), proprietary market surveys, and the National Pesticide Use Database for the chemical/crop combination for the most recent 6-7 years. EPA uses an average PCT for chronic dietary risk analysis. The average PCT figure for each existing use is derived by combining available public and private market survey data for that use, averaging across all observations, and rounding to the nearest 5%, except for those situations in which the average PCT is less than one. In those cases, 1% is used as the average PCT and 2.5% is used as the maximum PCT. EPA uses a maximum PCT for acute dietary risk analysis. The maximum PCT figure is the highest observed maximum value reported within the recent 6 years of available public and private market survey data for the existing use and rounded up to the nearest multiple of 5%.

The Agency believes that the three conditions discussed in Unit III.C.1.iv. have been met. With respect to Condition a, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions b and c, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available reliable information on the regional consumption of food to which spinosad may be applied in a particular area.

2. Dietary exposure from drinking water . The Agency used screening level water exposure models in the dietary exposure analysis and risk assessment for spinosad in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of spinosad. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at http://www.epa.gov/oppefed1/models/water/index.htm .

Based on the First Index Reservoir Screening Tool (FIRST) and Screening Concentration in Ground Water (SCI-GROW) models, the estimated drinking water concentrations (EDWCs) of spinosad/spinetoram for acute exposures are estimated to be 14.419 parts per billion (ppb) for surface water and 0.072 ppb for ground water. For chronic exposures for non-cancer assessments are estimated to be 6.171 ppb for surface water and 0.072 ppb for ground water. EDWCs for spinosad for acute exposures are estimated to be 34.5 parts per billion (ppb) for surface water and 1.1 ppb for ground water. For chronic exposures for non-cancer assessments are estimated to be 10.5 ppb for surface water and 1.1 ppb for ground water.

Modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For chronic dietary risk assessment, the water concentration of value 10.5 ppb was used to assess the contribution to drinking water.

3. From non-dietary exposure . The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets).

Spinosad is currently registered for the following uses that could result in residential exposures: Application to turfgrass and ornamentals. EPA assessed residential exposure using the following assumptions: The Agency has concluded that spinosad and spinetoram are toxicologically equivalent; therefore, residential exposure to both spinosad and spinetoram was evaluated. Spinosad is currently registered for homeowner application to turf grass and ornamentals. Spinetoram is registered for homeowner applications to gardens, lawns/ornamentals and turf grass. Since spinosad and spinetoram control the same pests, EPA concludes that these products will not be used for the same uses in combination with each other and thus combining spinosad and spinetoram residential exposures would overstate exposure.

There is potential for residential handler and post-application exposures to both spinosad and spinetoram. However, since no dermal endpoints for either spinetoram or spinosad were identified, only short-term incidental oral exposures to toddlers are anticipated from the registered turf and ornamental application scenarios for spinosad and spinetoram and short-term inhalation exposure to handler/applicators is anticipated for the registered home garden, turf, and ornamental application scenarios.

Based on the low application rates, granular formulation, and/or low vapor pressure, quantitative residential inhalation post-application exposure assessments were not performed for spinosad or spinetoram. The Agency notes that the spinetoram residential-handler inhalation MOEs were ≥4,300,000 for house garden, home lawns and ornamental use; based on this and the low vapor pressure for spinosad, the Agency anticipates the post-application residential inhalation risks to be negligible.

EPA notes that for spinosad the registered fruit fly bait application scenario permits application to non-crop vegetation and this use may result in residential exposures. Based on the application rates (fruit fly bait - 0.0003 pounds active ingredients/acre (lb ai/acre); turf/ornamental - 0.41 lbs ai/acre), EPA concludes that residential exposure resulting from the fruit fly application will be insignificant when compared to the exposure resulting from homeowner uses on the turf/ornamentals. Therefore, quantitative analysis of the residential exposure resulting from the fruit fly bait application was not performed. Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at http://www.epa.gov/pesticides/trac/science/trac6a05.pdf .

4. Cumulative effects from substances with a common mechanism of toxicity . Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA has not found spinosad/spinetoram to share a common mechanism of toxicity with any other substances, and spinosad/spinetoram does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that spinosad/spinetoram does not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's website at http://www.epa.gov/pesticides/cumulative .

1. In general . Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the Food Quality Protection Act (FQPA) SF. In applying this provision, EPA either retains the default value of 10X, or uses a different additional SF when reliable data available to EPA support the choice of a different factor.

2. Prenatal and postnatal sensitivity . There is no evidence of increased susceptibility of rat and rabbit fetuses to in-utero exposure to spinosad or spinetoram. In the spinosad and spinetoram rat and rabbit developmental toxicity studies, no developmental toxicity was observed at dose levels that did not induce maternal toxicity. In the spinosad 2-generation reproduction studies, maternal and offspring toxicity were equally severe, indicating no evidence of increased susceptibility. In the spinetoram 2-generation reproduction study, no adverse effects were observed on the offspring at dose levels that produced parental toxicity. Therefore, there is no evidence of increased susceptibility and there are no concerns or residual uncertainties for pre-natal and/or post-natal toxicity.

3. Conclusion . EPA has determined that reliable data show the safety of infants and children would be adequately protected if the FQPA SF were reduced to 1X. That decision is based on the following findings:

i. The toxicity database for spinetoram is complete, except for immunotoxicity testing. Recent changes to 40 CFR part 158 make immunotoxicity testing (OPPTS Harmonized Test Guideline 870.7800) required for pesticide registration; however, the existing data are sufficient for endpoint selection for exposure/risk assessment scenarios, and for valuation of the requirements under the FQPA.

There was some evidence of adverse effects on the organs of the immune system at the LOAEL in three short-term studies with spinosad or spinetoram. In these studies, anemia was observed in multiple species (rats, mice and dogs) with the presence of histiocytic aggregates of macrophages in various organs and tissues (lymph nodes, spleen, thymus, and bone marrow). Aggregation of macrophages was indicative of immune stimulation in response to insults of the chemical exposure and was considered secondary effects of the toxic effect to the hematopoetic system. Therefore, these effects are not considered to be indicative of frank immunotoxicity. In the chronic study with dogs, areteritis and necrosis of the areterial walls of the thymus was seen in one female dog at the highest dose tested (HDT). This finding is attributed to the exacerbation of the spontaneous arteritis present in genetically predisposed Beagle dogs (“Beagle Pain Syndrome”), not immunotoxicity. Further, a clear NOAEL was attained in each of these studies, and the observed histopathologies were generally observed in the presence of other organ toxicity. In addition, spinosad and spinetoram do not belong to a class of chemicals (e.g., the organotins, heavy metals, or halogenated aromatic hydrocarbons) that would be expected to be immunotoxic.

Based on the considerations in this Unit, EPA does not believe that conducting a special series 870.7800 immunotoxicity study will result in a POD less than the NOAEL of 2.49 mg/kg/day already set for spinosad and spinetoram. Consequently, an additional database UF does not need to be applied.

ii. There is no indication that spinosad is a neurotoxic chemical and there is no need for a developmental neurotoxicity study or additional UFs to account for neurotoxicity.

iii. There is no evidence that spinosad results in increased susceptibility in in utero rats or rabbits in the prenatal developmental studies or in young rats in the 2-generation reproduction study.

iv. There are no residual uncertainties identified in the exposure databases. The dietary food exposure assessments utilized 100 PCT and tolerance-level residues, and DEEM TM default processing factors for all registered and proposed crop commodities and all food commodities from livestock except commodities from ruminants. EPA used PCT information when calculating livestock dietary burdens for ruminants from sweet corn forage, leaves of root and tuber vegetables, sorghum grain, and soybean seed meal. EPA believes that the PCT estimates used are conservative estimates. EPA made conservative (protective) assumptions in the ground water and surface water modeling used to assess exposure to spinosad/spinetoram in drinking water. EPA used similarly conservative assumptions to assess postapplication exposure of children as well as incidental oral exposure of toddlers. These assessments will not underestimate the exposure and risks posed by spinosad/spinetoram.

EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

1. Acute risk . An acute aggregate risk assessment takes into account acute exposure estimates from dietary consumption of food and drinking water. No adverse effect resulting from a single oral exposure was identified and no acute dietary endpoint was selected. Therefore, spinosad is not expected to pose an acute risk.

2. Chronic risk . Since there are no registered/proposed uses which result in chronic residential exposures, the chronic aggregate exposure assessment consists of exposure from food and water. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to spinosad and spinetoram from food and water will utilize 94% of the cPAD for children 1-2 years old the population group receiving the greatest exposure.

3. Short-term risk . Short-term aggregate exposure takes into account short-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level).

Spinosad and spinetoram are currently registered for uses that could result in short-term residential exposure, and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short-term residential exposures to spinosad and spinetoram.

Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded the combined short-term food, water, and residential exposures result in aggregate MOEs of ≥160 for all population subgroups. As the aggregate MOEs are greater than 100 for all population subgroups, including infants and children, short-term aggregate exposure to spinosad and spinetoram is not of concern to EPA.

4. Intermediate-term risk . Intermediate-term aggregate exposure takes into account intermediate-term residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Spinosad and spinetoram are not registered for any use patterns that would result in intermediate-term residential exposure. Therefore, the intermediate-term aggregate risk is the sum of the risk from the exposure to spinosad and spinetoram through food and water, which has already been addressed, and will not be greater than the chronic aggregate risk.

5. Aggregate cancer risk for U.S. population . Based on the lack of evidence of carcinogenicity in rats and mice at doses that were judged to be adequate to assess the carcinogenic potential, spinosad and spinetoram were classified as “not likely to be carcinogenic to humans,” and are not expected to pose a cancer risk to humans.

6. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, or to infants and children from aggregate exposure to spinosad and spinetoram residues.

Adequate methods are available for enforcement of the ruminant and hog tolerances. Method RES 94094 (GRM 95.03; ruminant and hog); Method RES 95114 (ruminant and hog); GRM 95.15 (poultry). Data pertaining to Multiresidue Methods (MRMs) testing of spinosyns A, D, B, and K and N-demethyl spinosyn D were forwarded to the Food and Drug Administration (FDA) for review.

The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; e-mail address: residuemethods@epa.gov .

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint U.N. Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level.

Codex does have a MRLs for combined residues of spinosyn A and D in/on fat from mammals other than marine at 2 ppm and edible offal at 0.5 ppm and Canada does have MRLs for residues of spinosyn A and D in/on hog fat at 5.0 ppm, hog meat byproducts at 1.0 ppm, and hog meat at 0.2 ppm. For the most part, these international tolerances are lower than the level of the hog tolerances being established today. The Codex values were set in 2004. At that time only the diets of cattle (beef and dairy) were considered in establishing the MRLs, which were then considered adequate for all mammals, including hogs. However, the United States calculates hog exposure based on specific diets for finishing and breeder hogs. These diets are high in grains and grain byproducts and would not have included forages and other commodities present in the cattle diet. The diets considered were different, leading to different calculated exposures, leading to different MRL/tolerance estimates for the hog commodities. Accordingly, given the manner in which the Codex values were chosen, EPA does not believe it is appropriate to harmonize with the Codex levels.

Elanco Animal Health requested registration for direct spray of Elector PSP (EPA Reg. No. 72642-2) to poultry and discontinuation by voluntary cancellation of the cattle pour-on and direct cattle spray registrations for Elector Insect Control Product (EPA Reg. No. 72642-1). The petitioner also requested an increase in the currently-established poultry fat (1.3 ppm to 1.5 ppm), poultry meat (0.10 ppm to 0.2 ppm), and poultry meat byproducts (0.10 ppm to 0.2 ppm) tolerances and a decrease in the currently-established milk (7.0 ppm to 5 ppm), milk fat (85 ppm to 40 ppm), hog fat (33 ppm to 2.0 ppm), hog meat (1.5 ppm to 0.2 ppm), hog meat byproducts (8.0 ppm to 0.6 ppm), and ruminant fat (cattle, goat, and sheep - 50 ppm to 30 ppm) tolerances (tolerances for combined residues of spinosyns A and D).

With the elimination of cattle pour-on and direct cattle spray uses, ruminants may be exposed to spinosad via consumption of treated feed, premise application, and through the feed-through (cattle only) and ear tag uses (cattle only). Based on the elimination of the cattle dermal application scenario and a recalculation of spinosad residues in ruminant commodities from the consumption of treated feed, the petitioner requested a reduction in the milk, milk fat, and ruminant (cattle, goat, and sheep) fat tolerances. Based on a comparison of the estimated total residue without the dermal/premise application and the currently-established tolerances, the EPA concludes that revision of the currently-established ruminant tolerances is unnecessary. Since elimination of the dermal uses does not necessitate a change in the current ruminant tolerances, the EPA concludes that residues resulting from premise treated are insignificant when compared to the residue estimates from the other routes of exposure.

The petitioner requested a reduction in the hog fat, meat, and meat byproducts tolerances. The current hog tolerances were established as part of the registration for application of spinosad to stored grains where a hog dietary burden of 41.2 ppm was calculated. As a conservative surrogate for residues following premise treatment, the results from the cattle dermal magnitude of the residue study were used (residue data following only premise treatment are not available). EPA notes that hogs have a significantly lower maximum reasonably balanced dietary burden (MRDB) than ruminants and the residues resulting from the premise treatment were therefore considered when establishing a tolerance (this is on contrast to ruminants where residues resulting from premise treatment were not considered). Based on these calculations, the EPA concludes that hog tolerance should be lowered as follows: Hog, meat - 0.50 ppm; hog, fat - 5.0 ppm; and hog, meat byproducts - 2.0 ppm.

As part of the current request, the petitioner submitted a poultry magnitude of the residue study monitoring spinosad residues following both the proposed dermal application scenario (0.9x) and the currently-registered premise treatment (1x). Based on these data and the current poultry MRDB, the EPA concludes that the poultry meat byproducts tolerance should be increased to 0.20 ppm (tolerance for the combined residues of spinosyns A and D). All other poultry tolerances remain adequate.

Therefore, tolerances are established for residues of spinosad in or on poultry at 0.20 ppm poultry, meat byproducts; and tolerances are increased as indicated for the following established commodities: Hog, fat 5.0 ppm; hog, meat 0.50 ppm; hog, meat byproducts 2.0 ppm.

This final rule establishes tolerances under section 408(d) of FFDCA in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitled Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq ., nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under section 408(d) of FFDCA, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq .) do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of section 408(n)(4) of FFDCA. As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note).

The Congressional Review Act, 5 U.S.C. 801 et seq ., generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

(a) * * *

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected entities may include, but are not limited to those engaged in the following activities:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

This listing is not intended to be exhaustive, but rather to provide a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Government Printing Office's e-CFR site at http://www.gpoaccess.gov/ecfr .

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2007-0677 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing, and must be received by the Hearing Clerk on or before November 29, 2010. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing that does not contain any CBI for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit a copy of your non-CBI objection or hearing request, identified by docket ID number EPA-HQ-OPP-2007-0677, by one of the following methods:

• Federal eRulemaking Portal : http://www.regulations.gov . Follow the on-line instructions for submitting comments.

• Mail : Office of Pesticide Programs (OPP) Regulatory Public Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-0001.

• Delivery : OPP Regulatory Public Docket (7502P), Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only accepted during the Docket Facility's normal hours of operation (8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays). Special arrangements should be made for deliveries of boxed information. The Docket Facility telephone number is (703) 305-5805.

In the Federal Register of October 7, 2009 (74 FR 51597) (FRL-8792-7), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 9F7567) by Arysta LifeScience North America, LLC, 15401 Weston Parkway, Suite 150, Cary, NC 27513. The petition requested that 40 CFR 180.609 be amended by establishing tolerances for residues of the fungicide fluoxastrobin, (1E)-[2-[[6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinyl]oxy]phenyl](5,6-dihydro-1,4,2-dioxazin-3-yl)methanone O-methyloxime and its Z isomer, (1Z)-[2-[[6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinyl]oxy]phenyl](5,6-dihydro-1,4,2-dioxazin-3-yl)methanone O-methyloxime in or on aspirated grain fractions at 15 parts per million (ppm); meat byproducts (cattle, goat, horse, sheep) at 0.2 ppm; sweet corn, forage at 13 ppm; sweet corn (kernels plus cob with husks removed) at 0.02 ppm; sweet corn, stover at 10 ppm; wheat, bran at 0.2 ppm; wheat, forage at 7.0 ppm; wheat, grain at 0.09 ppm; wheat, hay at 17 ppm; and wheat, straw at 11 ppm. The proposed tolerance in or on aspirated grain fractions is actually a decrease in the pre-existing tolerance for fluoxastrobin and its Z isomer in 40 CFR 180.609 of 20 ppm. The proposed meat byproduct tolerances are actually changes in the tolerance expression from fluoxastrobin, its Z isomer, and its phenoxy-hydroxypyrimidine metabolite, 6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinol to fluoxastrobin and its Z isomer and an increase in the pre-existing tolerance levels in 40 CFR 180.609 of 0.10 ppm for meat byproducts of cattle, goat, horse, and sheep. That notice referenced a summary of the petition prepared by Arysta LifeScience North America, LLC, the registrant, which is available in the docket, http://www.regulations.gov . There were no comments received in response to the notice of filing.

Based upon review of the data supporting the petition, EPA has made the following changes to the proposed fluoxastrobin tolerances. Minor changes have been made to several commodity names to conform them to the Agency's Food and Feed Commodity Vocabulary. The tolerance expression for the meat byproduct commodities has been corrected to add the phenoxy-hydroxypyrimidine metabolite. The proposed tolerance of 0.02 ppm in or on sweet corn, kernels plus cob with husks removed and of 0.2 ppm in or on wheat, bran have been reduced and the proposed tolerance of 15 ppm in or on aspirated grain fractions has been increased. The reasons for these changes are explained in Unit IV.C.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .”

Consistent with section 408(b)(2)(D) of FFDCA, and the factors specified in section 408(b)(2)(D) of FFDCA, EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for fluoxastrobin including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with fluoxastrobin follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children.

Fluoxastrobin has a low order of acute toxicity via the oral, dermal and inhalation routes of exposure. Fluoxastrobin is a moderate eye irritant but is neither a dermal irritant nor a skin sensitizer.

Fluoxastrobin appears to have mild or low toxicity following repeated administration in all tested species other than the dog. In both the 90-day and 1-year oral feeding dog studies, there was liver toxicity in the form of cholestasis as evidenced by hepatocytomegaly and cytoplasmic granular changes associated with increased liver weight and increased serum liver alkaline phospatase (ALP). In addition, several phase I and phase II liver drug metabolizing enzymes were induced. Other toxicity in dogs included body weight loss or reduced gain, decreased food efficiency, and effects on kidneys including increased relative weight in females and degeneration of proximal tubular epithelium in males. The no observed adverse effect level (NOAEL) of 1.5 milligrams/kilograms/day (mg/kg/day) in the 1-year dog study was used for setting the chronic reference dose (RfD).

The liver appeared to be a target organ in other studies, as well, but the toxicological relevance of liver findings in species other than the dog is questionable. For example, among the changes noted in the treated animals were increased liver weight in the mouse and rat, and hypertrophy and cytoplasmic changes in the mouse, but there were no increases in any of the serum liver enzymes including ALP.

In the 90-day oral toxicity study in rats, the urinary system in males was a target organ as evidenced by increased kidney weight and histopathology findings in kidneys, urinary bladder, and urethra including the presence of calculi in the urethra and kidneys. In another rat study, there were markedly increased urinary pHs in males in addition to increased urinary calcium excretion in the form of calcium oxalate crystals. Kidney changes were also seen in a 90-day mouse feeding study with increased kidney weights and tubular hypertrophy in females. Following 90-day administration in dogs, there was degeneration of the proximal tubular epithelium in males.

The adrenal glands seem to be another target organ in males of the 90-day rat study where vacuolation was seen in the zona fasciculata of the adrenal cortex. In another 30-day rat feeding study, adrenal cortical cytomegaly with fine vacuolization was seen in all high dose males and the responses were comparable between the groups treated with the pure fluoxastrobin E- or 2:1 E/Z-isomers. The adrenal changes are not likely to be endocrine related effects.

In the rat and rabbit developmental toxicity studies and the 2-generation reproduction rat study, there was no increased susceptibility to prenatal or postnatal exposure to fluoxastrobin and no effects on reproduction.

Fluoxastrobin is not acutely neurotoxic in rats up to a single high dose of 2,000 mg/kg/day or by repeated dietary feeding in the rat subchronic neurotoxicity screening study where the top dose was nearly half the limit dose of 1,000 mg/kg/day. Other studies in rats including the subchronic, chronic toxicity/carcinogenicity, 2-generation reproduction, and developmental toxicity were tested to or above the limit dose with no indication of clinical signs, histopathology or other signs of toxicity that could be attributed to neurotoxicity. Also, in both the 90-day and 1-year dog studies, neurologic examinations, including mental status/behavior, gait characteristics, postural status and reactions, and spinal/cranial reflexes, were carried out and were found to be within normal limits.

Fluoxastrobin is not immunotoxic based on repeated dosing studies in rats and mice. In the 90-day oral toxicity rat study, there was no difference between the control and treated animals in spleen cell count, macrophage activities after PMA stimulation and plaque-forming cell assay after challenge with sheep erythrocytes. Slight decreases were noted in IgG concentration in the high dose males but not females. An unacceptable subchronic immunotoxicity study in mice found no apparent decrease on B-cell activated, T-cell mediated IgM response to sheep red blood cell (SRBC) at doses as high as 2,383 mg/kg/day.

Fluoxastrobin and major metabolites were negative in a battery of genotoxicity tests.

The carcinogenic potential of fluoxastrobin was adequately tested in rats and mice of both sexes. The results demonstrated a lack of treatment-related increase in tumor incidence in rats or mice. There was no mutagenicity concern and no structure activity relationship alert. It was concluded that there was no incidence of carcinogenicity for fluoxastrobin.

Specific information on the studies received and the nature of the adverse effects caused by fluoxastrobin as well as the NOAEL and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies are discussed in the final rule published in the Federal Register of September 16, 2005 (70 FR 54640) (FRL-7719-9).

Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which no adverse effects are observed (the NOAEL) and the lowest dose at which adverse effects of concern are identified (the LOAEL). Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level - generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD) - and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm .

A summary of the toxicological endpoints for fluoxastrobin used for human risk assessment can be found in “Fluoxastrobin. Human Health Risk Assessment for Proposed Uses on Sweet Corn, Field Corn/Sweet Corn Grown for Seed, and Wheat; Revised Tolerances on Peanut and Refined Peanut Oil Based on a Peanut Processing Study; and Label Revision Allowing Homeowner Residential Application to Turf Grasses,” p. 23 in docket ID number EPA-HQ-OPP-2007-0677.

1. Dietary exposure from food and feed uses . In evaluating dietary exposure to fluoxastrobin, EPA considered exposure under the petitioned-for tolerances as well as all existing fluoxastrobin tolerances in 40 CFR 180.609. EPA assessed dietary exposures from fluoxastrobin in food as follows:

i. Acute exposure . Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

No such effects were identified in the toxicological studies for fluoxastrobin; therefore, a quantitative acute dietary exposure assessment is unnecessary.

ii. Chronic exposure . In conducting the chronic dietary exposure assessment EPA used the food consumption data from the United States Department of Agriculture (USDA) 1994-1996 and 1998 Continuing Surveys of Food Intake by Individuals (CSFII). As to residue levels in food, EPA performed an unrefined (food and drinking water) exposure assessment. The assumptions of this dietary assessment included tolerance level residues and 100% crop treated. Based on processing studies, the processing factors for tomato puree, potato chips, dry potato (granules/flakes), and potato flour were reduced to 1. Separate tolerances were set for peanut oil, wheat bran and tomato paste; therefore, the processing factors for these commodities were set at 1. For all other processed commodities, Dietary Exposure Evaluation Model version 7.81 default processing factors were assumed.

iii. Cancer . Based on the data summarized in Unit III.A., EPA has concluded that fluoxastrobin does not pose a cancer risk to humans. Therefore, a dietary exposure assessment for the purpose of assessing cancer risk is unnecessary.

iv. Anticipated residue and percent crop treated (PCT) information . EPA did not use anticipated residue and/or PCT information in the dietary assessment for floxastrobin. Tolerance level residues and 100 PCT were assumed for all food commodities.

2. Dietary exposure from drinking water . The Agency used screening level water exposure models in the dietary exposure analysis and risk assessment for fluoxastrobin in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of fluoxastrobin. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at http://www.epa.gov/oppefed1/models/water/index.htm .

Based on the First Index Reservoir Screening Tool (FIRST) and Screening Concentration in Ground Water (SCI-GROW) models the estimated drinking water concentrations (EDWCs) of fluoxastrobin for chronic exposures for non-cancer assessments are estimated to be 33 parts per billion (ppb) for surface water and less than 1 ppb for ground water. The modeled estimates of drinking water concentrations were directly entered into the dietary exposure model. For chronic dietary risk assessment, the water concentration of value 33 ppb was used to assess the contribution to drinking water.

3. From non-dietary exposure . The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets).

Fluoxastrobin has previously been registered for the following uses that could result in post-application residential exposures: Turf, including lawns and golf courses. However, applications to residential turf have previously been restricted to certified pest control operators. Under consideration in the current risk assessment is a proposed label that would allow homeowner residential application to turf, which would result in residential handler exposure. Residential handlers may be exposed via loading and applying granular fluoxastrobin for spot treatments and/or broadcast control of turf diseases.

EPA assessed residential application exposure using the following assumptions: Because of the potential for application four times per year, exposure duration is expected to be short-term and intermediate-term. A short-term dermal endpoint was not identified so only intermediate-term dermal risks were assessed. Short- and intermediate-term inhalation risks were also assessed. Homeowner residential applicators are expected to be adults.

There is also the potential for homeowners and their families (of varying ages) to be exposed as a result of entering areas that have previously been treated with fluoxastrobin. Exposure might occur on areas such as lawns used by children or recreational areas such as golf courses used by adults and youths. Potential routes of exposure include dermal (adults and children) and incidental oral ingestion (children). Since no acute hazard has been identified, an assessment of episodic granular ingestion was not conducted. While it is assumed that most residential use will result in short-term (1 to 30 days) postapplication exposures, it is believed that intermediate-term exposures (greater than 30 days up to 180 days) are also possible. The best data and methodology currently available were used in the fluoxastrobin residential assessment. Since chemical-specific data were not available, the Agency used the current approaches for residential assessment, many of which include recent upgrades to the standard operating procedures (SOPs). For example, for the hand-to-mouth calculations for children (three to less than six years old), a 5% transferability factor was applied to calculate residue levels appropriate for this exposure pathway. Overall, the Agency believes that the calculated risks represent screening level estimates. Estimates are thought to be conservative, even when measures of central tendency (e.g., most transfer coefficients) are used, because values that would be considered to be in the lower percentile aspect of any input parameter have not been used in the calculations. In addition, maximum application rates have been used for all scenarios. The risk estimates also assume no dissipation of residues after day zero and do not take into account the periodic growth and cutting of the grass. Actual residues should be considerably lower, which is why intermediate-term exposures are unlikely. Further, because a short-term dermal toxicity endpoint was not identified, the intermediate-term endpoint was used for all dermal risk estimates, even though the residential exposure duration is believed to be mostly short-term based on the use pattern. Finally, based on the Agency's current practices, a quantitative post-application inhalation exposure assessment was not performed at this time, primarily because fluoxastrobin has a very low vapor pressure. Further information regarding EPA standard assumptions and generic inputs for residential exposures may be found at http://www.epa.gov/pesticides/trac/science/trac6a05.pdf .

4. Cumulative effects from substances with a common mechanism of toxicity . Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA has not found fluoxastrobin to share a common mechanism of toxicity with any other substances, and fluoxastrobin does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has assumed that fluoxastrobin does not have a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see EPA's website at http://www.epa.gov/pesticides/cumulative .

1. In general . Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the Food Quality Protection Act (FQPA) Safety Factor (SF). In applying this provision, EPA either retains the default value of 10X, or uses a different additional SF when reliable data available to EPA support the choice of a different factor.

2. Prenatal and postnatal sensitivity . The toxicity database for fluoxastrobin, including acceptable developmental toxicity studies in rats and rabbits, as well as a 2-generation reproductive toxicity study, provides no indication of prenatal and/or postnasal sensitivity.

3. Conclusion . EPA has determined that reliable data show the safety of infants and children is adequately protected if the FQPA SF is reduced to 1X. That decision is based on the following findings:

i. The toxicity database for fluoxastrobin is complete except for a functional immunotoxicity study as required by the recent changes to the pesticide data requirements. The Agency does have an immunotoxicity study for fluoxastrobin but it has deficiencies that make it unacceptable at this time. Nonetheless, the Agency does not believe that conducting a new immunotoxicity study will result in a lower NOAEL than the regulatory dose for risk assessment because available data showed no apparent decrease in B-cell activated, T-cell mediated immunoglobulin M (IgM) response to sheep red blood cells (SRBC) at doses as high as 2,383 mg/kg/day. The Agency therefore believes that no additional safety factor is needed to account for the lack of this study, but the registrant will be required to upgrade it.

ii. There is no indication that fluoxastrobin is a neurotoxic chemical and there is no need for a developmental neurotoxicity study or additional UFs to account for neurotoxicity.

iii. There is no evidence that fluoxastrobin results in increased susceptibility in in utero rats or rabbits in the prenatal developmental studies or in young rats in the 2-generation reproduction study.

iv. There are no residual uncertainties identified in the exposure databases. The chronic dietary food exposure assessments utilized tolerance-level residues and 100 PCT information for all commodities. Use of these screening-level assessment values helps ensure that chronic exposures and risks will not be underestimated. EPA additionally made conservative (protective) assumptions in the ground and surface water modeling used to assess exposure to fluoxastrobin in drinking water. EPA used similarly conservative assumptions to assess residential post-application exposure of children as well as incidental oral exposure of toddlers to fluoxastrobin. These assessments will not underestimate the exposure and risks posed by fluoxastrobin.

EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

1. Acute risk . An acute aggregate risk assessment takes into account acute exposure estimates from dietary consumption of food and drinking water. No adverse effect resulting from a single oral exposure was identified and no acute dietary endpoint was selected. Therefore, fluoxastrobin is not expected to pose an acute risk.

2. Chronic risk . Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to fluoxastrobin from food and water will utilize 42% of the cPAD for children (1-2 years old), the population subgroup receiving the greatest exposure. Based on the explanation in Unit III.C.3., regarding residential use patterns, chronic residential exposure to residues of fluoxastrobin is not expected.

3. Short- and intermediate-term risk . Fluoxastrobin is currently registered for uses that could result in both short- and intermediate-term residential exposure and the Agency has determined that it is appropriate to aggregate chronic exposure through food and water with short- and intermediate-term residential exposures of adults and children to fluoxastrobin. Short- and intermediate-term aggregate exposure assessments take into account short-and intermediate-term residential exposure, respectively, plus chronic exposure to food and water (considered a background exposure level). Because all short- and intermediate-term quantitative hazard assessments (via the dermal and incidental oral routes) for fluoxastrobin are based on the same endpoint, a screening-level, conservative aggregate risk assessment was conducted that combined the short-term incidental oral and intermediate-term exposure estimates (i.e., the highest exposure estimates) in the risk assessments for adults. The Agency believes that most residential exposure will be short-term, based on the use pattern.

Using the exposure assumptions described in this unit for short-term exposures, EPA has concluded that the combined short- and intermediate-term food, water, and residential exposures result in aggregate MOEs of 470 for adult males; 510 for adult females (13- 49 years old); 220 for children (1-2 years old), short-term; and 210 for children (1-2 years old), intermediate-term. Residential exposure for adults is intermediate-term dermal exposure from application of the product plus post-application dermal exposure plus short- and intermediate-term inhalation exposure from application of the product. Short-term residential exposure for children is incidental oral exposure. Intermediate-term residential exposure for children is post-application dermal exposure and post-application incidental oral exposure. Because EPA's level of concern for fluoxastrobin is a MOE of 100 or below, these residential MOEs are not of concern.

4. Aggregate cancer risk for U.S. population . As is explained in Unit III.A., the Agency has concluded that fluoxastrobin is not likely to be carcinogenic to humans. Therefore cancer risk is not of concern for this chemical.

5. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, or to infants and children, from aggregate exposure to fluoxastrobin residues.

Adequate enforcement methodology (liquid chromatography/mass spectrometry/mass spectrometry) is available to enforce the tolerance expression. Method No. 00604 is available for plant commodities and Method No. 00691 is available for animal commodities. The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; e-mail address: residuemethods@epa.gov .

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4). The Codex Alimentarius is a joint U.N. Food and Agriculture Organization/World Health Organization food standards program, and it is recognized as an international food safety standards-setting organization in trade agreements to which the United States is a party. EPA may establish a tolerance that is different from a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain the reasons for departing from the Codex level. There are currently no Codex or Canadian maximum residue limits (MRLs) or tolerances for fluoxastrobin in or on sweet corn or wheat.

EPA converted “aspirated grain fractions” to “grain, aspirated grain fractions”; “sweet corn (kernels plus cob with husks removed)” to “corn, sweet, kernel plus cob with husks removed”; “sweet corn, forage” to “corn, sweet, forage”; “sweet corn, stover” to “corn, sweet, stover”; “meat byproducts (cattle, goat, horse, sheep)” to “cattle, meat byproducts”, “goat, meat byproducts”, “horse, meat byproducts”, and “sheep, meat byproducts” to conform them to the Agency's Food and Feed Commodity Vocabulary. EPA also corrected the tolerance expression for the meat byproduct commodities from fluoxastrobin and its Z isomer to fluoxastrobin, its Z isomer, and its phenoxy-hydroxypyrimidine metabolite, 6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinol. The proposed tolerance of 0.02 ppm in or on sweet corn, kernels plus cob with husks removed has been reduced to 0.01 ppm in or on corn, sweet, kernel plus cob with husks removed, based on the highest observed residues in the sweet corn crop field trials and the limit of quantitation of the residue method of 0.01 ppm for combined residues of fluoxastrobin and its Z isomer. The proposed tolerance of 0.2 ppm in or on wheat, bran has been reduced to 0.15 ppm and the proposed tolerance of 15 ppm in or on aspirated grain fractions has been increased to 60 ppm in or on grain, aspirated grain fractions because the wheat field trials indicate that the highest average field trial residue of 0.11 ppm for wheat grain is 0.11 ppm and the wheat processing study indicates that residues of fluoxastrobin may concentrate in wheat, bran (1.3x) and aspirated grain fractions (518x). This is also an increase in the pre-existing tolerance of 20 ppm for fluoxastrobin in or on aspirated grain fractions.

Therefore, tolerances are established for residues of fluoxastrobin, (1E)-[2[[6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinyl]oxy]phenyl](5,6-dihydro-1,4,2-dioxazin-3-yl)methanone O-methyloxime and its Z isomer, (1Z)-[2[[6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinyl]oxy]phenyl](5,6-dihydro-1,4,2-dioxazin-3-yl)methanone O-methyloxime, in or on corn, sweet, forage at 13 ppm; corn, sweet, kernel plus cob with husks removed at 0.01 ppm; corn, sweet, stover at 10 ppm; wheat, bran at 0.15 ppm; wheat, forage at 7.0 ppm; wheat, hay at 17 ppm; and wheat, straw at 11 ppm. A pre-existing tolerance for the residues of fluoxastrobin and its Z isomer in or on grain, aspirated grain fractions is increased from 20 ppm to 60 ppm. Pre-existing tolerances are also increased for the residues of fluoxastrobin, its Z isomer, and its phenoxy-hydroxypyrimidine metabolite, 6-(2-chlorophenoxy)-5-fluoro-4-pyrimidinol, in cattle, meat byproducts from 0.10 ppm to 0.20 ppm; in goat, meat byproducts from 0.10 ppm to 0.20 ppm; in horse, meat byproducts from 0.10 ppm to 0.20 ppm; and in sheep, meat byproducts from 0.10 ppm to 0.20 ppm.

This final rule establishes tolerances under section 408(d) of FFDCA in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this final rule has been exempted from review under Executive Order 12866, this final rule is not subject to Executive Order 13211, entitled Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq ., nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under section 408(d) of FFDCA, such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq .) do not apply.

This final rule directly regulates growers, food processors, food handlers, and food retailers, not States or tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of section 408(n)(4) of FFDCA. As such, the Agency has determined that this action will not have a substantial direct effect on States or tribal governments, on the relationship between the national government and the States or tribal governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian tribes. Thus, the Agency has determined that Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 9, 2000) do not apply to this final rule. In addition, this final rule does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note).

The Congressional Review Act, 5 U.S.C. 801 et seq ., generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

I. Background

On February 2, 2010, PHMSA published a final rule under Docket No. PHMSA-06-25736 (HM-231) (75 FR 5376) to: Revise several packaging related definitions; add provisions to allow more flexibility when preparing and transmitting closure instructions, including conditions under which closure instructions may be transmitted electronically; add a requirement for shippers to retain packaging closure instructions; incorporate new language that allows for a practicable means of stenciling the “UN” symbol on packagings; and clarify a requirement to document the methodology used when determining whether a change in packaging configuration requires retesting as a new design or may be considered a variation of a previously tested design under the Hazardous Materials Regulations (HMR; 49 CFR Parts 171-180). The February 2 final rule also incorporated requirements for the construction, maintenance, and use of Large Packagings harmonizing these packaging requirements with those issued under the United Nations Recommendations on the Transport of Dangerous Goods. This final rule corrects several errors in the February 2 final rule and also responds to four appeals and one petition for reconsideration. Because these amendments do not impose new requirements, notice and public comment procedures are unnecessary.

In response to the February 2 final rule, PHMSA received one petition for rulemaking from the International Vessel Operators Dangerous Goods Association (IVODGA), and four appeals to the final rule from the following companies or organizations: American Promotional Events, Inc. (APE); Association of American Railroads (AAR); Dangerous Goods Advisory Council (DGAC); and the Reusable Industrial Packaging Association (RIPA). All object to certain requirements adopted in the February 2 final rule. Specifically, they request that PHMSA: (1) Eliminate the minimum thickness requirements for remanufactured steel and plastic drums; (2) reinstate the previous definition for “bulk packaging” to retain the phrase “no intermediate form of containment;” (3) revise the compliance date for maintaining closure instructions to align with a packaging's retest date; and (4) eliminate the vibration testing requirement for UN standard Large Packagings.

The February 2 final rule removed the phrase “no intermediate form of containment” from the introductory language of the bulk packaging definition contained in § 171.8. PHMSA developed this definition as a modification of the definition for bulk packagings proposed in the Notice of Proposed Rulemaking (NPRM; September 1, 2006 (71 FR 52017)) to clarify that Large Packagings that contain inner packagings are considered bulk packagings under the HMR. This change placed a greater emphasis on packaging design and volumetric capacity, and was developed in part based on a petition from the Monsanto Company (P-1173). In the NPRM, the definition for a bulk packaging was proposed to read a “Bulk packaging means: (1) Any specification cargo tank, tank car, or portable tank constructed and marked in accordance with Part 178 of this subchapter; (2) Any DOT Specification 3AX, 3AAX or 3T cylinder constructed, marked and certified in accordance with Subpart C of Part 178 of this subchapter; or (3) Any industrial Packaging, Type A, Type B, Intermediate Bulk Container [IBC], Large Packaging, or non-specification packaging that has a volumetric capacity of greater than 450 L (119 gallons).”

The DGAC, AAR, and IVODGA object to this definition as adopted in the February 2 final rule stating that the adopted language was not proposed in the NPRM; therefore, interested parties had no opportunity to comment on the proposal, which is contrary to the Administrative Procedure Act (APA). They also state under the revised definition that a transport vehicle ( e.g., a railroad box car, dry goods truck, or semitrailer) containing non-bulk hazardous materials packages may be considered a bulk packaging.

The September 1, 2006 NPRM definition for “bulk packaging” did not include the phrase “no intermediate form of containment.” Therefore, interested parties were given an opportunity to comment in response to the NPRM on the possible effect the removal of this phrase would have on the proposed bulk packaging definition. Further, in response to the petition for reconsideration and four appeals, we are clarifying that a Large Packaging with one or more inner packagings or articles is also a bulk packaging. Thus, in § 171.8 we are reinstating the phrase “no intermediate form of containment” in the bulk packaging definition, and permitting Large Packagings that contain articles or inner packagings to be defined as bulk packagings. We may consider amendments to this definition in a future rulemaking.

PHMSA proposed in the NPRM to revise the non-bulk packaging definition to eliminate the maximum capacity, gross mass, and water capacity limits for non-bulk packagings. Specifically, the NPRM proposed to define the term as follows: A “Non-bulk packaging means (1) any packaging constructed, marked, tested and certified as meeting the standards specified in Subparts L and M of Part 178 of this subchapter; (2) except for Specifications 3AX, 3AAX and 3T, any Specification cylinder constructed, marked and certified in accordance with subpart C of part 178 of this subchapter; and (3) any Industrial Packaging, Type A, Type B, Intermediate Bulk Container, Large Packaging, or non-specification packaging that has a volumetric capacity of 450 liters (119 gallons) or less.” In response to the NPRM, the DGAC and APE request PHMSA remove the definitions for bulk and non-bulk packaging from the HMR. The DGAC states the delineations were arbitrary and the terms no longer served a useful purpose in regulation. The APE states in its experience these terms were no longer used in international regulations, were detrimental to the United States (U.S.) transportation industry, and offered no safety benefits. Other commenters to the NPRM found the removal of the volumetric requirements from the definitions more confusing for determining the application of markings, labels, and placards, and were concerned the absence of this information may present a hazard communication problem for emergency responders in that it may interfere with them discovering a large amount of hazardous material during an incident. These commenters were also concerned that the removal of the volumetric requirements may possibly cause the distinction between IBCs and drums to disappear. For example, IBCs and drums have distinctly different handling requirements. IBCs, by definition, require mechanical handling for movement, which is not the case for non-bulk packagings such as drums. Changes in the volumetric capacities of these packagings may result in compromises in handling safety. Therefore, PHMSA did not adopt in § 171.8 the non-bulk packaging definition as proposed in the NPRM.

In its appeal to the February 2 final rule, the APE requests PHMSA define a non-bulk packaging for solids based on a net mass limit of 400 kg and without the 450 L limitation. The APE states this packaging is an undefined category—neither bulk nor non-bulk, but there is no safety basis for excluding its use, and this packaging was already authorized under PHMSA approval number CA 2006030023. The APE also states such packagings are common for transporting consumer fireworks; an example would be a fiberboard box with a low net mass of 75 kg but with a capacity in excess of 450 L. Further, the APE states this size packaging issue does not arise in the UN Recommendations on the Transport of Dangerous Goods (UN Recommendations).

PHMSA agrees with the appellants that (1) the HMR do not define packagings for solids with a net mass of 400 kg or less (non-bulk) but a net capacity that exceeds 450 L, and packagings with a net mass that exceeds 400 kg (bulk) but a net capacity that does not exceed 450 L; (2) that many of the international requirements for bulk and non-bulk packagings do not contain these quantity limits; and (3) packagings that meet the HMR's performance standards should be considered authorized packagings. However, we also recognize that many factors concerning these size limits serve an important function in delineating packaging types and performance testing in the U.S. Design and testing of packages that fall within these sizes may not adequately account for the handling characteristics that such large and heavy packagings may require.Therefore, we are not revising the definition in § 171.8 for a non-bulk packaging at this time, but will consider this issue more fully for a future rulemaking.

The February 2 final rule revised § 178.2(c) to require a packaging manufacturer or other person certifying a packaging's compliance with 49 CFR Part 178, and each subsequent distributor of that packaging, to notify each person the packaging is transferred to of all the requirements regarding the packaging that are not met at the time of transfer. Each person who receives these written instructions must retain a copy for 365 days from the date of issuance. This notification may be in writing, stored electronically, including e-mail transmissions or on a CD or similar device. Federal hazmat law defines a “person” as including “a government, Indian tribe, or authority of a government or tribe that—(i) offers hazardous material for transportation in commerce; (ii) transports hazardous material to further a commercial enterprise; or (iii) designs, manufactures, fabricates, inspects, marks, maintains, reconditions, repairs, or tests a package, container, or packaging component that is represented, marked, certified, or sold as qualified for use in transporting hazardous materials in commerce * * *.” See 49 U.S.C. 5102(9); see also 49 CFR 171.8.

The DGAC states PHMSA misconstrued DGAC's comments to the NPRM concerning closure instructions. In its appeal, the DGAC states packagings may require retesting or updated test reports to ensure closure instructions are consistent and repeatable with the manner in which these packagings were closed when tested. It also states completing packaging retesting before the October 1, 2010 effective date of the final rule could be costly and time consuming. The DGAC recommends adopting a two-year transition period for retaining closure instructions to align with the current two-year periodic retesting required for combination packagings and a one-year transition period for single packagings.

We agree with the appellant that adopting a closure instruction retention period that aligns with the periodic retesting requirements for the packaging would make it easier for the manufacturer and each subsequent distributor of the packaging to comply with this requirement. We also agree that making this change is appropriate given that this requirement was intended to provide additional flexibility to packaging manufacturers. Therefore, in this final rule, we are revising the amount of time required for retaining packaging closure instructions prescribed in § 178.2(c)(1)(ii) to align with a packaging's periodic retest date. We are also clarifying language in § 173.22(a)(4) to clearly state that additional requirements concerning closure instruction retention, including the time period required, are prescribed in § 178.2(c).

PHMSA added the phrase “or remanufactured for reuse” to the third sentences in § 173.28(a) and (f), respectively, which require steel and plastic drums to meet the minimum thickness requirements for reusable packagings. In their appeals, the DGAC and RIPA object to this revision stating that Part 178 specification requirements for steel or plastic manufactured or remanufactured drums do not include minimum thicknesses and reconditioning, which is a form of reuse that has not applied to remanufactured packagings for many years. They also state a remanufactured drum is much like a new drum marked for single use in that it must be tested, regardless of thickness, to demonstrate compliance with the applicable performance requirements for its design, and it cannot be reused or reconditioned. The appellants also state if this provision were to go into effect, remanufactured drums not meeting minimum thickness requirements will have to be taken out of service and scrapped, which would cause the premature disposal of packagings that are still otherwise useful.

We agree with the appellants that this change may be misleading. PHMSA recognizes the current HMR minimum thickness requirements apply to packagings for reuse and reconditioning, and not to remanufactured packagings. We also recognize a remanufactured packaging, regardless of thickness, must be tested to demonstrate compliance with performance requirements. This differs from the requirements for reuse and reconditioning where the packaging is not subject to performance requirements as a new design type before reuse or reconditioning. Therefore, in this final rule, PHMSA is revising § 173.28(a) and (f) to remove the phrase “or remanufactured for reuse” to clarify that this requirement does not apply to remanufactured packagings.

PHMSA added a vibration performance test in § 178.985 for UN standard Large Packagings to promote the integrity of these packagings in transportation. The DGAC and APE object to this provision in their appeals. Both state that PHMSA erroneously stated Large Packagings would contain hazardous materials without an intermediate packaging, but Large Packagings are designed to contain inner packagings, making them essentially combination packagings that should comply with § 173.24a(a)(5). The appellants state that PHMSA provided no safety justification for the additional test, and that this change decreases harmonization with international standards as the vibration test is not included in international standards for these packagings. The appellants also question why PHMSA would submit a paper to the UN Committee of Experts to permit hazard class Division 1.1D, 1.4G, and 1.4S explosives in Large Packagings but not take this into account when preparing the Docket No. PHMSA-06-25736 (HM-231) final rule.

On its own initiative, PHMSA added the vibration test for Large Packagings, other than for flexible Large Packagings, in the final rule because, as PHMSA stated in the final rule, the similarity of the Large Packaging's design to an IBC subjected it to similar packaging design stresses and opportunities for failure. Further, PHMSA believes, based on historical experience with the vibration test, that the test is an essential component for assessing the integrity of an IBC packaging. Therefore, the test is equally valid for assessing the integrity of a Large Packaging, regardless of whether the Large Packaging is used as a single or combination packaging. In addition, the NPRM's regulatory language did provide for the placement of articles or inner packagings in Large Packagings. However, these provisions were erroneously omitted in the February 2 final rule. Therefore, we are revising the language in § 178.985(a) regarding the vibration test for Large Packagings to state these packagings must be capable of passing the vibration test, and clarifying that Large Packagings that contain inner packagings are bulk packagings.

PHMSA agrees with the appellants that the vibration test is not currently required internationally for Large Packagings. In December 2006, PHMSA submitted a proposal (No. 2006/98) to the 30th session of the UN Sub-Committee of Experts on the Transport of Dangerous Goods (Sub-Committee) (the proposal is available at: http://www.unece.org/trans/doc/2006/ac10c3/ST-SG-AC10-C3-2006-98e.pdf ) to incorporate into the UN Recommendations U.S.-issued competent authority approvals that permit Division 1.4G (UN 0336) and Division 1.4S (UN 0337) consumer fireworks to be transported in fiberboard and wood Large Packagings. This proposal was based on the existing test provisions for these packagings. PHMSA's intent in this proposal was to add a Large Packaging authorization, not to amend the Large Packaging test requirements. At that time, the vibration test was not yet required for IBCs, but we were working with the Sub-Committee during that session to add the vibration test for composite IBCs ( see Canadian paper (2006/78); the proposal is available at: http://www.unece.org/trans/doc/2006/ac10c3/ST-SG-AC10-C3-2006-78e.pdf ). PHMSA's intent was to add the vibration test to the composite IBC packaging first, and then consider what other packaging types it should apply to.

PHMSA withdrew the proposal before it was considered by the Sub-Committee and decided not to pursue it further at a future meeting because we believed the information we received initially from industry in support of the proposal was not sufficiently complete and may be inaccurate. After further review, we also decided the proposal as written at that time was not appropriate as a regulation to be made available for general use by incorporating it into the UN Recommendations. Therefore, the Sub-Committee never considered a proposal from the U.S. to add a Large Packaging authorization for identification number UN 0336 and UN 0337 fireworks. The Sub-Committee document noting this withdrawal is available at: http://www.unece.org/trans/doc/2006/ac10c3/UN-SCETDG-30-INF01e.pdf.

Finally, on April 1, 2010, the U.S. submitted a working paper (No. ST/SG/AC.10/C.3/2010/32) for the consideration of the UN Committee of Experts entitled “Vibration test for large packagings” that asks the Committee to add the vibration testing for all Large Packaging intended to contain liquids. A copy of this paper is available in the docket for this final rule at http://www.regulations.gov.

The February 2 final rule added two puncture-resistant construction requirements under § 178.930 for rigid fiberboard UN 50 Large Packagings. The first, in § 178.930 (b)(1)(i), states the walls of the packaging, including the top and bottom, must have a minimum puncture resistance of 15 Joules (11 foot-pounds of energy) measured according to the testing standards prescribed in the International Organization for Standardization (ISO) 3036-1975(E) Board—Determination of Puncture Resistance, which is incorporated by reference in § 171.7 of the HMR. The second, in § 178.930 (b)(1)(ii), includes a requirement that metal staples used to fasten a Large Packaging be formed or protected so that any inner lining cannot be abraded or punctured by them. PHMSA added these requirements to reduce the likelihood that sharp or protruding objects will puncture these packagings.

The APE opposes the ISO standard of puncture resistance for fiberboard Large Packagings, stating the 15 Joules puncture-resistance requirement introduces significant additional costs that foreign competitors, who may import fireworks into the U.S. in packagings of comparable mass and volume, are not required to comply with. The APE also states heavier fiberboard would be needed to satisfy this requirement, and this additional weight may reduce the amount of material that can be placed in a packaging on a truck. The APE also states PHMSA in the past issued an approval, CA number not provided, that required a 5 Joules puncture resistance for fiberboard packagings and requests that this standard be applied to the fiberboard Large Packaging as well. We believe the commenter may be referring to Competent Authority Approval number CA 2006030023. This competent authority permits APE to offer for transportation Division 1.4G (UN 0336) and Division 1.4S (UN 0337) fireworks in UN 50G Large Packagings that conform to the UN Recommendations construction standards for these packagings except that the walls, including the top and bottom of the packaging, must pass a puncture resistance of 5 Joules instead of 15 Joules required for all other packagings of this type. Additional packaging requirements also apply. A copy of the approval is available under the “Approvals Search” link at: http://www.phmsa.dot.gov/hazmat/regs/sp-a/approvals. Finally, the APE asserts that PHMSA did not adequately consider its concerns pertaining to this requirement in its comments to the NPRM.

We agree with the appellant that the reduction in puncture resistance from 15 to 5 Joules the appellant is requesting for fiberboard UN 50G Large Packagings is adequate for the hazard class, weight, and type of the hazardous materials permitted under this approval. However, we disagree that this provision should be applied to all Large Packagings in other types of hazardous materials service. For example, the ability of a fiberboard packaging to resist further tearing when punctured may be crucial to its survivability when it contains materials that are heavier than fireworks, which typically are lightweight when compared to their volume, or when it contains materials that can disperse easily, such as those in grain or powder form, or liquids in inner packagings. Therefore, we will continue to authorize fiberboard Large Packagings that pass a 5 Joule puncture-resistance test under the terms of an approval based on our determination of its ability to transport a specific type of hazardous material safely in transportation. To determine whether other types of hazardous materials may be safely transported in a 5 Joule puncture-resistant fiberboard Large Packaging, we may consider this issue and the possibility of allowing the use of this type of packaging under the terms of a Special Provision prescribed in § 172.102 in a future rulemaking.

In the February 2 final rule, PHMSA added standards for constructing and testing Large Packagings, represented by the code designation “UN 50” (rigid) or “UN 51” (flexible), but did not consistently revise the references in the HMR to reflect this change. In this rulemaking, we are revising the definition in § 171.8, and the references in § 173.197 to correctly identify that the Large Packaging standards and testing provisions in the HMR are now prescribed in 49 CFR Part 178, Subparts P and Q. These corrections will clarify that an approval from the Associate Administrator for Hazardous Materials Safety is no longer needed to construct and test a UN 50 or UN 51 Large Packaging.

PHMSA renumbered several sections pertaining to Large Packagings in the February 2 final rule to consolidate these requirements into sections that occur in the “§ 178.900” series, beginning with § 178.900 and ending with § 178.985. However, we did not discuss this change in the preamble. In addition, several section numbers that appeared in the final rule's regulatory text were not revised to reflect these changes, and some existing sections numbers were referenced incorrectly. These editorial changes are summarized below.

Section 178.503(e)(1)(i) was incorrectly referred to as § 178.3(e)(1)(i) in § 178.503(e)(1)(ii)(D) in the February 2 final rule. This error is corrected in this final rule.

Section 178.902 was renumbered § 178.905; § 178.903 was renumbered § 178.910; § 178.905 was renumbered § 178.920; § 178.906 was renumbered § 178.925; § 178.907 was renumbered § 178.930; § 178.908 was renumbered § 178.935; § 178.909 was renumbered § 178.940, § 178.1001 was renumbered § 178.950 in the February 2 final rule.

In § 178.910, the reference in paragraph (a)(1)(ii) containing the identification codes for a Large Packaging design type was incorrectly described in the NPRM and February 2 final rule as § 178.901. This section was designated as § 178.902 in the NPRM, and renumbered § 178.905 in the February 2 final rule. Therefore, in § 178.910(a)(1)(ii), the reference to § 178.901 is renumbered § 178.905. Also in § 178.910(a)(1)(ii), the reference to the section containing the general requirements for testing Large Packagings was incorrectly described in the NPRM and February 2 final rule as § 178.1001. Therefore, § 178.1001 is renumbered § 178.955 in this final rule.

In § 178.915(e), the “p” in packaging was placed erroneously in lower case. In addition, the bottom- and top-lift testing sections for Large Packagings were renumbered § 178.970 and § 178.975, respectively, in the February 2 final rule but were incorrectly described in § 178.915(e) as § 178.1004 and § 178.1005. These errors are also being corrected in this final rule.

In the February 2 final rule, the sections that prescribe rigid plastic and flexible Large Packaging standards were renumbered § 178.925 and § 178.940, respectively, but were incorrectly described in § 178.955(c)(5)(ii) as § 178.906 and § 178.909. Also, in the February 2 final rule, § 178.1001 was renumbered § 178.955, § 178.1002 was renumbered § 178.960, and § 178.1015 was renumbered § 178.980. However, the references in § 178.965(a) and (b) to § 178.955 and § 178.960 were incorrectly described as §§ 178.1001 and 178.1002, respectively, and the reference in § 178.980(d) to § 178.980(c) was incorrectly described as § 178.1015(c).

These errors are being corrected in this final rule.

Section 178.1019 was renumbered § 178.985 in the February 2 final rule.

In § 178.601(g)(8)(xiii)(C), the comma placed erroneously before the parenthetic phrase is removed, and the quotation mark used as a symbolic representation for the word “inches” after the numbers 0.625 was replaced with the word “inches.” In § 178.601(g)(8)(xiii)(D), the period placed erroneously after the word “thickness” is replaced with a comma.

This final rule is published under authority of 49 U.S.C. 5103(b), which authorizes the Secretary of Transportation to prescribe regulations for the safe transportation, including security, of hazardous materials in intrastate, interstate, and foreign commerce. This final rule responds to one petition for reconsideration and four appeals, and corrects several errors in the February 2, 2010 final rule. The petition and appeals are available for review in the public docket for this rulemaking.

This final rule is a non-significant regulatory action under section 3(f) of Executive Order 12866 and was not reviewed by the Office of Management and Budget. This final rule is considered non-significant under the Regulatory Policies and Procedures of the Department of Transportation (44 FR 11034). The revisions adopted in this final rule do not alter the cost-benefit analysis and conclusions contained in the Regulatory Evaluation prepared for the February 2, 2010 final rule.

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”), and the President's memorandum on “Preemption” published in the Federal Register on May 22, 2009 (74 FR 24693). This final rule preempts State, local, and Indian tribe requirements, but does not impose any regulation with substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.

The Federal Hazardous Materials Transportation Law, 49 U.S.C. 5101-5127, contains an express preemption provision (49 U.S.C. 5125(b)) preempting State, local, and Indian tribe requirements on the following subjects:

(1) The designation, description, and classification of hazardous materials;

(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous materials;

(3) The preparation, execution, and use of shipping documents related to hazardous materials and requirements related to the number, contents, and placement of those documents;

(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; or

(5) The design, manufacture, fabrication, marking, maintenance, recondition, repair, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.

This final rule addresses covered subject items 1, 2, 3, and 5 above. This rule preempts any State, local, or Indian tribe requirements concerning these subjects unless the non-Federal requirements are “substantively the same” as the Federal requirements. This final rule is necessary to incorporate changes to the final rule in response to one petition for reconsideration and four appeals, and to make corrections to the February 2, 2010 final rule that without this rulemaking will become effective on October 1, 2010.

Federal hazardous materials transportation law provides at § 5125(b)(2) that, if DOT issues a regulation concerning any of the covered subjects, DOT must determine and publish in the Federal Register the effective date of Federal preemption. The effective date may not be earlier than the 90th day following the date of issuance of the final rule and not later than two years after the date of issuance. This effective date of preemption is 90 days after the publication of this final rule in the Federal Register .

This final rule has been analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). Because this final rule does not have tribal implications and does not impose direct compliance costs, the funding and consultation requirements of Executive Order 13175 do not apply.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires an agency to review regulations to assess their impact on small entities. An agency must conduct a regulatory flexibility analysis unless it determines and certifies that a rule is not expected to have a significant impact on a substantial number of small entities. The corrections and revisions contained in this final rule are minor and will have little or no effect on the regulated industry. While maintaining safety, it relaxes certain requirements. Many of the amendments in this rulemaking are intended to correct or clarify regulatory requirements specific to the February 2, 2010 final rule concerning the construction and use of non-bulk and bulk packagings and do not impose any additional costs on small entities.

This final rule has been developed in accordance with Executive Order 13272 (“Proper Consideration of Small Entities in Agency Rulemaking”) and DOT's procedures and policies to promote compliance with the Regulatory Flexibility Act to ensure that potential impacts of draft rules on small entities are properly considered. The changes in this final rule will enhance safety, and I certify that this proposal, if promulgated, would not have a significant economic impact on a substantial number of small entities.

This final rule does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It will not result in costs of $120.7 million or more, in the aggregate, to any of the following: State, local, or Native American tribal governments, or the private sector.

This final rule imposes no new information collection requirements.

A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN number contained in the heading of this document may be used to cross-reference this action with the Unified Agenda.

The National Environmental Policy Act (NEPA), §§ 42 U.S.C. 4321-4375, requires federal agencies to analyze regulatory actions to determine whether the action will have a significant impact on the human environment. The Council on Environmental Quality (CEQ) regulations order federal agencies to conduct an environmental review considering (1) the need for the action, (2) alternatives to the action, (3) environmental impacts of the action and alternatives, and (4) the agencies and persons consulted during the consideration process. 40 CFR 1508.9(b). In the February 2, 2010 final rule, we developed an assessment to determine the effects of these revisions on the environment and whether a more comprehensive environmental impact statement may be required. The requirements in this rulemaking will reduce confusion and enhance voluntary compliance, thereby reducing the likelihood of deaths, injuries, property damage, hazardous materials release, and other adverse consequences of incidents involving the transportation of hazardous materials. We have determined there will be no significant environmental impacts associated with this final rule.

Anyone is able to search the electronic form for all comments received into any of our dockets by the name of the individual submitting the comments (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78), or it is available at: http://www.dot.gov/privacy.html.

In Title 50 of the Code of Federal Regulations, Parts 18 to 199, revised as of October 1, 2009, on page 663, in § 100.24, remove the second paragraph (a)(3).

In Title 50 of the Code of Federal Regulations, Parts 600 to 659, revised as of October 1, 2009, on page 639, in § 648.92, remove the second paragraphs (b)(1)(iv) and (b)(1)(v).