[Federal Register Volume 76, Number 12 (Wednesday, January 19, 2011)]
[Rules and Regulations]
[Pages 3017-3023]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-983]


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DEPARTMENT OF VETERANS AFFAIRS

38 CFR Part 74

RIN 2900-AM78


VA Veteran-Owned Small Business Verification Guidelines

AGENCY: Department of Veterans Affairs.

ACTION: Final rule.

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SUMMARY: This document affirms as final, with changes, a final rule 
with request for comments that implemented portions of the Veterans 
Benefits, Health Care, and Information Technology Act of 2006. This law 
requires the Department of Veterans Affairs (VA) to verify ownership 
and control of veteran-owned small businesses, including service-
disabled veteran-owned small businesses. This final rule rescinds the 
requirement that eligible owners work full-time in the business for 
which they have applied for acceptance in the Verification Program and 
that limits participants to a single business. It formally changes the 
time period for issuance of reconsideration decisions from 30 to 60 
days and changes the distribution of profits for limited liability 
companies and employee stock ownership plans.

DATES: Effective Date: This final rule is effective February 18, 2011.

FOR FURTHER INFORMATION CONTACT: Ms. Gail Wegner, Deputy Director, 
Center for Veterans Enterprise (00VE), Department of Veterans Affairs, 
810 Vermont Ave., NW., Washington, DC 20420, phone (202) 303-3260 
x5239.

SUPPLEMENTARY INFORMATION: In a final rule with request for comments 
published in the Federal Register on February 8, 2010, (75 FR 6098), we 
revised 38 CFR part 74 setting forth a mechanism for verifying 
ownership and control of veteran-owned small businesses (VOSBs), 
including service-disabled veteran-owned small businesses (SDVOSBs). We 
solicited comments on the following new interim final requirements: 
Requiring eligible owners work full-time in the business for which they 
have applied for acceptance in the VOSB or SDVOSB Verification Program, 
changing the time period for issuance of reconsideration decisions from 
30 to 60 days, and changing the distribution of profits for limited 
liability companies and employee stock ownership plans. We provided a 
30-day comment period which ended on March 10, 2010. We received more 
than 100 comments on the interim final requirements. The issues raised 
in the comments are discussed below. Based upon the rationale set forth 
in this document, we are rescinding the interim final provisions that 
require owners to work full-time in the business for which they have 
applied for acceptance in the Verification Program and which limit 
participants to a single business. We are also formally changing the 
time period for issuance of reconsideration decisions from 30 to 60 
days and changing the distribution of profits for limited liability 
companies (LLC) and

[[Page 3018]]

employee stock ownership plans (ESOP).
    Comments were solicited on the following aspects of the rule:

Section 74.3(d), Profits and Distributions

    We received several comments on the additional requirement that an 
eligible individual's ability to share in the profits of a concern 
should be commensurate with the extent of his/her ownership interest in 
that concern and on the revised requirement for the evaluation of 
profits and distributions to determine ownership interest in ESOPs and 
LLCs. We are making a minor clarifying edit in Sec.  74.3(d)(1) to 
change the word ``concern'' to ``or participant'' resulting in 
``applicant or participant'' to be consistent with prior terminology in 
Sec.  74.3.
    1. Numerous commenters suggested adding text to state that the VOSB 
venture of any VOSB joint venture must receive 51 percent of the 
profits of the joint venture. We agree with this suggestion and have 
modified the rule accordingly. This change aligns VA's rule with the 
provisions of 13 CFR part 125 which governs, in part, the profit 
requirements of joint ventures in the government-wide SDVOSB program. 
The subparagraphs have been renumbered and this text, ``[a]t least 51 
percent of the net profits earned by a joint venture in which the 
applicant or participant is the lead concern,'' is added to Sec.  
74.3(d)(2).
    2. Numerous commenters strongly recommended deleting 38 CFR 
74.3(d)(4) stating that the subsection was ``badly drafted'' and 
``meaningless.'' We disagree and no changes will be made based on these 
comments. This text reads ``[a]n eligible individual's ability to share 
in the profits of the concern should be commensurate with the extent of 
his/her ownership interest in that concern.'' VA maintains that real 
evidence of ownership is demonstrated where the owner has the right to 
receive a share of profits equivalent to his/her ownership interest in 
the concern; otherwise, that ownership interest lacks materiality. For 
example, if an owner had a 51 percent ownership interest but was only 
entitled to 1 percent of the profits, the owner's ownership interest is 
rendered meaningless. However, in the renumbered text, this language 
appears in Sec.  74.3(d)(5).
    3. One commenter opposed the text that ``[a]n eligible individual's 
ability to share in the profits of the concern should be commensurate 
with the extent of his/her ownership interest in that concern,'' saying 
it is not envisioned by the law and the requirement that the owner be 
the highest compensated creates an unfair management burden in 
recruiting the best talent. We will not make any changes based upon 
this comment. The commenter's concerns are unfounded because this text 
deals solely with the issue of ownership of the concern and the rule 
already allows for exceptions to the requirement that the owner be the 
highest compensated employee. Currently, Sec.  74.4(g)(3) establishes 
that ``[t]he highest ranking officer may elect to take a lower salary 
than a non-veteran only upon demonstrating that it helps the applicant 
or participant.'' Therefore, if taking a lower salary is necessary for 
maintaining competitiveness, the owner can do so without risking 
verified status.
    4. One commenter replied ``[t]his is a welcome change for veteran-
owned ESOP's. However, the language appears to exclude 100 percent 
veteran-owned ESOP's; i.e., there must be some quantity of 
`outstanding' non-ESOP stock that is owned by veterans. What if 
veterans owned only their portion of the ESOP stock? Could the business 
qualify as VOSB or SDVOSB in that event?'' We will not make any changes 
based upon this comment because Sec.  74.3(a) addresses this matter. If 
100 percent of the stock is veteran-owned in an ESOP, then there is no 
issue, as the business is still owned by a veteran.

Section 74.4(c)(1), Single Business; Full-Time Control

    VA received several comments concerning the single business and 
full-time control requirements. A few commenters opposed the 
requirement to have a single business participating in the program at 
one time, with the exception of joint-ventures. Commenters also opposed 
the requirement for the eligible owner to work full-time in the 
business. We agree and have reinstated the text of the Interim Final 
Rule published in the Federal Register on May 19, 2008 (73 FR 29024), 
that ``[a]n applicant or participant must be controlled by one or more 
veterans or service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business'' with the addition of a 
requirement for an owner to submit a written statement demonstrating 
that outside employment activities will not have a significant impact 
on the owner's ability to manage and control the applicant concern. We 
include an exception for applications from joint-ventures from this 
written statement requirement because joint ventures as defined by 38 
CFR 74.1 are business entities created for single, specific business 
ventures for joint profit and not created for conducting business on a 
permanent basis. Accordingly, the regulation permits a veteran to 
maintain its primary business operation for general business and still 
create a joint venture for a specific project without losing its 
veteran-owned small business status. Therefore, in these circumstances, 
VA acknowledges that the veteran owner can have its regular business 
operation and a joint venture without affecting its ability to manage 
both at the same time. To maintain the requirement that owners must 
work full-time in the business ignores some factors that greatly affect 
today's business climate and put an unnecessary burden on certain 
business owners who need to spread their time between several different 
projects or occupations. The additional requirement of a written 
statement demonstrating that the outside employment activities will not 
have a significant impact on the owner's ability to manage and control 
the applicant concern will allow VA to ensure that the business seeking 
verification is still truly under the control of the veteran owner. In 
addition, VA has deleted the definition of ``full-time'' from Sec.  
74.1.

Single Business Requirement Related Comments

    1. Numerous commenters opposed the text that ``an eligible owner 
may only have one business participating in the Verification Program at 
one time'' because they interpreted it as limiting joint ventures. One 
commenter explained that such arrangements are ``necessary due to the 
tight economy, procurement changes and lower government spending.'' 
Several commenters supported a clarification for the regulation to 
state that eligible owners of businesses enrolled in the Verification 
Program may also have additional joint venture agreements that 
participate in the program. We will not make any changes based upon 
these comments because the current rule already permits joint ventures 
in addition to a participant's primary business.
    2. Numerous commenters opposed participation by a single business 
as more stringent than and inconsistent with other Federal small 
business programs. An additional commenter noted that the text limiting 
eligible owners to only one business in the Verification Program 
``appears to run contrary to White House policy statements in support 
of small business'' and ``would stifle job creation and economic 
development.'' We agree that

[[Page 3019]]

restriction of only one business participant may have the unintended 
effect suggested by the commenters. Accordingly, the rule has been 
modified to allow more than one VOSB participant so long as the veteran 
can demonstrate the requisite requirements of ownership and control.
    3. Numerous commenters expressed that limiting eligibility to a 
single business is harmful to start-up businesses. We agree with the 
commenters. The rule has been modified to return to the original text 
that ``[a]n applicant or participant must be controlled by one or more 
veterans or service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business.'' This will allow owners 
of start up businesses to maintain previous businesses while the new 
venture solidifies itself in the business world.
    4. Numerous commenters noted that for tax and other considerations 
establishing multiple businesses is beneficial. Other commenters noted 
that many businesses set up separate entities to manage liability by 
spreading risk among other businesses. The commenters requested the 
rule be changed to reflect this. We agree with the commenters' 
suggestions, and the rule has been modified to return to the original 
text that ``[a]n applicant or participant must be controlled by one or 
more veterans or service-disabled veterans who possess requisite 
management capabilities. Owners need not work full-time but must show 
sustained and significant time invested in the business.'' This will 
allow owners to maintain multiple businesses in the database and 
eliminate any unnecessary burdens on these owners with regard to taxes, 
liability and other similar considerations.
    5. Numerous commenters observed that the text limiting participants 
in the Verification Program to one business has no foundation in law 
and that there is no compelling reason to limit participation to a 
single concern. The rule has been modified to return to the original 
text that ``[a]n applicant or participant must be controlled by one or 
more veterans or service-disabled veterans who possess requisite 
management capabilities. Owners need not work full-time but must show 
sustained and significant time invested in the business.'' The original 
text does not include the limitation to one business participant. Our 
concern in proposing to limit participants to one business in the 
Verification Program was for the integrity of the program as it was 
viewed as difficult for an owner to comply with the control 
requirements of Sec.  74.4 if the veteran had multiple businesses. 
However, we realize that this restriction would have unintended effects 
and may be harmful to start-up businesses where the veteran may need to 
control an ongoing concern while creating and growing a start-up 
concern.
    6. Numerous commenters noted that single business participation 
restricts business growth and limits participation in global markets. 
We agree with these commenters. The rule has been modified to return to 
the original text that ``[a]n applicant or participant must be 
controlled by one or more veterans or service-disabled veterans who 
possess requisite management capabilities. Owners need not work full-
time but must show sustained and significant time invested in the 
business.'' This eliminates the single business restriction and allows 
more flexibility for the owners to continue to grow their business and 
participate in the global marketplace.
    7. Several commenters expressed that the single business 
restriction is discriminatory in that it is based on the belief that a 
veteran lacks the capability and intelligence to manage more than one 
business at a time. We disagree with this comment as the proposed rule 
was not based on this belief. Due to other comments, however, the rule 
has been modified to return to the original text that ``[a]n applicant 
or participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.'' This addresses the concern of the commenter 
by allowing for veteran owners to maintain more than one business in 
the Verification Program. Our intention was not to criticize the 
management capabilities of veterans. In processing verification 
applications, we have observed that it has been difficult for an 
applicant to demonstrate how it can control, as addressed in Sec.  
74.4, two or more businesses at the same time. However, we find that it 
was unfair, not discriminatory, to preclude every applicant from 
attempting to demonstrate that it can control more than one business.
    8. One commenter suggested that the text be revised to require that 
``an eligible owner have no more than two businesses in the program at 
one time and must work full-time in the businesses.'' This comment is 
not accepted as, based upon the majority of comments received, the rule 
has been revised to eliminate the single business requirement and 
return to the original text that ``[a]n applicant or participant must 
be controlled by one or more veterans or service-disabled veterans who 
possess requisite management capabilities. Owners need not work full-
time but must show sustained and significant time invested in the 
business.''
    9. One commenter expressed no opposition to the single business 
requirement, stating a belief that there is widespread abuse in the 
set-aside program. This commenter suggested that the wording is not 
specific to oversight agency responsibilities for enforcement. We 
disagree with this comment. VA has the responsibility for verifying the 
applicants in accordance with this rule. The rule will require that 
applicants submitting more than one business for verification must 
submit a written statement demonstrating that the outside employment 
activities will not have a significant impact on the owner's ability to 
manage and control the applicant concern. This will assist VA in 
ensuring that applicants fully comply with the control requirements of 
Sec.  74.4 and avoid abuse and fraud in the set-aside program 
referenced by the commenter.
    10. One commenter proposed that all veteran-owned businesses be 
eligible for the VOSB Verification Program. We disagree with this 
comment as the statute which governs the verification process is 
specific to the Department of Veterans Affairs and to veteran-owned 
small businesses, not all veteran-owned business, which would include 
large veteran-owned businesses not covered by the statute.
    11. One commenter offered alternative language, ``With the 
exception of joint-venture agreements, an eligible owner may have only 
one business participating in the Veterans First Contracting Program at 
one time and must work full-time in the business as defined in 38 CFR 
Part 74.1.'' We disagree with this comment, as it could be misconstrued 
to restrict an owner from performing work under more than one set-aside 
award at a single time. In addition, the single business requirement 
has been deleted and VA has returned to the original text that ``[a]n 
applicant or participant must be controlled by one or more veterans or 
service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business.''
    12. Several commenters suggested that the rule be revised to 
acknowledge that owners may operate from multiple locations using 
electronic tools to

[[Page 3020]]

effectively control remote operations and other businesses. We agree 
with this comment. The single business and full-time requirements were 
overly restrictive as they failed to take into account the ability of 
certain veteran owners in certain situations using modern, electronic 
tools, to effectively run one or multiple businesses without dedicating 
the amount of time prescribed by the full-time requirement. The rule 
has been revised to eliminate the single business and full-time 
requirements and return to the original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.''
    13. One commenter stated that certain professions require teaming, 
expressing the opinion that the rule prohibits such arrangements. We 
disagree with this comment. The current rule already permits joint 
ventures in addition to a participant's primary business.
    14. One commenter noted that some state programs use the 
Verification Program and that limiting joint-ventures would be harmful 
to owners in those programs. We disagree with this comment, as Sec.  
74.4(c)(1) permits participants to enter into joint-venture agreements.
    15. A few commenters opposed the single business requirement but 
suggested that additional businesses must be in different business 
lines (industries). We do not agree with this comment. The single 
business requirement has been removed and the original text that ``[a]n 
applicant or participant must be controlled by one or more veterans or 
service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business'' has been restored. The 
single business requirement placed an unfair burden on veteran owners 
by restricting them to just one business. VA will consider the merits 
of each application on an individual basis without regard for the 
industry in which a veteran's other business may be.
    16. One commenter opposed the single business requirement but 
suggested that additional businesses ``must be in the same or closely 
related industries.'' Another commenter suggested that multiple 
businesses in the same or similar industry should be considered a 
single entity, and cited the SBA 8(a) program as precedent. That 
program does not allow an owner to have more than one business in the 
same or similar industry. We disagree with this comment. The single 
business requirement placed an unfair burden on veteran owners by 
restricting them to just one business. Similarly, it would be an undue 
burden to limit these owners to just one industry. VA will consider the 
merits of each application, on an individual basis, without regard for 
the industry in which a veteran's other business is involved. The 
single business requirement has been removed and the original text that 
``[a]n applicant or participant must be controlled by one or more 
veterans or service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business'' has been added back 
into Sec.  74.4(c)(1) to allow applicants to potentially have more than 
a single business in the Verification Program.
    17. Some commenters opposed the single business requirement saying 
that ``[t]here is nothing illegal about owning more than one company'' 
and ``many successful owners have more than one business at a time.'' 
We agree with these commenters. The requirement put an unnecessary 
burden on veteran small business owners by restricting them to just one 
business. The rule has been modified to eliminate the single business 
requirement and returned to the original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.''
    18. Some commenters expressed the opinion that the single business 
requirement would stifle entrepreneurship at a time when we need to 
create jobs and the concept is ``contrary to the American spirit and 
established precedent that owners sometimes need to start multiple 
businesses before one is successful.'' We agree with these commenters. 
The single business requirement was removed because it was determined 
that it created an unnecessary burden on veteran-owned small 
businesses. The rule has been modified to eliminate the single business 
requirement and return to the original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.''
    19. One commenter noted that the restriction is contrary to 
mentorship of new businesses and suggested that established owners join 
start-ups to offer support, funding and other assistance to the new 
owner(s). We agree with this comment. The single business requirement 
placed an undue burden on veteran owners by limiting their ability to 
participate in other businesses for purposes such as mentoring. 
Therefore, the rule has been modified to eliminate the single business 
requirement and return to the original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.''
    20. Several commenters stated that if a veteran owns a small 
business and then organizes a joint venture, the veteran violates the 
second business rule. We disagree with these comments. The regulation 
provides that business owners can still form joint-ventures without 
violating the rule. In addition, the single business requirement has 
been removed. Therefore, no further change is necessary to address 
these commenters' concerns.
    21. Several commenters noted that there should be no restrictions 
on the number of businesses a veteran can own as the drafted regulation 
does nothing to ensure the viability of VOSBs or SDVOSBs or curtail 
fraudulent VOSBs or SDVOSBs. We agree with these comments. The single 
business requirement put an undue burden on veteran business owners and 
did not serve to eliminate potential fraud within the program. 
Therefore, the requirement was removed and the section of regulation 
was restored to the original text that ``[a]n applicant or participant 
must be controlled by one or more veterans or service-disabled veterans 
who possess requisite management capabilities. Owners need not work 
full-time but must show sustained and significant time invested in the 
business.''
    22. A few commenters questioned what will happen to business owners 
who already have 2 or more VOSBs or SDVOSBs approved. They asked 
whether those businesses would be grandfathered into existing 
ownership. The single business requirement has been removed, and 
therefore, the concerns expressed by these commenters have been 
rendered moot.

Full-Time Control Comments

    23. Numerous commenters suggested returning to the original text 
that ``[a]n

[[Page 3021]]

applicant or participant must be controlled by one or more veterans or 
service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business.'' We agree with the 
commenters' suggestions. The full-time requirement placed an undue 
burden on veteran owners. We believe that a veteran owner can still 
maintain control and ownership of a business without meeting the full-
time requirement. Therefore, the requirement has been removed and the 
rule has been modified to return to that original text.
    24. One commenter stated that the text assigns no value to the 
concepts of chain of command or span of control. We agree with the 
commenter. The full-time requirement did not take into account the fact 
that some business owners are forced to delegate in order to keep up 
with other commitments and burdens. The rule has been modified to 
return to the original text that ``[a]n applicant or participant must 
be controlled by one or more veterans or service-disabled veterans who 
possess requisite management capabilities. Owners need not work full-
time but must show sustained and significant time invested in the 
business'' in order to alleviate the commenter's concerns.
    25. One respondent suggested that the rule acknowledge that new 
owners work multiple jobs to support their families and thus should 
recognize that full-time requirement is restrictive. The respondent 
suggested replacement text to read ``an eligible owner may only have 
one business participating in the Verification Program at one time and 
must devote sufficient time to the business to maintain control as 
defined in Sec.  74.1.'' We agree with this comment, but it has been 
rendered moot as the rule has been revised to eliminate the full-time 
requirement and return to the original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business.''
    26. One commenter noted that IRS regulations precluded limited 
liability company members from being employees in their firm, and 
therefore, VA would have no way of verifying their working hours. This 
problem has been alleviated because the full-time requirement has been 
removed and the rule has been restored to its original text that ``[a]n 
applicant or participant must be controlled by one or more veterans or 
service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business.''
    27. One commenter stated that the full-time requirement does not 
take into account other work shifts performed by a veteran and 
recommended rewording to ``[f]ull-time means working no less than 40 
hours per week involved in the Day to Day management and/or Operations 
of the Business.'' Several other commenters noted that small business 
owners do not have normal business hours and recommended the term 
``normal business hours for the industry.'' The recommended rewording 
will not be necessary as the full-time requirement, as well as the 
stated definition of ``full-time'' has been removed and the rule has 
been restored to its original text that ``[a]n applicant or participant 
must be controlled by one or more veterans or service-disabled veterans 
who possess requisite management capabilities. Owners need not work 
full-time but must show sustained and significant time invested in the 
business.''
    28. One commenter offered that he ``strongly support(s) the 
government's efforts to ensure: (1) That veteran-owned small businesses 
are actually owned by veterans, and; (2) that the veteran owner must be 
actively involved in day-to-day operation of the firm.'' By removing 
the full-time requirement, but adding the additional requirement of a 
written statement demonstrating that the outside employment activities 
will not have a significant impact on the owner's ability to manage and 
control the applicant concern, VA will be able to ensure that the 
business seeking verification is still truly under the control of the 
veteran owner.
    29. Several commenters noted that the full-time requirement is 
discriminatory because it hinders organizations who do not operate 
between 9 a.m. and 5 p.m. Commenters also stated that the full-time 
requirement hinders a veteran's ability to attend to medical needs such 
as post traumatic stress disorder sessions. We agree with this comment. 
The full-time requirement has been removed and the rule has been 
restored to its original text that ``[a]n applicant or participant must 
be controlled by one or more veterans or service-disabled veterans who 
possess requisite management capabilities. Owners need not work full-
time but must show sustained and significant time invested in the 
business.'' This should alleviate any unnecessary burdens placed on 
veteran owners by the full-time requirement.
    30. One commenter stated that the provision would preclude home-
based businesses and prevent active duty service members from starting 
their business prior to leaving for active military service. We agree 
with this comment. The full-time requirement placed an undue burden on 
veteran small business owners. By removing the requirement and 
restoring the rule to its original text that ``[a]n applicant or 
participant must be controlled by one or more veterans or service-
disabled veterans who possess requisite management capabilities. Owners 
need not work full-time but must show sustained and significant time 
invested in the business,'' the concerns of the commenter have been 
addressed.
    31. One commenter noted that VA failed to consider the impact of 
the full-time rule in the context of multiple business entities. The 
commenter pointed out that many veterans buy stock or shares as 
investments in other veteran-owned businesses thereby making them 
owners in those entities. The regulation seems to prohibit such stock 
ownership in more than one verified business. The commenter also noted 
that the full-time requirement is contrary to the intent of 38 U.S.C. 
8127(l) which defines small business concern owned and controlled by 
veterans as ``not less than 51 percent of which is owned by one or more 
veterans'' and ``the management and daily business operations of which 
are controlled by one or more veterans.'' The commenter noted that 
Congress' intent was that control of an eligible VOSB be shared with 
two or more veterans each contributing part of the time and effort 
necessary to manage and operate the business. We agree with these 
comments. The full-time requirement, coupled with the single business 
requirement placed an undue burden on veteran business owners who may 
have part ownership in several legitimate VOSBs or SDVOSBs. By removing 
the requirements and restoring the rule to its original text that 
``[a]n applicant or participant must be controlled by one or more 
veterans or service-disabled veterans who possess requisite management 
capabilities. Owners need not work full-time but must show sustained 
and significant time invested in the business,'' these concerns have 
been addressed.
    32. One commenter suggested that the regulation be amended to state 
``that when full-time work is not required due to lack of government 
business, then the owner/manager is not required to participate in the 
business full-time.'' The full-time requirement has been removed and 
the rule restored to its

[[Page 3022]]

original text that ``[a]n applicant or participant must be controlled 
by one or more veterans or service-disabled veterans who possess 
requisite management capabilities. Owners need not work full-time but 
must show sustained and significant time invested in the business.'' 
Therefore, the suggested amendment is unnecessary.

Section 74.13(b), Can an applicant ask CVE to reconsider its initial 
decision to deny an application?

    VA sought comments on the merits of establishing a 60-day period 
for the Director, Center for Veterans Enterprise to issue a written 
decision on a request for reconsideration. We did not receive any 
comments within the scope of the request. Therefore, we have made no 
change to this rule.
    A number of additional comments were received which were beyond the 
scope of the request for comments, and, therefore, we will not make any 
changes based on those comments.

Regulatory Flexibility Act

    This final rule would generally be small business neutral as it 
applies only to applying for verified status in the VetBiz.gov Vendor 
Information Pages (VIP) database. The overall impact of the final rule 
will be of benefit to small businesses owned by veterans or service-
disabled veterans. VA estimates the cost to an individual business to 
be less than $100.00 for 70-75 percent of the businesses seeking 
verification, and the average cost to the entire population of veterans 
seeking to become verified is less than $325.00 on average. A related 
rule describes the effect that verified businesses will have in the 
Department's acquisition regulation. This impact is discussed in the 
proposed rule modifying the VA Acquisition Regulation which was 
published in the Federal Register at 73 FR 49141 on August 20, 2008. On 
this basis, the Secretary hereby certifies that the adoption of this 
final rule will not have a significant economic impact on a substantial 
number of small entities as they are defined in the Regulatory 
Flexibility Act, 5 U.S.C. 601-612. Therefore, under 5 U.S.C. 605(b), 
this regulation is exempt from the initial and final regulatory 
flexibility analysis requirements of sections 603 and 604.

Executive Order 12866

    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, when regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety, 
and other advantages; distributive impacts; and equity). The Executive 
Order classifies a ``significant regulatory action,'' requiring review 
by the Office of Management and Budget (OMB) unless OMB waives such 
review, as any regulatory action that is likely to result in a rule 
that may: (1) Have an annual effect on the economy of $100 million or 
more or adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or tribal governments or 
communities; (2) create a serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees, or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order.
    The economic, interagency, budgetary, legal, and policy 
implications of this rule have been examined and it has been determined 
to be a significant regulatory action under the Executive Order.

Unfunded Mandates

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

Paperwork Reduction Act

    This final rule contains provisions that constitute collections of 
information under the Paperwork Reduction Act (44 U.S.C. 3501-3521). 
OMB has approved these collections and has assigned control number 
2900-0675. VA displays this control number under the applicable 
sections of the regulations in this final rule. OMB assigns control 
numbers to collections of information it approves. VA may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.

Catalog of Federal Domestic Assistance

    This final rule affects the verification guidelines of veteran-
owned small businesses, for which there is no Catalog of Federal 
Domestic Assistance program number.

Signing Authority

    The Secretary of Veterans Affairs, or designee, approved this 
document and authorized the undersigned to sign and submit the document 
to the Office of the Federal Register for publication electronically as 
an official document of the Department of Veterans Affairs. John R. 
Gingrich, Chief of Staff, Department of Veterans Affairs, approved this 
document on November 16, 2010, for publication.

List of Subjects in 38 CFR Part 74

    Administrative practice and procedures, Privacy, Reporting and 
recordkeeping requirements, Small business, Veteran, Veteran-owned 
small business, Verification.

    Dated: January 13, 2011.
Robert C. McFetridge,
Director, Regulations Policy and Management.
    Accordingly, VA amends 38 CFR part 74 as follows:

PART 74--VETERANS SMALL BUSINESS REGULATIONS

0
1. The authority citation for part 74 continues to read as follows:

    Authority: 38 U.S.C. 501, 513, unless otherwise noted.


Sec.  74.1  [Amended]

0
2. Amend Sec.  74.1 by removing the definition of ``Full-time''.
0
3. Amend Sec.  74.3 by revising paragraphs (d)(1), (2), (3) and (4) and 
by adding paragraph (d)(5) to read as follows:


Sec.  74.3  Who does the Center for Veterans Enterprise (CVE) consider 
to own a Veteran-owned small business?

* * * * *
    (d) * * *
    (1) At least 51 percent of the annual distribution of profits paid 
to the owners of a corporate, partnership, or LLC applicant or 
participant;
    (2) At least 51 percent of the net profits earned by a joint 
venture in which the applicant or participant is the lead concern;
    (3) 100 percent of the value of each share of stock owned by them 
in the event that the stock is sold; and
    (4) At least 51 percent of the retained earnings of the concern and 
100 percent of the unencumbered value of each share of stock owned in 
the event of dissolution of the corporation, partnership, or LLC.
    (5) An eligible individual's ability to share in the profits of the 
concern

[[Page 3023]]

should be commensurate with the extent of his/her ownership interest in 
that concern.
* * * * *

0
4. Amend Sec.  74.4 by revising paragraph (c)(1) to read as follows:


Sec.  74.4  Who does CVE consider to control a veteran-owned small 
business?

* * * * *
    (c)(1) An applicant or participant must be controlled by one or 
more veterans or service-disabled veterans who possess requisite 
management capabilities. Owners need not work full-time but must show 
sustained and significant time invested in the business. An owner 
engaged in employment or management outside the applicant concern must 
submit a written statement supplemental to the application which 
demonstrates that such activities will not have a significant impact on 
the owner's ability to manage and control the applicant concern. 
Applications from joint-ventures are exempt from the requirement to 
submit a supplemental written statement.
* * * * *
[FR Doc. 2011-983 Filed 1-18-11; 8:45 am]
BILLING CODE 8320-01-P