This proposed rule has been determined to be not significant for purposes of Executive Order 12866; and, therefore has not been reviewed by the Office of Management and Budget (OMB).

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. There are no administrative procedures that must be exhausted prior to any judicial challenge to the provisions of this rule.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS has considered the economic impact of this action on small entities and has determined that its implementation will not have a significant economic impact on a substantial number of small businesses.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be disproportionately burdened. There are approximately sixty cotton merchant organizations of various sizes active in trading U.S. cotton. Cotton merchants voluntarily use the AMS cotton futures classification services under the Cotton Futures Act (Act) (7 U.S.C. 15b). Many of these cotton merchants are small businesses under the criteria established by the Small Business Administration (13 CFR § 121.201). Establishing the registration option for cotton futures classification will not significantly affect small businesses as defined in the RFA because:

(1) The established user fee for cotton futures classification services is $3.50 per bale (7 CFR 27.80). Users choosing the registration option would incur no additional charges;

(2) The established cotton futures classification fee represents a very small portion of the cost per-unit currently borne by those entities utilizing the service;

(3) The average price paid to producers for cotton from the 2012 crop was 72.05 cents per pound, making a 500 pound bale of cotton worth an average of $360.25. The current user fee for futures classification services, $3.50 per bale, is less than one percent of the average value of a bale of cotton;

(4) The fee for this service will not affect competition in the marketplace;

(5) The futures classification option is expected to streamline marketing and create logistical efficiencies for all entities utilizing this option; and

(6) The use of futures classification services are voluntary. For fiscal year 2012, there were 318,337 cotton futures samples (approximately 2.1 percent of the 2012 cotton crop) voluntarily submitted for the futures classification service.

In compliance with OMB regulations (5 CFR part 1320), which implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501), the information collection requirements contained in the provisions to be amended by this proposed rule have been previously approved by OMB and were assigned OMB control number 0581-0008, Cotton Classing, Testing, And Standards.

The Act requires USDA-verified quality measurements for each bale to be included in futures contracts for the purpose of verifying that each bale meets the minimum quality requirements for cotton futures trading. Furthermore, the Act authorizes the charging of user fees required to recover the cost associated with providing futures quality verification services.

USDA was first directed to provide cotton classification services to producers of cotton under the Smith-Doxey Act of April 13, 1937 (Pub. L. 75-28). Therefore, the original classification of a cotton bale's sample and quality data which results from this classification is commonly referred to as the Smith-Doxey classification or Smith-Doxey data. While cotton classification is not mandatory, practically every cotton bale grown in the United States today is classed by AMS under the authority of the Cotton Statistics and Estimates Act (7 U.S.C. 471-476) and the U.S. Cotton Standards Act (7 U.S.C. 51-65) and under regulations found in 7 CFR part 28—Cotton Classing, Testing, and Standards. The U.S. cotton industry uses Smith-Doxey data to assign quality-adjusted market values to U.S. cotton and market U.S. cotton both domestically and internationally. Smith-Doxey data is commonly used by the cotton merchant community to indicate which bales may be tenderable against a cotton futures contract.

Conventional procedures employed for verifying quality measurements for bales to be included in futures contracts consists of two futures classifications: (1) Initial futures classification and (2) final futures classification. AMS, Cotton and Tobacco Programs revised these procedures to incorporate Smith-Doxey data into the cotton futures classification process in March 2012 (77 FR 5379). When verified by a futures classification, Smith-Doxey data serves as an initial futures classification with the verifying futures classification serving as a final futures classification. The use of Smith-Doxey data significantly reduced the number of futures classifications required for many of the bales that were submitted for certification.

The successful incorporation of Smith-Doxey data into the futures classification procedures prompted the U.S. cotton industry and ICE to request that the AMS, Cotton and Tobacco Programs use Smith-Doxey data to certify that bales submitted for quality verification meet more restrictive quality requirements and age parameters set by ICE for use in a cotton futures contract. The U.S. cotton industry and ICE refer to this optional procedure the “registration option”. Furthermore, the U.S. cotton industry and ICE have requested that AMS, Cotton and Tobacco Programs make this option available in December 2013 to coincide with the implementation of ICE's Cotton Resolution No. 2, which is scheduled to commence with the March 2014 contract month.

The established user fee for cotton futures classification services is $3.50 per bale (7 CFR 27.80). Customers choosing this cotton futures classification option would incur this charge. In the event that AMS determines that a bale submitted under this option fails to meet quality or age parameters set by the exchange inspection agency, the owner of the bale would be notified of the bale's failure.

AMS, Cotton and Tobacco Programs propose regulatory amendments that would allow the use of original Smith-Doxey data to certify that bales submitted for quality verification meet quality and age parameters set by the applicable exchange inspection agency. Accordingly, the definition of “Classification” in § 27.2, paragraph (n) would be amended to allow for the proposed registration option for the futures classification services. Also in § 27.2, the term “Smith-Doxey data” would be defined in new paragraphs (p).

A thirty day comment period is and deemed appropriate. It is anticipated that AMS would make the futures classification option available December 2013 to coincide with the implementation of ICE's Cotton Resolution No. 2.

For the reasons set forth in the preamble, 7 CFR part 27 is proposed to be amended to read as follows:

The collection of information contained in this notice of proposed rulemaking revises a collection of information approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-2019. Comments on the revised 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 November 8, 2013. Comments are specifically requested concerning:

Whether the proposed revised 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 service to provide information.

The revised collection of information in these proposed regulations is in §§ 1.332-6, 1.351-3, and 1.368-3. By requiring that taxpayers separately report the fair market value and basis of property (including stock) described in section 362(e)(1)(B) and in 362(e)(2)(A) that is transferred in a tax-free transaction, this revised collection of information aides in identifying transactions within the scope of sections 334(b)(1)(B), 362(e)(1), and 362(e)(2) and thereby facilitates the IRS' verification that taxpayers are complying with sections 334(b)(1)(B), 362(e)(1), and 362(e)(2). The respondents will be corporations and their shareholders.

Revised estimated total annual reporting burden: 375,000 hours.

Revised estimated average annual burden hours per respondent: 1.25 hours.

Estimated number of respondents: 225,000 (of the originally estimated 350,000; original 0.75 hour estimate unchanged for the remaining 125,000 respondents).

Estimated frequency of responses: once.

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

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

Sections 334(b)(1)(B) and 362(e)(1) (the anti-loss importation provisions) were enacted in the American Jobs Creation Act of 2004 (Pub. L. 108-357, 188 Stat. 1418 (2004)) to prevent erosion of the corporate tax base through the importation of loss in nonrecognition transfers. This notice of proposed rulemaking proposes regulations under both of these anti-loss importation provisions.

Section 334(b)(1)(B) applies to corporate acquisitions of loss property in liquidations described in section 332 (complete liquidation of subsidiary). Section 362(e)(1) applies to corporate acquisitions of loss property in transactions described in section 362(a) (transactions to which section 351 applies and acquisitions of property as paid-in surplus or contributions to capital, each a section 362(a) transaction) and in transactions described in section 362(b) (reorganizations). The application and effect of the anti-loss importation provisions are materially identical, and so the proposed regulations use the same nomenclature and operating rules for both anti-loss importation provisions.

The anti-loss importation provisions apply when a corporation acquires property that is described in section 362(e)(1)(B) in a transaction described in section 332, 362(a), or 362(b), and, under the generally applicable basis rules (other than the anti-loss duplication rule in section 362(e)(2)), the acquiring corporation (Acquiring) would take the property with an aggregate basis in excess of “value” (generally equal to fair market value under the proposed regulations; see paragraph 1.b.ii. of this preamble). When an anti-loss importation rule applies, Acquiring's basis in each such property is equal to the property's value. To the extent Acquiring receives property in the transaction that is not subject to the anti-loss importation rules, Acquiring's basis in the property is determined under generally applicable basis rules, including section 362(e)(2).

Property is described in section 362(e)(1)(B) (designated “importation property” in the proposed regulations) if two conditions are satisfied. First, any gain or loss recognized on a disposition of the property would not be subject to Federal income tax in the hands of the transferor immediately before the transfer. Section 362(e)(1)(B)(i). Second, any gain or loss recognized on a disposition of the property would be subject to Federal income tax in the hands of the transferee immediately after the transfer. Section 362(e)(1)(B)(ii).

Since the enactment of the anti-loss importation provisions, a number of questions have arisen concerning their application. The principal concern has been the determination of whether property is importation property, but various other questions (discussed subsequently in this preamble) have also been raised regarding the application of the anti-loss importation provisions and their interaction with other rules of law. To address these issues, the proposed regulations provide a framework for identifying importation property and determining whether the transfer of the property is a transaction subject to the anti-loss importation provisions (designated a “loss importation transaction” under the proposed regulations).

The proposed regulations use a hypothetical sale analysis to identify importation property. Under this approach, the actual tax treatment of any gain or loss that would be recognized on a sale of the property, first by the transferor immediately before and then by Acquiring immediately after the transfer, determines whether an individual property is importation property. If any gain or loss that would be recognized on a hypothetical sale of the property by the transferor immediately before the transfer would not be subject to Federal income tax in the hands of the transferor, the first condition for classification as importation property is satisfied. If any gain or loss that would be recognized on a hypothetical sale of the property by Acquiring immediately after the transfer would be subject to Federal income tax in the hands of Acquiring, the second condition for classification as importation property is satisfied. Property is importation property only if both conditions are satisfied.

In general, the determination is made by reference to the tax treatment of the hypothetical seller of the transferred or acquired property, that is, whether the hypothetical seller would take the gain or loss into account in determining its Federal income tax liability. This determination must take into account all relevant facts and circumstances. The proposed regulations include a number of examples illustrating this approach. Thus, in one example, a tax-exempt entity transfers property to a taxable domestic corporation, and the determination takes into account whether the transferor, though generally tax-exempt, would nevertheless be required to include the amount of the gain or loss in unrelated business taxable income under sections 511 through 514 of the Code. In other examples, a foreign corporation transfers property to a taxable domestic corporation and the determination takes into account whether the foreign corporation would be required to include the amount of gain or loss under section 864 or 897 as income effectively connected with, or treated as effectively connected with, the conduct of a U.S. trade or business. Although the examples assume there is no applicable income tax treaty, in the case of an applicable income tax treaty, the determination of whether property is importation property would take into account whether the transferor would be taxable under the business profits article or gains article of the income tax treaty.

Although the general rule in the proposed regulations looks solely to the tax treatment of the hypothetical seller, a modified rule applies if a hypothetical seller is a partnership, a small business corporation that has elected under section 1362(a) to be an S corporation, or a grantor trust. In these cases, the determination is made by reference to the tax treatment of the gain or loss as taken into account by the partners, shareholders, or owners of the entities. The modified rule recognizes that, in these cases, the Code provides that the gain or loss on the hypothetical sale would be included by the partner, shareholder, or owner, and would not be taxable to the hypothetical seller, irrespective of whether any amount is actually distributed to such other person. See section 701 (partnership not subject to tax), flush language in section 362(e)(1)(B) (partners treated as owning partnership property); sections 1363 and 1366 (S corporation's income generally taxable to shareholders, not S corporation); section 671 (grantor or other person treated as owning trust property).

If an organizing instrument assigns gain and loss to partners or beneficiaries in different amounts, including by reason of a special allocation under a partnership agreement, the proposed regulations make clear that the hypothetical sale model makes the determination of whether gain or loss is subject to Federal income tax by reference to the person to whom, under the terms of the instrument, the hypothetical gain or loss would actually be allocated, taking into account the entity's net gain or loss actually recognized in the tax period in which the transaction occurs.

In certain circumstances, the Code permits distributions to effect a similar shifting of tax consequences. For example, under sections 651 and 652, and sections 661 and 662, distributions made by a trust are deducted from the trust's income and included in the beneficiary's (or beneficiaries') income. Certain domestic corporations are also able to shift tax consequences by distributing income or gain from a property sale. These corporations include regulated investment companies (RICs, as defined in section 851(a)), real estate investment trusts (REITs, as defined in section 856(a)), and domestic corporations taxable as cooperatives (see section 1381).

The IRS and the Treasury Department are concerned that disregarding the effects of this shifting of tax liability would in certain circumstances undermine the anti-importation provisions. However, the IRS and the Treasury Department are also concerned that applying a look-through rule in all such cases would present a significant administrative burden.

Accordingly, the proposed regulations contain an anti-avoidance rule that applies to domestic trusts, estates, RICs, REITs, and cooperatives that directly or indirectly transfer property (including through other such entities) in a section 362 transaction, if the property had been directly or indirectly transferred to or acquired by the entity as part of a plan to avoid the application of the anti-importation provisions. For purposes of this rule, it is immaterial who had the plan to avoid the anti-importation provisions. When the anti-avoidance rule applies, the domestic entity, which, absent application of the anti-avoidance rule, would be treated under these regulations as subject to Federal income tax, is treated as subject to a look-through rule. Under the look-through rule, the entity is presumed to distribute the proceeds of the hypothetical sale (which, for this purpose, are presumed to be an amount greater than zero), and, to the fullest extent permitted by the terms of its organizing instrument, it is presumed to make the distributions to persons that would not take distributions from the entity into account in determining a Federal income tax liability. If an interest in such an entity is held indirectly through one or more other such entities, the principles of this rule apply to look to the ultimate owners of the interest. The determination of whether the property is importation property is then made by reference to the deemed distributees or, in the case of tiered entities, to the ultimate deemed distributees.

To illustrate, assume 90 percent of a REIT's shares are owned by persons that would not take into account any gain or loss in determining a Federal income tax liability and that each share has an equal right to any distribution by the REIT. The REIT holds property that was transferred to the REIT as part of a plan to avoid the application of the anti-importation rule to a section 362 transaction. At a time when the acquired property has a built-in loss, the REIT transfers the property to a domestic corporation in a section 362 transaction. In this case, the anti-avoidance rule would apply. Thus, the REIT is presumed to distribute all the proceeds of the hypothetical sale of the property transferred in the section 362 transaction, and the determination of whether any gain or loss on that hypothetical sale would be taken into account in determining a Federal income tax liability is made by reference to the distributee REIT shareholders. Thus, 90 percent of the property transferred in the section 362 transaction would be importation property. Alternatively, assume that the property was originally acquired (as part of a plan to avoid the application of the anti-importation rule to a section 362 transaction) by a trust whose trustee has discretion to distribute all or a portion of the trust's gain or loss to a person that would not take any amount of such distribution into account in determining a Federal income tax liability and, when the property has a built-in loss, the trust transfers the property to a domestic corporation in a section 362 transaction. In this case, all of the property transferred in the section 362 transaction would be importation property because the trustee could distribute all of the proceeds from the hypothetical sale to a person that would not take the distribution into account in determining a Federal income tax liability.

The IRS and the Treasury Department continue to study whether a look-through approach should be generally applied to trusts and request comments on the need for, and potential scope of, such a rule.

Practitioners have raised numerous questions regarding the treatment of property held by or transferred to controlled foreign corporations (CFC), as defined in section 957 (taking into account section 953(c)). Because the general rule looks to the tax treatment of the hypothetical seller, and no exception applies for CFCs, the general operation of the proposed regulations would not treat such amounts as subject to Federal income tax. Nevertheless, because the characterization of gain or loss that would be taken into account in determining a potential income inclusion under section 951(a) has generated some concern among practitioners, the proposed regulations include an express provision stating that gain or loss recognized by a CFC is not considered subject to Federal income tax solely by reason of an income inclusion under section 951(a). The proposed regulations include a similar provision to clarify that gain or loss recognized by a passive foreign investment company, as defined in section 1297(a), is also considered not subject to Federal income tax notwithstanding that it could affect an inclusion under section 1293(a). Comments are specifically requested on this approach.

If any gain or loss realized on a hypothetical sale would be includible in income by more than one person, the proposed regulations treat such property as tentatively divided into separate portions in proportion to the allocation of gain or loss to each person. Tentatively divided portions are treated and analyzed in the same manner as any other property for purposes of applying the anti-importation provisions. (See paragraph c. of this preamble for an illustration of the application of this rule.) Thus, the generally applicable rules determine whether a portion of tentatively divided property is importation property, and, if the tentatively divided portion is importation property, it is taken into account (as described subsequently in this preamble) with all other importation property to determine whether the transaction is a loss importation transaction.

Once the importation property has been identified, Acquiring determines the aggregate basis that it would have in all importation property acquired in the transaction (including the tentatively divided portions of transferred property), without regard to the anti-loss importation provisions or section 362(e)(2). If the aggregate basis of the importation property exceeds such property's aggregate value, the transaction is a loss importation transaction and subject to the anti-loss importation provisions. If the aggregate basis of importation property does not exceed such property's value, the anti-loss importation provisions have no further application.

Under section 362(e)(1) and the proposed regulations, the determination of whether a section 362 transaction is a loss importation transaction is made by reference to the net amount of built-in gain and built-in loss in all importation property acquired from all transferors in the transaction. This approach differs from the transferor-by-transferor approach of section 362(e)(2), which expressly focusses on the net built-in loss transferred by a particular transferor in a section 362(a) transaction.

In general, the anti-loss importation rules do not take liabilities into account in determining the value of transferred property and, thus, whether the transfer of such property is a transfer of loss property.

However, in both informal inquiries and written comments, practitioners have raised concerns about the effect of this rule when the property transferred is an interest in a partnership with liabilities. In particular, practitioners are concerned that the inclusion of a partner's share of partnership liabilities in outside basis may create the appearance of a built-in loss because partnership liabilities do not correspondingly increase the value of the interest. The amount of cash at which the partnership interest would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, should reflect the appropriate measure of fair market value. When a partnership interest is sold, the amount realized may include a share of partnership liabilities from which the transferor is discharged, which is generally equal to the amount of liabilities included in the transferor's outside basis. As such, the sale of a partnership interest properly accounts for the transferee partner's share of partnership liabilities and therefore, reflects the value of that partnership interest.

To address this issue, the proposed regulations generally adopt the approach proposed by commentators and modify the definition of “value” (generally, fair market value) to take liabilities into account when determining whether a partnership interest is a loss asset. However, because there can be differences between Transferor's share of partnership liabilities and Acquiring's share of partnership liabilities, the proposed regulations provide that the value of a partnership interest is the sum of cash that Acquiring would receive for such interest, increased by any § 1.752-1 liabilities (as defined in § 1.752-1(a)(4)) of the partnership that are allocated to Acquiring with regard to such transferred interest under section 752. The proposed regulations include an example that illustrates the application and effect of this rule. The proposed regulations also clarify that any section 743(b) adjustment to be made as a result of the transaction is made after any section 362(e) basis adjustment.

If a transaction is a loss importation transaction, Acquiring's basis in each importation property received (including the tentatively divided portions of property determined to be importation property) is an amount equal to value, notwithstanding the general rules in sections 334(b)(1)(B), 362(a), and 362(b). This rule applies to all importation property, regardless of whether the property's value is greater or less than its basis prior to the loss importation transaction.

Immediately following the application of the anti-loss importation provisions (and prior to any application of section 362(e)(2)), any property that was treated as tentatively divided for purposes of applying these provisions ceases to be treated as divided and is treated as one undivided property (re-constituted property) with a basis equal to the sum of the bases of the portions determined under the anti-importation provision and the bases of all other portions determined under generally applicable provisions (other than section 362(e)(2)). For example, assume that property is transferred in a section 362(a) transaction and the property is treated as tentatively divided for purposes of applying section 362(e)(1) (see paragraph a.iv. of this preamble). Further assume that one tentatively divided portion (basis $125, value $100) is determined to be importation property and the other (basis $125, value $100) is not. Finally, assume that, the aggregate basis of all importation property transferred in the transaction (including the $125 basis of the tentatively divided portion) is $900 and the aggregate value of all importation property (including the $100 value of the tentatively divided portion) is only $800. Thus, the importation property has a net loss, the transaction is a loss importation transaction, and the basis of each importation property is equal to its value. Accordingly, immediately after the application of section 362(e)(1), the tentatively divided property is treated as one single property with a basis of $225 ($100 basis in the importation portion plus $125 basis in the non-importation portion).

If the transaction is described in section 362(a), the transferred property (including the re-constituted property that was tentatively divided for purposes of applying section 362(e)(1)) is then aggregated on a transferor-by-transferor basis to determine whether further adjustment will be required to the bases of loss property under section 362(e)(2). Therefore in the example in the preceding paragraph, after the application of section 362(e)(1), the provisions of section 362(e)(2) may apply to adjust the basis of the property further because the transfer is a section 362(a) transaction. The proposed regulations include a cross-reference to section 362(e)(2) as well as examples illustrating the application of both sections 362(e)(1) and section 362(e)(2) to situations involving multiple transferors and multiple properties that are not all importation properties. Because section 362(e)(2) only applies to transactions described in section 362(a), section 362(e)(2) has no application to liquidations or to reorganizations that do not include a transaction described in section 362(a). The proposed regulations include examples illustrating the interaction of these provisions.

To facilitate the administration of both the anti-loss importation provisions and the anti-duplication provisions in section 362(e)(2), the proposed regulations modify the reporting requirements applicable in all affected transactions (section 332 liquidations and transactions described in section 362(a) or section 362(b)) to require taxpayers to identify the basis and value of property subject to those sections.

The proposed regulations also include several modifications to the regulations applicable to corporate liquidations. These modifications are not changes to current substantive law; they are intended solely to update the regulations to reflect certain statutory changes. The statutory changes reflected in these modifications include the repeal of the General Utilities doctrine (reflected in the modification of sections 334(a) and 337(a), and the repeal of sections 333 and 334(c)), the removal of former section 334(b)(2) (replaced by section 338), and the relocation of former section 332(c) (subsidiary indebtedness) to current section 337(b). In response to certain regulatory changes, the proposed regulations also add several cross-references to regulations under section 367 and 897 to highlight the treatment of certain transfers between foreign corporations.

The proposed regulations do not address the regulations under section 346 and no inference should be drawn from the omission of a proposal under that section.

These regulations are generally proposed to apply to transactions occurring on or after the date the regulations are published as final regulations in the Federal Register , unless completed pursuant to a binding agreement that was in effect immediately before the date such final regulations are published and all times afterwards. It is also proposed that taxpayers would be permitted to apply the final regulations (when published) to transactions occurring after October 22, 2004.

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 has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Further, it is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the collection of information requirement in these regulations modifies an existing collection of information by requiring that certain information be reported separately instead of in the aggregate. Although there may be an increase in reporting burden, the increased burden is expected to be minimal because taxpayers should have ready access to the requested information as the proposed regulations would not require taxpayers to report or maintain records on information that is not, in the aggregate, already required to be reported and maintained under the current regulations. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, 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 these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are timely submitted to the IRS. Alternatively, taxpayers may submit comments electronically via the Federal e-Rulemaking Portal at www.regulations.gov (IRS REG-161948-05). The IRS and the Treasury Department request comments on all aspects of the proposed regulations. Comments are specifically requested on the appropriate treatment of transactions subject to both section 367(b) and either section 334(b)(1)(B) or 362(e)(1). Comments are also specifically requested on what effect a basis reduction required under section 334(b)(1)(B) or section 362(e)(1) may have on earnings and profits and any inclusion required under § 1.367(b)-3. All comments that are submitted by public will be available for public inspection and copying at www.regulations.gov or upon request. A public hearing may be scheduled if requested in writing by any person who timely submits comments. If a public hearing is scheduled, notice of the date, time, and place of the hearing will be published in the Federal Register .

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

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

The revisions and addition read as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget 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 November 8, 2013. Comments are specifically requested concerning:

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

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 these proposed regulations is in §§ 1.6055-1 and 1.6055-2. The collection of information will be used to determine whether an individual has minimum essential coverage under section 1501(b) of the Patient Protection and Affordable Care Act (26 U.S.C. 5000A(f)). The collection of information is required to comply with the provisions of section 6055 of the Code. The likely respondents are health insurers, self-insured employers or other sponsors of self-insured health plans, and governments that provide minimum essential coverage.

The burden for the collection of information contained in these proposed regulations will be reflected in the burden on Form 1095-B or another form that the IRS designates, which will request the information in the proposed regulation.

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.

Beginning in 2014, under the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)), and the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) (collectively, the Affordable Care Act), nonexempt individuals have the choice of maintaining minimum essential coverage (as defined in section 5000A(f)) or paying an individual shared responsibility payment with their income tax returns. Minimum essential coverage may be health insurance coverage offered in the individual market (such as a qualified health plan offered through an Affordable Insurance Exchange (Exchange, also known as a Marketplace)), an employer-sponsored plan, or a government-sponsored program. Section 5000A(f)(1)(A) specifies that Medicare Part A, Medicaid, the Children's Health Insurance Program established under title XXI of the Social Security Act (42 U.S.C. 1397aa et seq.) (CHIP), TRICARE, certain health care programs for veterans and other individuals under chapter 17 or 18 of Title 38 U.S.C., coverage for Peace Corps volunteers under 22 USC 2504(e), and coverage under the Nonappropriated Fund Health Benefits Program under section 349 of Public Law 103-337, are government-sponsored programs that qualify as minimum essential coverage.

Section 1401 of the Affordable Care Act enacted section 36B, allowing certain taxpayers a refundable premium tax credit that will make minimum essential coverage in qualified health plans offered in the individual market through an Exchange more affordable.

Section 1502 of the Affordable Care Act enacted section 6055 regarding information reporting by any person that provides minimum essential coverage to an individual. Section 6055(b)(1)(B) requires providers of minimum essential coverage to report (1) the name, address, and taxpayer identification number (TIN) of the primary insured, (2) the name, dates of coverage, and TIN of each individual covered under a policy, (3) whether health insurance coverage is a qualified health plan offered through an Exchange, (4) for a qualified health plan, the amount of any advance payments of the premium tax credit under section 1412 of the Affordable Care Act and cost-sharing reductions under section 1402 of the Affordable Care Act, and (5) other information the Secretary requires.

Section 6055(b)(2) requires, for coverage through an employer's group health plan, reporting (1) the name, address, and employer identification number (EIN) of the employer maintaining the plan, (2) the portion of the premium (if any) paid by the employer, and (3) any other information that the Secretary requires for administering the credit under section 45R (the tax credit for employee health insurance expenses of small employers).

Section 6055(c) directs a person filing an information return under section 6055 to provide a written statement to each individual listed on the return that shows the name, address, and contact phone number of the reporting entity and information reported to the IRS for that individual. The statement must be furnished to the individual by January 31 of the year following the coverage year.

The information reported under section 6055 will allow taxpayers to establish and the IRS to verify that the taxpayers were covered by minimum essential coverage and their months of enrollment during a calendar year.

Under section 6724(d), as amended by the Affordable Care Act, a reporting entity that fails to comply with the filing and statement furnishing requirements of section 6055 may be subject to penalties for failure to file a correct information return (section 6721) and failure to furnish correct payee statements (section 6722). However, these penalties may be waived if the failure was due to reasonable cause and not to willful neglect (section 6724(a)).

Section 1514 of the Affordable Care Act enacted section 6056, which requires applicable large employers (generally employers with 50 or more full-time employees) to report to the IRS information about the coverage that they offer to their full-time employees and requires them to furnish related statements to employees.

Notice 2012-32 (2012-20 IRB 910) requested public comments on issues to be addressed in regulations under section 6055. In addition, Notice 2012-33 (2012-20 IRB 912) requested public comments on issues to be addressed in regulations under section 6056. As described later in this preamble, the written comments in response to Notice 2012-32 and other written comments have been considered in connection with the development of these proposed regulations.

As discussed in Notice 2013-45 (2013-31 IRB 116), Treasury and the IRS have engaged in dialogue with stakeholders in an effort to simplify section 6055 (and section 6056) reporting consistent with effective implementation of the law. This process has included discussions with stakeholders representing a wide range of interests to assist in the consideration of effective information reporting rules that will be as streamlined, simple, and workable as possible. The effort to develop these proposed information reporting rules has reflected a considered balancing of the importance of (1) providing individuals the information to complete their tax returns accurately, including with respect to the individual responsibility provisions and eligibility for the premium tax credit, (2) minimizing cost and administrative tasks for the reporting entities and individuals, and (3) providing the IRS with information needed for effective and efficient tax administration. As noted elsewhere in this preamble, the proposed regulations will be the subject of public comments, including comments that are specifically invited regarding particular issues identified in the preamble.

Notice 2013-45 provides as transition relief that section 6055 information reporting will be optional for 2014. The IRS will not impose penalties for failure to timely and accurately report under section 6055 for coverage in 2014. As stated in Notice 2013-45, the IRS encourages voluntary section 6055 reporting for coverage in 2014.

Under section 36B(f)(3) and § 1.36B-5, an Exchange must report information relating to enrollment in qualified health plans in the individual market to the IRS and taxpayers. This information includes the period coverage was in effect, the names and TINs of each individual covered, the amount of advance credit payments relating to the coverage, and the amount of premiums for the coverage. This reporting facilitates compliance with and administration of the premium tax credit under section 36B. A commenter suggested that issuers of qualified health plans should not be required to report under section 6055 regarding minimum essential coverage that they provide in the individual market through the Exchange because the Exchange reporting provides the IRS and taxpayers with the necessary information about this coverage.

In response to this comment and to reduce the burden associated with reporting under section 6055, the proposed regulations provide that issuers are not required to submit section 6055 information returns for coverage under a qualified health plan in the individual market enrolled in through an Exchange. For individuals enrolled in this coverage, the IRS and individuals will receive information necessary to administer or comply with the individual shared responsibility provision through information reporting by Exchanges under section 36B(f)(3). Issuers must report, however, on qualified health plans in the small group market enrolled in through the Small Business Health Options Program (SHOP), because annual information reporting by Exchanges under section 36B(f)(3) does not include these plans.

Commenters recommended that the proposed regulations require employers rather than health insurance issuers to report under section 6055 for insured coverage under an employer-sponsored group health plan. The commenters suggested that employers have more direct access to information required to be reported for an employee enrolled in a group health plan.

Because section 6055(a) requires reporting by the entities providing the coverage, which for insured coverage is the issuer, the proposed regulations provide that health insurance issuers are responsible for reporting under section 6055 for all insured coverage, except coverage under certain government-sponsored programs (such as Medicaid and Medicare) that provide coverage through a health insurance issuer and coverage under qualified health plans in the individual market enrolled in through an Exchange.

Reporting entities are permitted to use third parties to facilitate filing returns and furnishing statements to comply with reporting requirements, including those under section 6055. These arrangements do not, however, transfer the potential liability for failure of the reporting entity to report and furnish under the regulations.

A party preparing returns or statements required under section 6055 that is a tax return preparer will be subject to the requirements that generally apply to return preparers.

The proposed regulations provide that sponsors of self-insured health coverage are responsible for reporting under section 6055. The proposed regulations identify the employer as the plan sponsor and reporting entity for a self-insured group health plan established or maintained by a single employer. This rule is consistent with section 3(16)(B)(i) of the Employee Retirement Income Security Act of 1974 (ERISA), which states that the term “plan sponsor” means the employer in the case of an employee benefit plan established or maintained by a single employer.

Commenters noted that individuals may be covered under a self-insured arrangement that is a multiemployer plan and offered suggestions for identifying the entity responsible for reporting. Some commenters stated that employers that participate in a multiemployer plan do not have access to the information required to be reported under section 6055 and that the multiemployer plan or its administrator, for example, the joint board of trustees, should report for the participating employers. Another commenter suggested that labor unions report for multiemployer plans. Other commenters asserted that a plan's administrator or trustees generally are in the best position to report minimum essential coverage funded under a collective bargaining agreement unless the plan is funded by a single employer. A commenter asserted that each participating employer should be responsible for reporting under section 6055 for a multiple employer welfare arrangement (MEWA) under section 3(40) of ERISA (29 U.S.C. 1002(40)).

In response to these comments, the proposed regulations identify the sponsor and reporting entity for various types of self-insured arrangements (for example, the joint board of trustees for a multiemployer plan). For these purposes, the section 414 employer aggregation rules do not apply. Accordingly, a self-insured group health plan or arrangement covering employees of related corporations is treated as sponsored by more than one employer and each employer must report for its employees. However, one member of the group may assist the other members by filing returns and furnishing statements on behalf of all members.

Section 6055(d) provides that an appropriately designated person may report under section 6055 on behalf of a government employer. Accordingly, the proposed regulations allow a government employer providing self-insured coverage for its employees to report under section 6055 on its own behalf or to designate as the reporting entity another governmental unit or agency or instrumentality of a governmental unit that is part of or related to the same governmental unit as the government employer. If the designation is made before the filing deadline and the designee accepts it, the designated governmental unit, agency, or instrumentality is the sponsor responsible for section 6055 reporting. Comments are requested on issues specific to government employer plans and arrangements.

As noted, section 6056 requires applicable large employers to report information about the coverage that they offer to their full-time employees and to furnish related statements to employees. Commenters suggested that applicable large employers with self-insured health plans that must report under both sections 6055 and 6056 should be allowed to combine that reporting.

The general rules described in the proposed regulations assume separate reporting, but include other rules that reduce duplicative reporting and otherwise simplify reporting. For example, the proposed regulations allow the use of substitute forms and statements to individuals, which may permit self-insured health plans to furnish a single substitute statement to covered individuals for both sections 6055 and 6056.

In addition, the preamble to proposed regulations under section 6056 advises that the IRS and the Treasury Department are considering permitting applicable large employers with self-insured plans that provide mandatory, minimum value coverage to employees, and offer that coverage to spouses and dependents, all with no employee contribution, to forgo providing section 6056 statements to those covered employees. Because the section 6055 return would provide the individual taxpayers information to accurately file the taxpayers' income tax returns, and would provide the IRS the information concerning those employees to administer the premium tax credit and employer shared responsibility provisions, Treasury and the IRS are considering whether for those employees the employer could file and furnish only the return required under section 6055 and include a code on the employees' Forms W-2.

Comments are requested on other ways to simplify and combine reporting.

Section 6055(b)(2)(A) requires that reporting for coverage under a group health plan include the employer's EIN. A commenter noted that a foreign employer may provide minimum essential coverage but may not have an EIN. Comments are requested on rules for reporting by foreign employers without EINs that sponsor self-insured plans and on any other issues specific to reporting coverage provided by foreign employers.

The proposed regulations provide that the executive department or agency of a governmental unit that provides coverage under a government-sponsored program (within the meaning of section 5000A(f)(1)(A)) is responsible for reporting under section 6055. For example, the Department of Defense is responsible for reporting coverage under the TRICARE program. The proposed regulations identify the State agency that administers the Medicaid or CHIP program, rather than the Department of Health and Human Services, as the reporting entity for these programs. Additionally, under the proposed regulations, the responsible government department or agency, and not the issuer, is the reporting entity for coverage under a government-sponsored program provided through a health insurance issuer (such as some Medicaid, CHIP, and Medicare programs). Comments are requested on issues specific to reporting coverage under government-sponsored programs.

Section 5000A(f)(1)(E) provides that the Secretary of Health and Human Services (HHS), in coordination with the Secretary of the Treasury, may recognize other health benefits coverage as minimum essential coverage. On July 1, 2013, HHS published final regulations designating certain coverage as minimum essential coverage and outlining substantive and procedural requirements that other types of coverage must fulfill to be recognized as minimum essential coverage. Patient Protection and Affordable Care Act: Exchange Functions: Eligibility for Exemptions; Miscellaneous Minimum Essential Coverage Provisions, 78 FR 39494 (HHS MEC regulations). These regulations designate as minimum essential coverage (1) self-funded student health coverage for plan or policy years beginning on or before December 31, 2014, (2) Refugee Medical Assistance supported by the Administration for Children and Families, (3) Medicare Advantage plans, and (4) State high risk pools for plan or policy years beginning on or before December 31, 2014.

The proposed rule that designates the government department or agency as the reporting entity for coverage under a government-sponsored program provided through a health insurance issuer applies to Medicare Advantage plans. Comments are requested on appropriate rules for identifying the reporting entity for other arrangements recognized as minimum essential coverage under section 5000A(f)(1)(E).

The proposed regulations provide that the section 6055 information return must include the name of each individual enrolled in minimum essential coverage and the name and address of the primary insured or other related person (for example, a parent or spouse) who submits the application for coverage (the responsible individual). The proposed regulations use the term responsible individual rather than the term primary insured because minimum essential coverage may not be insured coverage (for example, health coverage provided by the Department of Veterans Affairs). The return also must report the TIN and months of coverage for each individual who is covered under the policy or program and other information specified in forms, instructions, or published guidance, see §§ 601.601(d) and 601.602. For employer-provided coverage, the proposed regulations require reporting the name, address, and EIN of the employer maintaining the plan and whether coverage was enrolled in through the SHOP.

As part of the effort to minimize the cost and administrative steps associated with the reporting requirements, the proposed regulations do not require reporting information that would not be needed by individual taxpayers or the IRS for purposes of administering the individual shared responsibility provisions or the credit for small employers. Accordingly, the proposed regulations do not require reporting the portion of the premium paid by an employer, which the IRS does not need to determine if an individual is covered by minimum essential coverage. The proposed regulations require reporting the months of coverage rather than the specific dates of coverage, because minimum essential coverage applies month by month. The proposed regulations do not require reporting the amount of any cost-sharing reductions, which are not administered by the IRS. Finally, the proposed regulations do not require reporting the amount of advance payments or on coverage in a qualified health plan in the individual market enrolled in through an Exchange, since in both cases this information is reported to the IRS and provided to individuals by the Exchanges under section 36B(f)(3).

Health insurance issuers and employers with self-funded plans expressed concern that they do not typically collect TINs from dependents covered under their policies and that they may have difficulty obtaining TINs for some covered individuals. Other commenters suggested allowing alternative means of identifying individuals, such as unique enrollee identification numbers similar to the method used by the Massachusetts Health Connector (the State-based exchange), or allowing reporting without TINs for individuals who enroll in coverage but decline to provide a TIN. Some commenters suggested simplifying reporting requirements for dependents or providing alternatives in reporting TINs for new beneficiaries and others who may not provide TINs at the time of enrollment.

The proposed regulations adopt TIN reporting, consistent with the statute. Section 6055 reporting allows individuals to confirm their coverage and the IRS to verify that coverage without the need to contact the individuals. The use of TINs to cross-check individuals against coverage months is the most efficient way for individuals and the IRS to avoid the need for follow-up. Accordingly, covered individuals have an interest in providing TINs to reporting entities.

Federal tax records for individuals for all purposes are maintained by TIN and individual taxpayers identify themselves on their returns by TIN. Establishing another method of identifying individuals for sections 5000A and 6055 purposes would require the IRS to create, and taxpayers to adapt to, an entire parallel identification system solely for this purpose.

While section 6055 and the proposed regulations require TINs for administering section 5000A, reporting entities that make reasonable efforts to collect TINs but do not receive them will not be subject to penalties under sections 6721 and 6722 for failure to timely and accurately report. In particular, section 6055 reporting is governed by the same procedures, limitations, and protections as other information reporting that requires obtaining and reporting TINs. Section 6724 and the regulations under that section waive penalties on reporting entities for a reasonable failure to include correct TIN information on a return or statement, including those required under section 6055. Penalties are waived if the reporting entity demonstrates that it acted in a responsible manner both before and after the failure occurred, and that the failure was due to significant mitigating factors or events beyond the reporting entity's control. In general, a reporting entity acts responsibly in attempting to solicit a TIN if after an initial, unsuccessful request for a TIN (for example, at the time of enrollment), the reporting entity makes two consecutive annual TIN solicitations. No section 6724 penalty is imposed unless the reporting entity fails to make the two additional solicitations. Accordingly, section 6055 reporting entities will not be unduly penalized for failing to report a TIN.

As a backstop to reporting a TIN, the proposed regulations allow reporting entities to report date of birth if a TIN is not available. This alternative should not be used, however, unless the reporting entity has made reasonable efforts to obtain the information by requesting that a covered individual provide the TIN.

A commenter requested that the proposed regulations provide rules authorizing reporting entities to request TINs. This authority exists under section 6109(a)(2) and § 301.6109-1(b)(1) of the Procedure and Administration Regulations, which require individuals to furnish TINs to persons that must file information returns.

A commenter noted that issuers and employers may have difficulty obtaining overseas addresses for individuals living abroad. The proposed regulations provide that only the last known address for the responsible individual must be reported.

For purposes of section 5000A, an individual who has coverage on any day in a month is treated as having minimum essential coverage for the entire month. See proposed § 1.5000A-1(b) (78 FR 7314). As a result, the specific coverage dates are not necessary for administering and complying with rules relating to minimum essential coverage. Accordingly, the proposed regulations do not require reporting of the specific dates of coverage. Instead, the proposed regulations generally require reporting of the months during which an individual is treated as having minimum essential coverage.

A commenter noted that coverage dates may be inaccurate because coverage may be terminated or reinstated after the reporting date for periods occurring before the reporting date. Under section 6724 and the regulations under that section, the IRS may waive penalties if there is reasonable cause for the failure to correct an information return for retroactive terminations or reinstatements that are determined after the calendar year in which coverage was terminated or reinstated.

A commenter recommended permitting separate returns or creating special forms to report coverage for individuals who change their coverage during the year to a different health plan with the same issuer. Although the proposed regulations do not adopt a rule addressing this situation, additional procedures that are responsive to this comment may be provided in IRS forms and instructions, see § 601.602.

A commenter noted that employers face challenges in determining coverage dates for employees and dependents, including seasonal and temporary workers whose term of employment changes during the year. The commenter recommended that the rules allow reporting an individual's enrollment in minimum essential coverage as of a fixed date each year to accommodate an employer's administrative, payroll, and recordkeeping procedures. The individual responsibility payment under section 5000A applies to individuals on a monthly basis, so reporting based on one day during the year would not be sufficient. Additionally, varying reporting dates would be difficult to administer and would produce information less useful to taxpayers, who generally file their tax returns and must determine their coverage based on a calendar year. Accordingly, the proposed regulations do not adopt this suggestion. Comments are welcome on potential alternative ways to address the challenges associated with determining coverage dates when employment changes.

A commenter asked whether an employer and an issuer must coordinate section 6055 reporting for an employer-sponsored group health plan that consists of an insured high-deductible health plan (HDHP) and additional health benefits provided through a contribution to a health savings account. Health savings accounts are not minimum essential coverage, and therefore section 6055 reporting is not required for them. Additionally, the proposed regulations provide that reporting is not required for arrangements such as health reimbursement arrangements that supplement minimum essential coverage.

The proposed regulations provide that the return under section 6055 may be made on Form 1095-B or another form the IRS designates, or on a substitute form. A substitute form must comply with revenue procedures or other published guidance, see § 601.601(d)(2), that apply to substitute forms. The proposed regulations require that information returns be submitted to the IRS with a transmittal form, Form 1094-B. In accordance with usual procedure, these forms will be made available in draft form at a later date.

The proposed regulations provide for reporting entities to file the return and transmittal form on or before February 28 (or March 31 if filed electronically) of the year following the calendar year in which they provided minimum essential coverage. Commenters suggested that the proposed regulations provide different reporting deadlines for fiscal year health plans to avoid calendar year reporting of data from multiple plan years. Since most individuals file calendar year returns, permitting fiscal year reporting would interfere with return preparation and processing for individuals potentially subject to the section 5000A individual shared responsibility payment. Therefore, the proposed regulations do not adopt this comment.

Commenters recommended permitting electronic reporting under section 6055. Section 6011(e) and § 301.6011-2 require high-volume filers (those who file 250 or more returns during the calendar year) to file electronically. The proposed regulations provide that these electronic filing requirements apply to information returns under section 6055, but do not limit electronic filing to high-volume filers. Accordingly, any reporting entity may file electronically under section 6055.

As discussed earlier in this preamble, applicable large employers that provide minimum essential coverage on a self-insured basis are subject to the reporting requirements of sections 6055 and 6056, as well as the requirement under section 6051 to file Form W-2, Wage and Tax Statement, showing wages paid to employees and taxes withheld. Notices 2012-32 and 2012-33 requested comments on how to minimize duplication in reporting under these provisions.

Several commenters recommended that the regulations allow combined information reporting under sections 6055 and 6056 for applicable large employers that sponsor self-insured group health plans and must report under both sections. Other commenters recommended that employers be permitted to use a single information return to report under sections 6051 and 6055, for example by adding the information required under section 6055 to Form W-2.

As discussed elsewhere in this preamble, these proposed regulations seek to simplify reporting and reduce duplication through a number of approaches. In particular, the proposed regulations provide that issuers need not report under section 6055 for individual market qualified health plans enrolled in through an Exchange. The proposed regulations also provide relief from the requirement to report several items of information that are unnecessary for tax administration or are available from other reporting, and they allow the use of substitute forms and statements to individuals, which, under future guidance, may include furnishing a single substitute statement to covered individuals for both sections 6055 and 6056.

Accordingly, while the rules for section 6055 reporting in the proposed regulations do not assume full combined reporting under sections 6055, 6056 and 6051, they reflect other means of avoiding duplication and simplifying reporting. We continue to seek comments on other ways to streamline the reporting methods that would be permissible under the statute.

The proposed regulations provide that a reporting entity must furnish a statement to the covered individual providing the policy number and the name, address, and a contact number for the reporting entity, and the information required to be reported to the IRS. The proposed regulations permit substitute statements that include the information required to be shown on the return filed with the IRS and comply with applicable requirements in published guidance relating to substitute statements. See § 601.601(d)(2) of this chapter. A substitute statement that includes the information required by both sections 6055 and 6056 in a single statement may be permitted by future guidance.

Commenters recommended permitting electronic delivery of statements to individuals. A commenter suggested that the regulations provide rules for electronic delivery of statements to individuals that are similar to the rules under section 2715 of the Public Health Service Act for providing a summary of benefits and coverage. The commenter suggested that these reporting regulations permit the furnishing of one electronic statement per home address rather than multiple statements per household. Another commenter requested guidance on procedures when an email notice is returned due to an incorrect address.

The proposed regulations permit electronic delivery of statements to individuals if the recipient consents. In response to concerns about the need to furnish a statement to each individual, the proposed regulations also permit furnishing only one statement per address. Comments are requested on whether and under what circumstances the regulations should direct reporting entities to provide a statement to another individual (who may, for example, need the statement to determine his or her tax liability).

Commenters expressed concern about protecting the privacy of individuals who provide TINs and about disclosure of the TINs to other parties. The regulations provide that section 6055 information reporting will be included in the IRS truncated TIN program. Accordingly, to protect the privacy of covered individuals, statements furnished to individuals under section 6055 are not required to disclose their complete TINs.

A commenter recommended that the statement to individuals should explain minimum essential coverage and advise taxpayers that they may be subject to a penalty for months in which they do not have minimum essential coverage. The proposed regulations do not include rules addressing educational content in the statement. However, information on the section 5000A individual shared responsibility payment may be included in IRS forms, instructions, and publications.

Commenters recommended providing procedures for correcting errors in reporting and a safe harbor from penalties for an issuer that fails to report information that another entity fails to provide to the issuer. The proposed regulations provide that the provisions of section 6724(a) providing relief for a failure due to reasonable cause apply to reporting under section 6055. Because the procedures described in § 301.6721-1(b), which provide for reduced penalties for reporting errors that are timely corrected, will apply to corrections of errors in reporting under section 6055 that are not due to reasonable cause, the proposed regulations do not prescribe separate rules for correcting errors.

These regulations are proposed to apply for calendar years beginning after December 31, 2014. Consistent with Notice 2013-45, reporting entities will not be subject to penalties for failure to comply with the section 6055 reporting requirements for coverage in 2014, which would have resulted in reporting in 2015 and furnishing statements to covered individuals in 2015. Accordingly, a reporting entity will not be subject to penalties if it first reports beginning in 2016 for 2015, including the furnishing of statements to covered individuals in 2016 with respect to 2015. Taxpayers are encouraged, however, to voluntarily comply with section 6055 information reporting for minimum essential coverage provided in 2014 by applying these regulations once finalized.

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 has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that the information collection required under these regulations is imposed under section 6055. Consistent with the statute, the proposed regulations require a person that provides minimum essential coverage to an individual to file a return with the IRS reporting certain information and to furnish a statement to the responsible individual who enrolled an individual or family in the coverage. These regulations primarily provide the method of filing and furnishing returns and statements under section 6055. Moreover, the proposed regulations attempt to minimize the burden associated with this collection of information by limiting reporting to the information that the IRS will use to verify minimum essential coverage and administer tax credits.

Based on these facts, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

Pursuant to section 7805(f) of the Code, 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 these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the ADDRESSES heading. The IRS and Treasury Department request comments on all aspects of the proposed rules. All comments will be available at www.regulations.gov or upon request.

A public hearing has been scheduled for November 19, 2013, at 10 a.m., in the auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. All visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written or electronic comments by November 8, 2013, an outline of topics to be discussed and the time to be devoted to each topic by (signed original and eight (8) copies by November 8, 2013. A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

The principal authors of these proposed regulations are Andrew Braden and Frank W. Dunham III of the Office of Associate Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and the Treasury Department participated in the development of the regulations.

Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as follows:

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of information should be received by November 8, 2013. Comments are specifically requested concerning:

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

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 these proposed regulations is in proposed regulation §§ 301.6011-9, 301.6056-1, and 301.6056-2. This information will be used by the IRS to verify compliance with the return and employee statement requirements under section 6056 for purposes of section 4980H, and with the eligibility requirements for the premium tax credit. This information will be used to determine whether the information has been reported and calculated correctly for purposes of section 4980H and section 6056, and whether claims for the premium tax credit are correct. The likely respondents are employers that are applicable large employers, as defined under section 4980H(c)(2).

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.

Sections I through V of the preamble (“Background”) describe the statutory provisions governing the information reporting requirements, as well as related statutory provisions. Sections VI through XIII of the preamble (“Explanation of Provisions and Summary of Comments”) describe and explain how these regulations propose to implement the statutory provisions of section 6056 and include a discussion of a variety of potential simplified reporting methods that are under consideration. As is typical with regulations on information reporting, these proposed regulations refer generally to additional information that may be required under the applicable forms and instructions. Sections IX.B and C of this preamble set forth the specific data elements that Treasury and the IRS anticipate will be included with the reporting, including the data elements that Treasury and the IRS anticipate will be provided through the use of an indicator code.

Section 6056  1 requires applicable large employers, as defined in section 4980H(c)(2), to file returns at the time prescribed by the Secretary with respect to each full-time employee and furnish a statement to each full-time employee by January 31 of the calendar year following the calendar year for which the return must be filed. Section 6056 specifies certain information that must be reported on the section 6056 return and related statement, and authorizes the Secretary to require additional information and determine the form of the return. Section 6056 is effective for periods beginning after December 31, 2013; however, Notice 2013-45 (2013-31 IRB 116) provides transition relief for 2014 from the section 6056 information reporting requirements (as well as the section 6055 information reporting requirements relating to the section 5000A individual shared responsibility provisions and the section 4980H employer shared responsibility provisions).

One of the purposes of section 6056 reporting is to assist with the administration of the employer shared responsibility provisions added by the Affordable Care Act as section 4980H of the Code. Section 4980H imposes an assessable payment on applicable large employers if certain requirements relating to the provision of health care coverage to full-time employees are not met and one or more full-time employees claim a premium tax credit. On December 28, 2012, Treasury and the IRS released proposed regulations under section 4980H. The proposed regulations under section 4980H were published in the Federal Register on January 2, 2013 (REG-138006-12 [78 FR 218]). Section 4980H is effective for months after December 31, 2013; however, Notice 2013-45, issued on July 9, 2013, provides transition relief for 2014 from the section 4980H employer shared responsibility provisions.

The reporting requirements under section 6056 apply only to employers that are subject to section 4980H (which the statute refers to as “applicable large employers”). Section 4980H(c)(2) defines the term “applicable large employer” as, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. Generally, for purposes of determining applicable large employer status, a full-time employee includes any employee who was employed on average at least 30 hours of service per week and any full-time equivalents determined pursuant to section 4980H(c)(2)(E). All employers treated as a single employer under section 414(b), (c), (m), or (o) are treated as one employer for purposes of determining applicable large employer status. Section 4980H contains rules for determining whether an employer qualifies as an applicable large employer, including special rules addressing an employer's first year of existence and predecessor and successor employers. See section 4980H(c)(2)(C) and proposed § 54.4980H-2. Proposed regulations under section 4980H provide guidance on determining applicable large employer status and determining full-time employee status, including defining and providing rules for calculating hours of service. See proposed §§ 54.4980H-1(a)(21) (definition of hours of service), 54.4980H-2 (determination of applicable large employer status), and 54.4980H-3 (determination of full-time employee status).

Section 6056 reporting will also be used for the administration of the premium tax credit, which was added by the Affordable Care Act as section 36B of the Code. Section 36B allows an advanceable and refundable premium tax credit to help individuals and families afford health insurance coverage purchased through an Affordable Insurance Exchange (Exchange). An employee is not eligible for a premium tax credit to subsidize the cost of Exchange coverage if the employee is offered affordable coverage under an employer-sponsored plan that provides minimum value, or if the employee enrolls in an employer-sponsored plan. For this purpose, an employer-sponsored plan is affordable if the employee's required contribution for the lowest-cost self-only minimum value coverage offered does not exceed 9.5% of the employee's household income. Thus, an employee (and in the case of an employer-sponsored plan that offers coverage to an employee's spouse or dependents, the employee's spouse and dependents) who does not accept an offer of affordable minimum value coverage under an employer-sponsored plan and who purchase coverage on an Exchange may not be eligible for a premium tax credit. Individuals and the IRS will use the information on the cost of the lowest-cost employer-sponsored self-only coverage that provides minimum value to verify the individual's eligibility for the premium tax credit. 2

In addition, the Affordable Care Act added section 5000A to the Code. Section 5000A provides nonexempt individuals with a choice: maintain minimum essential coverage for themselves and any nonexempt family members, or include an additional payment with their Federal income tax return. Section 5000A(f)(1)(B) provides that minimum essential coverage includes coverage under an eligible employer-sponsored plan. Under section 5000A(f)(2), an eligible employer-sponsored plan is, with respect to an employee, a group health plan or group health insurance coverage offered by an employer to the employee that is (1) a governmental plan, within the meaning of section 2791(d)(8) of the Public Health Service Act (42 U.S.C. 300gg-91(d)(8)), or (2) any other plan or coverage offered in the small or large group market within a State. An eligible employer-sponsored plan also includes a grandfathered health plan, as defined in section 5000A(f)(1)(D), offered in a group market. Group health plans within the meaning of section 1301(b)(3) of the Affordable Care Act (42 U.S.C. 18021(b)(3)) include both insured health plans and self-insured health plans. Accordingly, a self-insured group health plan is an eligible employer-sponsored plan. See the Questions and Answers on the Individual Shared Responsibility Provision available on the IRS Web site at www.irs.gov.

The Affordable Care Act also added section 6055 to the Code, providing for information reporting for the administration of section 5000A. The section 6055 reporting requirements are effective for years beginning after December 31, 2013; however, Notice 2013-45 provides transition relief for 2014 from the section 6055 reporting requirements. Section 6055 requires information reporting by any person that provides minimum essential coverage to an individual during a calendar year, including coverage provided under an eligible employer-sponsored plan, and the furnishing to taxpayers of a related statement covering each individual listed on the section 6055 return. The information reported under section 6055 can be used by individuals and the IRS to verify the months (if any) in which they were covered by minimum essential coverage. Treasury and the IRS are issuing proposed regulations under section 6055 (REG-132455-11) concurrently with these proposed regulations.

Section 6056 directs an applicable large employer (within the meaning of section 4980H(c)(2)) to file a return with the IRS that reports for each employee who was a full-time employee for one or more months during the calendar year certain information described in section 6056(b) about the health care coverage the employer offered to that employee (or, if applicable, that the employer did not offer health care coverage to that employee). Section 6056 also requires such employers to furnish by January 31 of the calendar year following the calendar year for which the return must be filed a related statement described in section 6056(c) to each full-time employee for whom information is required to be included on the return.

Section 6056(b) describes the return required to be filed with the IRS under section 6056. It states that a return meets the requirements of section 6056 if the return is in such form as the Secretary may prescribe and contains (1) the name, date, and employer's employer identification number (EIN), (2) a certification as to whether the employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), (3) the number of full-time employees for each month during the calendar year, and (4) the name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which that employee (and any dependents) were covered under any such health benefits plans.

If the applicable large employer certifies that it offered to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), section 6056 specifies that the return must also include (1) the length of any waiting period (as defined in section 2701(b)(4) of the Public Health Service Act (42 U.S.C. 300gg(b)(4)) with respect to that coverage, 3 (2) the months during the calendar year for which coverage under the plan was available, (3) the monthly premium for the lowest cost option in each of the enrollment categories under the plan, and (4) the employer's share of the total allowed costs of benefits provided under the plan. Section 6056(b)(2)(F) provides that the return must include such other information as the Secretary may require. See section IX of this preamble for a discussion of the information proposed to be included in these proposed regulations as part of the reporting requirements, as well as additional information that may be required under the applicable forms and instructions, as is typical with regulations on information reporting.

Section 6056(c) requires that every person required to make a return under section 6056(a) furnish to each full-time employee whose name is required to be set forth in the return a written statement showing (1) the name and address of the person required to make that return and the phone number of the information contact for that person, and (2) the information required to be shown on the return with respect to that individual. The written statement must be furnished on or before January 31 of the year following the calendar year for which the return under section 6056(a) was required to be made.

As discussed in section IX.B of this preamble, the approach contemplated by these proposed regulations would give effect to these statutory provisions by limiting the information elements listed and other information that would be provided annually to those that are needed by individual taxpayers to accurately complete their tax returns or by the IRS to effectively administer other provisions of the Affordable Care Act. Treasury and the IRS seek comments on ways to achieve these goals efficiently and effectively.

Section 6056(d) provides that to the maximum extent feasible, the Secretary may permit combined reporting under section 6056, section 6051 (employers filing and furnishing Forms W-2, Wage and Tax Statement, with respect to employees) or section 6055, and in the case of an applicable large employer offering health insurance coverage of a health insurance issuer, the employer may enter into an agreement with the issuer to include information required under section 6056 with the return and statement required to be provided by the issuer under section 6055.

Section 6056(e) generally permits governmental units, or any agency or instrumentality thereof, to designate a person to comply with the section 6056 requirements on behalf of the governmental unit, agency or instrumentality.

Under section 6724(d), as amended by the Affordable Care Act, an applicable large employer that fails to comply with the filing and statement furnishing requirements of section 6056 may be subject to penalties for failure to file a correct information return (section 6721) and failure to furnish correct payee statements (section 6722). However, these penalties may be waived if the failure is due to reasonable cause and not to willful neglect (section 6724).

Notice 2012-32 (2012-20 IRB 910) requested public comments on issues to be addressed in regulations under section 6055. Notice 2012-33 (2012-20 IRB 912) requested public comments on issues to be addressed in regulations under section 6056. In developing these proposed regulations and the proposed regulations under section 6055, including the potential further simplified reporting methods described in section XI of this preamble, Treasury and the IRS have considered the written comments submitted in response to these notices and other written comments received.

In addition, consistent with Notice 2013-45, Treasury and the IRS have engaged in further dialogue with stakeholders in an effort to simplify section 6056 and section 6055 reporting consistent with effective implementation of the law. This process has included discussions with stakeholders representing a wide range of interests to assist in the consideration of effective information reporting rules that will be as streamlined, simple, and workable as possible. The effort to develop these proposed information reporting rules has reflected a considered balancing of the importance of (1) providing individuals the information to complete their tax returns accurately, including with respect to the individual responsibility provisions and eligibility for the premium tax credit, (2) minimizing cost and administrative tasks for the reporting entities and individuals, and (3) providing the IRS with information to use for effective and efficient tax administration. As noted elsewhere in this preamble, the proposed regulations will be the subject of public comments, including comments that are specifically invited regarding particular issues identified in the preamble.

The Explanation of Provisions that follows (Sections VII through XIII of the preamble) describes the regulatory provisions proposed to implement the statutory reporting provisions described in the Background portion of the preamble. Specifically, this section includes the following:

These proposed regulations under section 6056 use a number of terms that are defined in other Code provisions or regulations. For example, section 6056(f) provides that any term used in section 6056 that is also used in section 4980H shall have the same meaning given to the term by section 4980H. Relevant terms include the following:

The proposed regulations provide that the term applicable large employer has the same meaning as in section 4980H(c)(2) and any applicable guidance. See proposed § 54.4980H-1(a)(4).

All persons treated as a single employer under section 414(b), (c), (m), or (o) are treated as one employer for purposes of determining applicable large employer status. 4 Under the proposed regulations, the section 6056 filing and furnishing requirements are applied separately to each person comprising the applicable large employer consistent with the approach taken in the section 4980H proposed regulations (REG-138006-12 [78 FR 218]) with respect to the determination of any assessable payment under section 4980H. The person or persons that comprise the applicable large employer are referred to as ALE members. The proposed regulations define the term ALE member as a person that, together with one or more other persons, is treated as a single employer that is an applicable large employer. For this purpose, if a person, together with one or more other persons, is treated as a single employer that is an applicable large employer on any day of a calendar month, that person is an ALE member for that calendar month. This definition is the same as the definition provided in the proposed regulations under section 4980H. See § 54.4980H-1(a)(5).

The proposed regulations provide that the term dependent has the same meaning as in section 4980H(a) and (b) and any applicable guidance. See proposed § 54.4980H-1(a)(11).

The proposed regulations provide that the term eligible employer-sponsored plan has the same meaning as in section 5000A(f)(2) and any applicable guidance.

The proposed regulations provide that the term full-time employee has the same meaning as in section 4980H(c)(4) and any applicable guidance as applied to the determination and calculation of liability under section 4980H(a) and (b) with respect to any individual employee. See proposed § 54.4980H-1(a)(18).

The proposed regulations define the term governmental unit as the government of the United States, any State or political subdivision thereof, or any Indian tribal government (as defined in section 7701(a)(40)) or subdivision of an Indian tribal government (as defined in section 7871(d)). The proposed regulations do not define the term agency or instrumentality of a governmental unit, but rather reserve on the issue.

The proposed regulations provide that the term minimum essential coverage has the same meaning as in section 5000A(f)(1) and any applicable guidance.

The proposed regulations provide that the term minimum value has the same meaning as in section 36B and any applicable guidance. See proposed § 1.36B-6.

The proposed regulations provide that the term person has the same meaning as provided in section 7701(a)(1) and the regulations thereunder.

As discussed earlier in section VII.B of this preamble, an ALE member is any person that is an applicable large employer or a member of an aggregated group (determined under section 414(b), 414(c), 414(m) or 414(o)) that is determined to be an applicable large employer. Under the proposed regulations, the section 6056 filing and statement furnishing requirements apply on a member-by-member basis to each ALE member, even though the determination of whether an entity is an applicable large employer is made at the aggregated group level. For example, if an applicable large employer is comprised of a parent corporation and 10 wholly-owned subsidiary corporations, there are 11 ALE members (the parent corporation and each of the 10 subsidiary corporations). Under the proposed regulations, each ALE member with full-time employees, rather than the group of entities that comprise the applicable large employer, is the entity responsible for filing and furnishing statements with respect to its full-time employees under section 6056. This is consistent with the manner in which any potential assessable payments under section 4980H will be calculated and administered.

Treasury and the IRS understand that ALE members may benefit from the assistance of a third party in preparing these returns, for example a third-party plan administrator or a related ALE member tasked with preparing the returns for all the members of that applicable large employer. For a discussion of how these third parties may help an ALE member fulfill its reporting obligations, see section XII.C of this preamble.

Whether an employee is a full-time employee is determined under section 4980H(c)(4) and any applicable guidance. See proposed §§ 54.4980H-1(a)(18) and 54.4980H-3. This includes any full-time employees who may perform services for multiple ALE members within the applicable large employer. 5 Under the proposed regulations, only ALE members with full-time employees are subject to the filing and statement furnishing requirements of section 6056 (and only with respect to their full-time employees).

Generally, the ALE member providing the section 6056 reporting is the common law employer. Disregarded entities are treated for section 4980H purposes, and therefore for section 6056 purposes, similarly to the way they are treated for employment tax purposes, so that the reporting requirements under section 6056 are imposed on a disregarded entity that is an applicable large employer, and not on its owner. 6

This section describes the general method for reporting to the IRS and furnishing statements to employees pursuant to section 6056 that is set forth in the proposed regulations. This general method would be available for all employers and with respect to reporting for all employees. Treasury and the IRS are also considering certain simplified reporting methods, such as using codes on Form W-2 to report whether full-time employees, spouses, and their dependents have been offered coverage, which in some cases may be available only with respect to certain groups of employees. In those cases, with respect to those employees for whom the simplified reporting method was not available, the employer would use the general method. In any case, however, the simplified reporting methods under consideration would be optional so that an employer could choose to report for all of its full-time employees using the general method described in these proposed regulations even if a simplified reporting method is available. For a further description of the simplified reporting methods under consideration, see section XI of this preamble.

In accordance with section 6056, the proposed regulations provide for every ALE member to file a section 6056 return with respect to its full-time employees. Similar to the separate Form W-2, Wage and Tax Statement, filed by an employer for each employee and the Form W-3, Transmittal of Wage and Tax Statements, filed as a transmittal form for the Forms W-2, the proposed regulations provide that a separate return is required for each full-time employee, accompanied by a single transmittal form for all of the returns filed for a given calendar year.

As a general method, the proposed regulations further provide that the section 6056 return may be made by filing Form 1094-C (a transmittal) and Form 1095-C (an employee statement), or other forms the IRS designates. Alternatively, the section 6056 return may be made by filing other form(s) designated by the IRS or a substitute form. Under the proposed regulations, a substitute form must include all of the information required to be reported on Forms 1094-C and 1095-C or other forms the IRS designates and comply with applicable revenue procedures or other published guidance relating to substitute returns. See § 601.601(d)(2). In accordance with usual procedures, these forms will be made available in draft form at a later date.

The proposed regulations provide that every ALE member will report on the section 6056 information return the following information: (1) The name, address, and employer identification number of the ALE member, the name and telephone number of the applicable large employer's contact person, and the calendar year for which the information is reported; (2) a certification as to whether the ALE member offered to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A(f)(2)), by calendar month; (3) the number of full-time employees for each month during the calendar year; (4) for each full-time employee, the months during the calendar year for which coverage under the plan was available; (5) for each full-time employee, the employee's share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month; and (6) the name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer-sponsored plan. In addition, the proposed regulations provide, as with other information reporting, that the section 6056 information return may request such other information as the Secretary may prescribe or as may be required by the form or instructions.

As part of the effort to minimize the cost and administrative steps associated with the reporting requirements, Treasury and the IRS have sought to identify any information that would not be relevant to individual taxpayers or the IRS for purposes of administering the premium tax credit and employer shared responsibility provisions or that is already provided at the same time through other means. Specifically, the proposed regulations do not require the reporting of the following four data elements (a more detailed description of the data elements that Treasury and the IRS anticipate will be included is provided later in this section of the preamble).

First, the proposed regulations do not require the reporting of the length of any waiting period, because the length of the waiting period is not relevant for administration of the premium tax credit or employer shared responsibility provisions or for an individual in preparing his or her tax return. However, Treasury and the IRS anticipate that information will be requested, using an indicator code, regarding whether an employee's coverage was not effective during certain months because of a waiting period since this information is relevant to the administration of the employer shared responsibility provisions.

Second, the proposed regulations do not require reporting of the employer's share of the total allowed costs of benefits provided under the plan because this information also is not relevant to the administration of the premium tax credit and the employer shared responsibility provisions. In contrast, whether the employer-sponsored plan provides minimum value coverage is relevant information; accordingly, Treasury and the IRS anticipate that information will be requested, also using an indicator code.

Third, the proposed regulations do not require the reporting of the monthly premium for the lowest-cost option in each of the enrollment categories (such as self-only coverage or family coverage) under the plan. Rather, because only the lowest-cost option of self-only coverage offered under any of the enrollment categories for which the employee is eligible is relevant to the determination of whether coverage is affordable (and thus to the administration of the premium tax credit and employer shared responsibility provisions), that is the only cost information proposed to be requested.

Fourth, the proposed regulations do not require the reporting of the months, if any, during which any of the employee's dependents were covered under the plan. Instead, the proposed regulations require reporting only regarding whether the employee was covered under a plan. This is because information relating to the months during which any of the employee's dependents were covered under the plan will be reported on the section 6055 information return associated with that employee's coverage.

Under the proposed regulations, each ALE member must file and furnish the section 6056 return and employee statement using its EIN. Any ALE member that does not have an EIN may easily apply for one online, by telephone, fax, or mail. See Publication 1635, Employer Identification Number, for further information at www.irs.gov .

Having considered the information required by section 6056 and the information needed to verify employer-sponsored coverage and to administer the employer shared responsibility provisions under section 4980H and the premium tax credit, Treasury and the IRS anticipate that as part of the general method for section 6056 reporting, the IRS will need certain information not specifically set forth under section 6056 but authorized under section 6056(b)(2)(F). Accordingly, the proposed regulations provide, in a manner similar to other information reporting guidance, that additional information may be prescribed by guidance, forms, or instructions. Treasury and the IRS are also considering potential simplified reporting methods that in certain situations may permit an employer to provide less information than all data elements required under the general method for reporting. See section XI of this preamble.

Under the general method of section 6056 reporting, the following information is expected to be requested, through the use of indicator codes for some information, as part of the section 6056 return (as well as an indication of how many individual employee statements are being submitted):

(1) Information as to whether the coverage offered to employees and their dependents under an employer-sponsored plan meets minimum value and whether the employee had the opportunity to enroll his or her spouse in the coverage;

(2) the total number of employees, by calendar month;

(3) whether an employee's effective date of coverage was affected by a waiting period;

(4) if the ALE member was not conducting business during any particular month, by month;

(5) if the ALE member expects that it will not be an ALE member the following year;

(6) information regarding whether the ALE member is a person that is a member of an aggregated group, determined under section 414(b), 414(c), 414(m), or 414(o), and, if applicable, the name and EIN of each employer member of the aggregated group constituting the applicable large employer on any day of the calendar year for which the information is reported;

(7) if an appropriately designated entity is reporting on behalf of an ALE member that is a governmental unit or any agency or instrumentality thereof for purposes of section 6056, the name, address, and identification number of the appropriately designated person;

(8) if an ALE member is a contributing employer to a multiemployer plan, whether a full-time employee is treated as eligible to participate in a multiemployer plan due to the employer's contributions to the multiemployer plan; and

(9) if the administrator of a multiemployer plan is reporting on behalf of the ALE member with respect to the ALE member's full-time employees who are eligible for coverage under the multiemployer plan, the name, address, and identification number of the administrator of the multiemployer plan (in addition to the name, address, and EIN of the ALE member already required under the proposed regulations).

In an effort to simplify and streamline the section 6056 reporting process even under the general section 6056 reporting rules, Treasury and the IRS anticipate that certain of the information described above as applied to a particular full-time employee will be reported to the IRS, and furnished to the full-time employee, through the use of a code rather than by providing specific or detailed information. Specifically, it is contemplated that the following information will be reported with respect to each full-time employee for each calendar month using a code:  7

(1) minimum essential coverage meeting minimum value was offered to:

a. the employee only;

b. the employee and the employee's dependents only;

c. the employee and the employee's spouse only; or

d. the employee, the employee's spouse and dependents;

(2) coverage was not offered to the employee and:

a. the employee was in a waiting period that complies with the requirements of PHS Act section 2708 and its implementing regulations;

b. the employee was not a full-time employee;

c. the employee was not employed by the ALE member during that month; or

d. no other code or exception applies;

(3) coverage was offered to the employee for the month although the employee was not a full-time employee during that month; and

(4) the ALE member met one of the affordability safe harbors under proposed § 54.4980H-5(e)(2) with respect to the employee.

It is anticipated that if multiple codes apply with respect to a full-time employee for a particular calendar month, the reporting format will accommodate the necessary codes.

Under the general section 6056 reporting rules set forth in the proposed regulations, every ALE member required to file a section 6056 return must furnish a section 6056 employee statement to each of its full-time employees that includes the name, address and EIN of the ALE member and the information required to be shown on the section 6056 return with respect to the full-time employee. The section 6056 employee statement is not required to include a copy of the transmittal form that accompanies the returns. As part of the potential simplified reporting methods Treasury and the IRS are also considering whether, in certain circumstances, other methods of furnishing information to an employee may be sufficient (for example, through the use of a code on the Form W-2). For a detailed description of these potential simplified reporting methods, see section XI of this preamble.

Some employers may wish to have the flexibility to use a substitute type of statement to provide the necessary information to full-time employees. The proposed regulations provide that the section 6056 employee statement may be made by furnishing a copy of the section 6056 return on Form 1095-C (or another form the IRS designates) or a substitute employee statement for that full-time employee. Under the proposed regulations, a substitute statement must include the information required to be shown on the section 6056 return filed with the IRS with respect to that employee and must comply with applicable revenue procedures or other published guidance relating to substitute statements. See § 601.601(d)(2). These proposed regulations provide that section 6056 employee statements filed using Form 1095-C or another form the IRS designates will be included in the proposed IRS truncated TIN program. Under this proposed program, an IRS truncated taxpayer identifying number may be used as the identifying number for an individual in lieu of the identifying number appearing on the corresponding information return filed with the IRS. See the proposed regulations on IRS Truncated Taxpayer Identification Numbers (REG-148873-09 [78 FR 913]).

The proposed regulations provide that section 6056 returns must be filed with the IRS annually, no later than February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates. This is the same filing schedule applicable to other information returns with which employers are familiar such as Forms W-2 and 1099. Because Notice 2013-45 provided transition relief for section 6056 reporting for 2014, the first section 6056 returns required to be filed are for the 2015 calendar year and must be filed no later than March 1, 2016 (February 28, 2016, being a Sunday), or March 31, 2016, if filed electronically. In addition, the regulations propose that the section 6056 employee statements be furnished annually to full-time employees on or before January 31 of the year immediately following the calendar year to which the employee statements relate. This means that the first section 6056 employee statements (meaning the statements for 2015) must be furnished no later than February 1, 2016 (January 31, 2016, being a Sunday).

In preparation for the application of the section 4980H provisions beginning in 2015, employers are encouraged to voluntarily comply for 2014 (that is, for section 6056 returns and statements filed and furnished in 2015) with the information reporting provisions (once the information reporting rules have been issued) and to maintain or expand health coverage in 2014. Real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015.

Some commenters asked for use of an alternate filing date for employers whose health plan is not a calendar year plan. While Treasury and the IRS understand that employers may collect information on a plan year basis, employees generally will need to receive their section 6056 employee statements early in the calendar year in order to have the requisite information to correctly and completely file their income tax returns reflecting any available premium tax credit. For this reason, the proposed regulations do not adopt this suggestion. However, Treasury and the IRS are considering a simplified reporting method, described in section XI of this preamble, that in certain circumstances could permit the employer to report the required information on the Form W-2 which is already being furnished to an employee on the same schedule.

These proposed regulations do not include rules regarding extensions of the time to file section 6056 returns but this topic is addressed elsewhere. Specifically, the notice of proposed rulemaking under section 6055 (REG-132455-11) includes proposed amendments to the regulations under section 6081 relating to general rules on extensions of time to file to include returns under both sections 6055 and 6056. The final section 6056 regulations are expected to cross-reference the amendments to the regulations under section 6081. These proposed regulations reserve a paragraph for this cross-reference.

Treasury and the IRS understand that electronic filing is often easier and more efficient for taxpayers, and several commenters requested that employers be permitted to file section 6056 returns electronically. The proposed regulations require electronic filing of section 6056 information returns except for an ALE member filing fewer than 250 returns during the calendar year. Each section 6056 return for a full-time employee is a separate return. Although an ALE member filing fewer than 250 returns during the calendar year may always choose to make the section 6056 returns on the prescribed paper form, that member is permitted (and encouraged) to file section 6056 returns electronically. This proposed requirement for electronic filing is the same as the current requirements for other information returns.

The proposed regulations provide that all returns are aggregated for the purpose of applying the 250-return threshold so that, for example, an ALE member required to file 150 section 6056 returns and 200 Forms W-2 will be required to electronically file section 6056 returns. A reporting entity must submit the prescribed form(s) to request authorization and obtain a Transmitter Control Code from the IRS to be able to file an information return electronically.

In addition to electronic filing, Treasury and the IRS understand that electronic methods are often a simpler and more efficient method to supply employees with the required information, and several commenters requested that employers be permitted to electronically furnish section 6056 employee statements to full-time employees. In response, the proposed regulations permit electronic furnishing of section 6056 employee statements if certain notice, consent, and hardware or software requirements are met. To provide rules for electronic furnishing with which employers are already familiar, the proposed regulations adopt by analogy the process currently in place for the electronic furnishing of employee statements (that is, Forms W-2) pursuant to section 6051 and applicable regulations.

In addition to the reporting under section 6056, two other reporting provisions provide for annual reporting with respect to certain individuals and the furnishing of statements to those individuals. Specifically, section 6051 requires employers to provide Forms W-2 reporting wages paid and taxes withheld. Section 6055 requires information reporting by any person that provides minimum essential coverage to an individual. ALE members that provide minimum essential coverage on a self-insured basis are subject to the reporting requirements of all three sections (6051, 6055 and 6056). Notices 2012-32 and 2012-33 requested comments on how to minimize duplication in reporting under these provisions.

Several commenters recommended that the regulations allow combined information reporting under sections 6055 and 6056 for applicable large employers that sponsor self-insured plans and must report under both sections. Other commenters recommended that employers be permitted to use a single information return to report under sections 6051 (Form W-2) and 6055. Some commenters suggested adding section 6055 or section 6056 reporting to Form W-2.

Because not all employers are subject to each of these three reporting requirements, independent reporting methods under each section need to be available; otherwise, employers subject to only one reporting requirement may have to expend additional effort to use a combined reporting method. Optional combined reporting therefore would require development of multiple forms for each reporting requirement (some forms for combined reporting, other forms for separate reporting), which could create administrative complexity and create confusion for employees.

In addition, any consideration of combined reporting must take into account that sections 6051, 6055 and 6056 apply to different types of entities (subject to the various reporting requirements, which differ among the Code provisions), and require reporting of different types of information. Section 6051 requires reporting of certain wage and wage-related information on an annual basis by all employers for all employees (and only employees). Section 6055 requires reporting of certain health coverage information by various entities (issuers, employers sponsoring self-insured group health plans, and governmental units) only for individuals who are actually covered (and not for individuals who are offered coverage but do not enroll), and multiple covered individuals may be included on one return. Section 6056 requires reporting of information by applicable large employers on offers of coverage that have or have not been made only to full-time employees (whether or not the offer has been accepted). Further, unlike Form W-2 reporting under section 6051, which provides annual information, both sections 6055 and 6056 require reporting some information on a monthly basis. Accordingly, the general section 6056 reporting method under the proposed regulations does not assume overall combined reporting under sections 6051, 6055, and 6056.

However, as described more fully below in section XI of this preamble, Treasury and the IRS are considering whether it may be possible to permit a type of combined reporting under sections 6051 and 6056 by providing an option to use a code on the Form W-2 in certain circumstances to provide information needed by both the employee and the IRS rather than through the use of the section 6056 employee statement (with employer-level information being provided separately). In addition, in other limited circumstances involving no-cost or very low-cost coverage provided under a self-insured group health plan, Treasury and the IRS are considering whether the employee and the IRS could rely solely on the information provided by the employer on a section 6055 return and the Form W-2 without any further information reporting under section 6056. For further discussion of these potential approaches, see section XI of this preamble.

In response to comments, Treasury and the IRS also have considered suggestions to use, for section 6055 and 6056 reporting purposes, information that employers communicate to employees about employer-sponsored coverage prior to employees' potential enrollment in Exchange coverage. These comments have observed that, under the Affordable Care Act, employers are required to provide pre-enrollment information to employees by various means, including information in the Notice of Coverage Options provided to employees pursuant to the requirements under section 18B of the Fair Labor Standards Act  8 in the Exchanges and potentially via the Employer Coverage Tool developed by the Department of Health and Human Services (HHS) that supports the application for enrollment in a qualified health plan and insurance affordability programs. 9

Treasury and the IRS have considered and coordinated with the Departments of HHS and Labor regarding the various reporting provisions with a view to identifying ways to make the entire process as effective and efficient as possible for all parties. That said, the various reports are designed for different purposes, and pre-enrollment reporting regarding anticipated employer coverage in an upcoming coverage year is unlikely to be helpful to individual taxpayers in accurately completing their tax returns more than a year later, after the coverage year. Among other issues, the pre-enrollment information may not be readily available to individuals at the time they are filing their tax returns, could be confused with the more recently received pre-enrollment information that applies to the subsequent year (not the year for which the tax return is being filed), and is in a format that does not facilitate easy transfer to the appropriate location on the Federal income tax return. Notwithstanding these challenges, Treasury and the IRS continue to work with the other Departments and stakeholders to consider approaches that might help minimize cost and administrative complexity and realize efficiencies in the reporting process.

Both sections 6055 and 6056 require employers to furnish to employees information about health care coverage. Solely for the purpose of furnishing information to employees (as opposed to filing with the IRS), Treasury and the IRS are considering whether employers sponsoring self-insured group health plans could fulfill their obligation to furnish an employee statement under both sections 6055 and 6056 through the use of a single substitute statement, within the parameters of the rules provided in revenue procedures or other published guidance relating to substitute returns. See § 601.601(d)(2) of this chapter.

In developing these regulations, Treasury and the IRS have sought to develop simplified reporting methods that will minimize the cost and administrative tasks for employers, consistent with the statutory requirements to file an information return and furnish an employee statement to each full-time employee. Comments have suggested that, at least for some employers, the collection, assembling and processing of the necessary data into an appropriate format for filing may not be necessary if the employer offers sufficient coverage to make it unlikely that the employer will be subject to an assessable payment under section 4980H because the employee will be ineligible for a premium tax credit. Treasury and the IRS have considered these comments in formulating the potential simplified reporting methods described in this section. If Treasury and the IRS adopt one or more of these simplified reporting methods, they would be optional alternatives to the general reporting method set forth in the proposed regulations, which could substantially reduce the data elements reported using the general method. It is anticipated that, if an employer uses one or more of the simplified reporting methods, the employer would indicate on its section 6056 transmittal which simplified reporting method(s) was used and the number of employees for which the particular method was used. Comments are invited on these potential simplified reporting methods and on other possible simplified approaches that would benefit employers while providing sufficient and timely information to individual taxpayers and the IRS.

The information provided to the IRS and the employee pursuant to section 6056 is important for administering the section 4980H shared employer responsibility provisions and the premium tax credit. However, in looking at the potential flow of information, Treasury and the IRS have determined that in some circumstances only some of the information required under the general method is necessary. Treasury and the IRS have attempted to identify the specific groups of employees for whom simplified reporting would provide sufficient information, and simplified reporting approaches for these groups are outlined below. In many situations, not every full-time employee of an employer would fit into the groups of employees for which simplified reporting would be available. In that case, the employer would continue to use the general reporting method in the proposed regulations for those full-time employees for whom the employers could not use a simplified method. However, it is anticipated that a significant number of employers will have a sufficient number of employees that fit into one or more of the categories described below to make use of the simplified reporting method preferable to the general reporting method.

Subsections A through F of this section XI of the preamble describe, and comments are invited on, possible simplified methods of reporting under section 6056. Each of these possible methods would be optional for the reporting employer, and, except where specifically noted, would not affect any reporting obligations under section 6055.

In response to stakeholder comments, Treasury and the IRS are considering allowing employers in certain circumstances to report offers of minimum value coverage on an employee's Form W-2, instead of reporting the offers to the IRS on a section 6056 employee statement or furnishing a section 6056 employee statement to the employee. The reporting is envisioned as using an existing box on the Form W-2 to provide the monthly dollar amount of the required employee contribution for the lowest cost minimum value self-only coverage offered to the employee and using a letter code to describe the offer of coverage. Specifically, Treasury and the IRS anticipate that this approach could be used for any employee employed by the employer for the entire calendar year when the offer, the individuals to whom the offer is made, and the employee contribution for the lowest-cost option for self-only coverage all remained the same for all twelve months of the calendar year. The letter code could be used to indicate that minimum value coverage was offered to: (1) The employee, the employee's spouse and the employee's dependents, (2) the employee and the employee's dependents but not the employee's spouse; (3) the employee and the employee's spouse but not the employee's dependents; (4) the employee, but not the employee's spouse or the employee's dependents; or that the employee was (5) only offered coverage that was not minimum value coverage; or (6) not offered coverage. For this purpose, an employer is treated as offering coverage to the employee's spouse or dependents even if the employee does not have a spouse or dependent, if the employee could elect such coverage if the employee did have a spouse or dependent. If an employee was not offered coverage, it is anticipated that the dollar amount of the employee share of the lowest-cost employee-only coverage option would be shown as zero.

Treasury and the IRS are also considering whether this or a similar simplified reporting method could be extended to cases in which the required monthly employee contribution is below a specified threshold. For example, if the annual employee cost of self-only coverage is $800 or less, the employer would be permitted to report zero as the employee cost. The $800 amount is less than 9.5 percent of the federal poverty line for a single individual. Thus, regardless of the size of the employee's household or the level of other income or loss of any member of the employee's household, either the employer's coverage will be affordable for purposes of section 36B(c)(2)(C)(i) or the employee's household income will be less than 100 percent of the federal poverty line and the employee will not be an applicable taxpayer under section 36B(c)(2) who is eligible for the credit. In addition, even if other income increases the employee's household income, the employee would not be entitled to the affordability exemption to the shared responsibility payment under section 5000A(e)(1) because the $800 amount would not exceed 8 percent of the employee's household income. Alternatively, if other losses reduce the employee's household income below the income tax filing threshold, the employee will qualify for the exemption under section 5000A(e)(2), and the information otherwise reported under section 6056 would not be required to determine whether the employee satisfied section 5000A. Comments are also requested on the extent to which this approach could reasonably be combined with the other simplified reporting methods described in this section XI of the preamble.

An employer that decides to use this simplified reporting method would not be required to file or furnish a section 6056 employee statement with respect to the employees for whom this method was used. Instead, the employer would simply indicate on a section 6056 transmittal that it had chosen to use this method. If the Form W-2 for an employee used an EIN other than the employer's EIN (for example, a third-party payor treated as an employer under section 3401(d)(1) of the Code filed the Form W-2), the employer (that is, the ALE member) may be required as part of the 6056 transmittal to identify those employees for whom a third party reported on Form W-2 without the employer's EIN and to list the employees' social security numbers.

Stakeholders have inquired whether a similar optional Form W-2 reporting method could be used for employees offered coverage under their employer's plan for less than a full calendar year (for example for a new employee hired during the year), but offered no coverage for the remainder of the year. Treasury and the IRS note that this type of reporting would leave gaps in information that would otherwise be used for tax administration purposes. For example, the reporting would not provide any information regarding the particular calendar months during which coverage was offered (or not offered). Even if the employer represented that the coverage was offered during all periods of employment, the reporting would not be able to be reconciled, for example, with another Form W-2 received by the employee from another employer using the same reporting method. That is because while both employers would report the number of months coverage was offered, that information would not be sufficient to determine whether offers of coverage were overlapping (because the employee was employed simultaneously at both employers).

Additionally, for months for which coverage was not offered, information as to whether the employee was employed and also the reason coverage was not offered during certain months of the calendar year would not be captured (for example, the employee was in a waiting period or employed but not as a full-time employee). The specific reason coverage was not offered is relevant to the administration of the employer shared responsibility provisions since the failure to offer coverage for certain reasons does not result in an assessable payment under the employer shared responsibility provisions for a calendar month, even if the full-time employee receives a premium tax credit for that month. Comments are requested on whether this approach to reporting would be useful for employers and, if so, on possible ways to address issues concerning the information gaps that would exist in reporting on employees offered coverage for less than a full calendar year.

Treasury and the IRS understand that some employers offer coverage to all or nearly all of their employees, and are able to accurately represent that the only employees not offered coverage are not full-time employees. In that case, the employer will have determined that it would not owe an assessable payment under section 4980H(a) because it would have made an offer of coverage to all of its full-time employees. However, the employer might not have determined whether every employee to whom coverage is offered is or is not a full-time employee. Treasury and the IRS are considering whether these employers may provide section 6056 reporting that does not identify the number of full-time employees and that does not specify whether a particular employee offered coverage is a full-time employee, provided that the employer certifies that all of its employees to whom it did not offer coverage during the calendar year were not full-time employees (or were otherwise ineligible for coverage, for example because they were in the initial permitted waiting period following the date of hire). This method would permit the employer to forgo identifying the full-time status of its employees prior to filing a section 6056 return. However, if an employee who was offered coverage claimed a premium tax credit, the employer could be asked to confirm at a later date (after the filing of the section 6056 return and the relevant Form 1040 return) whether that employee was a full-time employee during that calendar year (in the same manner that an employer reporting only on behalf of full-time employees might later be asked about the status of an employee claiming the premium tax credit if the employee was not listed on that employer's section 6056 return). Treasury and the IRS recognize that this method often would result in over-reporting of certain elements in the sense that reporting would occur with respect to one or more employees who may not be full-time employees during the calendar year. But some employers have indicated that they anticipate relatively few of their employees will claim the premium tax credit, and that determining those few employees' status as full-time employees later would be administratively easier than determining the full-time employee status of all employees at the time of the initial filing.

Some employers may provide mandatory minimum value coverage under a self-insured group health plan to an employee, an employee's spouse, and an employee's dependents, with no employee contribution. In that case, none of those individuals would be eligible for a premium tax credit for any month during which the coverage was provided, and the employer would indicate on the return required under section 6055 for the employee all months for which that coverage was provided with respect to each individual in the employee's family. Because the section 6055 return would provide the individual taxpayers the necessary information to accurately file the taxpayers' income tax returns, and would provide the IRS the information concerning those employees to administer the premium tax credit and employer shared responsibility provisions, Treasury and the IRS are considering whether for those employees the employer could file and furnish only the return required under section 6055, a code on the Form W-2, the summary information provided in the section 6056 transmittal form, and no further information reporting under section 6056.

Some employers have expressed an interest in voluntarily reporting information about the coverage they offer their employees prior to the end of a coverage year, for example at their open enrollment or before the open enrollment at the Exchanges, on the theory that earlier section 6056 reporting to the IRS could lead to greater efficiency in the employer verification system employed by Exchanges to determine eligibility for premium tax credits. Under such an arrangement, they believe that if some employers chose to provide part of their section 6056 reporting to the IRS earlier in the process, the IRS, in turn, would be able to transmit any pertinent data to the Exchanges.

A proposal of this kind would need to address a number of issues. First, the regulations under section 6103 do not authorize the IRS to share taxpayer information in this manner. Even if this information sharing were permitted, information reporting plays a role in enabling individuals to file complete and accurate tax returns. Under the proposal, individuals would not receive the information for their tax return preparation proximate to when they are completing their tax returns. Employees may bear less burden and prepare more accurate tax returns when their employer furnishes a statement at the start of the relevant tax season reflecting all the information the employee needs to file a correct tax return for the prior year. Gaps in complete and timely information increase the need for additional follow-up communication among employers, employees, and the IRS.

Also, offering two sets of reporting alternatives with filing occurring at different time periods would present challenges. Because the reporting options would be voluntary, different reporting protocols and regimes would need to be established and would need to accommodate employer choices to change the method of reporting from year to year. The multiple forms, procedures, and protocols could create complexity and be difficult to administer.

In addition, the information about the offer of coverage made before the year starts may change during the calendar year. For example, during the year, an employee may be hired or may terminate employment, a part-time employee may become full-time and be eligible for different coverage options, or an employee may change positions during the year and no longer be offered coverage. Accordingly, disclosure before the coverage year does not adequately substitute for disclosure to employees and reporting to the IRS after the coverage year.

Employers, employees, and the IRS share the goal of aligning eligibility for advance payments of premium tax credits as closely as possible with eligibility for the premium tax credit on the employee's annual tax return filed after the coverage year. This would reduce confusion and minimize the risk of employees owing advance payments back as liabilities on their tax returns. Regardless of the final rules on section 6056 information reporting, employers are encouraged to make their pre-enrollment disclosures to employees and Exchanges as effective and helpful to individuals as possible.

Comments are invited on whether there could be a way to design such a voluntary partial early reporting arrangement that would reduce complexity and avoid confusion for employers and employees, be administrable for the IRS, and provide timely information to individuals so that they can meet their income tax filing obligation without undue burden or undue risk of inaccuracy.

Some employers have indicated that, because many of their employees are relatively highly paid, they are unlikely to be eligible for a premium tax credit. The assumption is that the employee's household income is likely to exceed 400 percent of the Federal poverty line, and therefore the employee would not benefit from receiving the information otherwise included with a section 6056 employee statement. Further, because the employee is unlikely to qualify for a premium tax credit, employers have stated that the information will not be useful to the IRS in administering the employer shared responsibility provisions because the precondition of a section 4980H(b) assessable payment—that the employee receive a premium tax credit—is unlikely to be satisfied.

Treasury and the IRS have considered this request and welcome comments both on its potential usefulness to employers and its administrability. Employers would still need to report to the IRS the months during which the employee was a full-time employee, at least to the extent the employee being was included in a full-time employee count. Additionally, employers will not be in a position to know the correlation between an employee's Form W-2 wages and household income with sufficient accuracy to determine whether an employee may be eligible for the premium tax credit. The only pertinent information the employer retains is the employee's annual wages, yet the poverty level from which the premium tax credit income threshold is determined varies considerably based on family size (which employers will not necessarily know). In addition, employees for whom an employer may use an affordability safe harbor based on wages for purposes of compliance with the employer shared responsibility provisions under section 4980H might still be eligible for a premium tax credit based on their household income. Employers generally do not know employees' household income, and will not have information as to whether the employee (or another member of the employee's household) has incurred losses or expenses (such as alimony, casualty losses, Schedule C business deductions, and the like) that reduce the employee's household modified adjusted gross income below 400 percent of the Federal poverty line. Accordingly, it is unclear whether Form W-2 wages alone would provide sufficient information to determine eligibility for the premium tax credit because the employee's household income may be well below the employee's Form W-2 wages. Comments are requested as to whether there is a level of Form W-2 wages at which such a determination might be made with sufficient confidence, and whether that level of wages is so high as not to be of practical use to employers.

The potential simplified reporting methods described above would apply to particular groups of employees that in many cases would not overlap. In such cases, two different potential simplified reporting methods could not be applied to the same employee. Treasury and the IRS anticipate that, to the extent any of these potential reporting methods are adopted in final regulations or other administrative guidance, including forms and instructions, an employer would be permitted to use different simplified methods for different employees at the employer's election.

Under the proposed regulations, in general, each ALE member must file a section 6056 return with respect to its full-time employees for a calendar year.

In accordance with section 6056(e), the proposed regulations provide that in the case of any ALE member that is a governmental unit or any agency or instrumentality thereof (together referred to in this preamble as a governmental unit), that governmental unit may report under section 6056 on its own behalf or may appropriately designate another person or persons to report on its behalf. 10 For purposes of designation, another person is appropriately designated for purposes of the filing and furnishing requirements of section 6056 if that other person is part of or related to the same governmental unit as the ALE member. For example, a political subdivision of a state may designate the state, another political subdivision of the state, or an agency or instrumentality of the foregoing as the designated person for purposes of section 6056 reporting. The person designated might be the governmental unit that operates the relevant health plan or the governmental unit that does other information reporting on behalf of the designating governmental unit. Further, the governmental unit may designate more than one governmental unit to file and furnish under section 6056 on its behalf, such as, for example, if different categories of employees are offered coverage under different health plans operated by different governmental units. In addition, a governmental unit may designate another person to file and furnish with respect to all or some of its full-time employees. If the designation is accepted by the designee and is made before the filing deadline, the designated governmental unit is the designated entity responsible for section 6056 reporting.

The Attorney General is responsible for enforcing the provisions of the NFA, 26 U.S.C. Chapter 53. 1 The Attorney General has delegated that responsibility to the Director of ATF, subject to the direction of the Attorney General and the Deputy Attorney General. 28 CFR 0.130(a). Regulations implementing the provisions of the NFA are set forth in 27 CFR part 479, which contains the procedural and substantive requirements relating to the importation, making, exportation, transfer, taxing, identification, registration of, and the dealing in, machine guns, destructive devices, and certain other firearms.

Section 5822 of the NFA, 26 U.S.C. 5822, provides that no person shall make a firearm unless the person has: (I) Filed with the Attorney General a written application, in duplicate, to make and register the firearm; (II) paid any tax payable on the making, and evidenced such payment by affixing the proper stamp to the original application form; (III) identified the firearm to be made in the application form, in such manner as prescribed by regulation; (IV) identified themself in the application form, in such manner as prescribed by regulation, except that, if such person is an individual, the identification must include the individual's fingerprints and photograph; and (V) obtained the approval of the Attorney General to make and register the firearm and shows such approval on the application form. Applications shall be denied if the making or possession of the firearm would place the person making the firearm in violation of law. For purposes of title 26, United States Code, the term “person” means “an individual, a trust, estate, partnership, association, company or corporation.” 26 U.S.C. 7701(a)(1).

Regulations implementing section 5822 are set forth in 27 CFR part 479, subpart E. Section 479.62 provides, in pertinent part, that no person may make a firearm unless the person has filed with the Director a written application on ATF Form 1 (5320.1), Application to Make and Register a Firearm, in duplicate, and has received the approval of the Director to make the firearm. Approval of the application will effectuate registration of the firearm to the applicant. The application must identify the firearm to be made by serial number and other specified markings and information. In addition, the applicant must be identified on the form by name and address and, if other than a natural person (e.g., a corporation or trust), by the name and address of the principal officer or authorized representative of the entity, as well as the employer identification number of the entity. If an individual, the identification must also include certain information prescribed in § 479.63.

Section 479.63 states that if the applicant is an individual, a photograph of the applicant, approximately 2 × 2 inches and taken within 1 year prior to the date of the application, must be affixed to the indicated space on each copy of the Form 1. The regulation also provides that a completed Federal Bureau of Investigation (FBI) Form FD- 258 (Fingerprint Card), containing the fingerprints of the applicant, must be submitted in duplicate with the application.

In addition, section 479.63 provides that the law enforcement certificate located on Form 1 must be completed and signed by the local chief of police or county sheriff, the head of the state police, the state or local district attorney or prosecutor, or such other person whose certificate may be acceptable to the Director. The certifying official must state, inter alia, that he or she has no information indicating that possession of the firearm by the maker would be in violation of state or local law or that the maker will use the firearm for other than lawful purposes. The certifying official must have jurisdiction over the area within which the maker resides. The purpose of this requirement is to ensure that the official will have access to criminal records concerning the maker, and knowledge of the state and local laws governing the transfer, receipt, and possession of the firearm by the maker.

Under the current regulations, the requirements for fingerprints, photographs, and law enforcement certificate specified in § 479.63 are not applicable to an applicant who is not an individual, e.g., a corporation or other legal entity.

Section 479.64 sets forth the procedure for approval of an application to make a firearm. As specified, the Form 1 application must be forwarded, in duplicate, by the maker of the firearm to the Director, in accordance with the instructions on the form. If the application is approved, the Director will return the original to the maker of the firearm and retain the duplicate. Upon receipt of the approved application, the maker is authorized to make the firearm described therein. The maker of the firearm may not, under any circumstances, make the firearm until the application has been forwarded to the Director and has been approved and returned by the Director with the NFA stamp affixed. If the application is disapproved, the original Form 1 and the remittance submitted by the applicant for the purchase of the stamp will be returned to the applicant with the reason for disapproval stated on the form.

Section 5812(a) of the NFA, 26 U.S.C. 5812(a), provides that a firearm may not be transferred unless: (I) The transferor of the firearm has filed with the Attorney General a written application, in duplicate, for the transfer and registration of the firearm to the transferee, using the prescribed application form; (II) any tax payable on the transfer is paid as evidenced by the proper stamp affixed to the original application form; (III) the transferee is identified in the application form, in such manner as the Attorney General may prescribe by regulation, except that, if such person is an individual, the identification must include the individual's fingerprints and photograph; (IV) the transferor of the firearm is identified in the application form, in such manner as the Attorney General may prescribe by regulation; (V) the firearm is identified in the application form, in such manner as the Attorney General may prescribe by regulation; and (VI) the application form shows that the Attorney General has approved the transfer and the registration of the firearm to the transferee. Applications shall be denied if the transfer, receipt, or possession of the firearm would place the transferee in violation of law. Section 5812(b) provides that the transferee may not take possession of the firearm unless the Attorney General has approved the transfer and registration of the firearm to the transferee.

Regulations implementing section 5812 are set forth in 27 CFR part 479, subpart F. In general, § 479.84 provides that no firearm may be transferred in the United States unless an application, ATF Form 4 (5320.4), Application for Tax Paid Transfer and Registration of Firearm, has been filed in duplicate with, and approved by, the Director. Form 4 must be filed by the transferor and must identify the firearm to be transferred by type, serial number, and other specified markings and information. The application must identify the transferor by name and address and must include the transferor's Federal firearms license and special (occupational) tax stamp, if any. If the transferor is other than a natural person, the title or status of the person executing the application must be provided. The application must identify the transferee by name and address and, if the transferee is a natural person not qualified as a manufacturer, importer, or dealer under part 479, the person must be further identified in the manner prescribed in § 479.85.

Section 479.85 states that if the transferee is an individual, such person must securely attach to each copy of the Form 4, in the space provided on the form, a 2 x 2 inch photograph of the transferee taken within 1 year prior to the date of the application. The transferee must also attach to the application two properly completed FBI Forms FD-258 (Fingerprint Card). In addition, a certificate by the local chief of police, county sheriff, head of the state police, state or local district attorney or prosecutor, or such other person whose certificate may in a particular case be acceptable to the Director, must be completed on each copy of the Form 4. The certifying official must state, inter alia, that he or she has no information indicating that the receipt or possession of the firearm would place the transferee in violation of state or local law or that the transferee will use the firearm for other than lawful purposes. The certifying official must have jurisdiction over the area within which the transferee resides. The purpose of this requirement is to ensure that the official will have access to criminal records concerning the transferee, and knowledge of the state and local laws governing the transfer, receipt, and possession of the firearm by the transferee.

Under the current regulations, the requirements for fingerprints, photographs, and law enforcement certificate specified in § 479.85 apply only to natural persons not qualified as a manufacturer, importer, or dealer under part 479; they do not apply to transferees who are not natural persons, e.g., corporations or other legal entities.

Section 5852(e) of the NFA, 26 U.S.C. 5852(e), provides that an unserviceable firearm may be transferred as a curio or ornament without payment of the transfer tax imposed by section 5811, under such requirements as the Attorney General may by regulations prescribe.

Section 5853(a) of the NFA, 26 U.S.C. 5853(a), provides that a firearm may be transferred without the payment of the transfer tax imposed by section 5811 to any State, possession of the United States, any political subdivision thereof, or any official police organization of such a government entity engaged in criminal investigations.

Regulations implementing sections 5852(e) and 5853(a) are set forth in 27 CFR 479.90 and 479.91. These sections provide, in pertinent part, that the exemption from the transfer tax for the transfer of an unserviceable firearm as a curio or ornament or for a transfer to or from certain government entities may be obtained by the transferor of the firearm by filing with the Director an application, ATF Form 5 (5320.5), Application for Tax Exempt Transfer and Registration of Firearm, in duplicate. The application must: (I) Show the name and address of the transferor and of the transferee; (II) identify the Federal firearms license and special (occupational) tax stamp, if any, of the transferor and of the transferee; (III) show the name and address of the manufacturer and the importer of the firearm, if known; (IV) show the type, model, overall length (if applicable), length of barrel, caliber, gauge or size, serial number, and other marks of identification of the firearm; and (V) contain a statement by the transferor that the transferor is entitled to the exemption because either the transferor or the transferee is a governmental entity coming within the purview of § 479.90(a) or the firearm is unserviceable and is being transferred as a curio or ornament. In the case of the transfer of a firearm by a governmental entity to a transferee who is a natural person not qualified as a manufacturer, importer, or dealer under part 479, the transferee must be further identified in the manner prescribed in § 479.85.

ATF received a petition for rulemaking, dated December 3, 2009, filed on behalf of the National Firearms Act Trade and Collectors Association (NFATCA). The petition requests amendments to §§ 479.63 and 479.85, as well as to corresponding ATF Forms 1 and 4. The requested amendments are discussed below.

As discussed above, the photograph, fingerprint card, and chief law enforcement officer (CLEO) certificate requirements of §§ 479.63 and 479.85 do not apply if the applicant or transferee is a partnership, company, association, trust, or corporation. As such, persons who possess, directly or indirectly, the power or authority to receive, possess, ship, transport, deliver, transfer or otherwise dispose of a firearm for, or on behalf of the entity are not subject to these requirements, and ATF does not conduct a background check of those individuals.

The NFATCA expressed concern that persons who are prohibited by law from possessing or receiving firearms may acquire NFA firearms through the establishment of a legal entity such as a corporation, trust, or partnership. It contends that the number of applications to acquire NFA firearms via a corporation, partnership, trust, or other legal entity has increased significantly over the years. ATF has researched the issue and has determined that the number of Forms 1, 4, and 5 involving legal entities that are not Federal firearms licensees increased from approximately 840 in 2000 to 12,600 in 2009 and to 40,700 in 2012. There accordingly has been an increase in the number of individuals who have access to NFA firearms but who have not undergone a background check. The petitioner expressed concern that an NFA firearm could be acquired by a prohibited person and used in a violent crime. Therefore, for applications for a corporation, trust, partnership, or other legal entity to make or receive an NFA firearm, the petitioner has requested amendments to §§ 479.63 and 479.85 to require photographs and fingerprint cards for persons who are responsible for directing the management and policies of the entity, so that a background check of the individual may be conducted.

The Department of Justice agrees with the concerns underlying this proposal, and believes that such persons should not be excluded from background checks and other requirements of the regulations that seek to ensure that prohibited persons do not gain access to NFA firearms. ATF recently encountered a situation where an application for a transfer of a silencer was denied because the transferee was determined to be prohibited from possessing an NFA firearm. The transferor subsequently applied to transfer the same silencer to a trust whose name contained the same last name as the prior transferee. ATF reviewed the trust documents and found that the prohibited person was a settlor of the trust and, thus, would have access to the firearm. ATF denied the transfer. However, if the trust name had been different from that of the prior transferee, or if the transferor sought to transfer a different firearm, ATF employees may not have realized that the prior transferee was a settlor of the trust and so may have approved the transfer.

When filing an ATF Form 1, 4, or 5, the applicant also must submit ATF Form 5330.20, Certification of Compliance with 18 U.S.C. 922(g)(5)(B). Under section 922(g)(5)(B) of the Gun Control Act, 18 U.S.C. 922(g)(5)(B), it generally is unlawful for any alien admitted under a nonimmigrant visa to ship or transport in interstate or foreign commerce, or possess in or affecting commerce, any firearm or ammunition, or to receive any firearm or ammunition that has been shipped or transported in interstate or foreign commerce. Section 922(y)(2) provides for certain exceptions. 18 U.S.C. 922(y)(2). If an alien who was admitted under a nonimmigrant visa falls within one of the specified exceptions, or has obtained a waiver from the Attorney General under 18 U.S.C. 922(y)(3), appropriate documentation must be provided on Form 5330.20.

The petitioner requests that the information required on Form 5330.20 be incorporated into the requirements of 27 CFR 479.63 and 479.85 and the corresponding forms. According to the petitioner, “[e]limination of the ATF Form 5330.20 by adding a citizenship statement to the transfer [and making] forms would reduce human effort for both the public and ATF while reducing funds expenditures for printing, copying, and handling the form.”

The Department supports the elimination of unnecessary forms and is committed to reducing the paperwork burden for individuals and businesses. Accordingly, the Department proposes amending 27 CFR 479.62 and 479.84 and the corresponding forms to incorporate information currently required in Form 5330.20.

The NFATCA requests that the instructions on applications to make or transfer a firearm be revised so that they are consistent with those on ATF Form 7 (5310.12), Application for Federal Firearms License. The petitioner appears to be referring to the instruction on Form 7 regarding the submission of photographs and fingerprint cards for responsible persons, namely, in the case of a corporation, partnership, or association, any individual possessing, directly or indirectly, the power to direct or cause the direction of the management, policies, and practices of the legal entity, insofar as they pertain to firearms. The Department agrees that proposed changes to regulations will require modifications to corresponding Forms 1, 4, and 5, including changes to the instructions on the forms.

With respect to an application to make a firearm, 27 CFR 479.63 provides that if the applicant is an individual, a certificate of the local chief of police, county sheriff, head of the state police, state or local district attorney or prosecutor, or such other person whose certificate may be acceptable to the Director, shall be completed on each copy of the Form 1. The certificate must state, inter alia, that the certifying official has no information indicating that possession of the firearm by the maker would be in violation of state or local law or that the maker will use the firearm for other than lawful purposes. The law enforcement certificate requirement also applies with respect to an application to transfer a firearm if the transferee is an individual. 27 CFR 479.85.

The petitioner requests that the law enforcement certificate requirement be eliminated and that ATF “adopt a CLEO [chief law enforcement officer] process that will include a full NICS [National Instant Criminal Background Check System] check for principal officers of a trust or corporation receiving such firearms for the trust or corporation.” The petitioner articulates several reasons in support of its request. For example, it states that the lack of cooperation on the part of many CLEOs in recent years has forced larger numbers of individuals to acquire NFA firearms via a trust or corporate entity, so as to avoid the need for a law enforcement certificate. The petitioner also asserts that ATF no longer accepts the CLEO certificate as prima facie verification of compliance with state and local law, and that the certificate therefore does not alleviate the burden on ATF to verify that receipt or possession of a NFA firearm would not place the applicant or transferee in violation of state or local law.

Although ATF agrees in principle with some of petitioner's assertions (for example, with the fact that ATF independently verifies whether receipt or possession of a NFA firearm would place the applicant or transferee in violation of state or local law), ATF does not propose to eliminate the CLEO certificate requirement at this time. Rather, ATF proposes extending the CLEO certificate requirement to responsible persons of a legal entity. ATF also proposes amending the language of the certificate to omit the requirement that the certifying official state that he has no information that the applicant or transferee will use the firearm for other than lawful purposes.

Sections 5812 and 5822 of the NFA, 26 U.S.C. 5812 and 5822, provide that applications shall be denied if the transfer, making, receipt, or possession of the firearm would place the applicant or transferee in violation of law. When the law enforcement certificate requirement was implemented in 1934, local law enforcement officials were generally better situated than federal officials to determine whether the transfer, making, receipt, or possession of the firearm would place the applicant or transferee in violation of state or local law. There were not at that time any readily accessible national automated databases, such as the National Crime Information Center (NCIC), that could facilitate instantaneous comprehensive nationwide criminal background checks. Although federal officials would consult available criminal history and criminal identification records, the assessment of whether an applicant or transferee would use the firearm for other than lawful purposes often was based on information in the possession of local police. The CLEO certificate requirement thus was intended in part to ensure that an individual's authority to make, receive, or possess an NFA firearm was consistent with state and local law, and that the background of the individual was assessed by those in the best position to evaluate it.

In light of the NCIC's establishment in 1967 and additional technological developments, ATF now has direct access to a number of criminal history databases, a fact that puts it in a stronger position than before to assess the criminal background of applicants and transferees. ATF no longer relies exclusively on CLEO certificates to assess whether the making, receipt, or possession of a firearm by an applicant or transferee would violate state or local law or whether a particular applicant or transferee has a record that would warrant denying the application. ATF conducts its own background checks of individuals applying to make and receive NFA firearms. In addition to transmitting fingerprints to the FBI for a criminal history check, ATF routinely queries the following databases and indexes:

• National Crime Information Center

• TECS (formerly named the Treasury Enforcement Communication System)

• National Law Enforcement Telecommunications System

• Interstate Identification Index

• National Instant Criminal Background Check System

Although access to these databases provides ATF with a fuller picture of any individual than was possible in 1934, the available information is not comprehensive in all cases. For a variety of reasons, it is still the case that local law enforcement may have access to more complete records. For example, according to a 2006 publication by the Department of Justice, not all state criminal history records meet the standard for inclusion in the Interstate Identification Index database (the national criminal history record depository maintained by the FBI), and only 50 percent of arrest records in the database have final dispositions. 2 To ensure that background checks for NFA firearms are as complete as possible, ATF proposes to retain the CLEO certificate requirement for individuals, and to expand the requirement to responsible persons of a legal entity.

With respect to the law enforcement officer's statement in the CLEO certificate that he or she has no information indicating that the transferee will use the firearm described on the Form 4 for other than lawful purposes, the petitioner states that “[s]ome CLEOs express a concern of perceived liability; that signing an NFA transfer application will link them to any inappropriate use of the firearm.” ATF agrees with the petitioner that state and local law enforcement officials may be concerned with the language of the current law enforcement certificate, a concern that also applies to Forms 1 and 5. ATF has received numerous statements from chiefs of police, sheriffs, and other CLEOs expressing discomfort with the portion of the certificate that requires them to state that they have no information to suggest that the individual will use the firearm for other than lawful purposes. ATF is aware that officials in a number of jurisdictions refuse to sign the certificate because of concern about potential liability for an individual's intentional or accidental misuse. Such refusals have resulted in litigation by some applicants against ATF. See Lomont v. O'Neill, 285 F.3d 9 (D.C. Cir. 2002); Westfall v. Miller, 77 F.3d 868 (5th Cir. 1996). While courts have upheld the CLEO certificate requirement, ATF proposes to amend the language of the regulations and the corresponding forms to address this concern. Sections 479.63 and 479.85 will no longer require the certificate to contain a statement regarding information about the use of the firearm for other than lawful purposes. ATF requests comments on the specific language proposed, and whether this change will address the concerns raised by some CLEOs.

The Department proposes amending § 479.11 to add a definition for the term “responsible person.” The term would include specific definitions in the case of a trust, partnership, association, company (including a Limited Liability Company (LLC)), or corporation. Depending on the context, the term includes any individual, including any grantor, trustee, beneficiary, partner, member, officer, director, board member, owner, shareholder, or manager, who possesses, directly or indirectly, the power or authority under any trust instrument, contract, agreement, article, certificate, bylaw, or instrument, or under state law, to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for, or on behalf of, the entity.

To ensure that responsible persons, as so defined, are subject to penalties under 26 U.S.C. 5871 for committing prohibited acts under the NFA (as defined in 26 U.S.C. 5861) to the same extent as are the legal entities with which they are associated, the Department also proposes amending the definition of “person” in 27 CFR 479.11 to clarify that a “person” is a partnership, company, association, trust, or corporation, including each responsible person associated with such an entity; an estate; or an individual.

Although the definition of “person” in section 479.11 includes the word “estate,” ATF traditionally has treated estates differently from business entities, and does not propose defining the term “responsible person” to include estates. Estates are temporary legal entities created to dispose of property previously possessed by a decedent. The term during which an estate exists typically is defined by state law in the State in which the decedent resided. Conversely, partnerships, trusts, associations, companies, and corporations are formed for a specific purpose and remain in existence until action is taken to dissolve them.

Historically, ATF has treated the transfer of an NFA-registered firearm held by an estate differently from other transfers under the NFA. ATF allows the registered firearm to be held by the executor, administrator, personal representative, or other person authorized under state law to dispose of property in an estate (executor) without such possession being treated as a transfer under the NFA. Because the executor holds the property temporarily, is representing the decedent, and is bound by the limits of probate, ATF does not register the firearm to the executor and allows the transfer from the estate of the decedent directly to the beneficiaries, with the executor signing as the transferor. The disposition of the firearm to the beneficiaries of the estate is a “transfer by operation of law,” because it is an involuntary transfer dictated by the terms of a will or by intestacy laws in the State where the decedent resided. The transfer to the beneficiaries of the estate is treated like any other transfer of registered firearms, except that ATF allows such transfers to be made on a tax-exempt basis when an ATF Form 5 is submitted and approved in accordance with 27 CFR 479.90. The transfer of the firearm to persons outside the estate requires the executor to file an ATF Form 4 and to pay any transfer tax in accordance with § 479.84.

With respect to an application to make a firearm, the Department proposes several amendments to §§ 479.62 (Application to make) and 479.63 (Identification of applicant).

The proposed § 479.62:

1. Provides that if the applicant is a partnership, company, association, trust, or corporation, all information on the Form 1 application must be furnished for each responsible person of the applicant;

2. Specifies that if the applicant is a partnership, company, association, trust, or corporation, each responsible person must comply with the identification requirements prescribed in § 479.63(b); and

3. Requires the applicant (including, if other than an individual, any responsible person), if an alien admitted under a nonimmigrant visa, to provide applicable documentation demonstrating that he or she falls within an exception to 18 U.S.C. 922(g)(5)(B) or has obtained a waiver of that provision.

The proposed § 479.63, where the applicant is an individual, maintains the CLEO certificate but omits the requirement for a statement about the use of a firearm for other than lawful purposes. The certificate must state that the official is satisfied that the fingerprints and photograph accompanying the application are those of the applicant and that the official has no information indicating that possession of the firearm by the maker would be in violation of state or local law.

The CLEO's certification that he or she “is satisfied that the fingerprints and photograph accompanying the application are those of the applicant,” is an existing requirement. ATF intends to modify Form 1 to include certification to that effect by the CLEO for individuals (which has always been a requirement but was not reflected on the current form). As discussed below, ATF will include the same certification on Form 5320.23 for responsible persons of a legal entity.

The proposed § 479.63, where the applicant is a partnership, company, association, trust, or corporation:

1. Provides that the applicant must be identified on the Form 1 application by the name and exact location of the place of business, including the name of the county in which the business is located or, in the case of a trust, the address where the firearm is located. In the case of two or more locations, the address shown must be the principal place of business (or principal office, in the case of a corporation) or, in the case of a trust, the principal address at which the firearm is located;

2. Requires the applicant to attach to the application:

• Documentation evidencing the existence and validity of the entity, which includes, without limitation, complete and unredacted copies of partnership agreements, articles of incorporation, corporate registration, declarations of trust with any trust schedules, attachments, exhibits, and enclosures; however, if the entity had an application approved as a maker or transferee within the preceding 24 months, and there has been no change to the documentation previously provided, the entity may provide a certification that the information has not changed since the prior approval and must identify the application for which the documentation had been submitted by form number, serial number, and date approved;

• A completed ATF Form 5320.23 for each responsible person. Form 5320.23 would require certain identifying information for each responsible person, including each responsible person's full name, position, social security number (optional), home address, date and place of birth, and country of citizenship;

• In accordance with the instructions provided on Form 5320.23, a photograph of each responsible person 2 × 2 inches in size, clearly showing a full front view of the features of the responsible person with head bare, with the distance from the top of the head to the point of the chin approximately 1 1/4 inches, and which must have been taken within 1 year prior to the date of the application;

• Two properly completed FBI Forms FD-258 (Fingerprint Card) for each responsible person. The fingerprints must be clear for accurate classification and should be taken by someone properly equipped to take them; and

• In accordance with the instructions provided on Form 5320.23, a certificate for each responsible person completed by the local chief of police, sheriff of the county, head of the state police, state or local district attorney or prosecutor, or such other person whose certificate may in a particular case be acceptable to the Director. The certificate for each responsible person must be completed by the CLEO who has jurisdiction in the area in which the responsible person resides. The certificate must state that the official is satisfied that the fingerprints and photograph accompanying the application are those of the responsible person and that the certifying official has no information indicating that possession of the firearm by the responsible person would be in violation of state or local law.

ATF seeks public comments regarding whether it is feasible to ask CLEOs to certify that they are satisfied that the photographs and fingerprints match those of the responsible person. For example, some responsible persons may bring their fingerprint cards to the CLEO office already stamped, and some legal entities may have the paperwork, fingerprint cards, and photographs for each of their responsible persons couriered to the CLEO office. In such instances, ATF seeks comments on whether CLEOs will have enough information to certify that they are satisfied that the photographs and fingerprints match those of the responsible persons, or whether changes are needed to this proposal.

With respect to an application to transfer a firearm, the Department proposes several amendments to §§ 479.84 (Application to transfer) and 479.85 (Identification of transferee).

The proposed § 479.84:

1. Provides that the Form 4 application, in duplicate, must be filed by the transferor. If the transferee is a partnership, company, association, trust, or corporation, all information on the Form 4 application must be furnished for each responsible person of the transferee; and

2. Provides that the type of firearm being transferred must be noted on the Form 4. If the firearm is other than one classified as “any other weapon,” the applicant must submit a remittance in the amount of $200 with the application in accordance with the instructions on the form. If the firearm is classified as “any other weapon,” the applicant must submit a remittance in the amount of $5.

The proposed § 479.85, where the transferee is an individual, maintains the certificate but omits the requirement for a statement about the use of a firearm for other than lawful purposes. The certificate must state that the official is satisfied that the fingerprints and photograph accompanying the application are those of the applicant and that the certifying official has no information indicating that receipt or possession of the firearm by the transferee would be in violation of state or local law.

The CLEO's certification that he or she “is satisfied that the fingerprints and photograph accompanying the application are those of the applicant,” is an existing requirement. ATF intends to modify Forms 4 and 5 to include certification to that effect by the CLEO for individuals (which has always been a requirement but was not reflected on the current forms). As discussed below, ATF will include the same certification on Form 5320.23 for responsible persons of a legal entity.

The proposed § 479.85, where the transferee is a partnership, company, association, trust, or corporation:

1. Provides that the transferee must be identified on the Form 4 application by the name and exact location of the place of business, including the name of the county in which the business is located or, in the case of a trust, the address where the firearm is to be located. In the case of two or more locations, the address shown must be the principal place of business (or principal office, in the case of a corporation) or, in the case of a trust, the principal address at which the firearm is to be located;

2. Requires the transferee to attach to the application:

• Documentation evidencing the existence and validity of the entity, which includes, without limitation, complete and unredacted copies of partnership agreements, articles of incorporation, corporate registration, declarations of trust with any trust schedules, attachments, exhibits, and enclosures; however, if the entity has had an application approved as a maker or transferee within the preceding 24 months, and there has been no change to the documentation previously provided, including the responsible person information, the entity may provide a certification that the information has not changed since the prior approval and must identify the application for which the documentation had been submitted by form number, serial number, and date approved;

• A completed ATF Form 5320.23 for each responsible person. Form 5320.23 would require certain identifying information, including the responsible person's full name, position, social security number (optional), home address, date and place of birth, and country of citizenship;

• In accordance with the instructions provided on Form 5320.23, a photograph of each responsible person 2 x 2 inches in size, clearly showing a full front view of the features of the responsible person with head bare, with the distance from the top of the head to the point of the chin approximately 1 1/4 inches, and which must have been taken within 1 year prior to the date of the application;

• Two properly completed FBI Forms FD-258 (Fingerprint Card) for each responsible person. The fingerprints must be clear for accurate classification and should be taken by someone properly equipped to take them; and

• In accordance with the instructions provided on Form 5320.23, a certificate for each responsible person completed by the local chief of police, sheriff of the county, head of the state police, state or local district attorney or prosecutor, or such other person whose certificate may in a particular case be acceptable to the Director. The certificate for each responsible person must be completed by the CLEO who has jurisdiction in the area in which the responsible person resides. The certificate must state that the official is satisfied that the fingerprints and photograph accompanying the application are those of the responsible person and that the certifying official has no information indicating that receipt or possession of the firearm by the responsible person would be in violation of state or local law.

ATF seeks public comments regarding whether it is feasible to ask CLEOs to certify that they are satisfied that the photographs and fingerprints match those of the responsible person. For example, some responsible persons may bring their fingerprint cards to the CLEO office already stamped, and some legal entities may have the paperwork, fingerprint cards, and photographs for each of their responsible persons couriered to the CLEO office. In such instances, ATF seeks comments on whether CLEOs will have enough information to certify that they are satisfied that the photographs and fingerprints match those of the responsible persons, or whether changes are needed to this proposal.

Section 5853(a) of the NFA, 26 U.S.C. 5853(a), provides that a firearm may be transferred to any State, possession of the United States, any political subdivision thereof, or any official police organization of such a government entity engaged in criminal investigations, without the payment of the transfer tax. Regulations implementing section 5853(a) are set forth in 27 CFR 479.90. That section provides, in pertinent part, that the transfer tax exemption may be obtained by the transferor of the firearm by filing with the Director an application on ATF Form 5 (5320.5), Application for Tax Exempt Transfer and Registration of Firearm, in duplicate. The application must provide certain information, including the name and address of the transferor and the transferee. In the case of a transfer of a firearm by a governmental entity to a transferee who is a natural person not qualified as a manufacturer, importer, or dealer under part 479, the transferee must be further identified in the manner prescribed in § 479.85.

The Department proposes amending § 479.90(b) to remove the word “natural.” Removing the word “natural” leaves the term “person,” which would be defined in § 479.11 to include a partnership, company, association, trust, or corporation (including each responsible person of such entity), an estate, or an individual. This change would mean that in the case of a transfer of a firearm by a governmental entity to a transferee that is a partnership, company, association, trust, or corporation, and that is not qualified as a manufacturer, importer, or dealer under part 479, each responsible person of the transferee would be subject to the requirements prescribed in § 479.85.

The Department proposes adding a new section to part 479 to address the possession and transfer of firearms registered to a decedent. The new section would specify that the executor, administrator, personal representative, or other person authorized under state law to dispose of property in an estate (collectively “executor”) may lawfully possess the decedent's NFA firearm during the term of probate without such possession being treated as a transfer from the decedent. The new section also would clarify that the executor may transfer firearms held by the estate on a tax-free basis when the transfer is to a beneficiary of the estate; when the transfer is to persons outside the estate, the executor must pay the appropriate transfer tax.

Section 479.91 provides that an unserviceable firearm, defined in § 479.11 as a firearm which is incapable of discharging a shot by means of an explosive and incapable of being readily restored to a firing condition, may be transferred as a curio or ornament without payment of the transfer tax. This section also provides that the procedures set forth in § 479.90 must be followed for the transfer of an unserviceable firearm, with the exception that a statement must be entered on the application that the transferor is entitled to the exemption because the firearm is unserviceable and is being transferred as a curio or ornament. This section will remain unchanged. It references the procedures in § 479.90, which itself references § 479.85, which would be amended by the proposals herein.

ATF recognizes that the composition of the responsible persons associated with a trust, partnership, association, company, or corporation may change, and is considering a requirement that new responsible persons submit Form 5320.23 within 30 days of the change. ATF seeks comments on this option and solicits recommendations for other approaches.

This proposed rule has been drafted in accordance with section 1(b) of Executive Order 12866 (“Regulatory Planning and Review”) and with section 1(b) of Executive Order 13563 (“Improving Regulation and Regulatory Review”). The Department of Justice has determined that this proposed rule is a significant regulatory action under section 3(f) of Executive Order 12866, and accordingly this proposed rule has been reviewed by the Office of Management and Budget (OMB).

The proposed rule complies with the public participation requirements of Executive Order 13563. As this rulemaking is in response to a petition for rulemaking, ATF seeks the views of those who are likely to be affected by the proposed rule (including those who are likely to benefit and those who are potentially subject to the proposed rule) prior to issuing the final rule.

This proposed rule will not have an annual effect on the economy of $100 million or more; nor will it adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities. Accordingly, this proposed rule is not an economically significant rulemaking as defined by Executive Order 12866. The estimated costs and benefits of the proposed rule are discussed below.

This proposed rule would require certain legal entities (trusts, partnerships, companies, associations, and corporations) applying to make or receive an NFA firearm to submit information for each of its responsible persons to ATF in order for ATF to ensure such persons are not prohibited from possessing NFA firearms. ATF estimates a total cost of $14.9 million annually for: (1) Legal entities to gather, procure, and submit such information to ATF; (2) ATF to process the information and conduct a background check on responsible persons; and (3) local and state agencies possibly to review the information provided on Form 5320.23 which is submitted as part of a Form 1, 4, or 5 application, conduct their own background checks, and determine whether to complete the certificate. These proposed provisions will have public safety benefits in that they will enable ATF to ensure that the responsible persons within legal entities that request to make or receive NFA firearms are not prohibited from possessing such firearms under federal, state, or local law.

ATF estimated the cost of the proposed provisions to ensure responsible persons within legal entities are not prohibited from possessing NFA firearms by: (1) Estimating the time and other resources that would be expended by legal entities to complete paperwork, obtain photographs and fingerprints, receive CLEO certificates, and send this information to ATF; (2) estimating the time and other resources that would be expended by ATF to process and review the materials provided by the legal entities and to conduct background checks of responsible persons; and (3) estimating costs for state and local agencies in the event they review the information provided, conduct their own background checks; and determine whether to complete the CLEO certificate.

ATF estimated the cost of the time for legal entities to complete these tasks using employee compensation data for September 2012 as determined by the U.S. Department of Labor, Bureau of Labor Statistics (BLS). See http://www.bls.gov/news.release/archives/ecec_12112012.pdf. The BLS determined the hourly compensation (which includes wages, salaries, and benefits) for civilian workers to be $30.80. In addition, ATF estimates that each legal entity has an average of two responsible persons, an estimate that is based on ATF's review of 39 recent randomly selected paper (hardcopy) applications for corporations, LLCs, and trusts. ATF welcomes comments from the industry and other members of the public regarding the accuracy of its assumptions and estimates.

In calendar year (CY) 2012, ATF received 84,435 applications that were either ATF Forms 1, 4, or 5. Of these, 40,700 applications were for unlicensed legal entities (e.g., corporations, companies, and trusts) to make or receive an NFA firearm; 29,448 were for individuals to make or receive an NFA firearm; and 14,287 were for government agencies or qualified Federal firearms licensees (Gov/FFLs) to make or receive an NFA firearm. The numbers of applications, by Form and submitting individual or entity, are set forth below.

Under the proposed rule, a legal entity would be required to complete the following steps in addition to completing the applicable Form 1, 4, or 5 before it is permitted to make or receive an NFA firearm:

1. Complete and submit proposed Form 5320.23 for each responsible person;

2. Submit fingerprints, photographs, and CLEO certificate for each responsible person; and

3. Submit a copy of the documentation that establishes the legal existence of the legal entity.

In addition, under the proposed rule, information required on the existing ATF Form 5330.20 would be incorporated into the ATF Forms 1, 4, and 5.

The proposed rule would require legal entities to complete and submit to ATF a new form (Form 5320.23), photographs, fingerprint cards, and a CLEO certificate for each responsible person before the legal entity is permitted to make or receive an NFA firearm. The information required on Form 5320.23 would include the responsible person's name, position, home address, social security number (optional), date and place of birth, and country of citizenship. The identifying information for each responsible person is necessary in order for ATF, and possibly state and local law enforcement, to conduct a background check on each individual to ensure the individual is not prohibited from possessing an NFA firearm under federal, state, or local law.

ATF estimates the time for each responsible person to complete Form 5320.23 to be 10 minutes. Based on an estimate of 2 responsible persons per legal entity and 40,700 entities, the estimated annual cost of proposed Form 5320.23 is $417,854 (10 minutes at $30.80 per hour × 40,700 × 2).

ATF estimates that:

• The cost of the photographs is $8.00 (cost based on the average of the costs determined for seven large retailers); and

• The time needed to procure photographs is 50 minutes.

Currently, only individuals must obtain and submit photographs to ATF. Based on an estimate of 29,448 individuals, the current estimated cost is $991,416. (Cost of Photographs = $8.00 × 29,448 = $235,584; Cost to Procure Photographs = 50 minutes at $30.80 per hour × 29,448 = $755,832). Under the proposed rule, costs for individuals would remain the same, but legal entities would incur new costs. Each responsible person of a legal entity would be required to obtain and submit photographs. Based on an estimate of 2 responsible persons per entity and 40,700 entities, the estimated cost for legal entities to obtain and submit photographs is $2,740,467. (Cost of Photographs = $8.00 × 40,700 × 2 = $651,200; Cost to Procure Photographs = 50 minutes at $30.80 per hour × 40,700 × 2 = $2,089,267).

ATF has reviewed various fingerprinting services. At the present time, ATF is only able to accept fingerprints on hard copy fingerprint cards. Thus, the cost estimates are based on the submission of two fingerprint hard copy cards for each responsible person.

• The estimated cost of the fingerprints is $24.00 (cost based on the average of the costs determined for seven fingerprint services); and

• The estimated time needed to procure the fingerprints is 60 minutes.

Currently, only individuals must obtain and submit fingerprints. Based on an estimate of 29,448 individuals, the current estimated cost is $1,613,750. (Cost of Fingerprints = $24.00 × 29,448 = $706,752; Cost to Procure Fingerprints = 60 minutes at $30.80 per hour × 29,448 = $906,998). Under the proposed rule, costs for individuals would remain the same, but legal entities would incur new costs. Each responsible person of a legal entity would be required to obtain and submit fingerprints to ATF. Based on an estimate of 2 responsible persons per entity and 40,700 entities, the estimated cost for legal entities to obtain and submit fingerprints is $4,460,720. (Cost of Fingerprints = $24.00 × 40,700 × 2 = $1,953,600; Cost to Procure Fingerprints = 60 minutes at $30.80 per hour × 40,700 × 2 = $2,507,120).

ATF estimates that the time needed for a responsible person to procure the CLEO certificate is 100 minutes (70 minutes travel time and 30 minutes review time with the CLEO). Based on an estimate of 2 responsible persons per legal entity and 40,700 entities, the estimated cost for legal entities to obtain CLEO certificate is $4,178,533 (100 minutes at $30.80 per hour × 40,700 × 2).

A legal entity that is applying to make or receive an NFA firearm must provide to ATF documentation evidencing the existence and validity of the entity—e.g., copies of partnership agreements, articles of incorporation, corporate registration, declarations of trust with any trust schedules, attachments, exhibits, and enclosures. Currently, legal entities may submit this documentation with their application package, although they are not required to do so. Therefore, ATF will treat the costs for documentation as new costs. ATF accepts, and will continue to accept, photocopies of the documents without notarization. ATF based the cost estimate by determining the average number of pages in the corporate or trust documents for 50 recent randomly selected paper (hardcopy) submissions, which was 15 pages.

ATF estimates that:

• The cost of the copied documentation is $1.50 ($.10 per page at 15 pages); and

• The time needed to copy attachments is 5 minutes.

Assuming 40,700 entities would provide ATF this documentation each year, the estimated annual cost to submit the documentation is $165,513. (Cost of documentation = $1.50 × 40,700 = $61,050; Cost to copy attachments = 5 minutes at $30.80 per hours × 40,700 = $104,463). This cost is not dependent on the number of responsible persons associated with a legal entity. ATF notes that the estimated cost is likely to be lower if the entity already has filed the documents with ATF as part of a recent making or transfer application and the information previously provided has not changed. Under these circumstances, the entity can certify to ATF that the documentation is on file and is unchanged.

Currently, both individuals and legal entities must complete and mail Form 1, 4, or 5. This proposed rule should not change the costs associated with this process. Even if there are multiple responsible persons associated with a legal entity, the legal entity still would be completing and mailing one Form 1, 4, or 5.

The estimated costs to legal entities that are discussed above are summarized in Tables B(1) and B(2). The total estimated new cost of the proposals for legal entities to provide to ATF identification information for each of its responsible persons is $11,963,087 annually.

ATF incurs costs to process forms, fingerprint cards, photographs, and to conduct and review background checks. Currently, ATF incurs these costs for the 29,448 applications for individuals to make or receive NFA firearms. Under the proposed rule, ATF would incur these costs for applications for legal entities to make or receive NFA firearms. ATF estimates that:

• ATF's cost for FBI to process a set of fingerprints is $14.50. (The cost is based on FBI's current fee, which is set by statute on a cost recovery basis.)

• The estimated cost for an examiner at ATF's NFA Branch to conduct and review the results of a background check is $7.70 (15 minutes at $30.80 per hour); and

• The estimated cost to print the new 5320.23 forms is $.01 per form.

Based on an estimate of 2 responsible persons per legal entity and 40,700 entities, the estimated cost for ATF to process forms, fingerprint cards, photographs, and to conduct and review background checks for applications for legal entities to make or receive firearms is $1,807,894 annually. (Cost for processing fingerprints = $14.50 × 40,700 × 2 = $1,180,300; Cost for background checks = $7.70 × 40,700 × 2 = $626,780; Cost to print forms = $.01 × 40,700 × 2 = $814).

Throughout this document, “we,” “us,” and “our” means EPA.

The EPA is proposing to approve a revision to the Texas State Implementation Plan (SIP) for the Houston-Galveston-Brazoria (HGB) ozone nonattainment area submitted by the Texas Commission on Environmental Quality on April 1, 2010, and an updated revision using the MOVES2010a  1 mobile model submitted on May 6, 2013. We are proposing to approve the following SIP elements: The revised emission inventory (EI); the reasonable further progress plan (RFP) and contingency measures; the vehicle miles traveled (VMT) offset analysis; and the associated motor vehicle emission budget (MVEB) for transportation conformity. The SIP revision satisfies the EI, RFP, VMT offset, and MVEB requirements for areas classified as severe nonattainment for the 1997 8-hour ozone national ambient air quality standard (NAAQS) and demonstrates reasonable further progress in reducing ozone precursors. We are proposing to take this action pursuant to section 110 and part D of the Clean Air Act (Act or CAA) and EPA's regulations.

In 1997 (62 FR 38856), the EPA revised the health-based NAAQS for ozone, setting it at 0.08 parts per million (ppm) averaged over an 8-hour time frame. The EPA set the 8-hour ozone standard based on scientific evidence demonstrating that ozone causes adverse health effects at lower ozone concentrations and over a longer period of time than was understood when the pre-existing 1-hour ozone standard was set. The EPA determined that the 8-hour standard would be more protective of human health, especially children and adults who are active outdoors, and individuals with a pre-existing respiratory disease, such as asthma.

On April 30, 2004 (69 FR 23858), the EPA finalized its attainment/nonattainment designations for areas across the country with respect to the 8-hour ozone standard. These actions became effective on June 15, 2004. Among those areas designated as nonattainment is HGB.

This designation triggered the CAA's section 110(a)(1) requirement that states must submit attainment demonstrations for their nonattainment areas to the EPA by no later than three years after the promulgation of the NAAQS. Accordingly, EPA's phase I 8-hour ozone implementation rule (Phase I Rule), published on April 30, 2004 (69 FR 23951), specified that states must submit attainment demonstrations for their nonattainment areas to the EPA by no later than three years from the effective date of designation, that is, by June 15, 2007.

Pursuant to the Phase 1 rule, an area was classified under subpart 2 of the CAA based on its 8-hour design value if that area had a 1-hour design value at or above 0.121 ppm (the lowest 1-hour design value in Table 1 of subpart 2). Based on this criterion, the HGB nonattainment area was classified as a moderate nonattainment area.

On November 29, 2005 (70 FR 71612), and as revised on June 8, 2007 (72 FR 31727), EPA published the final Phase 2 Rule for implementation of the 8-hour standard (Phase 2 rule). The Phase 2 rule addressed the RFP control and planning obligations as they apply to areas designated nonattainment for the 1997 8-hour ozone NAAQS.

Among other things, the Phase 1 and Phase 2 rules outline the SIP requirements and deadlines for various requirements in areas designated as moderate and above nonattainment. The rule further requires that modeling and attainment demonstrations, RFP plans, reasonably available control measures (RACM), projection year emission inventories, MVEB, and contingency measures were all due by June 15, 2007 (See 40 CFR 51.908(a), (c)).

Section 182(b)(1) of the CAA and EPA's 1997 8-hour ozone implementation rule (40 CFR 51.910) require each 8-hour ozone nonattainment area designated moderate and above to submit an EI and RFP plan, for review and approval into its SIP, that describe how the area will achieve actual emissions reductions of VOC and NO X from a baseline emissions inventory.

On June 15, 2007, the EPA received a request from Texas Governor Perry seeking voluntary reclassification of the HGB nonattainment area from moderate to severe nonattainment under the 1997 8-hour ozone standard. The EPA reclassified the eight-county HGB area from a moderate to a severe nonattainment area for the 1997 eight-hour ozone National Ambient Air Quality Standard (NAAQS) effective on October 31, 2008. (73 FR 56983). Reclassification of the HGB area to severe required Texas to develop and submit a revised RFP SIP and a VMT offset analysis.

The EPA's analysis and findings are discussed in this proposed rulemaking. A more detailed discussion is contained in the Technical Support Document (TSD) for this Proposal, which is available on line at http://www.regulations.gov, Docket number EPA-R06-OAR-2010-0333.

On April 1, 2010, Texas submitted an updated emission inventory, a plan demonstrating 18 percent RFP for the period 2002-2008, contingency measures for RFP, and on-road VOC and NO X MVEBs. In addition, the RFP demonstrated 9% reductions from 2009 through 2011; 9% reductions from 2012 through 2014; 9% reductions from 2015 through 2017; 3% reductions in 2018; and 3% reductions in 2019 for contingency purposes. These accompanied an attainment demonstration which is the subject of a separate rulemaking. These SIP revisions were subject to notice and comment by the public, and the State of Texas addressed the comments received on the proposed SIP revisions. The State revised the EI and the RFP in a submittal dated May 6, 2013, using EPA's MOVES2010a mobile model in place of MOBILE6 that was used in the 2010 submittal.

An emissions inventory is a comprehensive, accurate, current inventory of actual emissions from all sources of the relevant pollutant or pollutants in an area and is required by section 172(c)(3) of the CAA. For ozone nonattainment areas, the emissions inventory needs to contain VOC and NO X emissions because these pollutants are precursors to ozone formation. In the Phase 2 implementation rule, the EPA recommended 2002 as the base year emissions inventory, 2 and is therefore the starting point for calculating RFP. Texas submitted the 2002 base year inventories for all state nonattainment areas on May 13, 2005. The EPA approved the HGB emission inventory on April 22, 2009 (74 FR 18298). The April 2010 and May 2013 submittals provide an updated base year inventory using MOVES2010a.

EPA is proposing to approve revisions to the 2002 Base Year Emissions Inventory. Table 1 provides the 2002 emissions inventory as previously submitted in 2005 and approved in 2009 with the updated 2010 inventory revised and adopted by Texas in 2013 for approval into the SIP.

A summary of the updated 2002 base year inventory submitted May 6, 2013 is shown in Table 2 below.

The process for determining the emissions baseline from which the RFP reductions are calculated is described in section 182(b)(1) of the CAA and 40 CFR 51.910. This baseline value is the 2002 adjusted base year inventory. Sections 182(b)(1)(B) and (D) require the exclusion from the base year inventory of emissions benefits resulting from the Federal Motor Vehicle Control Program (FMVCP) regulations promulgated by January 1, 1990, and the Reid Vapor Pressure (RVP) regulations promulgated June 11, 1990 (55 FR 23666). The FMVCP and RVP emissions reductions are determined by the State using EPA's highway mobile source emissions model software, MOVES2010a. The FMVCP and RVP emission reduction are then removed from the base year inventory by the State, resulting in an adjusted base year inventory. The emission reductions needed to satisfy the RFP requirement are then calculated from the adjusted base year inventory. The reductions are then subtracted from the adjusted base year inventory to establish the emissions target for the RFP milestone year (2018).

For severe areas like the HGB nonattainment area, the CAA § 182(c)(2)(B) specifies a 15 percent reduction in ozone precursor emissions over an initial six-year period, and an additional three percent per year for every year thereafter until the attainment year. In the Phase 2 rule, EPA provided that areas that were also designated nonattainment and classified as moderate or higher for the 1-hour ozone standard and that have the same boundaries as an area for which the EPA fully approved a 15 percent plan for the 1-hour NAAQS, are considered to have met the requirement of section 182(b)(1) of the CAA for the 8-hour NAAQS. In this situation, a severe nonattainment area is subject to RFP under 172(c)(2) of the CAA and shall submit, no later than three years after designation for the 8-hour NAAQS, a SIP revision that meets the requirements of 40 CFR 51.910(b)(2). The RFP SIP revision must provide for a 15 percent emission reduction (of NO X and/or VOC) accounting for any growth that occurs during the six year period following the baseline emissions inventory year, i.e., 2002-2008.

The HGB nonattainment area had the same boundary under the 1-hour ozone standard as that of the 8-hour ozone standard. The HGB area under the 1-hour ozone standard was classified as severe. The EPA approved the HGB 15 percent RFP plan on April 22, 2009 (74 FR 18298). Therefore, according to the Phase 2 Rule, the RFP plan for the HGB nonattainment area may use either NO X or VOC emissions reductions (or both) to achieve the 15 percent emission reduction requirement.

According to section 182(b)(1)(D) of the CAA, emission reductions that resulted from the FMVCP and RVP rules promulgated prior to 1990 are not creditable for achieving RFP emission reductions. Therefore, the 2002 base year inventory is adjusted by subtracting the VOC and NO X emission reductions that area expected to occur between 2002 and the future milestone years due to FMVCP and RVP rules.

Texas sets out its calculations for the adjusted base year (ABY) inventory and milestone target levels in Chapter 2, section 2.5.3 of the 2010 submittal and Chapter 2, section 2.5 of the 2013 submittal, according to the following method. See the calculations in Table 3 below.

Step 1. Estimate the actual anthropogenic base year inventory for both VOC and NO X in 2002 with all 2002 control programs in place.

Step 2. Using the same highway vehicle activity inputs used to calculate the actual 2002 inventory, run the appropriate motor vehicle emissions model for 2002 and for 2008 with all post-1990 CAA measures turned off. Any other local inputs for vehicle inspection and maintenance (I/M) programs should be set according to the program that was required to be in place in 1990. Fuel RVP should be set at 9.0 or 7.8 depending on the RVP required in the local area as a result of fuel RVP regulations promulgated in June 1990.

Step 3. Calculate the difference between 2002 and 2008 VOC emissions factors calculated in Step 2 and multiply by 2002 VMT. The result is the VOC emissions reductions that will occur between 2002 and 2008 without the benefits of any post-1990 CAA measures. These are the non-creditable VOC reductions that occur over this period. Calculate the difference between 2002 and 2008 NO X emissions factors calculated in Step 2 and multiply by 2002 VMT. This result is the NO X emissions reductions that will occur between 2002 and 2008 without the benefits of any post-1990 CAA measures. These are the non-creditable NO X reductions that occur over this period.

Step 4. Subtract the non-creditable VOC reductions calculated in Step 3 from the actual anthropogenic 2002 VOC inventory estimated in Step 1. Subtract the non-creditable NO X reductions calculated in Step 3 from the actual anthropogenic 2002 NO X inventory estimated in Step 1. These adjusted VOC and NO X inventories are the basis for calculating the target level of emissions in 2008.

Step 5. The target level of VOC and NO X emissions in 2008 needed to meet the 2008 rate of progress ROP requirement is any combination of VOC and NO X reductions from the adjusted inventories calculated in Step 4 that total 18 percent.

Texas describes its methods used for developing its 2018 projected VOC and NO X inventories in Chapter 2 of the 2010 SIP submittal. EPA reviewed the procedures Texas used to develop its projected inventories and found them to be reasonable.

Projected controlled 2018 emissions for the HGB nonattainment area are summarized in Tables 4 and 5.

To determine if 2018 RFP is met in the HGB nonattainment area, the total projected controlled emissions must be compared to the target levels calculated in the previous section of this document. As show below in Table 6, the total VOC and NO X emission projections meet the 2018 emission targets. Therefore, the 2018 RFP in the HGB nonattainment area is demonstrated.

The control measures upon which Texas relies for credit to demonstrate RFP requirements for the HGB nonattainment area are described in Chapter 4 of the 2010 SIP submittal. To demonstrate RFP for the HGB nonattainment area, Texas used a combination of (1) stationary point, (2) highway mobile, and (3) non-road mobile source control measures.

Stationary point source NO X reductions are from the mass emissions cap and trade program (MECT). The MECT program is mandatory for stationary facilities that emit NO X in the HGB ozone nonattainment area (at sites that have a collective design capacity of 10 tons per year or more) and which are subject to the Texas Commission on Environmental Quality NO X rules as found at 30 TAC Chapter 117. Non-road emission reductions are from Federal controls on non-road engines. Reduction in on-road mobile source emissions are from the inspection and maintenance (I/M) program, summer reformulated gasoline, the Federal Motor Vehicle Control Program (FMVCP), and the Texas low emission diesel (TxLED) program.

The EPA initially approved the MECT rules on November 14, 2001 (66 FR 571252). The most recent revision to these rules was on July 16, 2009 (74 FR 34503). All non-road, summer RFG and the FMVCP are federal programs. The I/M program was initially approved November 14, 2001 (66 FR 57268), with the most recent revision on September 6, 2006 (71 FR 52670). The TxLED program was initially approved November 14, 2001 (66 FR 57196), with the most recent revision on May 6, 2013 (78 FR 26255). Emission reductions from these control measures are summarized in Tables 5 and 6 above.

Section 172(c)(9) of the CAA requires a state with a moderate or above ozone nonattainment area to include sufficient additional contingency measures in its RFP plan in case the HGB nonattainment area fails to meet RFP requirements. The same provision of the CAA also requires that the contingency measures must be fully adopted control measures or rules. Upon failure to meet and RFP milestone requirement, the state must be able to implement the contingency measures without any further rulemaking activities. Upon implementation of these measures, additional emission reductions of at least 3 percent of the adjusted 2002 baseline must be achieved. For more information on contingency measures, see the April 16, 1992 General Preamble (57 FR 13498, at 13512) and the November 29, 2005 Phase 2 8-hour ozone implementation rule (70 FR 71612).

To meet the requirements for contingency emission reductions, the EPA interprets the CAA to allow for the use of early implementation of control measures as contingency measures. The EPA also interprets the CAA to allow for the substitution of NO X emission reductions for VOC emission reductions in the contingency plans (by any combination of NO X and VOC, as long as the 3 percent reduction is achieved and 0.50 percent of the total is attributable to VOCs as prescribed by Texas).

The RFP contingency requirement may be met by including in the RFP plan a demonstration of 27 percent VOC and NO X RFP reductions. The additional 12 percent above the 15 percent requirement must be attributed to specific measures. Texas elected to use emission reductions in excess of those needed for RFP as the contingency measures for the HGB RFP SIP. Tables 7-47 and 7-48 in the state's submittal show how this is done. Table 7 below summarizes these calculations and results for the 2018 attainment year. Contingency measures for the 2008-2017 milestone years were calculated in a similar manner.

To determine if Texas meets the 3 percent contingency measure requirement for the HGB nonattainment area, the total projected controlled emissions (including growth, but excluding reductions from the non-creditable pre-1990 FMVCP) must be compared to the contingency measure target levels calculated above. Texas has sufficient early contingency measures in place to meet the contingency measure requirement for the HGB nonattainment area for purposes of demonstrating RFP in the attainment year and in the milestone years.

Section 182(d)(1)(A) of the Act directs states containing ozone nonattainment areas classified as severe, pursuant to section 181(a) of the Act, to adopt specific enforceable transportation control strategies (TCSs) and transportation control measures (TCMs) to offset increases in emissions resulting from growth in vehicle miles traveled (VMT) or numbers of vehicle trips and to obtain reductions in motor vehicle emissions as necessary (in combination with other emission reduction requirements) to comply with the Act's RFP milestones (sections 182(b)(1) and (c)(2)(B)) and attainment demonstration requirements (section 182(c)(2)(A)). Section 182(d)(1)(A) of the Act directs states to submit the VMT Offset SIP by November 15, 1992, for any severe and above ozone nonattainment area. Texas has one severe 1997 8-hour ozone nonattainment area, the HGB area, with an attainment deadline of 2018.

The EPA originally interpreted section 182(d)(1)(A) in the April 16, 1992, General Preamble to Title I of the Act (57 FR 13498, 13521-13523). In that interpretation, EPA allowed areas to meet the requirement by using the aggregate motor vehicle emissions from a prior year as the appropriate baseline against which to measure the change in emissions to determine whether VMT offsets are required. In other words, a plan was approvable if it showed decreases in aggregate year-over-year motor vehicle emissions from a base year through the applicable attainment year. EPA applied this interpretation in approving numerous states' VMT offset demonstrations, including our 2001 approval of the HGB area's first VMT offset demonstration. Although a commenter objected to this interpretation in our 2001 approval, it did not challenge it in court. However, EPA's historical interpretation of section 182(d)(1)(A), as applied to California's 2003 South Coast 1-Hour Ozone SIP, was finally challenged in the U.S. Court of Appeals for the 9th Circuit. In 2011, that court rejected EPA's interpretation, stating that section 182(d)(1)(A) requires VMT offsets if there is “any increase in the level of emissions solely from VMTs (italics added).”  3 The court explained that EPA incorrectly interpreted the phrase “growth in emissions” as meaning a growth in “aggregate motor vehicle emissions” versus a growth solely from VMT. As a result, the court held that EPA should have required the State to implement TCMs to offset growth in emissions from growth in VMT. However, the Court acknowledged that “clean car technology” advances could result in there being no increase in emissions even in the face of VMT growth, which would then allow VMT to increase without triggering the requirement to adopt offsetting TCMs. In response to the court's decision, EPA provided new guidance for states with severe or above areas. The guidance, Implementing Clean Air Act Section 182(d)(1)(A): Transportation Control Measures and Transportation Control Strategies To Offset Growth in Emissions Due to Growth in Vehicle Miles Travelled, 4 recommends that both TCSs and TCMs should be included in calculations for the purpose of determining the degree to which any hypothetical growth in emissions due to growth in VMT should be offset.

The approved HGB 1-hour ozone attainment demonstration (November 14, 2001, 66 FR 57160) relies on the EPA approval of a VMT Offset analysis dated November 14, 2001 (66 FR 57247). On May 6, 2013, the State submitted an analysis based on the new EPA guidance, which demonstrates how the HGB area meets the VMT Offset requirement of CAA 182(d)(1)(A). This was done in concert with the revised emission inventory, the RFP, and the MVEBs for 2018.

The August 2012 guidance cited above explains how States may demonstrate that the VMT offset requirement is satisfied. States are recommended to estimate emissions for two different years: The nonattainment area's base year and three different scenarios for the attainment year. One emission inventory is developed for the base year and three different inventory scenarios are developed for the attainment year. For the attainment year the state would present three emissions estimates, two of which would represent hypothetical emissions scenarios that would provide the basis to identify the “growth in emissions” due solely to growth in VMT, and one that would represent projected actual motor vehicle emissions after fully accounting for projected VMT growth and offsetting emissions reductions obtained by all creditable TCMs and TCSs. See the guidance for specific details on how states might conduct the calculations. To properly construct these inventories, a special version of MOVES2010 was provided to the State, MOVES2010bROP, which was designed by EPA to be used exclusively for VMT Offset demonstrations. MOVES2010bROP is identical to the original April 2012 release of MOVES2010b except that it allows users to set a base year other than 1990 for the purposes of the VMT offset calculation.

The base year (2002) on-road VOC emissions should be based on VMT in that year and it should reflect all enforceable TCSs and TCMs in place in the base year. This would include the vehicle emissions standards, State and local control programs such as inspection and maintenance programs or fuel rules, and any additional implemented TCSs and TCMs that were already required by or credited in the SIP as of that base year.

The first of the attainment year emissions calculations for the attainment year (2018) would be based on the projected VMT for that year, and assume that no new TCSs or TCMs beyond those already credited in the base year inventory have been put in place since the base year. This calculation demonstrates how emissions would hypothetically change if no new TCSs or TCMs were implemented, and VMT was allowed to grow at the projected rate from the base year. This estimate would show the potential for an increase in emissions due solely to growth in VMT. This represents a no-action-taken scenario. Emissions in the attainment year may be lower than those in the base year due to the fleet that was on the road in the base year gradually being replaced through fleet turnover, but they would still be higher than they would have been assuming VMT had held constant.

The second of the attainment year's emissions calculations for the attainment year would also assume that no new TCSs or TCMs beyond those already credited were added or implemented after the base year and would also assume that there was no growth in VMT between the base year and attainment year. This estimate would reflect the hypothetical emissions level that would have occurred had no further TCMs or TCSs been adopted or implemented and had VMT levels held constant. Like the first estimate, emissions in the attainment year may be lower than those in the base year due to the fleet that was on the road in the base year gradually being replaced through fleet turnover, but in this case they would not be influenced by any growth in VMT. This emissions estimate would reflect a ceiling on the emissions that should be allowed to occur under the statute as interpreted by the Court in the attainment year because it shows what would happen under a scenario in which no new TCSs or TCMs are put in place and VMT is “held constant” during the period from the area's base year to its attainment year. This represents a VMT ceiling scenario. This hypothetical status quo is a necessary step in identifying the target level of emissions from which states would determine whether further TCMs or TCSs would need to be adopted and implemented in order to offset “any increase in emissions due solely to VMT” as shown by the first calculation. The comparison of these first two calculations would thus identify whether there is a hypothetical growth in emissions from growth in VMT that would need to be offset.

Finally, the state would present the emissions that are actually expected to occur in the area's attainment year, giving credit to all enforceable post-baseline-year added and credited TCSs and TCMs that have actually been adopted. This estimate would be based on the VMT that is expected to occur in the attainment year (i.e., the VMT level from the first estimate) and all of the TCSs and TCMs that are in reality expected to be in place and for which the SIP will take credit in the area's attainment year, including any TCMs and TCSs adopted and credited since the baseline year. This represents the Attainment Year scenario (or the “actual” scenario). If this emissions estimate is less than or equal to the emissions ceiling that was established in the second of the attainment year calculations, the credited TCSs or TCMs for the attainment year would be sufficient to already offset the hypothetical growth in emissions represented by comparing the first two calculations. If, instead, the estimated attainment year emissions are greater than the ceiling which was established in the second of the emissions attainment year calculations, the state would need to implement additional TCSs or TCMs to further offset the growth in emissions and bring the actual emissions down to at least the “had VMT held constant” ceiling estimated in the second of the attainment year calculations.

The May 6, 2013 VMT analysis provides a 2002 base year inventory based on VMT in that year and includes all enforceable TCSs and TCMs in place in that base year of 2002. It also provides the three different scenarios for the attainment year inventories including the No-Action scenario, the VMT Offset Ceiling scenario, and the 2018 Attainment Year (actual) scenario, as described above. These were prepared using MOVES2010bROP, as provided by EPA specifically for the VMT offset analysis. In addition, for the actual scenario, the State clearly identified all enforceable post-base year TCMs and TCSs, relied upon in the attainment demonstration SIP submittal. These include, among other things, the vehicle inspection and maintenance, federal on-road and non-road emission control programs, and state and federal clean fuel programs. 5 A comparison of the 2018 attainment year inventory with the VMT Offset Ceiling scenario's results (step 3 in the guidance) shows that the emissions level calculated in step 4 is less than the emissions level calculated in step 3. See Table 8 below and Table 7-45 in the May 6, 2013 submittal.

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

Ground level ozone is formed when NO X and volatile organic compounds (VOC) react in the presence of sunlight. These two pollutants, referred to as ozone precursors, are emitted by many types of pollution sources, including on-road and non-road motor vehicles and engines, power plants and industrial facilities, and smaller area sources such as lawn and garden equipment and paints. See 77 FR 30088, 30089 (May 21, 2012). Breathing ozone can trigger a variety of health problems including chest pain, coughing, throat irritation, and congestion. It can worsen bronchitis, emphysema, and asthma. Ground level ozone also can reduce lung function and inflame the linings of the lungs. Repeated exposure may permanently scar lung tissue. See 77 FR 30088, 30089 (May 21, 2012). For more information on ground level ozone please see http://epa.gov/airquality/ozonepollution.

In 1979, under section 109 of the CAA, EPA established primary and secondary NAAQS for ozone at 0.12 parts per million (ppm) averaged over a 1-hour period. See 44 FR 8202 (February 8, 1979). Primary standards are set to protect human health while secondary standards are set to protect public welfare. On July 18, 1997, EPA revised the primary and secondary NAAQS for ozone to set the acceptable level of ozone in the ambient air at 0.08 ppm, averaged over an 8-hour period. See 62 FR 38856 (July 18, 1997). EPA set the 8-hour ozone standard based on scientific evidence demonstrating that ozone causes adverse health effects at lower concentrations and over longer periods of time than was understood when the pre-existing 1-hour ozone standard was set. EPA determined that the 8-hour standard would be more protective of human health, especially children and adults who are active outdoors, and individuals with a pre-existing respiratory disease, such as asthma. 1

In 2004, we classified the HGB area (Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery and Waller counties) as a moderate ozone nonattainment area for the 1997 ozone NAAQS. See 69 FR 23858 (April 30, 2004). In 2007, at the request of the State, and under CAA section 181(b)(3), we reclassified the HGB area to severe calling for attainment as expeditiously as practicable but no later than June 15, 2019. See 73 FR 56983 (October 1, 2008). Since 2018 is the first full year before the attainment deadline, we will judge attainment based on data through the end of 2018 and therefore, we refer to 2018 as the attainment year.

States must implement the 1997 8-hour ozone standard under Title 1, Part D of the CAA, which includes section 172, “Nonattainment plan provisions,” and subpart 2, “Additional Provisions for Ozone Nonattainment Areas” (sections 181-185). We promulgated a regulation to implement the 1997 ozone NAAQS at 40 CFR part 51, subpart X (Provisions for Implementation of 8-hour Ozone National Ambient Air Quality Standard). The regulation addresses the requirements for modeling and attainment demonstrations, reasonably available control technology and measures (RACT and RACM), reasonable further progress (RFP), contingency measures, and new source review.

When we reclassified the HGB area, we also identified the SIP requirements for the area. The requirements being addressed in this notice are: (1) An attainment demonstration (40 CFR 51.908), (2) provisions for RACM (40 CFR 51.912), and (3) contingency measures to be implemented in the event of failure to attain the standard by the applicable attainment date (CAA 172(c)(9) and 182(c)(9)). In order to approve the attainment demonstration for the area we must also approve: (1) The measures relied on as necessary to demonstrate attainment, (2) an attainment MVEB for transportation conformity purposes, and (3) the RFP plan and the RFP contingency measures. See Sierra Club v. EPA, 294 F.3d 155, 163, (D.C. Cir. 2002). Some measures, relied upon as necessary for attainment, have been previously approved (section II.B.5). We are proposing to approve additional measures relied on as necessary to demonstrate attainment, and an attainment MVEB for 2018. In a separate proposal, we are addressing the RFP and RFP contingency measures requirements. 2 Current information on the status of HGB area SIP requirements for the 1997 ozone NAAQS can be found at: http://epa.gov/air/urbanair/sipstatus.

CAA section 172(c)(6) requires the attainment demonstration to include enforceable emission limitations, and such other control measures, means or techniques as well as schedules and timetables for compliance, as may be necessary to provide for attainment by the applicable attainment date. In order to be considered in the modeling, the measures must be permanent, enforceable and quantifiable. See 57 FR 13498, 13567 (April 16, 1992).

CAA sections 110(a)(1) and (2) and 110(l) require a state to provide reasonable public notice and opportunity for public hearing prior to the adoption and submission of a SIP or SIP revision. To meet this requirement, every SIP submittal should include evidence that adequate public notice was given and an opportunity for a public hearing was provided consistent with EPA's implementing regulations in 40 CFR 51.102.

On April 6, 2010, Texas submitted for the HGB area: (1) An attainment demonstration, (2) revisions to the MECT program to protect the integrity of the NO X cap in the HGB area, (3) revisions to the HECT program to reduce the HRVOC cap by 25% in Harris County and provide for a more equitable distribution of the HECT allowances, and (4) revisions to the General Air Quality definitions applicable to the entire Texas SIP.

On May 6, 2013, Texas submitted an update to the attainment demonstration. The update included: (1) Revised on-road mobile source emissions inventories and MVEBs using the more recent EPA MOVES mobile source emissions estimation model, (2) an update of the contingency measures analysis, and (3) updated discussions of emissions inventory, photochemical modeling, control strategies and required elements, and weight-of-evidence that the area will attain by its attainment date.

In addition to the revisions submitted on April 6, 2010, Texas previously submitted SIP revisions to the General Air Quality Definitions (30 TAC 101.1) on August 16, 2007. Texas later submitted additional revisions to 30 TAC 101.1 on March 11, 2011.

Each of the above identified submittals was given proper hearing and public notice by Texas as required by 40 CFR 51.102 and evidence of this was provided in the SIP submittal. Please see the submittals found in the electronic docket and our technical support document (TSD).

We have prepared a TSD for this rulemaking which details our evaluation. Our TSD may be accessed online at http://www.regulations.gov, Docket No. EPA-R06-OAR-2013-0387.

Below, we briefly discuss the steps necessary to build an attainment demonstration, including photochemical modeling and supplemental weight of evidence and our evaluation of Texas' performance of these steps. Please see the TSD for this action for our full evaluation and conclusions.

1. Attainment Demonstration General. CAA 182 (c)(2)(A), and 40 CFR 51.908, 51.112, and Part 51 Appendix W—Guideline on Air Quality Models require that attainment demonstrations for ozone nonattainment areas classified as moderate or higher (severe in this case) be conducted with photochemical grid modeling or an equivalent technique approved by EPA. The CAA and regulations (including Appendix W) do not prescribe a specific photochemical grid model, but allow for EPA to judge the suitability of a model by considering multiple factors. These factors include choice of episode(s), emissions and meteorological inputs, model formulation, databases used, and how the model is used in the attainment test. Texas used the Comprehensive Air Quality Model with Extensions (CAMx) photochemical grid model in its demonstration that the control strategies for the HGB area will achieve attainment by 2018. The Texas Commission on Environmental Quality (TCEQ) also included a TSD, a number of appendices, and numerous electronic files that document model formulation, databases used, assumptions, judgements, evaluations of control strategy impacts, etc. EPA reviewed the available information and concluded that the use of CAMx is acceptable and TCEQ's modeling and documentation meets the photochemical modeling demonstration requirements of the CAA and 40 CFR 51.908, 51.112, and Part 51 Appendix W. Also, as allowed under EPA policy, TCEQ has introduced other evidence, referred to as weight of evidence, to supplement the modeling analysis.

2. Photochemical Grid Modeling. Photochemical grid models are the state-of-the-art method for predicting the effectiveness of control strategies in reducing ozone levels. The model uses a three-dimensional grid to represent conditions in the area of interest. In this case, TCEQ has developed a grid system that stretches from beyond Austin to the West, to the Atlantic Ocean to the East, to southern Canada to the North and into the Gulf of Mexico to the South. The model uses nested grid cells of 36 kilometers (km) on the outer portions, 12 km in east Texas and portions of nearby States, a 4 km grid cell covering the HGB and Beaumont Port Arthur (BPA) areas and a refined 2 km grid covering the HGB area. For more information on the modeling domain, please see Appendix A of the TSD. The model simulates the movement of air and emissions into and out of the three-dimensional grid cells (advection and dispersion); mixes pollutants upward and downward among layers; injects new emissions from sources such as point, area, mobile (both on-road and non-road), and biogenic into each cell; and uses chemical reaction equations to calculate ozone concentrations based on the concentration of ozone precursors and incoming solar radiation within each cell. Running the model requires large amounts of data regarding the emissions and meteorological conditions during an episode. Air quality planners choose historical episodes with high ozone levels to test the model. Modeling to duplicate conditions during a historical episode is referred to as the base case modeling and is used to verify that the model system can predict the historical ozone levels with an acceptable degree of accuracy. If the model can predict the ozone levels in the base case, it can then be used to project future ozone levels and the response of future ozone levels to proposed emission control strategies.

3. Modeling Episodes. Texas chose six recent historical episodes (2005: 5/19-6/3, 6/17-6/30, and 7/26-8/8; 2006: 5/31-6/15, 8/13-9/15, 9/16-10/11) that encompassed much of the time period of the Texas Air Quality Study (TexAQS II) 2005/6. During this study period, researchers from around the country participated in an intensive study of ozone formation in the HGB area, collecting additional meteorological and chemical data with the last two episodes occurring when the intensive field campaign occurred. This study provided a wealth of information to test the assumptions in the model. EPA believes that these episodes are acceptable episodes for development of the 1997 8-hour attainment plan. The episodes encompass a large number of exceedance days (55 days) and contain a variety of meteorological conditions which resulted in high concentrations of ozone in the area as measured on both a 1-hour and 8-hour basis. Day specific evaluation of these episode days confirms that overall, these episodes are representative of the conceptual model for high ozone in the HGB area. In summary, these episodes include most meteorological conditions that occur when ozone exceedances are monitored in HGB and the modeling and analyses were enhanced by having the TexAQS II field study data.

4. Modeling Emissions Inventory. TCEQ followed acceptable procedures for the development of the basecase inventory, following or building upon EPA guidance. They also included emissions during upsets and other day specific emissions. Despite these efforts, one of the original findings of the TexAQS 2000 study was that observed concentrations of certain compounds, especially light olefins such as ethylene and propylene, were much larger than represented in the reported emission inventory. As a result, TCEQ created an `imputed' inventory (approximately 5.8 times the reported levels for these HRVOC species) in its 1-hour ozone attainment SIP. TCEQ also instituted rules to better regulate the industrial point sources that emit these compounds with “HRVOC rules” in a 2004 SIP modification approved by EPA (71 FR 52656, September 6, 2006). The more recent 2005/6 field study confirmed that these measures resulted in lower levels of these pollutants (approximately 42% lower on average than 2000 levels) but the HRVOC levels were still under reported with ambient measurements indicating that actual emissions were an average of 2-3 times reported levels. Field study data also confirmed that emission inventory estimates of other VOCs, in addition to the HRVOCs, were also under estimated, but these VOCs are harder to attribute to a specific category as they could be emitted from mobile, area, and non-road categories in addition to industrial point sources. As a result, TCEQ adjusted the estimates of the HRVOCs in the 2005/6 basecase emission inventories. This reconciliation with ambient data was performed using a combination of wind data and measurements from the Auto Gas Chromatographs that measure 56 different VOC species. The reconciliation resulted in upward adjustments of facility HRVOC emissions better match the ambient data. The adjustments ranged from less than two times greater than reported to more than ten times greater than reported in some cases.

We believe that the method TCEQ has used to reconcile ambient HRVOC emissions data with reported emissions is a reasonable approach to addressing the concern that reported emissions, despite being based on accepted estimation technologies, do not result in emission estimates that are consistent with ambient measurements. In addition, the “reconciliation” approach is more sophisticated and more accurate than the “imputed” approach used in past SIP revisions for the HGB area. The inventory, based on this reconciliation technique, also improved model performance. We continue to encourage TCEQ to find and resolve the issues that are resulting in these discrepancies between reported and actual emissions. As TCEQ works on attaining the 2008 8-hour ozone NAAQS, resolving these underestimated emissions of HRVOCs and other VOCs will continue to be very important.

5. Model Performance. Model performance is a term used to describe how well the basecase model predicts the ozone levels in a historical episode(s). As models have to make numerous simplifying assumptions and the system being modeled is very complex, model predictions will never be perfect. EPA and TCEQ evaluate a number of times series, diagnostic, and statistical metrics for the meteorological analysis that is used in the photochemical modeling analysis. EPA has developed various diagnostic, statistical and graphical analyses that TCEQ employed to evaluate the model's performance and determine if the model is working adequately to test control strategies. Overall the modeling over-predicted some maxima on lower ozone days and under-estimated some maxima on the higher ozone days. In addition, modeled ozone values at night do not drop as much as monitored ozone levels. EPA notes that the model's general tendency to under-predict on high days and over-predict on low days raises some uncertainty in the control strategy modeling. While the model had some problems with predicting the maxima in the HGB area, overall, the performance was adequate for moving forward using 37 of the initial 55 exceedance days in the control strategy analysis.

6. Future Year Modeling. Once the basecase/baseline modeling of historical episodes has been completed, the periods (days) with acceptable model performance can then be used to project future year ozone levels by replacing the basecase/baseline emissions with emissions estimates for future years. TCEQ developed a 2018 emission inventory using recent emission data information and projection tools. TCEQ used the meteorology files from the basecase episodes for the 2018 modeling estimates. Using meteorology from historical episodes allows one to assess whether the lower projected 2018 emission levels would be expected to result in attainment of the standard if the same meteorology occurs. For further details about 2018 emissions estimates and how they were generated, see our TSD and TCEQ's materials supporting this action.

7. Results of 2018 Future Year Modeling. The results of 2018 modeling are shown in Table 1. In estimating if the modeling is predicting attainment or nonattainment in the future year, we use a ratio that is based on the average of the 8-hour daily maximums predicted around a monitor in the future divided by the average of the 8-hour daily maximum predicted in the basecase. This ratio is called a Relative Response Factor (RRF). The RRF for a monitor is multiplied by the basecase 5-year average Design Value (DV) to obtain a future 5-year average DV.

Table 1 shows that all of the regulatory monitors except Deer Park and Bayland Park are predicted to have 2018 DVs below the 1997 8-hour NAAQS. For a full explanation of how these projections were calculated, see our TSD. Table 1 also shows that the Wallisville Rd. monitor that TCEQ has labeled as non-regulatory is also projected to be above the 1997 8-hour NAAQS in 2018 modeled DV projections. We have evaluated TCEQ's DV projections and confirm that they followed EPA's attainment demonstration guidance and methods as required by 40 CFR 51.112 and Appendix W of Part 51.

EPA's 2007 Modeling Guidance also recommends that areas not near monitoring locations (unmonitored areas) in a nonattainment area be analyzed in an “unmonitored area (UMA) analysis” to determine if these areas would be expected to reach attainment. The standard attainment test (results in the table above) only applies at monitor locations, and the UMA analysis is intended to identify any areas not near a monitoring location that are at risk of not reaching attainment. The TCEQ chose to use its own procedure to conduct the UMA analysis instead of using EPA's Modeled Attainment Test Software (MATS). TCEQ's analysis uses similar approaches and we propose to accept its use for this SIP. TCEQ's UMA indicates that there are no areas in the HGB nonattainment area outside of the specific areas evaluated in the monitor based attainment test analysis that are at risk of not reaching attainment. In summary, EPA finds that TCEQ's photochemical modeling analysis indicates that all the monitors in HGB area will either be attaining or near attainment levels in 2018, all HGB unmonitored areas will be attainment, and TCEQ's evaluations conform with EPA's regulations and guidance.

8. Additional Evidence. The EPA's 1996 guidance entitled “Guidance on Use of Modeled Results to Demonstrate Attainment of the Ozone NAAQS” allows for the use of alternative analyses, called weight-of-evidence (WOE), to provide additional evidence that the proposed control strategy, although not modeling attainment, is nonetheless expected to achieve attainment by the attainment date. EPA continued to support WOE analyses in the 2007 Modeling Guidance. The intent of these guidance documents was to be cognizant of the fact that, under the structure of the standard some exceedances of the ozone NAAQS are allowed each year. Thus, even though the specific control strategy modeling may predict some areas to be above the NAAQS, this does not necessarily mean that with the implementation of the control strategy monitored attainment will not be achieved. In addition, as with other predictive tools, there are inherent uncertainties associated with modeling and its results. For example, there are uncertainties in the meteorological and emissions inputs and in the methodology used to assess the severity of an exceedance at individual sites. The EPA's guidance recognizes these limitations and provides a means for considering other evidence to help assess whether attainment of the NAAQS is likely. Since the future control case modeling in the Texas SIP revision predicts some areas still exceeding the ozone NAAQS, the TCEQ followed EPA Modeling Guidance to supplement the control strategy modeling with WOE analyses.

The strongest parts of the WOE analysis are the most recent 8-hour ozone monitoring trends and the continued reductions expected from vehicle fleet turnover. Ozone Design Value trends at most of the monitors in the HGB area show significant decreases over time and many of the monitors are currently attaining the 1997 8-hour ozone standard. Furthermore, the ozone precursor trends are generally showing a decrease that supports the HGB area's impact on ozone levels that exceed the standard is continuing to decrease.

The HGB area's most recent design value is 88 ppb through 2012. Additional reductions of precursor emissions are expected with six more years of fleet turnover bringing cleaner cars and off road equipment into the fleet. EPA believes that these reductions will bring about the additional 4 ppb of reduction necessary from 2012 monitored levels to reach attainment—supporting the proposed finding that HGB will attain by its attainment year.

To further support its WOE argument Texas submitted many additional analyses, which are discussed in the TSD for this action. These include: Corroborative analysis of the modeling, process analysis, application of source apportionment tools, highly detailed model performance evaluations, and analysis of model response to simulated emission reductions. Texas also provided an analysis of air quality data including: Ozone design value trends, trends in strength of ozone gradients, impact of Hurricane Ike on ozone levels, NO X and VOC monitored trends, geographic patterns in HRVOC monitored values, meteorological adjusted trends, regional and Texas background ozone trends, and transport/surface wind trajectories.

Finally, to support the finding that the area would attain the standard, Texas documented additional control programs that were not included in the model but will provide emission reductions that will contribute to lower ozone levels. These include: Improved international marine diesel and fuel standards, SmartWay transport initiatives, car allowance rebates, improved control of VOCs from storage tanks, energy efficiency and renewable energy measures, Texas Emission Reduction Plan, Low Income Vehicle Repair Assistance/Retirement program, Clean School Bus program, Best Management Practices for barge emissions, and other local initiatives. In general, these measures are expected to reduce ozone concentrations but are difficult to quantify and therefore were not modeled. EPA agrees that these measures contribute to the evidence that the area will attain the standard by its attainment date.

One area of uncertainty in the attainment demonstration is the treatment of flare emissions in the modeling. The destruction efficiencies are projected to be high, with values from 98% to 99% depending on the compound. It is likely that flares not achieving these destruction efficiencies are one source of the documented under-estimation of the emissions inventory and the need to impute emissions based on ambient air concentrations for the base case/baseline emission inventory. We note that TCEQ has been working with industry on flare best management practices to try to insure good flare performance. These efforts should result in reduced flare emissions compared to current levels, but it is uncertain that all flares will achieve the projected destruction efficiencies in 2018 as assumed in the modeling. How successful TCEQ's initiative is in reducing emissions of flares will likely have a significant impact on the success of the HGB area in continued ozone improvement. The details of our review of the WOE analysis and data can be reviewed in our TSD Appendix A—HGB MOAAD, Chapter 6. In accordance with 40 CFR 51.908, 51.112, and Appendix W of Part 51, the WOE analysis supports our proposed finding of attainment for HGB by its attainment date.

9. Attainment Demonstration Evaluation. EPA believes that the combination of photochemical modeling and other evidence (WOE) indicates that the HGB area will attain the NAAQS by 2018. This SIP revision represents a significant improvement over past efforts to model the HGB area. Texas has greatly improved the representation of the area's complex meteorology. In addition they have a much more refined emission inventory because of the better reconciliation of HRVOC emissions with ambient data. The modeling projects significant improvement in air quality and all but three of the monitors are projected to attain the standard and the three monitors not demonstrating attainment to the standard are projected to be only slightly above the standard. This modeling evidence taken together with the WOE discussed above, demonstrates that HGB will reach attainment of the 1997 8-hour NAAQS by the end of the ozone season of 2018. In reaching this conclusion, we have considered the uncertainties presented by discrepancies between reported emissions and ambient measurements and uncertainties regarding the performance of flares. We have also considered the significant improvements in ozone levels documented by ambient ozone data and the expected future reductions including those that were not modeled.

In summary, our analysis of TCEQs photochemical modeling and WOE concludes that the area will reach attainment of the 1997 8-hour ozone NAAQS by the end of 2018. Our review confirms that TCEQ's modeling and WOE conform to 40 CFR 51.908, 51.112, Appendix W of Part 51, EPA's guidance and methodologies. Our full evaluation of each modeling and WOE elements of the attainment demonstration submitted by TCEQ in this SIP revision is included in our TSD for this notice.

1. MECT. The MECT is a portion of the SIP-approved control strategy for the HGB area that caps NO X emissions beginning January 1, 2002, with a final reduction to the cap occurring in 2007 for stationary sources. The cap represents an approximate reduction in NO X emissions of 80% from the applicable stationary sources (with some sources reducing more and some reducing less). Facilities are required to demonstrate compliance with the MECT on an annual basis by having sufficient allowances, or other credits as provided in the SIP, to equal the annual NO X emissions from the previous year. EPA published a final rule approving the MECT program in 66 FR 57252 (November 14, 2001). We have subsequently approved revisions to the MECT on September 6, 2006 and July 16, 2009. See 71 FR 52698 and 74 FR 34503.

On March 10, 2010, TCEQ adopted revisions to the MECT Program at 30 TAC Chapter 101, Subchapter H, Division 3, Sections 101.350, 101.351, and 101.353. These revisions amend the SIP-approved MECT program to protect the integrity of the NO X cap in HGB. Specifically, the TCEQ adopted revisions to 30 TAC 101.350 to revise the definition of “uncontrolled design capacity” to “uncontrolled design capacity to emit” to allow more flexibility for stationary diesel engines to determine how to comply with NO X emission requirements in Chapter 117—either through participation in the MECT or through purchasing banked emission credits. The adopted revisions also revise the applicability of the MECT program at 30 TAC 101.351 to require subject sites to first determine the status as a major or minor source under 30 TAC Chapter 117. If the source is major, then it must participate in the MECT. If the source is minor then it can choose to participate under the MECT or meet reduction requirements through the purchase and retirement of banked emission credits. Finally, the adopted revisions modify the allocation of allowance requirements at 30 TAC 101.353 to discontinue the acceptance of late Level of Activity certification forms that could have inflated the cap. The TCEQ also adopted non-substantive revisions throughout to correct typographical errors and Texas Register formatting requirements.

EPA's complete evaluation of the revisions to the MECT adopted on March 10, 2010 and submitted April 6, 2010, is available in our TSD. In summary, we find that the revisions to the MECT will continue to achieve the reduction in stationary source NO X emissions relied upon in the attainment demonstration.

2. HECT. The HECT program is a mandatory cap and trade program of HRVOCs for covered facilities including vent gas streams, flares, and cooling tower heat exchange systems that emit HRVOCs, as defined in 30 TAC Section 115.10, and that are located at a site subject to Chapter 115, Subchapter H. Facilities are required to meet HRVOC allowances on an annual basis. Facilities may purchase, bank, or sell their allowances for use in the following control period. EPA published final approval of the HECT program on September 6, 2006, as an integral component of the HGB 1-hour ozone attainment demonstration. See 71 FR 52659.

On March 10, 2010, the TCEQ adopted revisions to HECT Program at 30 TAC Chapter 101, Subchapter H, Division 6, Sections 101.390-101.394, 101.396 and 101.399-101.401. These revisions reduce the HRVOC cap in Harris County by 25%—a step taken to achieve the reductions shown necessary by the photochemical modeling for HGB 8-hour ozone attainment demonstration discussed in section II. The revisions also change the allocation methodology to promote equitable distribution of allowances as a result of comment and add necessary definitions to implement the allocation methodology changes. The TCEQ also adopted non-substantive revisions throughout to correct typographical errors and Texas Register formatting requirements.

EPA's complete evaluation of the revisions to the HECT adopted on March 10, 2010 and submitted April 6, 2010, is available in our TSD. In summary, we find that the revisions to the HECT to implement the reduction in the Harris County HRVOC cap by 25% will reduce ozone levels and achieve the reductions relied upon in the photochemical modeling for the attainment demonstration.

3. VMEP Measures and TCMs. The SIP included VMEP measures to reduce mobile source emissions of ozone precursors. VMEP measures consist of voluntary mobile source strategies that complement existing regulatory programs through voluntary, non-regulatory changes in local transportation activities or changes in in-use vehicle and engine composition. The types of HGB VMEP measures and NO X emission reductions are listed in Table 2 and are expected to reduce NO X emissions by 2.25 tons per day.

Authority for our approval of VMEP measures is primarily grounded in section 110(a)(2) of the CAA, as well as sections 182(g)(4)(A) and 108. Section 110(a)(2) establishes that a SIP must include “enforceable emissions limits and other control measures, means or techniques . . . as well as schedules and timetables for compliance, as may be necessary or appropriate to meet the applicable requirements of this chapter.” In interpreting 110(a)(2) of the CAA, EPA issued a guidance document entitled, “Guidance on Incorporating Voluntary Mobile Source Emission Reduction Programs in State Implementation Plans (SIPs),” Memorandum from Richard D. Wilson, Acting Assistant Administrator for Air and Radiation, dated October 24, 1997, which allows for SIP credit for voluntary measures. 3 The Fifth Circuit Court of Appeals upheld, as a reasonable interpretation of the Act, EPA's VMEP policy and allowed the State to consider estimated emissions reductions from a VMEP in the HGB area 1-hour ozone attainment demonstration. See BCCA Appeal Group v. EPA, 355 F.3d 817, 825 (5th Cir. 2003).

Generally, to obtain credit for a VMEP, the SIP: (1) Identifies and describes a VMEP, (2) Contains projections of emission reductions attributable to the program, along with any relevant technical support documentation, (3) Commits to evaluation and reporting on program implementation and results, and (4) Commits to the timely remedy of any credit shortfall should the VMEP not achieve the anticipated emission reductions. The VMEP emission reduction credits should be quantifiable, surplus (i.e., they are not credited twice), enforceable, permanent, and adequately supported. 4 In addition, the VMEP must be consistent with attainment of the standard and with the reasonable further progress requirements and not interfere with other CAA requirements. The VMEP for an area can be revised by a SIP revision that substitutes or adds other VMEP measures if needed.

As in past commitments, we interpret the VMEP portion of the SIP to be enforceable because the State, through the Houston-Galveston Area Council (H-GAC), has committed to fill any shortfall in credit, thus any enforcement will be against the State. The H-GAC, as the regional metropolitan transportation planning agency for the HGA area, has committed to implement the projects and/or programs outlined in the HGA VMEP submittal. The H-GAC will be responsible for monitoring and reporting the emissions reductions to the TCEQ. The State, through the H-GAC, has committed to cover any VMEP shortfall (of the 2.25 tpd of NO X committed). The State, through the H-GAC, will remedy any VMEP shortfall that might occur in the VMEP program.

A detailed analysis of all the VMEP measures can be found in our TSD. Each creditable VMEP measure was found to be quantifiable. The VMEP emission reductions are surplus because they are not substitutes for mandatory, required emission reductions. The commitment to monitor, assess and timely remedy any shortfall from implementation of the measures is enforceable against the State. The reductions will continue at least for as long as the time in which they are used by this SIP demonstration, so they are considered permanent. There is a commitment that each measure is adequately supported by personnel and program resources for implementation.

The HGB area's ozone SIP VMEP meets the criteria for credit in the SIP. The State has shown that the credits are quantifiable, surplus, enforceable, permanent, adequately supported, and consistent with the SIP and the CAA. We propose to approve the VMEP portion of the Texas SIP.

TCMs are transportation related projects or activities designed to reduce on-road mobile source emissions. TCMs used as a control measure in the attainment demonstration must be specific, permanent, enforceable and quantifiable. 5 We approved the Texas rule for implementing TCMs in the SIP (30 TAC 114.270) in 67 FR 72379 (December 5, 2002). The SIP included six projects identified by the Houston-Galveston Area Council to reduce mobile source emissions by enhancing pedestrian and bicycle pathways (table 3). The emission reductions estimated from these projects are 0.015 tons per day of NO X . These projects would reduce NO X emissions by facilitating non-automobile travel. As the TCMs are part of the SIP, the commitment to implement the TCMs is enforceable through the SIP. Because these projects are specific, permanent, enforceable, and quantifiable we propose to approve them.

4. Previously Approved State Measures and Federal Measures. Texas also identified other previously approved State ozone control measures and Federal measures applicable to the HGB area which achieved reductions that are relied upon in this attainment demonstration. The State control measures included those approved by EPA for: (1) The 1-hour ozone NAAQS (71 FR 52670, September 6, 2006) and (2) additional VOC emission controls for storage tanks, transport vessels and marine vessels in the HGB area (75 FR 15348, March 29, 2010). The Federal measures are regulations on vehicle emissions and fuel. As we have already approved the State measures and promulgated Federal measures to reduce ozone levels it is appropriate that they are relied upon in the attainment demonstration.

5. Summary Regarding Control Measures Relied Upon in the Attainment Demonstration. As noted earlier we must approve the measures relied on as necessary to demonstrate attainment in order to approve the attainment demonstration. These measures must be permanent, enforceable, quantifiable, and surplus. BCCA Appeal Group, 355 F.3d at 825. Our review of the control measures not yet approved found that they meet these criteria. We propose to approve these measures and to find that the SIP has sufficient measures to attain the 1997 ozone NAAQS in the HGB area as expeditiously as practicable but no later than June 15, 2019. Table 4 summarizes the measures relied upon for attainment.

Texas submitted a demonstration that the HGB area has adopted all RACM necessary to demonstrate attainment as expeditiously as practicable with the attainment demonstration as required by CAA section 172(c)(1) and 40 CFR 51.912(d). We consider a control measure to be necessary under the RACM requirement if it: (1) Is technologically feasible, (2) is economically feasible, (3) does not cause “substantial widespread and long-term adverse impacts”, (4) is not absurd, unenforceable, or impracticable and (5) can advance the attainment date.

To demonstrate that the area meets the RACM requirement Texas (1) identified potentially available control measures with input from stakeholders and (2) analyzed whether the measure would be considered a RACM measure. Texas determined that only one potential control measure, reduction of the HRVOC cap for Harris County, should be adopted to meet the RACM requirement. As discussed above, Texas has adopted a rule to reduce the HRVOC cap for Harris County and we are proposing to approve that rule. We reviewed Texas' RACM process and analysis and believe that Texas has shown that the HGB area has met the CAA RACM requirement. Therefore we propose to approve the demonstration of RACM implementation. For more information please see our TSD.

CAA sections 172(c)(9) and 182(c)(9) require contingency measures to be implemented in the event of failure to attain the standard by the applicable attainment date. These contingency measures must be fully adopted rules or measures which are ready for implementation quickly upon failure to meet attainment. Implementation of the contingency measures would provide additional emissions reductions of up to three percent of the adjusted base year inventory. 6 For more information on contingency measures, please see the April 16, 1992 General Preamble (57 FR 13498, 13510) and the November 29, 2005 Phase 2 8-hour ozone standard implementation rule (70 FR 71612, 71650). As noted in the November 29, 2005 rule, contingency measures could include Federal measures already scheduled for implementation. In the May 6, 2013 SIP submittal, Texas provided a demonstration that the contingency measures requirement would be met through Federal rules affecting mobile emissions. Table 5 summarizes the contingency measure analysis provided by Texas. We reviewed the analysis provided in the SIP and found the contingency measures provide the necessary reductions in ozone precursor emissions for the year 2019 in the event that the area fails to attain the 1997 ozone NAAQS at the end of 2018. Therefore we propose to approve the failure to attain contingency measures plan as meeting the contingency measures requirements of CAA sections 172(c)(9) and 182(c)(9). For more information please see our TSD.

The SIP included an attainment MVEB for 2018 (table 6). The MVEB represents the maximum level of on-road emissions of NO X and VOC that can be produced in 2018—when considered with emissions from all other sources—which demonstrate attainment of the 1997 8-hour ozone NAAQS. The attainment MVEB submitted on April 6, 2010 was updated in the May 6, 2013 submittal using a more recent EPA mobile source emissions estimation model (MOVES). Previously we determined that the updated 2018 MVEB was “adequate” for transportation conformity purposes and must be used for future conformity determinations in the HGB area (78 FR 46947, August 2, 2013). All future transportation improvement programs, projects and plans developed, funded, or approved under Title 23 U.S.C. or the Federal Transit Laws for the HGB area will need to show that they do not result in emissions which exceed the MVEB (40 CFR 93.118). We propose to approve the 2018 MVEB into the SIP.

The April 6, 2010, SIP submittal included revisions to the General Air Quality Definitions at 30 TAC Section 101.1. The General Air Quality definitions are applicable to the entirety of the Texas SIP. While reviewing the April 6, 2010 SIP submittal, we also reviewed other pending revisions to the General Air Quality definitions at 30 TAC 101.1 submitted on June 10, 2005, August 16, 2007, and March 11, 2011. The revisions to the definitions were minor and non-controversial. Our complete evaluation of these pending revisions is available in our TSD. In summary, our analysis demonstrates that the revisions are consistent with the CAA and EPA's regulations at 40 CFR part 51, therefore we propose approval of the revisions to 30 TAC 101.1 submitted on June 10, 2005, August 16, 2007, April 6, 2010 and March 11, 2011. Please see Appendix C of our TSD for our analysis.

We are proposing to approve SIP submittals from the State of Texas for the HGB ozone nonattainment area submitted on April 6, 2010, and May 6, 2013. Specifically, we are proposing to approve the following Texas SIP submittals for the HGB area:

We are also proposing to approve SIP revisions to the General Air Quality Definitions submitted by the State on June 10, 2005, August 16, 2007, April 6, 2010 and March 11, 2011. We are proposing these actions in accordance with section 110 and part D of the CAA.

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely proposes to approve state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

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

• is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this proposed rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

Background

Section 4(b)(3)(A) of the Act (16 U.S.C. 1533(b)(3)(A)) requires that we make a finding on whether a petition to list, delist, or reclassify a species presents substantial scientific or commercial information indicating that the petitioned action may be warranted. We are to base this finding on information provided in the petition, supporting information submitted with the petition, and information otherwise available in our files. To the maximum extent practicable, we are to make this finding within 90 days of our receipt of the petition and publish our notice of the finding promptly in the Federal Register .

Our standard for substantial scientific or commercial information with regard to a 90-day petition finding is “that amount of information that would lead a reasonable person to believe that the measure proposed in the petition may be warranted” (50 CFR 424.14(b)). If we find that substantial scientific or commercial information was presented, we are required to promptly initiate a species status review, which we subsequently summarize in our 12-month finding.

Section 3(6) of the Act defines an “endangered species” as any species which is in danger of extinction throughout all or a significant portion of its range. A “threatened species” is any species that is likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range. Under the Act, we maintain a List of Endangered and Threatened Wildlife and Plants at 50 CFR 17.11 (for animals) and 17.12 (for plants) (List). We amend the List by publishing final rules in the Federal Register . Section 4(c)(2)(A) of the Act requires that we conduct a review of listed species at least once every 5 years (5-year review). Section 4(c)(2)(B) requires that we determine: (1) Whether a species no longer meets the definition of threatened or endangered and should be removed from the List (delisted); (2) whether a species listed as endangered more properly meets the definition of threatened and should be reclassified to threatened (downlisted); or (3) whether a species listed as threatened more properly meets the definition of endangered and should be reclassified to endangered (uplisted). Our regulations at 50 CFR 424.21 require that we publish a notice in the Federal Register announcing those species currently under active review.

On July 16, 2012, we received a petition dated July 11, 2012, from The Pacific Legal Foundation, Jim Chilton, the New Mexico Cattle Growers' Association, New Mexico Farm & Livestock Bureau, New Mexico Federal Lands Council, and Texas Farm Bureau requesting that the Eriogonum gypsophilum (gypsum wild-buckwheat) be delisted, and the black-capped vireo ( Vireo atricapilla ), lesser long-nosed bat ( Leptonycteris curasoae yerbabuenae ), Echinocereus fendleri var. kuenzleri (Kuenzler hedgehog cactus), and Ancistrocactus tobuschii (an accepted synonym for Sclerocactus brevihamatus ssp. tobuschii —Tobusch fishhook cactus) be reclassified as threatened based on the analysis and recommendation contained in the most recent 5-year review for these taxa. The petition appeared to meet all of the requirements of 50 CFR 424.14(a).

The gypsum wild-buckwheat was federally listed as threatened on February 18, 1981 (46 FR 5730, January 19, 1981). Critical habitat was designated at the time of listing for the Seven Rivers population in Eddy County, New Mexico. A recovery plan was issued March 30, 1984. The recovery plan has not been revised. A 5-year review was completed on November 9, 2007, in which the Service recommended delisting the species.

The black-capped vireo was federally listed as endangered without critical habitat on November 5, 1987 (52 FR 37420, October 6, 1987). A recovery plan was issued September 30, 1991. The recovery plan has not been revised. A 5-year review was completed on July 26, 2007, in which the Service recommended downlisting the species to threatened.

The lesser long-nosed bat was federally listed as endangered without critical habitat on October 31, 1988 (53 FR 38456, September 30, 1988). A recovery plan was issued on March 4, 1997. The recovery plan has not been revised. A 5-year review was completed on August 30, 2007, in which the Service recommended downlisting the species to threatened.

The Kuenzler hedgehog cactus was federally listed as endangered without critical habitat on November 28, 1979 (44 FR 61924, October 26, 1979). A recovery plan was issued on March 28, 1985. The recovery plan has not been revised. A 5-year review was completed on June 7, 2005, in which the Service recommended downlisting the species to threatened.

The Tobusch fishhook cactus was federally listed as endangered without critical habitat on December 7, 1979 (44 FR 64736, November 7, 1979). A recovery plan was issued on March 18, 1987. The recovery plan has not been revised. A 5-year review was completed on January 5, 2010, in which the Service recommended downlisting the species to threatened.

Gypsum wild-buckwheat is a rare, regionally endemic, perennial plant species (Service 2007a, p. 8). It occupies gypsum soils and gypsum outcrops of the Permian-age Castile Formation. These habitats are dry and nearly barren except for common species of gypsophilic plants and gypsum wild-buckwheat. Gypsum wild-buckwheat reproduces both by producing seed and also by producing clone rosettes from rhizomes or rootsprouts. There are only three known populations of gypsum wild-buckwheat, and all occur in Eddy County, in southeastern New Mexico (Service 2007a, pp. 8-12). Only one population (Seven River Hills) was known at the time of listing. Two additional populations were discovered in 1988 in the Yeso Hills of southern Eddy County, New Mexico, one near Black River Village and another at Ben Slaughter Draw below Ben Slaughter Spring. For more information on the life history, biology, and distribution of gypsum wild-buckwheat, see the 2007 5-year review of the species.

The black-capped vireo is a small (10 to 12 centimeters (cm) (4 to 5 inches (in)) long), insect-eating, migratory songbird (Service 2007b, p. 7). They nest from Oklahoma south through central Texas to the Edwards Plateau, then south to the northern portion of Mexico. Breeding habitat is quite variable across its range, but is generally shrublands with a distinctive patchy structure. The shrub vegetation is mostly deciduous and generally extends from the ground to about 2 meters (m) (6 feet (ft)) above ground and covers about 30 to 60 percent of the total area. Open grassland separates the clumps of shrubs. Black-capped vireos may live for more than 5 years, and usually return year after year to the same territory to breed. They begin to migrate to the wintering grounds on Mexico's western coast in July and are gone from Texas by mid-September (Service 2007b, p. 7). For more information on the life history, biology, and distribution of black-capped vireo, see the 2007 5-year review of the species.

The lesser long-nosed bat is one of four members of the tropical bat family Phyllostomidae found in the United States. The bat's core diet is believed to consist of pollen, nectar, and fruits of columnar cacti and agaves. These bats depend on caves and abandoned mines and tunnels for day roosting sites. Night roosts include the bats' day roosts as well as other caves, mines, rock crevices, trees and shrubs, and occasionally abandoned buildings. They migrate seasonally from Mexico to southern Arizona and southwestern New Mexico. For more information on the life history, biology, and distribution of lesser long-nosed bat, see the 2007 5-year review of the species.

A Kuenzler hedgehog cactus individual may be single stemmed or branched. The stems are normally 15 cm (6 in) long and 10 cm (4 in) wide. Typical Kuenzler hedgehog cactus habitat occurs on gentle, gravelly to rocky slopes and benches on limestone or limy sandstone along the lower fringes of the pinyon-juniper woodland at elevations of 1,600 to 2,000 m (5,200 to 6,600 ft). The recovery plan for Kuenzler hedgehog cactus identified two populations of cacti in the Rio Hondo and Rio Peñasco drainages in Lincoln County (Service 1985). However, by the time of the 2005 5-year review, there were 11 documented population centers (Service 2005). For more information on the life history, biology, and distribution of Kuenzler hedgehog cactus, see the 2005 5-year review of the species.

The Tobusch fishhook cactus is a small, round cactus, usually 5.1 to 7.6 cm (2 to 3 in) tall and up to 8.9 cm (3.5 in) in diameter, with light yellow spines with red tips. The lower central spines are hooked at the tip, like a fishhook. It produces yellow to cream flowers about 3.0 to 3.8 cm (1 to 1.5 in) long and wide during February through March. The fruit is fleshy and green, ripening to pink or pinkish-brown by late spring or early summer. The seeds are black.

The Tobusch fishhook cactus grows in discontinuous patches of very shallow, moderately alkaline, rocky loams or clay soils (primarily of the Tarrant, Ector, or Eckrant series) over massive, fractured limestone bedrock (usually the Edwards formation or an equivalent formation). The sites are open, in full sunlight, with a thin herbaceous cover of grasses and other herbaceous species, but within a matrix of woodland or savanna of live oak-juniper woodland community. In 1979 when the species was federally listed as endangered, fewer than 200 individuals had been documented in Bandera and Kerr Counties, Texas. The Texas Parks and Wildlife Department Natural Diversity Database indicates that, by 1999, researchers had documented 3,395 extant individuals in 8 counties of the Edwards Plateau (Bandera, Edwards, Kerr, Kimble, Kinney, Real, Uvalde, and Val Verde). For more information on the life history, biology, and distribution of Tobusch fishhook cactus, see the 2010 5-year review of the species.

Section 4 of the Act (16 U.S.C. 1533) and its implementing regulations at 50 CFR 424 set forth the procedures for adding a species to, or removing a species from, the Federal Lists of Endangered and Threatened Wildlife and Plants. A species may be determined to be an endangered or threatened species due to one or more of the five factors described in section 4(a)(1) of the Act:

(A) The present or threatened destruction, modification, or curtailment of its habitat or range;

(B) Overutilization for commercial, recreational, scientific, or educational purposes;

(C) Disease or predation;

(D) The inadequacy of existing regulatory mechanisms; or

(E) Other natural or manmade factors affecting its continued existence.

We must consider these same five factors in delisting a species. We may delist a species according to 50 CFR 424.11(d) if the best available scientific and commercial data indicate that the species is neither endangered nor threatened for the following reasons:

(1) The species is extinct,

(2) The species has recovered and is no longer endangered or threatened, or

(3) The original scientific data used at the time the species was classified were in error.

In considering what factors might constitute threats, we must look beyond the mere exposure of the species to the factor to determine whether the species responds to the factor in a way that causes actual impacts to the species. If there is exposure to a factor, but no response, or only a positive response, that factor is not a threat. If there is exposure and the species responds negatively, the factor may be a threat and we then attempt to determine how significant a threat it is. If the threat is significant, it may drive or contribute to the risk of extinction of the species such that the species may warrant listing as threatened or endangered as those terms are defined by the Act. This does not necessarily require empirical proof of a threat. The combination of exposure and some corroborating evidence of how the species is likely impacted could suffice. The mere identification of factors that could impact a species negatively may not be sufficient to compel a finding that listing may be warranted. The information shall contain evidence sufficient to suggest that these factors may be operative threats that act on the species to the point that the species may meet the definition of threatened or endangered under the Act.

In making this 90-day finding, we evaluated whether information regarding threats to the gypsum wild-buckwheat, black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus, as presented in the petition and other information available in our files, is substantial, thereby indicating that the petitioned action may be warranted. Our evaluation of this information is presented below.

The petitioner requested the Service delist the gypsum wild-buckwheat and reclassify the black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus as threatened based on the analysis and recommendations contained in the most recent 5-year reviews of these taxa. The petition cited the 5-year reviews for each of these respective species as supporting information for the petition, but provided no other information.

We completed 5-year reviews for each of these five species, which included recommendation of status changes. Each 5-year review contains general background and life-history information, an overview of recovery criteria, an analysis of threats to each taxon based on the five listing factors found in section 4 of the Act, and recommendation of status change. In each 5-year review conducted for the five petitioned species, we analyzed the threats specific to each taxon based on the five listing factors in section 4 of the Act.

The 2007 5-year review for the gypsum wild-buckwheat recommended delisting of the species. The rationale for this recommendation was that the primary threats to the species at the time of listing were no longer deemed significant (Service 2007a, p. 12).

At the time of listing, gypsum wild-buckwheat was known from only a single population on the Seven Rivers Hills. Since the time of listing, two additional populations of gypsum wild-buckwheat were documented at Black River and Ben Slaughter Draw in Eddy County, Texas (Service 2007a, p. 12). All three known populations contain between 11,000 and 18,000 plants.

The listing determination for gypsum wild-buckwheat cited off-road-vehicles, grazing, and reservoir development as threats to this species (Service 2007a, p. 12). Due to the expanded range of the species at the time of the 5-year review, these stressors were no longer cited as threats to the species. However, all of the known gypsum wild-buckwheat habitat occurs in areas that are now known to have high potential for mineral extraction and associated development, especially oil and gas. At the time of the 5-year review, this new threat was thought to be mitigated by the Bureau of Land Management's Special Management Areas classification on significant portions of each gypsum wild-buckwheat population.

In summary, we found that the threats previously identified may no longer be acting on the species at a level that causes the species to be in danger of extinction. Further, the range of the species has expanded, and there is some level of management of newly identified threats in those areas. Therefore, we find there is substantial information indicating that the species may no longer in danger of extinction now or in the foreseeable future, and that delisting may be warranted. This conclusion is based primarily on the analyses found in the 2007 5-year review, which was based on the best scientific information available at that time. Since the time of the 5-year review, we have received no information that would conflict with the conclusions found in that review.

The 2007 5-year review for the black-capped vireo recommended reclassification of the species from endangered to threatened. The primary rationale for this recommendation was that the magnitude of threats to the species has been reduced since the time of listing, and that the range of the species has expanded (Service 2007b, pp. 22-24).

At the time of listing, the estimated population of black-capped vireos consisted of 256 to 525 pairs in Oklahoma (4 counties), Texas (21 counties), and Mexico (1 state). Since 2000, the known population consists of 6,200 vireos in Oklahoma (3 counties), Texas (38 counties), and Mexico (3 states) (Service 2007b, p. 22).

The major threats to the black-capped vireo identified at the time of listing included habitat loss through land use conversion, grazing and browsing by domestic and wild herbivores, and brood parasitism by brown-headed cowbirds ( Molothrus ater ). As discussed in the 5-year review, the threat of habitat destruction by domestic livestock appears to have decreased, based upon the decrease in density and abundance of livestock in those regions of particular concern during the original listing. However, it appears the density of white-tailed deer ( Odocoileus virginianus ) and exotic ungulates may have increased in the same regions, which may be a concern for habitat availability. Information discussed in the 5-year review concerning brown-headed cowbirds suggests that the species may be decreasing in abundance where its range overlaps the black-capped vireo, at least in Texas. Additionally, in the black-capped vireo's U.S. range, brood parasitism appears to be effectively managed at the major black-capped vireo populations occurring on public land, and supplemented by cowbird control programs on private lands.

In summary, we found that threats to the species identified at the time of listing do not appear to be acting on the species as severely as previously thought. Further, the range and abundance of the species appears to have expanded, and some level of management exists in regard to threats in those areas. Therefore, we find there is substantial information that the species may no longer be in imminent danger of extinction, and that reclassification may be warranted. This conclusion is based primarily on the analysis found in the 2007 5-year review, which was based on the best scientific information available at that time. Since the time of the 5-year review, we have received no information that would conflict with the conclusions of that review.

The 2007 5-year review for the lesser long-nosed bat recommended reclassification of the species from endangered to threatened. The primary rationale for this recommendation was that information indicates the species may be more abundant than was known at the time of listing (Service 2007c).

At the time of listing, the lesser long-nosed bat occurred at relatively low population numbers (about 500 individuals in Arizona) and exhibited a declining trend (Service 2007c). Information gathered since the listing shows higher population numbers and a generally stable-to-increasing trend (Service 2007c).

The primary threats identified at the time of listing were habitat destruction and disruption, disturbance of roosting sites, loss of food sources, and direct killing by humans. Information in the 5-year review suggests that these threats persist and may actually be increasing in some areas. However, the severity of these threats may be reduced as a result of the increased abundance of the species.

In summary, we found that, while threats to the lesser long-nosed bat persist, the magnitude of these threats may be reduced due to the potential increased abundance of the species since the time of listing. Therefore, we find there is substantial information that the species may no longer be in imminent danger of extinction, and that reclassification may be warranted. This conclusion is based primarily on the analyses found in the 2007 5-year review which was based on the best scientific information available at that time. Since the time of the 5-year review, we have received no information that would conflict with the conclusions found in the review.

The 5-year review for the Kuenzler hedgehog cactus recommended reclassification of the species from endangered to threatened. The primary rationale for this recommendation was that the threats to the species have been reduced as compared to the threats at the time of listing, and the distribution and abundance of the species has increased (Service 2005).

At the time of listing, only two populations with fewer than 200 individuals were known. However, by the time of the 5-year review, an estimated 11 populations had a total of more than 5,000 individuals. While these populations are scattered and usually not locally abundant, this distribution reflects a wider range and higher overall abundance than was known at the time of listing. Further, most of the known populations of Kuenzler hedgehog cactus occur on Federal lands. Federal land management agencies have inventoried most of the Kuenzler hedgehog cactus habitats within their jurisdictions in order to consult with the Service and avoid serious impacts to occupied habitats.

Threats at the time of listing were collection and habitat degradation due to road improvements, grazing, and real estate development. As discussed in the 5-year review, collection of Kuenzler hedgehog cactus from its natural habitats has not had a significant observable impact on the known populations. The potential threat of collection is likely mitigated to some extent by the fact that most populations are relatively remote and less likely to be impacted by casual collectors. Further, commercial growers are offering greenhouse-grown plants and seeds to hobbyists who might have otherwise obtained their plants or seeds from natural populations.

Habitat destruction due to road construction and home building has affected a very small portion of the area occupied by Kuenzler hedgehog cactus. At the time of the 5-year review, no significant mining or oil and gas production activities took place within the habitat of this cactus. Most of the known occupied habitats occur in relatively remote areas, which are unlikely to be converted to land uses other than open range for livestock grazing. Evidence continues to indicate that livestock grazing may continue to impact Kuenzler hedgehog cactus through increased erosion and removal of insulating cover that may affect the success of seedling establishment.

In summary, we found that, while livestock grazing may continue to affect the species, collection and habitat modification due to development do not appear to be as severe as they were thought to be at the time of listing. Further, the range of the species appears to have expanded, and some level of management occurs in those areas. Therefore, we find there is substantial information that the species may no longer be in imminent danger of extinction, and that reclassification may be warranted. This conclusion is based primarily on the analyses found in the 2005 5-year review, which was based on the best scientific information available at that time. Since the time of that 5-year review, we have received no readily available information that would conflict with the conclusions found in the review.

The 5-year review for the Tobusch fishhook cactus recommended reclassification from endangered to threatened. The primary rationale for this recommendation was that the primary threats to the species at the time of listing have been reduced or were not as severe as originally determined, and that the distribution and abundance of the species have increased (Service 2010).

At the time of listing, only 200 individuals were known. The status of Tobusch fishhook cactus is now thought to be significantly more secure than when it was listed. The cactus has been documented at 10 protected sites, and its known range now extends to eight counties in the Edwards Plateau of central Texas.

The threats identified at the time of listing were collection and habitat modification and loss due to real estate development, livestock damage, and other natural factors. As discussed in the 2010 5-year review, legally propagated Tobusch fishhook cactus are now available, which suggests the threat of illegal collection may no longer be as severe a threat as it was at the time of listing. Further, livestock trampling and herbivory were not identified as significant causes of mortality or damage to Tobusch fishhook cactus plants. While a significant ongoing trend of subdividing large ranches persists in Texas, relatively little urban or industrial development was occurring within the range of the species at the time of the 5-year review. However, information discussed in the 5-year review indicates that the Tobusch fishhook cactus weevil parasitizes and kills plants, and further suggests that the weevil may have caused significant declines in some populations.

In summary, we found that, while development and weevil parasitism may continue to impact the species, collection and livestock grazing do not appear to be acting on the species as severely as they were thought to be at the time of listing. Further, the range of the species appears to have expanded. Therefore, we find there is substantial information that the species may no longer be in imminent danger of extinction, and that reclassification may be warranted. This conclusion is based primarily on the analyses found in the 2010 5-year review, which was based on the best scientific information available at that time. Since the time of the 5-year review, we have received no readily available information that would conflict with the conclusions found in the review.

On the basis of our determination under section 4(b)(3)(A) of the Act, we find that information in the petition and readily available in our files presents substantial scientific or commercial information indicating that delisting the gypsum wild-buckwheat and reclassifying black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus from endangered to threatened may be warranted.

Because we have found that the petition presents substantial information indicating that delisting the gypsum wild-buckwheat, and reclassifying black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus may be warranted, we are initiating status reviews for each taxon to determine whether the petitioned actions are warranted.

The “substantial information” standard for a 90-day finding, under section 4(b)(3)(A) of the Act and 50 CFR 424.14(b) of our regulations, differs from the Act's “best scientific and commercial data” standard that applies to a status review to determine whether a petitioned action is warranted. A 90-day finding does not constitute a status review under the Act. In a 12-month finding, we will determine whether a petitioned action is warranted after we have completed a thorough status review of the species, which is conducted following a substantial 90-day finding. Because the Act's standards for 90-day and 12-month findings are different, as described above, a substantial 90-day finding does not mean that the 12-month finding will result in a warranted finding.

Section 4(c)(2)(A) of the Act requires that we conduct a review of listed species at least once every 5 years. We are then, under section 4(c)(2)(B), to determine, on the basis of such a review, whether or not any species should be removed from the List (delisted), or reclassified from endangered to threatened, or threatened to endangered. Our regulations at 50 CFR 424.21 require that we publish a notice in the Federal Register announcing those species currently under review. This notice announces our active review of the gypsum wild-buckwheat, black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus.

When we make a finding that a petition presents substantial information indicating that delisting or reclassifying a species may be warranted, we are required to promptly initiate review of the status of the species (status review). For the status review to be complete and based on the best available scientific and commercial information, we request information on gypsum wild-buckwheat, black-capped vireo, lesser long-nosed bat, Kuenzler hedgehog cactus, and Tobusch fishhook cactus from governmental agencies, Native American tribes, the scientific community, industry, and any other interested parties. We seek information on:

(1) The species' biology, range, and population trends, including:

(a) Habitat requirements for feeding, breeding, and sheltering;

(b) Genetics and taxonomy;

(c) Historical and current range including distribution patterns;

(d) Historical and current population levels, and current and projected trends; and

(e) Past and ongoing conservation measures for the species, its habitat or both.

(2) The factors that are the basis for making delisting and downlisting determinations for a species under section 4(a) of the Act (16 U.S.C. 1531 et seq. ), which are:

(a) The present or threatened destruction, modification, or curtailment of its habitat or range;

(b) Overutilization for commercial, recreational, scientific, or educational purposes;

(c) Disease or predation;

(d) The inadequacy of existing regulatory mechanisms; or

(e) Other natural or manmade factors affecting its continued existence.

Please include sufficient information with your submission (such as scientific journal articles or other publications) to allow us to verify any scientific or commercial information you include.

Submissions merely stating support for or opposition to the action under consideration without providing supporting information, although noted, will not be considered in making a determination. Section 4(b)(1)(A) of the Act directs that determinations as to whether any species is an endangered or threatened species must be made “solely on the basis of the best scientific and commercial data available.”

You may submit your information concerning this status review by one of the methods listed in the ADDRESSES section. If you submit information via http://www.regulations.gov, your entire submission—including any personal identifying information—will be posted on the Web site. If your submission is made via a hardcopy that includes personal identifying information, you may request at the top of your document that we withhold this personal identifying information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy submissions on http://www.regulations.gov.

Information and supporting documentation that we received and used in preparing this finding is available for you to review at http://www.regulations.gov, or by appointment, during normal business hours, at the U.S. Fish and Wildlife Service, Southwesten Region Ecological Services Office (see FOR FURTHER INFORMATION CONTACT ).

A complete list of references cited is available on the Internet at http://www.regulations.gov and upon request from the Southwest Region Ecological Services Office (see FOR FURTHER INFORMATION CONTACT ).

The primary authors of this notice are the staff members of the Southwest Region Ecological Services Office.

The authority for this action is the Endangered Species Act of 1973, as amended (16 U.S.C. 1531 et seq. ).