Please refer to Docket ID NRC-2018-0220 when contacting the NRC about the availability of information for this action. You may obtain publicly-available information related to this action by any of the following methods:

• Federal Rulemaking Website: Go to http://www.regulations.gov and search for Docket ID NRC-2018-0220.

• NRC's Agencywide Documents Access and Management System (ADAMS): You may obtain publicly-available documents online in the ADAMS Public Documents collection at http://www.nrc.gov/reading-rm/adams.html. To begin the search, select “ADAMS Public Documents” and then select “ Begin Web-based ADAMS Search.” For problems with ADAMS, please contact the NRC's Public Document Room (PDR) reference staff at 1-800-397-4209, 301-415-4737, or by email to pdr.resource@nrc.gov. For the convenience of the reader, instructions about obtaining materials referenced in this document are provided in the “Availability of Documents” section.

• NRC's PDR: You may examine and purchase copies of public documents at the NRC's PDR, Room O1-F21, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852.

Please include Docket ID NRC-2018-0220 in your comment submission.

The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at http://www.regulations.gov as well as enter the comment submissions into ADAMS. The NRC does not routinely edit comment submissions to remove identifying or contact information.

If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.

Because the NRC considers this action to be non-controversial, the NRC is publishing this proposed rule concurrently with a direct final rule in the Rules and Regulations section of this issue of the Federal Register (FR). The direct final rule will become effective on March 4, 2019. However, if the NRC receives significant adverse comments on this proposed rule by January 17, 2019, then the NRC will publish a document that withdraws the direct final rule. If the direct final rule is withdrawn, the NRC will address the comments received in response to these proposed revisions in a subsequent final rule. Absent significant modifications to the proposed revisions requiring republication, the NRC will not initiate a second comment period on this action in the event the direct final rule is withdrawn.

A significant adverse comment is a comment where the commenter explains why the rule would be inappropriate, including challenges to the rule's underlying premise or approach, or would be ineffective or unacceptable without a change. A comment is adverse and significant if:

(1) The comment opposes the rule and provides a reason sufficient to require a substantive response in a notice-and-comment process. For example, a substantive response is required when:

(a) The comment causes the NRC staff to reevaluate (or reconsider) its position or conduct additional analysis;

(b) The comment raises an issue serious enough to warrant a substantive response to clarify or complete the record; or

(c) The comment raises a relevant issue that was not previously addressed or considered by the NRC staff.

(2) The comment proposes a change or an addition to the rule, and it is apparent that the rule would be ineffective or unacceptable without incorporation of the change or addition.

(3) The comment causes the NRC staff to make a change (other than editorial) to the rule, Certificate of Compliance, or technical specifications.

For procedural information and the regulatory analysis, see the direct final rule published in the Rules and Regulations section of this issue of the FR.

Section 218(a) of the Nuclear Waste Policy Act (NWPA) of 1982, as amended, requires that “the Secretary [of the Department of Energy] shall establish a demonstration program, in cooperation with the private sector, for the dry storage of spent nuclear fuel at civilian nuclear power reactor sites, with the objective of establishing one or more technologies that the [Nuclear Regulatory] Commission may, by rule, approve for use at the sites of civilian nuclear power reactors without, to the maximum extent practicable, the need for additional site-specific approvals by the Commission.” Section 133 of the NWPA states, in part, that “[the Commission] shall, by rule, establish procedures for the licensing of any technology approved by the Commission under Section 219(a) [sic: 218(a)] for use at the site of any civilian nuclear power reactor.”

To implement this mandate, the Commission approved dry storage of spent nuclear fuel in NRC-approved casks under a general license by publishing a final rule which added a new subpart K in part 72 of title 10 of the Code of Federal Regulations (10 CFR) entitled, “General License for Storage of Spent Fuel at Power Reactor Sites” (55 FR 29181; July 18, 1990). This rule also established a new subpart L in 10 CFR part 72 entitled, “Approval of Spent Fuel Storage Casks,” which contains procedures and criteria for obtaining NRC approval of spent fuel storage cask designs. The NRC subsequently issued a final rule on March 9, 2000 (65 FR 12444), that approved the NAC-MPC Cask System design and added it to the list of NRC-approved cask designs in § 72.214 as Certificate of Compliance No. 1025.

The Plain Writing Act of 2010 (Pub. L. 111-274) requires Federal agencies to write documents in a clear, concise, well-organized manner. The NRC has written this document to be consistent with the Plain Writing Act as well as the Presidential Memorandum, “Plain Language in Government Writing,” published June 10, 1998 (63 FR 31883). The NRC requests comment on the proposed rule with respect to the clarity and effectiveness of the language used.

The documents identified in the following table are available to interested persons through one or more of the following methods, as indicated.

The NRC may post materials related to this document, including public comments, on the Federal Rulemaking website at http://www.regulations.gov under Docket ID NRC-2018-0220. The Federal Rulemaking website allows you to receive alerts when changes or additions occur in a docket folder. To subscribe: (1) Navigate to the docket folder (NRC-2018-0220); (2) click the “Sign up for Email Alerts” link; and (3) enter your email address and select how frequently you would like to receive emails (daily, weekly, or monthly).

For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; the Nuclear Waste Policy Act of 1982, as amended; and 5 U.S.C. 552 and 553; the NRC is proposing to adopt the following amendments to 10 CFR part 72:

Nearly all tobacco product use begins during youth and young adulthood (Ref. 1). While the current use of any tobacco product among U.S. middle and high school students has decreased from 2011 to 2017, there has been an alarming increase in e-cigarette use over this time. In fact, since 2014, e-cigarettes  1 have been the most commonly used tobacco products among youth, used by 1.73 million (11.7 percent) high school students and 390,000 (3.3 percent) middle school students in 2017 (Ref. 2). Youth e-cigarette use raises a number of health concerns including risk of addiction to nicotine early on in life, potential harm to the developing adolescent brain, and exposure to chemicals including carbonyl compounds and volatile organic compounds known to have adverse health effects; the full range of possible health effects is not yet completely understood (Ref. 3).

On April 24, 2018, FDA announced its Youth Tobacco Prevention Plan. This plan focuses on three key strategies: Prevention of youth access to tobacco products, curbing the marketing of tobacco products aimed at youth, and educating teens about the dangers of using any tobacco products. 2 FDA recently launched an expansion of its “The Real Cost” campaign to educate youth on the dangers of e-cigarette use  3 and increased enforcement actions to address this critically important public health concern. 4

In addition to the prevention of initiation, which will be the cornerstone of any successful effort to curb youth e-cigarette use, FDA is also exploring additional approaches to address youth e-cigarette use. One such approach may be the development of drug therapies, as part of multimodal treatment strategies, including behavioral interventions, to support tobacco product cessation. To date, research on youth tobacco product cessation has been limited and focused on smoking ( i.e., combustible products) cessation. One recent review found a paucity of data on either behavioral or drug therapies for smoking cessation in young people (age less than 20 years) and concluded that “there continues to be a need for well-designed, adequately powered, randomized controlled trials of interventions for this population of smokers” (Ref. 4). FDA is not aware of any research examining either drug or behavioral interventions for the cessation of youth or adult e-cigarette use. In contrast, there is a large body of research on adult smoking cessation, and multiple drugs for smoking cessation are approved for the adult population, including a variety of prescription and over-the-counter nicotine replacement therapy (NRT) products, as well as the prescription drugs varenicline and bupropion hydrochloride sustained release (see Appendix A).

FDA is holding a public hearing to obtain the public's perspectives on the potential role drug therapies may play in the broader effort to eliminate youth e-cigarette and other tobacco product use, as well as the appropriate methods and study designs for evaluating youth e-cigarette cessation therapies and the safety and efficacy of such therapies. The Agency has determined that a public hearing is the most appropriate way to ensure public engagement on this issue, which is of great importance to the public health. FDA believes it is critical to obtain input across the medical and research fields, the pharmaceutical and tobacco industries, and among public health stakeholders (including adolescents) regarding approaches to eliminate youth e-cigarette and other tobacco product use, including exploring whether there is a need for drug therapies to support youth e-cigarette cessation, and if so, how FDA can support the development of such therapies.

Questions for Commenters to Address: Considering the broad range of activities focused on this public health issue, FDA is interested in the public's view on approaches to eliminating e-cigarette and other tobacco product use among youth. Although FDA welcomes all feedback on any public health, scientific, regulatory, or legal considerations relating to this topic, we particularly encourage commenters to consider the following questions as they prepare their comments or statements. Responses to questions should include supporting scientific justification.

1. FDA notes that the factors driving e-cigarette use among youth likely differ from those in the adult population. How might such differences impact the need for, or use of, drug therapies for e-cigarette cessation among youth?

2. FDA is interested in whether there is a population of youth e-cigarette users who would be likely to benefit from the use of drug therapies for e-cigarette cessation. What age groups (older adolescent vs. younger adolescent), patterns in tobacco use (duration and frequency of use), and clinical features (level of addiction, presence/absence of comorbidities including psychiatric disease) might characterize this population? What types of products (NRT vs. non-NRT; prescription vs. over-the-counter) might be useful?

3. Describe the scientific, clinical, and societal factors that could either encourage or impede the conduct of clinical trials designed to evaluate drugs intended for youth e-cigarette cessation. What approaches could be used to encourage research and overcome barriers to research?

4. What methods and study designs are appropriate for assessing drug therapies for youth e-cigarette cessation? What are the appropriate control groups? What are the most informative endpoints and the best assessment tools to evaluate these endpoints?

5. Acknowledging that to date research has been limited, are there data available from the adult experience with smoking cessation that could potentially be leveraged in the effort to develop drug therapies for youth e-cigarette cessation? Have any drug therapies demonstrated potential to help adults discontinue e-cigarette use? Are there differences between adolescents and adults that impact the ability to extrapolate efficacy findings from the adult population to the adolescent population? Could existing NRT products be useful for youth e-cigarette cessation?

6. While this hearing is focused on the topic of e-cigarette use among youth, as e-cigarettes are currently the most commonly used form of tobacco in this population, FDA also welcomes comments regarding the potential need for drug therapies to support cessation of other tobacco products, including combustible products ( i.e., cigarettes or cigars) and smokeless tobacco products, among youth and the issues impacting the development of such therapies.

Registration and Requests for Oral Presentations: The FDA Conference Center at the White Oak location is a Federal facility with security procedures and limited seating. Attendance will be free and on a first-come, first-served basis. For those interested in presenting at the meeting with a formal oral presentation, please register by January 8, 2019, at https://www.eventbrite.com/e/fda-pediatric-tobacco-cessation-part-15-public-hearing-tickets-50167147288. For those interested in participating as a speaker during the open public hearing, please register by January 15, 2019, at https://www.eventbrite.com/e/fda-pediatric-tobacco-cessation-part-15-public-hearing-tickets-50167147288. If you wish to attend either in person or by webcast (see Streaming Webcast of the Public Hearing ), please register for the hearing by January 15, 2019, at https://www.eventbrite.com/e/fda-pediatric-tobacco-cessation-part-15-public-hearing-tickets-50167147288. Those without internet or email access can register and/or request to participate as an open public hearing speaker or a formal presenter by contacting Theresa Wells by the above dates (see FOR FURTHER INFORMATION CONTACT ).

FDA will try to accommodate all persons who wish to make a presentation. Formal oral presenters may use an accompanying slide deck, while those participating in the open public hearing will have less allotted time than formal oral presenters and will deliver oral testimony only (no accompanying slide deck). Individuals wishing to present should identify the number of the specific question, or questions, they wish to address. This will help FDA organize the presentations. Individuals and organizations with common interests should consolidate or coordinate their presentations and request time for a joint presentation. Individual organizations are limited to a single presentation slot. FDA will notify registered presenters of their scheduled presentation times. The time allotted for each presentation will depend on the number of individuals who wish to speak. Registered presenters making a formal oral presentation are encouraged to submit an electronic copy of their presentation (PowerPoint or PDF) to OMPTFeedback@fda.hhs.gov with the subject line “Eliminating Youth Electronic Cigarette and Other Tobacco Product Use: The Role for Drug Therapies” on or before January 11, 2019. Persons registered to present are encouraged to arrive at the hearing room early and check in at the onsite registration table to confirm their designated presentation time. Actual presentation times, however, may vary based on how the meeting progresses in real time. An agenda for the hearing and any other background materials will be made available 5 days before the hearing at https://www.fda.gov/NewsEvents/MeetingsConferencesWorkshops/ucm620744.htm.

If you need special accommodations because of a disability, please contact Theresa Wells (see FOR FURTHER INFORMATION CONTACT ) at least 7 days before the hearing.

Streaming Webcast of the Public Hearing: For those unable to attend in person, FDA will provide a live webcast of the hearing. To join the hearing via the webcast, please go to https://collaboration.fda.gov/ptc120518.

Transcripts: Please be advised that as soon as a transcript is available, it will be accessible at https://www.regulations.gov. It may be viewed at the Dockets Management Staff (see ADDRESSES ).

The Commissioner of Food and Drugs is announcing that the public hearing will be held in accordance with part 15 (21 CFR part 15). The hearing will be conducted by a presiding officer, who will be accompanied by FDA senior management from the Office of the Commissioner, the Center for Drug Evaluation and Research, and the Center for Tobacco Products. Under § 15.30(f) (21 CFR 15.30(f)), the hearing is informal and the rules of evidence do not apply. No participant may interrupt the presentation of another participant. Only the presiding officer and panel members can pose questions; they can question any person during or at the conclusion of each presentation. Public hearings under part 15 are subject to FDA's policy and procedures for electronic media coverage of FDA's public administrative proceedings (21 CFR part 10, subpart C). Under 21 CFR 10.205, representatives of the media may be permitted, subject to certain limitations, to videotape, film, or otherwise record FDA's public administrative proceedings, including presentations by participants. The hearing will be transcribed as stipulated in § 15.30(b) (see Transcripts ). To the extent that the conditions for the hearing, as described in this notice, conflict with any provisions set out in part 15, this notice acts as a waiver of those provisions as specified in § 15.30(h).

The following references marked with an asterisk (*) are on display at the Dockets Management Staff (see ADDRESSES ) and are available for viewing by interested persons between 9 a.m. and 4 p.m., Monday through Friday; they also are available electronically at https://www.regulations.gov. References without asterisks are not on public display at https://www.regulations.gov because they have copyright restriction. Some may be available at the website address, if listed. References without asterisks are available for viewing only at the Dockets Management Staff. FDA has verified the website addresses, as of the date this document publishes in the Federal Register , but websites are subject to change over time.

This document contains amendments to the Income Tax Regulations (26 CFR part 1) under chapter 4 (sections 1471 through 1474) commonly known as the Foreign Account Tax Compliance Act (FATCA). This document also contains amendments to the Income Tax Regulations (26 CFR part 1) under sections 1441 and 1461.

On January 28, 2013, the Department of the Treasury (Treasury Department) and the IRS published final regulations under chapter 4 in the Federal Register (TD 9610, 78 FR 5873), and on September 10, 2013, corrections to the final regulations were published in the Federal Register (78 FR 55202). The regulations in TD 9610 and the corrections thereto are collectively referred to in this preamble as the 2013 final chapter 4 regulations. On March 6, 2014, the Treasury Department and the IRS published temporary regulations under chapter 4 (TD 9657, 79 FR 12812) that clarify and modify certain provisions of the 2013 final chapter 4 regulations, and corrections to the temporary regulations were published in the Federal Register on July 1, 2014, and November 18, 2014 (79 FR 37175 and 78 FR 68619, respectively). The regulations in TD 9657 and the corrections thereto are referred to in this preamble as the 2014 temporary chapter 4 regulations. A notice of proposed rulemaking cross-referencing the 2014 temporary chapter 4 regulations was published in the Federal Register on March 6, 2014 (79 FR 12868).

On March 6, 2014, the Treasury Department and the IRS published temporary regulations under chapters 3 and 61 in the Federal Register (TD 9658, 79 FR 12726) to coordinate with the regulations under chapter 4, and corrections to those temporary regulations were published in the Federal Register (79 FR 37181) on July 1, 2014. Collectively, the regulations in TD 9657 and the corrections thereto are referred to in this preamble as the 2014 temporary coordination regulations. A notice of proposed rulemaking cross-referencing the 2014 temporary coordination regulations was published in the Federal Register on March 6, 2014 (79 FR 12880).

On January 6, 2017, the Treasury Department and the IRS published final and temporary regulations under chapter 4 in the Federal Register (TD 9809, 82 FR 2124), and corrections to those final regulations were published on June 30, 2017 in the Federal Register (82 FR 27928). Collectively, the regulations in TD 9809 and the corrections thereto are referred to in this preamble as the 2017 chapter 4 regulations. A notice of proposed rulemaking cross-referencing the temporary regulations in TD 9809 and proposing regulations under chapter 4 relating to verification requirements for certain entities was published in the Federal Register on January 6, 2017 (82 FR 1629). Also on January 6, 2017, the Treasury Department and the IRS published final and temporary regulations under chapters 3 and 61 in the Federal Register (TD 9808, 82 FR 2046), and corrections to those final regulations were published on June 30, 2017 in the Federal Register (82 FR 29719). Collectively, the regulations in TD 9808 and the corrections thereto are referred to in this preamble as the 2017 coordination regulations. A notice of proposed rulemaking cross-referencing the temporary regulations in TD 9808 was published in the Federal Register on January 6, 2017 (82 FR 1645).

Pursuant to Executive Order 13777, Presidential Executive Order on Enforcing the Regulatory Reform Agenda (82 FR 9339), the Treasury Department is responsible for conducting a broad review of existing regulations. In a Request for Information published on June 14, 2017 (82 FR 27217), the Treasury Department invited public comment concerning regulations that should be modified or eliminated in order to reduce unnecessary burdens. In addition, in Notice 2017-28 (2017-19 I.R.B. 1235), the Treasury Department and the IRS invited public comment on recommendations for the 2017-2018 Priority Guidance Plan for tax guidance, including recommendations relating to Executive Order 13777. In response to the invitations for comments in the Request for Information and Notice 2017-28, the Treasury Department and the IRS received comments suggesting modifications to the regulations under chapters 3 and 4. See also Executive Order 13789, Identifying and Reducing Tax Regulatory Burdens, issued on April 21, 2017 (82 FR 19317) and the second report issued in response (82 FR 48013) (stating that the Treasury Department continues to analyze all recently issued significant regulations and is considering possible reforms of recent regulations, which include regulations under chapter 4).

Based on public input, and taking into account the burden-reducing policies described in Executive Orders 13777 and 13789, these regulations propose certain amendments to the regulations under chapters 3 and 4, including certain refund related issues for which comments were received. The Explanation of Provisions section of this preamble describes these proposed amendments and addresses public comments received in response to the Request for Information and Notice 2017-28, other than comments that would require a statutory change or were addressed in prior Treasury decisions. The Explanation of Provisions section of this preamble also discusses comments to the 2017 chapter 4 regulations and 2017 coordination regulations to the extent the comments relate to amendments that are included in these proposed regulations. The Treasury Department and the IRS continue to study other public comments.

Under sections 1471(a) and 1472, withholdable payments made to certain foreign financial institutions (FFIs) and certain non-financial foreign entities (NFFEs) are subject to withholding under chapter 4. Section 1473(1) states that, except as otherwise provided by the Secretary, the term “withholdable payment” means: (i) Any payment of interest (including any original issue discount), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income, if such payment is from sources within the United States; and (ii) any gross proceeds from the sale or other disposition of any property of a type which can produce interest or dividends from sources within the United States.

Since the enactment of chapter 4, the Treasury Department and the IRS have received comments from withholding agents on the burden of implementing a requirement to withhold on gross proceeds. The comments have noted in particular the lead time required to implement such a requirement and the potential complexity of a sufficient regulatory framework. The comments assert that withholding on gross proceeds would require significant efforts by withholding agents, including executing brokers that do not obtain tax documentation. The comments assert that adding this withholding requirement is of limited incremental benefit in supporting the objectives of chapter 4 with respect to foreign entities investing in U.S. securities. In response to these comments, the Treasury Department and the IRS have repeatedly issued guidance deferring the date when withholding on gross proceeds would begin. The 2017 chapter 4 regulations provide that such withholding will begin on January 1, 2019.

Many U.S. and foreign financial institutions, foreign governments, the Treasury Department, the IRS, and other stakeholders have devoted substantial resources to implementing FATCA withholding on withholdable payments. At the same time, 87 jurisdictions have an IGA in force or in effect and 26 jurisdictions are treated as having an IGA in effect because they have an IGA signed or agreed in substance, which allows for international cooperation to facilitate FATCA implementation. The Treasury Department and the IRS have determined that the current withholding requirements under chapter 4 on U.S. investments already serve as a significant incentive for FFIs investing in U.S. securities to avoid status as nonparticipating FFIs, and that withholding on gross proceeds is no longer necessary in light of the current compliance with FATCA. For these reasons, under the authority provided under section 1473(1) these proposed regulations would eliminate withholding on gross proceeds by removing gross proceeds from the definition of the term “withholdable payment” in § 1.1473-1(a)(1) and by removing certain other provisions in the chapter 4 regulations that relate to withholding on gross proceeds. As a result of these proposed changes to the chapter 4 regulations, only payments of U.S. source FDAP that are withholdable payments under § 1.1473-1(a) and that are not otherwise excepted from withholding under § 1.1471-2(a) or (b) would be subject to withholding under sections 1471(a) and 1472.

An FFI that has an agreement described in section 1471(b) in effect with the IRS is required to withhold on any passthru payments made to its recalcitrant account holders and to FFIs that are not compliant with chapter 4 (nonparticipating FFIs). Section 1471(d)(7) defines a “passthru payment” as any withholdable payment or other payment to the extent attributable to a withholdable payment.

In Notice 2010-60 (2010-37 I.R.B. 329), the Treasury Department and the IRS requested comments on methods a participating FFI could use to determine whether payments it makes are attributable to withholdable payments. In Notice 2011-34 (2011-19 I.R.B. 765), the Treasury Department and the IRS set forth a proposed framework for participating FFIs to withhold on such payments based on a methodology for determining a “passthru payment percentage” to be applied to certain payments made by FFIs. After the publication of Notice 2011-34, stakeholders noted the burdens and complexities in implementing a system for withholding on these payments along the lines of that described in the notice. In light of those comments, the framework outlined in Notice 2011-34 was not incorporated into the 2013 final chapter 4 regulations. In addition, the Treasury Department and the IRS have repeatedly issued guidance deferring the date when withholding on these payments would begin (referred to in guidance as “foreign passthru payments”). The 2017 chapter 4 regulations provide that such withholding will not begin until the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.”

The Treasury Department and the IRS have received comments noting that withholding on foreign passthru payments may not be needed given the number of IGAs in effect. One comment also recommended that if the Treasury Department and the IRS determine, based on an evaluation of the data received from FFIs on payments to nonparticipating FFIs in 2015 and 2016, that withholding on foreign passthru payments is necessary, the Treasury Department and the IRS should develop a more targeted solution.

Both in recognition of the time necessary to implement a system for withholding on foreign passthru payments and in recognition of the successful engagement of Treasury and partner jurisdictions to conclude intergovernmental agreements to implement FATCA, these proposed regulations further extend the time for withholding on foreign passthru payments. Accordingly, under proposed regulation § 1.1471-4(b)(4), a participating FFI will not be required to withhold tax on a foreign passthru payment made to a recalcitrant account holder or nonparticipating FFI before the date that is two years after the date of publication in the Federal Register of final regulations defining the term “foreign passthru payment.” The proposed regulations also make conforming changes to other provisions in the chapter 4 regulations that relate to foreign passthru payment withholding.

Notwithstanding these proposed amendments, the Treasury Department and the IRS remain concerned about the long-term omission of withholding on foreign passthru payments. The Treasury Department and the IRS acknowledge the progress made in implementing FATCA. Nevertheless, concerns remain regarding account holders of participating FFIs that remain recalcitrant account holders or nonparticipating FFIs and regarding payments made to nonparticipating FFIs. Withholding on foreign passthru payments serves important purposes. First, it provides one way for an FFI that has entered into an FFI agreement to continue to remain in compliance with its agreement, even if some of its account holders have failed to provide the FFI with the information necessary for the FFI to properly determine whether the accounts are U.S. accounts and perform the required reporting, or, in the case of account holders that are FFIs, have failed to enter into an FFI agreement. Second, withholding on foreign passthru payments prevents nonparticipating FFIs from avoiding FATCA by investing in the United States through a participating FFI “blocker.” For example, a participating FFI that is an investment entity could receive U.S. source FDAP income free of withholding under chapter 4 and then effectively pay the amount over to a nonparticipating FFI as a corporate distribution. Despite being attributable to the U.S. source payment, the payment made to the nonparticipating FFI may be treated as foreign source income and therefore not a withholdable payment subject to chapter 4 withholding.

Accordingly, the Treasury Department and the IRS continue to consider the feasibility of a system for implementing withholding on foreign passthru payments. The Treasury Department and the IRS request additional comments from stakeholders on alternative approaches that would serve the same compliance objectives as would foreign passthru payment withholding and that could be more efficiently implemented by FFIs.

Under § 1.1473-1(a)(1), a withholdable payment generally includes any payment of U.S. source FDAP income, subject to certain exclusions, such as for “excluded nonfinancial payments.” Excluded nonfinancial payments do not include premiums for insurance contracts. The 2013 final chapter 4 regulations included, however, a transitional rule that deferred withholding on payments with respect to offshore obligations until January 1, 2017, which was extended in the 2014 chapter 4 regulations to include premiums paid by persons acting as insurance brokers with respect to offshore obligations. Additionally, in response to comments noting the burden of providing to withholding agents withholding certificates and withholding statements for payments of insurance premiums, the chapter 4 regulations provide a rule generally allowing a withholding agent to treat as a U.S. payee a U.S. broker receiving a payment of an insurance premium in its capacity as an intermediary or an agent of a foreign insurer. The IRS also generally permits non-U.S. insurance brokers that are NFFEs to become qualified intermediaries in order to alleviate burden on the foreign brokers and U.S. withholding agents.

Notwithstanding these allowances, the Treasury Department and the IRS continued to receive comments requesting elimination of withholding under chapter 4 on premiums for insurance contracts that do not have cash value (non-cash value insurance premiums). The comments cited the burden on insurance brokers of documenting insurance carriers, intermediaries, and syndicates of insurers for chapter 4 purposes, noting examples to demonstrate the volume and complexity of placements with insurers of the insurance policies typically arranged by the brokers for their clients. The comments argued that withholding on non-cash value insurance premiums is not necessary to further the purposes of chapter 4.

At the same time, certain foreign entities that conducted a relatively small amount of insurance business had taken the position that they were not passive foreign investment companies (PFICs) under section 1297(a). Section 1297(a) generally defines a PFIC as a foreign corporation if 75 percent or more of the corporation's gross income for the taxable year is passive income or 50 percent or more of its assets produce, or are held for the production of, passive income. Section 1297(b)(2)(B), prior to a recent change in law (described below), provided an exception from the U.S. owner reporting and anti-deferral rules applicable to PFICs for corporations “predominantly engaged” in an insurance business. Withholding under chapter 4 on non-cash value insurance premiums strengthened the IRS's enforcement efforts, with respect to the use of the exception in section 1297(b)(2)(B) by U.S. owners of foreign corporations for tax avoidance and evasion, by facilitating reporting of the U.S. owners to avoid withholding on premiums received by the entity.

The preamble to the 2017 chapter 4 regulations noted that future changes to the PFIC rules may create an opportunity to revise the treatment of foreign insurance companies under chapter 4. 82 FR 2140. On December 22, 2017, the Tax Cuts and Jobs Act, Public Law 115-97 (2017) amended section 1297(b)(2)(B) to provide a more limited exception to PFIC status by replacing the exception for corporations predominantly engaged in an insurance business with a more stringent test based generally on a comparison of the corporation's insurance liabilities and its total assets. This amendment is expected to mitigate the need for reporting on the U.S. owners of these companies under chapter 4 because the Treasury Department and the IRS anticipate that these entities will either amend their business models on account of the change in law or will otherwise comply with the PFIC reporting requirements.

In light of the aforementioned change in law and in furtherance of the burden-reducing policies in Executive Orders 13777 and 13789, these proposed regulations provide that premiums for insurance contracts that do not have cash value (as defined in § 1.1471-5(b)(3)(vii)(B)) are excluded nonfinancial payments and, therefore, not withholdable payments.

Under § 1.1471-5(e)(4)(i)(B), an entity is an investment entity (and therefore a financial institution) if the entity's gross income is primarily attributable to investing, reinvesting, or trading in financial assets and the entity is “managed by” another entity that is a depository institution, custodial institution, insurance company, or an investment entity described in § 1.1471-5(e)(4)(i)(A). Section 1.1471-5(e)(4)(v), Example 2, illustrates this rule with an example in which a fund is an investment entity because another financial institution (an investment advisor) provides investment advice to the fund and has discretionary management of the assets held by a fund and the fund meets the gross income test. In Example 6 of § 1.1471-5(e)(4)(v), a trust is an investment entity because the trustee (an FFI) manages and administers the assets of the trust in accordance with the terms of the trust instrument and the trust meets the gross income test. Section 1.1471-5(e)(4)(v), Example 8, provides an example in which an entity is an investment entity because an introducing broker (that is, a broker using another broker to clear and settle its trades) has discretionary authority to manage the entity's assets and provides services as an investment advisor and manager to the entity and the entity meets the gross income test.

The Treasury Department and the IRS received a comment requesting that “discretionary authority” be more narrowly construed for purposes of treating an entity as an investment entity described in § 1.1471-5(e)(4)(i)(B). The comment suggested that an entity should not be treated as an investment entity solely because the entity invests in a mutual fund or similar vehicle because the investments made by the mutual fund are not tailored to the entity that invests in it. The comment requested the same result for a variety of other types of investment products and solutions with varying degrees of investor involvement and standardization, including an investment in a “discretionary mandate.” According to the comment, a “discretionary mandate” is an investment product or solution offered by a financial institution to certain clients where the financial institution manages and invests the client's funds directly (rather than the client investing in a separate entity) in accordance with the client's investment goals. The comment noted that some discretionary mandate clients claim to be passive NFFEs rather than FFIs.

As described in the examples, the “managed by” category of investment entities generally covers entities that receive specific professional management advice from an advisor that is tailored to the investment needs of the entity. A financial institution does not have discretionary authority over an entity merely because it sells the entity shares in a widely-held fund that employs a predetermined investment strategy. These proposed regulations clarify that an entity is not “managed by” another entity for purposes of § 1.1471-5(e)(4)(i)(B) solely because the first-mentioned entity invests all or a portion of its assets in such other entity, and such other entity is a mutual fund, an exchange traded fund, or a collective investment entity that is widely held and is subject to investor-protection regulation. In contrast, an investor in a discretionary mandate described above is “managed by” the financial institution under § 1.1471-5(e)(4)(i)(B).

The clarification in these proposed regulations is similar to the guidance published by the OECD interpreting the definition of a “managed by” investment entity under the Common Reporting Standard.

Under chapter 3, a withholding agent must generally obtain either a withholding certificate or documentary evidence and a treaty statement in order to apply a reduced rate of withholding based on a payee's claim for benefits under a tax treaty. The 2017 coordination regulations added a requirement that when a treaty statement is provided with documentary evidence by an entity beneficial owner to claim treaty benefits, the statement must identify the specific limitation on benefits (LOB) provision relied upon in the treaty. In addition, the 2017 coordination regulations added a three-year validity period applicable to treaty statements provided with documentary evidence and a transition period that expires January 1, 2019, for withholding agents to obtain new treaty statements that comply with the new LOB requirement for accounts that were documented with documentary evidence before January 6, 2017 (preexisting accounts). The QI agreement in Revenue Procedure 2017-15, 2017-3 I.R.B. 437 (2017 QI agreement) cross-references the 2017 coordination regulations for the three-year validity period for treaty statements provided with documentary evidence and provides a two-year transition rule for accounts documented before January 1, 2017. Similar provisions are included in the WP and WT agreements in Revenue Procedure 2017-21, 2017-6 I.R.B. 791 (2017 WP and WT agreements).

Comments have noted the burden of complying with the new treaty statement requirements, including difficulties in obtaining new treaty statements for preexisting accounts within the transitional period given the large number of account holders impacted by this requirement. The comments requested an additional one-year period for withholding agents to obtain new treaty statements for preexisting accounts, and the removal of the three-year validity period for a treaty statement that meets the LOB requirement. A comment also noted that a three-year validity period for a treaty statement is not needed for certain categories of entities whose treaty status is unlikely to change, such as publicly traded corporations and government entities.

In response to these comments, these proposed regulations include several changes to the rules on treaty statements provided with documentary evidence. First, these proposed regulations extend the time for withholding agents to obtain treaty statements with the specific LOB provision identified for preexisting accounts until January 1, 2020 (rather than January 1, 2019). Second, these proposed regulations add exceptions to the three-year validity period for treaty statements provided by tax exempt organizations (other than tax-exempt pension trusts or pension funds), governments, and publicly traded corporations, entities whose qualification under an applicable treaty is unlikely to change. See proposed § 1.1441-1(e)(4)(ii)(A)( 2 ). In addition, these proposed regulations correct an inadvertent omission of the actual knowledge standard for a withholding agent's reliance on the beneficial owner's identification of an LOB provision on a treaty statement provided with documentary evidence, the same as the standard that applies to a withholding certificate used to make a treaty claim. See proposed § 1.1441-6(c)(5)(i). The proposed amendments described in this section V.A. will also be incorporated into the 2017 QI agreement and 2017 WP and WT agreements, and a QI, WP, or WT may rely upon these proposed modifications until such time.

In response to comments received on the 2014 temporary coordination regulations and the 2014 QI agreement regarding the definition of a “permanent residence address,” the 2017 coordination regulations (and the 2017 chapter 4 regulations by cross-reference) allow an address to be treated as a permanent residence address despite being subject to a hold mail instruction when a person provides documentary evidence establishing residence in the country in which the person claims to be a resident for tax purposes. Comments noted that the allowance to obtain documentary evidence establishing residence in a particular country is unnecessarily strict when the person is not claiming treaty benefits, and that it is unclear what documentary evidence may be used to establish residence for purposes of this allowance.

These proposed regulations provide that the documentary evidence required in order to treat an address that is provided subject to a hold mail instruction as a permanent residence address is documentary evidence that supports the person's claim of foreign status or, for a person claiming treaty benefits, documentary evidence that supports the person's residence in the country where the person claims treaty benefits. Regardless of whether the person claims treaty benefits, the documentary evidence on which a withholding agent may rely is the documentary evidence described in § 1.1471-3(c)(5)(i), without regard to the requirement that the documentation contain a permanent residence address.

A comment also requested the removal of any limitation on reliance on a permanent residence address subject to a hold mail instruction because many account holders prefer to receive electronic correspondence rather than paper mail. In response to this comment, proposed § 1.1471-1(b)(62) adds a definition of a hold mail instruction to clarify that a hold mail instruction does not include a request to receive all correspondence (including account statements) electronically.

These proposed regulations apply for purposes of chapters 3 and 4. A QI, WP, or WT may rely upon these proposed modifications until they are incorporated into the 2017 QI agreement and 2017 WP and WT agreements.

Under § 1.1441-5(b)(2)(i)(A), a U.S. partnership is required to withhold on an amount subject to chapter 3 withholding (as defined in § 1.1441-2(a)) that is includible in the gross income of a partner that is a foreign person. A U.S. partnership satisfies this requirement by withholding on distributions to the foreign partner that include an amount subject to chapter 3 withholding. To the extent a foreign partner's distributive share of income subject to chapter 3 withholding is not actually distributed to the partner, the U.S. partnership must withhold on the partner's distributive share of the income on the earlier of the date that the statement required under section 6031(b) (Schedule K-1, Partner's Share of Income, Deductions, Credits, etc.) is mailed or otherwise provided to the partner or the due date for furnishing the statement. Under section 6031(b), a partnership that files its return for a calendar year (calendar-year partnership) must generally furnish to each partner a Schedule K-1 on or before March 15 following the close of the taxable year, a due date that may be extended up to six months. See §§ 1.6031(b)-1T(b) and 1.6081-2T(a). Similar requirements apply to a foreign partnership that has entered into an agreement with the IRS to act as a WP. See the 2017 WP agreement. A foreign partnership other than a WP generally satisfies its withholding requirement in the same manner for amounts received from a withholding agent that failed to withhold to the extent required. See § 1.1441-5(c)(2) and (c)(3)(v). For purposes of chapter 4, similar withholding rules apply to a partnership that receives a withholdable payment allocable to a foreign partner. See § 1.1473-1(a)(5)(ii) and (vi).

Under § 1.1461-1(c)(1) and (2), a partnership is required to report on Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding, any amount subject to withholding that is allocable to a foreign partner for a calendar year. The partnership must file Form 1042-S (and furnish a copy to the partner) by March 15 of the calendar year following the year in which it receives the amount subject to withholding. The due date for filing a Form 1042-S may be automatically extended by 30 days (and an additional 30 days at the discretion of the IRS). See § 1.6081-8T(a). Amounts that are reportable on Forms 1042-S are also required to be reported on a withholding agent's income tax return, Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. The due date for Form 1042 is March 15, which may be automatically extended for six months. See § 1.6081-10. Similar reporting rules apply to a partnership that receives a withholdable payment and withholds under chapter 4. See § 1.1474-1(c) and (d)(1).

Because the extended due date for filing a Form 1042-S generally occurs before the extended due date for furnishing a Schedule K-1 to a foreign partner, a partnership may be required to report an amount subject to withholding on a Form 1042-S before it performs all of the withholding required on such amount under § 1.1441-5(b)(2)(i)(A) or § 1.1473-1(a)(5)(ii) and (vi). To address this case, the Instructions for Form 1042 require a domestic partnership to report any withholding that occurs with respect to an amount that a partnership received but did not distribute to a partner in a calendar year (preceding year) on the partnership's Form 1042 for the following calendar year (subsequent year) (referred to as the “lag method” of reporting). In this case, the partnership would deposit the amount in the subsequent year and designate the deposit as made for that year for reporting on Form 1042. To correspond to the timing of the reporting on Form 1042, the partnership must also report this withholding on Forms 1042-S filed and issued for the subsequent year. For example, a calendar year domestic partnership that receives U.S. source dividends in 2017 (but does not make a distribution to its foreign partners), must withhold on the foreign partners' share of the dividend income by the time the partnership issues Schedules K-1 to the foreign partners, which could be as late as September 15, 2018. The lag method of reporting requires the partnership to report the withholding on the Forms 1042-S and 1042 for the 2018 year (which are issued and filed in 2019). The WP agreement includes a similar requirement to that described in this paragraph when a WP withholds after the due date for Form 1042-S (including extensions). The Instructions for Form 1042 provide a similar reporting rule for a domestic trust that withholds in a subsequent year on income of the trust that it is required to distribute but has not actually distributed to a foreign beneficiary. See § 1.1441-5(b)(2)(ii) and (iii). The WT agreement includes a similar requirement for a WT.

Apart from the cases described in the preceding paragraph, in certain other cases, a withholding agent is permitted to withhold an amount in a subsequent year that relates to the preceding year. For example, a withholding agent adjusting underwithholding under § 1.1461-2(b) or § 1.1474-2(b) may withhold the additional amount by the due date (without extensions) of Form 1042. In these cases, the Instructions for Form 1042 provide that, in contrast to the reporting required by partnerships and certain trusts described in the preceding paragraph, a withholding agent withholding in a subsequent year must designate the deposit and report the tax for the preceding year.

Comments have noted issues that arise under the lag method when a partner files an income tax return to report the partnership income allocated to the partner and to claim credit under section 33 (or a refund) based on the partnership's withholding. When a partnership applies the lag method, it issues a Form 1042-S for the subsequent year (and the related withholding) that generally reflects the income received by the partnership in the preceding year. However, the income is reported to the partner on Schedule K-1 for the preceding year, thus resulting in a mismatch between the income allocated to the partner and the withholding on that income. Because a partner must attach to its income tax return a Form 1042-S that it receives from a partnership to claim a credit or refund of overwithholding under § 301.6402-3(e), the partner cannot support the claim with the Form 1042-S until after the year in which the partner is required to report the income shown on the Schedule K-1.

These proposed regulations generally require a withholding agent (including a partnership or trust) that withholds in a subsequent year to designate the deposit as attributable to the preceding year and report the amount on Forms 1042 and 1042-S for the preceding year. This proposed rule incorporates the existing rule for withholding agents (other than partnerships and trusts) from the form instructions, and extends the rule to partnerships and trusts. An exception to this requirement for a partnership that is not a calendar-year partnership (a fiscal-year partnership) provides that such partnership may designate a deposit as made for the subsequent year and report the amount on Forms 1042 and 1042-S for the subsequent year. This exception allows a fiscal-year partnership flexibility to determine the year for reporting that will result in the best matching of the income and the related withholding.

These proposed regulations also provide a revised due date for a partnership to file and furnish Form 1042-S when it withholds the tax after March 15 of the subsequent year that it designates as deposited for the preceding year. Under this new rule, the due date for a partnership to file and furnish a Form 1042-S in such a case will be September 15 of the subsequent year. This revised due date corresponds to the due date for a partnership to file Form 1042 with an extension and the due date for a calendar-year partnership to furnish a Schedule K-1 to a partner with an extension so that the partnership has sufficient time to determine the amount of withholding due and to coordinate with the extended due date for furnishing the Schedule K-1.

Based on the revisions included in these proposed regulations, the IRS intends to amend the Instructions for the 2019 Form 1042 to remove the requirement that a partnership or trust apply the lag method and to incorporate these proposed regulations. The IRS also intends to amend the Instructions to the 2019 Form 1042-S to require that in a case when a partnership is filing Form 1042-S after March 15 for a partner's distributive share of an amount received by the partnership in the preceding year, the partnership must file and issue a separate Form 1042-S for such amount for the preceding year (in addition to any Forms 1042-S filed and issued to the partner for amounts that are withheld when distributed to the partner before March 15 and reported for the preceding year).

The Treasury Department and the IRS intend to amend the WP and WT agreements to the extent necessary to incorporate the proposed regulations, and until such time a WP or WT may rely on these proposed modifications for purposes of its filing and deposit requirements.

Under § 1.1461-2(a), a withholding agent that has overwithheld and deposited the tax may adjust the overwithheld amount under either the reimbursement procedure or the set-off procedure. Under the reimbursement procedure, a withholding agent may repay the beneficial owner or payee the amount of tax overwithheld and then reimburse itself by reducing, by the amount of such repayment, any deposit of withholding tax otherwise required to be made before the end of the calendar year following the year of overwithholding. The withholding agent must make any repayment to the beneficial owner or payee before the earlier of the due date for filing Form 1042-S (without extensions) for the calendar year of overwithholding or the date on which the Form 1042-S is actually filed with the IRS, and must state on a timely filed Form 1042 (without extensions) for the calendar year of overwithholding that the filing constitutes a claim for credit in accordance with § 1.6414-1.

Under the set-off procedure, a withholding agent may apply the overwithheld amount against any amount which would otherwise be subject to withholding that is paid to the beneficial owner or payee before the earlier of the due date for filing Form 1042-S (without extensions) for the calendar year of overwithholding or the date that the Form 1042-S is actually filed with the IRS. Similar rules for adjusting overwithholding apply for purposes of chapter 4. See § 1.1474-2(a)(3) and (4).

If a withholding agent cannot apply the reimbursement or set-off procedure, a beneficial owner or payee must file a claim for credit or refund with the IRS in order to recover the overwithheld tax. Informal comments have requested to expand the cases in which a withholding agent may apply the reimbursement and set-off procedures in order to limit the need for a beneficial owner or payee to claim a credit or refund. These proposed regulations respond to these comments by modifying the reimbursement procedure to allow a withholding agent to use the extended due date for filing Forms 1042 and 1042-S to make a repayment and claim a credit. These proposed regulations also include revisions to conform the requirements for the set-off procedures to those that apply to the reimbursement procedures. In addition, these proposed regulations remove the requirement that a withholding agent include with its Form 1042 a statement that the filing constitutes a claim for credit when it applies reimbursement in the year following the year of the overwithholding. This statement is no longer necessary because Form 1042 was revised in 2016 to provide separate fields for adjustments to overwithholding and underwithholding.

These proposed regulations also provide that a withholding agent may not apply the reimbursement and set-off procedures after the date on which Form 1042-S has been furnished to the beneficial owner or payee (in addition to, under the current regulations, after the date a Form 1042-S has been filed). Because of the liberalizing amendments described in the preceding paragraph, this change is needed to ensure that a Form 1042-S furnished to a beneficial owner or payee reflects any repayments made pursuant to these adjustment procedures and is consistent with the associated Form 1042-S that is filed with the IRS. A QI, WP, or WT may rely upon the proposed modifications described in this section VI.B until they are incorporated into the 2017 QI agreement and 2017 WP and WT agreements.

A withholding agent that makes a payment subject to chapter 3 withholding to a nonqualified intermediary (as defined in § 1.1441-1(c)(14)) can reliably associate the payment with documentation when it obtains a valid intermediary withholding certificate (that is, Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding) from the nonqualified intermediary and a withholding statement that allocates the payment among the payees and includes the documentation for each payee as described in § 1441-1(b)(2)(vii)(B) and (e)(3)(iii). For purposes of chapter 4, a withholding agent making a withholdable payment to a nonqualified intermediary that is a participating FFI or a registered deemed-compliant FFI may rely on a withholding statement that includes an allocation of the payment to a chapter 4 withholding rate pool of payees, and must obtain payee-specific documentation for payees that are not includible in a chapter 4 withholding rate pool to permit any reduced rate of withholding. See § 1.1471-3(c)(3)(iii)(B).

To the extent that a withholding agent cannot reliably associate a withholdable payment made to a nonqualified intermediary with valid documentation under § 1.1471-3(c), the withholding agent must presume that the payment is made to a nonparticipating FFI and withhold 30 percent of the payment. See § 1.1471-3(f)(5). In such a case, the withholding agent is required to report the payment as a chapter 4 reportable amount made to an unknown recipient on a Form 1042-S that reports the nonqualified intermediary as an intermediary and the amount withheld as chapter 4 withholding. See the Instructions for Form 1042-S. If the amount withheld upon under chapter 4 is an amount subject to withholding under chapter 3, the withholding agent is relieved from its obligation to also withhold under chapter 3 on the payment. § 1.1441-3(a)(2). To the extent that a nonqualified intermediary is required to report the same payments to its account holders on Forms 1042 and 1042-S under the chapter 3 or 4 regulations, the nonqualified intermediary need not withhold when chapter 3 or 4 withholding has already been applied by its withholding agent, and it substantiates the withholding by attaching to its Form 1042 a copy of the Form 1042-S furnished by the withholding agent.

Comments have noted that some U.S. withholding agents charge fees for the administrative burden associated with reviewing underlying documentation that is included with a withholding statement provided by a nonqualified intermediary. In other cases, nonqualified intermediaries may not be able to obtain such documentation from account holders. For these reasons, some nonqualified intermediaries provide withholding agents with valid Forms W-8IMY to establish their chapter 4 statuses but do not provide any underlying payee documentation or withholding rate pool information to substantiate the allocations to payees shown on a withholding statement. Comments have stated that the requirement for withholding agents to report the withholding applied to withholdable payments as chapter 4 withholding in these cases (because the payees are presumed to be nonparticipating FFIs) has made it difficult for account holders to claim foreign tax credits from foreign jurisdictions that do not view the chapter 4 withholding tax as a creditable income tax. These comments recommended various proposals to allow a nonqualified intermediary to report the withholding as chapter 3 withholding applied to its account holders.

In response to the comments described in the preceding paragraph, these proposed regulations modify the rules for reporting by a nonqualified intermediary under §§ 1.1461-1(c)(4)(iv) and 1.1474-1(d)(2)(ii) to address a case in which a nonqualified intermediary receives a payment for which a withholding agent has withheld at the 30-percent rate under chapter 4 and reported the payment on Form 1042-S as made to an unknown recipient. In such a case, these proposed regulations permit a nonqualified intermediary that is a participating FFI or registered deemed-compliant FFI to report the withholding applied to the nonqualified intermediary on a Form 1042-S as chapter 3 withholding to the extent that the nonqualified intermediary determines that the payment is not an amount for which withholding is required under chapter 4 based on the payee's chapter 4 status. Under the existing reporting requirements, the nonqualified intermediary would be required to file a Form 1042 and would need to be furnished a copy of the Form 1042-S filed by the withholding agent to substantiate the credit against its withholding tax liability for the withholding applied by its withholding agent. Under the modified requirement, the nonqualified intermediary would be permitted to substantiate the credit even though the Form 1042-S furnished to it reports chapter 4 withholding and the corresponding Forms 1042-S that the nonqualified intermediary issues reports chapter 3 withholding. This change should assist account holders using Form 1042-S to claim foreign tax credits in their jurisdictions of residence in these cases. The Treasury Department and the IRS are of the view that this determination should be limited to a nonqualified intermediary that is a participating FFI or registered deemed-compliant FFI given the role of these FFIs in documenting their account holders for chapter 4 purposes and their compliance requirements under the chapter 4 regulations or an applicable IGA jurisdiction.

Under section 7805(b)(1)(C), taxpayers may rely on the proposed regulations until final regulations are issued, except as otherwise provided in this paragraph. With respect to the elimination of withholding on non-cash value insurance premiums under proposed § 1.1473-1(a)(3)(iii), the clarification of the definition of a “managed by” investment entity under proposed § 1.1471-5(e)(4)(i)(B), and the revised allowance for a permanent residence address subject to a hold mail instruction under proposed §§ 1.1441-1(c)(38) and 1.1471-1(b)(99), taxpayers may apply the modifications in these proposed regulations for all open tax years until final regulations are issued. For the revisions included in these proposed regulations that relate to credits and refunds of withheld tax, taxpayers may not rely on these proposed regulations until Form 1042 and Form 1042-S are updated for the 2019 calendar year.

The Administrator of the Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget (OMB), has waived review of this proposed rule in accordance with section 6(a)(3)(A) of Executive Order 12866. OIRA will subsequently make a significance determination of the final rule, pursuant to section 3(f) of Executive Order 12866 and the April 11, 2018, Memorandum of Agreement between the Treasury Department and the OMB.

The Treasury Department and the IRS expect the proposed regulation, when final, to be an Executive Order 13771 deregulatory action and request comment on this designation.

The collection of information contained in these proposed regulations is in a number of provisions, including §§ 1.1441-1, 1.1461-1, 1.1461-2, 1.1474-1, and 1.1474-2. The IRS intends that the information collection requirements of these regulations will be implemented through the use of Forms 1042 and 1042-S. As a result, for purposes of the Paperwork Reduction Act (44 U.S.C. 3507), the reporting burden associated with the collection of information in these regulations will be reflected in the information burden and OMB control number of the appropriate IRS form.

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.

The proposed regulations will not increase the number of taxpayers required to file a return. Current filers may have to modify slightly how they report, but the burden of reporting should not increase.

As described in section VI.A of the Explanations of Provisions, the proposed regulations allow a partnership that withholds in a subsequent year to designate the deposit as attributable to the preceding year and report the withholding on Forms 1042 and 1042-S for the preceding year (rather than the subsequent year). In addition, the proposed regulations allow a partnership that withholds after March 15 of the subsequent year to file Form 1042-S on or before September 15 of such year. The IRS intends to modify Form 1042-S to add a check box to the form so that a partnership filer can indicate that it qualifies for the September 15 due date for filing the form. A partnership that relies on the September 15 due date may need to file an additional Form 1042-S if it is filing to report a partner's distributive share of an amount received by the partnership in the preceding year and it has already filed a Form 1042-S for such partner for the same year. Information on the number of partnerships that withhold in a year subsequent to the year in which the amount was received is not available. However, as an upper bound, table 1 shows the estimated number of partnerships that file Form 1042.

As explained in section IV.B of the Explanation of Provisions, the proposed regulations provide additional time for withholding agents to apply the reimbursement or set-off procedure to adjust overwithholding. The proposed revision may increase the amounts reported by filers of Forms 1042 and 1042-S, but should not affect the number of filers. It is unknown how many withholding agents will use the reimbursement and set-off procedures as a result of the modifications to those procedures in the proposed regulations. However, as an upper bound, table 1 shows the estimated number of withholding agents that report non-zero amounts as adjustments to overwithholding.

Finally, as described in section IV.C of the Explanation of Provisions, the proposed regulations permit certain nonqualified intermediaries to report on certain payments on Form 1042-S using the code for chapter 3 withholding rather than the code for chapter 4 withholding in certain cases in which chapter 4 withholding is applied on payments made to the nonqualified intermediaries. This modification in the proposed regulations should not affect the number of filers or increase any burdens, but rather change how nonqualified intermediaries report to certain recipients. It is not possible to estimate the number of nonqualified intermediaries that may change the code from chapter 4 to chapter 3, so as an upper bound, table 1 shows the estimated number of withholding agents that are nonqualified intermediaries that file Form 1042-S.

Tax Form 1042 data are from administrative tax files while the Form 1042-S information is from a 2016 data file on foreign tax withholding.

Books and records relating to a collection of information must be retained as long as their contents may be 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.

It is hereby certified that the collection of information requirements in this notice of proposed rulemaking will not have a significant economic impact on a substantial number of small business entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). This notice of proposed rulemaking reduces the information required to be reported under chapters 3 and 4 as required by TDs 9610, 9657, 9658, 9808, and 9809, information collections that were certified by the Treasury Department and the IRS as not resulting in a significant economic impact on a substantial number of small business entities. The burden-reducing information collections of this notice of proposed rulemaking provide benefits for small business entities consistent with the Regulatory Flexibility Act's objective that information collections achieve statutory objectives while minimizing any significant impact on small business entities. Therefore, a Regulatory Flexibility Analysis is not required.

Pursuant to section 7805(f), this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

IRS Revenue Procedures, Revenue Rulings, Notices, and other guidance cited in this preamble are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at www.irs.gov.

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 Treasury Department and the IRS request comments on all aspects of the proposed rules but specifically on foreign passthru payment withholding and the definition of investment entity, as discussed in section II of the Explanation of Provisions. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .

The principal authors of these proposed regulations are John Sweeney, Nancy Lee, and Subin Seth, Office of Associate Chief Counsel (International). 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 purpose of this proposed rule is to incorporate new additional statutory authority for calculating reasonable institutional facility charges for: (a) Inpatient services and resources provided at DoD (MTFs in addition to the current authorized methodology which uses all-inclusive prospective Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) diagnostic related group (DRG) based payment rates (including professional charges), and (b) ambulatory services provided at DoD MTFs in addition to the current authorized methodologies which use all-inclusive CHAMPUS ambulatory procedure classification (APC) and ambulatory surgery center (ASC) based payment rates and MHS ambulatory procedure visit (APV) based payment rates. As defined in 32 CFR 199.2, the term “facility charges” means the charges, either inpatient or outpatient, made by a MTF to cover the overhead costs of providing the service ( e.g., building costs such as depreciation and interest, staffing costs, drugs and supplies; overhead costs such as utilities, housekeeping, maintenance). It also revises the reasonable charges methodology for pharmaceuticals, DME, supplies, immunizations, injections or medication administered or provided to allow for their reasonable charges calculation using either CHAMPUS prevailing or cost based rates regardless of whether CHAMPUS prevailing rates are available. The legal authority for this proposed rule is 10 U.S.C. 1095(f), 1097b(b) and 1079b.

a. It would create an additional exception to the general rule that reasonable charges under 32 CFR 220.8(a), 220.8(b), 220.8(f)(5) and 220.8(f)(6) for inpatient and ambulatory institutional resources as well as for pharmaceuticals, DME, supplies, immunizations, injections or medication administered are based on the rates used by CHAMPUS under 32 CFR 199.14 to reimburse authorized providers. Specifically, it authorizes DoD MTFs to use an alternative reasonable charges methodology based on Itemized Resource Utilization (IRU) rates—developed from the cost to provide these resources and items—in addition to the use of aggregated and prospective DRG, APC, ASC and APV and prevailing CHAMPUS based encounter rates.

b. As a “housekeeping” change, it would replace “hospital” with “institutional” throughout most of the regulation to align it with civilian health insurance industry terminology and better promote identification and separate billing of institutional and professional services as required by 32 CFR 220.8(b).

DoD is authorized to collect “reasonable charges” from third party payers for the cost of inpatient and ambulatory (outpatient) institutional services and also for pharmaceuticals, DME, supplies, immunizations, injections or medication administered or provided at DoD MTFs to military retirees, all dependents, and other eligible beneficiaries who have private health insurance. See 10 U.S.C. 1095 and 32 CFR 220.2. Also, DoD must collect from nonbeneficiaries (or their insurers) the cost of trauma or other medical care provided to them and from other federal agencies, the average cost of healthcare provided to their beneficiaries at DoD MTFs (10 U.S.C. 1079b(a) and 1085). Currently, DoD uses all-inclusive prospective CHAMPUS DRG based payment rates (including professional charges) as the reasonable charges for inpatient care and all-inclusive CHAMPUS APC and ASC based and MHS APV charges for miscellaneous institutional ambulatory care in its healthcare cost recovery programs—Third Party Collection, Medical Services Account and Medical Affirmative Claims. The MHS APV rate is authorized by the Assistant Secretary of Defense (Health Affairs) (ASD(HA)) Policy Memorandum, “Use of CPT Code 99199” (September 14, 2004) because MTFs currently do not have the appropriate software to group encounters into APCs and ASCs. Also, DoD uses the average cost for pharmaceutical rates because CHAMPUS prevailing rates are not available. However, DoD uses CHAMPUS based rates for DME, supplies, immunizations, injections or medication administered.

IRU based rates are more representative of actual costs specific to the institutional resources and also to pharmaceuticals, DME, supplies, immunizations, injections or medication administered or consumed in the provision of care to a patient. Also, IRU based rates provide DoD the ability it does not currently have to bill third party payers in an itemized manner that they are accustomed to. With the availability of this alternative reasonable charges methodology, DoD MTFs can bill for institutional resources and also for pharmaceuticals, DME, supplies, immunizations, injections or medication administered using charge descriptions ( i.e., an MTF's comprehensive list of items and services for which it can charge) and individual cost-based rates associated with those descriptions. As a result, institutional bills are much more consistent with the actual resources and services provided to the patient, third party payers who receive MTF claims will have the detailed data needed for reimbursement, and the potential for MTFs to receive appropriate reimbursement improves. MTF claims are frequently returned for additional information or denied because they are not in an itemized format consistent with standard industry health insurance practice. The format of resulting line-item inpatient charges based on IRU rates will more closely resemble the format currently used in the health insurance industry and promote more efficient claim adjudication. This rule will not affect any payments by TRICARE as this rule does not pertain to purchased care. It specifically applies to rate development for cost recovery in the direct care setting.

In addition, using only the current methodologies for reasonable charges based on bundled prospective DRG/APC/ASC/APV based rates methods and CHAMPUS prevailing rates methods for pharmaceuticals, DME, supplies, immunizations, injections or medication administered limits MTFs' flexibility and ability to effectively accommodate current and new provider reimbursement methodologies and is likely reducing and resulting in missed reimbursement opportunities from third party payers. Third party payers do not uniformly have nor apply payment methods and rates to claims received. Rather, they each have their own distinct set of rules for and levels of payment that are not necessarily DRG/APC/ASC/APV/CHAMPUS rate based. For example, there are multiple versions of groupers, and a payer's reimbursement policy may use a different grouper than DoD or not involve a grouper at all. Moreover, third party payers are increasingly replacing fee‐for‐service with value-based performance payment portfolios ( e.g., pay for performance, bundled payments, shared savings/accountable care organizations) for providers, including DoD MTFs. Itemized billing using IRU based rates provides payers with the detailed data needed for whatever reimbursement process they use yielding fewer requests for additional information and re-processing of claims and increased potential reimbursement.

Additional benefits from allowing for IRU based charges include:

(1) Providing greater transparency of DoD MTFs' financial efficiency and performance through more detailed purchasing, dispensing, and financial billing functions. IRU based charges provide information necessary to complete detailed analyses into what and how a MTF is purchasing, dispensing, and billing, which will lead to more informed decisions on how to save money, time, and effort at each of those three stages.

(2) Enabling different MTF departments and decision makers to come together to discuss common practices, terminology, and reporting, allowing for the development and analysis of benchmarks evaluating clinical performance, and identifying and implementing the most cost-effective delivery modes available.

(3) Providing the ability to track and monitor resources used to treat patients, thereby allowing MTF staff, management, and leadership to better control and manage costs, and optimize the efficiency of operations to deliver efficient care or prevent unnecessary care.

This IRU based charges approach is consistent with 10 U.S.C. 1095(f) and 1097b(b) that authorize the ASD(HA) to calculate all third party payment collections and rates charged to civilians and interagency payers based on any appropriate method. It is the Assistant Secretary's determination that itemized IRU based rates for inpatient and ambulatory resources and also for pharmaceuticals, DME, supplies, immunizations, injections or medication administered or provided better represents the reasonable charges and costs of providing care to all patients in MTFs.

The rule also replaces “hospital” with “institutional” throughout most of the regulation to align it with civilian healthcare insurance industry terminology. The current regulation uses “hospital” interchangeably to mean both: (1) A facility that provides emergency, inpatient, and in some cases outpatient medical care for sick or injured people; and (2) the institutional component of a hospital stay ( i.e., overhead and ancillary, diagnostic and treatment services, other than professional services provided by the facility during the inpatient stay such as room and board, laboratory tests and the technical component of radiology services). It is the general rule under CHAMPUS, 32 CFR 220.8(b) and also industry best practice to identify and charge separately for institutional and inpatient professional services. This nomenclature change helps DoD MTFs reinforce the distinction and better promotes identification and separate billing of institutional and professional services as required by 32 CFR 220.8(b) and in accordance with health insurance industry best practice.

Executive Orders 13563 and 12866 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that this rule is not a significant regulatory action. The rule does not: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy; a section of the economy; productivity; competition; jobs; the environment; public health or safety; or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another Agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs, or the rights and obligations of recipients thereof; or (4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in these Executive Orders.

There are no cost savings to the public anticipated by amending the current 32 CFR part 220. Consistent with the analysis of transfer payments under OMB Circular A-4, this proposed rule does not involve regulatory costs subject to Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.”

Section 202 of Public Law 104-4, “Unfunded Mandates Reform Act,” (2 U.S.C. 1532) requires that an analysis be performed to determine whether any federal mandate may result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector of $100 million in any one year. It has been certified that this proposed rule does not contain a Federal mandate that may result in the expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year, and thus this proposed rule is not subject to this requirement.

Public Law 96-354, “Regulatory Flexibility Act” (RFA) (5 U.S.C. 601), requires that each Federal agency prepare a regulatory flexibility analysis when the agency issues a regulation which would have a significant impact on a substantial number of small entities. This proposed rule is not an economically significant regulatory action, and it has been certified that it will not have a significant impact on a substantial number of small entities. Therefore, this proposed rule is not subject to the requirements of the RFA.

This rule does not contain a “collection of information” requirement and will not impose additional information collection requirements on the public under Public Law 96-511, “Paperwork Reduction Act” (44 U.S.C. Chapter 35).

E.O. 13132, “Federalism,” requires that an impact analysis be performed to determine whether the rule has federalism implications that would have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. It has been certified that this proposed rule does not have federalism implications, as set forth in E.O. 13132.

Accordingly, 32 CFR part 220 is proposed to be amended as follows:

The revisions and additions read as follows:

On November 26, 2018, the North Carolina Department of Transportation provided the Coast Guard with details concerning the demolition of the old Herbert C. Bonner Bridge from February 1, 2019 through February 29, 2020. Demolition will not follow a set schedule due to sea conditions, equipment needs, and vessel navigation considerations. In addition, demolition will take place in two locations at once due to equipment types and demolition methods. A moving safety zone is proposed in Oregon Inlet within 100 yards of active demolition work and demolition equipment. Demolition work will take place at various points along the old Herbert C. Bonner Bridge, which follows a line beginning at approximate position 35°46′47″ N, 75°32′41″ W, then southeast to 35°46′37″ N, 75°32′33″ W, then southeast to 35°46′09″ N, 75°31′59″ W, then southeast to 35°46′03″ N, 75°31′51″ W, then southeast to 35°46′01″ N, 75°31′40″ W. (NAD 1983) in Dare County, North Carolina. The Captain of the Port (COTP) North Carolina has determined that potential safety hazards associated with the demolition would be a concern for anyone transiting through Oregon Inlet.

The purpose of this rule is to protect persons, vessels, and the marine environment on the navigable waters in Oregon Inlet during the demolition of the old Herbert C. Bonner Bridge. The Coast Guard proposes this rulemaking under authority in 33 U.S.C. 1231.

The COTP proposes to establish a moving safety zone to be enforced during active demolition work from February 1, 2019 through February 29, 2020. Demolition will not follow a set schedule due to sea conditions, equipment needs, and vessel navigation considerations. In addition, demolition will take place in two locations at once due to equipment types and demolition methods. When the safety zone is active, the exact times will be announced via Broadcast Notices to Mariners at least 48 hours prior to enforcement. The moving safety zone will include all navigable waters within 100 yards of active demolition work and demolition equipment in Oregon Inlet along the old Herbert C. Bonner Bridge, which follows a line beginning at approximate position 35°46′47″ N, 75°32′41″ W, then southeast to 35°46′37″ N, 75°32′33″ W, then southeast to 35°46′09″ N, 75°31′59″ W, then southeast to 35°46′03″ N, 75°31′51″ W, then southeast to 35°46′01″ N, 75°31′40″ W. (NAD 1983). This zone is intended to protect persons, vessels, and the marine environment on the navigable waters in Oregon Inlet during the demolition of the old Herbert C. Bonner Bridge. No vessel or person will be permitted to enter the safety zone during the designated times. There will be alternative navigation options for vessel traffic when a moving safety zone covers all or part of the navigation channel. The regulatory text we are proposing appears at the end of this document.

We developed this proposed rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This NPRM has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the NPRM has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the size, location, and duration of the proposed safety zone. Vessel traffic will not be allowed to enter or transit portions of Oregon Inlet during active demolition work from February 1, 2019 through February 29, 2020. The specific enforcement times for active demolition work will be broadcast at least 48 hours in advance and vessels will be able to transit Oregon Inlet at all other times. The Coast Guard will issue a Local Notice to Mariners and transmit a Broadcast Notice to Mariners via VHF-FM marine channel 16 regarding the safety zone. There will be alternative navigation options for vessel traffic when a moving safety zone covers all or part of the navigation channel. Vessel traffic in this portion of Oregon Inlet will fluctuate between high, medium, and low depending on the time of the year. This rule does not allow vessels to request permission to enter the moving safety zone covering the active demolition areas within Oregon Inlet during the designated times.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section IV.A above, this proposed rule would not have a significant economic impact on any vessel owner or operator.

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule would have a significant economic impact on it, please submit a comment (see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule would economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section. The Coast Guard will not retaliate against small entities that question or complain about this proposed rule or any policy or action of the Coast Guard.

This proposed rule would not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this proposed rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it would not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. If you believe this proposed rule has implications for federalism or Indian tribes, please contact the person listed in the FOR FURTHER INFORMATION CONTACT section.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this proposed rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this proposed rule under Department of Homeland Security Directive 023-01 and Commandant Instruction M16475.1D, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This proposed rule involves a 100-yard radius moving safety zone lasting from February 1, 2019 through February 29, 2020 that would prohibit entry into a portion of Oregon Inlet for bridge demolition. Normally such actions are categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 01. A preliminary Record of Environmental Consideration supporting this determination is available in the docket where indicated under ADDRESSES . We seek any comments or information that may lead to the discovery of a significant environmental impact from this proposed rule.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to contact the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

We view public participation as essential to effective rulemaking, and will consider all comments and material received during the comment period. Your comment can help shape the outcome of this rulemaking. If you submit a comment, please include the docket number for this rulemaking, indicate the specific section of this document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions.

We accept anonymous comments. All comments received will be posted without change to https://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, visit https://www.regulations.gov/privacyNotice.

Documents mentioned in this NPRM as being available in the docket, and all public comments, will be in our online docket at https://www.regulations.gov and can be viewed by following that website's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or a final rule is published.

For the reasons discussed in the preamble, the Coast Guard proposes to amend 33 CFR part 165 as follows:

Throughout this document, “we,” “us” and “our” refer to the EPA.

Under section 109 of the CAA, the EPA has established NAAQS for certain pervasive air pollutants (referred to as “criteria pollutants”) and conducts periodic reviews of the NAAQS to determine whether they should be revised or whether new NAAQS should be established. The EPA sets the NAAQS for criteria pollutants at levels required to protect public health and welfare. 1 Particulate matter is one of the criteria pollutants for which the EPA has established health-based standards. The CAA requires states to submit regulations that control particulate matter emissions.

Particulate matter includes particles with diameters that are generally 2.5 microns or smaller (PM 2.5 ) and particles with diameters that are generally 10 microns or smaller (PM 10 ). It contributes to effects that are harmful to human health and the environment, including premature mortality, aggravation of respiratory and cardiovascular disease, decreased lung function, visibility impairment, and damage to vegetation and ecosystems. Individuals particularly sensitive to PM 2.5 exposure include older adults, people with heart and lung disease, and children. 2 PM 2.5 can be emitted by sources directly into the atmosphere as a solid or liquid particle (“primary PM 2.5 ” or “direct PM 2.5 ”) or can be formed in the atmosphere (“secondary PM 2.5 ”) as a result of various chemical reactions among precursor pollutants from sources such as nitrogen oxides (NO X ), sulfur dioxide (SO 2 ), volatile organic compounds (VOC), and ammonia. 3

On July 18, 1997, the EPA revised the NAAQS for particulate matter to add new standards for PM 2.5 . 4 The EPA established primary and secondary annual and 24-hour standards for PM 2.5 . The annual standard was set at 15.0 micrograms per cubic meter (µg/m 3 ) based on a 3-year average of annual mean PM 2.5 concentrations, and the 24-hour (daily) standard was set at 65 µg/m 3 based on the 3-year average of the annual 98th percentile values of 24-hour PM 2.5 concentrations at each population-oriented monitor within an area. 5

On October 17, 2006, the EPA retained the annual average NAAQS at 15 µg/m 3 but revised the level of the 24-hour PM 2.5 NAAQS to 35 µg/m 3 based on a 3-year average of the annual 98th percentile values of 24-hour concentrations. 6 7

On January 15, 2013, the EPA finalized the 2012 PM 2.5 NAAQS, including a revision of the annual standard to 12.0 µg/m 3 based on a 3-year average of annual mean PM 2.5 concentrations, and retaining the current 24-hour standard of 35 µg/m 3 based on a 3-year average of the 98th percentile of 24-hour concentrations. 8

Following promulgation of a new or revised NAAQS, the EPA is required by CAA section 107(d) to designate areas throughout the nation as attaining or not attaining the NAAQS. The EPA designated and classified the Portola area as “Moderate” nonattainment for the 2012 annual PM 2.5 standards based on ambient monitoring data that showed the area was above 12.0 µg/m 3 for the 2011-2013 monitoring period. 9 For the 2011-2013 period, the annual PM 2.5 design value for the Portola area was 12.8 µg/m 3 based on monitored readings at the 161 Nevada Street and 420 Gulling Street monitors. 10

The Portola PM 2.5 nonattainment area includes the City of Portola (“Portola”), which has a population of approximately 2,100 and is located at an elevation of 4,890 feet in an intermountain basin isolated by rugged mountains. Portola averages 20 inches of precipitation annually. From October through March the nonattainment area has very cold temperatures with the average daily low temperature of approximately 22 degrees Fahrenheit. The combination of mountains, cold temperatures, and elevation can cause inversions and impair PM 2.5 dispersion, especially during the winter. For a precise description of the geographic boundaries of the Portola PM 2.5 nonattainment area, see 40 CFR 81.305.

The local air district with primary responsibility for developing a plan to attain the 2012 annual PM 2.5 NAAQS in this area is the Northern Sierra Air Quality Management District (NSAQMD or “District”). The District worked cooperatively with the California Air Resources Board (CARB) in preparing the Portola PM 2.5 Plan. Under state law, authority for regulating sources under state jurisdiction in the Portola nonattainment area is split between the District, which has responsibility for regulating stationary and most area sources, and CARB, which has responsibility for regulating most mobile sources.

With respect to the statutory requirements for attainment plans for the 2012 annual PM 2.5 NAAQS, the general CAA part D nonattainment area planning requirements are found in subpart 1, and the Moderate area planning requirements specifically for particulate matter are found in subpart 4.

The EPA has a longstanding general guidance document that interprets the 1990 amendments to the CAA, commonly referred to as the General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990 (“General Preamble”). 11 The General Preamble addresses the relationship between the subpart 1 and the subpart 4 requirements and provides recommendations to states for meeting certain statutory requirements for particulate matter attainment plans. As explained in the General Preamble, specific requirements applicable to Moderate area attainment plan SIP submissions for the particulate matter NAAQS are set forth in subpart 4 of part D, title I of the Act, but such SIP submissions must also meet the general attainment planning provisions in subpart 1 of part D, title I of the Act, to the extent these provisions “are not otherwise subsumed by, or integrally related to,” the more specific subpart 4 requirements. 12

To implement the PM 2.5 NAAQS, the EPA has also promulgated the “Fine Particle Matter National Ambient Air Quality Standard: State Implementation Plan Requirements; Final Rule” (hereinafter, the “PM 2.5 SIP Requirements Rule”). 13 The PM 2.5 SIP Requirements Rule provides additional regulatory requirements and guidance applicable to attainment plan submissions for the PM 2.5 NAAQS, including the 2012 annual PM 2.5 NAAQS at issue in this action.

The subpart 1 statutory requirements for attainment plans include: (i) The section 172(c)(1) requirements for RACM/RACT and attainment demonstrations; (ii) the section 172(c)(2) requirement to demonstrate RFP; (iii) the section 172(c)(3) requirement for emissions inventories; (iv) the section 172(c)(5) requirements for a nonattainment new source review (NNSR) permitting program; and (v) the section 172(c)(9) requirement for contingency measures.

The more specific subpart 4 statutory requirements for Moderate PM 2.5 nonattainment areas include: (i) The section 189(a)(1)(A) and 189(e) NNSR permit program requirements; (ii) the section 189(a)(1)(B) requirements for attainment demonstrations; (iii) the section 189(a)(1)(C) requirements for RACM; and (iv) the section 189(c) requirements for RFP and quantitative milestones. Under subpart 4, states with Moderate PM 2.5 nonattainment areas must provide for attainment in the area as expeditiously as practicable but no later than December 31, 2021, for the 2012 PM 2.5 annual NAAQS. In addition, under subpart 4, direct PM 2.5 and all precursors to the formation of PM 2.5 are subject to control unless the EPA approves a demonstration from the State establishing that a given precursor does not contribute significantly to PM 2.5 levels that exceed the PM 2.5 NAAQS in the area. 14

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

Both the District and CARB satisfied applicable statutory and regulatory requirements for reasonable public notice and hearing prior to adoption and submission of the Portola PM 2.5 Plan. The District provided a 30-day public comment period prior to its January 23, 2017 public hearing to adopt the main SIP submission. 15 CARB provided the required public notice and opportunity for public comment prior to its February 16, 2017 public hearing and adoption of the main SIP submission. 16 CARB then adopted its supplemental SIP submission pertaining to 2019 and 2022 transportation conformity motor vehicle emission budgets at its October 26, 2017 Board meeting after reasonable public notice. 17 Each submission includes proof of publication of notices for the respective public hearings. We find, therefore, that the Portola PM 2.5 Plan meets the requirements for reasonable notice and public hearings in CAA sections 110(a) and 110(l).

CAA section 110(k)(1)(B) requires the EPA to determine whether a SIP submission is complete within 60 days of receipt. This section also provides that any plan that the EPA has not affirmatively determined to be complete or incomplete will become complete by operation of law six months after the date of submission. The EPA's SIP completeness criteria are found in 40 CFR part 51, appendix V. The February 28, 2017 and December 20, 2017 SIP submissions became complete by operation of law on August 28, 2017 and June 20, 2018, respectively.

CAA section 172(c)(3) requires that each SIP include a “comprehensive, accurate, current inventory of actual emissions from all sources of the relevant pollutant or pollutants in [the] area . . . .” By requiring an accounting of actual emissions from all sources of the relevant pollutants in the area, this section provides for the base year inventory to include all emissions that contribute to the formation of a particular NAAQS pollutant. For the 2012 PM 2.5 NAAQS, this includes emissions of direct PM 2.5 as well as the main chemical precursors to the formation of secondary PM 2.5 : NO X , SO 2 , VOC, and ammonia. Primary PM 2.5 includes condensable and filterable particulate matter.

A state must include in its SIP submission documentation explaining how the emissions data were calculated. In estimating mobile source emissions, a state should use the latest emissions models and planning assumptions available at the time it develops the SIP submission. States are also required to use the EPA's “Compilation of Air Pollutant Emission Factors” ( AP-42)  18 road dust method for calculating re-entrained road dust emissions from paved roads. 19 The latest EPA-approved version of California's mobile source emission factor model is EMFAC2014. 20

In addition to the base year inventory submitted to meet the requirements of CAA section 172(c)(3), the State must also submit future “baseline inventories” for the projected attainment year and each RFP milestone year, and any other year of significance for meeting applicable CAA requirements. 21 By “baseline inventories” (also referred to as “projected baseline inventories”), we mean projected emissions inventories for future years that account for, among other things, the ongoing effects of economic growth and adopted emissions control requirements. The SIP submission should include documentation to explain how the state calculated the emissions projections.

The Portola PM 2.5 nonattainment area emissions inventory is typical of a small, high elevation mountain community. There are no major stationary sources or large industrial sources (existing or anticipated) and residential wood burning is a significant source of direct PM 2.5 . A summary of the planning emissions inventories for direct PM 2.5 and all PM 2.5 precursors (NO X , SO X , VOC, and ammonia)  22 for the Portola PM 2.5 nonattainment area is found in section III. Detailed inventories for the Portola PM 2.5 nonattainment area together with documentation for the inventories are found in Appendix B of the Plan. CARB and District staff worked jointly to develop the emissions inventory for the Portola PM 2.5 nonattainment area. The District worked with operators of the three stationary facilities in the nonattainment area to develop the stationary source emissions estimates. 23 CARB staff developed the emissions inventory for mobile sources, both on-road and off-road. 24 The District and CARB shared responsibility for developing estimates for the area sources such as residential wood burning and paved road dust.

The Plan includes annual average emissions inventories for the 2013 base year and estimated emissions for the 2019, 2021, and 2022 future baseline years. Future baseline inventories are a projection of the base year inventory taking into account expected growth trends for each source category and emission reductions from control measures adopted prior to January 1, 2013. CARB develops emissions projections by applying growth and control profiles to the base year inventory. 25

Each inventory includes emissions from stationary, area, on-road, and non- road sources. The inventories use EMFAC2014 for estimating on-road motor vehicle emissions. 26 Re-entrained paved road dust emissions were calculated using the EPA's AP-42 road dust methodology. 27

Table 1 provides a summary of the annual average inventories in tons per day (tpd) of direct PM 2.5 and PM 2.5 precursors for the base year of 2013. These inventories provide the basis for the control measure analysis and the RFP and attainment demonstrations in the Portola PM 2.5 Plan. For a detailed breakdown of the inventories, see Appendix B, Tables 6-10 in the Portola PM 2.5 Plan.

The inventories in the Portola PM 2.5 Plan are based on the most current and accurate information available to the State and District at the time the Plan and its inventories were being developed in 2015 and 2016, including the latest version of California's mobile source emissions model, EMFAC2014. The inventories comprehensively address all source categories in the Portola PM 2.5 nonattainment area and were developed consistent with the EPA's inventory guidance. For these reasons, we are proposing to approve the 2013 base year emissions inventory in the Portola PM 2.5 Plan as meeting the requirements of CAA section 172(c)(3). We are also proposing to find that the projected baseline inventories in the Plan provide an adequate basis for the RACM, RFP, and attainment demonstrations in the Portola PM 2.5 Plan.

The provisions of subpart 4 of part D, title I of the CAA do not define the term “precursor” for purposes of PM 2.5 , nor do they explicitly require the control of any specifically identified PM precursor. The statutory definition of “air pollutant” in CAA section 302(g), however, provides that the term “includes any precursors to the formation of any air pollutant, to the extent the Administrator has identified such precursor or precursors for the particular purpose for which the term `air pollutant' is used.” The EPA has identified SO 2 , NO X , VOC, and ammonia as precursors to the formation of PM 2.5 . Accordingly, the attainment plan requirements of subpart 4 apply to emissions of all four precursor pollutants and direct PM 2.5 from all types of stationary, area, and mobile sources, except as otherwise provided in the Act ( e.g., in CAA section 189(e)).

Section 189(e) of the Act requires that the control requirements for major stationary sources of direct PM 10 (which includes PM 2.5 ) also apply to major stationary sources of PM 10 precursors, except where the Administrator determines that such sources do not contribute significantly to PM 10 levels that exceed the standard in the area. Section 189(e) contains the only expressed exception to the control requirements under subpart 4 for sources of PM 2.5 precursor emissions. Although section 189(e) explicitly addresses only major stationary sources, the EPA interprets the Act as authorizing it also to determine, under appropriate circumstances, that regulation of specific PM 2.5 precursors from other sources in a given nonattainment area is not necessary.

Under the PM 2.5 SIP Requirements Rule, a state may elect to submit to the EPA a “comprehensive precursor demonstration” for a specific nonattainment area to show that emissions of a particular precursor from all existing sources located in the nonattainment area do not contribute significantly to PM 2.5 levels that exceed the standard in the area. 28 Such a comprehensive precursor demonstration must include a concentration-based contribution analysis ( i.e., evaluation of the contribution of a particular precursor to PM 2.5 levels in the area) and may also include a sensitivity-based contribution analysis ( i.e., evaluation of the sensitivity of PM 2.5 levels in the area to a decrease in emissions of the precursor). If the EPA determines that the contribution of the precursor to PM 2.5 levels in the area is not significant and approves the demonstration, the state is not required to control emissions of the relevant precursor from existing sources in the current attainment plan. 29

The EPA issued the draft PM 2.5 Precursor Demonstration Guidance (“Draft Guidance”) to provide recommendations to states for appropriate precursor demonstrations in nonattainment plan SIP submissions. 30 For the annual PM 2.5 NAAQS, section 2.2 of the Draft Guidance recommends use of 0.2 µg/m 3 as a threshold below which ambient air quality impacts could be considered “insignificant,” i.e., impacts that do not “contribute” to PM 2.5 concentrations that exceed the NAAQS. When considering whether a precursor contributes significantly to PM 2.5 levels which exceed the NAAQS in the area, a state may also consider additional factors based on the facts and circumstances of the area. As to air quality impacts that exceed the 0.2 µg/m 3 contribution threshold, states may provide additional support for a conclusion that a particular precursor does not contribute significantly to ambient PM 2.5 levels that exceed the NAAQS. States may consider information such as the amount by which the impacts exceed the recommended contribution threshold, the severity of nonattainment at relevant monitors and/or grid cell locations in the area, anticipated growth or loss of sources, analyses of speciation data and precursor emission inventories, and air quality trends. 31

Section V.C. of the Plan contains the State's demonstration that emissions of SO X , NO X , ammonia, and VOC from all existing sources in the nonattainment area do not contribute significantly to PM 2.5 levels that exceed the NAAQS. The demonstration includes a concentration-based portion, a sensitivity-based portion, and additional relevant information. The concentration-based portion is summarized in Table 8 of the Plan, based on 2013-2014 species composition data, and used to represent the base year design value used as the starting point in the rollback attainment demonstration as described in section IV.E. 32 All four precursors together account for 6.3% of the 2013 PM 2.5 design value. Organic matter and elemental carbon, mainly from wood burning, are the dominant contributors and account for 89% of the 2013 design value.

For VOC emissions, the corresponding ambient PM 2.5 component is anthropogenic Secondary Organic Aerosol (SOA). Based on comparison to ambient SOA concentrations per ton of total VOC emissions at other California locations, the State estimated Portola SOA concentrations of 0.02-0.05 µg/m 3 . The State also noted that seasonal organic carbon (OC) measurements at Portola are indistinguishable from background levels during the summer. Because SOA is a subset of OC, and summer is when SOA is highest due to the warmer temperatures, the State found that Portola's SOA is comparable to the 0.06 µg/m 3 observed at nearby background interagency monitoring of protected visual environments (IMPROVE) sites  33 and well below the 0.2 µg/m 3 contribution threshold.

The ambient species concentrations corresponding to SO X , NO X , and ammonia were 0.41, 0.46, and 0.48 µg/m 3 , respectively. Because these are all above the recommended contribution threshold of 0.2 µg/m 3 , the State conducted a follow-up sensitivity-based analysis. The sensitivity-based portion of the precursor demonstration used a variant of the rollback attainment demonstration based on Positive Matrix Factorization (PMF) as described in section IV.B.2 of this notice. 34 The rollback model scales PM 2.5 component concentrations (excluding background) according to changes in emissions. Ammonium nitrate was scaled proportional to NO X emissions; ammonium sulfate was scaled proportional to SO X emissions; and ammonium was scaled proportional to ammonia emissions. These were all on a conservative one-to-one basis; that is, a 1% emission change leads to a 1% concentration change. The sensitivity emission reductions modeled were 10%, 25%, 30%, 50%, and 70%.

As in the attainment demonstration, the precursor demonstration used the estimated 2021 design value. The PM 2.5 effect of both the sensitivity reductions and the yearly reductions were combined to estimate the effect on the design value. Table 9 of the Plan lists the PM 2.5 design values resulting from a 10 to 70% reduction in emissions of each pollutant. 35 For SO X and ammonia, the reductions have a negligible impact on the attainment year design value. The design values listed for the 70% emission reduction show PM 2.5 responses of 0.09 and 0.11 µg/m 3 for SO X and ammonia respectively, both well below the recommended contribution threshold.

For NO X sensitivity, the Plan includes a discussion of the ambient response to a 30% reduction, 0.16 µg/m 3 , which is below the 0.2 µg/m 3 contribution threshold. However, the given design values for 50% and 70% reductions show responses of 0.26 µg/m 3 and 0.39 µg/m 3 respectively, which are above the recommended contribution threshold.

Beyond the concentration-based and sensitivity-based analyses, the Plan provides several pieces of additional information to help assess the significance of NO X as a PM 2.5 precursor. Table 7 of the Plan shows that NO X emissions in the Portola nonattainment area, estimated at 0.5 tpd, are far smaller than the NO X emissions in several other California counties, which range from 46.5 to 104.0 tpd. 36 The Plan also shows that 90% of the NO X emissions in Portola are from mobile sources, which already are stringently controlled; PM 2.5 concentrations would be not be sensitive to realistic additional control on these sources.

Supporting supplemental data from CARB shows trends in emissions and species concentrations during 2002-2016. 37 The data are for the Mountain Counties Air Basin, which comprises Plumas County and eight other similar counties that are also largely rural, wooded areas spanning the foothills to the crest of the Sierra Nevada mountains. Ammonia emissions during this period were essentially constant, but NO X and SO X emissions decreased by 46% and 67%, respectively. During the same time span, nitrate and sulfate concentrations decreased by 23% and 16%, respectively. Since nitrate and sulfate were responding to NO X and SO X emissions reductions, this suggests that ammonium nitrate formation is NO X -limited and ammonium sulfate is SO X -limited, rather than either being ammonia-limited. These observations support a finding that ammonia is an insignificant PM 2.5 precursor, for which controls would be of little benefit.

Based on its evaluations, the State concluded that additional controls on PM 2.5 precursors would have an insignificant effect on PM 2.5 concentrations, and that precursors need not be included in the controls analysis.

The comprehensive precursor demonstration provided in the Plan meets the requirements of 40 CFR 51.1006(a)(1) and is consistent with the EPA's recommendations in the Draft Guidance. The demonstration contains a concentration-based contribution analysis for VOC and sensitivity-based contribution analyses for NO X , SO X , and ammonia, together with additional information about the Portola area, as recommended in the Draft Guidance ( e.g., emission inventory and ambient PM 2.5 composition data).

For the SO 2 concentration-based analysis, the Plan states that background sulfate concentrations are 97% of the 0.41 µg/m 3 measured at Portola. The remaining 3% of the sulfate, or 0.012 µg/m 3 , is attributable to Portola sources. This 3% contribution from Portola sources to PM 2.5 levels above the NAAQS is well below the EPA's 0.2 µg/m 3 contribution threshold.

For the VOC concentration analysis, the Plan provides several estimates of SOA at Portola. The estimates, which can be considered “data analysis techniques” as described in the Draft Guidance, are appropriate for refining SOA estimates from available measurements and provide a convincing case that VOCs do not contribute significantly to PM 2.5 levels that exceed the NAAQS in the area.

For NO X , the Plan's estimate for the nitrate contribution and the corresponding sensitivity to NO X reductions may be unrealistically high. The PMF modeling results estimated the secondary nitrate contribution to be 5.1% of the total PM 2.5 , whereas the raw chemical composition data estimated only 3.3%. 38 In addition, the concentration-based analysis may have overestimated nitrate concentrations because it does not apply the sulfate, adjusted nitrate, derived water, inferred carbonaceous balance approach (SANDWICH)  39 for reconciling the mass from speciation measurements with that from the Federal Reference Method (FRM) used for design values. Because the SANDWICH adjustment generally reduces nitrate, due to nitrate losses from FRM monitors, the precursor demonstration in the Plan may be overestimating the amount of nitrate and the nitrate response to NO X emission reductions. Thus, the approach used in the Plan results in a more conservative precursor demonstration.

The sensitivity-based precursor analysis relies on the same methodology as the attainment demonstration, including the very conservative assumption that the ambient response to NO X reductions is in a 1:1 ratio to the emission change (on a percent basis). The responses to SO 2 and ammonia reductions were below the recommended 0.2 µg/m 3 contribution threshold, but the response to NO X was above the threshold at 50% and 70% reductions.

The Plan includes additional information supporting a conclusion that NO X emissions do not contribute significantly to PM 2.5 levels that exceed the NAAQS in the area. The information includes the small size of the NO X emission inventory relative to other areas and recognition that mobile sources are already highly controlled. These are indications that ambient PM 2.5 levels would not be sensitive to additional NO X controls.

The EPA also considered two other implications of the data provided with the Plan or as a supplement. The supplemental 2002-2016 emissions and speciation trends can be used to derive a response factor, the percent change in nitrate concentration for each percent change in NO X emissions. Because ammonia emissions are constant, they provide a reasonable factor to use as the response to reductions of NO X in the sensitivity analysis. Using 2002-2016 data results in a NO X response factor of 0.378. Using this in a variant of the Plan's NO X sensitivity analysis in place of the 1:1 assumption, the EPA found that the ambient PM 2.5 response to a 50% NO X reduction is 0.105 µg/m 3 , and the response to a 70% reduction is 0.147 µg/m 3 . Both of these are below the EPA's recommended contribution threshold of 0.2 µg/m 3 . (The original responses were 0.277 and 0.388 µg/m 3 .) Since the years 2013-2016 were somewhat anomalous, with some nitrate increases, the EPA carried out the same exercise using just 2002-2011 data, which resulted in a NO X response factor of 0.625. In turn, this results in a 50% response of 0.173 µg/m 3 and a 70% response of 0.243 µg/m 3 . The 70% response is above but considerably closer to the recommended 0.2 µg/m 3 contribution threshold. When considered in light of the additional information discussed above, the 70% response supports a conclusion that NO X emissions do not contribute significantly to PM 2.5 levels that exceed the NAAQS in the area.

A second implication of the data from the Plan concerns the effect of a 70% NO X reduction on the year that the Portola area can attain the NAAQS. Under the PM 2.5 SIP Requirements Rule at 40 CFR 51.1009(a)(4)(i), if a Moderate PM 2.5 nonattainment area, such as the Portola area, can show that reducing emission of a precursor is not necessary for expeditious attainment of the NAAQS and cannot advance attainment by a year, 40 then that precursor need not be controlled for attainment purposes. Even assuming a NO X reduction of 70%, which is very large in comparison with the historical reductions of about 6% per year, and assuming an unrealistically conservative 1:1 nitrate response ratio, the resulting response is 0.388 µg/m 3 , which is less than the average 0.41 µg/m 3 per year PM 2.5 decrease seen during 2019-2021 in the attainment demonstration. This observation supports a conclusion that controlling NO X is not necessary for expeditious attainment of the NAAQS because it would not advance the attainment date by a year in the Portola nonattainment area.

The EPA is proposing to approve the State's demonstration that emissions of PM 2.5 precursors ( i.e., SO X , NO X , ammonia, and VOC) from all existing sources located in the nonattainment area do not contribute significantly to PM 2.5 levels that exceed the standards in the area. If the EPA finalizes this proposal, the State and District would not be required to control emissions of these precursors from existing sources in the Portola PM 2.5 Plan for purposes of the 2012 annual PM 2.5 NAAQS. The State, District, and the EPA will reexamine this issue if the Portola area fails to attain the NAAQS and EPA reclassifies the area to Serious for the 2012 annual PM 2.5 NAAQS.

The general subpart 1 attainment plan requirement for RACM and RACT is described in CAA section 172(c)(1), which requires that attainment plan submissions “provide for the implementation of all reasonably available control measures as expeditiously as practicable (including such reductions in emissions from existing sources in the area as may be obtained through the adoption, at a minimum, of reasonably available control technology)” and provide for attainment of the NAAQS.

The attainment planning requirements specific to PM 2.5 under subpart 4 likewise impose upon states with nonattainment areas classified as Moderate an obligation to develop attainment plans that require RACM/RACT on sources of direct PM 2.5 and all PM 2.5 plan precursors. CAA section 189(a)(1)(C) requires that Moderate area PM 2.5 SIPs contain provisions to assure that RACM/RACT are implemented no later than 4 years after designation of the area. The EPA reads CAA sections 172(c)(1) and 189(a)(1)(C) together to require that attainment plans for Moderate nonattainment areas provide for the implementation of RACM and RACT for existing sources of PM 2.5 and those PM 2.5 precursors subject to control in the nonattainment area as expeditiously as practicable but no later than 4 years after designation. 41

The PM 2.5 SIP Requirements Rule defines RACM as “any technologically and economically feasible measure that can be implemented in whole or in part within 4 years after the effective date of designation of a PM 2.5 nonattainment area and that achieves permanent and enforceable reductions in direct PM 2.5 emissions and/or PM 2.5 plan precursor emissions from sources in the area. 42 RACM includes reasonably available control technology (RACT).” The EPA has historically defined RACT as the lowest emission limitation that a particular stationary source is capable of meeting by the application of control technology ( e.g., devices, systems, process modifications, or other apparatus or techniques that reduce air pollution) that is reasonably available considering technological and economic feasibility. 43

Under the PM 2.5 SIP Requirements Rule, those control measures that otherwise meet the definition of RACM but “can only be implemented in whole or in part during the period beginning 4 years after the effective date of designation of a nonattainment area and no later than the end of the sixth calendar year following the effective date of designation of the area” must be adopted and implemented by the state as “additional reasonable measures.”  44

States must provide written justification in a SIP submission for eliminating potential control options from further review on the basis of technological or economic infeasibility. 45 An evaluation of technological feasibility may include consideration of factors such as a source's process and operating conditions, raw materials, physical plant layout, and non-air quality and energy impacts ( e.g., increased water pollution, waste disposal, and energy requirements). 46 An evaluation of economic feasibility may include consideration of factors such as cost per ton of pollution reduced (cost-effectiveness), capital costs, and operating and maintenance costs. 47 Absent other indications, the EPA presumes that it is reasonable for similar sources to bear similar costs of emissions reductions. Economic feasibility of RACM and RACT is thus largely informed by evidence that other sources in a source category have in fact applied the control technology, process change, or measure in question in similar circumstances. 48

Consistent with these requirements, NSAQMD must implement RACM, including RACT, for direct PM 2.5 emission sources no later than April 15, 2019, and must implement additional reasonable measures for these sources no later than December 31, 2021.

The CAA explicitly provides for the use of economic incentive programs (EIPs), such as the Portola voluntary wood stove change-out program, as one tool for states to use to achieve attainment of the NAAQS. 49 EIPs use market-based strategies to encourage the reduction of emissions from stationary, area, and mobile sources in an efficient manner. The EPA has promulgated regulations for statutory EIPs required under section 182(g) of the Act and has issued guidance for discretionary EIPs. 50 Where a state relies on a discretionary EIP in a SIP submission, the EPA evaluates the programmatic elements of the EIP to determine whether the resulting emission reductions are quantifiable, surplus, enforceable and permanent. 51 These four fundamental “integrity elements,” which apply to all EIPs and other incentive/voluntary measures relied on for SIP purposes, are designed to ensure that such programs and measures satisfy the applicable requirements of the Act.

The State's RACM and RACT analysis is in section VI.D of the Portola PM 2.5 Plan. The emissions inventory analysis, conducted as part of the RACT analysis, confirmed that no major stationary sources of direct PM 2.5 or any PM 2.5 precursor are located in the Portola PM 2.5 nonattainment area. As discussed above in section IV.C, the State provided a demonstration that PM 2.5 precursor emissions do not contribute significantly to ambient PM 2.5 levels that exceed the standards in the area. Therefore, the Portola PM 2.5 Plan contains a RACM demonstration addressing only sources of direct PM 2.5 .

PM 2.5 concentrations in the Portola PM 2.5 nonattainment area are dominated by direct PM 2.5 emissions from residential wood burning. Chapter II of the Plan documents the State and District's bases for concluding that wood burning is the dominant source of PM 2.5 throughout the nonattainment area. The documentation includes seasonal and diurnal patterns in PM 2.5 concentrations, chemical composition data, PMF modeling, and statistical correlations between PM 2.5 mass and levoglucosan (a wood burning tracer). The PMF model estimated that 76% of ambient PM 2.5 on an annual basis is from wood burning. Burning of garbage in stoves, fireplaces, and in open burn piles contributes another 2.5% of annual PM 2.5 levels.

Table 2 lists the RACM measures in the Portola PM 2.5 Plan. We discuss each of these measures in detail further below.

Because ambient PM 2.5 in the Portola area is primarily caused by residential wood burning, CARB and the NSAQMD have chosen to implement a voluntary wood stove change-out program as the primary RACM control strategy for the entire Portola PM 2.5 nonattainment area. Appendix L of the Plan details the voluntary wood stove change-out program. Its implementation began in 2016 and will continue through 2020. See Table 3 below for the phased schedule of changeouts.

The woodstove change-out program is primarily funded by the EPA and the District. The District has approximately $3 million to fund the replacement of 600 of the estimated 664 uncertified wood stoves  52 in use in the nonattainment area. The District is utilizing $2.48 million through the EPA's 2015 Targeted Air Shed Grant program  53 and $400,000 from H&S Performance (H&S) pursuant to a December 17, 2015 Consent Agreement and Final Order between H&S and the EPA. 54 Additionally, the District is contributing up to $60,000 from the Plumas County portion of the District's Assembly Bill 2766 Motor Vehicle Registration fee surcharge.

The change-out program includes specific requirements designed to achieve quantifiable, surplus, enforceable, and permanent PM 2.5 emission reductions in the entire Portola PM 2.5 nonattainment area. The program requirements ensure, among other things, that older, dirtier wood stoves currently in operation in the Portola PM 2.5 nonattainment area will be replaced with EPA-certified wood stoves or other less-polluting devices. Residents of the City of Portola and low-income residents living outside the city but within the nonattainment area qualify for up to $3,500 to replace an uncertified wood burning device with an EPA-certified wood burning device. The $3,500 covers all or most of the change-out costs. In an effort to replace the uncertified devices with the cleanest technology available, the District offers an additional $1,000 to city residents or low-income residents within the nonattainment area for every uncertified wood stove replaced with a pellet, propane, or kerosene device. For all other residents living outside the City of Portola but within the nonattainment area, the District offers $1,500 to replace an uncertified wood burning device with an EPA-certified wood burning device and $3,000 to replace an uncertified wood burning device with a pellet, propane or kerosene heating device. An incentive is available within the entire nonattainment area, but the two-tier funding approach increases the likelihood of the greatest number of changeouts occurring in the city, the area with the greatest concentration of people and low-income residents in the nonattainment area. As of September 30, 2018, approximately 260 changeouts were completed, and an additional 49 applications were approved for possible future changeouts. 55

The change-out program also includes requirements for participating contractors/retailers to sign a contract with NSAQMD. Contractors/retailers must meet licensing, permitting, and certification requirements. The contract includes specific requirements for the collection and retention of documents, such as:

Program tracking form,

Copy of change-out cost estimate with District approval signature,

Photo of uncertified woodstove installed and operational in home (prior to replacement by certified device), 56

Photo of certified device installed,

Copy of building permit,

Acknowledgement of training form (homeowner/renter), and

Final invoice.

The retailer/contractor must also meet the following requirements for retention of records and providing training to homeowners:

Accounting records relating to the change-out program must be retained for five years and made available for possible review by federal, State and District agencies,

Encourage homeowners to consider replacing wood appliances with alternative fuel devices, such as propane, pellet or kerosene, and

Train homeowners on proper appliance operation and acceptable fuels to maximize the emission reductions, including a form signed by homeowners stating that they were trained to properly operate their new heating device.

To provide assurance that the voluntary change-out program will achieve the intended emissions reductions, the District adopted an enforceable commitment to replace 600 uncertified stoves with cleaner burning devices by December 31, 2020. The EPA approved this enforceable commitment into the SIP at 83 FR 13871 (April 2, 2018). The enforceable commitment obligates the NSAQMD to achieve specific amounts of PM 2.5 emission reductions through implementation of the woodstove change-out program by specific years, to submit annual reports to the EPA detailing its implementation of the program and the projected emission reductions, and to adopt and submit substitute measures by specific dates if the EPA determines that the woodstove change-out program will not achieve the necessary emission reductions. The EPA's Technical Support Document for its April 2, 2018 final action has more information about the enforceable commitment.

On June 22, 2016, the City of Portola adopted Ordinance No. 344, “An Ordinance of the City of Portola, County of Plumas Amending Chapter 15.10 of the City of Portola Municipal Code Providing for Regulation of Wood Stoves and Fireplaces” (“City Ordinance”). The City Ordinance is in Appendix M of the Plan. The EPA approved the City Ordinance into the SIP at 83 FR 9213 (March 5, 2018).

The City Ordinance includes a mandatory burning curtailment provision effective January 1, 2021. The mandatory curtailment will restrict wood burning under specific conditions. If the District determines that adverse meteorological conditions are expected to persist and PM 2.5 may exceed 30 μg/m 3 on a given day in January, February, November, or December, the District will call a “No Burn Day.” When a No Burn Day is called, no person may operate a wood burning heater, wood burning fireplace, wood-fired fire pit or wood-fired cookstove within the city limits unless it is an approved and currently registered EPA-certified wood burning heater. 57 The curtailment provision encourages owners of uncertified stoves to upgrade to certified stoves or risk not being able to use their uncertified wood burning device on No Burn Days called after January 1, 2021. The curtailment provision does not take effect until January 1, 2021, giving homeowners and renters time to change their stoves to EPA-certified devices during the five-year implementation of the voluntary change-out program.

The City Ordinance and the District's wood stove change-out program collectively establish most of the recommended program elements outlined in the EPA's guidance document entitled “Strategies for Reducing Residential Wood Smoke,”  58 including:

A wood burning curtailment program (section 15.10.060),

Requirements to remove uncertified wood burning stoves upon home resale (section 15.10.040.A),

Restrictions on wood burning devices in new construction (section 15.10.030.B),

Restrictions on the installation of wood burning fireplaces (sections 15.10.030.A and 15.10.040.B),

A requirement that all wood burning stoves sold or transferred within the District meet the EPA's current new source performance standard certification (section 15.10.030.A),

A prohibition on the installation of wood fired boilers or hydronic heaters (sections 15.10.030.15, 15.10.030.A and 15.10.070),

Requirements regarding wood moisture content (section 15.10.050.A),

Restrictions on types of materials that may be burned (seasoned wood, uncolored paper, pellets, and manufactured logs) (section 15.10.050),

A wood burning stove change-out program (described above), and

Education and outreach programs, including a requirement for wood stove retailers to distribute educational materials provided by the District (section 15.10.080).

Although natural gas is not available in the area, the City Ordinance does not include any exemption for a residence where an uncertified wood stove is the sole source of heat. The City Ordinance is thus more stringent than curtailment provisions implemented by other air districts, most of which exempt households using wood stoves as a sole source of heat from curtailment requirements. 59

The District considered expanding the requirements of the City Ordinance to the entire nonattainment area but determined that this was not feasible because the District did not have sufficient funding to offer incentives to cover the full cost of changeouts outside of the City of Portola. Some residents living outside of the city limits may not have sufficient resources to changeout their stoves. For these residents, the wood burning prohibition in the City Ordinance could cause unintended health risks if their sole source of heat is an uncertified wood stove, and they were prohibited from using it. In the future, expanding application of the City Ordinance beyond city limits will be contingent upon availability of more generous incentive funds for people residing outside the city limits. The Plan states that if additional funding becomes available in the future, the District will offer more generous incentives to residents living outside city limits and consider expanding mandatory burning curtailment to the entire nonattainment area. 60

The District enforces open burning requirements in NSAQMD Rules 300—317 that apply to a variety of area sources such as agricultural burning, forest burning, range improvement, and residences. The District's smoke management program ensures that open burning occurs on days with good dispersion to minimize the impact from PM 2.5 concentrations. The EPA approved these rules into the SIP at 62 FR 48480 (September 16, 1997) and 64 FR 45170 (August 19, 1999).

Within the Portola nonattainment area, wood smoke can originate from open burning or from home heating devices. Residents of this area occasionally burn yard debris in open piles. Land managers ( e.g., U.S. Forest Service) perform prescribed burns of timber harvest waste to promote fire safety and maintain forest health. Both residents and land managers must request a burn permit prior to starting a fire. The District, in coordination with CARB, makes a declaration of either a permissive Burn Day or a No Burn Day in the context of open burning only. It does not apply to wood burning devices and is distinct from the more stringent No Burn Day program previously described in the City Ordinance. The District and CARB consider a number of factors in making no-burn declarations to ensure that smoke from open burning will not unduly contribute to the ambient PM 2.5 mass. 61

To further reduce PM 2.5 emissions during winter, the Portola PM 2.5 Plan contains a commitment by the District to strengthen its open burning rule in 2019. The District is assessing the feasibility of green waste collection in the nonattainment area and will consider whether to adopt open burning requirements similar to District Rule 318 (“American Valley Burning Restrictions”), which prohibits the open burning of yard waste and debris or other rubbish from November 15 to March 15 in a portion of the American Valley containing Quincy and East Quincy. 62

Mobile sources account for approximately 3% of the overall direct PM 2.5 emissions inventory in the Portola PM 2.5 nonattainment area. The Plan projects that CARB's continued implementation of adopted mobile source control measures  63 will decrease direct PM 2.5 emissions by 2021 and provide 7% of the total reductions needed to attain the 2012 PM 2.5 NAAQS. As part of the State's RACM analysis for the mobile source control program, described on pages 86-90 of the Portola PM 2.5 Plan, CARB concludes that in light of the comprehensiveness and stringency of its mobile source program, all RACM under CARB's jurisdiction are already being implemented.

Rule 202 limits visible emissions ( e.g., particulates) and is enforced by NSAQMD. The EPA approved this rule into the SIP at 62 FR 48480 (September 16, 1997). Enforcement of Rule 202 will help identify households with highly visible emissions that may still be using uncertified wood stoves and possibly eligible for the change-out program. Rule 202 prohibits any person from discharging into the atmosphere any air contaminant for more than 3 minutes in any hour that is as dark as, or darker in shade than, that designated as No. 1 on the Ringelmann Chart or “of such opacity as to obscure an observer's view to a degree equal to or greater than does smoke.”  64

The District is developing other voluntary measures to reduce the impact of wood smoke on PM 2.5 . The District is conducting an aggressive outreach and educational campaign to help residents understand the benefits of changing from an old wood stove to a cleaner home heating device and the importance of clean burning. The District worked closely with the City of Portola and enlisted outreach partners such as the local hardware and grocery store, post office, library, senior community center, and schools to assist in the distribution of educational materials and advertise the change-out program. In addition, the Ordinance includes a requirement that retailers and contractors provide educational materials with the sale of a wood-burning device. 65

On November 1, 2017, the District began implementing “Clear the Air; Check Before You Light,” a voluntary wood burning curtailment program that runs during the peak wood-burning period ( i.e., November 1 through February 28) in the Portola nonattainment area. When conditions exist for potentially poor air quality, the District will issue an air quality advisory to notify the public. When an advisory is triggered the District will recommend avoiding the use of any wood burning device (including wood stoves, fireplaces, fire pits and cook stoves) to help reduce potential health impacts and possibly prevent an exceedance of federal/state air pollution standards. Use of alternative sources of heat such as electricity, propane or kerosene, are encouraged when an advisory is announced. 66

As part of the EPA's March 5, 2018, final action approving the City Ordinance into the SIP, the EPA considered whether the City Ordinance includes all technologically and economically feasible measures for wood burning devices. We compared the provisions in the City Ordinance with other wood burning rules and with the recommendations in the EPA's guidance document entitled “Strategies for Reducing Residential Wood Smoke.”  67 Based on this evaluation, we concluded that the City Ordinance and the District's wood stove change-out program collectively implement RACM and additional reasonable measures for residential wood burning devices in the Portola nonattainment area. 68

Throughout this document, “we,” “us” and “our” refer to the EPA.

Table 1 lists the rule addressed by this proposal with the dates that it was adopted by the local air agency and submitted by the California Air Resources Board (CARB).

On May 13, 2018, the submittal for AVAQMD was deemed by operation of law to meet the completeness criteria in 40 CFR part 51 Appendix V, which must be met before formal EPA review.

We approved an earlier version of Rule 462 into the SIP on October 5, 1979 (47 FR 29668). The AVAQMD adopted revisions to the SIP-approved version on September 19, 2017, and CARB submitted them to us on November 13, 2017.

VOCs help produce ground-level ozone, smog and particulate matter (PM), which harm human health and the environment. Section 110(a) of the CAA requires states to submit regulations that control VOC emissions. SIP-approved Rule 462 establishes VOC emission limits for organic liquid and gasoline transfers into delivery vessels at bulk terminals and bulk gasoline plants. It also describes inspection, recordkeeping, and work-practice requirements for organic liquid and gasoline transfers at these facilities. Revisions to the SIP-approved version of Rule 462 adopted on September 19, 2017, include lowering VOC emission limits for organic liquid and gasoline transfers at facilities transferring over 20,000 gallons of organic liquid per day from 0.65 lbs VOCs per 1000 gallons transferred to 0.08 lbs VOCs per 1000 gallons transferred; requiring those facilities to install and maintain a continuous emissions monitoring system; and requiring VOC vapor control efficiency of 90 percent for specified facilities existing prior to January 9, 1976, which load less than 20,000 gallons of gasoline per day. Revisions also require vapor recovery systems at specified organic liquid and gasoline transfer facilities be CARB-certified; strengthen inspection and record keeping requirements; and make other clarifying and conforming changes.

Additionally, on October 10, 2017 (82 FR 46923), the EPA partially conditionally approved AVAQMD's reasonably available control technology (RACT) demonstrations for the 1997 8-hr ozone National Ambient Air Quality Standards (NAAQS) and the 2008 8-hr ozone NAAQS (also referred to as the 2006 and 2015 RACT SIPs) with respect to Rule 462, based on commitments from AVAQMD to revise and submit amendments to Rule 462 that remedy specific deficiencies. These deficiencies were identified in our December 15, 2016 proposed partial approval and partial disapproval (81 FR 90754) and referenced in our July 28, 2017 proposal (82 FR 35149). For Rule 462, the deficiency was identified as a “facility vapor leak” definition that was inconsistent with the test method specified to conduct vapor leak measurements. Revisions to Rule 462 on September 19, 2017, corrected the deficiency. The EPA's technical support document (TSD) has more information about this rule.

SIP rules must be enforceable (see CAA section 110(a)(2)), must not interfere with applicable requirements concerning attainment and reasonable further progress or other CAA requirements (see CAA section 110(l)), and must not modify certain SIP control requirements in nonattainment areas without ensuring equivalent or greater emissions reductions (see CAA section 193).

Generally, SIP rules must require RACT for each category of sources covered by a Control Techniques Guidelines (CTG) document as well as each major source of VOCs in ozone nonattainment areas classified as moderate or above (see CAA section 182(b)(2)). The AVAQMD regulates an ozone nonattainment area classified as Severe for the 1997 and 2008 8-hour ozone NAAQS (40 CFR 81.305). Therefore, this rule must implement RACT. In addition, the rule was evaluated to ensure it met the commitment made by the AVAQMD that served as the basis for the partial conditional approval of the AVAQMD 2006 and 2015 RACT SIPs with respect to Rule 462 (82 FR 46923).

Guidance and policy documents that we used to evaluate enforceability, revision/relaxation and rule stringency requirements for the applicable criteria pollutants include the following:

1. “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990,” 57 FR 13498 (April 16, 1992); 57 FR 18070 (April 28, 1992).

2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,” EPA, May 25, 1988 (the Bluebook, revised January 11, 1990).

3. “Guidance Document for Correcting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001 (the Little Bluebook).

4. “Control of Volatile Organic Emissions from Bulk Gasoline Plants,” EPA-450/2-77-035, December 1977.

5. “Control of Hydrocarbons from Tank Truck Gasoline Loading Terminals,” EPA-450/2-77-026, October 1977.

This rule is consistent with CAA requirements and relevant guidance regarding enforceability, RACT, and SIP revisions, and meets the District's commitment to remedy the Rule 462 deficiency identified in the RACT SIP conditional approval (82 FR 46923). The TSD has more information on our evaluation.

The TSD describes additional rule revisions that we recommend for the next time the local agency modifies the rule.

As authorized in section 110(k)(3) of the Act, the EPA proposes to fully approve the submitted rule because it fulfills all relevant requirements. We will accept comments from the public on this proposal until January 17, 2019. If we take final action to approve the submitted rule, our final action will incorporate this rule into the federally enforceable SIP.

In this rule, the EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the AVAQMD rule described in Table 1 of this preamble. The EPA has made, and will continue to make, these materials available through www.regulations.gov and at the EPA Region IX Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the Clean Air Act, 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, the EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this proposed 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 proposed action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;

• 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 the EPA with the discretionary authority to address disproportionate human health or environmental effects with practical, appropriate, and legally permissible methods under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

States are required to submit progress reports that evaluate progress towards the RPGs for each mandatory Class I federal area  1 (Class I area) within the state and for each Class I area outside the state which may be affected by emissions from within the state. See 40 CFR 51.308(g). In addition, the provisions of 40 CFR 51.308(h) require states to submit, at the same time as the 40 CFR 51.308(g) progress reports, a determination of the adequacy of the state's existing regional haze plan. The first progress report is due five years after submittal of the initial regional haze plan and must be submitted as a SIP revision. Alabama submitted its regional haze plan on July 15, 2008, as later amended in a SIP revision submitted on October 26, 2015.

Like many other states subject to the Clean Air Interstate Rule (CAIR), Alabama relied on CAIR in its regional haze plan to meet certain requirements of EPA's Regional Haze Rule, including best available retrofit technology (BART) requirements for emissions of sulfur dioxide (SO 2 ) and nitrogen oxides (NO X ) from certain electric generating units (EGUs) in the State. 2 This reliance was consistent with EPA's regulations at the time that Alabama developed its regional haze plan. See 70 FR 39104 (July 6, 2005). However, in 2008, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) remanded CAIR to EPA without vacatur to preserve the environmental benefits provided by CAIR. North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). On August 8, 2011 (76 FR 48208), acting on the D.C. Circuit's remand, EPA promulgated the Cross-State Air Pollution Rule (CSAPR) to replace CAIR and issued Federal Implementation Plans (FIPs) to implement the rule in CSAPR-subject states. 3 Implementation of CSAPR was scheduled to begin on January 1, 2012, when CSAPR would have superseded the CAIR program. However, numerous parties filed petitions for review of CSAPR, and at the end of 2011, the D.C. Circuit issued an order staying CSAPR pending resolution of the petitions and directing EPA to continue to administer CAIR. Order of December 30, 2011, in EME Homer City Generation, L.P. v. EPA, D.C. Cir. No. 11-1302.

On June 28, 2012 (77 FR 38515), EPA finalized a limited approval of Alabama's regional haze plan as meeting some of the applicable regional haze requirements as set forth in sections 169A and 169B of the CAA and in 40 CFR 51.300-308. Separately, in a June 7, 2012 (77 FR 33642), action, EPA finalized a limited disapproval of Alabama's regional haze plan because of deficiencies arising from the State's reliance on CAIR to satisfy certain regional haze requirements. Also on June 7, 2012, EPA promulgated FIPs to replace reliance on CAIR with reliance on CSAPR to address deficiencies in CAIR-dependent regional haze plans of several states, including Alabama's regional haze plan. Following additional litigation and the lifting of the stay, EPA began implementation of CSAPR on January 1, 2015.

Certain CSAPR Phase 2 emissions budgets were remanded to EPA for reconsideration. 4 However, the CSAPR trading programs remained in effect and all CSAPR emissions budgets likewise remained in effect while EPA addressed the remands. The remanded budgets included the CSAPR Phase 2 SO 2 emissions budget applicable to Alabama units under the federal CSAPR SO 2 Group 2 Trading Program. On October 26, 2015, Alabama submitted a SIP revision to EPA which sought to adopt CSAPR at the state level and to change reliance from CAIR to CSAPR for certain regional haze requirements. This submittal also adopted the remanded SO 2 Phase 2 budget for the State. EPA approved portions of the October 26, 2015, submittal on August 31, 2016 (81 FR 59869), including the adoption of CSAPR unit requirements for SO 2 and NO X annual trading programs, thereby replacing the FIP obligations in the State for these two programs. 5 The August 31, 2016, final rule also approved Alabama's adoption of the remanded federal SO 2 Phase 2 budget.

Subsequently, on May 19, 2017, Alabama submitted a SIP revision to address additional requirements for the NO X ozone season requirements for CSAPR. On October 6, 2017 (82 FR 46674), EPA approved Alabama's adoption of a state allowance trading program to replace federal NO X ozone season requirements under CSAPR, thereby replacing the remainder of the CSAPR FIP. On October 12, 2017, EPA approved the regional haze portion of Alabama's October 26, 2015 (82 FR 47393), SIP submission to change reliance from CAIR to CSAPR for certain regional haze requirements and converted EPA's limited approval/limited disapproval to a full approval.

On June 27, 2018, 6 Alabama submitted its Progress Report which, among other things, details the progress made in the first period toward implementation of the long term strategy outlined in the State's regional haze plan; the visibility improvement measured at the Sipsey Wilderness Area (the only Class I area within Alabama); and a determination of the adequacy of the State's existing regional haze plan. EPA is proposing to approve Alabama's June 26, 2018, Progress Report for the reasons discussed below.

This section includes EPA's analysis of Alabama's Progress Report and an explanation of the basis for the Agency's proposed approval.

In its Progress Report, Alabama summarizes the status of the emissions reduction measures that were relied upon by the State in its regional haze plan and included in the final iteration of the Visibility Improvement State and Tribal Association of the Southeast (VISTAS) regional haze emissions inventory and RPG modeling used by the State in developing its regional haze plan. The measures include, among other things, applicable federal programs ( e.g., mobile source rules, Maximum Achievable Control Technology standards), federal consent agreements, and federal control strategies for EGUs. Alabama also reviewed the status of BART requirements for the two BART-subject sources for NO X and SO 2 in the State—Solutia, Inc., Decatur facility and International Paper Company, Courtland facility—and described several court decisions addressing CAIR and CSAPR. 7

As discussed in Section I of this notice, a number of states, including Alabama, submitted regional haze plans that relied on CAIR to meet certain regional haze requirements. EPA finalized a limited disapproval of Alabama's 2008 regional haze plan due to this reliance and promulgated a FIP to replace the State's reliance on CAIR with reliance on CSAPR. Although a number of parties challenged the legality of CSAPR and the D.C. Circuit initially vacated and remanded CSAPR to EPA in EME Homer City Generation, L.P. v. EPA, 696 F.3d 7 (D.C. Cir. 2012), the United States Supreme Court reversed the D.C. Circuit's decision on April 29, 2014, and remanded the case to the D.C. Circuit to resolve remaining issues in accordance with the high court's ruling. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). On remand, the D.C. Circuit affirmed CSAPR in most respects, and CSAPR is now in effect. EME Homer City Generation, L.P. v. EPA, 795 F.3d 118 (D.C. Cir. 2015). Because CSAPR should result in greater emissions reductions of SO 2 and NO X than CAIR throughout the affected region, EPA expects Alabama to maintain and continue its progress towards its RPGs for 2018 through continued, and additional, SO 2 and NO X reductions. See generally 76 FR 48208 (August 8, 2011).

In the State's 2008 regional haze plan and Progress Report, Alabama focuses its assessment on SO 2 emissions from EGUs because of VISTAS' findings that ammonium sulfate accounted for 69-87 percent of the visibility-impairing pollution in the VISTAS states and roughly 75 percent of the visibility-impairing pollution at the Sipsey Wilderness Area on the 20 percent worst visibility days. Alabama determined in its 2008 regional haze plan that no additional controls for sources in the State were needed to make reasonable progress for SO 2 during the first implementation period. 8 In its regional haze plan, Alabama identified 19 Alabama EGUs at six facilities located in the area of influence of Alabama's Class I area using the State's methodology for determining sources eligible for a reasonable progress control determination. Because these 19 EGUs were subject to CAIR and the Sipsey Wilderness Area was projected to exceed the uniform rate of progress during the first implementation period, ADEM opted not to require any additional emissions reductions for reasonable progress for the first implementation period. 9 Alabama's Progress Report indicates that SO 2 emissions from all in-state EGUs have decreased by approximately 71 percent from 2002 to 2012.

Because many states had not yet defined their criteria for identifying sources to evaluate for reasonable progress at the time Alabama was developing the State's 2008 regional haze plan, Alabama initially applied the State's criteria for identifying emissions units eligible for a reasonable progress control analysis as a screening tool to identify Class I areas outside of the State potentially impacted by Alabama sources. Alabama identified the following Class I areas as potentially impacted by Alabama sources: Cohutta Wilderness Area in Georgia; Joyce Kilmer-Slickrock Wilderness Area in North Carolina; St. Marks Wilderness Area in Florida; and Breton Wilderness Area in Louisiana. 10 Additionally, North Carolina identified an Alabama source (Tennessee Valley Authority (TVA)—Widows Creek) as meeting North Carolina's threshold for a reasonable progress control evaluation at one of its Class I areas (Joyce Kilmer-Slickrock Wilderness Area). Alabama determined that there were no additional controls that would be reasonable to require of this source for the first implementation period. Alabama also consulted with Florida, Georgia, and Louisiana and concluded that no Alabama sources were identified by these states as meeting their criteria for a reasonable progress control evaluation. 11

EPA proposes to find that Alabama has adequately addressed the applicable provisions under 40 CFR 51.308(g) regarding the implementation status of control measures because the State described the implementation of measures within Alabama, including BART at BART-subject sources for NO X and SO 2 .

As discussed in Section II.A.1. of this notice, Alabama focused its assessment in its regional haze plan and Progress Report on SO 2 emissions from EGUs because of VISTAS' findings that ammonium sulfate is the primary component of visibility-impairing pollution in the VISTAS states. In its Progress Report, Alabama provides 2002, 2005, 2008, 2011, and 2012 SO 2 emissions data from EPA's Clean Air Markets Division (CAMD) for EGUs in the State. Actual SO 2 emissions reductions from 2002-2012 for these Alabama EGUs (319,428 tons) have already exceeded the projected SO 2 emissions reductions from 2002 to 2018 estimated in Alabama's regional haze plan for these EGUs (312,397 tons). 12 Alabama also includes cumulative volatile organic compounds (VOC), fine particulate matter (PM 2.5 ), coarse particulate matter (PM 10 ), ammonia (NH 3 ), SO 2 , and NO X emissions data from 2002, 2007, and 2011 for point sources. For the five-year period covered by the Progress Report, the 2011 National Emissions Inventory (NEI) was the latest available inventory. 13 This data shows a decline in these emissions over this time period and shows that the SO 2 reductions are greater than those estimated for these units between 2002-2018 in the State's regional haze plan. The emissions reductions identified by Alabama are due, in part, to the implementation of measures included in the State's regional haze plan.

EPA proposes to find that Alabama has adequately addressed the applicable provisions of 40 CFR 51.308(g) regarding emissions reductions because the State identifies SO 2 emissions reductions from EGUs in Alabama, the largest sources of SO 2 emissions in the State.

The provisions under 40 CFR 51.308(g) require that states with Class I areas within their borders provide information on current visibility conditions and the difference between current visibility conditions and baseline visibility conditions expressed in terms of five-year averages of these annual values.

Alabama's Progress Report provides visibility monitoring data for the Sipsey Wilderness Area. Alabama reported current visibility conditions as the 2009-2013 five-year time period and used the 2000-2004 baseline period for the State's Class I area. 14 Alabama also provided 20 percent worst day and 20 percent best day visibility data for each year from 2004-2013 in terms of five-year averages. Table 1 shows the visibility conditions for the 2009-2013 five-year time period, the difference between the current visibility conditions and baseline visibility conditions, and the RPGs for the Sipsey Wilderness Area in the State's 2008 regional haze plan.

As shown in Table 1, the Sipsey Wilderness Area saw an improvement in visibility between baseline and the 2009-2013 time period. 15

EPA proposes to find that Alabama has adequately addressed the applicable provisions under 40 CFR 51.308(g) regarding visibility conditions because the State provided baseline visibility conditions, visibility conditions for the 2009-2013 five-year time period, the difference between these sets of visibility conditions, and five-year visibility averages at the Sipsey Wilderness Area from 2004-2013.

In its Progress Report, Alabama presents data from a statewide actual emissions inventory for 2007, developed through the Southeastern Modeling, Analysis and Planning (SEMAP) partnership and compares this data to the baseline emissions inventory for 2002 (actual emissions). The pollutants inventoried include: VOC, NH 3 , NO X , PM 2.5 , PM 10 , and SO 2 . The emissions inventories include the following source classifications: Point, area, biogenic ( e.g., VOC from vegetation, emissions from fires), non-road mobile, and on-road mobile sources. As discussed in Section II.A.2, above, Alabama also presented 2002, 2005, 2008, 2011, and 2012 SO 2 data for EGUs in Alabama and 2011 emissions for point sources in Alabama.

SEMAP estimated on-road mobile source emissions in the 2007 inventory using EPA's MOVES model. This model tends to estimate higher emissions for NO X and particulate matter than its previous counterpart, EPA's MOBILE6.2 model, used by the State to estimate on-road mobile source emissions for the 2002 inventories. Due in part to the change in methodology, there are increases in NO X , PM 2.5 and PM 10 , in the 2007 actual on-road emissions, while VOC, NH 3 and SO 2 mobile emissions show decreases from the actual 2002 emissions, as can be seen when comparing Tables 2 and 3. Apart from this, decreases in total pollutant emissions can be seen for each pollutant potentially impacting visibility.

Additionally, ADEM included the 2011 point source actual emissions inventory from the 2011 NEI, Version 2, included in Table 4, below. The actual point source emissions in 2011 showed significant reductions for all pollutants when compared to both the 2002 and 2007 inventories. These point source emissions have already exceeded the reductions expected in the 2018 projected year inventory, which can be seen in Table 5, below.

EPA is proposing to find that Alabama adequately addressed the provisions of 40 CFR 51.308(g) regarding emissions tracking because the State compared the most recent updated emission inventory data for the five-year period covered by the Progress Report with the baseline emissions used in the modeling for the regional haze plan. Furthermore, Alabama evaluated EPA Air Markets Program Data  19 SO 2 emissions data from 2002-2012 for EGUs in the State because ammonium sulfate is the primary component of visibility-impairing pollution in the VISTAS states, and EGUs are the largest source of SO 2 in the State.

In its Progress Report, Alabama documented that sulfates, which are formed from SO 2 emissions, continue to be the biggest single contributor to regional haze for the Sipsey Wilderness Area, and therefore focused its analysis on large SO 2 emissions from point sources. 20 In its 2008 regional haze plan, Alabama notes that sulfates account for 75 percent of the visibility impairment on the 20 percent worst days and 50 percent of visibility impairment on the 20 percent best days over the 2000-2004 period. In addressing the requirements at 40 CFR 51.308(g)(5), Alabama shows in the Progress Report that the overall contribution of sulfates toward visibility impairment has been reduced to 64 percent over the 2008-2012 period for the 20 percent worst days and remained approximately the same for the 20 percent best days. Alabama also examines other potential pollutants of concern affecting visibility at the Sipsey Wilderness Area. Furthermore, the Progress Report shows that visibility averages for the five-year period 2009-2013 are better than the 2018 RPGs for the Sipsey Wilderness Area and that SO 2 emissions reductions from 2002-2012 for EGUs in Alabama have exceeded the projected reductions from 2002-2018 in the regional haze plan.

EPA proposes to find that Alabama has adequately addressed the provisions of 40 CFR 51.308(g) regarding an assessment of significant changes in anthropogenic emissions for the reasons discussed above.

Alabama believes that it is on track to meet the 2018 RPGs for the Sipsey Wilderness Area, and that the State's sources will not impede Class I areas outside of Alabama from meeting their RPGs based on the trends in visibility and emissions presented in its Progress Report. Alabama notes that the Interagency Monitoring of Protected Visual Environments (IMPROVE) visibility readings for 2009-2013 generally show greater improvements in visibility than projected by the State in establishing the 2018 RPGs for the Sipsey Wilderness Area and that SO 2 emissions from coal-fired EGUs in the State have decreased from 2002-2012 by more than the predicted decline in SO 2 emissions from these sources for the first implementation period in Alabama's 2008 regional haze plan. Alabama expects that these emissions will continue to decrease through the first regional haze implementation period.

As discussed above, Alabama identified the following Class I areas as potentially impacted by Alabama sources: Cohutta Wilderness Area in Georgia; Joyce Kilmer-Slickrock Wilderness Area in North Carolina; St. Marks Wilderness Area in Florida; and Breton Wilderness Area in Louisiana. In its Progress Report, Alabama notes that it has evaluated IMPROVE monitoring data from 2009-2013 for these Class I areas and that the trend for each of these areas is at or below the glidepath. 21 The State concludes that given expected continued emission reductions, the trends for those areas should continue, and no additional controls are needed at this time to meet RPGs.

Alabama notes that it consulted with other states during the development of its 2008 regional haze plan, including Florida, Georgia, Louisiana, and North Carolina. Of these states, North Carolina identified one unit in Alabama—TVA Widows Creek—as meeting North Carolina's criteria for a reasonable progress control evaluation and asked Alabama to share its reasonable progress control evaluation for this unit. Alabama determined that because this unit was subject to CAIR and had a scrubber installed, no additional controls were reasonable for this period. See 77 FR 11956. The State reiterates that after consultation with each of these states, Alabama was not requested to further evaluate any source relative to a regional Class I area. Additionally, the State did not request any out-of-state source to evaluate impacts on the Sipsey Wilderness Area because no source met the State's criteria for a reasonable progress analysis.

The State notes that, considering the trends in visibility in the IMPROVE network, and given SO 2 reductions achieved, it is reasonable to assume that these conclusions still stand for the purposes of the Progress Report.

As discussed above, CAIR was implemented during the time period evaluated by ADEM for its Progress Report, CAIR has been replaced by CSAPR, and the requirements of CSAPR apply to sources in Alabama through the State's implementation plan. Alabama's fully approved regional haze plan, which now relies on CSAPR rather than CAIR, accordingly contains sufficient provisions to ensure that the RPGs of Class I areas in nearby states will be achieved.

EPA proposes to find that Alabama has adequately addressed the provisions of 40 CFR 51.308(g) regarding the strategy assessment. In its Progress Report, Alabama describes the improving visibility trends using data from the IMPROVE network and the downward emissions trends in key pollutants, with a focus on SO 2 emissions from EGUs in the State. ADEM determined that its regional haze plan is sufficient to meet the RPGs for its own Class I area and the Class I areas outside the State potentially impacted by the emissions from Alabama. EPA preliminarily finds that Alabama's conclusion regarding the sufficiency of its regional haze plan is appropriate because CAIR was in effect in Alabama through 2014, providing the emission reductions relied upon in Alabama's regional haze plan through that date. CSAPR is now being implemented, and by 2018, the end of the first regional haze implementation period, CSAPR will reduce emissions of SO 2 and NO X from EGUs in Alabama by the same amount assumed by EPA when the Agency originally issued the FIP for the State in June 2012, replacing reliance on CAIR with reliance on CSAPR. Because CSAPR, now adopted and implemented at the state level, will ensure the control of SO 2 and NO X emissions reductions relied upon by Alabama and other states in setting their RPGs beginning in January 2015 at least through the remainder of the first implementation period in 2018, EPA is proposing to approve Alabama's finding that the plan elements and strategies in its implementation plan are sufficient to achieve the RPGs for the Class I area in the State and for Class I areas in nearby states potentially impacted by sources in the State.

In its Progress Report, Alabama summarizes the existing monitoring network in the State to monitor visibility at the Sipsey Wilderness Area and concludes that no modifications to the existing visibility monitoring strategy are necessary. The primary monitoring network for regional haze, both nationwide and in Alabama, is the IMPROVE network. There is currently one IMPROVE site located in the Sipsey Wilderness Area.

The State explains the importance of the IMPROVE monitoring network for tracking visibility trends at the Class I area in Alabama. ADEM states that data produced by the IMPROVE monitoring network will be used for preparing the regional haze progress reports and SIP revisions, and thus, the monitoring data from the IMPROVE sites needs to be readily accessible and to be kept up to date. The Visibility Information Exchange Web System website has been maintained by VISTAS and the other Regional Planning Organizations to provide ready access to the IMPROVE data and data analysis tools.

In addition, ADEM operates a PM 2.5 network of filter-based federal reference method monitors and filter-based speciation monitors. These PM 2.5 measurements help ADEM characterize air pollution levels in areas across the State, and therefore aid in the analysis of visibility improvement in and near the Sipsey Wilderness Area. 22

EPA proposes to find that Alabama has adequately addressed the applicable provisions of 40 CFR 51.308(g) regarding the monitoring strategy because the State reviewed its visibility monitoring strategy and determined that no further modifications to the strategy are necessary.

In its Progress Report, ADEM submitted a negative declaration to EPA that the existing regional haze plan requires no further substantive revision at this time to achieve the RPGs for Class I areas affected by the State's sources. The State's negative declaration is based on the findings from the Progress Report, including the findings that: Visibility has already improved at the Sipsey Wilderness Area in Alabama such that the visibility averages for the five-year period 2009-2013 are better than the RPGs for 2018; actual SO 2 emissions reductions from coal-fired EGUs in Alabama exceed the predicted reductions in ADEM's 2008 regional haze plan; additional EGU control measures not relied upon in the State's 2008 regional haze plan have occurred or will occur during the first implementation period that will further reduce SO 2 emissions; and emissions of SO 2 from EGUs in Alabama are expected to continue to trend downward.

EPA proposes to conclude that Alabama has adequately addressed 40 CFR 51.308(h) because the visibility trends at the Sipsey Wilderness Area and at Class I areas outside of the State potentially impacted by sources within Alabama and the emissions trends of the largest emitters of visibility-impairing pollutants in the State indicate that the relevant RPGs will be met.

EPA is proposing to approve Alabama's June 26, 2018, Regional Haze Progress Report as meeting the applicable regional haze requirements set forth in 40 CFR 51.308(g) and 51.308(h).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. See 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 CAA. 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 proposed action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;

• 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 CAA; 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).

The SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it impose substantial direct costs on tribal governments or preempt tribal law.

Comments should be specific, address issues raised by the proposed rule, propose alternatives where appropriate, explain reasons for any objections or recommended changes, and reference the specific action of the proposed rule that is being addressed. Additionally, we will be interested in comments that indicate agreement with changed or new proposals. We will not acknowledge receipt of the comments we receive. However, we will review and consider all comments that are germane and are received during the comment period. We will respond to these comments in the preamble to the Final Rule.

This NPRM is published under the authority granted to the Secretary of Health and Human Services by section 1102 of the Social Security Act (Act), 42 U.S.C. 1302. Section 1102 of the Act authorizes the Secretary to publish regulations, not inconsistent with the Act, as may be necessary for the efficient administration of the functions with which the Secretary is responsible under the Act.

These revisions are intended to carry out the President's directives in Executive Orders (E.O.) 13771 and 13777. Executive Order 13777 requires each agency to establish a Regulatory Reform Task Force that shall evaluate existing regulations (as defined in section 4 of E.O. 13771) and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law. This rule proposes to eliminate identified regulatory requirements that are outdated and unnecessary. Additionally, this regulation proposes to make a few technical amendments that needed policy adjustments.

The OCSE is proposing to revise the compliance date for Review and adjustment of child support orders in § 303.8(b)(7)(ii). This Federal requirement indicates that the State must, within 15 business days of learning that the noncustodial parent will be incarcerated for more than 180 calendar days, send notices to both parents informing them of the right to request review and, if appropriate, adjustment of the child support order. Currently, the FEM final rule indicates that the compliance date for this Federal requirement is 1 year from the date of publication of the final rule, or December 20, 2017, and if State law changes are needed, the compliance date will be the first day of the second calendar quarter beginning after the close of the first regular session of the State legislature that begins after the effective date of the final rule (January 20, 2017).

However, after issuing the FEM final rule, it was brought to our attention that the compliance date for § 303.8(b)(7)(ii) would be impractical for those States that needed to revise their regulations to prohibit incarceration from being considered voluntary unemployment in accordance to § 302.56(c)(3). As a result, we are amending the compliance date for § 303.8(b)(7)(ii) to add that for those States that consider incarceration to be voluntary unemployment, the compliance date is 1 year after completion of the first quadrennial review of the State's guidelines that commences more than 1 year after publication of the final rule (December 20, 2016).

On February 9, 2018, the President signed the Bipartisan Budget Act of 2018 Public Law (Pub. L.) 115-123. Section 53117 of Public Law 115-123, Modernizing child support enforcement fees, amends Section 454(6)(B)(ii) of the Social Security Act to increase the annual collection fee from $25 to $35. The law also revises the amount from $500 to $550 that the State must collect and disburse to the family before imposing the fee each Federal fiscal year. Additionally, to obtain more timely National Directory of New Hires (NDNH) data, we are proposing in § 303.108(c) to reduce the timeframe to report wage information to the NDNH from the end of the fourth month following the reporting period to the end of the first month following the reporting period, which would align the timeframes for when States must report wage data and unemployment compensation claims data.

The proposed effective date would be 60 days from the date of publication of this final rule. However, we are proposing delayed compliance dates, or the dates that States must comply with the final rule, for the following proposed regulatory changes:

We are inviting comments concerning the proposed effective and compliance dates.

We propose to revise § 302.33(e) because Section 454(6)(B)(ii) of the Social Security Act was amended by Section 53117 of Public Law 115-123, Modernizing Child Support Enforcement Fees. The $25 annual fee was increased to $35. The amount the State must collect and disburse to the family each year before imposing the collection of the annual fee was changed from $500 to $550.

We propose to revise paragraph (b)(9)(ii) to allow case closure when the noncustodial parent is also receiving concurrent Supplemental Security Income (SSI) and Social Security Retirement (SSR) benefits. The rationale for closing concurrent SSI/Social Security Disability Income (SSDI) cases applies equally to concurrent SSI/SSR cases because the noncustodial parent meets the low-income means-tested criteria for the SSI program. The concurrent SSI/SSR noncustodial parent receives no more income than a SSI/SSDI recipient. SSDI and SSR benefits are related in that SSR benefits take the place of SSDI when an individual reaches retirement age.

SSDI benefits are available to individuals who are disabled, have enough work income, and under the age of 65 or retirement age. When an individual turns 65 or retirement age, they become eligible for SSR benefits, which are also based on their work income. A recipient receives concurrent SSI and either SSDI or SSR benefits under title II of the Act when the disabled noncustodial parent qualifies for the means-tested SSI benefits on the basis of his or her income and assets, but also qualifies for the SSDI or SSR benefits. In these cases, the Social Security Administration pays a combination of benefits up to the SSI benefit level. Given that a noncustodial parent who is eligible for concurrent benefits meets the SSI means-tested criteria and receives the same benefit amount as a SSI beneficiary, it is appropriate to close these cases on the same basis as an SSI case.

We propose to remove § 303.71, “Requests for full collection services by the Secretary of the Treasury.” Currently, there are only 23 cases that have been certified under this procedure between 2008 and 2013. Based on the Internal Revenue Service's statute of limitations, they will close a full-collection case after 10 years if there is no payment activity. States have not submitted any new cases for this enforcement procedure since 2013. Because the number of other more effective enforcement procedures available to States has grown, and given that States are no longer widely using this enforcement tool, we propose streamlining the regulations by removing the provision. Because the procedure is statutory, the removal of § 303.71 will not impact a State's ability to use this procedure, pursuant to section 452(b) of the Act, if it so chooses.

We propose to remove § 303.73, “Applications to use the courts of the United States to enforce court orders,” because it is no longer necessary. Sections 452(a)(8) and 460 of the Act permit the use of the courts of the United States, without regard to any amount in controversy, when another State has not undertaken to enforce a court order of an originating State against an absent parent within a reasonable time and the Secretary finds that use of the Federal courts is the only reasonable method of enforcing such order. Federal regulations at § 303.73 prescribe that a State seeking to use the Federal courts to enforce a child support order against an absent parent in another State may apply to the Secretary for permission to use a United States district court for such purpose based on instructions issued by OCSE. This regulation, originally promulgated at 45 CFR 302.72 in 1975, was needed to enforce interstate orders. An Action Transmittal (AT) issued February 6, 1976 (OCSE-AT-76-1) and revised May 12, 1976 (OCSE-AT-76-8) provides guidance for use of Federal courts and instructions to State IV-D agencies for preparation and submission of applications for certification to use a U.S. district court.

However, the “Preventing Sex Trafficking and Strengthening Families Act,” enacted on September 29, 2014 (Pub. L. 113-183), amended section 466(f) of the Social Security Act, requiring all States to enact 2008 amendments to the Uniform Interstate Family Support Act “officially adopted as of September 30, 2008 by the National Conference of Commissioners on Uniform State Laws” (referred to as UIFSA 2008). As a result, UIFSA 2008 makes this requirement obsolete since it establishes procedures for enforcing interstate orders. UIFSA 2008 defines a tribunal as a court, administrative agency, or quasi-judicial entity authorized to establish, enforce, or modify support orders or to determine parentage of a child. UIFSA also establishes rules/standards related to personal, subject matter, and long-arm jurisdiction and establishes procedures on registering/enforcing foreign orders.

Section 453A(g)(2)(B) of the Act, requires that the State Directory of New Hires shall, on a quarterly basis, furnish to the NDNH information concerning the wages and unemployment compensation paid to individuals, by such dates, in such format, and containing such information as the Secretary of Health and Human Services shall specify in regulations. In accordance with § 303.108(c), the State must report quarterly wage information no later than the end of the fourth month following the reporting period. However, the State reports quarterly unemployment compensation claim information no later than the end of the first month following the reporting period.

We propose to revise § 303.108(c) to reduce the timeframe for reporting quarterly wage data to the end of the first month following the reporting period. This will align the time frames for when States must report wage data and unemployment compensation claims data to the NDNH and help ensure State child support programs receive data more timely to locate parents and to establish and enforce support orders and medical support orders.

We propose to revise paragraph (c)(3) as a technical correction to the FEM final rule to include noncustodial parents who receive concurrent Supplemental Security Income (SSI) and Social Security Retirement (SSR) benefits under title II of the Act. Additionally, we are adding “or through an income withholding order” so the State should be preventing garnishment from the noncustodial parent's financial accounts or through an income withholding order. In other words, if a noncustodial parent is receiving concurrent SSI and either SSDI or SSR benefits, the State should not be sending an income withholding order directing the Social Security Administration to garnish the SSDI or SSR portion of the concurrent benefits.

As we indicated under the Case closure criteria section (§ 303.11), a recipient receives concurrent SSI and either SSDI or SSR benefits under title II of the Act when the disabled noncustodial parent qualifies for the means-tested SSI benefits on the basis of his or her income and assets, but also qualifies for the SSDI or SSR benefits. In these cases, the Social Security Administration pays a combination of benefits up to the SSI benefit level. Given that a noncustodial parent who is eligible for concurrent benefits meets the SSI means-tested criteria and receives the same benefit amount as a SSI beneficiary, it is appropriate that neither the SSDI nor the SSR benefit is garnished by the State through either an income withholding order or from his or her financial accounts. However, if the noncustodial parent only receives a SSDI or SSR benefit, the State child support agency may continue to garnish these benefits.

Likewise, we are making similar changes to paragraph (c)(3)(ii). If the State incorrectly garnishes a noncustodial parent concurrent benefits from SSI and either SSDI or SSR either from his or her financial account or directly through an income withholding order, the State must promptly return the monies within 5 business days after the State becomes aware that the noncustodial parent was receiving concurrent SSI and either SSDI or SSR benefits.

We propose to remove § 307.30 because this section is outdated. We no longer have the authority to provide enhanced Federal financial participation (FFP) funding at the 90 percent rate for statewide computerized support enforcement systems. The 90 percent enhanced funding was only available for expenditures for the planning, design, development, installation, or enhancement of a statewide computerized support enforcement system during the Federal fiscal years 1996 and 1997.

We propose to remove § 307.31 because this section is outdated. We no longer have the authority to provide enhanced FFP funding at the 80 percent rate for statewide computerized support enforcement systems. The 80 percent enhanced funding was only available for expenditures for the planning, design, development, installation, or enhancement of a statewide computerized support enforcement system until September 30, 2001.

We propose to revise § 309.20(b) to remove an outdated address.

An Interim Final Rule effective December 26, 2014 (79 FR 75871), issued jointly by the Office of Management and Budget (OMB), HHS, and a number of Federal agencies, implements final guidance regarding “Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards” (Uniform Guidance). We are revising the reference regarding OMB Circular A-133, which was superseded by the Uniform Guidance effective December 26, 2014 (79 FR 75871), to the updated reference 45 CFR part 75, subpart F.

We are revising the reference in § 309.155(g) regarding OMB Circular A-87, which was superseded by the Uniform Guidance effective December 26, 2014 (79 FR 75871) to the updated reference 45 CFR part 75, subpart E.

No new information collection requirements are imposed by these regulations, nor are any existing requirements changed as a result of their promulgation. Therefore, the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), regarding reporting and record keeping, do not apply.

The Secretary certifies that, under 5 U.S.C. 605(b), as enacted by the Regulatory Flexibility Act (Pub. L. 96-354), this rule will not result in a significant impact on a substantial number of small entities. The primary impact is on State governments. State governments are not considered small entities under the Act.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. ACF consulted with the OMB and determined that this rule does meet the criteria for a significant regulatory action under E.O. 12866. Thus, it was subject to OMB review. ACF determined that the costs to title IV-D agencies as a result of this rule will not be significant as defined in E.O. 12866 (have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities). Because the rule is not economically significant as defined in E.O. 12866, no cost-benefit analysis needs to be included in this NPRM. This proposed rule, if finalized as proposed, would be considered an E.O. 13771 deregulatory action.

The Unfunded Mandates Reform Act (Pub. L. 104-4) requires agencies to prepare an assessment of anticipated costs and benefits before proposing any rule that may result in an annual expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation). That threshold level is currently approximately $150 million. This proposed rule does not impose any mandates on State, local, or tribal governments, or the private sector that will result in an annual expenditure of $146 million or more.

This regulation is not a major rule as defined in 5 U.S.C. chapter 8.

Section 654 of the Treasury and General Government Appropriations Act of 1999 requires Federal agencies to determine whether a proposed policy or regulation may affect family well-being. If the agency's determination is affirmative, then the agency must prepare an impact assessment addressing seven criteria specified in the law. This regulation makes technical changes in the child support regulations. This regulation will not have an adverse impact on family well-being as defined in the legislation.

Executive Order 13132 prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on State and local governments and is not required by statute, or the rule preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This rule does not have federalism impact as defined in the Executive Order.

For the reasons set forth in the preamble, we propose to amend 45 CFR Chapter III, as set follows:

The revision reads as follows:

Public Participation and Comments

We encourage you to submit comments (or related material) on the draft Merchant Mariner Medical Manual. We will consider all submissions and may adjust our final action based on your comments. If you submit a comment, please include the docket number for this notice, indicate the specific section of the document to which each comment applies, and provide a reason for each suggestion or recommendation.

We encourage you to submit comments through the Federal eRulemaking Portal at http://www.regulations.gov. If your material cannot be submitted using http://www.regulations.gov, contact the person in the FOR FURTHER INFORMATION CONTACT section of this document for alternate instructions. Documents mentioned in this notice, and all public comments, will be posted in our online docket at http://www.regulations.gov and can be viewed by following that website's instructions. Additionally, if you go to the online docket and sign up for email alerts, you will be notified when comments are posted or the Coast Guard publishes any additional documents related to this notice of availability.

We accept anonymous comments. All comments received will be posted without change to http://www.regulations.gov and will include any personal information you have provided. For more about privacy and the docket, you may review a Privacy Act notice regarding the Federal Docket Management System in the March 24, 2005, issue of the Federal Register (70 FR 15086).

We issued a Notice of Availability of the Draft Merchant Mariner Medical Manual on November 13, 2018 (83 FR 56272). We received requests from commenters asking for additional time for the comment period. We have decided to grant the extension to provide a greater opportunity for the public to review and provide their comments. With this extension, the total length of the public comment period will now be 90 days.

This notice is issued under the authority of 5 U.S.C. 552(a), 46 U.S.C. 7101, and 46 U.S.C. 7302.