[Federal Register Volume 81, Number 100 (Tuesday, May 24, 2016)]
[Rules and Regulations]
[Pages 32635-32636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12260]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

[Docket No. SBA-2016-0004]


Small Business Size Standards

AGENCY: U.S. Small Business Administration.

ACTION: Statement of General Policy, SBA Size Policy Statement No. 3.

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SUMMARY: The Small Business Administration (SBA) hereby gives notice of 
its intended application and interpretation of the interaffiliate 
transactions exclusion from annual receipts set forth in its Small 
Business Size Regulations. Effective at the issuance of this notice, 
SBA will apply the exclusion to properly documented transactions 
between a concern and its domestic or foreign affiliates, regardless of 
the type of relationship that resulted in the finding of affiliation.

DATES: 
    Effective Date: This Policy Statement is effective May 24, 2016.
    Comment Date: Comments must be received on or before July 25, 2016.

ADDRESSES: You may submit comments, identified by Docket No. SBA-2016-
0004 by any of the following methods:
     Federal Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail or Hand Delivery/Courier: Brenda Fernandez, U.S. 
Small Business Administration, Office of Government Contracting, 409 
3rd Street SW., 8th Floor, Washington, DC 20416.
    SBA will post all comments on http://www.Regulations.gov. If you 
wish to submit confidential business information (CBI) as defined in 
the User Notice at http://www.Regulations.gov, please submit the 
information to Brenda Fernandez, U.S. Small Business Administration, 
Office of Government Contracting, 409 3rd Street SW., 8th Floor, 
Washington, DC 20416, and highlight the information that you consider 
to be CBI and explain why you believe this information should be held 
confidential. SBA will review the information and make a final 
determination of whether the information will be published or not.

FOR FURTHER INFORMATION CONTACT: Brenda Fernandez, U.S. Small Business 
Administration, Office of Government Contracting, 409 3rd Street SW., 
8th Floor, Washington, DC 20416; (202) 205-7337; 
[email protected].

SUPPLEMENTARY INFORMATION:

Background

    Under 13 CFR 121.104(d), the average annual receipts size of a 
business concern with affiliates is calculated by adding the average 
annual receipts of the business concern with the average annual 
receipts of each affiliate. However, in adding the receipts of a 
concern with its affiliate, SBA excludes ``proceeds from transactions 
between a concern and its domestic or foreign

[[Page 32636]]

affiliates,'' under 13 CFR 121.104(a). These transactions are commonly 
referred to as interaffiliate transactions. The intent of this 
exclusion is to avoid counting the same receipts twice when determining 
the size of a particular concern. This Statement of Policy explains how 
SBA will apply the exclusion.
    Recent SBA size determinations and decisions of the Office of 
Hearings and Appeals have limited the exclusion by applying it only to 
transactions between affiliates that are eligible to file a 
consolidated tax return. This interpretation has been supported by 
reference to a parenthetical that was included with section 121.104(a) 
from 1996 to 2004, providing that the exclusion would apply to 
interaffiliate amounts ``(if also excluded from gross or total income 
on a consolidated return filed with the IRS). . . .'' 13 CFR 
121.104(a)(1) (1996); 61 FR 3280 (Jan. 31, 1996). While this 
parenthetical was in place, SBA excluded only those interaffiliate 
transactions that were also excluded from consolidated tax returns 
filed by a concern and its affiliate. This policy necessarily required 
that the transaction occur between two firms that filed consolidated 
returns.
    SBA deleted the parenthetical in 2004. In the preamble to the final 
rule issued May 21, 2004, SBA stated that it was deleting the 
parenthetical because ``[w]hether a consolidated return is filed should 
have no bearing on whether properly documented interaffiliate 
transactions are excluded from annual receipts.'' 69 FR 29192, 29196 
(May 21, 2004). Thus, since May 2004, the regulation has provided for 
an exclusion from receipts for ``proceeds from transactions between a 
concern and its domestic or foreign affiliates.'' 13 CFR 121.104(a). 
The regulation does not include a limitation on the types of affiliates 
for which interaffiliate transactions can be excluded, and in no way 
ties the exclusion to a concern's ability to file a consolidated tax 
return with the identified affiliate.
    SBA believes that the current regulatory language is clear on its 
face. It specifically excludes all proceeds from transactions between a 
concern and its affiliates, without limitation. Moreover, the 
regulatory history supports the position that the exclusion for 
interaffiliate transactions is available regardless of the manner of 
affiliation between a concern and its affiliate. SBA recognized that 
excluding interaffiliate transactions only when they are identified on 
a consolidated tax return often perpetuated the double-counting of 
receipts. By saying that ``[w]hether a consolidated return is filed 
should have no bearing on whether properly documented interaffiliate 
transactions are excluded from annual receipts,'' SBA did not mean to 
imply that a concern and its affiliate must be able to file a 
consolidated tax return in order to receive the exclusion from double-
counting interaffiliate transactions. Conversely, SBA was attempting to 
make clear that it did not support the practice of double-counting 
receipts between affiliates generally.
    Because the regulatory text does not contain a restriction, a 
regulatory change is not necessary. SBA will consider comments 
submitted regarding this policy.

Statement of Policy

    SBA will not restrict the exclusion for interaffiliate transactions 
to transactions between a concern and a firm with which it could file a 
consolidated tax return. The exclusion for interaffiliate transactions 
may be applied to interaffiliate transactions between a concern and a 
firm with which it is affiliated under the principles in 13 CFR 
121.103. Where SBA is conducting a size determination, SBA requires 
that exclusions claimed under section 121.104(a) be specifically 
identified by the concern whose size is at issue and be properly 
documented. This policy is effective immediately.

    Dated: May 18, 2016.
Maria Contreras-Sweet,
Administrator.
[FR Doc. 2016-12260 Filed 5-23-16; 8:45 am]
BILLING CODE 8025-01-P