I. Background A. Dodd-Frank Wall Street Reform and Consumer Protection Act

FMUs, such as payment systems, central securities depositories, and central counterparties, are critical components of the nation's financial system that provide the essential infrastructure to clear and settle payments and other financial transactions, upon which the financial markets and the broader economy rely to function effectively. FMUs operate multilateral systems in which financial institutions, such as banks, participate pursuant to a common set of rules and procedures, a technical infrastructure, and a risk-management framework. 1

Title VIII of the Dodd-Frank Act, titled the “Payment, Clearing, and Settlement Supervision Act of 2010,” was enacted to mitigate systemic risk in the financial system and to promote financial stability, in part, through an enhanced supervisory framework for FMUs designated as systemically important by the Council. 2 Designation by the Council makes an FMU subject to the supervisory and risk reduction framework set out in Title VIII of the Dodd-Frank Act. This framework includes risk management standards, promulgated by the designated FMU's Supervisory Agency, that take into consideration relevant international standards and existing prudential requirements, with the objectives of promoting robust risk management and safety and soundness of the designated FMU, reducing systemic risks, and supporting the stability of the broader financial system. 3 The framework also includes ex ante review of changes to the rules, procedures, or operations of a designated FMU that could materially affect the nature or level of risk presented by the designated FMU, enhanced annual examinations of designated FMUs, and enhanced enforcement and information collection provisions.

In addition to these provisions, section 806(a) of the Act permits the Board to authorize a Federal Reserve Bank to establish and maintain an account for a designated FMU and provide to the designated FMU the services listed in section 11A(b) of the Federal Reserve Act (12 U.S.C. 248a(b)) that the Federal Reserve Bank is authorized to provide to a depository institution, subject to any applicable rules, orders, standards, or guidelines prescribed by the Board. 4 The services listed in Section 11A(b) include wire transfers, settlement, and securities safekeeping, as well as services regarding currency and coin, check clearing and collection, and automated clearing house transactions.

Section 806(c) of the Dodd-Frank Act permits a Federal Reserve Bank to pay earnings on balances maintained by or on behalf of a designated FMU in the same manner and to the same extent as the Federal Reserve Bank may pay earnings to a depository institution under the Federal Reserve Act, subject to any applicable rules, orders, standards, or guidelines prescribed by the Board.

On August 2, 2012, the Board published a final rule adding a new Part 234 to Title 12 of the Code of Federal Regulations, Regulation HH, containing risk management standards for designated FMUs pursuant to section 805(a) of the Act, as well as an advance notice requirement of any changes of a designated FMU's rules, procedures, or operations that could materially affect the nature or level of risks presented pursuant to section 806(e) of the Act. 5 The rules being proposed by this notice would be added to the end of Regulation HH. The Board is requesting public comment on all aspects of the proposed amendments to Regulation HH contained in this notice.

The amendments proposed by this notice to § 234.1(b) of Regulation HH clarify that Part 234 also includes standards, restrictions, and guidelines for the establishment and maintenance of an account at, and provision of financial services from, a Federal Reserve Bank for a designated FMU. In addition, the proposed amendments clarify the authority and terms for a Reserve Bank to pay interest on any balances held by a designated FMU in its account at a Reserve Bank. The Board requests comment on whether these additions to the purpose and scope provisions of Regulation HH are sufficient and clear for the proposed rules herein. 6

Proposed § 234.6 sets out the conditions and requirements for a Federal Reserve Bank to establish and maintain an account for, and provide services to, a designated FMU pursuant to section 806(a) of the Act. The proposed terms and conditions for access to Federal Reserve Bank accounts and services are intended to facilitate the use of Reserve Bank accounts and services by a designated FMU in order to reduce settlement risk and strengthen settlement processes, while limiting the risk presented by the designated FMU to the Reserve Banks. In particular, the proposed terms and conditions are designed to provide the Federal Reserve with sufficient information to assess a designated FMU's ongoing condition as it pertains to the FMU's ability to settle promptly and to manage its settlement process and Reserve Bank account(s) safely. Proposed § 234.6(a) provides that, after receiving the Board's authorization with respect to a particular designated FMU and subject to any applicable Board direction, the Reserve Bank may enter into agreements governing the details of the establishment, maintenance, and operation of such account and services, consistent with Board direction.

The Board expects that Reserve Banks would provide services that are consistent with a designated FMU's need for safe and sound settlement processes under account and service agreements generally consistent with the provisions of existing Reserve Bank operating circulars for such services, but recognizes that there may be a need for some flexibility to tailor certain parts of such agreements or provide for certain restrictions because of the wide variety of organizations, operations, and business models presented by designated FMUs. In addition, unlike depository institutions, designated FMUs do not have regular access to discount window lending, so the Board also expects that Reserve Banks will provide accounts and services, and designated FMUs will structure their settlement processes and use of Reserve Bank accounts and services, in a manner that would seek to avoid any intraday account overdraft, and that a designated FMU would have the resources to promptly rectify any inadvertent overdraft.

Proposed § 234.6(b) requires that a Reserve Bank ensure that its establishment and maintenance of an account for, or provision of services to, a designated FMU does not create undue credit, settlement, or other risks to the Reserve Bank and, in this regard, sets out minimum conditions that a designated FMU must meet, in the Reserve Bank's judgment, in order for the Reserve Bank to establish and maintain an account for, or provide services to, a designated FMU. These minimum conditions are intended to address certain risks and other concerns that may face a Reserve Bank when establishing and maintaining an account for, and providing services to, a designated FMU. 7 The Reserve Bank must determine whether a designated FMU meets these minimum conditions and then determine, based on the facts and circumstances, whether additional measures or information are needed to address the risk presented by the designated FMU to the Reserve Bank. The minimum requirements for establishing an account or receiving services set out in proposed § 234.6(b)(1) through (4) are discussed below.

Proposed § 234.6(b)(1) requires the designated FMU to be in generally sound financial condition. Although there are a number of criteria that may be used to determine financial soundness, in general a designated FMU should maintain adequate capital to support its ongoing operations and absorb reasonable business losses and have sufficient operating revenue and working capital to cover its actual and projected operating expenses, giving due regard to the economic conditions and circumstances in the market in which the designated FMU operates. These resources would be separate and in addition to resources held to cover participant defaults that may arise through a designated FMU's payment, clearing, or settlement activities.

Proposed § 234.6(b)(2) requires the designated FMU to be in compliance, based on information provided by the Supervisory Agency, with requirements imposed by its Supervisory Agency regarding financial resources, liquidity, participant default management, and other aspects of risk management. The three agencies that currently serve as Supervisory Agencies (i.e., the Board, the Securities and Exchange Commission, and the Commodity Futures Trading Commission) have promulgated risk management standards that would be applicable to the FMUs that have been designated by the Council. As noted in proposed § 234.6(d), the Board will consult with the Supervisory Agency of a designated FMU prior to authorizing a Federal Reserve Bank to open an account to ascertain the views of the Supervisory Agency regarding, among other things, the designated FMU's compliance with the Supervisory Agency's risk management standards. At a minimum, the designated FMU should meet its Supervisory Agency's mandatory risk management standards.

Proposed § 234.6(b)(3) requires that a designated FMU be in compliance with Board orders and policies, Federal Reserve Bank operating circulars, and other applicable Federal Reserve requirements regarding the establishment and maintenance of a Reserve Bank account and the receipt of financial services from a Reserve Bank. A designated FMU will be expected to use Reserve Bank financial services, through its Reserve Bank account, in accordance with any applicable operating circular or Federal Reserve policy, as directed by the Reserve Bank.

Proposed § 234.6(b)(4) requires the Reserve Bank to determine that the designated FMU can demonstrate an ongoing ability, including during periods of market stress or a participant default, to meet all of its obligations under its agreement for a Federal Reserve Bank account and services. As noted above, designated FMUs would be expected to demonstrate an operational ability to avoid intraday overdrafts in its Reserve Bank account and have the financial resources to promptly rectify any inadvertent overdrafts if they were to occur.

Proposed § 234.6 also contains other provisions relevant to the establishment and maintenance of an account or provision of financial services by a Reserve Bank for a designated FMU. Proposed § 234.6(c) states that the Board or the relevant Reserve Bank may request that the designated FMU provide any information necessary regarding compliance with any conditions imposed under proposed § 234.6. The designated FMU would also be required to provide any verification that the Board or the Reserve Bank requests regarding information received under this section.

Proposed § 234.6(d) states that the Board will consult with the Supervisory Agency of a designated FMU prior to authorizing a Reserve Bank to open an account, and periodically thereafter, to ascertain the views of the Supervisory Agency regarding the condition of the designated FMU and its compliance with the requirements of proposed § 234.6, as well as to coordinate information requests to the designated FMU. For designated FMUs not supervised by the Board, the Board anticipates obtaining the views of the designated FMU's Supervisory Agency regarding the use of a Reserve Bank account and services and any concerns the Supervisory Agency may have with respect to the designated FMU. If a Reserve Bank account is established for the designated FMU, the Board expects that there will be an ongoing dialogue with the Supervisory Agency regarding the designated FMU's use of the account and services and its compliance with any conditions imposed under proposed § 234.6 with regard to the account or services. The Board also anticipates coordinating any information requests it may have for the designated FMU with the Supervisory Agency in order to reduce regulatory burden on the designated FMU.

Proposed § 234.6(e) states that, in addition to any right that a Reserve Bank has to terminate an account or the use of a service pursuant to an agreement, the Board may direct the Reserve Bank to impose limits, restrictions, or other conditions on the availability or use of a Reserve Bank account or service by a designated FMU, including directing the Reserve Bank to terminate the use of a particular service or to close the account. The Reserve Bank, on its own initiative or at the direction of the Board, may close the account if significant issues are raised and not resolved in areas such as excessive risk to the Reserve Bank, violation of Federal Reserve rules or policies, violation of other applicable law or regulation, or other compliance issues.

The Board requests comment on all aspects of proposed § 234.6. In particular, the Board requests comment on the conditions for establishing an account at a Reserve Bank provided in proposed § 234.6(b) and whether there are any other conditions that should be imposed in order to accomplish the Board's goals of reducing settlement and systemic risks and strengthening the settlement processes of designated FMUs through the use of Reserve Bank accounts and services, while limiting risk to the Reserve Banks.

Pursuant to section 806(c) of the Act, proposed § 234.7 clarifies the authority of a Federal Reserve Bank to pay interest on any balance that a designated FMU maintains in its account with that Reserve Bank. Section 806(c) of the Act states that a Reserve Bank may pay earnings on balances maintained by a designated FMU “in the same manner and to the same extent as the Federal Reserve Bank may pay earnings to a depository institution under the Federal Reserve Act, subject to any applicable rules, orders, standards, or guidelines prescribed by the Board of Governors.”  8 Section 19(b)(12) of the Federal Reserve Act (FRA) authorizes a Federal Reserve Bank to pay, at least once each calendar quarter, interest on balances maintained at the Federal Reserve Bank by or on behalf of a depository institution, at a rate or rates not to exceed the general level of short-term interest rates. 9

Proposed § 234.7(a) provides that a Federal Reserve Bank may pay interest on balances maintained by a designated FMU in its account at the Reserve Bank in accordance with the provisions of proposed § 234.7 and under such other terms and conditions as the Board may prescribe. This subsection essentially incorporates the statutory authority provided by section 806(c) of the Act.

Proposed § 234.7(b) states that interest on balances paid under this section shall be at the rate paid on balances of depository institutions or another rate determined by the Board from time to time, not to exceed the general level of “short-term interest rates.” Proposed § 234.7(c) incorporates the definition of “short-term interest rates” set out in § 204.10(b)(3) of the Board's Regulation D, which states that “short-term interest rates” are rates on obligations with maturities of no more than one year, such as the primary credit rate and rates on term federal funds, term repurchase agreements, commercial paper, term Eurodollar deposits, and other similar instruments. 10

Congress enacted the Regulatory Flexibility Act (the “RFA”) (5 U.S.C. 601 et seq. ) to address concerns related to the effects of agency rules on small entities, and the Board is sensitive to the impact their rules may impose on small entities. The RFA requires agencies either to provide an initial regulatory flexibility analysis with a proposed rule or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. In accordance with section 3(a) of the RFA, the Board has reviewed the proposed regulation. In this case, the proposed rule would apply to FMUs that are designated by the Council as systemically important to the U.S. financial system. Based on current information, the Board believes that the FMUs that have been and would likely be designated by the Council would not be “small entities” for purposes of the RFA, and so, the proposed rule likely would not have a significant economic impact on a substantial number of small entities (5 U.S.C. 605(b)). The authority to designate systemically important FMUs, however, resides with the Council, rather than the Board, and the Board cannot therefore be assured of the identity of the FMUs that the Council may designate in the future. Accordingly, an Initial Regulatory Flexibility Analysis has been prepared in accordance with 5 U.S.C. 603, based on current information. The Board requests comment on all aspects of this Initial Regulatory Flexibility Analysis. The Board will, if necessary, conduct a final regulatory flexibility analysis after consideration of comments received during the public comment period.

1. Statement of the need for, objectives of, and legal basis for, the proposed rule. The Board is proposing additional regulations to implement certain provisions of Title VIII of the Dodd-Frank Act. Pursuant to section 806(a) of the Act, proposed § 234.6 sets out conditions under which the Board would authorize a Federal Reserve Bank to establish and maintain an account for a designated FMU and provide the designated FMU services through the account. Pursuant to section 806(c) of the Dodd-Frank Act, proposed § 234.7 sets out conditions for a Reserve Bank to pay interest on the balances maintained by a designated FMU at the Reserve Banks.

Under section 806 of the Act, all of these authorities are subject to any applicable rules or regulations that the Board may prescribe. The Board believes that the proposed regulations herein are necessary to provide guidance to the Federal Reserve Banks in implementing these authorities of the Act in an appropriate and uniform manner and to inform the affected institutions and the public of the conditions for obtaining accounts and services.

2. Small entities affected by the proposed rule. The proposed rule would affect FMUs that the Council designates as systemically important to the U.S. financial system. The Council has designated eight FMUs that would meet these conditions and be affected by this proposed rule. Pursuant to regulations issued by the Small Business Administration (the “SBA”) (13 CFR 121.201), a “small entity” includes an establishment engaged in (i) financial transaction processing, reserve and liquidity services, and/or clearinghouse services with an average revenue of $7 million or less (NAICS code 522320); (ii) securities and/or commodity exchange activities with an average revenue of $7 million or less (NAICS code 523210); and (iii) trust, fiduciary, and/or custody activities with an average revenue of $7 million or less (NAICS code 523991). Based on current information, the Board does not believe that any of the FMUs that have been or would likely be designated by the Council would be “small entities” pursuant to the SBA regulation.

3. Projected reporting, recordkeeping, and other compliance requirements. The proposed rule imposes certain reporting, recordkeeping, and other compliance requirements for a designated FMU. For example, proposed § 234.6(b)(1) requires the designated FMU to be in generally sound financial condition. In addition, proposed § 234.6(b)(4) requires a designated FMU to demonstrate an ongoing ability, including during periods of market stress or a participant default, to meet all of its obligations under its agreement for a Reserve Bank account and services. Proposed § 234.6(c) also clarifies that the Board or Reserve Bank may request a designated FMU to provide any information or verification necessary to determine compliance with any conditions imposed under proposed § 234.6.

4. Identification of duplicative, overlapping, or conflicting Federal rules. The Board does not believe that any Federal rules conflict with the proposed rules. Certain entities that are designated FMUs under Title VIII of the Act may maintain an account with a Reserve Bank under other statutory authority, such as an entity that is chartered as a depository institution, state member bank, or Edge corporation. This rulemaking would provide additional authority for the entity to establish and maintain an account at a Reserve Bank and, arguably, be duplicative or overlapping with such other authority. This rulemaking would not, however, create any conflicting requirements for a designated FMU that is permitted to maintain an account with a Reserve Bank under multiple sources of authority.

5. Significant alternatives to the proposed rule. In lieu of the proposed rules, the Board could have proposed fewer or less stringent conditions on designated FMUs. The Board believes, however, that the proposed rules are necessary to address risk to the Reserve Banks in offering accounts and services and that the information required from designated FMUs under the proposed rules is needed to mitigate such risks. In addition, the Board does not believe that providing fewer or less stringent conditions for designated FMUs that are small entities would achieve the regulation's purpose because the risks to the Reserve Banks are the same regardless of whether the designated FMU is a small entity. The Board also considered a more expansive list of detailed conditions, but decided instead to set the overall standard as avoiding undue risk to the Reserve Bank, while providing a limited number of minimum requirements in meeting that standard. As noted above, the proposed rules provide some flexibility to the Reserve Bank in determining whether any additional measures are necessary to mitigate the risks presented by that designated FMU, given the facts and circumstances of the designated FMU seeking the account or services.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320, Appendix A.1), the Board reviewed the proposed rule under the authority delegated to the Board by the Office of Management and Budget. The proposed rule contains no requirements subject to the PRA.

Pursuant to the authority in Title VIII of the Dodd-Frank Act and particularly sections 806(a) and (b) (12 U.S.C. 5465(a) and (b)), the Board proposes two new sections to part 234 (Regulation HH).

For the reasons set forth in the preamble, the Board proposes to amend 12 CFR Chapter II as set forth below.

Comments Invited

We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2013-0096; Directorate Identifier 2012-NM-143-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on 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 we receive about this proposed AD.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2012-0132, dated July 19, 2012 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Airbus has issued Service Bulletin A320-53-1242, including Appendix 01, dated May 22, 2012. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are proposing this AD because we evaluated all pertinent information and determined an unsafe condition exists and is likely to exist or develop on other products of the same type design.

Although EASA Airworthiness Directive 2012-0132, dated July 19, 2012, specifies to contact the manufacturer for instructions to repair certain conditions, this proposed AD would require repairing those conditions using a method approved by either the Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA; or EASA (or its delegated agent).

Based on the service information, we estimate that this proposed AD would affect about 3 products of U.S. registry. We also estimate that it would take about 26 work-hours per product to comply with the basic requirements of this proposed AD. The average labor rate is $85 per work-hour. Required parts would cost $1,904 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of the proposed AD on U.S. operators to be up to $12,342, or $4,114 per product.

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

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

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

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

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

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

3. Will not affect intrastate aviation in Alaska; and

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

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

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Comments Invited

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (FAA Docket No. FAA-2011-1242 and Airspace Docket No. 11-AWP-16) and be submitted in triplicate to the Docket Management System (see ADDRESSES section for address and phone number). You may also submit comments through the Internet at http://www.regulations.gov.

Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2011-1242 and Airspace Docket No. 11-AWP-16”. The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW., Renton, WA 98057.

Persons interested in being placed on a mailing list for future NPRMs should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class D Airspace at El Monte Airport, El Monte, CA. The FAA's biennial review of the airspace found additional controlled airspace is necessary laterally for the safety and management of aircraft departing and arriving under IFR operations at El Monte Airport, along with a reduction in the ceiling due to arrivals to Los Angeles International Airport that overfly El Monte Airport.

Class D Airspace designations are published in paragraph 5000, of FAA Order 7400.9W, dated August 8, 2012, and effective September 15, 2012, which is incorporated by reference in 14 CFR 71.1. The Class D Airspace designation listed in this document will be published subsequently in this Order.

The FAA has determined this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation; (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. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority for the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend controlled airspace at El Monte Airport, El Monte CA.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows:

Comments Invited

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal.

Communications should identify both docket numbers (FAA Docket No. FAA 2013-0051 and Airspace Docket No. 13-ANM-2) and be submitted in triplicate to the Docket Management System (see ADDRESSES section for address and phone number). You may also submit comments through the Internet at http://www.regulations.gov.

Commenters wishing the FAA to acknowledge receipt of their comments on this action must submit with those comments a self-addressed stamped postcard on which the following statement is made: “Comments to FAA Docket No. FAA-2013-0051 and Airspace Docket No. 13-ANM-2”. The postcard will be date/time stamped and returned to the commenter.

All communications received on or before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this action may be changed in light of comments received. All comments submitted will be available for examination in the public docket both before and after the closing date for comments. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 1601 Lind Avenue SW., Renton, WA 98057.

Persons interested in being placed on a mailing list for future NPRM's should contact the FAA's Office of Rulemaking, (202) 267-9677, for a copy of Advisory Circular No. 11-2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) Part 71 by establishing Class E en route domestic airspace extending upward from 1,200 feet above the surface at the Cherokee VOR/DME navigation aid, Cherokee, WY. This action would contain aircraft while in IFR conditions under control of Denver and Salt Lake City ARTCC by vectoring aircraft from en route airspace to terminal areas.

Class E Airspace designations are published in paragraph 6006, of FAA Order 7400.9W, dated August 8, 2012, and effective September 15, 2012, which is incorporated by reference in 14 CFR 71.1. The Class E Airspace designation listed in this document will be published subsequently in this Order.

The FAA has determined this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation; (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. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority for the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would establish controlled airspace at the Cherokee VOR/DME, Cherokee, WY.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by May 3, 2013. Comments are specifically requested concerning:

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

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

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

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

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

The collection of information in this proposed regulation is in § 57.2(e)(2) and requires certain entities to maintain records of consent for a designated entity. This information is necessary to evaluate whether an entity has consented to the designation of another entity to report its net premiums written. The likely respondents are entities in the business of providing health insurance for United States health risks.

Estimated total annual reporting and/or recordkeeping burden: 400 hours.

Estimated average annual burden hours per respondent and/or recordkeeper varies from .25 hours to 1 hour, depending on individual circumstances, with an estimated average of .5 hours.

Estimated number of respondents and/or recordkeepers: 800.

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

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

This document proposes to add the Health Insurance Providers Fee Regulations to the Code of Federal Regulations (26 CFR part 57) under section 9010 of the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 10905 of PPACA, and as further amended by section 1406 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the Affordable Care Act or ACA). All references in this preamble to section 9010 are references to the ACA. Section 9010 did not amend the Internal Revenue Code (Code) but contains cross-references to specified Code sections. Unless otherwise indicated, all other references to subtitles, chapters, subchapters, and sections in this preamble are references to subtitles, chapters, subchapters, and sections in the Code and related regulations. All references to “fee” in the proposed regulations are references to the fee imposed by section 9010.

Section 9010(a) imposes an annual fee on each covered entity engaged in the business of providing health insurance. The fee is due by the annual date specified by the Secretary of the Treasury or his delegate (Secretary), but in no event later than September 30th of each calendar year in which a fee must be paid (fee year).

Section 9010(c)(1) provides that a covered entity is any entity that provides health insurance for any United States health risk during each fee year. Section 9010(c)(2) excludes the following entities from being covered entities: (A) Any employer to the extent that the employer self-insures its employees' health risks; (B) any governmental entity; (C) any entity (i) that is incorporated as a nonprofit corporation under a State law, (ii) no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in section 501(h)), and which does not participate in, or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public office, and (iii) more than 80 percent of the gross revenues of which is received from government programs that target low-income, elderly, or disabled populations under titles XVIII, XIX, and XXI of the Social Security Act; and (D) any entity that is described in section 501(c)(9) (a voluntary employees' beneficiary association (VEBA)) and is established by an entity (other than by an employer or employers) for purposes of providing health care benefits.

Section 9010(c)(3)(A) provides a controlled group rule under which all persons treated as a single employer under section 52(a) or (b) or section 414(m) or (o) are treated as a single covered entity. If any entity described in section 9010(c)(2)(C) or (D) (relating to certain nonprofit corporations and non-employer-established VEBAs) is treated as included in a covered entity by reason of the application of section 9010(c)(3)(A), then the net premiums written for health insurance for any United States health risk of that entity are not taken into account.

Section 9010(c)(3)(B) provides that, for purposes of section 9010(c)(3)(A), in applying section 52(a) and (b), section 1563 is applied without regard to section 1563(b)(2)(C). As a result, a foreign entity subject to tax under section 881 can also be part of a controlled group that is treated as a single covered entity under section 9010(c)(3)(A). Section 9010(c)(4) provides that, if more than one person is liable to pay the fee on a single covered entity by reason of the application of the controlled group rule, then all such persons are jointly and severally liable for payment of the fee.

Section 9010 imposes the fee on each covered entity engaged in the business of providing health insurance for United States health risks. Section 9010(h)(3) excludes from health insurance any insurance coverage described in section 9832(c)(1)(A) (accident only or disability only or any combination thereof), any insurance coverage described in section 9832(c)(3) (coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance), any insurance for long-term care, or any Medicare supplemental health insurance (as defined in section 1882(g)(1) of the Social Security Act). Other than providing for these exclusions, section 9010 does not define health insurance.

Section 9010(d) defines United States health risk to mean a health risk of any individual who is: (1) A United States citizen; (2) a resident of the United States (within the meaning of section 7701(b)(1)(A)); or (3) located in the United States, during the period such individual is so located. Section 9010(h)(2) defines United States for purposes of section 9010 as the 50 States, the District of Columbia, and the possessions of the United States.

Section 9010(b) and (e) provide rules for determining the amount of the annual fee for each covered entity. Under section 9010(e)(1), the aggregate fee amount for all covered entities (referred to as the applicable amount) is $8 billion for calendar year 2014, $11.3 billion for calendar years 2015 and 2016, $13.9 billion for calendar year 2017, and $14.3 billion for calendar year 2018. Under section 9010(e)(2), the applicable amount for calendar year 2019 and thereafter is the applicable amount for the preceding calendar year increased by the rate of premium growth (within the meaning of section 36B(b)(3)(A)(ii)) for the preceding calendar year. Section 9010(b)(1) requires the applicable amount for each year to be allocated, using a specified formula, among covered entities with aggregate net premiums written of over $25 million.

Section 9010(b)(1) provides that the annual fee for each covered entity is calculated by determining the ratio of (1) the covered entity's net premiums written for health insurance for any United States health risk that are taken into account during the preceding calendar year to (2) the aggregate net premiums written for such health insurance of all covered entities that are taken into account during the preceding calendar year. This ratio is then applied to the applicable amount.

Under section 9010(b)(2)(A), the amount of net premiums written that is taken into account for each covered entity per calendar year is 0 percent of net premiums written up to and including $25 million, 50 percent of net premiums written that are more than $25 million but not more than $50 million, and 100 percent of net premiums written that are over $50 million. Additionally, after the application of the dollar thresholds of section 9010(b)(2)(A), section 9010(b)(2)(B) excludes from the amount taken into account 50 percent of the remaining net premiums written for health insurance that are attributable to the activities (other than activities of an unrelated trade or business as defined in section 513) of any covered entity qualifying under section 501(c)(3), (4), (26), or (29) and exempt from tax under section 501(a).

Section 9010(b)(3) requires the Secretary to calculate the amount of each covered entity's fee for any calendar year. In calculating the fee, the Secretary must determine each covered entity's net premiums written for United States health risks based on reports submitted to the Secretary by the covered entity and through the use of any other source of information available to the Secretary.

Section 9010(g)(1) requires that, not later than the date determined by the Secretary following the end of the calendar year preceding the fee year, each covered entity must report to the Secretary, in such manner as the Secretary prescribes, the covered entity's net premiums written for health insurance for any United States health risk for that preceding calendar year.

Section 9010(g)(2)(A) imposes a penalty on a covered entity for any failure to report the required information by the date prescribed by the Secretary (determined with regard to any extension of time for filing), unless such failure is due to reasonable cause. The penalty is $10,000 plus the lesser of (i) an amount equal to $1,000, multiplied by the number of days during which the failure continues, or (ii) the amount of the fee for which the report was required. Section 9010(g)(2)(B) provides that the failure to report penalty (i) is treated as a penalty for purposes of subtitle F, (ii) must be paid on notice and demand by the Secretary and in the same manner as a tax under the Code, and (iii) is a penalty for which only civil actions for refund under procedures of subtitle F apply.

Section 9010(g)(3)(A) imposes an accuracy-related penalty on a covered entity for any understatement of the covered entity's net premiums written on the required report. Section 9010(g)(3)(B) defines an understatement as the difference between the amount of net premiums written reported by the covered entity and the amount of net premiums written that should have been reported. The penalty is equal to the excess of (i) the amount of the covered entity's fee for the fee year that the Secretary determines should have been paid in the absence of the understatement, over (ii) the amount of the fee that the Secretary determined based on the understatement. Section 9010(g)(3)(C) subjects the accuracy-related penalty to the provisions of subtitle F that apply to assessable penalties imposed under chapter 68.

Section 9010(g)(4) provides that section 6103 (relating to the disclosure of returns and return information) does not apply to any information reported under section 9010(g).

Section 9010(f)(1) treats the fee as an excise tax for purposes of subtitle F to which only civil actions for refund apply. Section 9010(f)(2) treats the fee as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed).

Section 9010(i) directs the Secretary to publish guidance necessary to carry out the purposes of section 9010 and to prescribe such regulations as are necessary or appropriate to prevent avoidance of the purposes of section 9010, including inappropriate actions taken to qualify as an exempt entity under section 9010(c)(2).

Section 9010(j) provides that section 9010 is effective for calendar years beginning after December 31, 2013.

The proposed regulations provide guidance on the annual fee imposed on covered entities engaged in providing health insurance for United States health risks. Generally, each covered entity with aggregate net premiums written over $25 million in the calendar year immediately preceding the fee year (referred to in the proposed regulations as the data year) is liable for the annual fee due by September 30th of each fee year in an amount determined by the IRS under section 9010(b) and the proposed regulations.

The proposed regulations define numerous terms used in section 9010 and in these regulations, including the following key terms:

Section 9010(c)(1) provides that a covered entity is any entity that provides health insurance for any United States health risk during the fee year. The proposed regulations define the term covered entity to mean any entity with net premiums written for health insurance for United States health risks during the fee year that is (1) A health insurance issuer within the meaning of section 9832(b)(2); (2) a health maintenance organization within the meaning of section 9832(b)(3); (3) an insurance company that is subject to tax under part I or II of subchapter L, or that would be subject to tax under part I or II of subchapter L but for the entity being exempt from tax under section 501(a); (4) an insurer that provides health insurance under Medicare Advantage, Medicare Part D, or Medicaid; or (5) a non-fully insured multiple employer welfare arrangement (MEWA). Under section 9832(b)(2), the term health insurance issuer generally refers to any insurance company, insurance service, or insurance organization that is subject to State laws that regulate insurance within the meaning of section 514(b)(2) of the Employee Retirement Income Security Act of 1974 (ERISA). Under section 9832(b)(3), the term health maintenance organization generally refers to an organization that is recognized or regulated under State or Federal law as a health maintenance organization.

As previously noted, the proposed regulations provide that a covered entity includes a MEWA within the meaning of section 3(40) of ERISA, to the extent that the MEWA is not a fully-insured MEWA, regardless of whether the MEWA is subject to regulation under State insurance law. In the case of a fully-insured MEWA, the MEWA is not a covered entity for purposes of section 9010 because, even though the MEWA receives premiums, it uses those premiums to pay an insurance company to provide the coverage being purchased. In this case, the insurance company is the covered entity because it, and not the MEWA, is providing health insurance. If the MEWA is not fully-insured, however, the MEWA is a covered entity for purposes of section 9010 to the extent that the premiums received by the MEWA are not used to pay an insurance company to provide the coverage being purchased (and are used instead by the MEWA to provide the health insurance itself). For example, if a MEWA received a $10,000 premium payment from a participating employer providing both major medical coverage and separate vision coverage for an individual participant, and the MEWA used $9,000 of that premium payment to pay the premium to cover such individual under a group insurance policy purchased from an insurance company and associated costs, and $1,000 to pay direct reimbursements under the vision plan and associated costs directly, then the MEWA would be treated as a covered entity only with respect to the $1,000 portion of the premium intended to pay the MEWA for providing the vision coverage itself.

The proposed regulations exclude certain other MEWAs from the definition of a covered entity in accordance with one of the exclusions from the MEWA reporting requirements administered by the Department of Labor (DOL). Specifically, the proposed regulations would exclude MEWAs that are exempt from reporting under 29 CFR 2520.101-2(c)(2)(ii)(B). 1 This section of the DOL regulations generally excludes a MEWA that provides coverage to the employees of two or more employers due to a change in control of businesses (such as a merger or acquisition) that occurs for a purpose other than to avoid the reporting requirements and does not extend beyond a limited time. This type of MEWA is excluded from the definition of covered entity because it is temporary in nature and exempt from DOL reporting requirements.

The proposed regulations provide that, solely for purposes of section 9010, an Entity Claiming Exception (ECE) is subject to the same regime addressing MEWAs. Therefore, under the proposed regulations, a fully insured ECE is excluded from the definition of covered entity, but a non-fully insured ECE is treated as a covered entity to the extent the ECE is not insured. An ECE is defined in 29 CFR 2520.101-2(b) as an entity that claims it is not a MEWA on the basis that the entity is established or maintained pursuant to one or more agreements that the Secretary of Labor finds to be collective bargaining agreements within the meaning of section 3(40)(A)(i) of ERISA and 29 CFR 2510.3-40.

Currently, in a number of States, entities have been established to make coverage for medical care available to high-risk individuals who may not have access to coverage in the open market. The Treasury Department and the IRS invite comments on the organization and structure of these entities, whether they would be considered covered entities under the general definition, and the extent to which they would qualify for exclusions under the proposed regulations.

Section 9010(c)(2)(A) excludes any entity that is a self-insured employer to the extent that such employer self-insures its employees' health risks. The proposed regulations define the term self-insured employer to mean an employer that sponsors a self-insured medical reimbursement plan within the meaning of § 1.105-11(b)(1)(i) and (ii) of the Income Tax Regulations. This includes an arrangement in which an employer provides self-insured employee health benefits to former employees, such as retired employees, or provides self-insured employee health benefits through an organization described in section 501(c)(9) (a VEBA). The proposed regulations clarify that a self-insured plan may use a third party for administration and bookkeeping functions and still be considered self-insured if there is no shifting of risk to the third party as described in § 1.105-11(b)(1)(ii).

Section 9010(c)(2)(B) excludes any governmental entity. The proposed regulations define the term governmental entity to mean (1) The United States, (2) any State, (3) the District of Columbia, (4) any possession of the United States, (5) any political subdivision of any of the foregoing (as defined for purposes of section 103), (6) any Indian tribal government (as defined in section 7701(a)(40)) or a subdivision thereof (determined in accordance with section 7871(d)), or (7) any public agency that is created by a State or a political subdivision, organized as a nonprofit under State law, and contracts with the State to administer State Medicaid benefits through local providers or health maintenance organizations. See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted by the 111th Congress, JCS-2-11 (March 2011) (JCT General Explanation) at 330.

A State health department or State insurance commission would be included within the meaning of governmental entity under section 9010. The proposed regulations do not include instrumentalities (within the meaning of Rev. Rul. 57-128, 1957-1 C.B. 311, see § 601.601(d)(2)(ii)(b)) of a governmental entity in the definition of governmental entity. Instrumentalities that provide health insurance may qualify for other exclusions under section 9010, such as the exclusion for employers that self-insure their employees' health risks (section 9010(c)(2)(A)), the exclusion for certain nonprofit corporations (section 9010(c)(2)(C)), and the partial exclusion for certain high-risk insurance pools described in section 501(c)(26) (section 9010(b)(2)(B)). The Treasury Department and the IRS invite comments on the types of instrumentalities, if any, that would be considered covered entities under the general definition and the extent to which they would qualify for exclusions consistent with the statute.

In accordance with section 9010(c)(2)(C), the proposed regulations exclude any entity that (1) Is incorporated as a nonprofit corporation under State law, (2) meets certain requirements designed to ensure that the net earnings of the entity are not distributed to private parties and that the entity does not engage in political campaign activity or substantial lobbying, and (3) receives more than 80 percent of its gross revenues from government programs that target low-income, elderly, or disabled populations under titles XVIII, XIX, and XXI of the Social Security Act (which include Medicare, Medicaid, the Children's Health Insurance Plan, and dual eligible plans). An entity is not required to be exempt from tax under section 501(a) to qualify for this exception. However, because the provisions of section 9010(c)(2)(C)(ii) relating to private inurement, lobbying, and political campaign activity are the same as those provisions applicable to organizations described in section 501(c)(3), for purposes of applying these requirements, the proposed regulations adopt the standards set forth under section 501(c)(3) and the regulations thereunder. In accordance with section 9010(c)(2)(C)(ii), the proposed regulations provide that, for an entity that is exempt from tax under section 501(a) and is described in section 501(h)(3), the determination of whether the entity has engaged in substantial lobbying for purposes of section 9010(c)(2)(C)(ii) will be made under section 501(h).

The Treasury Department and the IRS invite comments with respect to how this exclusion is applied.

In accordance with section 9010(c)(2)(D), the proposed regulations explicitly exclude any VEBA that is established by an entity other than an employer or employers for the purpose of providing health care benefits, such as a union. Also, if a MEWA or ECE provides health benefits through a VEBA, the VEBA is not a covered entity. Furthermore, if an employer or employers provide self-insured employee health benefits through a VEBA, the VEBA is not a covered entity because the exclusion for self-insured employers under section 9010(c)(2)(A) applies. If a VEBA purchases health insurance to cover the beneficiaries of the VEBA, the VEBA is not a covered entity because the issuer providing the health insurance that the VEBA purchases is the covered entity subject to the fee rather than the VEBA. Therefore, the Treasury Department and the IRS are not aware of any VEBAs that would be covered entities under the proposed regulations. The Treasury Department and the IRS invite comments on the types of VEBAs, if any, that do not fall within the exclusions and therefore would be covered entities.

Many educational institutions establish or administer programs that provide students with access to health insurance. In most instances, however, the educational institution uses premiums it receives from students to purchase insurance from a separate, unrelated issuer. This unrelated issuer and not the educational institution will be a covered entity for purposes of section 9010 and it will include the premiums paid by or on behalf of those students for purposes of determining the amount payable under section 9010. The Treasury Department and the IRS invite comments on the circumstances, if any, under which an educational institution might qualify as a covered entity that is subject to the fee and not eligible for an exclusion (for example, a self-insured student health plan).

The proposed regulations define the term controlled group as a group of two or more persons, including at least one person that is a covered entity, that are treated as a single employer under section 52(a), 52(b), 414(m), or 414(o). To clarify how to treat persons that leave or enter a controlled group, the proposed regulations provide that, for purposes of section 9010, a person is treated as a member of the controlled group if it is a member of the group at the end of the day on December 31st of the data year. In accordance with section 9010(c)(3), the proposed regulations treat a controlled group as a single covered entity for purposes of the fee. In determining net premiums written for health insurance for United States health risks of a controlled group, the controlled group generally must take into account the net premiums written for all members for the entire data year.

The proposed regulations provide that each controlled group must have a designated entity, defined as a person within the controlled group that is designated to act on behalf of the controlled group with regard to the fee. The proposed regulations further provide that if the controlled group, without regard to foreign corporations included under section 9010(c)(3)(B), is also an affiliated group that filed a consolidated return for Federal income tax purposes, the designated entity is the common parent of the affiliated group identified on the tax return filed for the data year. If the controlled group is not an affiliated group that files a consolidated return for Federal income tax purposes, it may select a person as the designated entity on Form 8963, “Report of Health Insurance Provider Information.” The proposed regulations require only the designated entity to report on behalf of the controlled group. However, the proposed regulations also require each member of a controlled group to maintain a record of its consent to the designated entity selection. The proposed regulations also require the designated entity to maintain a record of all member consents. If the controlled group does not select a person as a designated entity on its Form 8963, the IRS will select a person as a designated entity for the controlled group and advise the designated entity accordingly.

Section 9010 does not define health insurance, providing in section 9010(h)(3) only that health insurance does not include coverage only for accident, or disability income insurance, or any combination thereof as described in section 9832(c)(1)(A); coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance as described in section 9832(c)(3); insurance for long-term care; or Medicare supplemental health insurance (as defined in section 1882(g)(1) of the Social Security Act). The only definition of health insurance or health insurance coverage in the Code is the definition of health insurance coverage in section 9832(b)(1)(A) for purposes of Chapter 100. The language of section 9832(b)(1)(A) is substantially similar to the only definition of health insurance coverage referenced in the ACA. 2 Accordingly, the proposed regulations define the term health insurance by reference to section 9832(b)(1)(A) to mean benefits consisting of medical care (provided directly, through insurance, reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer. The proposed regulations exclude from the term health insurance all of the excepted benefits listed in section 9832(c) except for section 9832(c)(2)(A) (limited scope dental and vision benefits). In accordance with the explanation provided by the Joint Committee on Taxation, the proposed regulations include limited dental and vision coverage as health insurance for purposes of the fee. See JCT General Explanation at 331.

The proposed regulations also provide that, solely for purposes of section 9010, indemnity reinsurance is not health insurance. Thus, the fee continues to be imposed on the issuing company. For this purpose, the proposed regulations define the term indemnity reinsurance to mean an agreement between two or more insurance companies under which the reinsuring company agrees to accept and to indemnify the issuing company for all or part of the risk of loss under policies specified in the agreement, and the issuing company retains its liability to, and its contractual relationship with, the individuals whose health risks are insured under the policies specified in the agreement. No inference is intended as to whether indemnity reinsurance may constitute health insurance for other purposes.

Many educational institutions have arrangements under which the educational institution, other than through an insured arrangement, charges student administrative health fees to students on a periodic basis to help cover the cost of student health clinic operations and care delivery (regardless of whether the student uses the clinic and regardless of whether the student purchases any available student health insurance coverage). These arrangements are different from premiums and cost-sharing for group health plans and health insurance coverage because all students pay the fee regardless of whether they have student health insurance. Therefore, these arrangements do not constitute health insurance for purposes of section 9010. For a similar conclusion regarding other Federal laws applicable to student health insurance, see Student Health Insurance Coverage, 77 FR 16453, 16455-56 (March 21, 2012) (Department of Health and Human Services regulations establishing requirements for student health insurance coverage under the Public Health Service Act and ACA).

The Treasury Department and the IRS are aware that certain travel insurance products may include limited health benefits. However, the term travel insurance does not have a definition for tax purposes and in other contexts has applied to a differing variety of products with different types of coverage, including some products providing only incidental health benefits. To assist in determining which types of travel-related insurance products provide health insurance for purposes of section 9010, the proposed regulations explicitly exclude travel insurance, defined as coverage for personal risks incident to planned travel, which may include, but is not limited to, interruption or cancellation of a trip or event, loss of baggage or personal effects, damages to accommodations or rental vehicles, and sickness, accident, disability, or death occurring during travel, provided that the health benefits are not offered on a stand-alone basis and are incidental to other coverage. For this purpose, travel insurance does not include major medical plans, which provide comprehensive medical protection for travelers with trips lasting 6 months or longer, including, for example, those working overseas as an expatriate or military personnel being deployed. This definition is a modified version of the National Association of Insurance Commissioners (NAIC) definition of travel insurance.

The proposed regulations do not provide any special exceptions related to health insurance provided under a plan covering only retired employees. These types of arrangements are not subject to the requirements of Chapter 100 of the Code, not because they do not provide health insurance or because retiree-only coverage is an excepted benefit, but because of an exception in section 9831(a)(2) for group health plans having fewer than two current employees. This exception is not relevant in determining whether the insurance provided is health insurance for purposes of section 9010, which covers issuers of health insurance regardless of whether the insurance is provided under a group health plan. Therefore, health insurance provided under these arrangements is health insurance for purposes of section 9010. However, an employer providing coverage to former employees, such as retired employees, under a self-insured arrangement generally would qualify for the exclusion for self-insured employers. See section II.B.1 of this preamble.

The fee each year is based on each covered entity's share of net premiums written for health insurance of United States health risks during the data year. Section 9010 does not define net premiums written. The proposed regulations define the term net premiums written to mean premiums written, including reinsurance premiums written, reduced by reinsurance ceded, and reduced by ceding commissions and medical loss ratio (MLR) rebates with respect to the data year. Because indemnity reinsurance is not considered health insurance for purposes of section 9010, net premiums written does not include premiums written for indemnity reinsurance (and is not reduced by indemnity reinsurance ceded). See section II.D.1 of this preamble. However, net premiums written does include premiums written (and excludes premiums ceded) for assumption reinsurance; that is, reinsurance for which there is a novation and the reinsurer takes over the entire risk pursuant to a new contract. Thus, for covered entities that file the Supplemental Health Care Exhibit (SHCE) with the NAIC, net premiums written for health insurance generally will equal the amount reported on the SHCE as direct premiums written minus MLR rebates with respect to the data year, subject to any applicable exclusions under section 9010 such as exclusions from the term health insurance. This definition of net premiums written for purposes of section 9010 differs from net adjusted premiums reported on the SHCE, which takes into account premiums from ceded and assumed reinsurance. Under current NAIC reporting rules, the amount reported as direct premiums written on the SHCE does not include ceding commissions, and thus there is no need to reduce direct premiums written for ceding commissions in determining net premiums written. However, the SHCE separately accounts for any expected reductions in premiums resulting from MLR rebates with respect to the data year. These amounts are subtracted from direct premiums written in determining net premiums written. The Treasury Department and the IRS invite comments on how to compute MLR rebates with respect to the data year using data reported on the SHCE.

In accordance with section 9010(d), the proposed regulations define the term United States health risk to mean the health risk of any individual who is (1) A United States citizen, (2) a resident of the United States (within the meaning of section 7701(b)(1)(A)), or (3) located in the United States, with respect to the period such individual is so located.

For purposes of determining whether an individual is located in the United States, the proposed regulations, in accordance with section 9010(h)(2), define the term United States to mean the 50 States, the District of Columbia, and any possession of the United States. The proposed regulations further define the term located in the United States to mean present in the United States under section 7701(b)(7) (for presence in the 50 States and the District of Columbia) or § 1.937-1(c)(3)(i) (for presence in a possession of the United States). Subject to certain exceptions, those rules generally treat an individual as present in the United States on any day if the individual is physically present in the United States at any time during such day.

Section 9010(d)(2) refers to “resident of the United States (within the meaning of section 7701(b)(1)(A)).” Under section 7701(b), the term United States means the 50 States and the District of Columbia, but it does not include the possessions of the United States. See section 7701(a)(9). Therefore, under the proposed regulations, this narrower definition of United States applies for determining who is a “resident of the United States (within the meaning of section 7701(b)(1)(A)).” Regardless of the narrower scope of resident of the United States, the Treasury Department and the IRS note that the term United States health risk includes the health risks of individuals in the possessions of the United States since they will either be United States citizens or considered as located in the United States.

Recognizing the unique characteristics of plans covering expatriates, the Treasury Department and the IRS seek specific comments on how the rules proposed in these regulations apply to such plans.

Section 9010(g)(1) requires each covered entity to report its net premiums written for health insurance for United States health risks during the data year. The proposed regulations require each covered entity, including each controlled group that is treated as a single covered entity, to annually report its net premiums written for health insurance of United States health risks during the data year to the IRS by May 1st of the fee year on Form 8963, “Report of Health Insurance Provider Information,” in accordance with the instructions for the form. A covered entity with net premiums written under the $25 million threshold is not liable for a fee but must still report its net premiums written. The proposed regulations authorize the IRS to provide rules for the manner of reporting (including reporting by designated entities on behalf of controlled groups) in other guidance published in the Internal Revenue Bulletin.

Section 9010(g)(2) imposes a penalty for failing to timely submit a report containing the required information unless the covered entity can show that the failure is due to reasonable cause. Section 9010(g)(3) imposes an accuracy-related penalty for any understatement of a covered entity's net premiums written. The proposed regulations clarify that these penalties are in addition to the fee.

Section 9010(g)(4) provides that section 6103 (relating to the disclosure of returns and return information) does not apply to any information reported by the covered entities under section 9010(g). The Treasury Department and the IRS are considering making available to the public the information reported on Form 8963, ”Report of Health Insurance Provider Information,” including the identity of the covered entity and the amount of its net premiums written, at the time the notice of preliminary fee calculation is sent. The Treasury Department and the IRS invite comments on which reported information the IRS should make publicly available.

Under section 9010 and the proposed regulations, the IRS will calculate a covered entity's fee based on the ratio of the covered entity's net premiums written that are taken into account to the total net premiums written taken into account of all covered entities. For each covered entity, the IRS will not take into account the first $25 million of net premiums written. The IRS will take into account 50 percent of the net premiums written for amounts over $25 million and up to $50 million and 100 percent of the net premiums written over $50 million. Thus, for any covered entity with net premiums written of $50 million or more, the IRS will not take into account the first $37.5 million of net premiums written. Also, because a controlled group is treated as a single covered entity, this reduction applies, in the aggregate, to the net premiums written of the entire controlled group. Additionally, after this reduction, if the covered entity (or any member of a controlled group treated as a single covered entity) is exempt from tax by section 501(a) and is described in section 501(c)(3) (generally, a charity), (4) (generally, a social welfare organization), (26) (generally, a high-risk health insurance pool), or (29) (a consumer operated and oriented plan (CO-OP) health insurance issuer), the IRS will take into account only 50 percent of the remaining net premiums written of that entity (or member) that are attributable to its exempt activities. The proposed regulations further provide that, in the case of a controlled group, the IRS will not take into account any net premiums written of any member that is a nonprofit corporation meeting the requirements of § 57.2(b)(2)(iii) of the proposed regulations or a VEBA meeting the requirements of § 57.2(b)(2)(iv).

Under the proposed regulations, the IRS will determine net premiums written based on the reports submitted by covered entities and any other source of information available to the IRS. Most covered entities are expected to file the SHCE, which supplements the annual statement filed with the NAIC under applicable State law. For these covered entities, net premiums written for health insurance generally will equal the amount reported on that exhibit as direct premiums written minus MLR rebates with respect to the data year, subject to any applicable exclusions under section 9010 such as exclusions from the term “health insurance.” In addition to the SHCE, other sources of information that the IRS may use to determine net premiums written include the NAIC annual statement, the Accident and Health Policy Experience Exhibit filed with the NAIC, and the MLR Annual Reporting Form filed with the Center for Medicare & Medicaid Services' Center for Consumer Information and Insurance Oversight of the U.S. Department of Health and Human Services. The proposed regulations further provide that the entire amount reported on the SHCE as direct premiums written will be considered to be for United States health risks unless the covered entity can demonstrate otherwise. The Treasury Department and the IRS invite comments on this approach.

The proposed regulations provide that the IRS will send each covered entity a notice of preliminary fee calculation each fee year that will include the covered entity's allocated fee; the covered entity's net premiums written for health insurance of United States health risks; the covered entity's net premiums written for health insurance of United States health risks taken into account after the application of § 57.4(a)(4); the aggregate net premiums written for health insurance of United States health risks taken into account for all covered entities; and a reference to the error correction process set forth in other guidance published in the Internal Revenue Bulletin. The date by which the IRS will send the preliminary fee calculation notice will be specified in other guidance published in the Internal Revenue Bulletin.

The proposed regulations establish an error correction process that allows a covered entity to submit error correction reports in response to the preliminary fee calculation for the IRS to consider before performing a final fee calculation. The IRS will specify in other guidance published in the Internal Revenue Bulletin the format for error correction report submissions and the date by which a covered entity must submit an error correction report. In the interest of providing finality to the fee calculation process, no additional error correction reports will be accepted after the end of the established error correction period.

Section 9010(a) requires the annual fee to be paid by the annual date specified by the Secretary, but in no event later than September 30th of each fee year. The proposed regulations provide that the IRS will send each covered entity its final fee calculation for a fee year no later than August 31st of that fee year, and that the covered entity must pay the fee by September 30th by electronic funds transfer. This notification will include the covered entity's allocated fee, the covered entity's net premiums written for health insurance of United States health risks, the covered entity's net premiums written for health insurance of United States health risks taken into account after the application of § 57.4(a)(4), the aggregate net premiums written for health insurance of United States health risks taken into account for all covered entities, and the final determination on the covered entity's error correction report.

Even if a covered entity did not file an error correction report, a covered entity's final fee may differ from a covered entity's preliminary fee because of information discovered about that covered entity through other information sources. In addition, a change in aggregate net premiums written for health insurance of United States health risks can affect each covered entity's fee because each covered entity's fee is a fraction of the aggregate fee collected from all covered entities.

There is no tax return to be filed with the payment of the fee.

Section 9010(f)(1) treats the fee for purposes of subtitle F of the Code (sections 6001-7874) as an excise tax to which only civil actions for refund apply. Thus, under the proposed regulations, the fee is treated as an excise tax for purposes of subtitle F to which the deficiency procedures of sections 6211 through 6216 do not apply. The proposed regulations require the IRS to assess the amount of the fee for any fee year within three years of September 30th of that fee year.

Section 9010(f)(2) treats the fee as a tax described in section 275(a)(6) (relating to taxes for which no deduction is allowed). The Treasury Department and the IRS received comments stating that covered entities may attempt to recover a large portion of the fee from policyholders, either by a corresponding increase in premiums or by separately charging policyholders for a portion of the fee. Some comments requested guidance that recovered fee amounts are excluded from the gross income of covered entities. The income tax treatment of recovered fee amounts is outside the scope of the proposed regulations. However, under section 61(a), gross income means all income from whatever source derived unless a provision of the Code or other law specifically excludes the payment from gross income. No exclusion provision applies to the recovered fee amount. Therefore, the covered entity's gross income includes fees recovered from policyholders, whether or not separately stated on any bill. The Treasury Department and the IRS invite comments on whether the text of the regulations should be revised to clarify that recovered fee amounts are included in a covered entity's gross income.

The proposed regulations require any claim for refund to be filed on Form 843, “Claim for Refund and Request for Abatement.”

These regulations are proposed to apply with respect to any fee that is due on or after September 30, 2014.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations primarily affect large corporations. Thus, the Treasury Department and the IRS do not expect a substantial number of small entities to be affected. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f), this notice of proposed rulemaking has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before the proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and the IRS invite comments on all aspects of the proposed regulations. All comments will be available for public inspection and copying.

A public hearing has been scheduled for June 21, 2013, at 10:00 a.m., in the IRS Auditorium, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit electronic or written comments and submit an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by June 3, 2013. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

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

Accordingly, 26 CFR chapter I is proposed to be amended by adding part 57 to subchapter D to read as follows:

This section lists the captions contained in §§ 57.1 through 57.10 and § 57.6302-1.

(a) In general.

(b) Covered entity.

(1) In general.

(2) Exclusions.

(i) Self-insured employer.

(ii) Governmental entity.

(iii) Certain nonprofit corporations.

(iv) Certain voluntary employees' beneficiary associations.

(3) State.

(c) Controlled groups.

(1) In general.

(2) Special rules.

(d) Data year.

(e) Designated entity.

(1) In general.

(2) Selection of designated entity.

(i) Choice of controlled group.

(ii) Requirement for affiliated groups; common parent.

(f) Fee.

(g) Fee year.

(h) Health insurance.

(1) In general.

(2) Exclusions.

(3) Student administrative health fee arrangement.

(4) Travel insurance.

(5) Reinsurance.

(i) Indemnity reinsurance.

(ii) Assumption reinsurance.

(i) Located in the United States.

(j) NAIC.

(k) Net premiums written.

(l) SHCE.

(m) United States.

(n) United States health risk.

(a) Reporting requirement.

(1) In general.

(2) Manner of reporting.

(b) Penalties.

(1) Failure to report.

(i) In general.

(ii) Amount.

(iii) Reasonable cause.

(iv) Treatment of penalty.

(2) Accuracy-related penalty.

(i) In general.

(ii) Amount.

(iii) Understatement.

(iv) Treatment of penalty.

(3) Controlled groups.

(a) Fee components.

(1) In general.

(2) Calculation of net premiums written.

(3) Applicable amount.

(4) Net premiums written taken into account.

(i) In general.

(ii) Controlled groups.

(iii) Partial reduction for certain exempt activities.

(b) Determination of net premiums written.

(1) In general.

(2) Presumption for United States health risks.

(c) Determination of amounts taken into account.

(d) Allocated fee calculated.

(a) Content of notice.

(b) Timing of notice.

(a) In general.

(b) Time and manner.

(a) Content of notice.

(b) Timing of notice.

(c) Differences in preliminary fee calculation and final calculation.

(d) Payment of final fee.

(e) Controlled groups.

(a) Treatment as an excise tax.

(b) Deficiency procedures.

(c) Limitation on assessment.

(d) Application of section 275.

(a) Fee to be paid by electronic funds transfer.

(b) Effective/Applicability date.

(a) The regulations in this part 57 are designated “Health Insurance Providers Fee Regulations.”

(b) The regulations in this part 57 provide guidance on the annual fee imposed on covered entities engaged in the business of providing health insurance by section 9010 of the Patient Protection and Affordable Care Act (PPACA), Public Law 111-148 (124 Stat. 119 (2010)), as amended by section 10905 of PPACA, and as further amended by section 1406 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the Affordable Care Act or ACA). All references to section 9010 in these proposed regulations are references to section 9010 of the ACA, as amended. Unless otherwise indicated, all other references to subtitles, chapters, subchapters, and sections are references to subtitles, chapters, subchapters and sections in the Internal Revenue Code and the related regulations.

(c) Section 9010(e)(1) sets an applicable fee amount for each year, beginning with 2014, that will be apportioned among covered entities with aggregate net premiums written over $25 million for health insurance for United States health risks. Generally, each covered entity is liable for a fee in each fee year that is based on its net premiums written during the data year in an amount determined by the Internal Revenue Service (IRS) under the rules of this part.

Section 105(e) of the Federal Alcohol Administration Act (FAA Act), 27 U.S.C. 205(e), authorizes the Secretary of the Treasury to prescribe regulations for the labeling of wine, distilled spirits, and malt beverages. The FAA Act provides that these regulations should, among other things, prohibit consumer deception and the use of misleading statements on labels, and ensure that labels provide the consumer with adequate information as to the identity and quality of the product. The Alcohol and Tobacco Tax and Trade Bureau (TTB) administers the FAA Act pursuant to section 1111(d) of the Homeland Security Act of 2002, codified at 6 U.S.C. 531(d). The Secretary has delegated various authorities through Treasury Department Order 120-01 (Revised), dated January 21, 2003, to the TTB Administrator to perform the functions and duties in the administration and enforcement of this law.

Part 4 of the TTB regulations (27 CFR part 4) allows the establishment of definitive viticultural areas and the use of their names as appellations of origin on wine labels and in wine advertisements. Part 9 of the TTB regulations (27 CFR part 9) sets forth standards for the preparation and submission of petitions for the establishment or modification of American viticultural areas and lists the approved American viticultural areas.

Section 4.25(e)(1)(i) of the TTB regulations (27 CFR 4.25(e)(1)(i)) defines a viticultural area for American wine as a delimited grape-growing region having distinguishing features as described in part 9 of the regulations and a name and a delineated boundary as established in part 9 of the regulations. These designations allow vintners and consumers to attribute a given quality, reputation, or other characteristic of a wine made from grapes grown in an area to its geographic origin. The establishment of viticultural areas allows vintners to describe more accurately the origin of their wines to consumers and helps consumers to identify wines they may purchase. Establishment of a viticultural area is neither an approval nor an endorsement by TTB of the wine produced in that area.

Section 4.25(e)(2) of the TTB regulations outlines the procedure for proposing an American viticultural area and provides that any interested party may petition TTB to establish a grape-growing region as a viticultural area. Section 9.12 of the TTB regulations (27 CFR 9.12) prescribes standards for petitions for the establishment or modification of American viticultural areas. Such petitions must include the following:

• Evidence that the area within the proposed viticultural area boundary is nationally or locally known by the viticultural area name specified in the petition;

• An explanation of the basis for defining the boundary of the proposed viticultural area;

• A narrative description of the features of the proposed viticultural area that affect viticulture, such as climate, geology, soils, physical features, and elevation, and that make the proposed viticultural area distinctive and distinguish it from adjacent areas outside the proposed viticultural area boundary;

• A copy of the appropriate United States Geological Survey (USGS) map(s) showing the location of the proposed viticultural area, with the boundary of the proposed viticultural area clearly drawn thereon; and

• A detailed narrative description of the proposed viticultural area boundary based on USGS map markings.

TTB received a petition from Patrick L. Shabram on behalf of Christian Borcher, a representative of the vintners and grape growers in the proposed viticultural area, proposing the establishment of the “Moon Mountain District Sonoma County” viticultural area in northern California. The proposed viticultural area contains approximately 17,663 acres, of which 1,500 acres are dedicated to commercially-producing vineyards. The petition states that there are 11 bonded wineries and approximately 40 commercially-producing vineyards dispersed throughout the proposed viticultural area. According to the petition, the distinguishing features of the proposed viticultural area include its topography, geology, climate, and soils. Unless otherwise noted, all information and data referenced herein concerning the name, boundary, and distinguishing features of the proposed viticultural area are from the petition for the proposed Moon Mountain District Sonoma County viticultural area and its supporting exhibits.

TTB notes that the proposed Moon Mountain District Sonoma County viticultural area lies completely within the existing Sonoma Valley viticultural area (27 CFR 9.29), which, in turn, is entirely within the multi-county North Coast (27 CFR 9.30) viticultural area. The proposed viticultural area does not overlap with any other existing or proposed viticultural area.

The proposed viticultural area is named for a particular mountain peak in the Mayacmas Mountains, known as Moon Mountain. According to the petition, the name “Moon Mountain” became officially associated with the region of the proposed viticultural area in 1957, when the Sonoma County Board of Supervisors renamed Goldstein Road as Moon Mountain Drive in response to a petition submitted by residents who lived and owned property along the road. The road's new name reflected the mountainous region's association with the adjacent valley known as the Valley of the Moon. Goldstein Road appears on the 1951 USGS map (Sonoma Quadrangle) that was included with the petition for the purposes of determining the boundary of the proposed viticultural area. According to the USGS map, Goldstein Road does run through the proposed viticultural area, running eastward from the Valley of the Moon into the Mayacmas Mountains.

At the time Goldstein Road was renamed Moon Mountain Drive, there was no peak in the region officially designated as “Moon Mountain.” In 2007, residents along Moon Mountain Drive petitioned the USGS Board on Geographic Names to designate a particular unnamed peak near the easternmost end of the road as “Moon Mountain,” noting that several residents and businesses along the road incorporated the name “Moon Mountain” in the names of their homesteads and businesses and that “logic suggests there should be a Moon Mountain nearby.” The Board granted the petition and officially designated the peak “Moon Mountain.” Although the 1951 USGS map (Sonoma Quadrangle) does not show any peak labeled “Moon Mountain,” the current petition notes that Moon Mountain is located near Mount Pisgah, near the easternmost end of Moon Mountain Drive. Both Mount Pisgah and Goldstein Road/Moon Mountain Drive appear on the USGS map and are within the proposed viticultural area boundary. Additionally, a search of the United States Geographic Names Information System (USGNIS) does currently list a peak in Sonoma County named “Moon Mountain.”

Several local businesses within the proposed viticultural area use the name “Moon Mountain,” including Moon Mountain Retreat, Moon Mountain Christmas Tree Farm, and Moon Mountain Studios. According to the petitioner, a number of businesses opened in the area between 1978 and 2004, incorporating “Moon Mountain” in their names. The Moon Mountain Christmas Tree Farm was established around 1978, the Moon Mountain Studios opened in 1994, and the Moon Mountain Retreat opened around 2004. The long-standing use of the name “Moon Mountain” by these businesses demonstrates that residents associated the name “Moon Mountain” with the area long before the peak was officially designated in 2007.

Because the USGNIS identifies nine other States that have peaks or locations known as “Moon Mountain,” the petitioner, after discussions with TTB, proposed the name “Moon Mountain District Sonoma County,” in order to distinguish the proposed viticultural area geographically and avoid possible consumer confusion with other locations known as “Moon Mountain.”

The proposed Moon Mountain District Sonoma County viticultural area is a long, narrow region covering approximately 17,663 acres on the western slopes of the Mayacmas Mountains. The proposed viticultural area extends from Sugarloaf Ridge in the north to the city of Sonoma in the south, and from the Valley of the Moon and Sonoma Valley in the west to the shared Sonoma/Napa county line in the east.

A series of lines drawn between marked points on the USGS map defines the northern portion of the proposed boundary and separates the proposed viticultural area from the steeper, more rugged slopes of Sugarloaf Ridge. The northern portion of the proposed boundary also approximates the point where the neighboring Valley of the Moon makes a distinct westward turn. According to the petition, this bend in the valley is an important feature because regions to the north of the bend are more influenced by breezes from the Pacific Ocean, whereas points south of the bend, including the proposed viticultural area, are more influenced by winds moving inland from San Pablo Bay.

The eastern portion of the proposed boundary follows the border between Sonoma and Napa Counties, along the ridgeline of the Mayacmas Mountains. The proposed boundary separates the west-facing slopes of the proposed viticultural area from the east-facing slopes on the opposite side of the ridge. Additionally, a portion of the proposed eastern boundary is shared with the western boundary of the established Mt. Veeder viticultural area (27 CFR 9.123), which is located on the eastern slopes of the Mayacmas Mountains in Napa County.

A series of lines drawn between features on the USGS map forms the southern portion of the proposed boundary. South of the proposed boundary, outside the proposed viticultural area, the terrain is marked by lower, rolling hills and flatlands that descend to the Napa Marsh along the shoreline of San Pablo Bay.

The western portion of the proposed boundary follows the 400-foot elevation contour line and the 600-foot elevation contour line to separate the steeper slopes and higher elevations of the proposed viticultural area from the lower, flatter terrain of the Valley of the Moon and Sonoma Valley.

The distinguishing features of the proposed Moon Mountain District Sonoma County viticultural area are topography, geology, climate, and soils.

The proposed Moon Mountain District Sonoma County viticultural area is a mountainous region situated on the western slopes of the Mayacmas Mountains south of Sugarloaf Ridge. The slope angles of the proposed viticultural area are moderate, and elevations range from approximately 400 feet near the city of Sonoma, to the south and southwest, to 2,200 feet along the highest ridges near the shared Sonoma/Napa County line that forms the eastern boundary of the proposed viticultural area. The high elevations and moderate slope angles allow cool air to drain off the proposed viticultural area at night and into the adjoining Valley of the Moon and Sonoma Valley, reducing frost in the mountains during the late spring and early fall.

The terrain of the proposed viticultural area predominately faces to the west, allowing the vineyards to receive sunlight in the afternoon, when solar radiation is more intense and less likely to be blocked by fog. High levels of solar radiation cause grapes to accumulate sugars faster, ripen earlier, and retain less acid at harvest, so growers must account for solar radiation exposure when determining the optimal harvest period from their crops. (See “An Introduction to Environmental Influences on Ripening in Grapes: Focus on Wine and Phenolics,” by Julie M. Tarara and Jungmin Lee, United States Department of Agriculture, Agricultural Research Service, August 18, 2011.)

To the north of the proposed viticultural area, the mountain sides beyond Sugarloaf Ridge become too steep for commercial viticulture, with elevation changes of 1,100 feet in less than 900 feet of horizontal distance. To the east, the terrain of the established Mt. Veeder viticultural area is similar to that of the proposed viticultural area, but the easterly slope orientation of the Mt. Veeder viticultural area means the vineyards receive most of their sunlight during the morning, when solar radiation is less intense. To the south, the elevation gradually descends and the terrain is characterized by low hills and flatlands and then the wetlands of the Napa Marsh along the shores of San Pablo Bay. To the west are the lower, flatter floors of the Valley of the Moon and Sonoma Valley.

The geology of the proposed Moon Mountain District Sonoma County viticultural area is dominated by the Sonoma Volcanic Group, a series of extrusive igneous rock formations. Formations in this group are primarily created from Pliocene andesitic and basaltic lava flows. Additional formations consist of rhyolite lava flows and ash mixed with andesitic and basaltic lava flows. As these rock formations weather over time, they form rocky soils that provide good drainage for vineyards.

To the immediate north of the proposed viticultural area, the geology is similar to that of the proposed viticultural area, but only at the lowest elevations. As the elevations to the north increase, the geology is dominated by the Franciscan Assemblage, which is composed of sedimentary and metamorphic rocks of the Jurassic and Cretaceous Periods, particularly serpentine rocks.

To the east of the proposed viticultural area, within the established Mt. Veeder viticultural area, the geology is characterized by the Great Valley Sequence. The Great Valley Sequence is comprised mainly of sedimentary rock from the Lower Cretaceous and Upper Jurassic Periods.

To the south of the proposed viticultural area, the geological formations are of the Huichica Formation. Rocks of this formation are sedimentary. Alluvial fan deposits and fluvial deposits from the Quaternary Period are also present in this region.

To the west of the proposed viticultural area, the floors of the Valley of the Moon and Sonoma Valley are dominated by alluvial and fluvial sediments and sedimentary rock formations.

The climate of the proposed Moon Mountain District Sonoma County viticultural area is moderated by coastal influences from two sources—the Pacific Ocean and San Pablo Bay. Breezes from the Pacific Ocean travel from the north across the Santa Rosa Plains and into the Valley of the Moon, which is adjacent to the western boundary of the proposed viticultural area. Coastal air from San Pablo Bay moves from the south across the Napa Marsh and into Sonoma Valley, which is adjacent to the southern and southwestern boundary of the proposed viticultural area.

Although cooling marine air and fog enters the proposed viticultural area from two directions, the climate of the proposed viticultural area is generally warmer than the surrounding area due to its inland location and higher elevations. Because the proposed Moon Mountain District Sonoma County viticultural area is located at the southern end of the Valley of the Moon and the northern end of Sonoma Valley, the marine breezes and fog from both the Pacific Ocean and San Pablo Bay are warmer and less intense by the time they reach the proposed viticultural area. Additionally, the higher elevation of the proposed viticultural area places it above most of the cooling marine fog, which is heaviest in the neighboring valleys.

The petition included a comparison of growing degree day  1 (GDD) accumulations from locations within the proposed viticultural area as well as from the regions to the northwest, west, and south. Data was not provided for areas to the immediate north and east of the proposed viticultural area. The data was gathered from weather stations from 2006 through 2010. TTB prepared the following table using data included in the petition.

The data in the table indicates that locations within the proposed Moon Mountain District Sonoma County have greater GDD accumulations than locations to the northwest and south. Three of the four proposed viticultural area vineyards in the table fall in the warm Region III category, and the fourth is within the moderately cool Region II. By contrast, three of the five locations outside the proposed viticultural area are classified in the very cool Region I. The regions to the northwest and south of the proposed viticultural area are closer to the Pacific Ocean and San Pablo Bay and receive more of the cooling marine breezes, and the locations to the west are at lower elevations and are more affected by marine fog. High GDD accumulations make the proposed viticultural area suitable for the growing warmer weather Zinfandel grapes, which are not commonly grown in the cooler surrounding regions.

The petition also compared the lowest growing season temperatures recorded at four vineyards within the proposed viticultural area to those of two vineyard locations outside the proposed viticultural area to the south and southwest in the adjacent Sonoma Valley. Data was not available for the surrounding regions to the north and east. The data was collected in April and October during 2009 and 2010. The two months were chosen because temperatures generally fall to their lowest points at the beginning and end of the growing season.

As shown in the table, the lowest temperatures recorded for the four vineyards within the proposed Moon Mountain District Sonoma County viticultural are generally warmer than those of the two vineyards outside the proposed viticultural area. According to the petition, the warmer temperatures can be attributed to the higher elevations of the proposed viticultural area. At night, the heavier cool air drains off the higher elevations and settles in the lower elevations of the neighboring Valley of the Moon and Sonoma Valley, lowering the valleys' temperatures. Warmer temperatures at the beginning of the growing season promote bud break and reduce the risk of frost damage to tender new growth, and warmer temperatures at the end of the growing season allow more maturation time for the fruit.

The soils of the proposed Moon Mountain District Sonoma County viticultural area are primarily derived from volcanic rock. Soils derived from sedimentary rock, including alluvium from sedimentary sources, make up less than one half of one percent of the soils of the proposed viticultural area. The following table lists the various soil series found within the proposed viticultural area.

The most common soils within the proposed viticultural area are Goulding series soils, including Goulding Toomes Complex soils. These soils are described in the petition as dark brown soils of volcanic origin. Red Hills soils, the second-most common soil series within the proposed viticultural area, are similar in appearance to Goulding soils and are also derived from volcanic sources. Rock Land soils are found at high elevations and are described as ryholithic tuff rock covered with light colored soils, including Forward, Kidd, and Laniger series soils. Small amounts of Rock Land soils are also found at lower elevations within the proposed viticultural area, primarily as a result of weathering of material from the higher ridges. Spreckels and Forward series soils have similar grayish-brown coloring and are both found on hills and slopes with tuff sediment. All of these volcanic soils are described as thin, well drained, loamy soils. According to the petition, thin, well drained soils prevent the roots of the vines from penetrating deeply and result in greater stress on the vine and less vigorous growth. Less vigorous growth leads to smaller fruit yields, but the flavors of the grapes are highly concentrated.

To both the north and east of the proposed Moon Mountain District Sonoma County viticultural area, the soils are primarily sedimentary in origin. These soils are derived from shale and sandstone, which are not present within the proposed Moon Mountain District Sonoma County viticultural area. To the south and west, in the Valley of the Moon and Sonoma Valley, the soils are predominately alluvial, including Hire, Huichica, and Tuscan series.

The Sonoma Valley viticultural area was established by T.D. ATF-96, which was published in the Federal Register on December 4, 1981 (46 FR 59238). It is located in southeastern Sonoma County, California, and contains both valleys and upland terrain. The Sonoma Valley viticultural area is bordered by the Santa Rosa Plain to the north, San Pablo Bay to the south, the Sonoma Mountains to the west, and the Sonoma/Napa County line, along the ridge of the Mayacmas Mountains, to the east. At the center of the viticultural area are the Valley of the Moon and Sonoma Valley which, according to the current petition, are often collectively referred to as “Sonoma Valley.” T.D. ATF-96 states that the Sonoma Valley viticultural area is shielded from the heat of California's Central Valley, to the east, by the Mayacmas Mountains. The Sonoma Mountains, to the west, prevent heavy marine fog from intruding into most of the viticultural area while still allowing cool breezes and lighter fogs to penetrate the area. The protected nature of the viticultural area leads to moderate summer and winter temperatures that distinguish it from the surrounding regions.

The proposed Moon Mountain District Sonoma County viticultural area is located entirely within the eastern portion of the Sonoma Valley viticultural area, along the western slopes of the Mayacmas Mountains. A portion of the proposed viticultural area's eastern boundary is shared with the eastern boundary of the Sonoma Valley viticultural area. Like the Sonoma Valley viticultural area, the proposed viticultural area benefits from the moderating effect of cool breezes and light fogs from both the Pacific Ocean and San Pablo Bay and is protected from the heaviest marine intrusion by the Sonoma Mountains. However, the proposed Moon Mountain District Sonoma County viticultural area is comprised entirely of moderately steep mountain slopes, whereas the Sonoma Valley viticultural area also contains the lower, flatter Valley of the Moon and Sonoma Valley. Additionally, the alluvial soils that are prevalent in the lowland portions of the Sonoma Valley viticultural area are scarce within the proposed viticultural area, which primarily contains volcanic soils.

The North Coast viticultural area was established by T.D. ATF-145, which was published in the Federal Register on September 21, 1983 (48 FR 42973). It includes all or portions of Napa, Sonoma, Mendocino, Solano, Lake, and Marin Counties, California. TTB notes that the North Coast viticultural area contains all or portions of approximately 40 established viticultural areas, in addition to the area covered by the proposed Moon Mountain District Sonoma County viticultural area. In the conclusion of the “Geographical Features” section of the preamble, T.D. ATF-145 states that “[d]ue to the enormous size of the North Coast, variations exist in climatic features such as temperature, rainfall, and fog intrusion.”

The proposed Moon Mountain District Sonoma County viticultural area shares the basic viticultural feature of the North Coast viticultural area: the marine influence that moderates growing season temperatures in the area. However, the proposed viticultural area is much more uniform in its geography, geology, climate, and soils than the diverse multicounty North Coast viticultural area. In this regard, TTB notes that T.D. ATF-145 specifically states that “approval of this viticultural area does not preclude approval of additional areas, either wholly contained with the North Coast, or partially overlapping the North Coast,” and that “smaller viticultural areas tend to be more uniform in their geographical and climatic characteristics, while very large areas such as the North Coast tend to exhibit generally similar characteristics, in this case the influence of maritime air off of the Pacific Ocean and San Pablo Bay.” Thus, the proposal to establish the Moon Mountain District Sonoma County viticultural area is not inconsistent with what was envisioned when the North Coast viticultural area was established.

TTB concludes that the petition to establish the 17,663-acre Moon Mountain District Sonoma County viticultural area merits consideration and public comment, as invited in this notice.

See the narrative boundary description of the petitioned-for viticultural area in the proposed regulatory text published at the end of this notice.

The petitioner provided the required maps, and TTB lists them below in the proposed regulatory text.

Part 4 of the TTB regulations prohibits any label reference on a wine that indicates or implies an origin other than the wine's true place of origin. If TTB establishes this proposed viticultural area, its name, “Moon Mountain District Sonoma County,” will be recognized as a name of viticultural significance under 27 CFR 4.39(i)(3). The text of the proposed regulation clarifies this point. Consequently, wine bottlers using “Moon Mountain District Sonoma County” in a brand name, including a trademark, or in another label reference as to the origin of the wine, will have to ensure that the product is eligible to use the viticultural area's name as an appellation of origin. The approval of the proposed Moon Mountain District Sonoma County viticultural area would not affect any existing viticultural area, and any bottlers using “Sonoma Valley” or “North Coast” as an appellation of origin or in a brand name for wines made from grapes grown within the Sonoma Valley or North Coast viticultural areas would not be affected by the establishment of this new viticultural area. The establishment of the Moon Mountain District Sonoma County viticultural area would allow vintners to use “Moon Mountain District Sonoma County,” “Sonoma Valley,” and “North Coast” as appellations of origin for wines made from grapes grown within the Moon Mountain District Sonoma County viticultural area if the wines meet the eligibility requirements for the appellation.

On the other hand, TTB does not believe that any single part of the proposed viticultural area name standing alone, that is, “Moon Mountain,” “Moon Mountain District,” or “Sonoma County,” would have viticultural significance in relation to this proposed viticultural area because: (1) according to the USGNIS, the “Moon Mountain” area name refers to 22 locations, including 14 mountain peaks in 9 States, so TTB believes that a determination of “Moon Mountain” or “Moon Mountain District” as terms of viticultural significance could lead to consumer and industry confusion and should be avoided; and (2) “Sonoma County,” standing alone, is already a term of viticultural significance under 27 CFR 4.39(i)(3), which states that “[a] name has viticultural significance * * * when it is the name of a state or county * * *.” Therefore, the proposed part 9 regulatory text set forth in this document specifies only “Moon Mountain District Sonoma County” as a term of viticultural significance for purposes of part 4 of the TTB regulations.

For a wine to be labeled with a viticultural area name or with a brand name that includes a viticultural area name, at least 85 percent of the wine must be derived from grapes grown within the area represented by that name, and the wine must meet the other conditions listed in 27 CFR 4.25(e)(3). If the wine is not eligible for labeling with a viticultural area name and that name appears in the brand name, then the label is not in compliance and the bottler must change the brand name and obtain approval of a new label. Similarly, if the viticultural area name appears in another reference on the label in a misleading manner, the bottler would have to obtain approval of a new label.

Different rules apply if a wine has a brand name containing a viticultural area name or other term of viticultural significance that was used as a brand name on a label approved before July 7, 1986. See 27 CFR 4.39(i)(2) for details.

TTB invites comments from interested members of the public on whether it should establish the proposed viticultural area. TTB is also interested in receiving comments on the sufficiency and accuracy of the name, boundary, topography, soils, climate, and other required information submitted in support of the petition. In addition, given the proposed Moon Mountain District Sonoma County viticultural area's location within the existing North Coast and Sonoma Valley viticultural areas, TTB is interested in comments on whether the evidence submitted in the petition regarding the distinguishing features of the proposed viticultural area sufficiently differentiates it from the existing North Coast and Sonoma Valley viticultural areas. TTB is also interested in comments on whether the geographic features of the proposed viticultural area are so distinguishable from the surrounding North Coast and Sonoma Valley viticultural areas that the proposed Moon Mountain District Sonoma County viticultural area should no longer be part of those viticultural areas. Please provide any available specific information in support of your comments.

Because of the potential impact of the establishment of the proposed Moon Mountain District Sonoma County viticultural area on wine labels that include the term “Moon Mountain District Sonoma County” as discussed above under Impact on Current Wine Labels, TTB is particularly interested in comments regarding whether there will be a conflict between the proposed area name and currently used brand names. If a commenter believes that a conflict will arise, the comment should describe the nature of that conflict, including any anticipated negative economic impact that approval of the proposed viticultural area will have on an existing viticultural enterprise. TTB is also interested in receiving suggestions for ways to avoid conflicts, for example, by adopting a modified or different name for the viticultural area.

You may submit comments on this notice by using one of the following three methods:

• Federal e-Rulemaking Portal: You may send comments via the online comment form posted with this notice within Docket No. TTB-2013-0002 on “Regulations.gov,” the Federal e-rulemaking portal, at http://www.regulations.gov . A direct link to that docket is available under Notice No. 133 on the TTB Web site at http://www.ttb.gov/wine/wine-rulemaking.shtml . Supplemental files may be attached to comments submitted via Regulations.gov. For complete instructions on how to use Regulations.gov, visit the site and click on the “Help” tab at the top of the page.

• U.S. Mail: You may send comments via postal mail to the Director, Regulations and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Box 12, Washington, DC 20005.

• Hand Delivery/Courier: You may hand-carry your comments or have them hand-carried to the Alcohol and Tobacco Tax and Trade Bureau, 1310 G Street NW., Suite 200E, Washington, DC 20005.

Please submit your comments by the closing date shown above in this notice. Your comments must reference Notice No. 133 and include your name and mailing address. Your comments also must be made in English, be legible, and be written in language acceptable for public disclosure. TTB does not acknowledge receipt of comments, and TTB considers all comments as originals.

Your comment must clearly state if you are commenting on your own behalf or on behalf of an organization, business, or other entity. If you are commenting on behalf of an organization, business, or other entity, your comment must include the entity's name as well as your name and position title. If you comment via Regulations.gov, please enter the entity's name in the “Organization” blank of the online comment form. If you comment via postal mail or hand delivery/courier, please submit your entity's comment on letterhead.

You may also write to the Administrator before the comment closing date to ask for a public hearing. The Administrator reserves the right to determine whether to hold a public hearing.

All submitted comments and attachments are part of the public record and subject to disclosure. Do not enclose any material in your comments that you consider to be confidential or inappropriate for public disclosure.

On the Federal e-rulemaking portal, Regulations.gov, TTB will post, and you may view, copies of this notice, selected supporting materials, and any electronic or mailed comments TTB receives about this proposal. A direct link to that docket is available on the TTB Web site at http://www.ttb.gov/wine/wine-rulemaking.shtml under Notice No. 133. You may also reach the docket containing this notice and the posted comments received on it through the Regulations.gov search page at http://www.regulations.gov .

All posted comments will display the commenter's name, organization (if any), city, and State, and, in the case of mailed comments, all address information, including email addresses. TTB may omit voluminous attachments or material that the Bureau considers unsuitable for posting.

You may also view copies of this notice, all related petitions, maps and other supporting materials, and any electronic or mailed comments that TTB receives about this proposal by appointment at the TTB Information Resource Center, 1310 G Street, NW., Washington, DC 20005. You may also obtain copies at 20 cents per 8.5- x 11-inch page. Contact TTB's information specialist at the above address or by telephone at 202-453-2270 to schedule an appointment or to request copies of comments or other materials.

TTB certifies that this proposed regulation, if adopted, would not have a significant economic impact on a substantial number of small entities. The proposed regulation imposes no new reporting, recordkeeping, or other administrative requirement. Any benefit derived from the use of a viticultural area name would be the result of a proprietor's efforts and consumer acceptance of wines from that area. Therefore, no regulatory flexibility analysis is required.

This proposed rule is not a significant regulatory action as defined by Executive Order 12866. Therefore, no regulatory assessment is required.

Karen A. Thornton of the Regulations and Rulings Division drafted this proposed rule.

For the reasons discussed in the preamble, TTB proposes to amend title 27, chapter I, part 9, Code of Federal Regulations, as follows:

This is a synopsis of the Commission's Notice of Proposed Rule Making, MB Docket No. 13-40, adopted February 12, 2013, and released February 13, 2013. The full text of this document is available for public inspection and copying during normal business hours in the FCC's Reference Information Center at Portals II, CY-A257, 445 12th Street SW., Washington, DC, 20554. This document will also be available via ECFS ( http://www.fcc.gov/cgb/ecfs/ ). (Documents will be available electronically in ASCII, Word 97, and/or Adobe Acrobat.) This document may be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street SW., Room CY-B402, Washington, DC 20554, telephone 1-800-478-3160 or via email www.BCPIWEB.com . To request this document in accessible formats (computer diskettes, large print, audio recording, and Braille), send an email to fcc504@fcc.gov or call the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY). This document does not contain proposed information collection requirements subject to the Paperwork Reduction Act of 1995, Public Law 104-13. In addition, therefore, it does not contain any proposed information collection burden “for small business concerns with fewer than 25 employees,” pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Provisions of the Regulatory Flexibility Act of 1980 do not apply to this proceeding. Members of the public should note that from the time a Notice of Proposed Rule Making is issued until the matter is no longer subject to Commission consideration or court review, all ex parte contacts (other than ex parte presentations exempt under 47 CFR 1.1204(a)) are prohibited in Commission proceedings, such as this one, which involve channel allotments. See 47 CFR 1.1208 for rules governing restricted proceedings.

For information regarding proper filing procedures for comments, see 47 CFR 1.415 and 1.420.

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 CFR part 73 as follows:

Background

The Migratory Bird Treaty Act of 1918 (Act) (16 U.S.C. 703-712 and 16 U.S.C. 742 a-j) implements migratory bird treaties between the United States and Great Britain for Canada (1916 and 1996 as amended), Mexico (1936 and 1972 as amended), Japan (1972 and 1974 as amended), and Russia (then the Soviet Union, 1978). These treaties protect certain migratory birds from take, except as permitted under the Act. The Act authorizes the Secretary of the Interior to regulate take of migratory birds in the United States. Under this authority, the U.S. Fish and Wildlife Service (FWS) regulates the hunting of migratory game birds through regulations in 50 CFR part 20.

Since the mid-1970s, we have sought to identify shot types that are not significant toxicity hazards to migratory birds or other wildlife. Producers of potential nontoxic shot alloys submit them for FWS approval under 50 CFR 20.134 as nontoxic for waterfowl hunting. We propose to revise the regulations to clarify them for applicants and to provide for withdrawal of approval of a shot type that is not readily detectable in the field or has environmental effects or direct toxicological effects on biota.

We propose to rewrite the regulations at 50 CFR 20.134 in plain language and to change or add some provisions. We seek comment on these proposed regulations, particularly the following proposed changes:

1. Eliminating publication of a Notice of Application in the Federal Register upon receipt of an application for approval (current paragraph (b)(2)(i)(D)( 3 )). We have found that these notices engender few comments, and the public has a meaningful opportunity to participate later in the approval process.

2. Specifying that an application for approval of a nontoxic alloy must document that a shotshell loaded with shot of the alloy can be readily identified as containing nontoxic shot with a standard field shotshell testing device (proposed paragraph (b)(2)). Wildlife law enforcement officers should be able to use simple, readily available testing devices for nontoxic shotshells. Applicants have consistently provided this information, and this requirement is a negligible addition to their costs.

3. Specifying that an application for approval of a nontoxic shot must include a statement of the relative hardness of the candidate alloy, compared to standard lead shot having a hardness of 1.0. This information will help the public decide about the type of firearm in which the shot type can safely be used (proposed paragraph (e)(4)). Providing this information will not add significantly to the application preparation time or cost.

4. Revising language governing the determination of Expected Environmental Concentrations (EECs) in terrestrial and aquatic ecosystems to make clear the shot size and number of shot to be used in calculating the EECs (proposed paragraph (g)(3)). This information is not in the current regulations. This addition will reduce the application preparation time and cost because applicants have previously had to contact us about this point.

5. Adding specific pH levels to be used in calculating the EEC in water (proposed paragraph (g)(3)(ii)). This information is not in the current regulations. Specifying the pH will reduce the application preparation time and cost because applicants have previously had to contact us about this point.

6. Moving the former Tier 2 solubility testing to Tier 1 (proposed paragraph (h)). This change will allow us to better assess applications and minimize the need for Tier 2 applications. We expect it to reduce the time required for nontoxic shot approvals. This change will add to applicants' initial costs, but will speed up application reviews and will help us to avoid requiring Tier 2 testing for some applications. We estimate that applicants will incur an additional cost of $25,000 to complete the solubility testing.

7. Adding a provision for withdrawal of an approved shot type (proposed paragraph (z)). There is no provision in the current regulations for withdrawal of the approval of a shot type. For example, changes in manufacturing can render a shot type nonmagnetic despite its containing an amount of iron normally sufficient to be detectable in a loaded shotshell with a magnet. These loaded shells are then not identifiable by the method we approved when approving the shot type for use in hunting, and perhaps not by any field-testing method.

We propose to charge a fee sufficient to offset the estimated costs associated with processing and our periodic review of these permits. Revised OMB circular A-25 directs Executive Branch agencies to recover costs, stating that, “When a service (or privilege) provides special benefits to an identifiable recipient beyond those that accrue to the general public, a charge will be imposed (to recover the full cost to the Federal Government for providing the special benefit, or the market price).” Further, Circular A-25 directs that, “Except as provided in Section 6c, user charges will be sufficient to recover the full cost to the Federal Government (as defined in Section 6d) of providing the service, resource, or good when the Government is acting in its capacity as sovereign.” Thus, the directive to the Service is to recover the costs for working with applicants and assessing nontoxic shot approval applications.

We have received less than one application per year, on average, for approval of a new nontoxic shot type per year in the last decade. However, each application requires staff review time, preparation of an environmental assessment to comply with the National Environmental Policy Act, consultation with toxicologists about the shot alloy(s), and three Federal Register publications, though we propose in this rule to reduce that to one standard proposed rule and a final rule.

Having considered the agency costs and the requirement to recoup those costs, we propose a Tier 1 nontoxic shot application fee of $800. That amount is $53 more than our estimated current review costs reflected in table 1, but is below the Service's costs in the near future. Likewise, we propose an additional $700 fee for evaluation of a Tier 2 application, if one is needed, and $700 more for evaluation of a Tier 3 application, if one is needed (based on current costs of $664 for each of these reviews, as shown in table 1). If the application is approved, then the applicant would incur an additional fee of $20,000 to cover costs for additional administrative review and Federal Register publication of the required proposed and final rule.

We request comments or suggestions on this proposed rule from any interested parties. You may submit comments and materials concerning this proposed rule by either one of the methods listed in ADDRESSES . We will not consider comments sent by email or fax or to an address not listed in ADDRESSES . Please do not submit comments by both alternatives.

If you submit a comment via http://www.regulations.gov, your entire comment—including any personal identifying information—will be posted on the Web site. If you submit a hardcopy comment that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy comments on http://www.regulations.gov.

Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection at http://www.regulations.gov, or by appointment at the U.S. Fish and Wildlife Service (see FOR FURTHER INFORMATION CONTACT ). You may obtain copies of our previous actions concerning this subject by mail (see FOR FURTHER INFORMATION CONTACT ) or by visiting the Federal eRulemaking Portal at http://www.regulations.gov.

Executive Order 12866 provides that the Office of Information and Regulatory Affairs (OIRA) will review all significant rules. OIRA has determined that this rule is not significant.

Executive Order 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. Executive Order 13563 directs agencies to consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public where these approaches are relevant, feasible, and consistent with regulatory objectives. E.O. 13563 emphasizes further that regulations must be based on the best available science and that the rulemaking process must allow for public participation and an open exchange of ideas. We have developed this rule in a manner consistent with these requirements.

Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the proposed rule on small businesses, small organizations, and small government jurisdictions. However, no regulatory flexibility analysis is required if the head of an agency certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Thus, for a regulatory flexibility analysis to be required, impacts must exceed a threshold for “significant impact” and a threshold for a “substantial number of small entities.” See 5 U.S.C. 605(b). SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule would not have a significant economic impact on a substantial number of small entities.

The proposed rule would require additional information in the initial application and increase the application fee. As a result, companies applying for nontoxic shot approval would incur additional costs. These companies include ammunition companies. The U.S. Small Business Administration defines a “small business” as one with employment that meets or is below the established size standard, which is 1,000 employees for “Small Arms Ammunition Manufacturing” businesses (NAICS 332992). In 2010, the U.S. Census Bureau shows that about 93 percent of the 112 Small Arms Ammunition Manufacturing establishments qualify as small businesses (fewer than 1,000 employees). We receive an average of only about one application per year, so less than one percent of affected small businesses would be impacted.

The proposed rule would have minimal impact on the application process for nontoxic shot. Applicants already submit the additional application information that the regulations will require. Therefore, the information in an application would change minimally.

The proposed rule includes application fees because, as detailed in the preamble, revised OMB circular A-25 directs Executive Branch agencies to establish “user charges * * * sufficient to recover the full cost to the Federal Government.” A large portion of the application costs consist of Federal Register publication fees ($17,500, as reflected in table 1). Because we are required to publish each approved nontoxic shot application in the Federal Register , we are proposing to recoup publication fees from each company that applies for a nontoxic shot approval.

We have examined this proposed rule's potential effects on small entities, and have determined that it will not have a significant economic impact on a substantial number of small entities because less than one percent of small businesses would be impacted. Therefore, we certify that this proposed rule will not have a significant economic effect on a substantial number of small entities as defined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). An initial/final Regulatory Flexibility Analysis is not required. Accordingly, a Small Entity Compliance Guide is not required.

This proposed rule is not a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act.

a. This proposed rule does not have an annual effect on the economy of $100 million or more. It will not change the costs for submission of shot types for approval as nontoxic.

b. This proposed rule will not cause a major increase in costs or prices for consumers, individual industries, Federal, State, or local government agencies, or geographic regions.

c. This proposed rule will not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 et seq.), we have determined the following:

a. This proposed rule will not “significantly or uniquely” affect small governments. A Small Government Agency Plan is not required. Regulation of nontoxic shot for migratory bird hunting does not affect small government activities.

b. This proposed rule will not produce a Federal mandate of $100 million or greater in any year, so it is not a “significant regulatory action” under the Unfunded Mandates Reform Act. The proposed regulation revision will not significantly affect State regulations.

This proposed rule does not affect private property, and has no takings implications. In accordance with Executive Order 12630, a takings implication assessment is not required.

This proposed rule does not have sufficient Federalism effects to warrant preparation of a Federalism assessment under Executive Order 13132. It will not interfere with the States' abilities to manage themselves or their funds. No significant economic impacts should result because of these proposed changes to the regulation of nontoxic shot approval.

In accordance with Executive Order 12988, the Office of the Solicitor has determined that the proposed rule does not unduly burden the judicial system and meets the requirements of sections 3(a) and 3(b)(2) of the Order.

This proposed rule contains a collection of information that we are submitting to the Office of Management and Budget (OMB) for review and approval under Sec. 3507(d) of the Paperwork Reduction Act (PRA). OMB has reviewed and approved the current information collection requirements associated with the approval of nontoxic shot for use in waterfowl hunting and assigned OMB Control Number 1018-0067, which expires May 31, 2015. An agency may not conduct or sponsor and you are not required to respond to a collection of information unless it displays a currently valid OMB control number.

We propose to revise the regulations at 50 CFR 20.134 to add the following new requirements:

• Application must document that a shotshell loaded with shot of the alloy can be readily identified as containing nontoxic shot with a standard field shotshell testing device. Wildlife law enforcement officers should be able to use simple, readily available testing devices for nontoxic shotshells.

• Application must include a statement of the relative hardness of the candidate alloy, compared to standard lead shot having a hardness of 1.0. This information will help the public decide about the type of firearm in which the shot type can be used safely.

• Required shot size and number of shot to be used in calculating the Expected Environmental Concentrations (EECs) in terrestrial and aquatic ecosystems.

• Specific pH levels to be used in calculating the EEC in water.

We expect that the above requirements will add very little to the application preparation time or cost; therefore, we have not increased the completion time from that currently approved. In addition to the above requirements, we are also proposing to move the former Tier 2 solubility testing to Tier 1. This change will allow us to better assess applications and minimize the need for Tier 2 applications.

We are also proposing fees for different stages of an application sufficient to offset the estimated costs associated with processing the application. See Permit Application Processing Fee, above, for an explanation of this fee. We have increased our estimate of the nonhour burden cost by including the $800 application fee for Tier 1 applications.

Title: Approval Procedures for Nontoxic Shot and Shot Coatings, 50 CFR 20.134.

OMB Control Number: 1018-0067.

Service Form Number: None.

Type of Request: Revision of a currently approved collection.

Description of Respondents: Businesses that produce and/or market approved nontoxic shot types or nontoxic shot coatings.

Respondent's Obligation: Required to obtain or retain a benefit.

Frequency of Collection: On occasion.

Estimated Number of Respondents: 1.

Estimated Number of Annual Responses: 1.

Estimated Completion Time per Response: 3,200 hours.

Estimated Total Annual Burden Hours: 3,200.

Estimated Total Nonhour Burden Cost: $25,800 ($800 for application processing fees, plus $25,000 for solubility testing).

As part of our continuing effort to reduce paperwork and respondent burdens, we invite the public and other Federal agencies to comment on any aspect of the reporting burden, including:

(1) Whether or not the collection of information is necessary, including whether or not the information will have practical utility;

(2) The accuracy of our estimate of the burden for this collection of information;

(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and

(4) Ways to minimize the burden of the collection of information on respondents.

Send your comments and suggestions on this information collection to the Desk Officer for the Department of the Interior at OMB-OIRA at (202) 395-5806 (fax) or OIRA_Submission@omb.eop.gov (email). Please provide a copy of your comments to the Service Information Collection Clearance Officer, U.S. Fish and Wildlife Service, MS 2042-PDM, 4401 North Fairfax Drive, Arlington, VA 22203 (mail), or hope_grey@fws.gov (email).

We have analyzed this proposed rule in accordance with the criteria of the National Environmental Policy Act and 516 DM. This proposed rule does not constitute a major Federal action significantly affecting the quality of the human environment, and does not require the preparation of an environmental impact statement or an environmental assessment. The changes we propose are largely to reorganize the regulations and put them into easier-to-understand language. Because the revision of 50 CFR 20.134 is administrative, it will have no environmental effects. It is categorically excluded from further NEPA requirements (43 CFR 46.210(i)).

The changes we propose are primarily in the reorganizing and rewriting of the regulations. The environmental impacts of this action are minimal.

Socio-economic. We do not expect the proposed regulations change to have any socio-economic impacts.

Wildlife populations. This proposed regulations change does not significantly alter the approval of nontoxic shot in the United States. This proposed rule will have no effects on wildlife populations.

Endangered and Threatened Species. The proposed regulations change will have no effect on the status of threatened or endangered species.

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and 512 DM 2, we have determined that there are no potential effects on federally recognized Indian tribes. This proposed rule will not interfere with Tribes' abilities to manage themselves or their funds or to regulate migratory bird hunting on tribal lands.

Executive Order 13211 requires agencies to prepare Statements of Energy Effects when undertaking certain actions. This proposed rule will not affect energy supplies, distribution, or use, so it does not require a Statement of Energy Effects.

Section 7 of the Endangered Species Act (ESA) of 1973, as amended (16 U.S.C. 1531 et seq.), requires that “The Secretary [of the Interior] shall review other programs administered by him and utilize such programs in furtherance of the purposes of this chapter” (16 U.S.C. 1536(a)(1)). It further states that the Secretary must “insure that any action authorized, funded, or carried out * * * is not likely to jeopardize the continued existence of any endangered species or threatened species or result in the destruction or adverse modification of [critical] habitat” (16 U.S.C. 1536(a)(2)). The proposed regulations change would not affect listed species.

We are required by Executive Orders 12866 and 12988 and by the Presidential Memorandum of June 1, 1998, to write all rules in plain language. This means that each rule we publish must:

(a) Be logically organized;

(b) Use the active voice to address readers directly;

(c) Use clear language rather than jargon;

(d) Be divided into short sections and sentences; and

(e) Use lists and tables wherever possible.

If you feel that we have not met these requirements, send us comments by one of the methods listed in the ADDRESSES section. To better help us revise the rule, your comments should be as specific as possible. For example, you should tell us the numbers of the sections or paragraphs that are not clearly written, which sections or sentences are too long, the sections where you feel lists or tables would be useful, etc.

For the reasons discussed in the preamble, we propose to amend part 20, subchapter B, chapter I of title 50 of the Code of Federal Regulations as set forth below.

The Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) requires each regional fishery management council to submit any fishery management plan or amendment to NMFS for review and approval, partial approval, or disapproval. The Magnuson-Stevens Act also requires that NMFS, upon receiving a plan or amendment, publish an announcement in the Federal Register notifying the public that the plan or amendment is available for review and comment.

The penaeid shrimp fishery of the South Atlantic is managed under the FMP. The FMP was prepared by the Council and is implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Act.

Currently, a South Atlantic state may close its state waters to trawling by the penaeid shrimp commercial sector following severe winter weather to protect the spawning stock of white shrimp that has been depleted by cold weather conditions. The existing process to concurrently close the adjacent EEZ can be lengthy because it requires a review of a state's request and accompanying shrimp abundance data by both the Council and the Council's Shrimp Review Panel before the NMFS Regional Administrator (RA) can make a determination as to whether or not a concurrent closure of Federal waters is warranted.

Amendment 9 would revise the criteria and procedures by which a South Atlantic state may request a concurrent closure of the penaeid shrimp commercial sector in the EEZ in order to protect overwintering white shrimp. Amendment 9 would also update the current overfished status determination criteria for pink shrimp.

Amendment 9 would revise the criteria that must be met for a state to request NMFS to close the commercial penaeid shrimp harvest in the EEZ, following severe winter weather and a closure of state waters. Amendment 9 would require that a state must demonstrate either at least an 80-percent reduction in the population of overwintering white shrimp or that water temperatures were 9 °C (48 °F) or less, for at least one week (7 days). Additional details regarding the sampling methods a state may use for these determinations may be found in Amendment 9 and the FMP.

Amendment 9 would also revise and streamline the procedures for a state to request a closure of the penaeid shrimp commercial sector in the EEZ concurrent with a closure in state waters. Under the current procedures, a state may request a concurrent closure of penaeid shrimp harvest in the EEZ once a state has determined that specific conditions have been met. Following that determination, the state sends a request to the Council, then the Council convenes its Shrimp Review Panel to review the state's request. If the review panel's recommendation is affirmative, the panel forwards its recommendation to the Council. If the Council approves the state's request, they send a letter to NMFS to request a concurrent closure of penaeid shrimp harvest in the EEZ waters adjacent to the requesting state. Once NMFS has determined the recommended closure is in accordance with the procedures and criteria specified in the FMP and the Magnuson-Stevens Act, NMFS implements the closure through a notification (temporary rule) in the Federal Register .

The revised procedures would allow a state to send its request with its supporting documentation for a concurrent closure of the EEZ to penaeid shrimp commercial harvest directly to NMFS. The RA would review the available information and confirm that the criteria and procedures are in accordance with the FMP and the Magnuson-Stevens Act before implementing a concurrent closure.

Amendment 9 would update the overfished and overfishing status determination criteria (biomass at maximum sustainable yield (B MSY )) proxy for pink shrimp based on recent catch per unit effort (CPUE) data for the stock. Specifically, Amendment 9 would revise the B MSY proxy for pink shrimp using the lowest CPUE value from the Southeast Area Monitoring and Assessment Program during the period 1990-2011 (0.089 individuals per hectare).

The Council has submitted Amendment 9 for Secretarial review, approval, and implementation. NMFS' decision to approve, partially approve, or disapprove Amendment 9 will be based, in part, on consideration of comments, recommendations, and information received during the comment period on this notice of availability. After consideration of these factors, and consistent with the Magnuson-Stevens Act and other applicable law, NMFS will publish a notice of agency action in the Federal Register announcing the Agency's decision to approve, partially approve, or disapprove Amendment 9, and the associated rationale.

A proposed rule that would implement Amendment 9 has been drafted. In accordance with the Magnuson-Stevens Act, NMFS is evaluating the proposed rule to determine whether it is consistent with the FMP, the Magnuson-Stevens Act, and other applicable law. If that determination is affirmative, NMFS will publish the proposed rule in the Federal Register for public review and comment.

Comments received by May 3, 2013, whether specifically directed to the amendment or the proposed rule, will be considered by NMFS in its decision to approve, disapprove, or partially approve the amendment. Comments received after that date will not be considered by NMFS in this decision.

All comments received by NMFS on the amendment or the proposed rule during their respective comment periods will be addressed in the final rule.